Disc Medicine, Inc. quarterly report, Q2 FY2022

Business context and reporting period

This is Gemini Therapeutics, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022—not a Disc Medicine filing. Gemini was a clinical-stage biotechnology company with no product revenue. It discontinued both Phase 2a GEM103 trials in January 2022; GEM307 remained preclinical. The filing was signed August 11, 2022.

Financial results and liquidity

Amounts below are in millions of dollars except per-share data. Gemini reported no revenue.

Operating cash outflow was $25.8 million for the first half, compared with $30.9 million a year earlier. Financing used $2.5 million, mainly for term-loan principal payments; the prior-year period included $195.9 million of net business-combination proceeds. Cash and cash equivalents were $108.7 million at June 30, down from $136.6 million at December 31, 2021. Current assets were $113.1 million and current liabilities $6.4 million. Term-loan principal outstanding was $2.9 million, all classified as current; maturity was January 2023. No revenue or profit margin was reported.

Changes versus prior comparable periods

• Q2 net loss improved by $9.4 million year over year; first-half net loss improved by $13.2 million.
• Lower R&D spending was the main driver, reflecting reduced GEM103 trial activity, lab closure, workforce reductions, and a $1.0 million employee retention credit recorded in Q2.
• First-half interest expense declined to $0.1 million from $2.0 million, primarily because the prior-year period included accretion of the discount on convertible notes. The prior year also included a $0.7 million loss on conversion of those notes.
• Cash declined by $28.3 million during the first half of 2022; the corresponding prior-year period showed a $163.0 million increase, largely due to business-combination proceeds.

Outlook, material developments, and risks

• Management expected expenses to decrease in 2022 versus 2021 following reduced clinical activity and restructuring. It stated that $108.7 million of cash was expected to fund operations for at least 12 months from issuance of the financial statements; this estimate depends on assumptions and could change with the strategic transaction.
• The February 2022 restructuring reduced the workforce by approximately 80% (24 positions) and was completed by the end of Q2. Gemini recorded $1.7 million of related severance costs in the first half.
• On August 9, 2022, after the reporting date, Gemini agreed to merge with Disc Medicine. The transaction was expected to close in Q4 2022, subject to shareholder approvals and other conditions. Certain investors separately agreed to invest approximately $53.5 million in Disc before closing. If completed, Disc would be the combined company’s continuing business.
• Before the merger, Gemini stockholders were expected to own approximately 28% and Disc stockholders approximately 72% of the combined company, before the concurrent financing and subject to assumptions and adjustments. Gemini holders were to receive contingent value rights tied to net proceeds from disposition of specified pre-merger assets; payment is not assured and the rights could expire valueless.
• Merger termination provisions include, in specified circumstances, a $3.0 million fee payable by Gemini or a $7.8 million fee payable by Disc, and expense reimbursement of up to $750,000 by either party. Failure to complete the merger could lead to another strategic process or dissolution and liquidation.
• As of August 9, Gemini had four full-time and one part-time employee, creating execution and retention risk. Other risks include clinical and regulatory uncertainty, the need for capital if operations continue, merger disruption, possible litigation, and uncertainty over any liquidation proceeds. Gemini reported no material legal proceedings as of June 30.

Most important facts to verify

• Confirm the merger’s completion status, closing terms, exchange-ratio assumptions, financing, and any changes to the expected ownership split.
• Review the final CVR agreement and determine which assets qualify, applicable deductions and deadlines, and whether any proceeds have been realized.
• Check cash burn, restructuring-related costs, remaining debt payments, and whether management’s stated cash runway remains supportable.
• Verify the status and disposition of Gemini’s legacy assets and any additional costs or liabilities if the merger fails or liquidation is pursued.
• Assess the $1.0 million employee retention credit, which reduced reported operating expenses, and confirm receipt and eligibility.