Gossamer Bio, Inc. — Q2 2021 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 quarter and six months ended June 30, 2021. The company had no product revenue and remains dependent on external financing.
During the period, the company was enrolling patients in Phase 2 trials for seralutinib in pulmonary arterial hypertension and GB004 in ulcerative colitis. Top-line results for both trials were expected in the first half of 2022, subject to COVID-19-related developments. The company subsequently announced in the third quarter of 2021 that it would discontinue clinical development of GB1275.
Financial condition and key metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $44.3 million | $86.1 million |
| In-process R&D expense | $0.0 million | $0.0 million |
| General and administrative expense | $11.3 million | $22.6 million |
| Total operating expenses | $55.6 million | $108.8 million |
| Loss from operations | $55.6 million | $108.8 million |
| Net loss | $59.8 million | $117.5 million |
| Net loss per share | $0.80 | $1.58 |
| Operating cash flow | Not separately provided for the quarter | $(106.3) million |
- Cash, cash equivalents and marketable securities totaled $405.9 million at June 30, 2021, consisting of $342.5 million of cash and cash equivalents and $63.5 million of marketable securities.
- Accumulated deficit was $695.0 million.
- Total liabilities were $211.8 million, including $146.8 million of convertible senior notes and $28.9 million of long-term debt.
- The $200.0 million principal amount of 5.00% convertible senior notes is due in 2027; the notes had a $146.8 million net carrying value at June 30, 2021.
- The $30.0 million secured term loan bears interest at one-month LIBOR plus 7.00%, subject to a 2.00% LIBOR floor. Interest-only payments continue through June 30, 2022, with amortization beginning July 1, 2022. The facility matures January 1, 2025.
- Stock-based compensation was $8.1 million for the quarter and $16.8 million for the six-month period.
- Operating margin and net margin are not meaningful because the company has no revenue and is in the clinical development stage.
Material changes versus the prior comparable period
- Quarterly R&D expense increased $5.6 million, or approximately 15%, to $44.3 million. Six-month R&D expense increased $6.0 million to $86.1 million, primarily due to higher spending on GB004, seralutinib and other programs.
- Total quarterly operating expenses decreased $9.7 million because the prior-year period included a $15.0 million GB004 in-process R&D payment. Six-month operating expenses decreased $11.5 million for the same reason.
- Net loss improved by $7.0 million for the quarter and $3.5 million for the six-month period, despite higher R&D spending, because of the lower in-process R&D expense.
- Net interest expense increased substantially due to the 2027 convertible notes. Six-month interest expense rose to $9.6 million from $3.2 million.
- Operating cash use increased to $106.3 million from $94.7 million. Investing activities used $38.1 million in 2021, compared with $134.3 million of cash provided in 2020, when marketable securities were sold or matured and financing proceeds were received.
- Cash, cash equivalents and restricted cash declined by $143.6 million during the first six months, compared with a $351.0 million increase in the prior-year period, which benefited from the 2020 stock and convertible-debt offerings.
Guidance, outlook, commentary and risks
- Management expected existing cash, cash equivalents, marketable securities and access to the Credit Facility to fund operations into the second half of 2023, based on the operating plan in the filing.
- The company expects significant operating losses for the foreseeable future and may never become profitable. It does not expect product-sales revenue for several years unless clinical development and regulatory approval are successful.
- Additional capital may be required through equity offerings, debt financings, collaborations, licenses or other arrangements. Such transactions could dilute stockholders, impose restrictive covenants or require the company to relinquish valuable rights.
- COVID-19 caused and could continue to cause clinical-site closures, patient-enrollment delays, protocol deviations, data-readout delays and supply-chain disruption. PAH patients and trial sites were identified as particularly vulnerable to these effects.
- License agreements create contingent obligations, including up to $63.0 million of development and regulatory milestones, $45.0 million of commercial milestones and $190.0 million of sales milestones for seralutinib; additional milestone and royalty obligations apply to GB004 and GB1275. The timing and likelihood of these payments were not estimable.
- A putative securities class action relating to the February 2019 IPO remained pending. The court dismissed the claims in substantial part but allowed one claim to proceed. The company could not estimate a reasonably possible loss or range of loss.
- The company reported compliance with the Credit Facility covenants and the 2027 Notes covenants as of June 30, 2021. No additional Credit Facility tranches were available to draw at that date.
Investor verification checklist
- Verify the pace of cash burn and whether the projected funding runway into the second half of 2023 remains achievable.
- Track Phase 2 enrollment, COVID-19 effects and clinical readouts for seralutinib and GB004.
- Assess the strategic and financial impact of the subsequent discontinuation of GB1275.
- Review the $200.0 million convertible-note obligation, conversion provisions, interest burden and future secured-debt amortization.
- Monitor potential milestone, royalty and other contingent payments under the company’s licensing agreements.
- Follow developments in the remaining IPO-related litigation and any potential financial exposure.