Gain Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Gain Therapeutics is a preclinical-stage biotechnology company developing small-molecule therapies for diseases associated with protein misfolding, using its licensed SEE-Tx platform. It had no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $27,000 | $7,000 | $122,000 | $20,000 |
| Research and development expense | $2.48 million | $0.43 million | $5.69 million | $1.28 million |
| General and administrative expense | $2.19 million | $0.40 million | $5.05 million | $0.60 million |
| Net loss | $4.66 million | $0.79 million | $10.67 million | $1.92 million |
| Basic and diluted loss per share | $0.39 | $0.25 | $1.11 | $0.80 |
- Revenue was immaterial and came primarily from the Zentalis collaboration and office sublease income. The company reported no product revenue.
- Operating expenses increased substantially year over year as research activity, external preclinical services, staffing, public-company costs, stock compensation and warrant-related expenses expanded. No meaningful operating margin is reported for this development-stage business.
- Cash and cash equivalents were $40.98 million at September 30, 2021, compared with $7.49 million at December 31, 2020. Current assets were $41.55 million and current liabilities $3.58 million.
- Operating cash use was $8.22 million for the first nine months of 2021, versus $1.93 million in 2020. Investing cash use was $83,000; financing provided $41.78 million, mainly from the March 2021 IPO. Cash, cash equivalents and restricted cash totaled $41.01 million at period-end.
- Debt was approximately $707,000, consisting of Swiss government-guaranteed, zero-interest loans. Lease liabilities were approximately $747,000 in total.
Material changes and notable items
- The March 2021 IPO generated approximately $40.6 million in net proceeds after underwriting discounts and offering expenses. Preferred shares converted to common stock at the IPO; common shares outstanding increased to 11,879,743 by September 30, 2021.
- For the first nine months, R&D expense rose $4.41 million and G&A expense rose $4.45 million compared with 2020. Cash operating outflow also increased, reflecting development spending and business expansion.
- In April 2021, Gain entered a multi-target oncology discovery collaboration with Zentalis. The first target program was identified in May; through September, the company recognized $98,000 of collaboration revenue and reported $224,000 of current deferred revenue. The agreement includes potential milestone payments of up to $41.5 million and royalties, subject to development, option exercise and sales outcomes; these are not assured revenue.
- Management reported positive topline results from a patient-derived cell study of two compounds for Gaucher and GBA1-associated Parkinson’s disease, including increased GCase protein levels transported to lysosomes and decreases in glucosylceramide and alpha-synuclein p129. These are preclinical findings, not clinical efficacy evidence.
- The company announced publication of two PCT patent applications relating to compounds targeting GBA and GALC. Its portfolio and pipeline remain at an early development stage.
Outlook, risks and controls
- Management expected existing cash to fund planned operations and capital expenditure requirements through the second half of 2023. This is an estimate based on assumptions; the filing cautions that cash could be exhausted sooner and that additional financing may be needed.
- Management expected to commence IND-enabling studies for lead candidates in December 2021 and then prepare IND submissions. These were plans, not confirmed milestones achieved in this filing.
- The company expects continued losses and increased R&D and G&A spending. Profitability and future product revenue are uncertain, and management stated there is no assurance the company will become profitable.
- Key risks include preclinical or clinical setbacks and delays, difficulty enrolling patients for rare diseases, regulatory and manufacturing hurdles, reliance on third parties and licensed SEE-Tx technology, intellectual-property risks, COVID-19 disruption, foreign-currency exposure and the need for further capital. A hypothetical 10% change in CHF translation rates was estimated to change nine-month net loss by approximately $620,000.
- Management concluded disclosure controls and procedures were not effective at September 30, 2021 because of material weaknesses in financial close staffing and procedures. Remediation steps were underway, but management said additional time and testing were needed before the weaknesses could be considered remediated.
- The filing reported no material legal proceedings and no material changes to principal contractual obligations during the period.
Investor verification priorities
- Track actual cash burn, financing needs and whether the stated runway through the second half of 2023 remains supportable.
- Verify progress and timing of IND-enabling work and any IND submissions; distinguish preclinical findings from results in human trials.
- Review future Zentalis program activity, revenue recognition, option decisions, milestones and termination rights; potential milestone and royalty amounts are contingent.
- Monitor remediation and testing of the disclosed material weaknesses and whether disclosure controls are later determined effective.
- Assess development, intellectual-property and licensing risks, including dependence on the SEE-Tx platform and Minoryx-related rights.