Gemphire Therapeutics Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2019; filed November 8, 2019. The provided filing identifies the registrant as Gemphire Therapeutics Inc., not Metavia Inc. The company was a clinical-stage biopharmaceutical developer focused primarily on gemcabene for dyslipidemia and NAFLD/NASH and had no approved products or commercial revenue.
Financial condition and results
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.3 million, versus $5.9 million | $7.5 million, versus $19.5 million |
| Net loss | $3.4 million, versus $6.1 million | $10.2 million, versus $20.0 million |
| Net loss per share | $0.24 loss, versus $0.43 loss | $0.71 loss, versus $1.46 loss |
| Cash used in operating activities | Not separately provided | $6.8 million, versus $17.8 million |
- General and administrative expense was $1.25 million in the quarter and $3.77 million year to date, down from $2.36 million and $7.03 million, respectively.
- Research and development expense was $1.07 million in the quarter and $3.70 million year to date, down from $3.54 million and $12.48 million, respectively, primarily because of reduced clinical activity.
- Other expense was $1.12 million in the quarter and $1.87 million year to date, primarily transaction costs related to the strategic review and proposed NeuroBo merger.
- At September 30, 2019, cash and cash equivalents were $1.86 million and restricted cash was $15,000. Total assets were $2.05 million, accounts payable was $2.68 million, and total liabilities were $3.07 million.
- Stockholders’ equity was a deficit of $1.03 million, compared with positive equity of $7.77 million at December 31, 2018. Accumulated deficit was $94.26 million.
- The $10.0 million term loan from Silicon Valley Bank was prepaid in January 2019. The repayment generated approximately $0.8 million of non-cash discount amortization expense, and the proposed merger would trigger an additional $350,000 success fee.
Material changes versus the prior comparable period
- Operating expenses declined by $3.59 million in the quarter and $12.04 million for the nine-month period, reflecting reduced clinical-trial and support activities following the FDA partial clinical hold and prior workforce reduction.
- Net loss improved by $2.65 million in the quarter and $9.83 million year to date, although the company remained unprofitable and cash-generating operations were not established.
- Operating cash burn decreased by $10.97 million year to date, but financing cash flow shifted from $23.13 million provided in 2018 to $10.26 million used in 2019 because of the term-loan repayment and absence of new equity proceeds.
- Common shares outstanding increased from 14.27 million at December 31, 2018 to 14.87 million at September 30, 2019, principally due to 607,000 restricted shares issued in connection with the proposed merger.
Outlook, strategic transactions, risks, and unusual items
- On July 24, 2019, Gemphire agreed to an all-stock merger with NeuroBo Pharmaceuticals; the agreement was amended October 29, 2019. The transaction was expected to close in the fourth quarter of 2019, subject to stockholder, Nasdaq, financing, and other conditions.
- On a stated pro forma basis, Gemphire security holders were expected to own approximately 3.74% of the combined company and former NeuroBo security holders approximately 96.26%, subject to adjustment.
- Upon closing, Gemphire stockholders were expected to receive contingent value rights tied to 80% of specified future gross consideration from gemcabene-related transactions, excluding the Beijing SL upfront payment. The CVRs may expire without value and are unsecured and subordinated obligations.
- Under the July 2019 Beijing SL agreement, Gemphire licensed gemcabene rights in mainland China, Hong Kong, Macau, and Taiwan. A $2.5 million non-refundable upfront payment was received in October 2019 but was recorded as deferred revenue because performance obligations had not been satisfied as of the filing date. The agreement also provides for up to $6 million of development and regulatory milestones, additional sales milestones, and tiered royalties ranging from the mid-teens to 20%.
- The FDA partial clinical hold remained in place for human studies longer than six months. The company expected to submit additional requested preclinical data in January 2020; an End-of-Phase 2 meeting could not occur until the hold was lifted.
- Management stated that cash on hand, including the Beijing SL payment, was expected to fund operations only through the fourth quarter of 2019, excluding merger transaction costs. The filing states that available cash was not sufficient to fund the company’s plan for at least twelve months and that substantial doubt existed about the company’s ability to continue as a going concern.
- Nasdaq had identified deficiencies involving minimum stockholders’ equity and minimum bid price. The company received an extension to February 10, 2020 to regain equity compliance, while the bid-price deficiency had a February 4, 2020 deadline. Failure to comply could result in delisting.
- The company had no current committed external funding source other than the Beijing SL upfront payment. If the merger failed or additional financing could not be obtained, management indicated it might significantly reduce or terminate operations, discontinue gemcabene development, or liquidate the company.
- The company’s headquarters lease expired in August 2019, and no replacement office lease was in place at September 30, 2019.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for Gemphire Therapeutics Inc., while the request metadata names Metavia Inc.
- Verify the subsequent closing status and final terms of the NeuroBo merger, including ownership dilution, CVRs, transaction costs, and any termination fee.
- Verify the timing and accounting treatment of the $2.5 million Beijing SL payment and any subsequent milestone or royalty economics.
- Assess whether the FDA partial clinical hold was lifted and whether the requested preclinical studies and planned regulatory submissions were completed.
- Confirm the company’s liquidity after September 30, 2019, including operating cash burn, merger-related payments, and any equity or debt financing.
- Check Nasdaq listing status and whether the minimum equity and bid-price deficiencies were cured or resulted in delisting.
- Review Pfizer milestone, royalty, termination, and success-fee obligations associated with gemcabene.