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Gossamer Bio(GOSS) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents Gossamer Bio, Inc.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, financial instruments, indebtedness, licenses, equity incentive plans, and commitments and contingencies. Condensed Consolidated Balance Sheets | ASSETS (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | $213,474 | $486,055 | | Marketable securities | $152,546 | $26,573 | | Total current assets | $373,992 | $522,322 | | Total assets | $387,038 | $539,433 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | | | | Total current liabilities | $35,896 | $38,650 | | Long-term convertible senior notes | $148,378 | $143,642 | | Total liabilities | $217,229 | $218,749 | | Total stockholders' equity | $169,809 | $320,684 | | Total liabilities and stockholders' equity | $387,038 | $539,433 | Condensed Consolidated Statements of Operations and Comprehensive Loss | (in thousands, except per share) | Three months ended September 30, 2021 | Three months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | | :------------------------------- | :------------------------------------ | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Research and development | $43,190 | $41,846 | $129,335 | $121,944 | | General and administrative | $12,459 | $11,448 | $35,068 | $33,851 | | Total operating expenses | $55,664 | $53,569 | $164,463 | $173,875 | | Net loss | $(60,247) | $(57,812) | $(177,720) | $(178,756) | | Net loss per share, basic and diluted | $(0.80) | $(0.80) | $(2.38) | $(2.67) | Condensed Consolidated Statements of Stockholders' Equity | (in thousands, except share amounts) | Balance as of December 31, 2020 | Balance as of September 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------- | | Common stock (shares) | 73,874,904 | 75,300,074 | | Additional paid-in capital | $897,607 | $924,914 | | Accumulated deficit | $(577,530) | $(755,250) | | Total stockholders' equity | $320,684 | $169,809 | - Net loss for the nine months ended September 30, 2021, was $(177,720)k, contributing to the accumulated deficit16 - Stock-based compensation for the nine months ended September 30, 2021, totaled $24,349k16 Condensed Consolidated Statements of Cash Flows | (in thousands) | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | | :------------------------------------------ | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(148,381) | $(139,624) | | Net cash provided by (used in) investing activities | $(127,870) | $154,242 | | Net cash provided by financing activities | $2,958 | $312,291 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(273,082) | $326,867 | | Cash, cash equivalents and restricted cash, at the end of the period | $213,538 | $461,956 | Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of the Business - Gossamer Bio, Inc. is a clinical-stage biopharmaceutical company focused on immunology, inflammation, and oncology22 - As of September 30, 2021, the Company had an accumulated deficit of $755.3 million24 - The COVID-19 pandemic has caused delays in enrollment for the Phase 2 clinical trial of seralutinib in pulmonary arterial hypertension (PAH) due to staffing shortages at sites and key vendors26 2. Summary of Significant Accounting Policies - The condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC Form 10-Q instructions28 - Significant estimates include the allocation of 2027 Notes into liability and equity components and accrued research and development expenses29 | Potentially Dilutive Securities (as of September 30, in thousands) | 2021 | 2020 | | :------------------------------------------------ | :----- | :----- | | 2027 Notes | 12,321,900 | 12,321,900 | | Shares issuable upon exercise of stock options | 9,540,332 | 10,266,895 | | Non-vested shares under restricted stock grants | 3,020,509 | 4,530,998 | 3. Balance Sheet Accounts and Supplemental Disclosures | Property and Equipment, net (in thousands) | September 30, 2021 | December 31, 2020 | | :--------------------------------------- | :------------------- | :------------------ | | Total property and equipment | $9,517 | $8,157 | | Less: accumulated depreciation | $3,896 | $2,623 | | Property and equipment, net | $5,621 | $5,534 | | Accrued Expenses and Other Current Liabilities (in thousands) | September 30, 2021 | December 31, 2020 | | :------------------------------------------------ | :------------------- | :------------------ | | Accrued compensation | $9,591 | $12,194 | | Operating lease liabilities, current | $3,030 | $3,633 | | Accrued litigation liability, current | $2,400 | $— | | Total accrued expenses | $20,905 | $20,711 | 4. Fair Value Measurements and Available for Sale Investments - The Company classifies cash equivalents and available-for-sale investments within Level 1 or Level 2 of the fair value hierarchy36 | Assets Measured at Fair Value (in thousands) | September 30, 2021 | December 31, 2020 | | :----------------------------------------- | :------------------- | :------------------ | | Money market funds (Level 1) | $154,055 | $411,104 | | Commercial paper (Level 2) | $113,896 | $— | | Corporate debt securities (Level 2) | $38,650 | $26,573 | | U.S. Treasury and agency securities (Level 1) | $— | $18,280 | - As of September 30, 2021, the fair value of the Company's 2027 Notes was $213.0 million, categorized as Level 242 | Contractual Maturities of Available-for-Sale Debt Securities (in thousands) | Estimated Fair Value | | :---------------------------------------------------------- | :------------------- | | Due within one year | $144,888 | | One to two years | $7,658 | | Total | $152,546 | 5. Indebtedness - The Credit Facility provides up to $150.0 million in term loan commitments, with $30.0 million funded and $120.0 million available in two additional tranches, subject to clinical development milestones and other conditions46 - The 5.00% convertible senior notes due 2027 have an aggregate principal amount of $200.0 million, with interest payable semi-annually and a maturity date of June 1, 202752 | Net Carrying Amount of 2027 Notes (in thousands) | September 30, 2021 | December 31, 2020 | | :----------------------------------------------- | :------------------- | :------------------ | | Principal amount | $200,000 | $200,000 | | Unamortized debt discount | $(51,367) | $(56,080) | | Unamortized debt issuance cost | $(255) | $(278) | | Net carrying amount (liability component) | $148,378 | $143,642 | | Net carrying amount (equity component) | $53,526 | $53,526 | | Interest Expense Related to 2027 Notes (in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :---------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Contractual interest expense | $2,500 | $2,500 | $7,472 | $3,639 | | Amortization of debt discount | $1,606 | $1,436 | $4,713 | $2,078 | | Total interest expense related to the 2027 Notes | $4,113 | $3,943 | $12,208 | $5,727 | 6. Licenses, Asset Acquisitions and Contingent Consideration - The Company holds an exclusive worldwide license for seralutinib from Pulmokine, Inc., with potential future development, regulatory, commercial, and sales milestone payments up to $298.0 million, plus tiered royalties6566 - The license agreement for GB004 with Aadi Bioscience, Inc. includes an upfront payment of $20.0 million (2018) and an additional $15.0 million (2020) for reduced future milestone payments and royalties, with potential future approval and sales milestones up to $90.0 million67 | In Process Research and Development Expense (in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | GB004 | $— | $275 | $— | $15,275 | | Other preclinical programs | $15 | $— | $60 | $2,805 | | Total in process research and development | $15 | $275 | $60 | $18,080 | 7. Stockholders' Equity - On May 21, 2020, the Company completed a public offering of 9,433,963 shares of common stock at $13.25 per share, generating approximately $117.1 million in net proceeds72 - As of September 30, 2021, 925,208 shares of common stock were subject to repurchase by the Company, down from 1,649,348 shares as of December 31, 202077 8. Equity Incentive Plans - The 2019 Incentive Award Plan initially reserved 5,750,000 shares of common stock, with an automatic annual increase of 5% of outstanding shares78 - The 2019 Employee Stock Purchase Plan (ESPP) initially reserved 700,000 shares, with an automatic annual increase of 1% of outstanding shares79 | Stock Option Activity (Nine months ended September 30, 2021) | Shares Subject to Options Outstanding | Weighted Average Exercise Price | | :---------------------------------------------------------- | :------------------------------------ | :------------------------------ | | Outstanding as of December 31, 2020 | 9,401,082 | $13.42 | | Options granted | 2,923,501 | $9.67 | | Options exercised | (280,895) | $5.85 | | Options forfeited/cancelled | (2,503,356) | $14.01 | | Outstanding as of September 30, 2021 | 9,540,332 | $12.33 | | Stock-Based Compensation Expense (in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $4,349 | $4,726 | $14,435 | $14,094 | | General and administrative | $3,238 | $4,197 | $9,914 | $11,973 | | Total stock-based compensation | $7,587 | $8,923 | $24,349 | $26,067 | - Total unrecognized compensation related to unvested stock option awards was $38.4 million as of September 30, 2021, expected to be recognized over approximately 2.4 years85 9. Commitments and Contingencies - The Company subleases office and laboratory space with a non-cancelable operating lease expiring in January 2025 for initial space and December 2022 for expansion space87 | Lease Costs (in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease cost | $1,008 | $1,007 | $3,084 | $2,577 | | Short-term lease cost | $13 | $16 | $34 | $54 | | Total lease cost | $1,021 | $1,023 | $3,118 | $2,631 | - The Company agreed to pay approximately $2.4 million to settle a putative class action lawsuit (Kuhne vs. Gossamer Bio, Inc., et. al.), with a corresponding litigation charge recorded in General and Administrative expense95 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Gossamer Bio's financial condition and operational results, including an overview of its business, the impact of the COVID-19 pandemic, a detailed comparison of operating expenses, and an analysis of liquidity and capital resources. The company continues to incur significant operating losses and relies on external financing to fund its clinical-stage product development. Forward-Looking Statements - The report contains forward-looking statements regarding future results, business strategy, COVID-19 impact, product approvals, and research and development costs98 - These statements are based on current expectations and projections, but actual results may differ materially due to known and unknown risks and uncertainties99 Overview - Gossamer Bio is a clinical-stage biopharmaceutical company with three clinical-stage product candidates: seralutinib (PAH, Phase 2, topline results H2 2022), GB004 (IBD, Phase 2, topline results Q2 2022), and GB5121 (PCNSL, Phase 1, Phase 1b/2 H1 2022)100 - The company had $366.0 million in cash, cash equivalents, and marketable securities as of September 30, 2021102 | Net Loss (in millions) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Loss | $(60.2) | $(57.8) | $(177.7) | $(178.8) | - As of September 30, 2021, the accumulated deficit was $755.3 million, and significant operating losses are expected to continue103 COVID-19 Pandemic - The COVID-19 pandemic has caused and may continue to cause delays in clinical trials, particularly for seralutinib's Phase 2 trial, due to enrollment challenges and staffing shortages at sites105 - The full extent of the pandemic's impact on the business, results of operations, and financial condition remains highly uncertain106 Components of Results of Operations Revenue - The Company has not generated any revenue from product sales since its inception and does not expect to in the foreseeable future107 Operating expenses Research and development - Research and development expenses are primarily external costs for preclinical and clinical development, including fees to CROs, investigative sites, and consultants109 - The Company plans to substantially increase R&D expenses as product candidates advance, with costs and timelines being inherently unpredictable110 In process research and development - IPR&D expenses are recognized as incurred for acquired assets with no alternative future use, including upfront and milestone payments for licensed product candidates like seralutinib and GB004114115 General and administrative - General and administrative expenses consist primarily of salaries, employee-related costs, facility costs, legal fees, and professional services116 - These expenses are expected to increase to support expanded infrastructure and the costs of operating as a public company117 Other income, net - Other income, net, includes interest income, sublease income, and interest expense related to the Credit Facility and 2027 Notes118 Critical Accounting Policies and Estimates - There have been no significant changes in critical accounting policies and estimates during the nine months ended September 30, 2021, compared to those discussed in the Annual Report on Form 10-K120 Results of Operations – Comparison of the Three and Nine Months Ended September 30, 2021 and 2020 Operating Expenses | Total Operating Expenses (in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total operating expenses | $55,664 | $53,569 | $164,463 | $173,875 | | Loss from operations | $(55,664) | $(53,569) | $(164,463) | $(173,875) | Research and development | Research and Development Expenses (in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :----------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Seralutinib | $12,382 | $11,687 | $34,695 | $26,593 | | GB004 | $11,613 | $10,598 | $30,857 | $18,522 | | GB1275 | $1,954 | $6,181 | $7,311 | $13,620 | | GB001 | $338 | $11,716 | $2,051 | $31,258 | | Other Programs | $16,903 | $1,664 | $54,421 | $31,951 | | Total research and development | $43,190 | $41,846 | $129,335 | $121,944 | - R&D expenses increased by $1.3 million for the three months and $7.4 million for the nine months ended September 30, 2021, primarily due to increased costs for other preclinical programs, GB004, and seralutinib, offset by decreases in GB001 and GB1275123124 In process research and development - IPR&D expenses for the nine months ended September 30, 2021, were $60k, a significant decrease from $18.1 million in 2020, which included a $15.0 million upfront payment for the GB004 license amendment126 General and administrative - G&A expenses increased by $1.0 million for the three months and $1.2 million for the nine months ended September 30, 2021, primarily due to a $2.4 million increase in legal expense for a litigation settlement, partially offset by decreased stock-based compensation127128 Other income (expense), net - Net other expense increased by $0.4 million for the three months and $8.4 million for the nine months ended September 30, 2021129130 - The increase for the nine-month period was primarily driven by a $6.6 million increase in interest expense on 2027 Notes and a $2.6 million decrease in investment income, partially offset by an $0.8 million increase in sublease income130 Liquidity and Capital Resources - As of September 30, 2021, the Company had an accumulated deficit of $755.3 million and expects to continue incurring significant operating losses131 - Cash, cash equivalents, and marketable securities totaled $366.0 million as of September 30, 2021134 | Cash Flows Summary (in thousands) | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(148,381) | $(139,624) | | Net cash provided by (used in) investing activities | $(127,870) | $154,242 | | Net cash provided by financing activities | $2,958 | $312,291 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(273,082) | $326,867 | - Management believes existing cash, cash equivalents, marketable securities, and access to the Credit Facility will fund operations into the second half of 2023146 - Future capital requirements will depend on factors such as preclinical and clinical trial progress, manufacturing costs, regulatory review, and intellectual property maintenance147 PART II. OTHER INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's market risk disclosures, including interest rate risk, foreign currency exchange risk, and inflation risk, since the Annual Report on Form 10-K for the fiscal year ended December 31, 2020. - No material changes to market risk disclosures (interest rate, foreign currency, inflation) as of September 30, 2021, compared to the previous Annual Report on Form 10-K150 Item 4. Controls and Procedures Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021. No material changes in internal control over financial reporting occurred during the three months ended September 30, 2021. - The company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2021152 - There have been no material changes in internal control over financial reporting during the three months ended September 30, 2021153 Item 1. Legal Proceedings This section refers to Note 9 of the Condensed Consolidated Financial Statements for important information concerning legal proceedings, which is incorporated by reference. - Details regarding legal proceedings are incorporated by reference from Note 9 to the Condensed Consolidated Financial Statements156 Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020157 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities. It details the use of proceeds from its February 2019 initial public offering (IPO), with approximately $235.9 million used for general corporate purposes as of September 30, 2021, consistent with the planned use. - No unregistered sales of equity securities were reported158 - Net proceeds from the February 2019 IPO were approximately $291.3 million159 - As of September 30, 2021, approximately $235.9 million of the IPO proceeds have been used for general corporate purposes, with no material change in the planned use160 Item 3. Defaults Upon Senior Securities This item is not applicable to the company. - This item is not applicable162 Item 4. Mine Safety Disclosures This item is not applicable to the company. - This item is not applicable163 Item 5. Other Information This section states that there is no other information to report. - No other information is reported164 Item 6. Exhibits This section refers to the Exhibit Index for a comprehensive list of documents filed or furnished as part of this Quarterly Report on Form 10-Q. - The Exhibit Index provides a list of all exhibits filed or furnished with the Quarterly Report on Form 10-Q165 Exhibit Index - The Exhibit Index lists various corporate documents, indentures, certifications (e.g., CEO/CFO certifications under Sarbanes-Oxley Act), and XBRL documents167 Signatures This section contains the required signatures of the company's President and Chief Executive Officer and Chief Operating Officer and Chief Financial Officer, certifying the Quarterly Report on Form 10-Q. - The report is signed by Faheem Hasnain, President and Chief Executive Officer, and Bryan Giraudo, Chief Operating Officer and Chief Financial Officer170