Processa Pharmaceuticals(PCSA) - 2021 Q2 - Quarterly Report

PART 1: FINANCIAL INFORMATION Financial Statements The unaudited statements show increased assets to $31.1 million, a higher net loss of $5.3 million, and $9.9 million raised from financing Condensed Consolidated Balance Sheets Total assets grew to $31.1 million driven by cash, while stockholders' equity increased to $29.2 million Balance Sheet Highlights (Unaudited) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $20,831,195 | $15,416,224 | | Total Current Assets | $22,565,726 | $16,202,686 | | Total Assets | $31,137,959 | $25,214,389 | | Liabilities & Equity | | | | Total Current Liabilities | $1,161,177 | $1,220,952 | | Total Liabilities | $1,896,267 | $2,274,911 | | Total Stockholders' Equity | $29,241,692 | $22,939,478 | Condensed Consolidated Statements of Operations The company's net loss widened to $5.3 million for the six months ended June 30, 2021, due to higher operating expenses Statement of Operations Summary (Unaudited) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Research and development expenses | $3,086,401 | $928,855 | | General and administrative expenses | $2,051,073 | $859,255 | | Operating Loss | ($5,653,104) | ($1,788,110) | | Net Loss | ($5,256,523) | ($1,607,750) | | Net Loss per Share (Basic & Diluted) | ($0.35) | ($0.29) | Condensed Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity rose to $29.2 million, primarily from a $9.9 million private placement offsetting the net loss - In the first six months of 2021, the company issued 1,321,132 shares in a private placement, raising net proceeds of $9,875,550[14] - Total stockholders' equity increased to $29,241,692 as of June 30, 2021, up from $22,939,478 at the start of the year[14] Condensed Consolidated Statements of Cash Flows Net cash used in operations increased to $4.4 million, while financing activities provided $9.9 million in cash Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,437,494) | ($897,029) | | Net cash provided by financing activities | $9,852,465 | $658,147 | | Net Increase (Decrease) in Cash | $5,414,971 | ($238,882) | | Cash and Cash Equivalents – End of Period | $20,831,195 | $452,654 | Notes to Condensed Consolidated Financial Statements Notes detail the company's drug pipeline, a new license agreement, a $9.9 million private placement, and PPP loan forgiveness - The company is a clinical-stage biopharmaceutical company with five drugs in development: PCS499, PCS12852, PCS3117, PCS6422, and PCS11T[19] - On June 16, 2021, the company executed a license agreement with Ocuphire Pharma, Inc for PCS3117, issuing 44,689 shares of common stock and paying $200,000 in cash[38][39] - The company has an accumulated deficit of approximately $30.7 million as of June 30, 2021, but believes its cash balance is adequate to fund operations well into 2023[23] - In February 2021, the company received full forgiveness for its $162,459 Paycheck Protection Program (PPP) loan[49] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its clinical-stage drug pipeline, increased R&D and G&A expenses, and sufficient liquidity through 2023 Overview and Drug Pipeline The company is advancing a five-drug pipeline, with two candidates recently enrolling patients in Phase 2B and 1B trials - The company's strategy is to develop drugs that have already shown some clinical proof-of-concept, targeting indications where the FDA might allow for a single pivotal study[64][66] Drug Pipeline and Key Milestones | Drug | Indication | Current Phase | Key Milestones | | :--- | :--- | :--- | :--- | | PCS499 | Ulcerative Necrobiosis Lipoidica | Phase 2B | First patient enrolled May 2021; Interim analysis expected 1H'22 | | PCS12852 | Gastroparesis | Pre-Phase 2A | IND submission planned for Q3'21; Phase 2A trial to begin 1H'22 | | PCS3117 | Pancreatic, Non-Small Cell Lung Cancer | Pre-Phase 2B | Licensed June 2021; Biomarker assay development ongoing; Phase 2B to start 2H'22 | | PCS6422 | GI Tract Tumors | Phase 1B | First patient enrolled August 2, 2021; MTD determination expected 2H'22 | | PCS11T | Various Cancers | Pre-clinical | IND submission planned for 2H'22 or 1H'23 | Results of Operations Net loss increased to $5.3 million in the first half of 2021, driven by higher R&D and G&A expenses Comparison of Operating Expenses (Six Months Ended June 30) | Expense Category | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Research and development | $3,086,401 | $928,855 | +$2,157,546 | | Acquisition of in-process R&D | $515,630 | $0 | +$515,630 | | General and administrative | $2,051,073 | $859,255 | +$1,191,818 | - The increase in R&D expenses was primarily due to costs associated with commencing the Phase 2B trial for PCS499 and the Phase 1B trial for PCS6422[110][111] - The increase in G&A expenses was mainly due to higher professional fees ($619,768) and payroll-related costs ($669,081), including a significant increase in stock-based compensation[118] Liquidity and Capital Resources The company's liquidity, bolstered by a $9.9 million private placement, is deemed sufficient to fund operations into 2023 - On February 24, 2021, the company closed a private placement for gross proceeds of $10.2 million, resulting in net proceeds of $9.9 million[127] - The company had $20,831,195 in cash as of June 30, 2021, and believes this is adequate to fund operations well into 2023[127][128] - Net cash used in operating activities increased to $4.4 million for the first six months of 2021, up from $0.9 million in the same period of 2020[123][124] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Item 3 is not applicable to the company as it qualifies as a smaller reporting company[138] Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2021, due to ongoing material weaknesses - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[139] - Material weaknesses identified in the 2020 Form 10-K, including inadequate segregation of duties, continued to be present at June 30, 2021[140] - Remediation actions have begun, including implementing changes to cash disbursement controls like a central accounts payable email and an electronic invoice approval process[141] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - As of the reporting date, the company is not involved in any material legal proceedings[143] Risk Factors No material changes have been made to the risk factors disclosed in the 2020 Annual Report on Form 10-K - No material changes have occurred to the risk factors as described in the Annual Report on Form 10-K for the year ended December 31, 2020[144] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 44,689 shares of common stock in a private transaction exempt from registration - On June 16, 2021, the company issued 44,689 shares of common stock to Ocuphire Pharma, Inc in a transaction exempt from registration requirements[145] Defaults Upon Senior Securities The company reports no defaults upon its senior securities - None[149] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[150] Other Information No other information was required to be disclosed during the period - None[151] Exhibits The report lists filed exhibits, including a key license agreement and officer certifications - Exhibits filed with the report include the Ocuphire Pharma license agreement, CEO/CFO certifications, and XBRL data[152]