NeuroBo Pharmaceuticals(NRBO) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1 – FINANCIAL STATEMENTS The company presents unaudited condensed financial statements showing reduced losses but also decreased cash, raising going concern doubts Condensed Balance Sheets The balance sheet reflects a significant decrease in total assets and stockholders' equity due to cash reduction and loan repayment Condensed Balance Sheets (in thousands) | Metric | June 30, 2019 (unaudited) | December 31, 2018 | Change | | :-------------------------- | :------------------------ | :------------------ | :------- | | Cash and cash equivalents | $3,643 | $18,954 | $(15,311) | | Total current assets | $3,988 | $19,686 | $(15,698) | | Total assets | $4,014 | $19,694 | $(15,680) | | Term loan - current portion | $— | $9,437 | $(9,437) | | Total current liabilities | $2,050 | $11,919 | $(9,869) | | Total liabilities | $2,050 | $11,920 | $(9,870) | | Total stockholders' equity | $1,964 | $7,774 | $(5,810) | Condensed Statements of Comprehensive Loss Net loss significantly narrowed year-over-year for the three and six-month periods due to substantial cuts in operating expenses Condensed Statements of Comprehensive Loss (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change (YoY) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change (YoY) | | :-------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------------------- | :--------------------------- | :---------------- | | General and administrative | $1,115 | $2,574 | $(1,459) | $2,522 | $4,661 | $(2,139) | | Research and development | $1,234 | $3,960 | $(2,726) | $2,627 | $8,937 | $(6,310) | | Total operating expenses | $2,349 | $6,534 | $(4,185) | $5,149 | $13,598 | $(8,449) | | Net loss | $(2,920) | $(6,678) | $3,758 | $(6,721) | $(13,902) | $7,181 | | Basic and diluted net loss per share | $(0.20) | $(0.47) | $0.27 | $(0.47) | $(1.04) | $0.57 | Condensed Statements of Changes in Stockholders' Equity Stockholders' equity decreased significantly during the first half of 2019 primarily due to net losses incurred Condensed Statements of Changes in Stockholders' Equity (in thousands) | Metric | Balance at January 1, 2019 | Balance at June 30, 2019 | Change | | :-------------------------- | :------------------------- | :----------------------- | :------- | | Common Stock (Amount) | $22 | $22 | $0 | | Additional Paid-In Capital | $91,863 | $92,774 | $911 | | Accumulated Deficit | $(84,111) | $(90,832) | $(6,721) | | Total Stockholders' Equity | $7,774 | $1,964 | $(5,810) | - Share-based compensation for employees contributed $911 thousand to additional paid-in capital for the six months ended June 30, 2019[14] Condensed Statements of Cash Flows Cash decreased by $15.3 million in the first half of 2019, driven by operating activities and a significant loan repayment Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Net cash used in operating activities | $(5,037) | $(13,514) | $8,477 | | Net cash provided by (used in) investing activities | $— | $— | $— | | Net cash (used in) provided by financing activities | $(10,259) | $23,080 | $(33,339) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(15,296) | $9,566 | $(24,862) | | Cash, cash equivalents and restricted cash at end of period | $3,658 | $28,039 | $(24,381) | Notes to Condensed Financial Statements The notes detail the company's going concern risk, the proposed NeuroBo merger, and the Beijing SL licensing agreement 1. The Company and Basis of Presentation The company is a clinical-stage biopharma with significant operating losses, raising substantial doubt about its going concern status - Gemphire Therapeutics Inc is a clinical-stage biopharmaceutical company developing therapies for dyslipidemia and NAFLD/NASH, with gemcabene as its primary product candidate[19][123] - The company has sustained operating losses since inception, with an accumulated deficit of $90.8 million as of June 30, 2019, and expects losses to continue[21][26][128] - Management believes current cash and cash equivalents ($3.6 million as of June 30, 2019) are insufficient to fund operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern[21][26] - The company entered into a definitive merger agreement with NeuroBo Pharmaceuticals, Inc on July 24, 2019, in an all-stock transaction, which is critical for its future operations[19][102] 2. Summary of Significant Accounting Policies This section outlines key accounting policies, including the expensing of R&D costs and the adoption of new accounting standards - Research and development expenses, including compensation, preclinical/clinical study costs, regulatory activities, and manufacturing support, are expensed as incurred[34][158] - The company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing approximately $0.1 million in lease assets and liabilities, with no material impact on comprehensive loss or cash flows[41] - The company has irrevocably elected not to use the extended transition period for complying with new or revised financial accounting standards under the JOBS Act[39] 3. Accrued Liabilities Accrued liabilities decreased slightly due to reductions in accrued compensation and R&D expenses, offset by higher legal costs Accrued Liabilities (in thousands) | Accrued Liability | June 30, 2019 | December 31, 2018 | Change | | :---------------------------------- | :-------------- | :---------------- | :------- | | Accrued compensation and other payroll liabilities | $20 | $137 | $(117) | | Legal costs | $269 | $106 | $163 | | Other research and development expenses | $54 | $135 | $(81) | | Total | $382 | $438 | $(56) | 4. Debt The company fully prepaid its term loan with Silicon Valley Bank in January 2019, with a success fee contingent on the NeuroBo merger - The company fully prepaid its $8.9 million term loan with Silicon Valley Bank on January 28, 2019, including a $1.0 million final payment fee[49][197] - A success fee of $350,000 will be triggered upon the completion of the merger with NeuroBo[50][198] - A warrant to purchase 36,000 shares of common stock issued to SVB remains outstanding[50][198] 5. Commitments and Contingencies The company has potential milestone and royalty payment commitments to Pfizer and a short-term headquarters lease liability - The company holds an exclusive license agreement with Pfizer for gemcabene, which includes potential milestone and royalty payments on future sales[52][202] - As of June 30, 2019, no liabilities were recorded for Pfizer Agreement milestone payments due to uncertainty regarding clinical trial outcomes and funding[52] Lease Metrics (in thousands, except term) | Lease Metric | June 30, 2019 | December 31, 2018 | | :-------------------------------- | :-------------- | :---------------- | | Right-of-use assets | $18 | $68 | | Lease liability | $18 | $70 | | Weighted average remaining lease term | 0.2 years | 0.7 years | 6. License Agreement Gemphire holds a worldwide exclusive license from Pfizer for gemcabene, requiring potential milestone payments and tiered royalties - Gemphire has a worldwide exclusive license for gemcabene from Pfizer, requiring milestone payments up to $37 million and tiered royalties on net sales[60][61][204][205] - The Pfizer Agreement was amended in August 2018, extending the deadline for the first commercial sale to April 2024[63][206] - Pfizer received 675,250 shares of Gemphire common stock (fair value $0.9 million) in 2015 as an initial equity payment, recorded as acquired in-process R&D expenses[62] 7. Stockholders' Equity The company had 14.3 million shares outstanding and previously raised $23.1 million in a 2018 public offering - As of June 30, 2019, 14,265,411 shares of common stock were issued and outstanding[64] - In Q1 2018, a follow-on public offering generated approximately $23.1 million in net proceeds from the sale of 3,592,858 common shares[66][188] - Warrants to purchase 1,014,204 shares of common stock were outstanding as of June 30, 2019[67][85] 8. Share‑Based Compensation Share-based compensation expense decreased significantly year-over-year, with $2.8 million in unrecognized cost remaining Share-Based Compensation Expense (in thousands) | Expense Category | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative | $275 | $436 | $559 | $1,147 | | Research and development | $163 | $473 | $352 | $782 | | Total share-based compensation | $438 | $909 | $911 | $1,929 | - As of June 30, 2019, 1,280,062 shares were available for future issuance under the A&R 2015 and Inducement Plans[82] - Unrecognized share-based compensation cost was $2.8 million as of June 30, 2019, expected to be recognized over a weighted average period of 1.1 years[83] 9. Net Loss Per Common Share Net loss per share improved significantly year-over-year due to reduced net losses, with potential dilutive securities excluded Net Loss Per Share Calculation (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss attributed to common stockholders | $(2,920) | $(6,678) | $(6,721) | $(13,902) | | Basic and diluted weighted average common shares outstanding | 14,265,411 | 14,232,313 | 14,265,411 | 13,340,941 | | Basic and diluted net loss per share | $(0.20) | $(0.47) | $(0.47) | $(1.04) | - Stock options (2,722,973) and warrants (1,014,204) were anti-dilutive and excluded from diluted net loss per share calculations for the six months ended June 30, 2019[85] 10. Fair Value Measurements The fair values of the company's short-term financial instruments approximated their carrying values - Fair values of short-term financial instruments (cash, accounts payable, etc) approximated their carrying values as of June 30, 2019, and December 31, 2018[87] - No financial instruments were measured on a recurring or non-recurring fair value basis, and no transfers occurred between fair value hierarchy levels during the reported periods[88] 11. Income Taxes The company reported a zero effective tax rate due to operating losses and a full valuation allowance on deferred tax assets - The effective tax rate was zero percent for the three and six months ended June 30, 2019 and 2018[89] - A full valuation allowance was recorded on net deferred tax assets due to incurred operating losses, resulting in no income tax benefit[89] 12. Defined Contribution Plan The company's matching contributions to its 401(k) plan decreased in 2019 compared to the prior year - The company adopted a 401(k) defined contribution plan effective January 1, 2017, with employer matching contributions starting January 1, 2018[90] 401(k) Matching Contributions (in thousands) | Matching Contributions | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amount | $19 | $29 | $47 | $54 | 13. Related Party Transactions A Q1 2018 public offering included share purchases by an officer and an affiliate of a board member - In Q1 2018, an officer purchased 14,286 shares for approximately $0.1 million, and an affiliate of an officer/board member purchased 71,429 shares for approximately $0.5 million in a public offering[92] 14. Subsequent Events Subsequent events include a licensing deal with Beijing SL, a definitive merger agreement with NeuroBo, and a Nasdaq compliance notice License Agreement with Beijing SL Gemphire granted Beijing SL an exclusive license for gemcabene in Greater China for an upfront payment and potential milestones - On July 23, 2019, Gemphire granted Beijing SL an exclusive license for gemcabene in mainland China, Hong Kong, Macau, and Taiwan[93] - Beijing SL will make an upfront gross payment of $2.5 million and is eligible for up to $6 million in development/regulatory milestones and up to $20 million in global net sales milestones[95] - Gemphire will receive tiered royalties ranging from mid-teens to twenty percent on the net sales of all Licensed Products in the Territory[96] Merger Agreement with NeuroBo Gemphire entered an all-stock merger agreement with NeuroBo, resulting in Gemphire security holders owning about 4% of the combined entity - Gemphire entered into an all-stock merger agreement with NeuroBo Pharmaceuticals, Inc on July 24, 2019[102] - Post-merger, Gemphire security holders are expected to own approximately 4.06% and NeuroBo security holders approximately 95.94% of the combined company on a fully-diluted basis[103] - The merger is subject to stockholder approvals, Nasdaq listing, conversion of NeuroBo preferred stock/notes, and Gemphire meeting a minimum net cash amount of negative $3 million[105] Contingent Value Rights Agreement Stockholders will receive non-transferable CVRs entitling them to 80% of future net proceeds from gemcabene monetization - Stockholders will receive one CVR per share, entitling them to 80% of Gross Consideration (less deductions) from future gemcabene rights grants/sales over a 15-year term[109] - The combined company will commit $1 million to support gemcabene development through March 31, 2020, but has no further obligation to develop or monetize gemcabene after this period[109][250] - CVRs are not transferable (except in limited circumstances), will not accrue interest, and will not be registered or listed for trading[109] Change in Control Payments and Severance Awards Executive employment agreements were amended to provide lump sum cash payments and restricted stock awards upon the merger's completion - Key executives (Dr Gullans, Dr Bisgaier, Mr Reno) will receive lump sum cash payments totaling $702,536 upon merger completion, in lieu of prior severance[110] - Executives also received restricted stock awards (300,000, 100,000, and 100,000 shares, respectively) that fully vest immediately prior to the merger's effective time, contingent on a release of claims[111][112] - Non-employee directors (45,000 shares) and other employees (62,000 shares) also received restricted stock awards[113] Nasdaq Compliance Gemphire received a Nasdaq notice for failing to meet the minimum bid price requirement and has until February 2020 to regain compliance - On August 8, 2019, Gemphire received a Nasdaq notice for non-compliance with the $1.00 minimum bid price rule[115] - The company has 180 calendar days (until February 4, 2020) to regain compliance[115] - Gemphire believes the proposed merger with NeuroBo, including a reverse stock split, will address the Nasdaq compliance issue[117][145] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses reduced operating expenses and net losses, highlighting the critical importance of the proposed NeuroBo merger for liquidity Forward-Looking Statements This section provides a cautionary statement that forward-looking statements are subject to risks and uncertainties - The report contains forward-looking statements based on management's beliefs and estimates, subject to known and unknown risks and uncertainties[120][121] - The company operates in a competitive and rapidly changing environment, with new risks emerging, making it difficult to predict all factors impacting future results[121] - The company undertakes no obligation to publicly update any forward-looking statement, except as required by law[122] Overview Gemphire is a clinical-stage biopharma with a significant accumulated deficit, relying on external financing for its operations - Gemphire is a clinical-stage biopharmaceutical company focused on dyslipidemia and NAFLD/NASH, with gemcabene as its lead therapeutic compound[123] - Gemcabene has been tested in over 1,100 subjects across 25 Phase 1 and Phase 2 clinical trials, showing promising efficacy, safety, and tolerability[123] - The company has incurred net losses of $6.7 million for the six months ended June 30, 2019, and has an accumulated deficit of $90.8 million as of June 30, 2019[128] Key Developments Key developments include mixed clinical trial results, an FDA partial clinical hold, and the strategic merger with NeuroBo Clinical and Research Program Updates Gemcabene showed positive Phase 2b results but a pediatric NAFLD trial was halted early, and an FDA partial clinical hold remains - Gemcabene's Phase 2b trials for HoFH, hypercholesterolemia (ROYAL-1), and SHTG (INDIGO-1) achieved statistical significance for primary endpoints[130] - A Phase 2a pediatric NAFLD trial was halted early due to "unanticipated problems," including increased ALT, liver fat, weight, and triglycerides in some patients[131] - Top-line data from a Phase 2a FPLD trial showed a median 19.6% reduction in serum triglycerides at 12 weeks[134][135] - The FDA maintained a partial clinical hold on gemcabene, requesting additional preclinical studies to be submitted in Q4 2019, delaying the End of Phase 2 meeting[136] Pfizer License Agreement The Pfizer license agreement was renegotiated in 2018, extending the first commercial sale deadline to April 2024 - The gemcabene in-licensing agreement with Pfizer was renegotiated in Q3 2018, extending the first commercial sale deadline to April 2024[137] Workforce Reduction A 33% workforce reduction was implemented in September 2018 to conserve cash, resulting in $1.6 million in charges - A workforce reduction of 5 employees (33% of workforce) was approved in September 2018 to reduce costs due to FDA delays[138] - The reduction resulted in approximately $1.6 million in charges, including $0.5 million cash severance and $1.1 million non-cash for accelerated stock option vesting[138] SVB Loan Repayment The company fully prepaid its outstanding term loan with Silicon Valley Bank in January 2019 - The outstanding term loan with Silicon Valley Bank was fully prepaid in January 2019[140] Nasdaq Compliance The company is addressing multiple Nasdaq non-compliance issues, with the proposed NeuroBo merger expected to resolve them - Gemphire transferred its common stock listing to the Nasdaq Capital Market in May 2019 due to non-compliance with the minimum stockholders' equity requirement[141][142] - On August 8, 2019, the company received a Nasdaq notice for failing to meet the $1.00 minimum bid price rule, with a compliance period until February 4, 2020[143] - The proposed merger with NeuroBo, including a reverse stock split, is expected to address the Nasdaq compliance matter[145] Review of Strategic Alternatives The Board established a committee in December 2018 to review strategic alternatives to maximize stockholder value - In December 2018, a Board committee was formed to review strategic alternatives to maximize stockholder value, with Ladenburg Thalmann & Co Inc as financial advisor[149] License and Collaboration Agreement Gemphire entered an exclusive license agreement with Beijing SL for gemcabene in Greater China - On July 23, 2019, Gemphire granted Beijing SL an exclusive royalty-bearing license for gemcabene in mainland China, Hong Kong, Macau, and Taiwan[150] Merger Agreement with NeuroBo The company entered a definitive merger agreement with NeuroBo, expected to close in the second half of 2019 - Gemphire entered into a merger agreement with NeuroBo on July 24, 2019, with NeuroBo becoming a wholly-owned subsidiary in an all-stock transaction[151] - The merger includes a Contingent Value Rights (CVR) Agreement for Gemphire stockholders[151] - The merger is expected to close in the second half of 2019, subject to stockholder approvals and other conditions, with material fees and costs[151] Financial Operations Overview The company has generated no revenue and anticipates reduced operating expenses in the near term due to the clinical hold on gemcabene Revenue Gemphire has not generated any revenue to date and does not expect to until gemcabene is commercialized or milestones are met - Gemphire has not generated any revenue to date and does not expect to until regulatory approval and commercialization of gemcabene or other product candidates[153] - Revenue generation is also contingent on meeting certain development and commercialization milestones under the Beijing SL Agreement[153] Operating Expenses Operating expenses, comprising G&A and R&D, are expected to trend lower in the near term but R&D will increase with later-stage development General and Administrative General and administrative expenses are expected to trend lower due to reduced research and development activities - General and administrative expenses primarily consist of personnel-related costs, legal fees for intellectual property and corporate matters, and professional accounting services[157] - These expenses are anticipated to trend below comparable prior period levels due to reduced research and development activities[157] Research and Development R&D expenses are expected to decrease in the near term due to the FDA clinical hold but increase significantly in later stages - Research and development expenses are primarily for gemcabene's clinical development, expensed as incurred, including compensation, preclinical/clinical studies, regulatory, and manufacturing costs[158] - R&D expenses are expected to trend lower in the near future due to reduced activities related to the FDA clinical hold[159] - R&D expenses are projected to increase significantly in later stages of clinical development due to increased size and duration of trials[159] Interest Income (Expense), net Net interest expense fluctuated due to the Term Loan prepayment and changes in cash balances - Interest income (expense), net, includes cash and non-cash interest from the Term Loan (prepaid Jan 2019) and interest on cash/cash equivalents[162] - The decrease in interest expense in Q2 2019 was due to the Term Loan repayment, while interest income decreased due to lower cash balances[171] Other Expense, net Other expenses primarily consist of transaction costs related to the review of strategic alternatives - Other expense, net, primarily comprises non-operating transaction costs related to strategic alternatives review and fluctuating foreign currency exchange gains/losses[163] Provision for Income Taxes The company has no provision for income taxes due to operating losses and a full valuation allowance - No provision for income taxes exists due to operating losses and a full valuation allowance on net deferred tax assets[164] Results of Operations The company's net loss decreased significantly due to substantial reductions in both G&A and R&D expenses Comparison of Three Months Ended June 30, 2019 and 2018 Operating expenses for Q2 2019 decreased by $4.2 million year-over-year, driven by reduced clinical trial activities Operating Expenses - Q2 Comparison (in thousands) | Operating Expense | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change | | :-------------------------- | :--------------------------- | :--------------------------- | :------- | | General and administrative | $1,115 | $2,574 | $(1,459) | | Research and development | $1,234 | $3,960 | $(2,726) | | Total operating expenses | $2,349 | $6,534 | $(4,185) | - Interest income (expense), net, improved by $0.15 million, from $(0.144) million in 2018 to $0.01 million in 2019, due to the Term Loan not being outstanding[165][171] - Other expense increased by $0.581 million in 2019 due to non-operating transaction costs associated with strategic alternatives review[165][172] Comparison of Six Months Ended June 30, 2019 and 2018 Operating expenses for H1 2019 decreased by $8.4 million year-over-year, while net interest expense increased due to loan prepayment Operating Expenses - H1 Comparison (in thousands) | Operating Expense | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change | | :-------------------------- | :--------------------------- | :--------------------------- | :------- | | General and administrative | $2,522 | $4,661 | $(2,139) | | Research and development | $2,627 | $8,937 | $(6,310) | | Total operating expenses | $5,149 | $13,598 | $(8,449) | - Net interest expense increased by $0.516 million, from $(0.304) million in 2018 to $(0.820) million in 2019, primarily due to non-cash acceleration of debt discount amortization from the Term Loan prepayment[165][177] - Other expense increased by $0.752 million in 2019 due to non-operating transaction costs associated with strategic alternatives review[165][178] Cash Flows Cash decreased by $15.3 million in H1 2019, a sharp reversal from a $9.6 million increase in H1 2018 due to financing activities Cash Flow from Operating Activities Cash used in operating activities decreased to $5.0 million in H1 2019 from $13.5 million in H1 2018, primarily due to a lower net loss Net Cash Used in Operating Activities (in thousands) | Operating Activities | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Net cash used in operating activities | $(5,037) | $(13,514) | $8,477 | - The decrease in cash used in operating activities was primarily due to a lower net loss ($6.7 million in 2019 vs $13.9 million in 2018), adjusted by share-based compensation and non-cash discount amortization[180][181] Cash Flow from Investing Activities There were no cash flows from investing activities during the reported periods - No cash flows from investing activities were reported for any periods presented[182] Cash Flow from Financing Activities Financing activities used $10.3 million in H1 2019 for loan repayment, contrasting with $23.1 million provided in H1 2018 from an offering Net Cash (Used in) Provided by Financing Activities (in thousands) | Financing Activities | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Net cash (used in) provided by financing activities | $(10,259) | $23,080 | $(33,339) | - Cash used in financing activities in H1 2019 was primarily for the $10.3 million repayment of the Term Loan[183] - Cash provided by financing activities in H1 2018 was mainly from $23.1 million net proceeds from the Follow-On Offering[186] Liquidity and Capital Resources The company's $3.6 million in cash is insufficient for the next 12 months, making the proposed merger with NeuroBo critical for survival - As of June 30, 2019, Gemphire had approximately $3.6 million in cash and cash equivalents[187] - Current cash is insufficient to fund operations for the next 12 months, and the ability to raise additional funds is severely harmed by the FDA's clinical hold and trial termination[190][191] - The proposed merger with NeuroBo is critical; if it fails, the company may be required to significantly reduce operations, delay development, or face dissolution and liquidation[190][192] Beijing SL Agreement The license agreement with Beijing SL provides an upfront payment of $2.5 million and potential future milestone payments - Gemphire entered a license agreement with Beijing SL on July 23, 2019, for gemcabene in mainland China, Hong Kong, Macau, and Taiwan[196] - The agreement includes an upfront gross payment of $2.5 million and potential future milestone and royalty payments[196] Term Loan The Term Loan was fully prepaid in January 2019, with a success fee contingent on the NeuroBo merger - The Term Loan with Silicon Valley Bank was fully prepaid on January 28, 2019, for approximately $8.9 million principal and $1.0 million interest/fees[197] - A $350,000 success fee will be triggered upon the completion of the NeuroBo merger[198] - A warrant to purchase 36,000 shares of common stock remains outstanding[198] Facility Lease The company's headquarters lease expired on August 31, 2019 - The company has a non-cancellable facility lease for its headquarters from September 1, 2016, to August 31, 2019[201] - Monthly base rent is approximately $8,900 during the last year of the lease agreement[201] Pfizer Agreement The Pfizer license agreement includes potential milestone payments up to $37 million and requires commercially reasonable development efforts - The exclusive license agreement with Pfizer for gemcabene includes potential milestone payments up to $37 million and tiered royalties on net sales[204][205] - Gemphire is obligated to use commercially reasonable efforts to develop and commercialize gemcabene[205] - The agreement expires upon the expiration of the last Royalty Term, after which Gemphire will have a perpetual, fully paid-up, royalty-free license[206] Other Commitments The company has cancellable purchase commitments with suppliers for research and clinical services - The company has cancellable purchase commitments with suppliers for research, clinical services, and raw materials, subject to change based on R&D efforts[209] Critical Accounting Policies and Estimates The company's critical accounting policies and estimates had no material changes during the second quarter of 2019 - Financial statements are prepared in accordance with GAAP, requiring management estimates and judgments[210] - No material changes to critical accounting policies or estimates occurred during the three months ended June 30, 2019[211] Off‑Balance Sheet Arrangements The company did not have any off-balance sheet arrangements - The company did not have any off-balance sheet arrangements during the periods presented and currently has none[212] Recent Accounting Pronouncements A discussion of recently issued accounting pronouncements is available in Note 2 of the financial statements - Refer to Note 2 for a discussion of recently issued accounting pronouncements[213] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This item is not applicable as no quantitative and qualitative disclosures about market risk are provided - This section is marked "Not applicable"[214] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls were effective as of June 30, 2019, with no material changes to internal controls Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2019 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019[220] - The company recognizes that controls provide only reasonable assurance due to inherent limitations like faulty judgments and resource constraints[216][219] Changes in Internal Control Over Financial Reporting No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2019 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2019[221] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company believes the resolution of any ordinary course legal claims will not have a material adverse effect on its financials - The company may face ordinary course legal claims but believes their resolution will not materially adversely affect its financial position, results, or cash flows[222] ITEM 1A. RISK FACTORS Key risks include Nasdaq non-compliance, potential failure of the critical NeuroBo merger, and substantial stockholder dilution - Gemphire is not in compliance with Nasdaq's minimum stockholders' equity and minimum bid price requirements, risking delisting[224][228][229] - The proposed merger with NeuroBo is critical for addressing Nasdaq compliance and funding operations; failure to complete it could lead to dissolution and liquidation[231][235][237][239] - If the merger is completed, current Gemphire stockholders are expected to own only approximately 4.06% of the combined company, resulting in substantial dilution[240][242] - CVRs may expire valueless if specified events are not achieved or consideration is insufficient, and the combined company has limited obligation to develop gemcabene after Q1 2020[250] - The company is substantially dependent on its remaining 8 employees to facilitate the merger[257] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This item is not applicable as no unregistered sales of equity securities or use of proceeds are reported - This section is marked "Not applicable"[260] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable as no defaults upon senior securities are reported - This section is marked "Not applicable"[261] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable as no mine safety disclosures are reported - This section is marked "Not applicable"[262] ITEM 5. OTHER INFORMATION This item is not applicable as no other information is reported - This section is marked "Not applicable"[263] ITEM 6. EXHIBITS This section lists key agreements filed with the report, including the NeuroBo merger and Beijing SL license agreements - Key exhibits include the Merger Agreement with NeuroBo, CVR Agreement, voting agreements, and the License and Collaboration Agreement with Beijing SL[266] - Also listed are amendments to executive employment agreements and restricted stock grant notices[266] SIGNATURES SIGNATURES The report is signed by the President and Chief Executive Officer on August 9, 2019 - The report was signed by Steven Gullans, President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), on August 9, 2019[271]