Processa Pharmaceuticals, Inc. (PCSA) Initiation Report

October 28, 2020 Processa Pharmaceuticals, Inc. Page 2 of 16 ALPHA SELECT LIST Institutional Research INVESTMENT HIGHLIGHTS Current Market Cap Is Low Given Three Clinical Stage Programs. We believe the $160 million valuation underlying our 12-month price target of $12/share incorporates many conservative assumptions about the potential market share and success of each program, given that all are based on existing therapies with clinical history of efficacy. PCSA has three clinical stage programs that will begin early next year with the possibility for an interim readout in PCS499 by year end 2021. Each program alone could generate $200-300 million in revenue following launch, and there are three opportunities to enter a billion dollar or more market. Track Record of Identifying and Developing Therapeutics with High Return on Investment: PCSA’s founders include the clinical development team and an investor in Questcor (QCOR), which took acthar gel from stagnant off-label sales to an approval within 12 months, 9-fold increase in sales over 3 years to $800M, and ultimately sale of the company for $5.6B. PCSA’s CEO was CSO of Questcor and an FDA instructor and pioneer in regulatory science. He has brought along his team, including Chief Development Officer Dr. Sian Bigora, who led the effort in modernizing the Acthar Gel label and built up multiple regulatory and pharmacovigilance groups. Dr. Khalid Islam, a co- founder of Elion Oncology which sold PCS6422 to PCSA, was also CEO of Gentium (GENT; acquired for $1B) and Board member of Immunomedics (IMMU; acquired for $21B). The Company has also recently hired Mike Floyd, also a co-founder of Elion, to serve as COO for PCSA. Lastly, Yuhan Pharmaceuticals (KRX:000100), the largest pharma company in South Korea sold rights to PCS12852 to PCSA and invested in its most recent public offering, validating the caliber of the team. Rational Mechanistic Improvements to Existing Therapies. Every program builds on the history of existing therapies already used to treat their respective indications. PCS499 is a deuterated form of pentoxifylline that offers a superior metabolite profile and enables more tolerable and higher dosing of NL patients. PCS6422 improves the antitumor potency of Xeloda (capecitabine), the most commonly used chemotherapy regimen, by enhancing the bioavailability of active anabolites. PCS6422 blocks an enzyme that degrades the chemo drug into metabolites responsible for the neurotoxic effects and HFS. PCS12852 is a more selective 5-hydroxytryptamine 4 (5-HT4) receptor agonist that could provide a better safety and efficacy profile for constipation indications than other agonists, some of which have been discontinued due to their cardiovascular side effects. Opportunity Size for PCS6422 Reaches $5 Billion: Fluoropyrimidines, such as capecitabine and its metabolite 5-FU, are the cornerstone of treatment for many cancers, treating an estimated two million patients annually. Xeloda , the branded form of capecitabine that is an oral pro-drug of 5-FU, is approved as first-line therapy for metastatic colorectal and breast cancer. PCS6422 addresses the ~55k new metastatic colorectal cancer cases (incidence of 74/100k and 25% metastatic) and ~17k new metastatic breast cancer cases (incidence of ~279k and 6% metastatic) diagnosed each year in the US. Worldwide there may be ~200k new diagnoses in these indications each year. Xeloda ’s use may be limited in up to 60% of cases due to severe adverse events such as hand-foot syndrome (HFS). Even a modest entry into this market would provide substantial upside. PCSA exclusively in-licensed this program for $100k in cash plus 100k shares of common stock (and a future second tranche of 725k shares of common subject to conditions), as well as development, regulatory and sales milestones and royalties. We view the opportunity as far outweighing the cost of the license and clinical development. Management History With All Three Indications: Dr. Young and his team at PCSA conducted one of the few clinical trials in NL in the US. The Key Opinion Leader experience with PCS499 suggests that some patients and physicians would want to use the therapy as a low dose, maintenance regimen. Prior case studies support the possible benefit of early introduction of pentoxifylline to manage the disease. Dr. Young also worked with 5-FU in the 1970s/80s to study its preclinical metabolism and effect in clinical studies, and also Roche on Xeloda in the 2000s. We believe that he is particularly qualified to steer PCS6422 through clinical development to commercialization. Dr. Young was also part of the first patent for metoclopramide and worked on strategy for gastroparesis and GI motility clinical development. Given his team’s further involvement in IBS-D and IBS-C programs, we are excited to see more on this program as it is slated to begin the Phase IIa early next year.