Processa Pharmaceuticals, Inc. (PCSA) Initiation Report

October 28, 2020 Processa Pharmaceuticals, Inc. Page 11 of 16 ALPHA SELECT LIST Institutional Research Clinical Studies Yuhan previously conducted two clinical studies – the first-in-human clinical trial (Protocol YH12852- 101) and a Phase I/IIa (Protocol YH12852-102) to evaluate immediate and delayed response formulations. They also conducted extensive toxicological studies that demonstrated that PCS12852 is safe for use and can be moved quickly into Phase 2 studies. The first study evaluated safety and tolerability after single and multiple oral doses in healthy subjects. Yuhan found that PCS12852 increased stool frequency with faster onset when compared to prucalopride, an FDA approved drug for the treatment of chronic idiopathic constipation. The PCS12852 dose groups showed higher stool frequency for 24 hours following single dosing and had faster onset of spontaneous bowel movements (SBMs) with comparable or relatively higher Bristol Stool Form Scale score (lower stool consistency) for 24 hours following first dosing versus prucalopride. In addition, the PCS12852 dose group had a higher percentage of patients with an increase in SBM/week over 7 days than the prucalopride group. All doses of PCS12852 were safe and well tolerated and no serious adverse events (SAE) occurred during the study. The most frequently reported adverse events (AEs) were headache, nausea and diarrhea, which were temporal, manageable, and reversible within 24 hours. There were no clinically significant changes in platelet aggregation or ECG parameters including no sign of QTc prolongation in the study. The second study evaluated the safety, tolerability, pharmacokinetics and pharmacodynamics of PCS12852 immediate release (IR) formulation and delayed release (DR) formulation after multiple oral dosings. PCS12852 was safe and well tolerated after single and multiple administrations. The most frequent AEs for both the IR and DR formulations were headache, nausea and diarrhea, but the incidences of these AEs were comparable with those of the prucalopride 2 mg group. These AEs, which were transient and mild in severity, are also commonly observed with other 5-HT4 agonists. Both formulations of PCS12852 also showed pharmacologic activity as assessed using various pharmacodynamic parameters for stool assessment. Competitive Landscape Necrobiosis lipoidica is a disease driven by multiple pathophysiologies, which has rendered it difficult to treat in the past. Intralesional and systemic biological anti-tumor necrosis factor (TNF) agents such as etanercept and infliximab have been used successfully to treat ulcerative NL, supporting the role of inflammation driving disease progression. Calcineurin inhibitors inhibit T-cell activation by blocking calcineurin resulting in both anti-inflammatory and immunomodulatory effects. Topical tacrolimus has also been shown to be effective in resolving ulceration associated with NL. However, the relative low cost and safety of pentoxifylline compared with stronger systemic immunosuppressive therapies underscores the benefit of PCS499 as a new therapy in the space. Novartis is conducting a study in uNL and Sanofi is conducting a study recruiting all NL patients, but both programs have side effect profiles that could limit use. We are not aware of any other sponsor-led trials of NL at this time. We conservatively assume 20% market penetration for PCS499, but believe actual levels could be much higher. FINANCIALS PCSA finished Q2 2020 with cash and cash equivalents of ~$2.3 million, bolstered further by an equity financing of $19.2 million completed in October 2020. Processa completed an underwritten public offering for 4.8 million shares of common stock at a price of $4.00 per share on October 6, 2020, resulting in net proceeds of ~$17 million. In connection with the offering, the common stock began trading on the Nasdaq on October 2, 2020. We forecast the need for an additional equity raise or non- dilutive financing of $15 million in order to fund development for all three programs. We project 2020 net loss of $5.4 million and weighted average shares to be ~8.5 million, leading to 2020E EPS loss of $0.63. We project 2021 net loss of $6.4 million, the difference primarily attributable to increasing expense from clinical trials, and weighted average shares to be ~14.9 million, leading to 2021 EPS loss of $0.43.