goss-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to_________.

Commission File Number: 001-38796

 

GOSSAMER BIO, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

47-5461709

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3013 Science Park Road

San Diego, California

 

92121

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (858) 684-1300

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes           No      

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes           No      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐  NO 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

GOSS

 

Nasdaq Global Select Market

 

As of May 8, 2019, the registrant had 65,893,276 shares of common stock ($0.0001 par value) outstanding.

1

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1

 

Condensed Consolidated Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018  

4

 

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months ended March 31, 2019 and 2018

5

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

6

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

7

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4

 

Controls and Procedures

25

 

PART II. OTHER INFORMATION

 

Item 1

 

Legal Proceedings

26

Item 1A

 

Risk Factors

26

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3

 

Defaults Upon Senior Securities

27

Item 4

 

Mine Safety Disclosures

27

Item 5

 

Other Information

27

Item 6

 

Exhibits

27

 

 

Exhibit Index

28

 

 

Signatures

29


2

 


PART I. FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

GOSSAMER BIO, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and par value amounts)

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

170,847

 

 

$

105,219

 

Marketable securities

 

 

310,374

 

 

 

123,439

 

Restricted cash

 

 

 

 

 

200

 

Prepaid expenses and other current assets

 

 

16,567

 

 

 

3,095

 

Total current assets

 

 

497,788

 

 

 

231,953

 

Property and equipment, net

 

 

4,110

 

 

 

3,193

 

Operating lease right-of-use assets

 

 

11,922

 

 

 

 

Other assets

 

 

2,129

 

 

 

4,273

 

Total assets

 

$

515,949

 

 

$

239,419

 

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND

   STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,548

 

 

$

2,182

 

Accrued research and development expenses

 

 

12,725

 

 

 

10,653

 

Accrued expenses

 

 

7,879

 

 

 

7,568

 

Total current liabilities

 

 

25,152

 

 

 

20,403

 

Operating lease liabilities

 

 

10,537

 

 

 

 

Accrued expenses - long-term

 

 

 

 

 

718

 

Total liabilities

 

 

35,689

 

 

 

21,121

 

Commitments and contingencies - Note 10

 

 

 

 

 

 

 

 

Series Seed convertible preferred stock, $0.0001 par value; 0 shares issued and

   outstanding as of March 31, 2019 and 20,000,000 shares issued and outstanding

   as of December 31, 2018 and; liquidation preference of $0 and $20,000 as of

   March 31, 2019 and December 31, 2018, respectively

 

 

 

 

 

29,200

 

Series A convertible preferred stock, $0.0001 par value; 0  shares issued and

   outstanding as of March 31, 2019 and 45,714,286 shares issued and outstanding

   as of December 31, 2018; liquidation preference of $0 and $80,000 as of

   March 31, 2019 and December 31, 2018, respectively

 

 

 

 

 

79,615

 

Series B convertible preferred stock, $0.0001 par value; 0 shares issued and

   outstanding as of March 31, 2019 and  71,506,513 shares issued and outstanding

   as of December 31, 2018; liquidation preference of $0 and $230,000 as of

   March 31, 2019 and December 31, 2018, respectively

 

 

 

 

 

229,552

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 700,000,000 shares authorized as of

  March 31, 2019 and 49,160,177 shares authorized as of December 31, 2018;

  65,891,910 shares issued and 60,029,470 shares outstanding as of

  March 31, 2019, and 15,533,450 shares issued and 8,051,418 shares outstanding

  as of December 31, 2018

 

 

7

 

 

 

2

 

Additional paid-in capital

 

 

666,648

 

 

 

33,853

 

Accumulated deficit

 

 

(186,474

)

 

 

(153,863

)

Accumulated other comprehensive income (loss)

 

 

79

 

 

 

(61

)

Total stockholders' equity (deficit)

 

 

480,260

 

 

 

(120,069

)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

 

$

515,949

 

 

$

239,419

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 


GOSSAMER BIO, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

24,983

 

 

$

2,624

 

In process research and development

 

 

1,000

 

 

 

20,898

 

General and administrative

 

 

8,034

 

 

 

2,604

 

Total operating expenses

 

 

34,017

 

 

 

26,126

 

Loss from operations

 

 

(34,017

)

 

 

(26,126

)

Other income (expenses)

 

 

 

 

 

 

 

 

Interest income

 

 

1,049

 

 

 

89

 

Interest expense

 

 

(19

)

 

 

 

Other income

 

 

376

 

 

 

 

Total other income, net

 

 

1,406

 

 

 

89

 

Net loss

 

$

(32,611

)

 

$

(26,037

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

 

140

 

 

 

 

Other comprehensive loss

 

 

140

 

 

 

 

Comprehensive loss

 

 

(32,471

)

 

 

(26,037

)

Net loss per share, basic and diluted

 

$

(0.90

)

 

$

(4.49

)

Weighted average common shares outstanding, basic and diluted

 

 

36,317,230

 

 

 

5,797,693

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4

 


GOSSAMER BIO, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share amounts)

 

 

Series Seed

 

Series A

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

convertible

preferred stock

 

convertible

preferred stock

 

convertible

preferred stock

 

 

 

Common stock

 

Additional

paid-in

 

Accumulated

 

other

comprehensive

 

Total

stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

Shares

 

Amount

 

capital

 

deficit

 

income (loss)

 

equity

 

Balance as of

   December 31, 2018

 

20,000,000

 

$

29,200

 

 

45,714,286

 

$

79,615

 

 

71,506,513

 

$

229,552

 

 

 

 

8,051,418

 

$

2

 

$

33,853

 

$

(153,863

)

$

(61

)

$

(120,069

)

Issuance of common stock in connection with a public offering, net of underwriting discounts, commissions, and offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,837,500

 

 

2

 

 

291,342

 

 

 

 

 

 

291,344

 

Conversion of convertible preferred stock into common stock

 

(20,000,000

)

 

(29,200

)

 

(45,714,286

)

 

(79,615

)

 

(71,506,513

)

 

(229,552

)

 

 

 

30,493,460

 

 

3

 

 

338,364

 

 

 

 

 

 

338,367

 

 

Vesting of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,619,592

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,500

 

 

 

 

3,089

 

 

 

 

 

 

3,089

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,611

)

 

 

 

(32,611

)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

140

 

 

140

 

Balance as of

   March 31, 2019

 

 

$

 

 

 

$

 

 

 

$

 

 

 

 

60,029,470

 

$

7

 

$

666,648

 

$

(186,474

)

$

79

 

$

480,260

 

 

 

Series Seed

 

Series A

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

convertible

preferred stock

 

convertible

preferred stock

 

convertible

preferred stock

 

 

 

Common stock

 

Additional

paid-in

 

Accumulated

 

other

comprehensive

 

Total

stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

Shares

 

Amount

 

capital

 

deficit

 

income (loss)

 

deficit

 

Balance as of

   December 31, 2017

 

 

$

 

 

 

$

 

 

 

$

 

 

 

 

9,160,888

 

$

 

$

32

 

$

(6,894

)

$

 

$

(6,862

)

 

Issuance of Series A preferred stock for cash, net of $0.4 million in offering costs

 

 

 

 

 

41,328,286

 

 

71,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for acquisition

 

20,000,000

 

 

29,200

 

 

 

 

 

 

 

 

 

 

 

 

1,101,278

 

 

 

 

2,874

 

 

 

 

 

 

2,874

 

 

Issuance of Series A preferred stock to convert debt and accrued interest

 

 

 

 

 

3,499,209

 

 

6,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

605

 

 

 

 

 

 

605

 

 

Incremental vesting conditions place on previously issued common shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,580,444

)

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,037

)

 

 

 

(26,037

)

Balance as of

   March 31, 2018

 

20,000,000

 

$

29,200

 

 

44,827,495

 

$

78,068

 

 

 

$

 

 

 

 

5,681,722

 

$

 

$

3,511

 

$

(32,931

)

$

 

$

(29,420

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

 


GOSSAMER BIO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(32,611

)

 

$

(26,037

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

169

 

 

 

6

 

Stock-based compensation expense

 

 

3,089

 

 

 

605

 

In process research and development expenses

 

 

1,000

 

 

 

20,898

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Operating lease right of use assets and liabilities, net

 

 

61

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,472

)

 

 

(94

)

Other Assets

 

 

2,144

 

 

 

(425

)

Accounts payable

 

 

2,132

 

 

 

546

 

Accrued expenses

 

 

(789

)

 

 

441

 

Accrued research and development expenses

 

 

2,072

 

 

 

(126

)

Accrued compensation and benefits

 

 

(1,569

)

 

 

593

 

Accrued interest expense

 

 

 

 

 

(115

)

Net cash used in operating activities

 

 

(27,774

)

 

 

(3,708

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Research and development asset acquisitions, net of cash acquired

 

 

(1,000

)

 

 

11,176

 

Purchase of investments

 

 

(222,295

)

 

 

 

Sales and maturities of investments

 

 

25,500

 

 

 

 

Purchase of property and equipment

 

 

(347

)

 

 

(511

)

Net cash (used in) provided by investing activities

 

 

(198,142

)

 

 

10,665

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in a public offering, net

 

 

291,273

 

 

 

 

Proceeds from the exercise of stock options

 

 

71

 

 

 

 

Proceeds from issuance of Series A convertible preferred stock, net

 

 

 

 

 

71,944

 

Repayment of notes payable to related parties

 

 

 

 

 

(40

)

Net cash provided by financing activities

 

 

291,344

 

 

 

71,904

 

Net increase in cash, cash equivalents and restricted cash

 

 

65,428

 

 

 

78,861

 

Cash, cash equivalents and restricted cash, at the beginning of the period

 

 

105,419

 

 

 

315

 

Cash, cash equivalents and restricted cash, at the end of the period

 

$

170,847

 

 

$

79,176

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of in-process research and development

   through issuance of stock

 

$

 

 

$

19,284

 

Issuance of Series A convertible preferred stock to convert

   debt and accrued interest

 

$

 

 

$

6,124

 

Recognition of operating lease right of use asset

 

$

12,458

 

 

$

 

Recognition of operating lease liabilities

 

$

13,182

 

 

$

 

Conversion of convertible preferred stock to common stock

 

$

338,367

 

 

$

 

Change in unrealized gain on marketable securities, net of tax

 

$

140

 

 

$

 

Unpaid property and equipment

 

$

739

 

 

$

43

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

 


GOSSAMER BIO, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of the Business

Gossamer Bio, Inc. (including its subsidiaries, referred to as “we,” “us,” “our,”, or the “Company”) is a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in the disease areas of immunology, inflammation and oncology. The Company was incorporated in the state of Delaware on October 25, 2015 (originally as FSG Bio, Inc.) and is based in San Diego, California.

The condensed consolidated financial statements include the accounts of Gossamer Bio, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions among the consolidated entity have been eliminated in consolidation.

Stock Split

In January 2019, the board of directors of the Company approved a reverse stock split of the Company’s common stock at a ratio of one for every 4.5 shares previously held. The reverse stock split became effective on January 23, 2019. All share and per share data included in these condensed consolidated financial statements reflect the stock split.

Initial Public Offering in February 2019

On February 12, 2019, the Company completed its initial public offering (“IPO”) with the sale of 19,837,500 shares of common stock, including shares of common stock issued upon the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $16.00 per share, resulting in net proceeds of $291.3 million, after deducting underwriting discounts, commissions, and offering expenses.

In addition, in connection with the completion of the IPO, all of the Company’s outstanding shares of convertible preferred stock were automatically converted into 30,493,460 shares of common stock.

Liquidity and Capital Resources

The Company has incurred significant operating losses since its inception. As of March 31, 2019, the Company had an accumulated deficit of $186.5 million. From the Company’s inception through March 31, 2019, the Company has funded its operations primarily through equity financings, including the Company’s IPO which closed on February 12, 2019. The Company raised $601.3 million from October 2017 through March 2019 through Series A and Series B Convertible Preferred Stock, convertible note financings, and the completed IPO, after deducting underwriting discounts, commissions, and offering expenses. In addition, the Company received $12.8 million in cash in connection with the January 2018 acquisition of AA Biopharma Inc. The Company expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As a result, the Company will need to raise capital through equity offerings, debt financings other capital sources, including potential collaborations, licenses and other similar arrangements. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these condensed consolidated financial statements were available to be issued. There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2019. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2018, has been derived from the audited financial statements at that date.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at

7

 


the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s condensed consolidated financial statements relate to accrued research and development expenses, the valuation of preferred and common stock, the valuation of stock options and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

 

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), as of January 1, 2019, using the optional transition method. The optional transition method provides a method for recording existing leases at adoption and a cumulative catch up adjustment on January 1, 2019 for any differences between ASC 842 and the legacy guidance provided in Accounting Standards Codification 840, Leases that would have impacted our income statement. No retrospective restatements are required under the optional transition method. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. The Company also applied the short-term lease recognition exemption for leases with terms at inception not greater than 12 months.

 

Adoption of the new standard resulted in the recording of additional operating lease right-of-use assets and operating lease liabilities of approximately $12.5 million and $13.2 million, respectively, as of January 1, 2019. The difference between the operating lease right-of-use assets and lease liabilities are due to accrued deferred rent and unamortized lease incentives.

 

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share excludes the potential impact of the Company’s Series Seed Convertible Preferred Stock, Series A Convertible Preferred Stock, and Series B Convertible Preferred Stock, common stock options and unvested shares of restricted stock because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same.

The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per share because to do so would be anti-dilutive:

 

 

As of March 31,

 

 

2019

 

2018

 

Shares issuable upon conversion of Series Seed Convertible

   Preferred Stock

 

 

 

4,444,444

 

Shares issuable upon conversion of Series A Convertible

   Preferred Stock

 

 

 

9,961,663

 

Shares issuable upon exercise of stock options

 

7,469,973

 

 

 

Non-vested shares under restricted stock grants

 

5,862,440

 

 

5,885,865

 

 

3. Balance Sheet Accounts and Supplemental Disclosures

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

 

 

Estimated

Useful Life

(in years)

 

March 31,

2019

 

 

December 31,

2018

 

Office equipment

 

3-7

 

$

664

 

 

$

918

 

Computer equipment

 

5

 

 

33

 

 

 

15

 

Software

 

3

 

 

50

 

 

 

50

 

Lab equipment

 

2-5

 

 

1,870

 

 

 

1,070

 

Leasehold improvements

 

6-7

 

 

1,314

 

 

 

1,243

 

Construction in process

 

N/A

 

 

645

 

 

 

194

 

Total property and equipment

 

 

 

 

4,576

 

 

 

3,490

 

Less: accumulated depreciation

 

 

 

 

466

 

 

 

297

 

Property and equipment, net

 

 

 

$

4,110

 

 

$

3,193

 

8

 


Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Accrued compensation

 

$

2,533

 

 

$

4,102

 

Operating lease liabilities

 

 

2,170

 

 

 

 

Accrued professional service fees

 

 

1,318

 

 

 

2,697

 

Accrued other

 

 

1,858

 

 

 

769

 

Total accrued expenses

 

$

7,879

 

 

$

7,568

 

 

4. Fair Value Measurements and Available for Sale Investments

 

Fair Value Measurements

 

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

We classify our cash equivalents and available-for-sale investments within Level 1 or Level 2. The fair value of our investment grade corporate debt securities and commercial paper is determined using proprietary valuation models and analytical tools, which utilize market pricing or prices for similar instruments that are both objective and publicly available, such as matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, and offers.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following table presents the hierarchy for assets measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (in thousands):

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

 

 

 

 

Quoted Market

 

 

Significant

 

 

Significant

 

 

 

 

 

 

 

Prices for

 

 

Other Observable

 

 

Unobservable

 

 

 

Total

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

As of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

40,965

 

 

$

40,965

 

 

$

 

 

$

 

U.S. Treasury securities

 

 

199,874

 

 

 

199,874

 

 

 

 

 

 

 

Commercial paper

 

 

26,687

 

 

 

 

 

 

26,687

 

 

 

 

Corporate debt securities

 

 

83,813

 

 

 

 

 

 

83,813

 

 

 

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

17,295

 

 

$

17,295

 

 

$

 

 

$

 

U.S. Treasury securities

 

 

123,439

 

 

 

123,439

 

 

 

 

 

 

 

 

The Company did not reclassify and investments between levels in the fair value hierarchy during the first quarter of 2019 or 2018.

 

Fair Value of Other Financial Instruments

 

9

 


As of March 31, 2019 and December 31, 2018, the carrying amounts of the Company’s financial instruments, which include cash, interest and securities receivable, accounts payable and accrued expenses, approximate fair values because of their short maturities.

 

Interest and securities receivable as of March 31, 2019 and December 31, 2018, was $11.2 million and $0.6 million, respectively, and is recorded as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets. Securities receivable reflect the timing differences of maturities or settlements of investments and the ultimate reinvestment of such amounts.

 

Available for Sale Investments

 

We invest our excess cash in U.S. Treasury securities and debt instruments of corporations and commercial obligations, which we classify as available-for-sale investments. These investments are carried at fair value and are included in the tables above.  The Company evaluates securities with unrealized losses to determine whether such losses, if any, are other than temporary. Realized gains and losses are calculated using the specific identification method and recorded as interest income or expense. We do not generally intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

 

The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified in marketable securities and long-term investments for the three months ended March 31, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Total

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

199,811

 

 

$

69

 

 

$

(6

)

 

$

199,874

 

Commercial paper

 

 

26,694

 

 

 

 

 

 

(7

)

 

 

26,687

 

Corporate debt securities

 

 

83,738

 

 

 

84

 

 

 

(9

)

 

 

83,813

 

Total marketable securities

 

$

310,243

 

 

$

153

 

 

$

(22

)

 

$

310,374

 

 

None of the investments have been in a gross unrealized loss for a period greater than 12 months. At each reporting date, we perform an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and our intent and ability to hold the investment until recovery of the amortized cost basis. We intend and have the ability to hold our investments in unrealized loss positions until their amortized cost basis has been recovered. Further, based on our evaluation, we determined that unrealized losses were not other-than-temporary at March 31, 2019 and December 31, 2018.

 

Contractual maturities of available-for-sale debt securities, as of March 31, 2019, were as follows (in thousands):

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

Fair Value

 

Due within one year

 

 

 

 

 

 

 

$

261,450

 

One to two years

 

 

 

 

 

 

 

 

48,924

 

Total

 

 

 

 

 

 

 

$

310,374

 

 

We have the ability, if necessary, to liquidate any of our cash equivalents and short-term investments to meet our liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as current assets on the accompanying condensed consolidated balance sheets.

 

5. Convertible Note Financing

 

On October 2, 2017, the Company issued a convertible promissory note (the “Note”) in an amount of $6.0 million to an investor. The Note accrued interest at 8% per year and had a maturity date of October 2, 2018. The Note was subject to an automatic conversion upon a qualified equity financing defined as a raise of $40.0 million, excluding the conversion of the Note and other indebtedness. The conversion was equal to the outstanding principal amount of the Note plus all accrued and previously unpaid interest thereon, divided by the lowest price per share paid by investor for qualified equity financing. On January 4, 2018, the Note converted into 3,499,209 shares of Series A Convertible Preferred Stock.

 

10

 


6. Asset Acquisitions and Contingent Consideration

 

The following purchased assets were accounted for as asset acquisitions as substantially all of the fair value of the assets acquired were concentrated in a group of similar assets and/or the acquired assets were not capable of producing outputs due to the lack of employees and early stage of development. Because the assets had not yet received regulatory approval, the fair value attributable to these assets was recorded as in process research and development (“IPR&D”) expenses in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2019.

The Company accounts for contingent consideration payable upon achievement of certain regulatory, development or sales milestones in such asset acquisitions when the underlying contingency is met.

 

Acquisition of License from Pulmokine, Inc. (GB002)

 

On October 2, 2017, the Company, entered into a license agreement with Pulmokine, Inc. under which it was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Pulmokine to develop and commercialize GB002 and certain backup compounds for the treatment, prevention and diagnosis of any and all disease or conditions. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The assets acquired are in the early stages of the U.S. Food and Drug Administration (“FDA”) approval process, and the Company intends to further develop the assets acquired through potential FDA approval as evidenced by the milestone arrangement in the contract. The development activities cannot be performed without significant cost and effort by the Company. The agreement will remain in effect from the effective date, unless terminated earlier, until, on a licensed product-by-licensed product and country-by-country basis, the later of ten years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product or specified regulatory exclusivity for the licensed product in such country. The Company is obligated to make future development and regulatory milestone payments of up to $63.0 million, commercial milestone payments of up to $45.0 million, and sales milestone payments of up to $190.0 million. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from the mid-single digits to the high single-digits. The Company made an upfront payment of $5.5 million in October 2017, which was recorded as IPR&D. As of March 31, 2019, no milestones had been accrued as the underlying contingencies had not yet been met.

 

AA Biopharma Inc. Acquisition (GB001)

 

On January 4, 2018, the Company acquired AA Biopharma Inc. pursuant to a merger agreement, and with the acquisition acquired the rights to GB001 and certain backup compounds. In connection with the merger agreement, the Company issued an aggregate of 20,000,000 shares of Series Seed Convertible Preferred Stock and 1,101,278 shares of Common Stock to the AA Biopharma shareholders. The Company recorded IPR&D of $19.3 million in January 2018 in connection with the acquisition of AA Biopharma.

 

Acquisition of License from Aerpio Pharmaceuticals, Inc. (GB004)

 

On June 24, 2018, the Company entered into a license agreement with Aerpio Pharmaceuticals, Inc. (“Aerpio”) under which the Company was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Aerpio to develop and commercialize GB004, and certain other related compounds for all applications. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The Company is obligated to make future development and regulatory milestone payments of up to $55.0 million, commercial milestone payments of up to $85.0 million and sales milestone payments of up to $260.0 million. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from a high single-digit to mid-teens, subject to certain customary reductions. The Company made an upfront payment of $20.0 million in June 2018, which represented the purchase consideration for an asset acquisition. As of March 31, 2019, no milestones had been accrued as the underlying contingencies had not yet been met.

 

Adhaere Pharmaceuticals, Inc. Acquisition (GB1275)

 

On September 21, 2018, the Company acquired Adhaere Pharmaceuticals, Inc. (“Adhaere”) pursuant to a merger agreement for an upfront payment of $7.5 million in cash, and with the acquisition acquired the rights to GB1275 and certain backup compounds. The Company is obligated to make future regulatory, development and sales milestones of up to $62.0 million and pay tiered royalties on worldwide net sales, at percentages ranging from low to mid-single digits, subject to customary reductions. In September 2018, the Company recorded IPR&D of $7.5 million in connection with the acquisition of Adhaere. As of March 31, 2019, no milestones had been accrued as the underlying contingencies had not yet been met.

                  

The Company recorded the following IPR&D expense on the condensed consolidated statements of operations (in thousands):

11

 


 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

GB001

 

$

 

 

$

19,148

 

Other Programs

 

 

1,000

 

 

 

1,750

 

Total in process research and development

 

$

1,000

 

 

$

20,898

 

 

7. Stockholders’ Equity (Deficit)

 

In connection with the Company’s IPO, the outstanding shares of the Company’s Series Seed, Series A, and Series B Convertible Preferred Stock automatically converted into 30,493,460 shares of common stock.

 

Common Stock

 

On December 3, 2015, the Company issued 9,160,888 shares of common stock as founder shares for services rendered to the Company, valued at $0.0001 par value per share, for a total of approximately $4,100. On January 4, 2018, incremental vesting conditions were placed on the previously issued founder shares. Fifty percent of the previously issued founder shares vested on January 4, 2018, and the remaining founder shares are subject to vesting restrictions over a period of five years.

 

Pursuant to the employment agreements with the Company’s founders executed January 4, 2018, the Company provided for certain potential additional issuances of common stock (the “anti-dilution shares”) to each of the founders to ensure the total number of shares of common stock held by them and their affiliates (inclusive of any shares subject to equity awards granted by the Company) would represent 15% of the Company’s fully-diluted capitalization until such time as the Company raised $300 million in equity capital, including the capital raised in the Series A financing.

 

In furtherance of this obligation, on May 21, 2018, the Company issued 251,547 shares of common stock to the founders for services rendered to the Company, valued at $2.61 per share with an additional 251,547 shares of restricted stock subject to the same vesting restrictions and vesting period as the founder shares. In addition, on September 6, 2018, the Company issued 1,795,023 shares of common stock to the founders for services rendered to the Company, valued at $9.63 per share, with an additional 1,795,023 shares of restricted stock subject to the same vesting restrictions and vesting period as the founder shares.

 

Each share of common stock is entitled to one vote. Common stock owners are entitled to dividends when funds are legally available and declared by the Board.

 

Shares of Common Stock Subject to Repurchase

 

In November 2017, in connection with the issuance of the Series A Convertible Preferred Stock, certain employees entered into stock restriction agreements, whereby 1,305,427 shares are subject to forfeiture by the Company upon the stockholder’s termination of employment or service to the Company. In January 2018, the Company’s founders entered into stock restriction agreements, whereby 4,580,444 of previously unrestricted shares of common stock were subject to service vesting conditions. These shares are also subject to forfeiture by the Company upon the stockholders’ termination of employment or service to the Company. Any shares subject to repurchase by the Company are not deemed, for accounting purposes, to be outstanding until those shares vest. As such, the Company recognizes the measurement date fair value of the restricted stock over the vesting period as compensation expense. As of March 31, 2019 and December 31, 2018 shares of common stock subject to repurchase by the Company was 5,862,450 shares and 7,482,032 shares, respectively. The unvested stock liability related to these awards is immaterial to all periods presented.

 

8. Equity Incentive Plans

 

Approval of the 2019 Equity Incentive Plan

 

In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Incentive Award Plan (the “2019 Plan”). The 2019 Plan became effective on February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s subsidiaries. A total of 5,750,000 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan. The number of shares that remained available for issuance under the 2017 Plan as of the effective date of the 2019 Plan and shares subject to outstanding awards under the 2017 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be added to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2019 Plan, beginning with

12

 


January 1, 2020 and ending with January 1, 2029, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. As of March 31, 2019, an aggregate of 3,359,856 shares of common stock were available for issuance under the 2019 Plan and 2,390,144 shares of common stock were subject to outstanding awards under the 2019 Plan.

 

Approval of the 2019 Employee Stock Purchase Plan

 

In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective as of February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The ESPP permits participants to purchase common stock through payroll deductions of up to 20% of their eligible compensation. A total of 700,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 1% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. As of March 31, 2019, an aggregate of 700,000 shares of common stock were available for issuance under the ESPP.

 

2017 Equity Incentive Plan

 

The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) permitted the granting of incentive stock options, non-statutory stock options, restricted stock, restricted stock units and other stock-based awards. Subsequent to the adoption of the 2019 Plan, no additional equity awards can be made under the 2017 Plan.

 

At March 31, 2019, 6,285,478 shares of common stock were subject to outstanding awards under the 2017 Plan.

 

Stock Options

 

The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company, prior to the IPO on February 12, 2019, was a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

 

The following table summarizes stock option activity during the three months ended March 31, 2019:

 

 

 

Shares Subject to

Options Outstanding

 

 

Weighted-

Average

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

 

Average

Exercise

 

 

Contractual

Life

 

 

Aggregate

 

 

 

Shares

 

 

Price

 

 

(Years)

 

 

Intrinsic Value