Business Context and Reporting Period
The filing is Gemphire Therapeutics Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The request metadata identifies “Metavia Inc.,” but the filing identifies the registrant as Gemphire Therapeutics Inc. Gemphire was a clinical-stage biopharmaceutical company developing gemcabene for dyslipidemia, including homozygous familial hypercholesterolemia, and NAFLD/NASH. It had no approved products or revenue.
Gemphire reported 14,265,411 common shares outstanding at June 30, 2019 and 14,872,411 shares outstanding as of August 6, 2019.
Financial Metrics
| Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| General and administrative expense | $1.115 million | $2.574 million | $2.522 million | $4.661 million |
| Research and development expense | $1.234 million | $3.960 million | $2.627 million | $8.937 million |
| Total operating expenses | $2.349 million | $6.534 million | $5.149 million | $13.598 million |
| Net loss | $2.920 million | $6.678 million | $6.721 million | $13.902 million |
| Basic and diluted loss per share | $0.20 loss | $0.47 loss | $0.47 loss | $1.04 loss |
The filing does not present a conventional operating margin because the company had no revenue. Operating loss as a percentage of total operating expenses was approximately 100% in each reported period.
- Cash and cash equivalents were $3.643 million at June 30, 2019, compared with $18.954 million at December 31, 2018. Including restricted cash, total cash was $3.658 million.
- Operating cash outflow was $5.037 million for the six months ended June 30, 2019, compared with $13.514 million in the prior-year period.
- Financing cash outflow was $10.259 million, primarily reflecting repayment of the Silicon Valley Bank term loan. The prior-year period included $23.080 million of financing inflows, principally from a common-stock offering.
- The term loan was prepaid in full on January 28, 2019. Approximately $8.9 million of principal and interest and a $1.0 million final payment fee were paid; approximately $0.8 million of unamortized debt discount was recognized as interest expense.
- Current liabilities were $2.050 million at June 30, 2019, with no term-loan balance remaining. Stockholders’ equity was $1.964 million, compared with $7.774 million at December 31, 2018.
- Accumulated deficit was $90.832 million at June 30, 2019.
- No income tax benefit was recorded because the company maintained a full valuation allowance against deferred tax assets.
Material Changes Versus the Prior Comparable Period
- Second-quarter operating expenses declined $4.185 million, or approximately 64%, primarily because clinical-trial and related support activities were reduced.
- Six-month operating expenses declined $8.449 million, or approximately 62%, for the same reasons.
- Second-quarter net loss improved by $3.758 million, while six-month net loss improved by $7.181 million.
- Interest expense declined in the second quarter because the term loan had been repaid; however, six-month net interest expense increased because of accelerated amortization of debt discounts upon repayment.
- Other expense was $0.581 million in the second quarter and $0.752 million for the six months, representing non-operating transaction costs associated with the strategic-alternatives review.
- Cash declined by $15.296 million during the first six months, primarily due to the term-loan repayment and operating cash burn.
Outlook, Commentary, Risks and Unusual Items
- Going concern: Management stated that $3.6 million of cash at June 30, 2019 was insufficient to fund the current operating plan for at least 12 months after issuance of the financial statements. These conditions raised substantial doubt about the company’s ability to continue as a going concern.
- Liquidity outlook: Management estimated that cash would fund operations into the third quarter of 2019 on a standalone basis. Additional financing, collaborations or strategic transactions were required thereafter. Failure to obtain funding could result in reduced or discontinued operations and clinical development.
- FDA partial clinical hold: The FDA did not lift the hold restricting human studies of gemcabene exceeding six months and requested additional preclinical data. Gemphire expected to submit the requested data in the fourth quarter of 2019. An End-of-Phase 2 meeting was deferred until the hold was lifted.
- Clinical developments: A pediatric NAFLD trial was halted in 2018 after unanticipated increases in liver fat and ALT in early participants. A five-patient investigator-initiated FPLD study reported a median triglyceride reduction of 19.6% at 12 weeks, but the small, open-label study was not conclusive.
- Beijing SL license: On July 23, 2019, Gemphire granted Beijing SL exclusive rights to develop and commercialize gemcabene in mainland China, Hong Kong, Macau and Taiwan. Consideration included a $2.5 million upfront payment, up to $6 million of development and regulatory milestones, potential sales milestones, and tiered royalties ranging from the mid-teens to 20%. The upfront payment was due within 45 days and was not included in the June 30 balance sheet.
- Proposed NeuroBo merger: On July 24, 2019, Gemphire agreed to an all-stock merger with NeuroBo. Subject to specified assumptions, existing Gemphire security holders were expected to own approximately 4.06% of the combined company and former NeuroBo security holders approximately 95.94%. Closing required stockholder approvals and other conditions and was expected in the second half of 2019.
- Contingent value rights: Existing Gemphire stockholders were expected to receive one CVR per share, potentially entitling them collectively to 80% of specified future gross consideration from gemcabene transactions, subject to deductions and other conditions. The CVRs could expire without value.
- Nasdaq compliance: Nasdaq notified the company on August 8, 2019 that its closing bid price had been below $1.00 for 30 consecutive business days. The company had until February 4, 2020 to regain compliance, with a possible additional compliance period. The proposed merger and contemplated reverse stock split were expected to address the issue, but continued listing was also a condition to closing the merger.
- Other contingencies: Completion of the merger would trigger a $350,000 success fee to SVB. The Pfizer license included potential milestone payments of up to $37 million and tiered royalties, although no such milestones had been triggered as of June 30, 2019.
Most Important Facts for Investors to Verify
- Whether the proposed NeuroBo merger closed, was terminated, or was amended, and the final ownership and dilution terms.
- Whether the $2.5 million Beijing SL upfront payment was received and how subsequent milestone and royalty rights developed.
- Whether Gemphire obtained additional financing sufficient to resolve the going-concern uncertainty.
- The FDA’s response to the requested preclinical studies and the status of the partial clinical hold on gemcabene.
- Whether Nasdaq listing compliance was restored, including any reverse stock split or delisting action.
- The ultimate value and enforceability of the CVRs, including development funding obligations and deductions.
- The filing’s stated financial condition: no revenue, continuing losses, $90.8 million accumulated deficit, and $3.6 million of cash and cash equivalents at June 30, 2019.