Gossamer Bio, Inc. — 2020 Second-Quarter Form 10-Q Summary
Business context and reporting period
Gossamer Bio is a clinical-stage biopharmaceutical company developing therapies for immunology, inflammation and oncology. The filing covers the three and six months ended June 30, 2020. The company has four clinical-stage product candidates: GB001, GB002, GB004 and GB1275. It has not generated product revenue and expects operating losses to continue for the foreseeable future.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $38.7 million | $80.1 million |
| In-process research and development expense | $15.0 million | $17.8 million |
| General and administrative expense | $11.7 million | $22.4 million |
| Total operating expenses | $65.3 million | $120.3 million |
| Loss from operations | $65.3 million | $120.3 million |
| Net loss | $66.9 million | $120.9 million |
| Basic and diluted net loss per share | $1.00 loss | $1.88 loss |
| Net cash used in operating activities | Not separately provided | $94.7 million |
Gross profit and operating margins are not meaningful because the company has no revenue. Accumulated deficit was $455.1 million at June 30, 2020. Stock-based compensation was $8.9 million for the quarter and $17.1 million for the six-month period.
At June 30, 2020, cash and cash equivalents were $486.1 million, marketable securities were $114.3 million and total current assets were $608.4 million. Cash, cash equivalents and marketable securities totaled approximately $600.4 million. Total liabilities were $204.8 million, including $140.7 million of net carrying value for the 5.00% convertible senior notes and $28.6 million of long-term debt under the credit facility. Stockholders’ equity was $420.3 million.
Material changes versus the prior comparable period
- Second-quarter net loss increased by $22.4 million, to $66.9 million from $44.5 million; six-month net loss increased by $43.8 million, to $120.9 million from $77.1 million.
- Second-quarter research and development expense increased $3.0 million, primarily from higher personnel and external consultant costs, partially offset by lower GB001 and GB002 study costs.
- Six-month research and development expense increased $19.4 million, driven principally by higher personnel and consultant costs and increased GB1275 development costs.
- In-process research and development expense increased $14.0 million for the quarter and $15.8 million year to date, primarily due to a $15.0 million upfront payment to Aerpio related to the GB004 license amendment.
- General and administrative expense increased $2.0 million for the quarter and $4.7 million year to date, mainly because of higher stock-based compensation and personnel costs.
- Other income changed to $1.5 million of expense in the quarter from $1.9 million of income in the prior-year quarter, reflecting higher interest expense and lower investment income.
- Operating cash burn increased to $94.7 million for the first six months from $64.6 million in the prior-year period.
- Cash increased substantially because of financing and investment activity. The company received net proceeds of $193.6 million from issuing $200.0 million of 5.00% convertible notes due 2027 and $117.1 million from a concurrent common-stock offering.
Cash flow, debt and liquidity
Investing activities provided $134.3 million during the first six months of 2020, primarily from maturities and sales of marketable securities, partially offset by purchases of securities, the $15.0 million GB004 payment and capital expenditures. Financing activities provided $311.4 million.
The credit facility had $30.0 million drawn at June 30, 2020, with additional commitments subject to clinical milestones, minimum cash requirements and other conditions. The facility was secured by substantially all of the company’s and domestic subsidiaries’ personal property, including intellectual property. The company was in compliance with its covenants at June 30, 2020.
The May 2020 convertible notes carry a 5.00% coupon, mature June 1, 2027 and have an initial conversion price of approximately $16.23 per share. The company recorded a $53.6 million equity component and $140.7 million net liability component. The notes were not convertible based on conditions existing at June 30, 2020.
Management stated that existing cash, cash equivalents, marketable securities and access to the credit facility were expected to fund operations into at least 2024, although the estimate is subject to clinical-development, financing and other execution risks. The financial statement notes state that working capital was sufficient for at least the next twelve months from issuance of the financial statements.
Guidance, outlook, commentary and risks
- GB001 completed enrollment in the LEDA Phase 2b asthma trial; topline results were expected in the second half of 2020. The company completed enrollment in the TITAN Phase 2 chronic rhinosinusitis trial, with topline results also expected in the second half of 2020.
- Enrollment in the GB002 Phase 1b PAH trial was temporarily paused because of COVID-19; topline results were expected in the second half of 2020. The company expected to begin a GB002 Phase 2 trial in the second half of 2020, subject to pandemic developments.
- Following promising Phase 1b results for GB004 in ulcerative colitis, the company expected to begin a Phase 2 trial in the second half of 2020, subject to COVID-19 conditions.
- Updated GB1275 oncology trial results were expected in the second half of 2020.
- COVID-19 created risks of enrollment delays, trial-site closures, protocol deviations, delayed data readouts and potential supply-chain disruption. The company reported continued product supply to enrolled patients and implemented virtual visits, direct-to-patient drug supply and remote monitoring for certain studies.
- The company expects substantially higher research and development and general and administrative expenses as clinical programs advance. It expects to require additional capital and may finance operations through equity, debt, collaborations, licenses or similar arrangements.
- License and acquisition agreements include potential future development, regulatory and commercial milestone payments and royalties. No contingent milestones had been accrued at June 30, 2020 because the underlying conditions had not been met.
- A putative securities class action filed in April 2020 alleges materially false or misleading statements related to the company’s IPO and subsequent disclosures. The company intends to defend the matter and stated that it could not estimate a reasonably possible loss or range of loss.
- On July 2, 2020, after quarter-end, the credit facility was amended to extend maturity to January 1, 2025, increase the spread to 7.00% over one-month LIBOR subject to a 2.00% floor, extend the interest-only period to July 1, 2022 and revise access to remaining tranches.
Most important facts for investors to verify
- Clinical trial timing and topline data for GB001, GB002, GB004 and GB1275, particularly the effect of COVID-19-related delays.
- Whether the stated liquidity runway into at least 2024 remains valid under updated spending, trial and financing assumptions.
- Terms, covenant compliance and future borrowing capacity under the amended credit facility.
- Potential dilution and repayment or conversion exposure from the $200.0 million convertible notes and outstanding equity awards.
- Future milestone, royalty and licensing obligations for GB002, GB004 and GB1275.
- Developments, potential damages and insurance coverage relating to the securities class action.
- The company’s continuing losses, absence of revenue and need for future capital to fund clinical development.