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. Potential patients have died from COVID-19 prior to screening and 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. For more information on the risks associated with COVID-19, refer to Part I, Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Liquidity

We have incurred losses since inception, devoting substantially all of our efforts toward research and development, and have an accumulated deficit of approximately $40.1 million as of March 31, 2022. During the three months ended March 31, 2022, we generated a net loss of approximately $3.2 million and we expect to continue to generate operating losses and negative cash flow from operations for the foreseeable future. Based on our current plans, we believe our current cash balances is adequate for at least the next twelve months without considering amounts available from the Purchase Agreement with Lincoln Park (see below and Note 3) or potential sales under our ATM Offering (see below). Our ability to execute our longer-term operating plans, including unplanned future clinical trials for our portfolio of drugs depend on our ability to obtain additional funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue to actively pursue financing alternatives, but there can be no assurance that we will obtain the necessary funding in the future when necessary.

We had no revenue during the three months ended March 31, 2022 and do not have any revenue under contract or any immediate sales prospects. Our primary uses of cash are to fund our planned clinical trials, research and development expenditures and operating expenses. Cash used to fund operating expenses is impacted by the timing of when we incur and pay these expenses.

On August 20, 2021, we entered into an equity distribution agreement (the “Sales Agreement”) with Oppenheimer & Co. Inc. under which we may issue and sell in a registered “at-the-market” offering shares of our common stock having an aggregate offering price of up to $30.0 million from time to time through or to our Sales Agent (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. The shares under the ATM Offering will be sold and issued pursuant to our S-3 shelf registration statement (Registration No. 333-257588) filed on July 30, 2021.

On March 23, 2022, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) under which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15,000,000 of our shares of common stock, par value $0.0001 per share, subject to the terms and conditions in the Purchase Agreement, during the term of the Purchase Agreement. See Note 3 for additional details concerning the Purchase Agreement.

Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. As of March 31, 2022 and December 31, 2021, we recorded a valuation allowance equal to the full recorded amount of our net deferred tax assets related to deferred start-up costs, federal orphan drug tax credit and certain other minor temporary differences since it is more-likely-than-not that such benefits will not be realized. The valuation allowance is reviewed quarterly and is maintained until sufficient positive evidence exists to support its reversal.

Under ACS 740-270 Income Taxes – Interim Reporting, we are required to project our annual federal and state effective income tax rate and apply it to the year-to-date ordinary operating tax basis loss before income taxes. Based on the projection, we recognized the tax benefit from our projected ordinary tax loss, which was used to offset the deferred tax liabilities related to the intangible asset and resulted in the recognition of a deferred tax benefit shown in the condensed consolidated statements of operations for three months ended March 31, 2021 and the remainder of 2021. No current income tax benefit or expense is expected for 2022 and the foreseeable future since the deferred tax liability has been offset completely as of December 31, 2021 and we expect to generate taxable net operating losses.

Recent Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our condensed consolidated financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our consolidated financial position or results of operations.