Business Context and Reporting Period
The filing is Gemphire Therapeutics Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018; the request metadata identifies the company as Metavia Inc., which does not match the filing. Gemphire is a clinical-stage biopharmaceutical company developing gemcabene for dyslipidemia and NAFLD/NASH. It has no approved products or revenue.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $2.6 million | $4.7 million |
| Research and development expense | $4.0 million | $8.9 million |
| Total operating expenses | $6.5 million | $13.6 million |
| Net loss | $6.7 million | $13.9 million |
| Basic and diluted loss per share | $0.47 loss | $1.04 loss |
| Cash used in operating activities | Not separately provided | $13.5 million |
Because the company has no revenue, gross and operating margins are not meaningful. Cash and cash equivalents were $28.0 million at June 30, 2018, compared with $18.5 million at December 31, 2017. Total liabilities were $13.8 million, including $10.2 million of term-loan debt. Stockholders’ equity was $15.0 million, compared with $3.9 million at year-end 2017. The accumulated deficit was $74.4 million.
Financing activities generated $23.1 million during the first six months, principally from a February 2018 follow-on offering. Cash increased by $9.6 million during the period. Management stated that cash on hand was expected to fund operations into the fourth quarter of 2019, although the filing also notes that additional capital will be required to continue development.
Material Changes Versus the Prior Comparable Period
- Second-quarter net loss declined to $6.7 million from $10.5 million; six-month net loss declined to $13.9 million from $18.0 million.
- General and administrative expense decreased by $2.1 million in the quarter and $2.2 million year to date, primarily because 2017 included former-chief-executive separation costs and $2.1 million of accelerated, non-cash stock-based compensation.
- Research and development expense decreased by $1.9 million in the quarter and $2.2 million year to date, primarily due to reduced clinical-trial activity.
- Interest changed from income in 2017 to expense in 2018 because of the SVB term loan.
- Common shares outstanding increased to 14.2 million from 10.6 million at December 31, 2017, principally due to the follow-on offering. The company also had 3.2 million outstanding stock options and 978,204 outstanding warrants at June 30, 2018.
- Operating cash use increased to $13.5 million from $12.8 million despite the lower net loss, partly because of working-capital movements and lower non-cash compensation.
Guidance, Outlook, Risks, and Unusual Items
- Management expects continued operating losses and no revenue unless gemcabene receives regulatory approval and is commercialized. Future funding is expected from equity or debt financings, collaborations, strategic alliances, or licensing arrangements.
- Gemcabene remained subject to an FDA partial clinical hold on trials longer than six months. The FDA requested additional preclinical data, which management expected to submit in the second quarter of 2019. An End-of-Phase 2 meeting for Phase 3 and long-term safety studies was contingent on lifting the hold.
- After the reporting period, the company disclosed that an investigator-led pediatric NAFLD trial was halted in August 2018 after three patients showed increased liver fat and ALT levels. The filing states that the impact on other studies and future development was uncertain.
- On July 31, 2018, SVB amended the loan agreement. Interest-only payments were extended through November 1, 2018, subject to conditions, and the deadline for a required preclinical event was extended to September 30, 2019. If the event does not occur, or unrestricted cash at SVB falls below $18 million before then, the company must provide restricted cash equal to amounts owed or prepay the loan. The amendment also added a 36,000-share warrant to SVB.
- The term loan matures February 1, 2021, bears interest at a floating rate based on prime, and includes a 10% final payment fee, a potential 3.5% success fee, and prepayment fees. The loan is secured by substantially all company assets other than intellectual property and includes restrictive covenants.
- On August 2, 2018, the Pfizer license agreement was amended and restated. The first-commercial-sale deadline was extended to April 2024, while royalty terms were extended and rates increased to the high single digits through mid-teens depending on sales levels.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of June 30, 2018.
Important Facts for Investors to Verify
- Confirm the company identity discrepancy between the request metadata and the filed registrant, Gemphire Therapeutics Inc.
- Verify the FDA’s response to the additional preclinical studies and whether the partial clinical hold is lifted.
- Assess the implications of the halted pediatric NAFLD trial for the broader gemcabene clinical program.
- Reconcile the stated cash runway with the company’s $13.5 million six-month operating cash burn, $10.2 million debt balance, and expected need for additional financing.
- Monitor compliance with the amended SVB loan milestones, cash-balance requirement, covenants, and potential repayment obligations.
- Evaluate dilution from outstanding options, warrants, the SVB warrant, and likely future equity financing.
- Review the amended Pfizer license for milestone, royalty, termination, and first-commercial-sale obligations.