Gemphire Therapeutics Inc. Form 10-Q Summary
Filing identity: The supplied filing is for Gemphire Therapeutics Inc. (formerly Michigan Life Therapeutics, LLC), not Metavia Inc. It covers the quarter and nine months ended September 30, 2016; financial statements are unaudited.
Business Context and Reporting Period
Gemphire is a clinical-stage biopharmaceutical company developing gemcabene, an oral therapy intended for dyslipidemia and NAFLD/NASH. The company has no approved products and has generated no revenue. Its activities remain focused on research, clinical development, regulatory planning, manufacturing, hiring and capital raising.
The company completed its initial public offering in August 2016, selling 3,000,000 shares at $10.00 per share, followed by a partial over-allotment exercise of 27,755 shares in September 2016. A 1-for-3.119 reverse stock split became effective in April 2016.
Financial Metrics
| Metric | Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| General and administrative expense | $1.466 million | $0.997 million | $3.567 million | $2.130 million |
| Research and development expense | $1.936 million | $1.369 million | $3.901 million | $2.527 million |
| Total operating expense | $3.402 million | $2.366 million | $7.468 million | $5.565 million |
| Net loss | $3.878 million | $2.569 million | $7.372 million | $6.459 million |
| Net loss attributable to common stockholders | $3.945 million | $2.721 million | $7.738 million | $9.277 million |
| Basic and diluted loss per share | $0.56 loss | $0.87 loss | $1.65 loss | $3.39 loss |
Gross margin and operating margin are not meaningful because the company had no revenue. Share-based compensation was $0.567 million in the third quarter and $0.785 million for the first nine months, compared with $0.094 million and $0.181 million, respectively, in the comparable 2015 periods.
- Cash and cash equivalents: $28.369 million at September 30, 2016, compared with $3.620 million at December 31, 2015.
- Operating cash flow: $(7.420) million for the first nine months of 2016, compared with $(3.177) million in 2015.
- Investing cash flow: $0 for both comparable periods.
- Financing cash flow: $32.169 million in 2016, including IPO proceeds and interim note proceeds, compared with $6.211 million in 2015.
- Total liabilities: $1.936 million at September 30, 2016, compared with $8.917 million at December 31, 2015.
- Debt: No convertible notes or interim notes remained outstanding after their conversion into common stock immediately before the IPO.
- Accumulated deficit: $19.845 million at September 30, 2016.
- Shares outstanding: 9,270,255 as of September 30, 2016 and October 25, 2016, according to the filing.
Material Changes Versus the Prior Comparable Period
- Third-quarter operating expenses increased $1.036 million, or approximately 44%, primarily from higher staffing, professional services, preclinical work, manufacturing activities and clinical-development consulting.
- Nine-month operating expenses increased $1.903 million, or approximately 34%. The prior-year period included a $0.908 million non-cash Pfizer license milestone expense; no comparable expense was recorded in 2016.
- Nine-month net loss increased by $0.913 million, although the loss attributable to common stockholders declined because 2015 included substantially greater preferred-stock redemption-value adjustments.
- The IPO generated approximately $26.2 million of net proceeds after approximately $4.1 million of underwriting discounts, commissions and other offering expenses.
- Series A preferred stock, including accrued dividends, converted into 827,205 common shares. Interim notes and accrued interest converted into 1,656,807 common shares. As a result, preferred stock, convertible notes, the premium conversion derivative and related note liabilities were eliminated.
- Share-based compensation and equity dilution increased materially. The company granted 1,825,200 stock options in connection with the IPO at a $10.00 exercise price and reported $11.3 million of unrecognized share-based compensation cost at quarter-end.
Guidance, Outlook, Risks and Unusual Items
Management expects losses and expenses to continue increasing as it advances gemcabene, expands personnel and infrastructure, prepares for later-stage clinical trials, pursues regulatory approvals and operates as a public company. Management expected to initiate three late-stage clinical trials within the next twelve months, covering HoFH, hypercholesterolemia including HeFH and ASCVD, and severe hypertriglyceridemia, and intended to seek an FDA End-of-Phase 2 meeting after completing one or more trials.
Management stated that cash and IPO proceeds were expected to fund operations to approximately mid-2018, but additional capital will be required for continued development and operations. No committed external funding source exists. Future financing may dilute stockholders or require the company to relinquish rights through partnerships or licensing arrangements.
- Gemcabene is the company’s only product candidate and has not received regulatory approval. The filing states that a partial clinical hold restricts trials longer than six months until two-year rat and mouse carcinogenicity studies are completed; the company planned to complete those studies by the end of 2017.
- The Pfizer license requires potential milestone payments of up to $37 million and tiered royalties, generally ranging from the high single digits to low teens, if development and sales milestones occur. No related liability was recorded because timing and outcomes were uncertain.
- Pfizer may revoke the license if the company is unable to adequately commercialize gemcabene by April 2021.
- The company relies on third parties for clinical research, manufacturing and supply. Manufacturing, enrollment, safety, efficacy, regulatory and intellectual-property risks could delay or prevent commercialization.
- The company reported recurring operating losses and referenced substantial doubt about its ability to continue as a going concern in the prior-year auditor’s report, while stating that IPO proceeds and cash on hand were expected to fund operations to mid-2018.
- Facility lease obligations totaled approximately $0.286 million, including $0.101 million due within one year and $0.185 million due in one to three years.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2016, with no material changes in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is Gemphire Therapeutics Inc., while the request metadata identifies Metavia Inc.
- Verify the cash runway against the company’s planned late-stage trials, clinical-hold requirements and stated need for additional financing.
- Assess the probability, timing and cost of completing carcinogenicity studies and lifting the partial clinical hold.
- Review clinical-trial design, enrollment, safety and efficacy data for gemcabene, including whether a cardiovascular outcomes trial may be required.
- Analyze dilution from outstanding options, equity incentive plans, the inducement plan and potential future financings.
- Review the Pfizer license’s milestone, royalty, development-effort and April 2021 commercialization provisions.
- Reconcile the substantial increase in operating cash burn and share-based compensation with the company’s funding expectations.