Gross intangible assets consist primarily of costs we capitalized when we acquired the license rights to PCS499 in 2018. These costs represented intangible assets to be used in research and development activities that management believes has future alternative uses.

Amortization expense was $197,124394,248 and $198,832397,664 for the threesix months ended March 31,June 30, 2022 and 2021, respectively, and is included within research and development expense in the accompanying condensed consolidated statements of operations. As of March 31,June 30, 2022, our estimated amortization expense for the year ended December 31, 2022 and for annual periods thereafter until the asset is fully amortized is approximately $788,000.

Note 3 – Stockholders’ Equity

Preferred Stock

There were 0 issued or outstanding shares of preferred stock at either March 31,June 30, 2022 or December 31, 2021.

Common Stock

Increase in Our Authorized Number of Shares

On January 1, 2022, we amended our Certificate of Incorporation to increase the number of authorized shares of our common stock from 30,000,000 to 50,000,000. We believe 50,000,000 authorized shares of common stock better aligns our capital structure with our future needs.

ATM Offering

On August 20, 2021, we entered into the Sales Agreement with the Sales Agent under which we may issue and sell up to $30.0 million of our common stock from time to time under the ATM Offering. We expect to use net proceeds from the ATM Offering over time as a source for working capital and general corporate purposes. We did not sell any shares during the threesix months ended March 31,June 30, 2022.

Lincoln Park Capital Fund, LLC Purchase Agreement

On March 23, 2022, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $15.0 million of shares (the “Purchase Shares”) of our common stock, $0.0001 par value per share, subject to the terms and conditions in the Purchase Agreement. We issued 123,609 shares of common stock (valued at $450,000) to Lincoln Park as a commitment fee in connection with entering into the Purchase Agreement and agreed to reimburse Lincoln Park $25,000 for fees incurred in connection with the Purchase Agreement. ConcurrentlyConcurrent with entering into the Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park (the “Registration Rights Agreement”), pursuant to which we agreed to take certain actions relating to the registration under the Securities Act of 1933, as amended, of the offer and sale of the shares of common stock available for issuance under the Purchase Agreement.

Beginning on March 23, 2022, we have the right to present Lincoln Park with a purchase notice (a “Regular Purchase Notice”), directing Lincoln Park to purchase up to 25,000 Purchase Shares (the “Regular Purchase Amount”) provided that the closing sale price of the common stock on the purchase date is not below a threshold price set forth in the Purchase Agreement (a “Regular Purchase”). The Regular Purchase Amount may be increased to up to 75,000 shares if the closing sale price of our common stock on the applicable purchase date equals or exceeds certain higher threshold prices set forth in the Purchase Agreement. We and Lincoln Park may mutually agree to increase the Regular Purchase Amount with respect to any Regular Purchase under the Purchase Agreement, provided that Lincoln Park’s maximum committed purchase obligation under any single Regular Purchase shall not exceed $1,250,000. The above-referenced share amount limitations and closing sale price thresholds are subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement. The purchase price per share for each Regular Purchase will be based on prevailing market prices of the common stock immediately preceding the time of sale as computed in accordance with the terms set forth in the Purchase Agreement. There are no upper limits on the price per share that Lincoln Park must pay for shares of common stock under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

The aggregate number of shares that we can issue to Lincoln Park under the Purchase Agreement may in no casenot exceed 3,142,430 shares (subject to proportional adjustments for stock splits, reverse stock splits and similar events as described above), which is equal to 19.99%19.99% of the outstanding shares of common stock immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) stockholder approval is obtained to issue shares of common stock in excess of the Exchange Cap, in which case the Exchange Cap will no longer apply, or (ii) the average price of all sales of Purchase Shares to Lincoln Park under the Purchase Agreement equals or exceeds the lower of (i) the Nasdaq official closing price immediately preceding the execution of the Purchase Agreement or (ii) the arithmetic average of the five Nasdaq official closing prices for the common stock immediately preceding the execution of the Purchase Agreement, plus an incremental amount to take into account the issuance of the commitment shares to Lincoln Park under the Purchase Agreement, such that the transactions contemplated by the Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules. In all instances, we may not sell shares of our common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99%9.99% of the outstanding shares of common stock.

We may terminate the Purchase Agreement at any time, at our sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park to terminate the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the common stock.

There are no limitations on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on our ability to enter into variable rate transactions described in the Purchase Agreement), rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. We may deliver Purchase Notices under the Purchase Agreement, subject to market conditions, and in light of our capital needs from time to time and under the limitations contained in the Purchase Agreement. Any proceeds that we receive under the Purchase Agreement are expected to be used for working capital and general corporate purposes.

Repurchase of Shares from Aposense, Ltd.

On March 29, 2022, we purchased 100,000 shares of our common stock from Aposense Ltd. for $300,000 in a private transaction and are holding these shares as treasury stock until they are reissued or retired at the discretion of our Board of Directors.

Note 4 - Stock-based Compensation

On June 19, 2019, our stockholders approved, and we adopted the Processa Pharmaceuticals Inc. 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan allows us, under the direction of our Board of Directors or a committee thereof, to make grants of stock options, restricted and unrestricted stock and other stock-based awards to employees, including our executive officers, consultants and directors. The 2019 Plan providesoriginally provided for the aggregate issuance of 3,000,000 shares of our common stock, with 1,729,664627,086 shares available for future grants at March 31,June 30, 2022.

On July 11, 2022, our shareholders approved an increase in the aggregate number of shares of our common stock available for issuance under our 2019 plan by 3,000,000 shares to 6,000,000 shares in total.

Stock Compensation Expense

We recorded stock-based compensation expense for the three and six month periods ended March 31,June 30, 2022 and 2021 as follows:

Schedule of Stock-based Compensation Expense 

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets relating to this expense.

Stock Options

NaNstock options were granted, cancelled or forfeited during the threesix months ended March 31,June 30, 2022. At March 31,June 30, 2022, we had outstanding options for the purchase of 178,496shares with a weighted average exercise price of $17.07, a weighted average remaining contractual life of 3.3 years. As of March 31, 2022, 169,032 options with a weighted average exercise price $16.96 and a weighted average remaining contractual life of 3.2 3.1 years. Options years were exercisable. Asexercisable at June 30, 2022 for the purchase of March 31,176,315 shares of our common stock had a weighted average exercise price $17.02 and a weighted average remaining contractual life of 3.0 years. We had, as of June 30, 2022, the total unrecognized stock-based compensation expense for these stock options wasof approximately $121,00037,000, which is expected to be fully recognized by the end of the third quarter of 2022.

Restricted Stock Awards

During the three months ended March 31,On January 4, 2022, we granted and issued Restricted Stock Awards (“RSAs”) for 9,766shares of our common stock to a consultant for services to be provided in 2022. These RSAs had a fair market value of $50,000on the date of grant and were expensed as stock- basedstock-based compensation during the threesix months ended March 31,June 30, 2022. WeEffective January 1, 2022, we also granted 72,832 RSAs to our directors for their 2022 service during the three months ended March 31, 2022, which had a fair market value of $252,000 on the date of grant and will cliff vest on December 31, 2022. Additionally, on March 31, 2022, we issued 17,572 RSAs to our directors in satisfaction of the $120,000 of directors’ fees we had accrued at December 31, 2021. On May 31, 2022, a director did not seek reelection and forfeited the 18,208 RSAs related to their 2022 service. We did not cancel any RSAs nor were any RSAs forfeited during the threesix months ended March 31,June 30, 2022.

At March 31,June 30, 2022, we had unvested RSAs for 163,941145,733 shares with a weighted average grant date fair value of $5.846.13. Unvested RSAs representing 138,941120,733 shares that are expected to vest at various dates in 2022, 12,500 shares are expected to vest in 2023, and the remainder are expected to vest in 2024. As of March 31,June 30, 2022, the total unrecognized stock-based compensation expense related to the outstanding RSAs was approximately $537,000310,000, which is expected to be recognized over a weighted average period of approximately 1.0 0.8year.

years.

Restricted Stock Units

We grantActivity with respect to our Restricted Stock Units (“RSUs”) related to the future issuance of 69,862 shares of our common stock pursuant to agreements with our Executive team and certain other employees where a portion of their base compensation is paid in RSUs during the threesix months ended March 31, 2022. The value of an RSU award is based on the award’s measurement date. These RSUs are vested, but must meet distribution requirements before any shares of common stock are issued.

Activity with respect to our RSUs during the three months ended March 31,June 30, 2022 was as follows:

 Schedule of Information About RSU Outstanding

As of March 31,June 30, 2022, unrecognized stock-based compensation expense of approximately $960,000 4.0 million for RSUs is expected to be fully recognized over a weighted average period of 1.80.8 years. The unrecognized expense excludes approximately $349,000of expense related to certain RSUs with a performance milestone that is not probable of occurring at this time.

During the six months ended June 30, 2022, we granted RSUs related to the future issuance of 243,131shares of our common stock pursuant to agreements with our Executive team and certain other employees where a portion of their base compensation is paid in RSUs. The value of an RSU award is based on the average share price of the month services were provided. These RSUs are vested but must meet distribution requirements before any shares of common stock are issued. Effective July 1, 2022, we established a $5.00 per share floor for the computation of the number of shares our Executive team members could earn under this program.

Included in RSUs awarded during the six months ended June 30, 2022 are RSUs awarded on April 1, 2022 for 1,979,818 shares of our common stock, of which RSUs related to the future issuance of 879,819 shares were subject to shareholder approval, which was received on July 11, 2022. These RSUs vest on January 1, 2023 and are subject to distribution requirements before any shares of common stock are issued. The RSUs that were not subject to shareholder approval had a fair value on April 1, 2022 of $3.3 million while the RSUs that were approved by the shareholders on July 11, 2022 have a fair value, as of the approval date, of $2.9 million. The $3.3 million is being recognized ratably over the period April 1, 2022 through December 31, 2022, while the $2.9 million will be recognized ratably over the remainder of 2022beginning in the third quarter of 2022.

Holders of our vested RSUs have our promise to will be issued shares of our common stock upon the earlier to occur satisfaction of the distribution restrictions contained in their Restricted Stock Unit Award Agreement. The distribution restrictions are typically different (longer) than the vesting schedule, imposing an additional restriction on the holder. Unlike RSAs, while certain employees may hold fully vested RSUs, the individual does not hold any shares or have any rights of a shareholder until the distribution restrictions are met. Upon distribution to the employee, each RSU converts into one share of our common stock. The RSUs contain dividend equivalent rights.

On April 1, 2022 we awarded RSUs for 1,979,818 shares of our common stock, 879,819 of which are subject to shareholder approval. These RSUs vest on January 1, 2023 and are subject to distribution requirements before any shares of common stock are issued. The fair value of the RSUs that are not subject to shareholder approval totaled $3.3 million, which will be recognized during the last three quarters of 2022.

Warrants

NaN stock purchase warrants were granted, cancelled or forfeited during the threesix months ended March 31,June 30, 2022. At March 31,June 30, 2022, we had outstanding and vested stock purchase warrants for the purchase of 303,725shares with a weighted average exercise price of $10.66and a weighted average remaining contractual life of 1.3 years.years. Stock purchase warrants for the purchase of 291,225 shares were vested at March 31, 2022 and the remaining outstanding stock purchase warrants are expected to vest in 2022.

AsEffective May 3, 2022, we extended the expiration date of March 31, 2022,a warrant held by a consultant by one year in connection with the total unrecognized expense related to our stock purchase warrants was approximatelyextension of their service agreement. No other terms of the warrant, including the exercise price of $35,0007.18, which is expectedwere changed. We will recognize expense of approximately $33,000 related to be fully recognized inthis warrant modification over a one-year period beginning May 2022.

Note 5 – Net Loss per Share of Common Stock

Net Loss Per Share

Basic net loss per share is computed by dividing our net loss available to common shareholders by the weighted average number of shares of common stock outstanding (which excludes unvested RSAs and includes vested RSUs) during the period. Diluted loss per share is computed by dividing our net loss available to common shareholders by the diluted weighted average number of shares of common stock (which includes the potentially dilutive effect of stock options, unvested RSAs, unvested RSUs and warrants) during the period. Since we experienced a net loss for both periods presented, basic and diluted net loss per share are the same. As such, diluted loss per share for the three monthsand six month periods ended March 31,June 30, 2022 and 2021 excludes the impact of potentially dilutive common shares since those shares would have an anti-dilutive effect on net loss per share.

The computation of net loss per share for the three monthsand six month periods ended March 31,June 30, 2022 and 2021 was as follows:

 Schedule of Net Loss Per Share Basic and Diluted

Our diluted net loss per share for the three monthsand six month periods ended March 31,June 30, 2022 and 2021 excluded 795,342 1,965,502and 989,531 709,954of potentially dilutive common shares, respectively, related to outstanding stock options, stock purchase warrants and unvested restricted stock since those shares would have had an anti-dilutive effect on net loss per share during the periods then ended.

Note 6 – Operating Leases

We lease our office space under an operating lease agreement. This lease does not have significant rent escalation, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain contingent rent provisions. Our office space lease includes both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. We also lease office equipment under an operating lease. Our leases do not provide an implicit rate and, as such, we have used our incremental borrowing rate of 8%8 in determining% to determine the present value of the lease payments based on the information available at the lease commencement date.

Lease costs included in our condensed consolidated statements of operations totaled $24,39024,137 and $24,03021,801 for the three months ended March 31,June 30 and 2021, respectively, and $48,528 and $45,831 for the six months ended June 30, 2022 and 2021, respectively. The weighted average remaining lease terms and discount rate for our operating leases were as follows at March 31,June 30, 2022:

 Schedule of Weighted Average Remaining Lease Terms and Discount Rate for Operating Leases

Annual lease liabilities for all operating leases were as follows as of March 31,June 30, 2022:

Schedule of Maturities of Lease Liabilities for all Operating Leases

Note 7 –Related Party Transactions

CorLyst, LLC (“CorLyst”) reimburses us for shared costs related to payroll, health insurance and rent based on actual costs incurred, which are recognized as a reduction of our general and administrative operating expenses being reimbursed in our condensed consolidated statement of operations. We recorded $31,262 63,689and $30,751 61,549of reimbursements during the threesix months ended March 31,June 30, 2022 and December 31, 2021, respectively. NaN amounts were due from CorLyst at March 31,June 30, 2022 or 2021. Our CEO is also the CEO of CorLyst, and CorLyst is a shareholder.

Note 8 – Elion License Agreement

On May 17, 2022, we amended the third Milestone Event of Section 6.4 of our License Agreement with Elion Oncology, Inc. changing the third Milestone Event from “1^st Patient in Dose Confirmation Study” to (a) determination of the maximum tolerated dose (MTD) or (b) determination of the recommended Phase 2 Dose. Prior to this amendment, the third milestone was not considered probable since it was unknown when, or if a dose confirmation study was going to be conducted. As a result of the modification, we consider it probable that the MTD could be determined in connection with our current Phase 1B trial for PCS6422. We recorded an expense and related liability of $189,000 representing the value of the shares we anticipate issuing to Elion at the fair value on the date of modification. No other terms or conditions of the License Agreement were modified.

Note 89 – Commitments and Contingencies

Purchase Obligations

We enter into contracts in the normal course of business with contract research organizations and subcontractors to further develop our products. The contracts are cancellable, with varying provisions regarding termination. If we terminated a cancellable contract with a specific vendor, we would only be obligated for products or services that we received as of the effective date of the termination and any applicable cancellation fees. WeAs of June 30, we are contractually obligated to pay up to approximately $6.25.5 million of future services under the agreements with the CROs, but our actual contractual obligations will vary depending on the progress and results of the clinical trials.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Forward Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that reflect, when made, the Company’s expectations or beliefs concerning future events that involve risks and uncertainties. Forward-looking statements frequently are identified by the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “will be,” “will continue,” “will likely result,” or other similar words and phrases. Similarly, statements herein that describe the Company’s objectives, plans or goals also are forward-looking statements. Actual results could differ materially from those projected, implied or anticipated by the Company’s forward-looking statements. Some of the factors that could cause actual results to differ include: our limited operating history, limited cash and history of losses; our ability to achieve profitability; our ability to obtain adequate financing to fund our business operations in the future; the impact of the global pandemic caused by the novel coronavirus, COVID-19, including its impact on our ability to obtain financing or complete clinical trials; our ability to secure required FDA or other governmental approvals for our product candidates and the breadth of the indication sought; the impact of competitive or alternative products, technologies and pricing; whether we are successful in developing and commercializing our technology, including through licensing; the adequacy of protections afforded to us and/or our licensor by the anticipated patents that we own or license and the cost to us of maintaining, enforcing and defending those patents; our and our licensor’s ability to protect non-patented intellectual property rights; our exposure to and ability to defend third-party claims and challenges to our and our licensor’s anticipated patents and other intellectual property rights; and our ability to continue as a going concern. For a discussion of these and all other known risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which is available on the SEC’s website at www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.

For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, references to the “Company,” “we,” “us” or “our” refer to the operations of Processa Pharmaceuticals, Inc. and its direct and indirect subsidiaries for the periods described herein.

Overview

Our mission is to develop drug products that improve the survival and/or quality of life for patients with high unmet medical need conditions for which few or no treatment options currently exist. We are a clinical-stage development company, not a discovery company, that seeks to identify and develop drugs for patients who need better treatment options. To increase the probability of development success, our pipeline only includes drugs which have previously demonstrated some efficacy in the targeted population or a drug with very similar pharmacological properties that has been shown to be effective in the population.

Our screening criteria for identifying and selecting new candidates include:

In many instances, these clinical candidates have significant pre-clinical and clinical data that we may leverage to high value inflection points while de-risking the programs and adding in optionality to potential future indications. Our regulatory science approach developed by our team over decades of work with regulatory authorities attempts to balance the “benefit/risk” equation to identify a regulatory path with higher clinical benefit and/or lower clinical risk with shorter timelines to deliver better treatment options to patients, physicians, and caregivers.

Our pipeline includes drugs that (i) already have clinical proof-of-concept data demonstrating the desired pharmacological activity in humans or, minimally, clinical evidence in the form of case studies or clinical experience demonstrating the drug or a similar drug pharmacologically can successfully treat patients with the targeted indication; (ii) target indications for which a single positive pivotal study demonstrating efficacy might provide enough evidence that the clinical benefits of the drug and its approval outweighs the risks associated with the drug or the present standard of care (e.g., some orphan indications, many serious life-threatening conditions, some serious quality of life conditions); and/or (iii) target indications where the prevalence of the condition and the likelihood of patients enrolling in a study meet the desired timeframe to demonstrate that the drug can, at some level, treat or potentially treat patients with the condition.

To advance our mission, we have assembled an experienced and successful development team with a track record of drug approvals and successful exits. Our team is experienced in developing drug products through all principal regulatory tiers from IND enabling studies to NDA submission. TheThroughout their careers, the combined scientific, development and regulatory experience of our team members have resulted in more than 30 drug approvals by the FDA, over 100 meetings with the FDA, and involvement with more than 50 drug development programs, including drug products targeted to patients who have an unmet medical need. Although we believe that the skills and experience of our team members in drug development and commercialization is an important indicator of our future success, the past successes of our team members in developing and commercializing pharmaceutical products do not guarantee that they will successfully develop and commercialize drugs in our current pipeline. In addition, the growth in revenues of companies in which our executive officers and directors served was due to many factors and does not guarantee that they will successfully operate or manage us or that we will experience similar growth in revenues, even if they continue to serve as executive officers and/or directors.

Our ability to generate meaningful revenue from any products depends on our ability to out-license the drugs before or after we obtain FDA NDA approval. Even if our products are authorized and approved by the FDA, it should be noted that the products must still meet the challenges of successful marketing, distribution, and consumer acceptance.

Our Strategy

Our strategy is to obtain and develop drugs that will not only treat patients with unmet medical need conditions, but, with our regulatory science approach, also have the potential to be more efficiently developed with a greater probability of development success than what typically occurs in the biotech-pharma industry, andas well as a better return on investment given lower development costs, more efficient development, and high commercial value. Given the prior successes of our regulatory science approach, we have selected drugs for our portfolio which may have a greater chance for approval in a population of patients who desperately need better treatment options. We have applied rigorous standards to identify drugs for our portfolio, namely:

To add significant value to our in-licensed drugs within 2 to 4 years, the drugs must be in the clinical development stage and not in discovery stage, and during those 2 to 4 years we must be able to obtain clinical data to support the added value. The additional clinical data could range from a clinical proof-of-concept data towhich further demonstrate that the proposed pharmacology occurs clinically in the targeted patient population to a pivotal well-designed randomized controlled trial.

Recent Developments

On March 23, 2022, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $15.0 million of shares (the “Purchase Shares”) of our common stock, $0.0001 par value per share (“Common Stock”), subject to the terms and conditions in the Purchase Agreement. We issued 123,609 shares of common stock (valued at $450,000) to Lincoln Park as a commitment fee in connection with entering into the Purchase Agreement and agreed to reimburse Lincoln Park $25,000 for fees incurred in connection with the Purchase Agreement. ConcurrentlyConcurrent with entering into the Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park (the “Registration Rights Agreement”), pursuant to which we agreed to take certain actions relating to the registration under the Securities Act of 1933, as amended, of the offer and sale of the shares of common stock available for issuance under the Purchase Agreement. See Note 3 to the Condensed Consolidated Financial Statements for additional details concerning the Purchase Agreement.We put this facility in place to ensure that financing will not hinder the continued development of our pipeline should we run into unexpected circumstances in the future.

Impact of COVID-19

The COVID-19 pandemic continues to create uncertainties in expected timelines by causing delays in clinical trials and disruptions in the supply chain for raw materials used in clinical trial work. We have experienced delays in the enrollment of patients in our PCS499 Phase 2B trial due to COVID-19. PotentialSome potential patients have died from COVID-19 prior to screening and others continue to be reluctant to travel to our testing sites for fear of contracting COVID-19. Delays in enrollment lengthen the time of studies and increase their costs, which could materially impact our business in future periods. Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While we are hopeful the infection rate of COVID-19 will continue to decline, we cannot predict the future impact COVID-19 will have on our current and future clinical trials. Continued delays could materially impact our business in future periods and further extend our timelines.

Our Drug Pipeline

We currently have five drugs: four in various stages of clinical development (PCS499, PCS12852, PCS3117,PCS6422, and PCS6422)PCS3117) and one in nonclinical development (PCS11T). We group our drugs into non-oncology (PCS499 and PCS12852) and oncology (PCS3117, PCS6422,(PCS6422, PCS3117, and PCS11T). A summary of each drug is provided below:

PCS499

PCS499, an oral tablet of a deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental^®), is classified by FDA as a new molecular entity. PCS499 and its metabolites act on multiple pharmacological targets that are important in a variety of conditions. We have targeted ulcerative Necrobiosis Lipoidica (uNL) as our lead indication for PCS499. NL is a chronic, disfiguring condition affecting the skin and tissue under the skin typically on the lower extremities with no currently approved FDA treatments. NL presents more commonly in women than in men and occurs more often in people with diabetes. Ulceration has been reported to occur in up to 30% of NL patients, which can lead to more severe complications, such as deep tissue infections and osteonecrosis threatening the life of the limb.

The degeneration of tissue occurring at the NL lesion site may be caused by a number of pathophysiological changes, which makes it extremely difficult to develop effective treatments for this condition. Because PCS499 and its metabolites appear to affect most of the biological pathways that contribute to the pathophysiology associated with NL, PCS499 may provide a novel treatment solution for NL.

On June 18, 2018, the FDA granted orphan-drug designation for PCS499 for the treatment of NL. On September 28, 2018, the IND for PCS499 in NL became effective, such that we initiated and completed a Phase 2A multicenter, open-label prospective trial designed to determine the safety and tolerability of PCS499 in patients with NL. The study initially had a six-month treatment phase and a six-month optional extension phase. In December 2019, we informed patients and sites that the study would conclude after the treatment phase and there would no longer be an extension phase. The first enrolled NL patient enrolled in this Phase 2A clinical trial was dosed on January 29, 2019, and the study completed enrollment on August 23, 2019. The last patient visit took place in February 2020.

The primary objective of the Phase 2A trial was to evaluate the safety and tolerability of PCS499 in patients with ulcerated and non-ulcerated NL and to use the safety and efficacy data to design future clinical trials. Based on toxicology studies and healthy human volunteer studies, we and the FDA agreed that a PCS499 dose of 1.8 grams/day would be the highest dose administered to NL patients in this Phase 2A trial. As anticipated, the PCS499 dose of 1.8 grams/day, 50% greater than the maximum tolerated dose of PTX, appeared to be well tolerated with no serious adverse events (SAEs) reported. All adverse events (AEs) reported in the study were mild in severity. As expected, gastrointestinal symptoms were the most frequent AEs and were reported in four patients, all of which resolved within 1-2 weeks of starting dosing.

Two of the twelve patients in the study presented with uNL and had ulcers for more than two months prior to dosing. At baseline, the reference ulcer in one of the two patients measured 3.5 cm² and had completely closed by Month 2 of treatment. The second patient had a baseline reference ulcer of 1.2 cm² which completely closed by Month 9 during the patient’s treatment extension period. In addition, while in the trial, both patients also developed small ulcers at other sites, possibly related to contact trauma, and these ulcers resolved within one month. The other ten patients, presenting with mild to moderate non-ulcerated NL, had more limited improvement of the NL lesions during treatment. Historically, 13 - 20% of all the patients with NL naturally progress to complete healing over many years after presenting with NL. Although the natural healing of the uNL patients has not been evaluated independently, medical experts who treat NL patients suggest that the natural progression of an open ulcerated wound to complete closure may be significantly less than 13% over 1-2 years and probablylikely close to 0% in patients with the larger ulcers.