ITEM
1: FINANCIAL STATEMENTS
Processa
Pharmaceuticals, Inc.
Condensed
Consolidated Balance Sheets
(Unaudited)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Processa
Pharmaceuticals, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Processa
Pharmaceuticals, Inc.
Condensed
Consolidated Statements of Changes in Stockholders’ Equity
Three
and Nine Months Ended September 30, 2021 and 2022
(Unaudited)
| |
| | |
Additional | | |
| | |
| | |
| |
| |
Common Stock | | |
Paid-In | | |
Treasury Stock | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Total | |
Balance at January 1, 2022 | |
| 15,710,246 | | |
$ | 1,571 | | |
$ | 62,306,861 | | |
| - | | |
$ | - | | |
$ | (36,823,332 | ) | |
$ | 25,485,100 | |
Stock-based compensation | |
| 103,670 | | |
| 10 | | |
| 828,887 | | |
| - | | |
| - | | |
| - | | |
| 828,897 | |
Acquisition of treasury stock | |
| - | | |
| - | | |
| - | | |
| (100,000 | ) | |
| (300,000 | ) | |
| - | | |
| (300,000 | ) |
Shares issued in connection with the Purchase Agreement with Lincoln Park | |
| 123,609 | | |
| 12 | | |
| 449,988 | | |
| - | | |
| - | | |
| - | | |
| 450,000 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,227,131 | ) | |
| (3,227,131 | ) |
Balance, March 31, 2022 | |
| 15,937,525 | | |
| 1,593 | | |
| 63,585,736 | | |
| (100,000 | ) | |
| (300,000 | ) | |
| (40,050,463 | ) | |
| 23,236,866 | |
Stock-based compensation and forfeitures | |
| (18,208 | ) | |
| (1 | ) | |
| 2,009,370 | | |
| - | | |
| - | | |
| - | | |
| 2,009,369 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,164,368 | ) | |
| (5,164,368 | ) |
Balance, June 30, 2022 | |
| 15,919,317 | | |
| 1,592 | | |
| 65,595,106 | | |
| (100,000 | ) | |
| (300,000 | ) | |
| (45,214,831 | ) | |
| 20,081,867 | |
Stock-based compensation and forfeitures | |
| 86,888 | | |
| 9 | | |
| 3,213,806 | | |
| - | | |
| - | | |
| - | | |
| 3,213,815 | |
Shares withheld to pay income taxes on stock-based compensation | |
| (11,118 | ) | |
| (1 | ) | |
| (35,246 | ) | |
| - | | |
| - | | |
| - | | |
| (35,247 | ) |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,020,410 | ) | |
| (6,020,410 | ) |
Balance, September 30, 2022 | |
| 15,995,087 | | |
$ | 1,600 | | |
$ | 68,773,666 | | |
| (100,000 | ) | |
$ | (300,000 | ) | |
$ | (51,235,241 | ) | |
$ | 17,240,025 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Processa
Pharmaceuticals, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Processa
Pharmaceuticals, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 – Organization and Summary of Significant Accounting Policies
Business
Activities and Organization
We
are a diversified clinical-stage biopharmaceutical company focused on the development
of drug products that are intended to provide treatment for patients who have a high unmet medical need condition that affects
survival or the patient’s quality of life and for which few or no treatment options currently exist. We currently have five
drugs in our pipeline: four in various stages of clinical development (Next Generation Capecitabine previously
identified as PCS6422, PCS12852, PCS499, and PCS3117) and one in
nonclinical development (PCS11T). A summary of each drug is provided below.
|
● |
Next
Generation Capecitabine (NGC), previously identified as PCS6422, is a combination of PCS6422
and the FDA-approved cancer drug capecitabine. PCS6422 is an orally administered irreversible
inhibitor of the enzyme dihydropyrimidine dehydrogenase (DPD). DPD metabolizes 5-Fluorouracil
(5-FU), the major metabolite of capecitabine and widely used itself as an intravenous chemotherapeutic
agent in many types of cancer, to multiple metabolites classified as catabolites. These catabolites
do not have any cancer-killing properties but do cause dose-limiting side effects that may
require dose adjustments or discontinuation of therapy.
When
combining capecitabine with PCS6422 in NGC, capecitabine becomes a more potent cancer chemotherapy agent than current FDA-approved capecitabine
requiring significantly lower doses. On August 2, 2021, we enrolled the first patient in our Phase 1B dose-escalation maximum tolerated
dose trial in patients with advanced refractory gastrointestinal (GI) tract tumors. Our interim analysis of Cohorts 1 and 2A found no
dose-limiting toxicities (DLTs), no drug-related adverse events greater than Grade 1, and no hand-foot syndrome, a major side effect
found with the catabolites of 5-FU. In this Phase 1B trial it was demonstrated that the irreversible inhibition of DPD by PCS6422 could
alter the elimination of 5-FU making NGC significantly more potent (greater than 50 times more potent) and potentially lead to higher
levels of the group of metabolites called anabolites which can kill replicating cancer and normal cells. By administering NGC to cancer
patients, the balance between anabolites and catabolites changes depending on the dosage regimens of PCS6422 and capecitabine used, making
the efficacy-safety profile of NGC different than that of FDA-approved capecitabine and requiring further evaluation of the PCS6422 and
capecitabine regimens to determine the optimal NGC regimens for patients.
In
order for NGC to provide a safer and more efficacious profile for cancer patients compared to existing chemotherapy, understanding how
the different regimens of PCS6422 and capecitabine may affect the systemic and tumor exposure to the anabolites, as well as the systemic
exposure to the catabolites, is required. This can be achieved by following the timeline of DPD irreversible inhibition and the formation
of new DPD using the plasma concentrations of 5-FU and its catabolites.
In
an effort to better estimate the timeline of DP inhibition and formation of new DPD, we modified the protocol for the Phase 1B trial
and began enrolling patients in the amended Phase 1B trial in April 2022. On November 1, 2022, we announced that data from the Phase
1B trial identified multiple dosage regimens with potentially better safety and efficacy profiles than currently existing chemotherapy
regimens. Since 5-FU exposure is dependent on both the PCS6422 regimen and the capecitabine regimen, safe regimens were identified as
well as regimens that cause DLTs. One regimen in the Phase 1B trial did cause DLTs in 2 patients, one of whom died. The Phase 1B study
is continuing to enroll patients and is expected to complete enrollment in the first half of 2023. The next study will be a Phase 2B
trial to determine which regimens provide an improved efficacy-safety profile over present therapy using the principles of the FDA’s
Oncology Project Optimus initiative to help guide the design of the trial. This FDA initiative requires us to consider NGC regimens that
are not at the maximum tolerated dose or exposure level. In 2023, we plan to meet with FDA to discuss the design of our Phase 2B trial
and initiate the trial. |
|
|
|
|
● |
PCS12852
is a highly specific and potent 5HT4 agonist which has already been evaluated in clinical
studies in South Korea for gastric emptying and gastrointestinal motility in healthy volunteers
and volunteers with a history of constipation. In October 2021, the FDA cleared our IND application
to proceed with a Phase 2A trial for the treatment of gastroparesis. We enrolled our first
patient on April 5, 2022, and completed enrollment of the trial on September 2, 2022. Early
results from this Phase 2A study which included 25 patients with moderate to severe gastroparesis,
demonstrated improvements in gastric emptying in patients receiving 0.5 mg of PCS12852 as
compared to placebo, and statistical significance was shown at p < 0.10 even though there
were only a total of 14 patients in the 0.5 mg and placebo groups of this study. The mean
(±SD) t50 change from baseline was decreased for 0.5 mg of PCS12852 compared
with placebo by -31.90 ± 50.53 min vs -9.36 ±42.43 min, respectively. Differences
were not observed between the placebo and the 0.1 mg dose. Adverse events associated with
the administration of PCS12852 were generally mild to moderate as expected, occurred within
the first few days after administration, and quickly resolved without any sequelae. There
were no clinically significant cardiovascular safety events or serious adverse events (SAEs)
reported during the study. Additional data from the study will be available at the end of
2022 and we plan to initiate a Phase 2B study in 2023. |
|
● |
Our pipeline drug to treat unmet medical
need conditions caused by multiple pathophysiological changes in a patient is PCS499. PCS499 is an oral tablet of the deuterated analog
of one of the major metabolites of pentoxifylline (PTX or Trental®). We completed a Phase 2A trial for PCS499 in patients with ulcerative
and non-ulcerative necrobiosis lipoidica (NL) in late 2020, and in May 2021 we enrolled the first patient in our Phase 2B trial for the
treatment of ulcerative NL. Based on our current enrollment, we expect to complete our interim analysis and complete enrollment of the
Phase 2B trial during the first half of 2023; and, depending on the results, begin a pivotal Phase 3 trial in late 2023 or 2024. We have
experienced delays in the enrollment of patients for this trial due in part to COVID-19 and the ultra-rare nature of this disease. As
a result, we have initiated a number of recruitment programs to increase the enrollment of patients in this study and continue to evaluate
additional options to meet our overall trial enrollment goals. |
|
● |
PCS3117
is a cytosine analog that is similar to gemcitabine (Gemzar®), but different enough in
chemical structure that some patients are more likely to respond to PCS3117 than gemcitabine.
The difference in response occurs because PCS3117 is metabolized to its active metabolite
through a different enzyme system gemcitabine. We continue to evaluate the potential use
of PCS3117 in patients with pancreatic cancer and to evaluate ways to identify patients who
are more likely to respond to PCS3117 than gemcitabine. We anticipate initiating a Phase
2B trial or adaptive designed Phase 3 trial in 2023 subject to meeting with FDA and obtaining
additional funding. |
|
|
|
|
● |
PCS11T
is an analog of SN38 (SN38 being the active metabolite of irinotecan) and a next generation irinotecan drug for multiple types of
cancers. The manufacturing process and sites for drug substance and drug product are presently being evaluated. In addition, we are
defining the potential paths to approval, which include defining the targeted patient population and the type of cancer. We hope
to submit an IND in 2024, followed by a Phase 1B maximum tolerated dose trial. |
Impact
of COVID-19
The
COVID-19 pandemic continues to create uncertainties in expected timelines by causing delays in clinical trials and disruptions in
the supply chain for raw materials used in clinical trial work. We
have experienced delays in the enrollment of patients in our PCS499 Phase 2B trial due to COVID-19 and the rareness of the disease.
Some potential patients died from COVID-19 prior to screening and others continue to be reluctant to travel to our testing sites for
fear of contracting COVID-19. Delays in enrollment lengthen the time of studies and increase their costs, which could
materially impact our business in future periods. While we are hopeful the infection rate of COVID-19 will continue to
decline, we cannot predict the future impact COVID-19 will have on our current and future clinical trials and continued delays could
materially impact our business in future periods and further extend our timelines. For more
information on the risks associated with COVID-19, refer to Part I, Item 1A, “Risk Factors” included in our Annual
Report on Form 10-K for the year ended December 31, 2021.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions of the
Securities and Exchange Commission (“SEC”) on Form 10-Q and Article 8 of Regulation S-X.
Accordingly,
they do not include all the information and disclosures required by U.S. GAAP for complete financial statements. All material intercompany
accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our
financial position and of the results of operations and cash flows for the periods presented. These condensed consolidated financial
statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2021, as filed with the SEC. The results of operations for the interim periods shown in this report
are not necessarily indicative of the results that may be expected for any other interim period or for the full year.
Liquidity
We
have incurred losses since inception, devoting substantially all of our efforts toward moving the drugs in our pipeline through the
regulatory process and other research and development activities, and have an accumulated deficit of approximately $51.2
million as of September 30, 2022. During the nine months ended September 30, 2022, we generated a net loss of approximately $14.4
million, of which $7.0
million represented non-cash expenses. Net cash used in our operating activities during the nine months ended September 30, 2022 was
approximately $7.1
million. We expect to continue to generate operating losses and negative cash flow from operations for the foreseeable future. Based
on our current plans, we believe our current cash balances along with the amounts available under the Purchase Agreement with
Lincoln Park (see below and Note 3) are adequate for at least the next twelve months. Our ability to execute our longer-term
operating plans, including unplanned future clinical trials for our portfolio of drugs depend on our ability to obtain additional
funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue
to actively pursue financing alternatives, but there can be no assurance that we will obtain the necessary funding in the future
when needed.
We
had no revenue during the nine months ended September 30, 2022 and do not have any revenue under contract or any immediate sales prospects.
Our primary uses of cash are to fund our active clinical trials, research and development expenditures and operating expenses. Cash used
to fund operating expenses is impacted by the timing of when we incur and pay these expenses.
On
August 20, 2021, we entered into an equity distribution agreement (the “Sales Agreement”) with Oppenheimer & Co.
Inc. under which we may issue and sell in a registered “at-the-market” offering shares of our common stock having an
aggregate offering price of up to $30.0
million from time to time through or to our Sales Agent (the “ATM Offering”). We also expect to use net proceeds from
any future ATM Offering as a source for working capital and general corporate purposes. The shares under the ATM Offering will be
sold and issued pursuant to our S-3 shelf registration statement (Registration No. 333-257588) filed on July 30, 2021. See Note 3
for additional details concerning the ATM Offering.
On
March 23, 2022, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”) under which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase
up to $15.0 million of our shares of common stock, subject
to the terms and conditions in the Purchase Agreement. We expect to use the proceeds from this Purchase Agreement as the source
for working capital and general corporate purposes. See Note 3 for additional details concerning
the Purchase Agreement.
Use
of Estimates
In
preparing our condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and
regulations of the SEC, we make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements
and accompanying notes. Estimates are used for, but not limited to preclinical and clinical trial expenses, stock-based compensation,
intangible assets, future milestone payments and income taxes. These estimates and assumptions are continuously evaluated and are based
on management’s experience and knowledge of the relevant facts and circumstances. While we believe the estimates to be reasonable,
actual results could differ materially from those estimates and could impact future results of operations and cash flows.
Income
Taxes
We
account for income taxes in accordance with ASC Topic 740, Income Taxes. Deferred income taxes are recorded for the expected
tax consequences of temporary differences between the basis of assets and liabilities for financial reporting purposes and amounts
recognized for income tax purposes. As of September 30, 2022 and December 31, 2021, we recorded a valuation allowance equal to the
full recorded amount of our net deferred tax assets since it is more-likely-than-not that benefits from our deferred tax assets will
not be realized. The valuation allowance is reviewed quarterly and is maintained until sufficient positive evidence exists to
support its reversal. As part of an evaluation of our tax attributes, we recharacterized approximately
$2 million of startup costs previously capitalized as an IRC Section 195 asset as net operating losses. The recharacterization has no
impact on total deferred tax assets since we had previously and will continue to provide a full valuation allowance on our unutilized net deferred tax assets.
Under
ACS 740-270 Income Taxes – Interim Reporting, we are required to project our annual federal and state effective income tax
rate and apply it to the year-to-date ordinary operating tax basis loss before income taxes. Based on the projection, we recognized the
tax benefit from our projected ordinary tax loss, which was used to offset the deferred tax liabilities related to the intangible asset
and resulted in the recognition of a deferred tax benefit shown in the condensed consolidated statements of operations for three and
nine months ended September 30, 2021. No current income tax benefit or expense was recorded or is expected for 2022 or in the foreseeable
future since the deferred tax liability was offset completely as of December 31, 2021 and we expect to generate future taxable net
operating losses.
Concentration
of Credit Risk
Financial
instruments that potentially subject us to significant concentration of credit risk consist primarily of our cash and cash equivalents.
We utilize only well-established banks and financial institutions with high credit ratings. Balances on deposit are insured by the Federal
Deposit Insurance Corporation (FDIC) up to specified limits. Total cash held by our banks at September 30, 2022 exceeded FDIC limits.
Recent
Accounting Pronouncements
From
time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements.
Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”).
We have implemented all new accounting pronouncements that are in effect and that may impact our condensed consolidated financial statements.
We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our condensed consolidated
financial position or results of operations.
Note
2 – Intangible Assets
Intangible
assets at September 30, 2022 and December 31, 2021 consisted of the following:
Summary of Intangible Assets
| |
September 30, 2022 | | |
December 31, 2021 | |
Gross intangible assets | |
$ | 11,059,429 | | |
$ | 11,059,429 | |
Less: accumulated amortization | |
| (3,594,163 | ) | |
| (3,002,791 | ) |
Total intangible assets, net | |
$ | 7,465,266 | | |
$ | 8,056,638 | |
Gross
intangible assets consist primarily of costs we capitalized when we acquired the license rights to PCS499 in 2018. Amortization expense
was $197,124 and $195,700 for the three months ended September 30, 2022 and 2021, and $591,372 and $593,365 for the nine months ended
September 30, 2022 and 2021, respectively, and is included within research and development expense in the accompanying condensed consolidated
statements of operations. As of September 30, 2022, our estimated amortization expense for the year ended December 31, 2022 and for annual
periods thereafter until the asset is fully amortized is approximately $788,000.
Note
3 – Stockholders’ Equity
Preferred
Stock
There
were no issued or outstanding shares of preferred stock at either September 30, 2022 or December 31, 2021.
Common
Stock
Increase
in Our Authorized Number of Shares
On
January 1, 2022, we amended our Certificate of Incorporation to increase the number of authorized shares of our common stock from 30,000,000
to 50,000,000.
ATM
Offering
On
August 20, 2021, we entered into the Sales Agreement with the Sales Agent under which we may issue and sell up to $30.0 million of our
common stock from time to time under the ATM Offering. We expect to use net proceeds from the ATM Offering over time as a source for
working capital and general corporate purposes. We did not sell any shares during the nine months ended September 30, 2022.
Lincoln
Park Capital Fund, LLC Purchase Agreement
On
March 23, 2022, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up
to $15.0
million of shares (the
“Purchase Shares”) of our common stock, subject to the terms and conditions in the Purchase Agreement. We issued 123,609
shares of common stock
(valued at $450,000)
to Lincoln Park as a commitment fee in connection with entering into the Purchase Agreement and agreed to reimburse Lincoln Park $25,000
for fees incurred in
connection with the Purchase Agreement. Concurrent with entering into the Purchase Agreement, we also entered into a registration rights
agreement with Lincoln Park (the “Registration Rights Agreement”), pursuant to which we agreed to take certain actions relating
to the registration under the Securities Act of 1933, as amended, of the offer and sale of the shares of common stock available for issuance
under the Purchase Agreement.
We have the right to present Lincoln Park with a purchase notice (a “Regular Purchase Notice”), directing
Lincoln Park to purchase up to 25,000 Purchase Shares (the “Regular Purchase Amount”) provided that the closing sale price
of the common stock on the purchase date is not below a threshold price set forth in the Purchase Agreement (a “Regular Purchase”).
The Regular Purchase Amount may be increased to up to 75,000 shares if the closing sale price of our common stock on the applicable purchase
date equals or exceeds certain higher threshold prices set forth in the Purchase Agreement. We and Lincoln Park may mutually agree to
increase the Regular Purchase Amount with respect to any Regular Purchase under the Purchase Agreement, provided that Lincoln Park’s
maximum committed purchase obligation under any single Regular Purchase shall not exceed $1,250,000. The above-referenced share amount
limitations and closing sale price thresholds are subject to adjustment for any reorganization, recapitalization, non-cash dividend,
stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement. The purchase price per share for
each Regular Purchase will be based on prevailing market prices of the common stock immediately preceding the time of sale as computed
in accordance with the terms set forth in the Purchase Agreement. There are no upper limits on the price per share that Lincoln Park
must pay for shares of common stock under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations
under the Purchase Agreement.
The
aggregate number of shares that we can issue to Lincoln Park under the Purchase Agreement may not exceed 3,142,430 shares (subject to
proportional adjustments for stock splits, reverse stock splits and similar events as described above), which is equal to 19.99% of the
outstanding shares of common stock immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless
(i) stockholder approval is obtained to issue shares of common stock in excess of the Exchange Cap, in which case the Exchange Cap will
no longer apply, or (ii) the average price of all sales of Purchase Shares to Lincoln Park under the Purchase Agreement equals or exceeds
the lower of (i) the Nasdaq official closing price immediately preceding the execution of the Purchase Agreement or (ii) the arithmetic
average of the five Nasdaq official closing prices for the common stock immediately preceding the execution of the Purchase Agreement,
plus an incremental amount to take into account the issuance of the commitment shares to Lincoln Park under the Purchase Agreement, such
that the transactions contemplated by the Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules.
In all instances, we may not sell shares of our common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln
Park beneficially owning more than 9.99% of the outstanding shares of common stock.
We
may terminate the Purchase Agreement at any time, at our sole discretion, without any cost or penalty, by giving one business day notice
to Lincoln Park to terminate the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any
direct or indirect short selling or hedging of the common stock.
There
are no limitations on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on
our ability to enter into variable rate transactions described in the Purchase Agreement), rights of first refusal, participation rights,
penalties or liquidated damages in the Purchase Agreement. We may deliver Purchase Notices under the Purchase Agreement, subject to market
conditions, and in light of our capital needs from time to time and under the limitations contained in the Purchase Agreement. Any proceeds
that we receive under the Purchase Agreement are expected to be used for working capital and general corporate purposes.
Repurchase
of Shares from Aposense, Ltd.
On
March 29, 2022, we purchased 100,000 shares of our common stock from Aposense Ltd. for $300,000 in a private transaction and
are holding these shares as treasury stock until they are reissued or retired at the discretion of our Board of Directors.
Note
4 - Stock-based Compensation
The
Processa Pharmaceuticals Inc. 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) allows us to make grants of stock options, restricted and unrestricted stock and other stock-based
awards to employees, including our executive officers, consultants and directors. The 2019 Plan originally provided for the aggregate
issuance of 3,000,000
shares of our common
stock. On July 11, 2022, our shareholders approved an increase in the aggregate number of shares of our common stock available for issuance
under our 2019 plan by 3,000,000
shares to 6,000,000
shares in total. As
of September 30, 2022, 2,430,146
shares were available
for future grants.
Stock
Compensation Expense
We
recorded stock-based compensation expense for the three and nine month periods ended September 30, 2022 and 2021 as follows:
Schedule of Stock-based Compensation Expense
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Research and development | |
$ | 1,067,613 | | |
$ | 274,146 | | |
$ | 1,945,113 | | |
$ | 519,284 | |
General and administrative | |
| 2,146,202 | | |
| 840,095 | | |
| 4,106,968 | | |
| 1,768,579 | |
Total | |
$ | 3,213,815 | | |
$ | 1,114,241 | | |
$ | 6,052,081 | | |
$ | 2,287,863 | |
No
tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred
tax assets relating to this expense.
Stock
Options
No
stock options were granted, cancelled or forfeited during the nine months ended September 30, 2022. As of September 30, 2022, we had fully
vested outstanding options for the purchase of 178,496 shares with a weighted average exercise price of $17.07 and a weighted average
remaining contractual life of 2.8 years.
Restricted
Stock Awards
Activity
in our Restricted Stock Awards (“RSAs”) during the nine months ended September 30, 2022 was as follows:
Schedule of Information About RSA Outstanding
| |
Number of shares | | |
Weighted- average grant-date fair value per share | |
Outstanding at January 1, 2022 | |
| 91,109 | | |
$ | 7.74 | |
Awarded | |
| 187,058 | | |
| 3.71 | |
Forfeited | |
| (29,326 | ) | |
| 5.37 | |
Issued | |
| (119,829 | ) | |
| 5.66 | |
| |
| | | |
| | |
Outstanding at September 30, 2022 | |
| 129,012 | | |
$ | 4.37 | |
As
of September 30, 2022, unrecognized stock-based compensation expense of approximately $296,000 for RSAs is expected to be fully recognized
over 0.92 years.
During
the nine months ended September 30, 2022, we granted and issued RSAs for 59,766
shares of our common
stock to consultants for services to be provided in 2022. These RSAs had a cumulative fair market value of $196,500
on the dates of grant
and were expensed as stock-based compensation. We also granted RSAs for 109,720
shares of our common
stock to our directors for their 2022 service which had a fair market value of $378,000
on the dates of grant.
Additionally, on March 31, 2022, we issued 17,572
shares of our common
stock to our directors in satisfaction of the $120,000
of directors’
fees we had accrued at December 31, 2021. On May 31,
2022, a director did not seek reelection and forfeited the RSAs for 18,208
shares of our common stock related to their 2022
service. On August 5, 2022, RSAs for 53,609 shares of common stock vested. Of these, 42,491 were issued and 11,118 shares were
withheld to pay for federal, state and local income taxes.
We did not cancel any RSAs during the nine months ended September 30, 2022. Unvested RSAs representing
67,124 shares are expected to vest in the fourth quarter of 2022, 49,388 shares are expected to vest in 2023, and the remainder are expected
to vest in 2024.
Restricted
Stock Units
Activity
in our Restricted Stock Units (“RSUs”) during the nine months ended September 30, 2022 was as follows:
Schedule of Information About RSU Outstanding
| |
Number of shares | | |
Weighted- average grant-date fair value per share | |
Outstanding at January 1, 2022 | |
| 439,593 | | |
$ | 7.76 | |
Awarded | |
| 2,343,575 | | |
| 3.11 | |
Forfeited | |
| (42,875 | ) | |
| 5.35 | |
Issued | |
| (3,500 | ) | |
| 6.65 | |
| |
| | | |
| | |
Outstanding at September 30, 2022 | |
| 2,736,793 | | |
| 3.82 | |
Vested and unissued | |
| (569,392 | ) | |
| 4.87 | |
| |
| | | |
| | |
Unvested at September 30, 2022 | |
| 2,167,401 | | |
$ | 3.54 | |
As
of September 30, 2022, unrecognized stock-based compensation expense of approximately $4.7 million for RSUs is expected to be fully recognized
over a weighted average period of 0.35 years. The unrecognized expense excludes approximately $343,000 of expense related to certain
RSUs with a performance milestone that is not currently probable of occurring.
During
the nine months ended September 30, 2022, we granted RSUs related to the future issuance of 332,363 shares of our common stock pursuant
to agreements with our Executive team and certain other employees where a portion of their base compensation is paid in RSUs.
The value of an RSU award is based on the average share price of the month services were provided. These RSUs vest quarterly,
but must meet distribution requirements before any shares of common stock are issued. Effective July 1, 2022, we established a $5.00
per share floor for the computation of the number of shares our Executive team members could earn under this program.
On
April 1, 2022, we also granted RSUs for 1,979,818
shares of our common
stock, of which RSUs related to the future issuance of 879,819
shares were subject
to shareholder approval, which was received on July 11, 2022. These RSUs vest on January 1, 2023 and are subject to distribution requirements
before any shares of common stock are issued. The RSUs that were not subject to shareholder approval had a fair value on April 1, 2022
of $3.3
million and the RSUs
that were subject to shareholder approval had a fair value on July 11, 2022 of $2.9
million. The $3.3
million is being recognized
ratably over the period from April 1, 2022 through December 31, 2022 and the $2.9
million is being recognized
ratably over the period from July 2022 through December 31, 2022.
Holders
of our vested RSUs will be issued shares of our common stock upon the satisfaction of the distribution restrictions contained in their
Restricted Stock Unit Award Agreement. The distribution restrictions are typically different (longer) than the vesting schedule, imposing
an additional restriction on the holder. Unlike RSAs, while employees may hold fully vested RSUs, the individual does not hold any shares
or have any rights of a shareholder until the distribution restrictions are met. Upon distribution to the employee, each RSU converts
into one share of our common stock. The RSUs contain dividend equivalent rights.
Warrants
No
stock purchase warrants were granted
and 18,107 expired during the nine months ended September 30, 2022. At September 30, 2022, we had outstanding and vested stock
purchase warrants for the purchase of 285,618 shares with a weighted average exercise price of
$10.25 and a weighted average remaining contractual life of 1.1 years.
Effective
May 3, 2022, we extended the expiration date of a warrant held by a consultant by one year in connection with the extension of their
service agreement. No other terms of the warrant, including the exercise price of $7.18, were changed. We are recognizing the expense of approximately
$33,000 related to this warrant modification over a one-year period beginning May 2022.
Note
5 – Net Loss per Share of Common Stock
Net
Loss Per Share
Basic
net loss per share is computed by dividing our net loss available to common shareholders by the weighted average number of shares of
common stock outstanding (which excludes unvested RSAs and includes vested RSUs) during the period. Diluted loss per share is computed
by dividing our net loss available to common shareholders by the diluted weighted average number of shares of common stock (which includes
the potentially dilutive effect of stock options, unvested RSAs, unvested RSUs and warrants) during the period. Since we experienced
a net loss for both periods presented, basic and diluted net loss per share are the same. As such, diluted loss per share for the three
and nine month periods ended September 30, 2022 and 2021 excludes the impact of potentially dilutive common shares since those shares
would have an anti-dilutive effect on net loss per share.
The
computation of net loss per share for the three and nine month periods ended September 30, 2022 and 2021 was as follows:
Schedule of Net Loss Per Share Basic and Diluted
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Basic and diluted net loss per share: | |
| | | |
| | | |
| | | |
| | |
Net loss available to common stockholders | |
$ | (6,020,410 | ) | |
$ | (2,987,217 | ) | |
$ | (14,411,909 | ) | |
$ | (8,243,740 | ) |
Weighted average number of common shares-basic and diluted | |
| 16,200,222 | | |
| 15,531,442 | | |
| 15,991,653 | | |
| 15,177,306 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.37 | ) | |
$ | (0.19 | ) | |
$ | (0.90 | ) | |
$ | (0.54 | ) |
Our
diluted net loss per share for the three and nine month periods ended September 30, 2022 and 2021 excluded 2,760,527 and 844,393 of potentially
dilutive common shares, respectively, related to outstanding stock options, stock purchase warrants and unvested restricted stock since
those shares would have had an anti-dilutive effect on net loss per share during the periods then ended.
Note
6 – Operating Leases
We
lease our office space under an operating lease agreement, which was renewed on October 3, 2022 and its effects were recorded as of September 30, 2022. This lease does not have
significant rent escalation, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not
contain contingent rent provisions. Our office space lease includes both lease (e.g., fixed payments including rent, taxes, and
insurance costs) and non-lease components (e.g., common-area or other maintenance costs), which are accounted for as a single lease
component as we have elected the practical expedient to group lease and non-lease components for all leases. We also lease office
equipment under an operating lease. Our leases do not provide an implicit rate and, as such, we have used our incremental borrowing
rate of 8%
to determine the present value of the lease payments based on the information available at the lease commencement date.
Lease
costs included in our condensed consolidated statements of operations totaled $23,681 and $24,198 for the three months ended September
30, 2022 and 2021, respectively, and $72,209 and $70,029 for the nine months ended September 30, 2022 and 2021, respectively. The weighted
average remaining lease terms and discount rate for our operating leases were as follows at September 30, 2022:
Schedule of Weighted Average Remaining Lease Terms and Discount Rate for Operating Leases
Remaining lease term (years) for our office lease | |
| 3.0 | * |
Remaining lease term (years) for our equipment lease | |
| 1.5 | |
Weighted average remaining lease term (years) for our facility and equipment leases | |
| 2.95 | |
Weighted average discount rate for our facility and equipment leases | |
| 8.0 | % |
* | Includes term applicable
to the lease renewal signed on October 3, 2022. |
Annual
lease liabilities for all operating leases were as follows as of September 30, 2022, including the remaining costs associated with the office lease renewal
executed on October 3, 2022:
Schedule of Maturities of Lease Liabilities for all Operating Leases
| |
| | |
2022 | |
$ | 23,192 | |
2023 | |
| 93,629 | |
2024 | |
| 92,302 | |
2025 | |
| 70,040 | |
Total lease payments | |
| 279,163 | |
Less: Interest | |
| (31,196 | ) |
Present value of lease liabilities | |
| 247,967 | |
Less: current maturities | |
| (76,260 | ) |
Non-current lease liability | |
$ | 171,707 | |
Note
7 – Related Party Transactions
CorLyst,
LLC (“CorLyst”) reimburses us for shared costs related to payroll, health insurance and rent based on actual costs incurred,
which are recognized as a reduction of our general and administrative operating expenses in our condensed consolidated
statement of operations. We recorded $94,642 and $92,419 of reimbursements during the nine months ended September 30, 2022 and 2021,
respectively. No amounts were due from CorLyst at September 30, 2022 or 2021. Our CEO is also the CEO of CorLyst, and CorLyst is a shareholder.
Note
8 – Elion License Agreement
On
May 17, 2022, we amended the third Milestone Event of Section 6.4 of our License Agreement with Elion Oncology, Inc. changing the third
Milestone Event from “1st Patient in Dose Confirmation Study” to (a) determination of the maximum tolerated dose
(MTD) or (b) determination of the recommended Phase 2 Dose. Prior to this amendment, the third milestone was not considered probable
since it was unknown when, or if a dose confirmation study was going to be conducted. As a result of the modification, we consider it
probable that the recommended Phase 2 dosage regimen could be determined in connection with our current Phase 1B trial for PCS6422. We
recorded an expense and related liability of $189,000 representing the value of the shares we anticipate issuing to Elion at the fair
value on the date of modification. No other terms or conditions of the License Agreement were modified.
Note
9 – Commitments and Contingencies
Purchase
Obligations
We
enter into contracts in the normal course of business with contract research organizations and subcontractors to further develop our
products. The contracts are cancellable, with varying provisions regarding termination. If we terminated a cancellable contract with
a specific vendor, we would only be obligated for products or services that we received as of the effective date of the termination
and any applicable cancellation fees. As of September 30, 2022, we are contractually obligated to pay up to approximately $4.4
million of future services under the agreements with the CROs, but our actual contractual obligations will vary depending on the
progress and results of the clinical trials.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Forward
Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements” that reflect, when made, the Company’s expectations
or beliefs concerning future events that involve risks and uncertainties. Forward-looking statements frequently are identified by the
words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,”
“will be,” “will continue,” “will likely result,” or other similar words and phrases. Similarly,
statements herein that describe the Company’s objectives, plans or goals also are forward-looking statements. Actual results could
differ materially from those projected, implied or anticipated by the Company’s forward-looking statements. Some of the factors
that could cause actual results to differ include: our limited operating history, limited cash and history of losses; our ability to
achieve profitability; our ability to obtain adequate financing to fund our business operations in the future; the impact of the global
pandemic caused by COVID-19, including its impact on our ability to obtain financing or complete clinical trials;
our ability to secure required FDA or other governmental approvals for our product candidates and the breadth of the indication sought;
the impact of competitive or alternative products, technologies and pricing; whether we are successful in developing and commercializing
our technology, including through licensing; the adequacy of protections afforded to us and/or our licensor by the anticipated patents
that we own or license and the cost to us of maintaining, enforcing and defending those patents; our and our licensor’s ability
to protect non-patented intellectual property rights; our exposure to and ability to defend third-party claims and challenges to our
and our licensor’s anticipated patents and other intellectual property rights; and our ability to continue as a going concern.
For a discussion of these and all other known risks and uncertainties that could cause actual results to differ from those contained
in the forward-looking statements, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, which is available on the SEC’s website at www.sec.gov. All forward-looking statements are qualified in their
entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q
to reflect events or circumstances after the date hereof.
For
purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, references to the “Company,”
“we,” “us” or “our” refer to the operations of Processa Pharmaceuticals, Inc. and its direct and
indirect subsidiaries for the periods described herein.
Overview
Our
mission is to develop drug products that improve the survival and/or quality of life for patients with high unmet medical need
conditions for which few or no treatment options currently exist. We are a diversified clinical-stage development company, not a
discovery company, that seeks to identify and develop drugs for patients who need better treatment options. To increase the
probability of development success, our pipeline only includes drugs which have previously demonstrated some efficacy in the
targeted population or a drug with very similar pharmacological properties that has been shown to be effective in the
population.
Our
screening criteria for identifying and selecting new candidates include:
|
● |
addressing
an unmet or underserved clinical need, |
|
● |
having
demonstrated evidence of efficacy in humans, and |
|
● |
leveraging
our regulatory science approach to improve the probability of approval. |
In
many instances, these clinical candidates have significant pre-clinical and clinical data that we may leverage to high value inflection
points while de-risking the programs and adding in optionality to potential future indications. Our regulatory science approach developed
by our team over decades of work with regulatory authorities attempts to balance the “benefit/risk” equation to identify
a regulatory path with higher clinical benefit and/or lower clinical risk with shorter timelines to deliver better treatment options
to patients, physicians, and caregivers.
Our
pipeline includes drugs that (i) already have clinical proof-of-concept data demonstrating the desired pharmacological activity in humans
or, minimally, clinical evidence in the form of case studies or clinical experience demonstrating the drug or a similar drug pharmacologically
can successfully treat patients with the targeted indication; (ii) target indications for which a single positive pivotal study demonstrating
efficacy might provide enough evidence that the clinical benefits of the drug and its approval outweighs the risks associated with the
drug or the present standard of care (e.g., some orphan indications, many serious life-threatening conditions, some serious quality of
life conditions); and/or (iii) target indications where the prevalence of the condition and the likelihood of patients enrolling in a
study meet the desired timeframe to demonstrate that the drug can, at some level, treat or potentially treat patients with the condition.
To
advance our mission, we have assembled an experienced and successful development team with a track record of drug approvals and successful
exits. Our team is experienced in developing drug products through all principal regulatory tiers from IND enabling studies to NDA submission.
Throughout their careers, the combined scientific, development and regulatory experience of our team members have resulted in more than
30 drug approvals by the FDA, over 100 meetings with the FDA, and involvement with more than 50 drug development programs, including
drug products targeted to patients who have an unmet medical need. Although we believe that the skills and experience of our team members
in drug development and commercialization is an important indicator of our future success, the past successes of our team members in
developing and commercializing pharmaceutical products do not guarantee that they will successfully develop and commercialize drugs in
our current pipeline. In addition, the growth in revenues of companies in which our executive officers and directors served was due to
many factors and does not guarantee that they will successfully operate or manage us or that we will experience similar growth in revenues,
even if they continue to serve as executive officers and/or directors.
Our
ability to generate meaningful revenue from any products depends on our ability to out-license the drugs before or after we obtain FDA
NDA approval. Even if our products are authorized and approved by the FDA, it should be noted that the products must still meet the challenges
of successful marketing, distribution, and consumer acceptance.
Our
Strategy
Our
strategy is to obtain and develop drugs that will not only treat patients with unmet medical need conditions, but, with our
regulatory science approach, also have the potential to be more efficiently developed with a greater probability of development
success than what typically occurs in the biotech-pharma industry, as well as a better return on investment given lower development
costs, more efficient development, and high commercial value. Given the prior successes of our regulatory science approach, we have
selected drugs for our portfolio which may have a greater chance for approval in a population of patients who desperately need
better treatment options. We have applied rigorous standards to identify drugs for our portfolio, namely:
|
i. |
The
drug must represent a treatment option to patients with a high unmet medical need condition by improving survival and/or quality
of life for these patients, |
|
|
|
|
ii. |
The
drug or its metabolite or a drug with similar pharmacological properties must have demonstrated some evidence of efficacy in the
target population, and |
|
|
|
|
iii. |
The
drug presents opportunities to be developed such that within 2-4 years, critical value-added clinical milestones can be achieved
while advancing the drug closer to commercialization and adding to the potential for a high return on investment. |
To
add significant value to our in-licensed drugs within 2 to 4 years, the drugs must be in the clinical development stage and not in discovery
stage, and during those 2 to 4 years we must be able to obtain clinical data to support the added value. The additional clinical data
could range from clinical proof-of-concept data which further demonstrate that the proposed pharmacology occurs clinically in the targeted
patient population to a pivotal well-designed randomized controlled trial.
Recent
Developments
On
March 23, 2022, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), pursuant to which Lincoln Park has committed to purchase up to $15.0 million of shares (the “Purchase Shares”)
of our common stock, subject to the terms and conditions in the Purchase Agreement.
We issued 123,609 shares of common stock (valued at $450,000) to Lincoln Park as a commitment fee in connection with entering into the
Purchase Agreement and agreed to reimburse Lincoln Park $25,000 for fees incurred in connection with the Purchase Agreement. Concurrent
with entering into the Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park (the “Registration
Rights Agreement”), pursuant to which we agreed to take certain actions relating to the registration under the Securities Act of
1933, as amended, of the offer and sale of the shares of common stock available for issuance under the Purchase Agreement. See Note 3
to the Condensed Consolidated Financial Statements for additional details concerning the Purchase Agreement. We put this facility in
place to ensure that financing will not hinder the continued development of our pipeline should we run into unexpected circumstances
in the future.
Impact
of COVID-19
The
COVID-19 pandemic continues to create uncertainties in expected timelines by causing delays in clinical trials and disruptions in the
supply chain for raw materials used in clinical trial work. We have experienced delays in the enrollment of patients in our PCS499 Phase
2B trial due to COVID-19 and the rareness of the disease. Some potential patients died from COVID-19 prior to screening and others continue
to be reluctant to travel to our testing sites for fear of contracting COVID-19. Delays in enrollment lengthen the time of studies and
increase their costs, which could materially impact our business in future periods. While we are hopeful the infection rate of COVID-19
will continue to decline, we cannot predict the future impact COVID-19 will have on our current and future clinical trials. Continued
delays could materially impact our business in future periods and further extend our timelines.
Our
Drug Pipeline
We
currently have five drugs: four in various stages of clinical development (Next Generation Capecitabine previously identified as PCS6422,
PCS12852, PCS499, and PCS3117) and one in nonclinical development (PCS11T). A summary of each drug is provided below:
PCS6422
(“Next Generation Capecitabine” when administered with Capecitabine)
On
August 23, 2020, we in-licensed PCS6422 from Elion Oncology, Inc. (“Elion”), pursuant to which we acquired an exclusive license
to develop, manufacture and commercialize PCS6422 globally.
PCS6422
is an oral, potent, selective, and irreversible inhibitor of dihydropyrimidine dehydrogenase (DPD), the enzyme that rapidly metabolizes
a common chemotherapy drug known as 5-Fluorouracil (5-FU), into inactive metabolites, such as α-fluoro-β-alanine (F-Bal).
F-Bal is a metabolite that has no anti-cancer activity but causes unwanted side effects, which notably leads to dose interruptions and
significantly affects a patient’s quality of life. F-Bal is thought to cause Hand–Foot Syndrome (HFS) and other side effects
associated with 5-FU, and greater formation of F-Bal appears to be associated with a decrease in the antitumor activity of 5-FU. HFS
can affect activities of daily living, quality of life, and may require dose interruptions/adjustments and even therapy discontinuation
resulting in suboptimal tumor effects. We believe that the inhibition of DPD by PCS6422 will significantly reduce 5-FU side effects related
to a decrease in F-Bal, although the timeframe and magnitude for DPD inhibition have been shown to vary, ranging from 2-14 days depending
on the de novo formation of DPD within a patient and the dosage regimen of PCS6422. With the inhibition of DPD, the level of the 5-FU
anti-cancer metabolites could also be higher within cancer and normal cells leading to an improved efficacy profile and/or increased
side effects associated with these anabolites such as neutropenia. By combining capecitabine (an oral pro-drug form of 5-FU) with PCS6422,
the change in 5-FU metabolism should result in an increase in the systemic exposure of 5-FU based on the 5-FU Area Under the Plasma Concentration
Curve (AUC) per mg of capecitabine dosed. This results in needing less capecitabine to kill cancer cells and treat each patient, making
the combination of PCS6422 and capecitabine (the “Next Generation Capecitabine”) more potent than current FDA approved capecitabine.
Fluoropyrimidines
(e.g., 5-FU, capecitabine) remain the cornerstone of treatment for many types of cancers, either as monotherapy or in combination with
other chemotherapy agents by an estimated two million patients annually. Xeloda®, the brand name of capecitabine, is an
oral pro-drug of 5-FU and approved as first-line therapy for metastatic colorectal and breast cancer. However, its use is limited by
adverse effects such as the development of HFS in up to 60% of patients.
Elion
evaluated the potential for the combination of PCS6422 with capecitabine as a treatment of advanced gastrointestinal (GI) tumors. Nonclinical
efficacy data indicated that in colorectal cancer models, pretreatment with PCS6422 enhanced the antitumor activity of capecitabine.
PCS6422 dramatically increased the antitumor potency of capecitabine without increasing the toxicity. The antitumor efficacy of the combination
of PCS6422 and capecitabine was tested in several xenograft animal models with human breast, pancreatic and colorectal cancer cells.
These preclinical xenograft models demonstrate that PCS6422 potentiates the antitumor activity of capecitabine and significantly reduces
the dose of capecitabine required to be efficacious.
Other
DPD enzyme inhibitors (e.g., Gimeracil used in Teysuno® approved only outside the US) act as competitive reversible inhibitors. These
agents must be present when 5-FU or capecitabine are administered to inhibit 5-FU breakdown by DPD in order to improve the efficacy and
safety profiles of 5-FU. Given the reversible nature of their effect on DPD, over time 5-FU metabolism to F-Bal will return if the reversible
inhibitor is not present, decreasing the amount of 5-FU in the cancer cells and decreasing the potential cytotoxicity on the cancer cells.
There is also evidence that administering large amounts of DPD inhibitors directly with 5-FU may also decrease the antitumor effect of
the 5-FU. Because PCS6422 is an irreversible inactivator of DPD, it is dosed the day before capecitabine administration and its effect
on DPD can last longer than the reversible DPD inhibitors and beyond the time 5-FU exists in the cancer cell, even after PCS6422 has
been completely eliminated out of the body. We believe this can optimize the potential cytotoxic effect of the 5-FU nucleotide metabolites
and minimize the catabolism of 5-FU to F-Bal.
Prior
to Elion’s involvement, two multicenter Phase 3 studies were conducted in patients with colorectal cancer with PCS6422 administered
in 10-fold excess to 5-FU and administered with the 5-FU. Unfortunately, we believe the dose of PCS6422 during these trials was not optimal
and that PCS6422 was not administered early enough to irreversibly affect the DPD enzyme, thus the regimen tended to produce less antitumor
benefit than the control arm with the standard regimen of 5-FU/leucovorin (LV) without PCS6422. In addition, later preclinical work suggested
that when PCS6422 was present in excess of 5-FU and at the same time, it diminished the antitumor activity of 5-FU, which we believe
supports the rationale of dosing PCS6422 such that the exposure at the time of 5-FU or capecitabine administration is as low as possible,
yet continues to inhibit DPD activity to less than 10% of normal activity.
Elion
met with the FDA in 2019 and agreed upon the clinical development program required for the combination of PCS6422 and capecitabine as
first-line therapy for metastatic colorectal cancer when treatment with fluoropyrimidine therapy alone is preferred. On May 17, 2020,
an IND for the Phase 1B study was granted safe to proceed by the FDA. This Phase 1B study was designed to evaluate: (i) the safety and
tolerability of PCS6422 and several doses of capecitabine in advanced GI tumor patients; (ii) the pharmacokinetics of PCS6422, capecitabine,
5-FU and selected metabolites; (iii) the activity of DPD over time after PCS6422 administration; and (iv) the maximum tolerated dose
in up to 30 patients over multiple cycles.
On
August 2, 2021, we enrolled the first patient in our Phase 1B dose-escalation maximum tolerated dose trial in patients with advanced
refractory gastrointestinal (GI) tract tumors. Our interim analysis of Cohorts 1 and 2A found no dose-limiting toxicities (DLTs), no
drug related adverse events greater than Grade 1, and no HFS. In the Phase 1B study, it was demonstrated that the irreversible inhibition
of DPD by PCS6422 could alter the elimination of 5-FU making NGC significantly more potent (greater than 50 times more potent) and potentially
lead to higher levels of the anabolites which can kill replicating cancer and normal cells. By administering NGC to cancer patients,
the balance between anabolites and catabolites changes depending on the dosage regimens of PCS6422 and capecitabine used, making the
efficacy-safety profile of NGC different than that of FDA-approved capecitabine and requiring further evaluation of the PCS6422 and capecitabine
regimens to determine the optimal NGC regimens for patients. In order for NGC to provide a safer and more efficacious profile for cancer
patients compared to existing chemotherapy, understanding how the different regimens of PCS6422 and capecitabine may affect the systemic
and tumor exposure to the anabolites, as well as the systemic exposure to the catabolites, is required. This can be achieved by following
the timeline of DPD irreversible inhibition and the formation of new DPD using the plasma concentrations of 5-FU and its catabolites.
In
an effort to better estimate the timeline of DP inhibition and formation of new DPD, we modified the protocol for the Phase 1B trial.
We began enrolling patients in the amended Phase 1B trial in April 2022. On November 1, 2022, we announced that data from the Phase 1B
trial identified multiple dosage regimens with potentially better safety and efficacy profiles than currently existing chemotherapy regimens.
Since 5-FU exposure is dependent on both the PCS6422 regimen and the capecitabine regimen, safe regimens were identified as well as regimens
that cause DLTs. One regimen in the Phase 1B trial did cause DLTs in 2 patients, one of whom died. The Phase 1B study is continuing to
enroll patients and is expected to complete enrollment in the first half of 2023. The next study will be a Phase 2B trial to determine
which regimens provide an improved efficacy-safety profile over present therapy using the principles of the FDA’s Oncology Project
Optimus initiative to help guide the design of the trial. This FDA initiative requires us to consider NGC regimens that are not at the
maximum tolerated dose or exposure level. In 2023, we plan to meet with FDA to discuss the design of our Phase 2B trial and initiate
the trial.
PCS12852
On
August 19, 2020, we in-licensed PCS12852 from Yuhan Corporation (“Yuhan”), pursuant to which we acquired an exclusive license
to develop, manufacture and commercialize PCS12852 globally, excluding South Korea.
PCS12852
is a novel, potent, and highly selective 5-hydroxytryptamine 4 (5-HT4) receptor agonist. Other 5-HT receptor agonists with less 5-HT4
selectivity have been shown to successfully treat gastrointestinal (GI) motility disorders such as gastroparesis, chronic constipation,
constipation-predominant irritable bowel syndrome, and functional dyspepsia. Less selective 5-HT4 agonists, such as cisapride, have been
either removed from the market or not approved because of the cardiovascular side effects associated with the drugs binding to other
receptors, especially receptors other than 5-HT4. PCS12852 has been shown in nonclinical studies to have a cardiovascular side effect
only at concentrations greater than 1,000 times the maximum concentration seen in humans.
Two
clinical studies, both of which have demonstrated the effectiveness of PCS12852 on GI motility, were previously conducted by Yuhan. In
a Phase 1 trial (Protocol YH12852-101), the initial safety and tolerability of PCS12852 were evaluated after single and multiple oral
doses in healthy subjects. PCS12852 was shown to increase GI motility in this study, increasing stool frequency with faster onset when
compared to prucalopride, a less specific 5-HT4 agonist FDA-approved drug for the treatment of chronic idiopathic constipation. Based
on an increase of ≥1 spontaneous bowel movement (SBM)/week from baseline during 7-day multiple dosing, the PCS12852 dose group had
a higher percentage of patients with an increase than the prucalopride group. All doses of PCS12852 were safe and well tolerated and
no SAEs occurred during the study. The most frequently reported AEs were headache, nausea and diarrhea which were temporal, manageable
and reversible within 24 hours. There were no clinically significant changes in platelet aggregation and ECG parameters including a change
in QTc prolongation in the study. In a Phase 1/2A clinical trial (Protocol YH12852-102), the safety, tolerability, gastric emptying rate
and pharmacokinetics of multiple doses of a PCS12852 immediate release (IR) formulation and a delayed release (DR) formulation were evaluated.
PCS12852 was safe and well tolerated after single and multiple administrations. The most frequent AEs for both the IR and DR formulations
of PCS12852 were headache, nausea and diarrhea, but the incidences of these AEs were comparable with those of the 2mg prucalopride group.
These AEs, which were transient and mostly mild in severity, are also commonly observed with other 5-HT4 agonists. Both formulations
of PCS12852 also increased the gastric emptying rate and increased GI motility.
Yuhan
had also conducted extensive toxicological studies for the product that demonstrated that the product is safe for use and can be moved
into Phase 2 studies.
We
received guidance from the FDA in the first half of 2021 and in October 2021 we received notice of safe to proceed for PCS12852 evaluation
in a Phase 2A randomized, placebo-controlled study in patients with gastroparesis. We enrolled our first patient on April 5, 2022 and
completed enrollment on September 2, 2022. The purpose of the Phase 2A trial was to evaluate the safety, efficacy, and pharmacokinetics
of two different dosing regimens for PCS12852. Data obtained from this study will be used to better design the Phase 2B efficacy study.
Since patients with gastroparesis have an abnormal pattern of upper GI motility in the absence of mechanical obstruction, the Phase 2A
study was designed to evaluate the change in gastric emptying in patients with gastroparesis from two different dosing regimens of PCS12852
compared to placebo. The only FDA-approved drug to treat gastroparesis is metoclopramide, a dopamine D2 receptor antagonist that has
documented serious side effects which limit dosing to no more than 12 weeks. Other 5-HT4 drugs have been used clinically but the side
effects, mainly caused by binding to other receptors, has resulted in these drugs not being a viable option to treat patients with gastroparesis.
Early
results from this Phase 2A study which included 25 patients with moderate to severe gastroparesis, demonstrated improvements in gastric
emptying in patients receiving 0.5 mg of PCS12852 as compared to placebo, and statistical significance was shown at p < 0.10 even
though there were only a total of 14 patients in the 0.5 mg and placebo groups of this study. The mean (±SD) t50 change
from baseline was decreased for 0.5 mg of PCS12852 compared with placebo by -31.90 ± 50.53 min vs -9.36 ±42.43 min, respectively.
Differences were not observed between the placebo and the 0.1 mg dose. Adverse events associated with the administration of PCS12852
were generally mild to moderate as expected, occurred within the first few days after administration, and quickly resolved without any
sequelae. There were no clinically significant cardiovascular safety events or serious adverse events (SAEs) reported during the study.
Additional data from the study will be available at the end of 2022 and we plan to initiate a Phase 2B study in 2023.
PCS499
PCS499,
an oral tablet of a deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental®), is classified
by FDA as a new molecular entity. PCS499 and its metabolites act on multiple pharmacological targets that are important in a variety
of conditions. We have targeted ulcerative Necrobiosis Lipoidica (uNL) as our lead indication for PCS499. NL is a chronic, disfiguring
condition affecting the skin and tissue under the skin typically on the lower extremities with no currently approved FDA treatments.
NL presents more commonly in women than in men and occurs more often in people with diabetes. Ulceration has been reported to occur in
up to 30% of NL patients, which can lead to more severe complications, such as deep tissue infections and osteonecrosis threatening the
life of the limb.
The
degeneration of tissue occurring at the NL lesion site may be caused by a number of pathophysiological changes, which makes it extremely
difficult to develop effective treatments for this condition. Because PCS499 and its metabolites appear to affect most of the biological
pathways that contribute to the pathophysiology associated with NL, PCS499 may provide a novel treatment solution for NL.
On
June 18, 2018, the FDA granted orphan-drug designation for PCS499 for the treatment of NL. On September 28, 2018, the IND for PCS499
in NL became effective, such that we initiated and completed a Phase 2A multicenter, open-label prospective trial designed to determine
the safety and tolerability of PCS499 in patients with NL. The study initially had a nine-month treatment phase and a nine-month optional
extension phase. In December 2019, we informed patients and sites that the study would conclude after the treatment phase and there would
no longer be an extension phase. The first NL patient enrolled in this Phase 2A clinical trial was dosed on January 29, 2019, and the
study completed enrollment on August 23, 2019. The last patient visit took place in February 2020.
The
primary objective of the Phase 2A trial was to evaluate the safety and tolerability of PCS499 in patients with ulcerated and non-ulcerated
NL and to use the safety and efficacy data to design future clinical trials. Based on toxicology studies and healthy human volunteer
studies, we and the FDA agreed that a PCS499 dose of 1.8 grams/day would be the highest dose administered to NL patients in this Phase
2A trial. As anticipated, the PCS499 dose of 1.8 grams/day, 50% greater than the maximum tolerated dose of PTX, appeared to be well tolerated
with no serious adverse events (SAEs) reported. All adverse events (AEs) reported in the study were mild in severity. As expected, gastrointestinal
symptoms were the most frequent AEs and were reported in four patients, all of which resolved within 1-2 weeks of starting dosing.
Two
of the twelve patients in the study presented with uNL and had ulcers for more than two months prior to dosing. At baseline, the reference
ulcer in one of the two patients measured 3.5 cm2 and had completely closed by Month 2 of treatment. The second patient had
a baseline reference ulcer of 1.2 cm2 which completely closed by Month 9 during the patient’s treatment extension period.
In addition, while in the trial, both patients also developed small ulcers at other sites, possibly related to contact trauma, and these
ulcers resolved within one month. The other ten patients, presenting with mild to moderate non-ulcerated NL, had more limited improvement
of the NL lesions during treatment. Historically, 13 - 20% of all the patients with NL naturally progress to complete healing over many
years after presenting with NL. Although the natural healing of the uNL patients has not been evaluated independently, medical experts
who treat NL patients suggest that the natural progression of an open ulcerated wound to complete closure may be significantly less than
13% over 1-2 years and likely close to 0% in patients with the larger ulcers.
On
March 25, 2020, we met with the FDA and discussed the clinical program, as well as the nonclinical and clinical pharmacology plans to
ultimately support the submission of the PCS499 New Drug Application (NDA) in the U.S. for the treatment of ulcers in NL patients. With
input from the FDA, we designed the next trial as a randomized, placebo-controlled Phase 2B study to evaluate the ability of PCS499 to
completely close ulcers in patients with uNL and better understand the potential response of uNL patients on drug and on placebo. We
currently have selected nine clinical trial sites in the United States and are evaluating additional sites to add to our study. We had
four sites in Europe, but these sites were unable to recruit patients timely, largely due to COVID-19, so we decided to close them and
concentrate our efforts on recruiting patients within the United States.
We
began recruiting for the clinical trial in the first half of 2021. On May 19, 2021, we dosed our first patient in the randomized, placebo-controlled
trial and are planning to complete an interim analysis of the data from this trial during the first half of 2023. We have experienced
delays in the enrollment of patients in the PCS499 Phase 2B trial due to COVID-19. Many potential patients also have co-morbidities,
such as diabetes, and have been unwilling to travel to the testing sites for fear of contracting COVID-19. Potential patients in this
trial have died from COVID-19 prior to screening. We have initiated a number of programs to hopefully increase the enrollment rate in
this study, including paying for travel to study sites and informing physicians who might be treating these patients that a trial is
occurring.
After
obtaining the results from this Phase 2B study, we expect to have an end of Phase 2 meeting with the FDA to agree on the design of the
Phase 3 study, with the intent to define a Special Protocol Assessment for the Phase 3 study and to agree on the next steps to obtain
approval.
PCS3117
On
June 16, 2021, we executed a License Agreement with Ocuphire Pharma, Inc. (“Ocuphire Agreement”) under which we received
a license to research, develop and commercialize PCS3117 globally, excluding Republic of Singapore,
China, Hong Kong, Macau, and Taiwan.
PCS3117
is a novel, investigational, oral small molecule nucleoside compound. PCS3117 is an analog of the endogenous nucleoside, cytidine, and
an analog of the cancer drug gemcitabine. Once intracellularly activated (phosphorylated) by the enzyme UCK2, it is incorporated into
the DNA or RNA of cells and inhibits both DNA and RNA synthesis, which induces apoptotic cell death of tumor cells. PCS3117 has received
orphan drug designation from the FDA and the European Commission for the treatment of patients with pancreatic cancer.
Gemcitabine
is usually used as second line therapy for metastatic pancreatic cancer and non-small cell lung cancer, as well as used as second line
therapy for other types of cancer. The difference between PCS3117 and gemcitabine is how they are activated to cancer killing nucleotides.
PCS3117 also has additional pharmacological pathways which will result in cancer cell apoptosis. Since 45% - 85% of pancreatic cancer
and non-small cell lung cancer patients are inherently resistant or acquire resistance to gemcitabine, the differences between PCS3117
and gemcitabine could potentially provide a therapeutic alternative to patients who do not or will not respond to gemcitabine.
Resistance
to gemcitabine or PCS3117 is likely caused by:
|
● |
an
increase in the cytidine deaminase (CDA) enzyme which breaks down gemcitabine and PCS3117, |
|
● |
a
deficiency in transportation of gemcitabine or PCS3117 across the cell membrane, |
|
● |
down
regulation of the activation enzyme (dCK for gemcitabine, UCK2 for PCS3117), |
|
● |
a
change in ribonucleotide reductase activity, and |
|
● |
non-genetic
influences that alter gene expression. |
PCS3117
has shown broad spectrum anti-tumor activity against over 100 different human cancer cell lines and efficacy in 17 different mouse xenograft
models. In preclinical trials, PCS3117 retained its anti-tumor activity in human cancer cell lines made resistant to the anti-tumor effects
of gemcitabine. In August 2012, the completion of an exploratory Phase 1 clinical trial of PCS3117 in cancer patients to investigate
the oral bioavailability, safety and tolerability of the compound was reported. In that study, oral administration of a 50 mg dose of
PCS3117 indicated an oral bioavailability of 56% and a plasma half-life (T1/2) of 14 hours. In addition, PCS3117 appeared
to be well tolerated in all subjects throughout the dose range evaluated.
Final
results from a Phase 1B clinical trial of PCS3117 were presented in June 2016 showing evidence of single agent activity. Patients
in the study had generally received four or more cancer therapies prior to enrollment. In this study, 12 patients experienced stable
disease persisting for up to 276 days and three patients showed evidence of tumor burden reduction. A maximum tolerated dose of 700 mg
was identified in the study. At the doses evaluated, PCS3117 appeared to be well tolerated with a predictable pharmacokinetic profile
following oral administration.
In
March 2016, a multi-center Phase 2A clinical trial of PCS3117 in patients with relapsed or refractory pancreatic cancer was initiated
to further evaluate safety and efficacy. The study was designed as a two-stage study with 10 patients in stage 1 and an additional 40
patients in stage 2. According to pre-set criteria, if greater than 20% of the patients had an increase in progression free survival
of more than four months, or an objective clinical response rate and reduction in tumor size, additional pancreatic cancer patients would
be enrolled into stage 2. Secondary endpoints included time to disease progression, overall response rate and duration of response, as
well as pharmacokinetic assessments and safety parameters. In January 2018, the final data from this trial showed evidence of tumor shrinkage
in some patients with metastatic pancreatic cancer that was resistant to gemcitabine and who had failed on multiple prior treatments
was presented. In this study, 31% of patients experienced progression free survival for two months or more and five patients, or 12%,
had disease stabilization for greater than four months. Although the pre-set criteria of 20% of the patients having an increase in progression
free survival for four months was not met, some of the gemcitabine refractory patients did respond to PCS3117. However, an evaluation
of why patients were resistant to PCS3117 was not undertaken within the study.
In
November 2017, a Phase 2A trial of PCS3117 in combination with ABRAXANE in patients newly diagnosed with metastatic pancreatic cancer
was initiated. The multicenter, single-arm, open-label study was designed to evaluate PCS3117 in combination with ABRAXANE in first line
metastatic pancreatic cancer patients. In February 2019, the target enrollment of 40 evaluable patients in this trial was reached. An
overall response rate of 23% had been observed in 40 patients that had at least one scan on treatment. Preliminary and unaudited data
indicated that the median progression free survival for patients in the study was approximately 5.6 months. The most commonly reported
related adverse events were nausea, diarrhea, fatigue, alopecia, decreased appetite, rash, vomiting, and anemia. Again, an evaluation
of the cause of treatment resistance to PCS3117 was not undertaken.
We
are currently defining the potential paths to approval, which include an evaluation of which population of pancreatic cancer patients
to target, FDA acceptable primary endpoints for the population, and other ways (e.g., biomarkers) to identify patients likely to respond
to PCS3117 over gemcitabine.
PCS11T
On
May 24, 2020, we in-licensed PCS11T from Aposense, Ltd. (“Aposense”), pursuant to which we were granted Aposense’s
patent rights and Know-How to develop and commercialize their next generation irinotecan cancer drug, PCS11T.
PCS11T
is a novel lipophilic anti-cancer pro-drug that is being developed for the treatment of the same solid tumors as prescribed for irinotecan.
This pro-drug is a conjugate of a specific proprietary Aposense molecule connected to SN-38, the active metabolite of irinotecan. The
proprietary molecule in PCS11T has been designed to allow PCS11T to bind to cell membranes to form an inactive pro-drug depot on the
cell with SN-38 preferentially accumulating in the membrane of tumors cells and the tumor core. This unique characteristic may make the
therapeutic window of PCS11T wider than other irinotecan products such that the antitumor effect of PCS11T could occur at a much lower
dose with a milder adverse effect profile than irinotecan. Despite the widespread use of commercially marketed irinotecan products in
the treatment of metastatic colorectal cancer and other cancers resulting in peak annual sales of approximately $1.1 billion, irinotecan
has a narrow therapeutic window and includes an FDA “Black Box” warning for both neutropenia and severe diarrhea. Therefore,
there is a substantial unmet need to overcome the limitations of the current commercially marketed irinotecan products, improving efficacy
and reducing the severity of treatment emergent AEs. We believe the potential wider therapeutic window of PCS11T will likely lead to
more patients responding with less side effects when on PCS11T compared to other irinotecan products.
Pre-clinical
studies conducted to date showed that PCS11T demonstrated tumor eradication at much lower doses than irinotecan across various tumor
xenograft models. PCS11T does not affect acetylcholine esterase (AChE) activity in human and rat plasma in vitro, which would suggest
that PCS11T will show an improved safety profile, compared to irinotecan, which is known for its cholinergic-related side effects.
We
are currently evaluating the manufacturing process and sites for drug substance and drug product. In addition, we are defining the potential
paths to approval, which include defining the targeted patient population and type of cancer. We hope to submit an IND in 2024, followed
by a Phase 1B trial in oncology patients with solid tumors.
Results
of Operations
Comparison
of the three and nine months ended September 30, 2022 and 2021
The
following table summarizes our operations during the periods indicated:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
Change | | |
2022 | | |
2021 | | |
Change | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Research and development expenses | |
$ | 3,136,838 | | |
$ | 1,722,364 | | |
$ | 1,414,474 | | |
$ | 8,319,907 | | |
$ | 4,806,845 | | |
$ | 3,513,062 | |
Acquisition of in-process research and development | |
| - | | |
| 50,953 | | |
| (50,953 | ) | |
| - | | |
| 566,583 | | |
| (566,583 | ) |
General and administrative expenses | |
| 2,920,280 | | |
| 1,338,113 | | |
| 1,582,167 | | |
| 6,137,674 | | |
| 3,391,105 | | |
| 2,746,569 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Loss | |
| (6,057,118 | ) | |
| (3,111,430 | ) | |
| | | |
| (14,457,581 | ) | |
| (8,764,533 | ) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Forgiveness of PPP loan and related accrued interest | |
| - | | |
| - | | |
| - | | |
| - | | |
| 163,771 | | |
| (163,771 | ) |
Interest income, net | |
| 36,708 | | |
| 1,771 | | |
| 34,937 | | |
| 45,672 | | |
| 8,163 | | |
| 37,509 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Operating Loss Before Income Tax Benefit | |
| (6,020,410 | ) | |
| (3,109,659 | ) | |
| (2,910,751 | ) | |
| (14,411,909 | ) | |
| (8,592,599 | ) | |
| (5,819,310 | ) |
Income Tax Benefit | |
| - | | |
| 122,442 | | |
| (122,442 | ) | |
| - | | |
| 348,859 | | |
| (348,859 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (6,020,410 | ) | |
$ | (2,987,217 | ) | |
| | | |
$ | (14,411,909 | ) | |
$ | (8,243,740 | ) | |
| | |
Revenues.
We
do not currently have any revenue under contract or any immediate sales prospects.
Research
and Development Expenses.
Our
research and development costs are expensed as incurred. Research and development expenses include: (i) amortization of the exclusive
PCS499 license intangible asset used in research and development activities; (ii) internal research and development staff related salaries
and other payroll costs including stock-based compensation, payroll taxes and employee benefits; and (iii) program and testing related
expenses, including external consulting and professional fees related to the product testing and our development activities. Non-refundable
advance payments for goods and services to be used in future research and development activities are recorded as prepaid expenses and
expensed when the research and development activities are performed.
Our
research and development expenses increased during both the three and nine month periods ended September 30, 2022 when compared to the
same periods in 2021 as shown below.
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Amortization of intangible assets | |
$ | 197,124 | | |
$ | 195,700 | | |
$ | 591,372 | | |
$ | 593,365 | |
Research and development salaries and benefits | |
| 1,502,065 | | |
| 546,415 | | |
| 3,068,241 | | |
| 1,246,887 | |
Preclinical, clinical trial and other costs | |
| 1,437,649 | | |
| 980,249 | | |
| 4,660,294 | | |
| 2,966,593 | |
Total | |
$ | 3,136,838 | | |
$ | 1,722,364 | | |
$ | 8,319,907 | | |
$ | 4,806,845 | |
During
the three and nine months ended September 30, 2022, when compared to the same periods in 2021, we experienced increases in payroll and
related costs of approximately $162,000 and $393,000, respectively, and increases in stock-based compensation of approximately $793,000
and $1.4 million, respectively, as a result of expanding our development team, and increasing salary rates and stock-based compensation.
We
also experienced increases in preclinical, clinical trial and other costs from activities in our three active clinical trials.
Expenses include costs we paid contract research organizations, regulatory filing and maintenance fees, drug product testing and
stability, consulting, and other clinical fees. Additionally, on May 17, 2022, we amended the third Milestone Event of our License
Agreement with Elion changing the third Milestone Event as described in Note 8 to our condensed consolidated financial statements.
As a result, we recorded research and development expense and a related liability of $189,000, which represents the value of the
shares we anticipate issuing to Elion upon satisfaction of the third Milestone Event (as modified) at the fair value on the date of
modification. During the same period in 2021, we began our Phase 2B clinical trial for PCS499, our Phase 1B clinical trial for
PCS6422 and were conducting pre-IND tasks for PCS12852.
The
funding necessary to bring a drug candidate to market is subject to numerous uncertainties. Once a drug candidate is identified, the
further development of that drug candidate may be halted or abandoned at any time due to a number of factors. These factors include,
but are not limited to, funding constraints, safety or a change in market demand. For each of our drug candidate programs, we periodically
assess the scientific progress and merits of the programs to determine if continued research and development is economically viable.
Some programs may be terminated due to the lack of scientific progress and lack of prospects for ultimate commercialization. We anticipate
our research and development costs to increase in the future as we finalize our three current clinical trials; plan/conduct future clinical
trials, including the cost of having drug product manufactured; continue our evaluation of the remaining drugs in our portfolio; and
expand our development team.
Our
clinical trial cost accruals are based on estimates of patient enrollment and related costs at clinical investigator sites, as well as
estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct
and manage clinical trials on our behalf.
In accruing service fees,
we estimate the time period over which services will be performed and the level of patient enrollment and activity expended in each period.
If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.
Payments made to third parties under these arrangements in advance of the receipt of the related series are recorded as prepaid expenses
until the services are rendered. At September 30, 2022, we recorded $1.2 million in prepaid expenses for
advanced payments made to our CROs related to our three current clinical trials.
General
and Administrative Expenses.
Our
general and administrative expenses for the three months ended September 30, 2022 increased by approximately $1.6 million to $2.9 million
from $1.3 million for the three months ended September 30, 2021. The majority of the increase was due to an increase in employee stock-based
compensation of approximately $1.3 million. We also experienced net increases in other expenses including professional fees, travel,
salaries and other payroll-related costs of approximately $255,000. Reimbursements from CorLyst totaled approximately $31,000 for rent
and other costs during the three months ended September 30, 2022 and 2021.
During
the nine months ended September 30, 2022, our general and administrative expenses increased by approximately $2.7 million to $6.1 million
from $3.4 million for the nine months ended September 30, 2021. The majority of the increase was due to an increase in employee stock-based
compensation of approximately $2.3 million. We also experienced net increases in other expenses including professional fees, travel,
salaries and other payroll-related costs of approximately $439,000. Reimbursements from CorLyst totaled approximately $95,000 for rent
and other costs during the nine months ended September 30, 2022, approximately $2,000 more than reimbursements for the same period in
2021.
We
expect the general and administrative expenses to continue to increase as we add staff to support our growing research and development
activities and the administration required to operate as a public company.
Other
Income
Net
other income was approximately $37,000 and $1,800 for the three months ended September 30, 2022 and 2021, respectively, and approximately
$46,000 and $172,000 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30,
2021, we recognized $163,771 as other income for the principal amount and accrued interest related to the forgiveness of our Paycheck Protection Program (PPP) loan.
Interest income represents interest earned on money market funds. Interest expense in 2021 was related to our PPP
loan.
Income
Tax Benefit.
We
did not recognize any income tax benefit for the three or nine months ended September 30, 2022 compared to the $122,442 and $348,859
income tax benefit we recognized for the three and nine months ended September 30, 2021, respectively, as a result of our recording and
amortizing the deferred tax liability created in connection with our acquisition of CoNCERT’s license and “Know-How”
in exchange for Processa stock that had been issued in the Internal Revenue Code Section 351 transaction on March 19, 2018. The Section
351 transaction treated the acquisition of the Know-How for stock as a tax-free exchange. As a result, under ASC 740-10-25-51 Income
Taxes, we recorded a deferred tax liability of $3,037,147 for the acquired temporary difference between the financial reporting basis
of $11,038,929 and the tax basis of $1,782. The deferred tax liability has been reduced for the effect of the non-deductibility of the
amortization of the intangible asset and has been offset by the deferred tax assets resulting from net operating tax losses and was
fully offset at December 31, 2021. This offset resulted in the recognition of a deferred tax benefit shown in the consolidated statements
of operations in 2021 and prior periods.
Cash
Flows
The
following table sets forth our sources and uses of cash and cash equivalents for the nine months ended September 30, 2022 and 2021:
| |
Nine months ended | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Net cash (used in) provided by: | |
| | | |
| | |
Operating activities | |
$ | (7,107,758 | ) | |
$ | (5,990,321 | ) |
Financing activities | |
| (335,247 | ) | |
| 9,667,285 | |
Net (decrease) increase in cash | |
$ | (7,443,005 | ) | |
$ | 3,676,964 | |
Net
cash used in operating activities
We
used net cash in our operating activities of $7,107,758 and $5,990,321 during the nine months ended September 30, 2022 and 2021, respectively.
The increase in cash used in operating activities during the nine months ended September 30, 2022 compared to the same period in 2021
was primarily related to cash payments made to conduct our three clinical trials and increased salaries to our employees.
At
September 30, 2022, our prepaid expense and other balance consisted primarily of $1.2 million for advanced payments we made to our CROs
that have not yet been applied to our clinical trials, representing a $100,000 reduction from the prepaid amount recorded at December
31, 2021 of $1.3 million. Our prepaid expense and other at September 30, 2022 also included the unamortized non-cash commitment fee we
paid to Lincoln Park of approximately $372,000 and the unamortized ATM offering related costs of $186,000. The remainder of the change
in prepaid expenses and other was the result of several other operating activities, none of which, individually or in the aggregate, were
considered significant by management.
As
we continue our three clinical trials and evaluate the other drugs in our portfolio, we anticipate our research and development efforts
and ongoing general and administrative costs will continue to generate negative cash flows from operating activities for the foreseeable
future. We expect these amounts to increase in the future as the drugs in our pipeline continue to advance and if new or additional clinical
trials begin.
Net
cash (used in) provided by financing activities
We
used net cash in financing activities during the nine months ended September 30, 2022 of $300,000 to purchase 100,000 shares of our common
stock from a licensee and $35,247 to pay income taxes owed on vested stock-based compensation. During the nine months ended September
30, 2021, we closed a private offering, raising net proceeds of $9.9 million, paid approximately $28,000 for income taxes owed on
vested stock-based compensation and incurred $180,285 in expenses related to our ATM Offering.
Liquidity
At
September 30, 2022, we had $9.1 million in cash and cash equivalents.
On
March 23, 2022, we entered into the Purchase Agreement with Lincoln Park under which we have the right, but not the obligation, to
sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million of our shares of common stock, subject to the
terms and conditions in the Purchase Agreement, as more fully described in Note 3 to the Consolidated Financial Statements. We did
not sell any shares to Lincoln Park under the Purchase Agreement during the nine months ended September 30, 2022. In addition, on
August 20, 2021, we entered into the Sales Agreement with the Sales Agent under which we may issue and sell up to $30.0 million from
time to time under the ATM Offering. We expect to use net proceeds from the ATM Offering over time as a source for working capital
and general corporate purposes. During the year ended December 31, 2021, we sold 21,597 shares of our common stock under the ATM
Offering at an average price of approximately $8.33 per share for aggregate gross proceeds of approximately $180,000 prior to
deducting sales commissions. We did not sell any shares during the nine months ended September 30, 2022.
We
have incurred losses and net cash used in our operating activities during the nine months ended September 30, 2022, which we expect to
continue for the foreseeable future. We have incurred losses since our
inception, devoting substantially all of our efforts toward research and development, and have an accumulated deficit of approximately
$51.2 million at September 30, 2022. During the nine months ended September 30, 2022, we generated a net loss of approximately $14.4
million, of which $7.0 million are non-cash expenses. Based on our current plans, we believe our current cash balance along with amounts
available from the Purchase Agreement with Lincoln Park will be adequate for at least the next twelve months. Our ability to execute our longer-term
operating plans, including unplanned future clinical trials for our portfolio of drugs depend on our ability to obtain additional funding
from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue to actively
pursue financing alternatives, but there can be no assurance that we will obtain the necessary funding in the future when needed.
Our
estimate of future cash needs is based on assumptions that may prove to be wrong, and we could utilize our available cash sooner than
we currently expect. Our ultimate success depends on the outcome of our planned clinical trials and our research and development activities,
as disclosed above. We expect to incur additional losses in the future, and we will need to raise additional capital to fully implement
our business plan if the costs of our clinical trials are greater than we expect or they take longer than anticipated. We also expect
to incur increased general and administrative expenses in the future. In addition, there may be costs we incur as we develop these drug
products that we do not currently anticipate, requiring us to need additional capital sooner than currently expected.
Our
future capital requirements will depend on many factors, including:
|
● |
the
cost of clinical trials for PCS499, PCS6422 and PCS12852, and the cost of third-party manufacturing; |
|
● |
the
delays in patient enrollment due to the COVID-19 pandemic; |
|
● |
the
initiation, progress, timing, costs and results of drug manufacturing, pre-clinical studies, and clinical trials of PCS3117 and PCS11T,
as well as any other future product candidates; |
|
● |
the
number and characteristics of product candidates that we pursue; |
|
● |
the
outcome, timing, and costs of seeking regulatory approvals; |
|
● |
the
costs associated with hiring additional personnel and consultants as our pre-clinical and clinical activities increase; |
|
● |
the
emergence of competing therapies and other adverse market developments; |
|
● |
the
costs involved in preparing, filing, prosecuting, maintaining, expanding, defending, and enforcing patent claims, including litigation
costs and the outcome of such litigation; |
|
● |
the
extent to which we in-license or acquire other products and technologies; and |
|
● |
the
costs of operating as a public company. |
Until
such time as we can generate substantial product revenues to support our capital requirements, if ever, we expect to finance our cash
needs through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other
capital sources. We currently have an effective S-3 shelf registration statement on file with the SEC, which provides us flexibility
and optionality to raise capital, including pursuant to the ATM Offering and the Purchase Agreement with Lincoln Park, but there can
be no assurance that capital will continue to be available to us on acceptable terms or at all. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted,
and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
Contractual
Obligations and Commitments
On
October 3, 2022, we renewed our office lease. See Note 6 to the Consolidated Condensed Financial Statements for more details. There
have been no other significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2021.
Off
Balance Sheet Arrangements
At
September 30, 2022, we did not have any off-balance sheet arrangements.
Critical
Accounting Policies and Use of Estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial
Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities.
We
believe that the estimates, assumptions, and judgments involved in the accounting policies described in the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K
have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results
could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely
events or circumstances that would result in materially different amounts being reported.
There
have been no changes in our critical accounting policies since our most recent Annual Report on Form 10-K.
Recently
Issued Accounting Pronouncements
We
have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or
results of operations.