Gossamer Bio, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2019; filed May 14, 2019. Gossamer Bio is a clinical-stage biopharmaceutical company developing therapies for immunology, inflammation and oncology. The company had three clinical-stage candidates—GB001, GB002 and GB004—and preclinical programs including GB1275. It had no product revenue and does not expect product sales revenue for the foreseeable future.
Financial Position and Results
| Metric | Q1 2019 | Q1 2018 or comparable |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $25.0 million | $2.6 million |
| In-process research and development expense | $1.0 million | $20.9 million |
| General and administrative expense | $8.0 million | $2.6 million |
| Total operating expenses | $34.0 million | $26.1 million |
| Loss from operations | $34.0 million | $26.1 million |
| Net loss | $32.6 million | $26.0 million |
| Net loss per share | $0.90 | $4.49 |
| Net cash used in operating activities | $27.8 million | $3.7 million |
Liquidity: At March 31, 2019, cash and cash equivalents were $170.8 million and marketable securities were $310.4 million, for combined cash, cash equivalents and marketable securities of approximately $481.2 million. Total assets were $515.9 million and current liabilities were $25.2 million. Management stated that existing resources should fund operations for at least the next 12 months, subject to the risks and uncertainties described in the filing.
Debt and leases: The company had no material funded debt at March 31, 2019. Operating lease liabilities totaled $12.7 million following adoption of ASC 842. On May 2, 2019, after quarter-end, the company entered into a secured credit facility with up to $150.0 million of commitments, including $30.0 million funded at closing. The facility is secured by substantially all of the company’s and domestic subsidiaries’ personal property, including intellectual property.
Margins: Gross margin and operating margin are not meaningful because the company has no revenue. The operating loss was approximately equal to total operating expenses.
Material Changes Versus the Prior Period
- Research and development expense increased by $22.4 million, primarily due to higher clinical and preclinical spending on GB001, GB002 and GB004 and increased personnel and consultant costs.
- General and administrative expense increased by $5.4 million, driven by higher stock-based compensation, personnel costs, professional fees and legal expenses.
- In-process research and development expense decreased by $19.9 million because Q1 2018 included approximately $19.3 million related to the GB001 acquisition.
- Net loss increased by $6.6 million despite higher interest and other income.
- Operating cash use increased by $24.1 million to $27.8 million, reflecting the expansion of development activities and working-capital changes.
- The February 2019 IPO generated approximately $291.3 million of net proceeds from the sale of 19,837,500 shares at $16.00 per share. All outstanding convertible preferred stock converted into 30,493,460 shares of common stock.
- Cash and marketable securities increased substantially following the IPO. The company invested $222.3 million in marketable securities during the quarter.
- Stock-based compensation increased to $3.1 million from $0.6 million in the prior-year quarter.
Guidance, Outlook, Risks and Unusual Items
- Development outlook: Management expected a GB001 Phase 2b interim analysis in the first half of 2020 and planned potential Phase 3 development thereafter if results were positive.
- Management planned additional GB001 studies in chronic rhinosinusitis and chronic spontaneous urticaria; a GB002 Phase 1b study in pulmonary arterial hypertension in Q2 2019; additional GB002 development in the second half of 2019; a GB004 Phase 1b study in ulcerative colitis; and a GB1275 Phase 1/2 study in solid tumors in the second half of 2019, subject to regulatory review.
- The company expects operating losses and research and development expenses to increase substantially and may never become profitable. Additional equity, debt, collaboration or licensing financing will likely be required.
- License and acquisition agreements include potential future development, regulatory, commercial and sales milestone payments and royalties. No contingent milestones had been accrued as of March 31, 2019 because the underlying conditions had not been met.
- GB002 obligations include up to $63.0 million of development and regulatory milestones, $45.0 million of commercial milestones and $190.0 million of sales milestones, plus tiered royalties.
- GB004 obligations include up to $55.0 million of development and regulatory milestones, $85.0 million of commercial milestones and $260.0 million of sales milestones, plus tiered royalties.
- The May 2019 credit facility bears interest at one-month LIBOR plus 6.15%, subject to a 2.00% LIBOR floor, includes financial and operational covenants, and may restrict future financing, acquisitions, asset sales and other activities. Events of default could permit remedies against pledged collateral, including cash and intellectual property.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective at the reasonable assurance level.
Important Facts for Investors to Verify
- Confirm the company’s cash runway against actual clinical-trial spending, planned milestones and the subsequent $30.0 million credit-facility borrowing.
- Review the credit facility’s collateral, covenants, milestone-based tranche availability, interest costs, amortization schedule and default provisions.
- Track enrollment, interim analyses, regulatory interactions and safety and efficacy results for GB001, GB002, GB004 and GB1275.
- Assess potential dilution from 7.5 million outstanding stock options, 5.9 million unvested restricted shares and future equity financing needs.
- Monitor contingent milestone and royalty obligations under the Pulmokine, Aerpio, Adhaere and other license or acquisition agreements.
- Reconcile the stated approximately $481.2 million of liquidity to the balance sheet’s cash, cash equivalents and marketable securities and monitor investment maturities and liquidity.