The art director of The 3rd Birthday, Isamu Kamikokuryou, has revealed to Famitsu in an interview that since development ended on Final Fantasy XIII, much of the staff have turned their focus to The 3rd Birthday, becoming "core members" to the dev team.
The 3rd Birthday isn't exactly a sequel or prequel to Parasite Eve. Director Hajime Tabata explains that while it does share similarities, he'd like for us "to think of it as a new title that features Aya Brea." The dev team is looking to create an experience comparable to that of a console title.
"The game setting is at the level where it could be played on a console. It's the feeling of we've somehow managed to fit that onto PSP," says Tabata.
Here's the E3 trailer, The 3rd Birthday certainly looks to push the boundaries of the PSP.