Business Context and Reporting Period
The filing is Gemphire Therapeutics Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. The request metadata identifies Metavia Inc., but the filing itself identifies Gemphire Therapeutics Inc. as the registrant.
Gemphire is a clinical-stage biopharmaceutical company developing gemcabene, an oral therapy for dyslipidemia and NAFLD/NASH. The company had 17 employees, no approved products, and no revenue as of September 30, 2017.
Financial Performance and Position
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $2.1 million, compared with $1.5 million | $9.0 million, compared with $3.6 million |
| Research and development expense | $6.5 million, compared with $1.9 million | $17.6 million, compared with $3.9 million |
| Total operating expenses | $8.5 million, compared with $3.4 million | $26.6 million, compared with $7.5 million |
| Net loss | $8.7 million, or $0.82 per share | $26.7 million, or $2.60 per share |
| Net cash used in operating activities | Not separately presented | $20.1 million, compared with $7.4 million |
Gross profit and gross margin are not meaningful because the company has not generated revenue. Operating margin is also not meaningful for the same reason.
- Cash and cash equivalents were $25.3 million at September 30, 2017, compared with $24.0 million at December 31, 2016.
- Total liabilities were $16.3 million, including a $10.0 million term loan, compared with $4.1 million at December 31, 2016.
- Stockholders’ equity declined to $9.9 million from $20.6 million, primarily reflecting the nine-month net loss, partly offset by equity financing.
- Accumulated deficit was $53.7 million.
- Net cash provided by financing activities was $21.4 million, including $10.0 million of term-loan proceeds and approximately $11.3 million of net private-placement proceeds.
- Cash increased by $1.3 million during the first nine months of 2017; there were no investing cash flows.
Material Changes Versus the Prior Comparable Period
- Operating expenses increased by $19.1 million, or approximately 256%, for the nine months, driven primarily by expanded clinical development activity.
- Research and development expense increased by $13.7 million, reflecting three Phase 2b and four Phase 1 clinical trials during the 2017 period versus minimal clinical activity in the prior-year period.
- General and administrative expense increased by $5.4 million. The 2017 period included $2.1 million of non-cash accelerated stock-based compensation and $0.5 million of cash separation costs related to the former chief executive officer.
- Shares outstanding increased to 10.6 million from 9.3 million at December 31, 2016, principally due to the March 2017 private placement and exercises of options and warrants.
- On March 15, 2017, the company issued 1,324,256 units for gross proceeds of approximately $12.5 million. Each unit included one common share and a five-year warrant to purchase 0.75 shares at an exercise price of $10.40.
- On July 24, 2017, the company drew $10.0 million under a secured term-loan facility of up to $15.0 million.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued losses and substantially higher expenses as clinical trials, regulatory activities, manufacturing preparation, intellectual-property protection, hiring and potential commercialization planning progress.
- Top-line data from the ROYAL-1 trial was reported in the third quarter of 2017. Management expected INDIGO-1 top-line data in the second quarter of 2018 and planned a NASH proof-of-concept trial in the fourth quarter of 2017, with top-line data expected in the second half of 2018.
- The company expected to seek an End-of-Phase 2 meeting with the FDA after completion of one or more clinical trials.
- The term loan matures February 1, 2021, carries interest at a floating rate based on the prime rate, and has interest-only payments through August 1, 2018, potentially extendable to February 1, 2019 if specified milestones are achieved.
- An additional $5.0 million loan tranche may be available through July 31, 2018, subject to positive clinical and pre-clinical events. The filing states that evidence of a positive clinical trial event was provided to the lender on November 10, 2017, after the reporting date.
- If specified clinical or pre-clinical milestones are not achieved by March 31, 2018 or July 31, 2018, respectively, the company may be required to establish restricted cash collateral or repay the term loan in full.
- The loan is secured by substantially all company assets other than intellectual property and includes restrictive covenants, default provisions, a 10% final payment fee and potential success and prepayment fees.
- The company states that it will need additional capital to fund development and operations. Additional financing may dilute shareholders, impose restrictive terms or require the company to relinquish rights through collaborations or licensing arrangements.
- Under the Pfizer license, the company may owe up to $37 million in future milestone payments and tiered royalties if specified development, regulatory or sales milestones occur. No milestone or royalty liabilities were recorded as of September 30, 2017.
- The company reported effective disclosure controls as of September 30, 2017 and no material changes in internal control over financial reporting.
Key Facts for Investors to Verify
- Confirm the registrant’s identity, since the supplied metadata names Metavia Inc. while the filing names Gemphire Therapeutics Inc.
- Assess whether $25.3 million of cash is sufficient relative to the $20.1 million nine-month operating cash burn and expected higher clinical-development spending.
- Review the term-loan milestones, collateral requirements, maturity terms, covenants and potential repayment acceleration.
- Verify the status and results of the ROYAL-1, INDIGO-1 and other gemcabene trials, including the partial clinical hold referenced in the loan provisions.
- Evaluate dilution from 978,204 outstanding warrants, approximately 2.5 million stock options and potential future equity financing.
- Review the Pfizer license obligations and the risk of license termination if commercialization requirements are not met.