Gyre Therapeutics(GYRE) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements For the first quarter ended March 31, 2024, Gyre Therapeutics reported total revenues of $27.2 million, a 9% increase year-over-year, and a net income of $9.9 million, up from $4.2 million in the prior year period, with total assets growing to $122.0 million from $116.5 million at year-end 2023, primarily driven by an increase in total equity following the conversion of preferred stock, and cash and cash equivalents standing at $29.8 million Condensed Consolidated Balance Sheets As of March 31, 2024, the company's total assets were $122.0 million, an increase from $116.5 million at December 31, 2023, accompanied by a significant shift in equity to $88.8 million from $13.9 million, largely due to preferred stock conversion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $29,785 | $33,509 | | Total current assets | $62,723 | $57,221 | | Total assets | $122,010 | $116,539 | | Liabilities & Equity | | | | Total current liabilities | $19,486 | $20,047 | | Total liabilities | $33,239 | $38,065 | | Convertible Preferred Stock | $0 | $64,525 | | Total Gyre stockholders' equity (deficit) | $56,640 | $(15,828) | | Total equity | $88,771 | $13,949 | | Total liabilities, convertible preferred stock, and equity | $122,010 | $116,539 | - All 13,151 shares of Convertible Preferred Stock outstanding at year-end 2023 were converted into 8,767,333 shares of common stock during the first quarter of 2024, resulting in the elimination of the $64.5 million preferred stock liability on the balance sheet[13][67] Condensed Consolidated Statements of Operations and Comprehensive Income In Q1 2024, revenues increased to $27.2 million from $24.9 million in Q1 2023, with net income attributable to common stockholders surging to $7.5 million ($0.09 per basic share) from $2.2 million ($0.04 per basic share) year-over-year, largely due to a $4.3 million non-cash gain from the change in fair value of warrant liability Condensed Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Revenues | $27,172 | $24,931 | | Income from operations | $8,071 | $6,664 | | Change in fair value of warrant liability | $4,288 | $0 | | Net income | $9,935 | $4,217 | | Net income attributable to common stockholders | $7,532 | $2,244 | | Basic EPS | $0.09 | $0.04 | | Diluted EPS | $0.03 | $0.03 | Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2024, net cash provided by operating activities was $2.9 million, a decrease from $10.4 million in the same period of 2023, with net cash used in investing activities at $7.2 million, primarily for the purchase of certificates of deposit, resulting in a $3.7 million decrease in cash and cash equivalents, ending at $29.8 million Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,884 | $10,417 | | Net cash used in investing activities | $(7,220) | $(7,648) | | Net cash provided by financing activities | $658 | $0 | | Net (decrease) increase in cash and cash equivalents | $(3,724) | $2,969 | | Cash and cash equivalents at end of period | $29,785 | $28,144 | - A significant non-cash financing activity during the quarter was the conversion of $64.5 million of convertible preferred stock into common stock[16] Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail the company's business structure following the reverse asset acquisition in October 2023, key accounting policies, and financial instrument valuations, highlighting revenue concentration from three main PRC customers, the valuation of warrant and CVR liabilities, and segment reporting which shows the Gyre Pharmaceuticals segment as the sole revenue generator, alongside various commitments for R&D and IP transfers - The company operates as a financially-sustainable pharmaceutical firm focused on anti-inflammatory and anti-fibrotic drugs, holding a 65.2% indirect interest in its primary operating subsidiary, Gyre Pharmaceuticals in the PRC[19][20] - Management believes existing cash, cash flows from operations, and access to capital markets are sufficient to fund operations for at least the next 12 months[21] - For Q1 2024, three customers (Sinopharm, China Resources Pharmaceutical, and Shanghai Pharmaceuticals) accounted for 47.3%, 17.2%, and 11.1% of total revenue, respectively, indicating significant customer concentration[28] - Product revenues, mainly from the sale of ETUARY, accounted for 99.2% of total revenue for the three months ended March 31, 2024, with all sales generated in the PRC[49][51] - The company's operations are divided into two reportable segments: Gyre Pharmaceuticals (operating in mainland China and generating all revenue) and Gyre (operating in the U.S. with no revenue)[93][94][95] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategy centered on its commercial drug ETUARY® (Pirfenidone) and its lead development candidate, F351, highlighting a 9% revenue increase to $27.2 million in Q1 2024, driven by enhanced marketing in the PRC, and a net income rise to $9.9 million, significantly boosted by a $4.3 million gain on warrant liability remeasurement, while maintaining a strong liquidity position with $29.8 million in cash and cash equivalents, sufficient for at least the next year Overview The company is a commercial-stage pharmaceutical firm focused on anti-fibrotic drugs, with its primary commercial product, ETUARY (Pirfenidone), approved in the PRC for Idiopathic Pulmonary Fibrosis (IPF) and generating $112.1 million in sales in 2023, while its lead development candidate, F351, is in a Phase 3 trial in the PRC for liver fibrosis, with results expected by early 2025, and an IND submission planned in the U.S. in late 2024 for a Phase 2a trial in NASH-associated liver fibrosis - The company's strategy is to leverage the success of ETUARY® (Pirfenidone) to expand into new indications and develop similar drug candidates[108] - The lead development candidate, F351, is in a confirmatory Phase 3 trial in the PRC for CHB-associated liver fibrosis, with clinical results expected by early 2025[111] - An Investigational New Drug (IND) application for F351 is expected to be submitted in the U.S. in late 2024 to initiate a Phase 2a trial for non-alcoholic steatohepatitis-associated liver fibrosis in 2025[112] Results of Operations For Q1 2024 compared to Q1 2023, revenues grew 9% to $27.2 million due to increased pharmaceutical sales in the PRC, with gross profit increasing by 10%, operating income rising 21% to $8.1 million despite a 95% increase in G&A expenses from higher payroll, and net income surging 136% to $9.9 million, primarily due to a $4.3 million gain from the change in fair value of warrant liability Results of Operations Comparison (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $27,172 | $24,931 | $2,241 | 9% | | Gross profit | $26,193 | $23,806 | $2,387 | 10% | | Income from operations | $8,071 | $6,664 | $1,407 | 21% | | Net income | $9,935 | $4,217 | $5,718 | 136% | - The revenue increase was primarily due to enhanced marketing and sales initiatives for pharmaceutical products in regions of the PRC[140] - General and administrative expenses increased by 95%, or $1.7 million, mainly driven by a $1.2 million increase in payroll expenses due to increased staff headcount[144] - Research and development expenses decreased by 17%, or $0.5 million, primarily due to a decrease in clinical trial and pre-clinical research expenses as projects advanced[143] Liquidity and Capital Resources As of March 31, 2024, the company had $29.8 million in cash and cash equivalents, $7.6 million in short-term bank deposits, and $23.1 million in long-term certificates of deposit, with management asserting that existing cash, operational cash flow, and capital market access are sufficient to fund operations for at least the next 12 months, noting that $64.3 million of its net assets in the PRC are restricted from distribution due to local regulations - The company holds cash and cash equivalents of $29.8 million, short-term bank deposits of $7.6 million, and long-term certificates of deposit of $23.1 million as of March 31, 2024[149] - Net cash provided by operating activities was $2.9 million for Q1 2024, a decrease from $10.4 million in Q1 2023[151][152] - Under PRC regulations, $64.3 million in capital and statutory reserves of its subsidiary Gyre Pharmaceuticals are restricted and not available for distribution[157] - As of March 31, 2024, the company has committed to allocate $25.8 million toward future research and development activities for various programs[163] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Gyre Therapeutics is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[168] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2024, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[170] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[171] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - As of the filing date, the company is not involved in any material legal proceedings[173] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K - The company states there have been no material changes from the risk factors disclosed in its Annual Report[174] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[175] Other Information No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[178] Exhibits This section lists the exhibits filed as part of the Quarterly Report, including agreements, corporate governance documents, and officer certifications