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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 June 30, 2020

☐	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

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

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 ☑

As of August 6, 2020, the registrant had 75,828,140 shares of common stock ($0.0001 par value) outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Six Months ended June 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2020 and 2019	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4	Controls and Procedures	30

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	31
Item 1A	Risk Factors	31
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3	Defaults Upon Senior Securities	32
Item 4	Mine Safety Disclosures	32
Item 5	Other Information	32
Item 6	Exhibits	32
	Exhibit Index	33
	Signatures	34

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)

	June 30, 2020			December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	486,062		$	135,089
Marketable securities		114,302			266,740
Prepaid expenses and other current assets		8,036			7,488
Total current assets		608,400			409,317
Property and equipment, net		5,757			5,425
Operating lease right-of-use assets		10,292			10,303
Other assets		627			1,559
Total assets	$	625,076		$	426,604
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	222		$	956
Accrued research and development expenses		13,155			19,258
Accrued expenses and other current liabilities		14,167			16,709
Total current liabilities		27,544			36,923
Long-term convertible senior notes		140,715			—
Long-term debt		28,637			28,459
Operating lease liabilities - long-term		7,856			8,737
Total liabilities		204,752			74,119
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value; 700,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 75,811,862 shares issued and 71,972,610 shares outstanding as of June 30, 2020, and 66,284,003 shares issued and 61,635,477 shares outstanding as of December 31, 2019		8			7
Additional paid-in capital		874,863			686,390
Accumulated deficit		(455,114	)		(334,170	)
Accumulated other comprehensive income		567			258
Total stockholders' equity		420,324			352,485
Total liabilities and stockholders' equity	$	625,076		$	426,604

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

GOSSAMER BIO, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Operating expenses:
Research and development	$	38,684		$	35,676		$	80,098		$	60,659
In process research and development		15,000			1,000			17,805			2,000
General and administrative		11,655			9,673			22,403			17,707
Total operating expenses		65,339			46,349			120,306			80,366
Loss from operations		(65,339	)		(46,349	)		(120,306	)		(80,366	)
Other income (expense), net		(1,531	)		1,851			(638	)		3,257
Net loss	$	(66,870	)	$	(44,498	)	$	(120,944	)	$	(77,109	)
Other comprehensive income:
Foreign currency translation, net of tax		78			—			(9	)		—
Unrealized gain on marketable securities, net of tax		994			417			318			557
Other comprehensive income		1,072			417			309			557
Comprehensive loss		(65,798	)		(44,081	)		(120,635	)		(76,552	)
Net loss per share, basic and diluted	$	(1.00	)	$	(0.74	)	$	(1.88	)	$	(1.59	)
Weighted average common shares outstanding, basic and diluted		66,599,915			60,265,046			64,245,119			48,357,294

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

GOSSAMER BIO, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

(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, 2019		—	$	—		—	$	—		—	$	—		61,635,477	$	7	$	686,390		$	(334,170	)	$	258		$	352,485
Vesting of restricted stock		—		—		—		—		—		—		404,637		—		—			—			—			—
Exercise of stock options		—		—		—		-		—		—		4,309		—		15			—			—			15
Stock-based compensation		—		—		—		—		—		—		—		—		8,244			—			—			8,244
Issuance of common stock pursuant to Employee Stock Purchase Plan		—		—		—		—		—		—		49,889		—		556			—			—			556
Net loss		—		—		—		—		—		—		—		—		—			(54,074	)		—			(54,074	)
Other comprehensive loss		—		—		—		—		—		—		—		—		—			—			(763	)		(763	)
Balance as of March 31, 2020		—	$	—		—	$	—		—	$	—		62,094,312	$	7	$	695,205		$	(388,244	)	$	(505	)	$	306,463
Issuance of common stock in connection with public offering, net of underwriting discounts, commissions, and offering costs		—		—		—		—		—		—		9,433,963		1		117,093			—			—			117,094
Equity component of convertible note issuance		—		—		—		—		—		—		—		—		53,635			—			—			53,635
Debt issuance costs attributable to convertible feature		—		—		—		—		—		—		—		—		(109	)		—			—			(109	)
Vesting of restricted stock		—		—		—		—		—		—		404,637		—		—			—			—			—
Exercise of stock options		—		—		—		—		—		—		39,698		—		139			—			—			139
Stock-based compensation		—		—		—		—		—		—		—		—		8,900			—			—			8,900
Net loss		—		—		—		—		—		—		—		—		—			(66,870	)		—			(66,870	)
Other comprehensive income		—		—		—		—		—		—		—		—		—			—			1,072			1,072
Balance as of June 30, 2020		—	$	—		—	$	—		—	$	—		71,972,610	$	8	$	874,863		$	(455,114	)	$	567		$	420,324

	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
Vesting of restricted stock		—			—			—			—			—			—			404,637		—		—		—			—			—
Exercise of stock options		—			—			—			—			—			—			33,273		—		86		—			—			86
Stock-based compensation		—			—			—			—			—			—			—		—		5,140		—			—			5,140
Other additional paid-in capital		—			—			—			—			—			—			—		—		39		—			—			39
Net loss		—			—			—			—			—			—			—		—		—		(44,498	)		—			(44,498	)
Other comprehensive income		—			—			—			—			—			—			—		—		—		—			417			417
Balance as of June 30, 2019		—		$	—			—		$	—			—		$	—			60,467,380	$	7	$	671,913	$	(230,972	)	$	496		$	441,444

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

nGOSSAMER BIO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Six months ended June 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(120,944	)	$	(77,109	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		679			374
Stock-based compensation expense		17,144			8,229
In process research and development expenses		17,805			2,000
Amortization of operating lease right-of-use assets		1,203			1,080
Amortization of debt discount and issuance costs		823			59
Amortization of premium on investments, net of accretion of discounts		(33	)		(1,464	)
Net realized gain on investments		(253	)		(1	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(548	)		(4,243	)
Other assets		932			2,906
Operating lease liabilities		(715	)		(1,032	)
Accounts payable		(727	)		823
Accrued expenses		(982	)		(1,018	)
Accrued research and development expenses		(6,103	)		4,624
Accrued compensation and benefits		(2,975	)		188
Net cash used in operating activities		(94,694	)		(64,584	)
Cash flows from investing activities
Research and development asset acquisitions, net of cash acquired		(17,805	)		(2,000	)
Purchase of marketable securities		(73,777	)		(287,038	)
Maturities of marketable securities		143,304			74,897
Sales of marketable securities		83,515			3,842
Purchase of property and equipment		(954	)		(1,727	)
Net cash provided by (used in) investing activities		134,283			(212,026	)
Cash flows from financing activities
Proceeds from issuance of common stock in a public offering, net		117,094			291,311
Proceeds from issuance of convertible debt, net		193,596			—
Proceeds from the issuance of long-term debt, net of issuance costs of $1,778		—			28,222
Purchase of shares pursuant to Employee Stock Purchase Plan		556			—
Proceeds from the exercise of stock options		154			158
Net cash provided by financing activities		311,400			319,691
Effect of exchange rate changes on cash and cash equivalents		(16	)		—
Net increase in cash and cash equivalents		350,989			43,081
Cash and cash equivalents, at the beginning of the period		135,089			105,419
Cash and cash equivalents, at the end of the period	$	486,062		$	148,500

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,243		$	—

Supplemental disclosure of noncash investing and financing activities:
Right-of-use assets obtained in exchange for lease liabilities	$	1,192		$	12,458
Change in unrealized gain on marketable securities, net of tax	$	318		$	565
Unpaid property and equipment	$	57		$	268
Conversion of convertible preferred stock to common stock	$	—		$	338,367

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

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.

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 June 30, 2020, the Company had an accumulated deficit of $455.1 million. From the Company’s inception through June 30, 2020, the Company has funded its operations primarily through equity and debt financings, including the Company’s IPO which closed on February 12, 2019. The Company raised $942.0 million from October 2017 through June 30, 2020 through Series A and Series B convertible preferred stock financings, a convertible note financing, its IPO, its Credit Facility (as defined in Note 5 below), and concurrent underwritten public offerings of its 5.00% convertible senior notes due 2027 (the “2027 Notes”) and common stock in May 2020. See Note 5 for additional information regarding the Credit Facility and the 2027 Notes. 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 and 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.

COVID-19

The COVID-19 outbreak has caused significant business disruption around the globe. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and the impact on the Company’s clinical trials, employees and vendors. At this point, the degree to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain. A prolonged outbreak could have a material and adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to complete certain clinical trials and other efforts required to advance the development of its product candidates and raise additional capital. For example, the Company commenced enrolling patients for a Phase 1b clinical trial in PAH in the first quarter of 2020, and because the Company temporarily paused enrollment as a result of the ongoing COVID-19 viral pandemic, the Company now expects to report topline results from this trial in the second half of 2020. In addition, due to the challenges of enrolling patients posed by the COVID-19 pandemic, the Company may experience delays in the commencement of and enrollment of patients in its planned Phase 2 clinical trial of GB002 in pulmonary arterial hypertension and planned Phase 2 clinical trial of GB004 in ulcerative colitis, as well as delays in reporting data results from its ongoing trials.

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, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2020. 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, 2019, 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 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 the allocation of the 2027 Notes into liability and equity components, 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.

Convertible Senior Notes

In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the condition for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2027 Notes.

The Company allocated the issuance costs incurred to the liability and equity components of the 2027 Notes based on their relative fair values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2027 Notes and are being amortized to interest expense over the term of the 2027 Notes. Issuance costs attributable to the equity component, representing the conversion option, were netted with the equity component in stockholders' equity.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2016-13 as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or related financial statement disclosures.

Net Loss Per Share