Processa Pharmaceuticals, Inc.

Previous wording

PCS499 is a drug that can be used to treat unmet medical need conditions caused by multiple pathophysiological changes. We are presently defining the development plan for the use of PCS499 in a primary glomerular disease. We believe that PCS499 could be successfully developed in a primary glomerular disease such as focal segmental glomerulosclerosis, or FSGS, and IgA. We intend to design a development program with the next study being an adaptive designed Phase 3 trial, meet with the FDA, and then find a partner to take the drug to approval.

Current wording

PCS499 is a drug that can be used to treat unmet medical need conditions caused by multiple pathophysiological changes. We are presently defining the development plan for the use of PCS499 in a primary glomerular disease. We believe that PCS499 could be successfully developed in a primary glomerular disease such as focal segmental glomerulosclerosis, or FSGS, and IgA. The use of proteinuria for the primary endpoint in FSGS has been accepted by FDA in our protocol discussions. We are designing the FSGS development program with a Phase 2 and Phase 3 trial per our discussions with the FDA. We continue to explore potential partnership opportunities to take the drug to approval.

Previous wording

In May 2024, we filed with the SEC a registration statement on Form S-3 (Registration No. 333-279588) (the “Registration Statement”), including a base prospectus relating to the offering of up to $50,000,000 in the aggregate of the securities identified in the base prospectus from time to time in one or more offerings; and a prospectus supplement relating to the shares of our common stock that may be issued and sold under a sales agreement dated May 21, 2024 (the “Sales Agreement”) between us and A.G.P./Alliance Global Partners (the “Sales Agent”), through 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 $2.4 million (subject to adjustment) from time to time through or to our Sales Agent (the “ATM Offering”). We expect to use net proceeds, if any, from the ATM Offering over time for continued research and development for our portfolio of drug candidates, especially our oncology products, and working capital and general corporate purposes. The shares under the ATM Offering will be sold and issued pursuant to the Registration Statement. During the year ended December 31, 2024, we received $1.5 million in net proceeds from the sale of 800,994 shares of common stock under the ATM Offering, of which 426,804 shares of common stock were sold during the quarter ended December 31, 2024 for net proceeds of approximately $575,000.

Current wording

In May 2024, we filed with the SEC a registration statement on Form S-3 (Registration No. 333-279588) (as amended and supplemented, the “Registration Statement”), including a base prospectus relating to the offering of up to $50,000,000 in the aggregate of the securities identified in the base prospectus from time to time in one or more offerings; and a prospectus supplement relating to the shares of our common stock that may be issued and sold under a sales agreement dated May 21, 2024 (the “Sales Agreement”) between us and A.G.P./Alliance Global Partners (the “Sales Agent”), through 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 $5.2 million (subject to adjustment) from time to time through or to our Sales Agent (the “ATM Offering”). We expect to use net proceeds, if any, from the ATM Offering over time for continued research and development for our portfolio of drug candidates, especially our oncology products, and working capital and general corporate purposes. The shares under the ATM Offering will be sold and issued pursuant to the Registration Statement. During the year ended December 31, 2025, we received $3.0 million in net proceeds from the sale of 475,905 shares of common stock under the ATM Offering.

Previous wording

During the year ended December 31, 2024, our research and development expenses increased by $1.5 million to $7.3 million when compared to $5.8 million for the year ended December 31, 2023. This was primarily attributable to an increase of approximately $2.0 million for ongoing testing and related expenses related to our Phase 1B trial for NGC-Cap and the IND/initiation of our Phase 2 trial for NGC-Cap. Expenses include costs related to contract research organizations, regulatory filing and maintenance fees, drug product testing and stability, consulting, and other clinical fees. The increase was offset by a $352,000 decrease in professional fees and in employee stock-based compensation of $195,000. While we have increased salary rates for some personnel, we had fewer full-time R&D employees in 2024 than 2023.

Current wording

During the year ended December 31, 2025, our research and development expenses increased by $541,000 to $7.8 million when compared to $7.3 million for the year ended December 31, 2024. This was primarily attributable to an increase of approximately $790,000 for ongoing testing and related expenses related to our Phase 1B trial for NGC-Cap and the IND/initiation of our Phase 2 trial for NGC-Cap. Expenses include costs related to contract research organizations, regulatory filing and maintenance fees, drug product testing and stability, consulting, and other clinical fees. The increase was offset by a decrease of $248,000 for salaries and other payroll-related expenses due to a reduction in staff during the year ended December 31, 2025.

Previous wording

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 December 31, 2024, we have recorded $1.3 million in prepaid expenses for advanced payments made to our CRO and other vendors for our NGC-Cap Phase 2 clinical trial.

Current wording

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 December 31, 2025, we have recorded $1.0 million in prepaid expenses for advanced payments made to our CRO and other vendors for our NGC-Cap Phase 2 clinical trial.

Previous wording

Our general and administrative expenses for the year ended December 31, 2024 decreased by approximately $875,000 to $4.8 million when compared to $5.7 million for the same period in 2023. This was mostly due to a $1.2 million decrease in professional fees and approximately $201,000 decrease in employee stock-based compensation. The decreases were primarily offset by increases in salaries and other payroll-related costs of approximately $443,000 and net increases in taxes, travel, and other office expenses of approximately $50,000. We share office space with CorLyst, a related party, and during the years ended December 31, 2024 and 2023, they reimbursed us approximately $110,000 and $112,000, respectively, for rent and other costs we incurred on their behalf.

Current wording

Our general and administrative expenses for the year ended December 31, 2025 increased by approximately $1.4 million to $6.2 million when compared to $4.8 million for the same period in 2024. This was mostly due to a $474,000 increase in salaries and other payroll-related expenses, a $322,000 increase in employee stock-based compensation, a $313,000 increase in professional fees, a $164,000 increase in franchise taxes, and a $174,000 increase in investment fees, insurance, and other miscellaneous costs. The increases were offset by decreases of $38,000 in office and other miscellaneous expenses and $22,000 in rent expense. We have shared expenses with CorLyst, a related party, and during the years ended December 31, 2025 and 2024, they reimbursed us $100,000 and $110,000, respectively, for rent and other costs we incurred on their behalf.

Previous wording

We did not recognize any income tax benefit for the year ended December 31, 2024 or 2023. At December 31, 2024, we recorded deferred tax assets totaling $19.9 million, including $9.6 million of net operating losses that are fully offset by a valuation allowance.

Current wording

We did not recognize any income tax benefit for the year ended December 31, 2025 or 2024. At December 31, 2025, we recorded deferred tax assets totaling $21.3 million, including $14.5 million of net operating losses that are fully offset by a valuation allowance.

Previous wording

We have incurred losses and net cash used in our operating activities during the year ended December 31, 2024, 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 $87.2 million at December 31, 2024. During the year ended December 31, 2024, we generated a net loss of approximately $11.9 million. Based on our current business plans, we believe these funds will satisfy our capital needs into mid-2025. 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.

Current wording

We have incurred losses and net cash used in our operating activities during the year ended December 31, 2025, which we expect to continue for the foreseeable future. We have incurred losses since our inception, devoting substantially all efforts toward research and development, and have an accumulated deficit of approximately $100.8 million at December 31, 2025. During the year ended December 31, 2025, we generated a net loss of approximately $13.6 million. Based on our current business plans, we believe we will need to raise additional capital in the second quarter of 2026. 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.

Previous wording

We used net cash in our operating activities of $11,245,042 and $8,063,346 during the years ended December 31, 2024 and 2023, respectively. The increase in cash used in operating activities was primarily attributable to increased costs related to closing our Phase 1B and commencing our Phase 2 trial for NGC-Cap, including the prepayment of expenses to our CRO for the Phase 2 trial; increased salaries and other payroll-related expenses; and professional fees during the year ended December 31, 2024. As we continue our Phase 2 trial for NGC-Cap and evaluate the other NGC 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.

Current wording

We used net cash in our operating activities of $11,385,195 and $11,245,042 during the years ended December 31, 2025 and 2024, respectively. The increase in cash used in operating activities was primarily attributable to increased costs related to our Phase 2 trial for NGC-Cap; increased salaries and other payroll-related expenses; and professional fees during the year ended December 31, 2025. As we continue our Phase 2 trial for NGC-Cap and evaluate NGC-Iri, 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.

Previous wording

At December 31, 2024, our prepaid expense and other consisted primarily of $1.8 million for advanced payments we made to the CRO and other vendors related to our Phase 1B and Phase 2 trials of NGC-Cap that have not yet been applied and approximately $85,000 in various insurance policies, such as directors’ and officers’ insurance and product liability insurance for conducting our clinical trials.

Current wording

At December 31, 2025, our prepaid expense and other consisted primarily of $1.0 million for advanced payments we made to the CRO and other vendors related to our Phase 1B and Phase 2 trials of NGC-Cap that have not yet been applied; $42,000 for upcoming patent annuities; $32,000 in various insurance policies, such as directors’ and officers’ insurance and product liability insurance for conducting our clinical trials; and $16,000 in other miscellaneous general and administrative expenses.

Previous wording

Net cash provided by (used in) financing activities

Current wording

Net cash provided by financing activities

Previous wording

During the year ended December 31, 2024, we sold 476,000 shares of common stock, pre-funded warrants to purchase up to 1,079,555 shares of common stock in lieu of shares of common stock, all of which were exercised into shares of our common stock, and warrants to purchase up to 1,555,555 shares of our common stock pursuant to a public offering for net proceeds of $6.3 million. We also sold 800,994 shares of common stock under our ATM Offering for net proceeds of approximately $1.5 million. We used cash, classified as financing activities, of approximately $16,000 to pay income taxes owed on stock-based compensation, approximately $9,000 for the settlement of a stock award, and approximately $5,000 for payments owed under a financing lease obligation. During the year ended December 31, 2023, we raised net proceeds of $6.4 million from the sale of 421,611 shares of our common stock and used $31,000 in legal expenses related to our January 2024 raise and $53,000 for the settlement of a stock award.

Current wording

During the year ended December 31, 2024, we sold 19,040 shares of common stock, pre-funded warrants to purchase up to 43,183 shares of common stock in lieu of shares of common stock, all of which were exercised into shares of our common stock, and warrants to purchase up to 62,223 shares of our common stock pursuant to a public offering for net proceeds of $6.3 million. We also sold 32,030 shares of common stock under our ATM Offering for net proceeds of approximately $1.5 million. We used cash, classified as financing activities, of approximately $16,000 to pay income taxes owed on stock-based compensation, approximately $9,000 for the settlement of a stock award, and approximately $5,000 for payments owed under a financing lease obligation.

Previous wording

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. We have recorded a valuation allowance equal to the full recorded amount of our net deferred tax assets since it was more-likely-than-not that benefits from our deferred tax assets would 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 in 2022, we recharacterized approximately $7.4 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period such changes are enacted. No income tax benefit or expense was recorded for any periods presented nor is expected in the foreseeable future since we expect to generate future taxable net operating losses.

Current wording

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. We have recorded a valuation allowance equal to the full recorded amount of our net deferred tax assets since it was more-likely-than-not that benefits from our deferred tax assets would not be realized. The valuation allowance is reviewed annually and is maintained until sufficient positive evidence exists to support its reversal. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period such changes are enacted. No income tax benefit or expense was recorded for any periods presented nor is expected in the foreseeable future since we expect to generate future taxable net operating losses.