Executive Summary / Key Takeaways

• Processa Pharmaceuticals is a clinical-stage biopharmaceutical company focused on developing Next Generation Cancer (NGC) therapies by modifying existing chemotherapies to improve safety and efficacy, leveraging a proprietary Regulatory Science Approach.
• The core investment thesis centers on the potential for NGC drugs like NGC-Cap, NGC-Gem, and NGC-Iri to offer better benefit-risk profiles than widely used existing agents, potentially leading to faster regulatory pathways via alignment with FDA's Project Optimus and broader market adoption.
• Recent financial results show a net loss of $2.83 million in Q1 2025, consistent with R&D-focused operations, and cash and cash equivalents of $2.90 million as of March 31, 2025.
• The company raised $4.40 million in net proceeds from a public offering in January 2025, extending its cash runway into mid-2025, but faces substantial doubt about its ability to continue as a going concern without further funding.
• Key risks include the critical need for additional financing, potential dilution from future capital raises, Nasdaq listing compliance challenges, and the inherent uncertainties and potential delays in clinical trial execution and regulatory approval processes.

Reshaping Chemotherapy Through Precision and Regulatory Science

Processa Pharmaceuticals, Inc. (NASDAQ:PCSA) is a clinical-stage biopharmaceutical company carving out a distinct niche in the oncology landscape. Rather than pursuing entirely novel targets, Processa focuses on improving the safety and efficacy of existing, widely used chemotherapy drugs – the backbone of many cancer treatment regimens. This strategy is underpinned by the company's proprietary Regulatory Science Approach, a methodology refined over decades, including foundational work that contributed to FDA guidances. The core investment narrative for PCSA revolves around its potential to deliver "Next Generation Cancer" (NGC) therapies that offer better outcomes for patients by mitigating the severe toxicities often associated with current chemotherapies, thereby increasing the likelihood of successful treatment and regulatory approval.

The competitive landscape in oncology is dominated by large pharmaceutical powerhouses like Merck (MRK), Pfizer (PFE), and Bristol-Myers Squibb (BMY), which boast extensive portfolios, vast R&D budgets, and established global commercial infrastructures. Newer entrants like Recursion Pharmaceuticals (RXRX) are leveraging cutting-edge technologies like AI for drug discovery. Against these formidable players, PCSA positions itself by focusing on specific, well-understood mechanisms and applying its unique expertise to optimize drug performance and development pathways. While larger competitors may have broader market reach and financial muscle (MRK's 2024 net margin around 27%, PFE's around 13%, BMY's negative in 2024 but historically positive, compared to PCSA's current negative margins), PCSA aims to differentiate through the tangible benefits of its modified drugs and its efficient regulatory strategy.

The Regulatory Science Edge and Technological Differentiation

Processa's foundational strength lies in its Regulatory Science Approach. This methodology, developed by the company's founders, is designed to optimize drug development by deeply understanding the relationship between dose, exposure, efficacy, and safety. Crucially, this approach aligns closely with the FDA's recent Project Optimus initiative for oncology, which emphasizes justifying dosage regimens based on the optimal balance of efficacy and safety, rather than simply the maximum tolerated dose (MTD). Processa's prior experience applying these principles, even before the formal Project Optimus announcement, is highlighted by management as a key differentiator, potentially allowing for more efficient trial designs compared to other oncology companies that may need additional studies to comply.

The company's technological differentiation is embodied in its NGC pipeline. These are not entirely new chemical entities, but rather modifications or combinations designed to alter how the body handles the drug. For example:

• NGC-Cap (PCS6422 + Capecitabine): This combination aims to improve upon capecitabine, an oral prodrug of 5-FU widely used in various cancers. Existing capecitabine is metabolized by the DPD enzyme into catabolites that cause significant dose-limiting side effects. PCS6422 is designed to inhibit DPD. Early Phase 1b data indicated that NGC-Cap, at doses evaluated, did not cause adverse events from these catabolites, a significant point given that 50% to 70% of patients on current capecitabine experience such issues. The trial also identified drug exposure levels associated with and without dose-limiting toxicities and showed NGC potency increased up to 50 times greater than reported for FDA-approved capecitabine, although this effect's duration (24-72 hours) required protocol amendments to optimize for a 7-day treatment cycle. The "so what" for investors is the potential for a widely used chemotherapy to become significantly safer and potentially more effective, addressing a major unmet need and offering a clear advantage over the existing standard of care.
• NGC-Iri (PCS11T): This is a modified version of irinotecan, another cornerstone chemotherapy. Preclinical animal models suggest that NGC-Iri has different response-exposure relationships compared to standard irinotecan. Specifically, decreasing the dose to 50% of MTD for NGC-Iri showed decreased adverse events while efficacy remained similar, whereas for irinotecan, decreasing the dose reduced both adverse events and efficacy. This preclinical data supports the need for a Project Optimus approach to find the optimal dose, suggesting PCS11T could offer a better therapeutic index. This technological modification aims to alter drug distribution, potentially improving the drug's delivery to cancer cells relative to normal tissues.
• NGC-Gem (PCS3117): Similar to gemcitabine, a drug with high treatment failure rates (55-85%). Processa is developing assays for potential biomarkers to predict patient response to PCS3117 versus gemcitabine. The strategic intent is to identify specific patient populations who would preferentially benefit from PCS3117, enabling a more targeted and potentially more successful development and commercialization path.

These technological approaches, combined with the Regulatory Science Approach, form PCSA's core competitive moat. While larger competitors rely on scale and broad portfolios, PCSA aims to outmaneuver them in specific segments by offering demonstrably better versions of familiar drugs, potentially leading to faster clinical trials and regulatory review by leveraging existing knowledge of the parent compounds and aligning with FDA priorities like Project Optimus. Despite lacking proprietary, quantifiable technology differentiators, the company's expertise in regulatory science and drug modification provides a unique angle.

Clinical Pipeline and Operational Progress

Processa's current focus is on advancing its three NGC candidates. The NGC-Cap program is the most advanced, with a Phase 2 trial in advanced or metastatic breast cancer actively enrolling patients across increasing numbers of U.S. clinical sites. The goal is to obtain preliminary safety-efficacy data to inform potential adaptive modifications to the protocol.

The company is also re-evaluating the potential of PCS499, a non-oncology asset initially studied for ulcerative necrobiosis lipoidica, for use in rare primary glomerular diseases (PGDs). This re-evaluation is based on existing data suggesting PCS499 may be safer and more efficacious than pentoxifylline (PTX) and other off-label treatments used for PGDs, leveraging the fact that FDA now accepts surrogate endpoints for nephrology diseases. The strategy for PCS499 and PCS12852 (for gastroparesis) is to explore out-licensing or partnership opportunities, allowing Processa to concentrate internal resources on the NGC pipeline.

Operational execution, particularly in clinical trials, has presented challenges. The NGC-Cap Phase 1b experienced delays due to the need for protocol amendments following unexpected pharmacokinetic findings and the subsequent regulatory hurdles. The PCS499 trial faced significant enrollment difficulties, exacerbated by COVID-19, ultimately leading to its discontinuation in that indication. Management has acknowledged these challenges and implemented measures like expanding outreach, adding sites, and refining screening processes, while also assuring investors of the team's experience in managing multiple programs.

Financial Snapshot and Liquidity Headwinds

As a clinical-stage biopharmaceutical company, Processa is pre-revenue and heavily reliant on external financing. For the three months ended March 31, 2025, the company reported a net loss of $2.83 million, a slight increase from the $2.73 million net loss in the same period of 2024. Operating expenses totaled $2.85 million in Q1 2025, compared to $2.81 million in Q1 2024. Research and development expenses saw a modest increase to $1.59 million from $1.54 million, driven by increased NGC-Cap trial costs, partially offset by lower personnel expenses. General and administrative expenses decreased slightly to $1.26 million from $1.27 million, reflecting lower professional fees and other costs, partially offset by higher executive salaries and stock-based compensation. Other income decreased significantly due to lower interest income.

Cash and cash equivalents stood at $2.90 million as of March 31, 2025, up from $1.19 million at December 31, 2024. Net cash used in operating activities during Q1 2025 was $2.73 million. The increase in cash balance was primarily due to net proceeds of $4.40 million from a public offering that closed on January 29, 2025. This financing, which included common stock and warrants, provided crucial capital but also resulted in significant dilution to existing shareholders.

Based on its current business plans, Processa believes its cash and cash equivalents will fund operations into mid-2025. However, the company explicitly states that absent additional funding, its current resources are not sufficient to fund operations for a period of one year or more from the May 8, 2025 filing date, leading to substantial doubt about its ability to continue as a going concern within that timeframe. This financial reality underscores the critical need for future capital raises.

Outlook and the Path Forward

Processa's outlook is centered on advancing the NGC pipeline to key clinical milestones that can unlock value and facilitate future financing or partnerships. The net proceeds from the January 2025 offering are earmarked for continued NGC-Cap R&D, particularly the Phase 2 trial, as well as working capital and general corporate purposes. The company anticipates clinical trial costs for the NGC-Cap Phase 2 study will increase in 2025 compared to prior periods as enrollment progresses.

Management plans to raise additional funds in the future through various channels, including equity and debt offerings, collaborations, and licensing arrangements. The strategy is to pursue these funding opportunities when terms are favorable, ideally after achieving positive clinical data readouts that could enhance the company's valuation. While acknowledging the necessity of dilution in equity financing, management emphasizes that the executive team's significant equity holdings align their interests with shareholders in creating long-term value.

The re-evaluation of PCS499 for PGDs represents a potential new development path for a non-oncology asset, leveraging existing data and regulatory flexibility for rare diseases. The focus on NGC drugs, however, remains paramount, with ongoing efforts to optimize clinical trial designs using the Regulatory Science Approach and Project Optimus principles to increase the probability of regulatory success.

Key Risks to the Investment Thesis

Investing in PCSA involves significant risks, primarily stemming from its early stage of development and financial position.

• Funding and Going Concern: The most immediate risk is the company's limited cash runway into mid-2025 and the explicit statement of substantial doubt about its ability to continue as a going concern without securing additional funding. There is no guarantee that future financing will be available on acceptable terms, or at all.
• Dilution: Future equity financing, while necessary, will dilute the ownership interest of existing stockholders.
• Nasdaq Listing: The company received a Nasdaq deficiency notice in February 2025 for failing to meet the minimum bid price requirement and has until August 4, 2025, to regain compliance. Failure to do so could result in delisting, severely impacting liquidity and access to capital markets.
• Clinical Trial Execution and Regulatory Risk: Delays in clinical trials (as experienced with NGC-Cap and PCS499), challenges with patient enrollment, unexpected safety or efficacy results, and potential disruptions at the FDA could all hinder development progress and regulatory approval.
• Legal Proceedings: Ongoing lawsuits, including the dispute with Elion Oncology over a license agreement and the investor lawsuit, could result in significant costs, judgments, or adverse impacts on the business.
• Competition: Despite its differentiated approach, PCSA faces intense competition from larger, better-funded companies with established market positions and diverse pipelines.

Conclusion

Processa Pharmaceuticals presents an investment opportunity centered on its innovative approach to improving existing chemotherapy drugs through a refined Regulatory Science methodology. The focus on Next Generation Cancer therapies, particularly NGC-Cap, NGC-Gem, and NGC-Iri, offers the potential for improved safety and efficacy profiles compared to current standards of care, addressing significant unmet needs in large cancer markets. The company's alignment with FDA's Project Optimus initiative could provide a strategic advantage in navigating the regulatory pathway.

However, the company operates from a precarious financial position, with limited cash resources necessitating near-term financing. The ability to secure this funding, manage potential dilution, and successfully execute on clinical milestones while navigating regulatory and competitive challenges will be critical determinants of Processa's future value. Investors should closely monitor progress in the NGC-Cap Phase 2 trial, updates on future financing plans, and efforts to address the Nasdaq listing deficiency as key indicators of the company's trajectory. The investment thesis hinges on Processa's ability to translate its scientific and regulatory expertise into clinical success and demonstrate a clear path to commercialization for its differentiated NGC pipeline.