Gain Therapeutics, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with the same 2021 period. Gain is a preclinical-stage biotechnology company developing small-molecule therapies using its licensed SEE-Tx platform. It has no approved products and no product-sales revenue.
Key financial results
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $45,006 | $5,269; up $39,737 |
| Net loss | $3.273 million | $2.450 million; loss increased $822,196 |
| Loss per share, basic and diluted | $0.28 | $0.50 |
| Research and development expense | $1.556 million | $1.422 million; up $134,931 |
| General and administrative expense | $1.777 million | $1.051 million; up $726,368 |
| Cash used in operating activities | $2.447 million | $2.810 million |
| Cash and cash equivalents at period end | $34.339 million | $36.881 million at Dec. 31, 2021 |
| Total debt | $648,000 | $694,000 at Dec. 31, 2021 |
| Total current liabilities | $4.217 million | $2.553 million at Dec. 31, 2021 |
| Total assets / stockholders’ equity | $37.599 million / $31.828 million | $38.985 million / $34.818 million at Dec. 31, 2021 |
Revenue consisted mainly of $37,538 from Zentalis collaboration services and $7,468 of other income, primarily sublease income. No product revenue was reported. Gross profit and gross margin are not presented; margins are not meaningful for the company’s current reported activity. The lower loss per share versus 2021 occurred alongside a higher weighted-average share count, 11.88 million versus 4.87 million, following the 2021 IPO.
Operating cash use declined year over year. Cash, cash equivalents and restricted cash decreased by $2.543 million during the quarter; investing activities used $7,825 and financing activities used $37,974. The company’s $32.909 million in money-market funds made up most of cash and cash equivalents.
Material changes and developments
- Total operating expenses rose $861,299 year over year, driven mainly by higher G&A costs for corporate matters, investor relations, information technology, headcount and stock-based compensation. R&D spending increased with personnel costs, partly offset by lower outside-service costs.
- Accounts payable increased to $2.118 million from $560,479 at year-end. Prepaid expenses and other current assets increased to $1.932 million from $727,785, including higher prepaid D&O insurance.
- The company early-extinguished a CHF 14,600 zero-interest loan in February 2022 without an extinguishment charge. It reported remaining debt of about $648,000, also zero-interest.
- The Sumitomo research collaboration ended effective March 22, 2022, after the first-phase goals were achieved and Sumitomo chose not to continue.
Outlook, risks and unusual items
- Management expects R&D expense to increase substantially as it advances preclinical work and begins clinical development; G&A costs are also expected to rise as the company grows and meets public-company requirements.
- The company reported positive topline results from a 2021 in-vitro study of lead compounds in neuronal cells. It expected to complete Parkinson’s program preclinical development and submit a dossier to Australia’s Human Research Ethics Committee to initiate a Phase 1 trial, and to start Gaucher-program preclinical toxicology studies, in the second half of 2022. These are forward-looking plans, not completed milestones.
- Management’s cash runway statements differ: the financial-statement notes say cash is expected to cover operating and capital requirements for at least 12 months from issuance, while MD&A estimates funding through the second half of 2023. The filing cautions that assumptions may prove incorrect and additional financing may be needed.
- The Zentalis agreement covers up to five targets and includes a potential $250,000 research-option payment, up to $41.5 million in event-based milestones, and potential royalties, subject to conditions. These are contingent potential payments, not current revenue or assured proceeds. At March 31, 2022, the filing reports $150,000 of current deferred revenue under the collaboration.
- The company has recurring losses and negative operating cash flows, has not begun clinical trials, and expects to need substantial additional capital. Financing may dilute shareholders, impose restrictive terms, or require the company to license or relinquish rights.
- Disclosure controls and procedures were deemed ineffective at March 31, 2022 because a material weakness in financial statement preparation and review remained unremediated. The separate weakness concerning accounting personnel was reported remediated in 2021; management said additional time and testing were needed for the remaining weakness.
- Other cited risks include preclinical and clinical failure or delay, difficulty enrolling patients for rare diseases, reliance on third parties and licensed intellectual property, COVID-19 disruption, foreign-currency exposure, and regulatory and reimbursement uncertainty. No material legal proceedings were reported.
Important facts for investors to verify
- Which cash-runway estimate is current and what assumptions support the stated funding horizon.
- Progress against the planned 2022 Parkinson’s and Gaucher development milestones, including regulatory submission and toxicology-study timing.
- Whether Zentalis continues its program(s), and the timing and conditions for collaboration payments, milestones and royalties.
- Whether the remaining internal-control material weakness is remediated and controls operate effectively after testing.
- Future cash burn, research commitments ($1.531 million reported at March 31, 2022), and any financing needs or resulting dilution.