Business Context and Reporting Period
This Form 10-K covers NeuroBo Pharmaceuticals, Inc. for the fiscal year ended December 31, 2019. The filing identifies the registrant as NeuroBo Pharmaceuticals, Inc., not Metavia Inc. NeuroBo is a clinical-stage biotechnology company with three principal programs: NB-01 for painful diabetic neuropathy and other neuropathic conditions, NB-02 for neurodegenerative diseases including Alzheimer’s disease and tauopathies, and Gemcabene for dyslipidemia and related cardiometabolic indications.
On December 30, 2019, NeuroBo completed its all-stock merger with Gemphire Therapeutics. The transaction was accounted for as a reverse asset acquisition, with Private NeuroBo treated as the accounting acquirer. The company changed its name from Gemphire Therapeutics Inc. to NeuroBo Pharmaceuticals, Inc. and its Nasdaq ticker from GEMP to NRBO.
Financial and Operating Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $5.3 million | $5.1 million | +$0.3 million |
| Acquired in-process R&D expense | $12.2 million | $8.8 million | +$3.3 million |
| General and administrative expense | $2.7 million | $1.6 million | +$1.1 million |
| Total operating expenses | $20.2 million | $15.5 million | +$4.7 million |
| Net loss | $21.3 million | $15.5 million | +$5.8 million loss |
| Net loss per share | $4.08 | $3.65 | Higher loss per share |
| Net cash used in operating activities | $7.0 million | $14.5 million | $7.4 million lower use |
| Net cash used in investing activities | $6.1 million | Less than $0.1 million | Higher use |
| Net cash provided by financing activities | $24.2 million | $17.2 million | +$6.9 million |
| Cash and restricted cash at year-end | $13.9 million | $2.8 million | +$11.1 million |
Accumulated deficit was $36.9 million at December 31, 2019. Total assets were $14.5 million, total liabilities were $2.2 million, and stockholders’ equity was $12.3 million. The company had no outstanding convertible notes at year-end because the notes converted into common stock upon completion of the merger.
The filing does not provide a meaningful operating margin because the company had no revenue. The operating loss was $20.2 million, and the net loss was $21.3 million. No income tax provision was recorded; deferred tax assets were fully offset by a valuation allowance.
Material Changes Versus the Prior Comparable Period
- Net loss increased from $15.5 million to $21.3 million, primarily because of higher acquired in-process R&D, research and development, general and administrative expenses, and a $1.1 million non-cash loss on extinguishment of convertible notes.
- Acquired in-process R&D increased by $3.3 million, principally reflecting Gemphire development projects acquired in the merger.
- Research and development expense increased modestly despite reduced clinical activity, mainly because of additional personnel and Scientific Advisory Board costs.
- General and administrative expense increased by $1.1 million because of higher personnel, legal, consulting, audit, travel and operating costs.
- Operating cash usage declined to $7.0 million from $14.5 million, while financing proceeds increased to $24.2 million, primarily from the Series B preferred stock financing.
- The merger converted Series A and Series B preferred stock and convertible notes into common stock. Approximately 96.2% of the post-merger company was owned by former Private NeuroBo stockholders.
- Under the Contingent Value Rights Agreement, former Gemphire stockholders are entitled to 80% of specified proceeds from future grants, sales or transfers of rights to Gemcabene, subject to permitted deductions.
Guidance, Outlook, Risks and Unusual Items
- Going concern: Management and the independent auditor reported substantial doubt about the company’s ability to continue as a going concern for the full year following the filing date. Cash and cash equivalents of $13.9 million were expected to fund operations only through the fourth quarter of 2020 at the reduced level of scientific activity.
- Financing: The company had no commitments for additional financing and stated that it would need additional capital to continue operations beyond 2020. Future equity financing could materially dilute existing stockholders.
- NB-01: In the first quarter of 2020, the company stopped work by CROs and other vendors on planned Phase 3 trials because of COVID-19 and financial-resource constraints. It is evaluating orphan-drug and nutraceutical alternatives, but provided no assurance that either pathway will proceed. Approximately $650,000 of termination penalties were considered probable and estimable, while additional termination fees of up to $1.1 million were probable but not estimable as of the filing date.
- NB-02: The program was nearly ready for an FDA IND submission, but human trials were postponed until global health and macroeconomic conditions improve. Management indicated that clinical activity could potentially begin in the first quarter of 2021, subject to financing.
- Gemcabene: The FDA partial clinical hold remained in place for studies involving more than six months of exposure. Additional preclinical work had been completed, with an FDA response regarding removal of the hold expected in the second quarter of 2020. The company was obligated to commit up to $1 million toward specified Gemcabene development activities through March 31, 2020, but had no broader obligation to continue development.
- Gemcabene safety and development risk: An investigator-led pediatric NAFLD trial was halted after increases in liver fat and, in two of three initially evaluated patients, ALT. The company stated that noncompliance and lifestyle factors complicated interpretation, but the safety signal remains a material development risk.
- Contractual obligations: Pfizer may terminate the Gemcabene license if first commercial sale is not achieved in at least one country by April 16, 2024. Pfizer is also entitled to up to $37 million in potential milestones and tiered royalties on future sales. Beijing SL provided a $2.5 million upfront payment and may owe future milestones and royalties, but no revenue under that agreement was recognized as of year-end.
- Internal controls: Management concluded that disclosure controls were not effective because of a material weakness involving accounting for clinical trial costs. The weakness had not been remediated as of the filing date; corrective actions included hiring experienced accounting personnel and outside consultants.
- COVID-19: The pandemic affected development plans and created uncertainty regarding clinical trials, supply chains, financing and operations. The filing states that the ultimate financial impact could not be estimated.
- Other unusual items: The company recorded $12.2 million of acquired in-process R&D expense related to the merger and $1.1 million of non-cash loss on note extinguishment. No material litigation was pending according to management.
Most Important Facts for Investors to Verify
- Confirm the registrant identity and filing period: the source is a NeuroBo Pharmaceuticals 2019 Form 10-K, not a Metavia Inc. filing and not a quarterly report.
- Verify the going-concern qualification, cash runway through late 2020, and the company’s ability to secure additional financing.
- Review subsequent financing, cash-burn and liquidity disclosures after March 30, 2020.
- Track whether the FDA lifted the Gemcabene partial clinical hold and whether further development proceeded.
- Assess the regulatory and commercial feasibility of the proposed NB-01 orphan-drug or nutraceutical alternatives.
- Verify the status and financial effect of NB-01 CRO termination penalties, including the potential additional amount of up to $1.1 million.
- Evaluate the pediatric NAFLD safety findings and their impact on Gemcabene’s future development.
- Review the CVR Agreement’s effect on potential Gemcabene proceeds, including the 80% allocation to former Gemphire holders.
- Monitor remediation of the material weakness in clinical-trial-cost accounting and any subsequent restatements or control deficiencies.
- Confirm the company’s ability to meet the Pfizer license’s April 2024 first-commercial-sale requirement and related milestone and royalty obligations.