Gossamer Bio, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Gossamer Bio is a clinical-stage biopharmaceutical company focused on immunology, inflammation and oncology therapies. Its primary current program is seralutinib for pulmonary arterial hypertension. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods.
Financial condition and key metrics
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $36.3 million | $74.1 million |
| General and administrative expense | $10.0 million | $20.1 million |
| Total operating expenses | $46.3 million | $94.2 million |
| Net loss | $42.5 million | $91.7 million |
| Net loss per share | $0.45 | $0.96 |
| Operating cash flow | Not separately provided | $(91.2) million |
At June 30, 2023, cash and cash equivalents were $37.0 million and marketable securities were $125.1 million, for total cash, cash equivalents and marketable securities of $162.1 million. Total assets were $181.7 million. Total debt consisted of $18.0 million of net Credit Facility debt and $196.1 million of net carrying value for the 5.00% convertible senior notes due 2027. Stockholders’ deficit was $62.8 million, compared with equity of $12.1 million at December 31, 2022.
Six-month cash investing activities provided $21.7 million, primarily reflecting $155.0 million of marketable-securities maturities less $133.3 million of purchases. Financing activities used $5.4 million, primarily due to $5.8 million of debt principal repayments. The company had no product revenue and remains dependent on external financing.
Material changes versus the prior comparable period
- Second-quarter operating expenses decreased $7.6 million, or approximately 14%, to $46.3 million. Research and development expense declined $6.3 million, while general and administrative expense declined $1.3 million.
- Six-month operating expenses decreased $14.0 million, or approximately 13%, to $94.2 million. Research and development expense decreased $10.8 million and general and administrative expense decreased $3.2 million.
- Seralutinib research and development spending increased to $22.2 million in the second quarter and $40.1 million for the six-month period, from $13.3 million and $25.5 million, respectively, in the prior-year periods. Spending on other programs and terminated programs declined.
- Net loss improved by $14.0 million in the second quarter and $22.6 million for the six months, primarily because of lower operating expenses and higher other income.
- Other income, net was $6.5 million in the second quarter and $8.2 million for the six months, including investment accretion and approximately $2.8 million of employee retention credit and $2.1 million of Ireland corporate R&D tax credit.
- Operating cash use improved from $102.3 million to $91.2 million for the six months. Debt principal repayments of $5.8 million occurred in 2023, versus none in the comparable 2022 period.
Guidance, outlook, risks and unusual items
Management expected to initiate a Phase 3 seralutinib program in pulmonary arterial hypertension in the third quarter of 2023 and begin clinical development in pulmonary hypertension associated with interstitial lung disease in the first half of 2024. The company reported positive topline Phase 2 TORREY results in December 2022 and expected updated open-label extension results in the fourth quarter of 2023 or first quarter of 2024.
Management stated that expenses and operating losses were expected to remain significant and relatively flat as clinical development continues. The company does not expect product revenue for a number of years, if ever, and may never become profitable. Management believed existing cash, cash equivalents and marketable securities would fund operations for at least 12 months from the date the financial statements were available for issuance.
After quarter-end, on July 24, 2023, the company completed a private placement of 129.9 million shares and accompanying warrants for gross proceeds of approximately $212.1 million, before approximately $10.7 million of offering expenses. The warrants cover up to 32.5 million shares, have a $2.04 exercise price and expire five years after issuance. This financing materially increased liquidity but also significantly diluted existing shareholders.
The Credit Facility matures January 1, 2025, with $18.4 million of principal outstanding at June 30, 2023; scheduled principal payments were $5.8 million in the remainder of 2023, $11.6 million in 2024 and $1.0 million in 2025. The facility is secured by substantially all of the company’s and certain subsidiaries’ personal property, including intellectual property. The company was in compliance with its debt covenants, including the minimum cash covenant, at quarter-end. The $200.0 million convertible notes mature June 1, 2027 and carry a fixed 5.00% interest rate.
Key risks include clinical and regulatory failure, uncertain trial timing and costs, dependence on seralutinib, substantial future capital needs, potential dilution or unfavorable financing terms, debt repayment and covenant obligations, intellectual-property risks, contingent license milestones and royalties, and the possibility that the company will never generate product revenue. No material legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the post-quarter-end private placement proceeds, offering expenses, warrant terms and resulting fully diluted share count.
- Assess whether the cash runway remains adequate after the Phase 3 program begins and debt repayments continue.
- Monitor the timing, design, enrollment and results of the seralutinib Phase 3 program and the open-label extension study.
- Review the impact of the $200.0 million convertible notes and Credit Facility on future cash requirements, collateral and potential dilution.
- Evaluate the sustainability of unusual 2023 other-income items, including the employee retention credit and Ireland R&D tax credit.
- Track contingent development, regulatory and commercial milestone obligations under the seralutinib license, including the potential $10.0 million payment upon initiation of the first Phase 3 trial.