Processa Pharmaceuticals, Inc. (PCSA) Initiation Report

October 28, 2020 Processa Pharmaceuticals, Inc. Page 4 of 16 ALPHA SELECT LIST Institutional Research preclinical metabolism and effect in clinical studies. Dr. David Young also worked with Roche on Xeloda , and we believe that this program has the most upside potential given his experience, the addition of Elion’s co-founder Mike Floyd to the C-suite, and the size of the market opportunity with 2 million patients treated with fluoropyrimidines annually. ▪ PCSA could pursue a number of different indications for PCS12852 to treat a gastrointestinal motility disorder, with the potential to launch by 2025. PCSA includes opioid induced constipation as one option, and there are ~150-170 million opioid prescriptions per year in the US, 40% of which would have constipation AEs serious enough to require treatment. With the average 3.4 prescriptions per person, this indication may have an addressable population of 18 million patients. We conservatively choose to review constipation associated with irritable bowel syndrome (IBS-C) as a straw man for this program, since the total addressable population is ~1 million patients. We model the cost of therapy after Linzess and Amitzia , which are approved to treat IBS-C to arrive at ~$4k per patient. We use this smaller indication of IBS-C to estimate $259 million in 2034 peak sales, which is probability adjusted to $39 million in sales using a 15% POS, the average for a gastrointestinal program in Phase II. We arrive at $700 million in US peak revenue in 2034, which is probability-adjusted to $82 million in US peak sales. We also assume that ex-US revenue is 50% of US revenue, to achieve worldwide peak sales of $1 billion (or probability-adjusted $124 million). Net cash (estimated as of close of the most recent offering) also contributes ~$1.22/common share. Figure 2: Revenue Projections PCSA Revenue Build 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E PCS499 for Necrobiosis Lipoidica Prevalence of NL Cases in US 137,106 138,066 139,032 140,005 140,986 141,972 142,966 143,967 144,975 145,990 147,012 Growth Rate % 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% Severe/Ulcerative NL (uNL) Cases in US 41,132 41,420 41,710 42,002 42,296 42,592 42,890 43,190 43,492 43,797 44,103 % of Severe/uNL Cases in US 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% % Market Penetration of PCS499 15% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% PCS499 Treated Patients 6,170 8,284 8,342 8,400 8,459 8,518 8,578 8,638 8,698 8,759 8,821 Cost Per Treatment (Annual) $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Revenue from Treating Severe NL Patients ($M) $123.4 165.7 $ 166.8 $ 168.0 $ 169.2 $ 170.4 $ 171.6 $ 172.8 $ 174.0 $ 175.2 $ 176.4 $ Probability-Adjusted (17%) Revenue ($M) $21.0 28.2 $ 28.4 $ 28.6 $ 28.8 $ 29.0 $ 29.2 $ 29.4 $ 29.6 $ 29.8 $ 30.0 $ PCS6422 for Oncology US Population (M) 339 342 344 347 349 351 354 356 359 361 364 Growth Rate % 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% Incidence of Colorectal Cancer Cases in US (74/100k) 251,110 252,867 254,638 256,420 258,215 260,022 261,843 263,676 265,521 267,380 269,252 Incidence of Metastatic Colorectal Cancer Cases in US 62,777 63,217 63,659 64,105 64,554 65,006 65,461 65,919 66,380 66,845 67,313 % of Metastatic Cases in US 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% % Market Penetration of PCS6422 10% 20% 20% 20% 20% 20% 20% 20% 20% PCS6422 Treated Patients 6,366 12,821 12,911 13,001 13,092 13,184 13,276 13,369 13,463 Cost Per Treatment $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Revenue from Treating Oncology Patients ($M) $127.3 256.4 $ 258.2 $ 260.0 $ 261.8 $ 263.7 $ 265.5 $ 267.4 $ 269.3 $ Probability-Adjusted (5%) Revenue ($M) $6.4 12.8 $ 12.9 $ 13.0 $ 13.1 $ 13.2 $ 13.3 $ 13.4 $ 13.5 $ PCS12852 for GI Indication US Population (M) 339 342 344 347 349 351 354 356 359 361 364 Growth Rate % 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% Incidence of IBS in US (10%; 000s) 33,934 34,171 34,410 34,651 34,894 35,138 35,384 35,632 35,881 36,132 36,385 Incidence of IBS-C in US (13%) (000s) 4,411 4,442 4,473 4,505 4,536 4,568 4,600 4,632 4,665 4,697 4,730 Diagnosed IBS-C Cases in US (000s) 1,103 1,111 1,118 1,126 1,134 1,142 1,150 1,158 1,166 1,174 1,183 % of Cases Diagnosed in US 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% % Market Penetration of PCS12852 5% 10% 10% 10% 10% 10% 10% 10% 10% 10% PCS12852 Treated Patients 55,528 111,834 112,617 113,405 114,199 114,998 115,803 116,614 117,430 118,252 Cost Per Treatment $4,200 $4,200 $4,200 $4,200 $4,200 $4,200 $4,200 $4,200 $4,200 $4,200 Revenue from Treating GI Patients ($M) $100.0 110.0 $ 121.0 $ 133.1 $ 146.4 $ 161.1 $ 177.2 $ 194.9 $ 214.4 $ 235.8 $ 259.4 $ Probability-Adjusted (15%) Revenue ($M) $15.0 16.5 $ 18.2 $ 20.0 $ 22.0 $ 24.2 $ 26.6 $ 29.2 $ 32.2 $ 35.4 $ 38.9 $ Revenue Summary Total US Revenue (in $Ms) $223.4 $275.7 $415.2 $557.5 $573.8 $591.4 $610.6 $631.3 $653.8 $678.4 $705.0 Total US Revenue (in $Ms), Probability Adjusted $36.0 $44.7 $52.9 $61.3 $63.6 $66.1 $68.8 $71.8 $75.0 $78.5 $82.4 Total ex-US Revenue (in $Ms) $82.8 $143.9 $278.8 $286.9 $295.7 $305.3 $315.7 $326.9 $339.2 $352.5 Total ex-US Revenue (in $Ms), Probability Adjusted $14.1 $23.3 $30.7 $31.8 $33.1 $34.4 $35.9 $37.5 $39.3 $41.2 WW Revenue (in $Ms) $223.4 $358.5 $559.1 $836.3 $860.7 $887.2 $915.8 $947.0 $980.8 $1,017.5 $1,057.6 WW Revenue (in $Ms), Probability Adjusted $36.0 $58.7 $76.1 $92.0 $95.4 $99.2 $103.2 $107.7 $112.5 $117.8 $123.5 Source: Craig-Hallum Estimates