Gain Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparative periods ended June 30, 2020. The unaudited statements are for an early-stage biotechnology company developing therapies for diseases associated with protein misfolding using its SEE-Tx platform. Gain has no approved products and has not generated product-sales revenue.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $89,173 | $6,373 | $94,441 | $13,047 |
| Research and development expense | $1.794 million | $439,000 | $3.215 million | $856,000 |
| General and administrative expense | $1.810 million | $100,000 | $2.861 million | $202,000 |
| Net loss | $3.557 million | $543,000 | $6.007 million | $1.128 million |
| Basic and diluted loss per share | $0.30 | $0.27 | $0.71 | $0.57 |
- Revenue included $81,617 from the Zentalis collaboration; the company reported no product-sales revenue. Profit margins are not meaningful given the development-stage business and recurring losses.
- Six-month net cash used in operations was $6.027 million, compared with $1.177 million in 2020. Investing cash use was $51,000; financing provided $41.777 million, principally from the IPO. Cash, cash equivalents and restricted cash increased $35.700 million to $43.205 million.
- At June 30, cash and cash equivalents were $43.163 million; current assets were $44.335 million and current liabilities $2.451 million. Total liabilities were approximately $3.964 million. Debt was $712,000, comprising Swiss government-guaranteed, zero-interest loans; operating lease liabilities totaled $812,000.
- Accumulated deficit was $13.042 million. Stockholders’ equity was $41.389 million. The March IPO generated approximately $40.6 million of net proceeds after offering costs; common shares outstanding were 11,876,460 at quarter-end.
Material changes versus the prior comparable period
- Q2 revenue increased from $6,373 to $89,173, primarily due to the new Zentalis collaboration.
- Q2 R&D expense rose by $1.355 million, principally from increased external preclinical services and personnel costs. Six-month R&D expense increased by $2.359 million.
- Q2 G&A expense rose by $1.710 million, reflecting public-company listing, legal and professional costs, increased staffing and stock-based compensation, and warrant-related expense. Six-month G&A expense increased by $2.659 million.
- Net loss increased to $3.557 million for Q2 and $6.007 million for the first half, as operating costs expanded following the IPO and increased development activity. The IPO materially strengthened cash and equity compared with year-end 2020.
Outlook, management commentary and risks
- Management expected most animal and proof-of-concept data in Q3 2021 and planned to commence IND-enabling studies for lead candidates in December 2021. These are forward-looking plans, not reported outcomes.
- Management stated existing cash was expected to fund planned operations and capital expenditures for the foreseeable future, and anticipated at least 12 months of operations. The company also expects significant future losses and may need additional financing; actual cash needs may differ from estimates.
- The April 2021 Zentalis agreement covers up to five targets. For the first program, stated potential consideration included a $50,000 initiation fee, up to $272,000 in cost reimbursement, a $250,000 option fee, up to $41.5 million in event-based milestones and royalties. The option and contingent payments are not guaranteed. At June 30, the company recognized $81,000 revenue, reported $240,000 deferred revenue and recorded $322,000 receivable, collected after quarter-end.
- In May, the company issued investment-bank designees warrants for 200,000 shares at $13.75, valued at $1.034 million and expensed over the six-month advisory-services term. No warrants had been exercised by June 30.
- Key risks include preclinical and regulatory uncertainty, the unproven SEE-Tx platform, dependence on third parties and licensed intellectual property, challenges identifying and enrolling patients with rare diseases, financing needs, foreign-currency exposure and possible COVID-19 disruption. A 10% change in CHF translation rates was estimated to change six-month net loss by approximately $340,000.
- Management concluded disclosure controls and procedures were not effective at June 30 because of material weaknesses in financial close staffing and controls. Remediation was underway, but the weaknesses had not yet been deemed remediated. The company reported no material legal proceedings.
Important facts for investors to verify
- Whether the projected Q3 animal and proof-of-concept data and December 2021 IND-enabling start were achieved, and what the data show.
- Cash burn and runway against the stated operating plan, including whether additional capital or collaboration funding is needed.
- Progress, reimbursement and option exercise under the Zentalis collaboration, and whether potential milestones or royalties become payable.
- Remediation and testing of the disclosed material weaknesses and the effectiveness of financial reporting controls in subsequent filings.
- Development, safety, intellectual-property and regulatory progress for the STAR candidates and SEE-Tx platform; none had entered clinical trials as of the filing.