Shares of the micro-cap biotech company Processa plummeted following the announcement of a merger. What went wrong?

Shares of Processa Pharmaceuticals, a micro-cap cancer therapy developer with a market capitalization of just $5.6 million on the Nasdaq, plummeted by 33% on July 29. The company announced a merger with the privately held biotech firm Vidya Therapeutics and a simultaneous private placement of securities worth approximately $200 million. In the combined company, current Processa shareholders will hold less than 1%.

Processa shares fell 33% to $2 during trading on July 29. In premarket trading on July 30, they plummeted by nearly another 9%.

This came after the company announced a merger with Vidya, a private biotech firm that developed VT-7208, a drug with the potential to treat food allergies and multiple sclerosis.

At the same time, Processa will issue approximately $200 million in new preferred shares to a number of investors, including Bain Capital Life Sciences, Janus Henderson Investors, and Marshall Wace, which can subsequently be converted into common shares.

The boards of directors of both companies have already voted in favor of the merger. The press release states that shareholder approval is not required for this transaction or for the private placement. However, the owners of the micro-cap biotech company must approve the issuance of preferred securities and their conversion, the statement adds.

As a result of the transactions, Processa’s current shareholders will receive about 0.9% of the combined company’s shares, Vidya’s shareholders will receive approximately 46%, and participants in the private placement will receive approximately 52.6%.

According to the statement, in the first phase, the merged company will focus on further developing Vidya’s VT-7208. This drug blocks a specific protein inside immune cells, thereby reducing inflammation and halting the growth of cancer cells.

Processa will test it in Phase II clinical trials for three indications simultaneously: the treatment of food allergies and chronic urticaria, prostate cancer, and multiple sclerosis. The company expects to receive the results in 2027–2028.

The funds received from the investor syndicate will be sufficient to finance the company's operations through the second half of 2029 and will also allow it to conduct three clinical programs in parallel rather than sequentially, according to the statement.