10-Q 1 gemp-20190630x10q.htm 10-Q gemp_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 10-Q

(Mark One)

 

 

 

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

 

For the Quarterly Period Ended June  30, 2019

OR

 

 

 

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

 

For the transition period from          to          

 

Commission file number 001-37809

 

Gemphire Therapeutics Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

 

Delaware

 

47‑2389984

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

17199 N. Laurel Park Drive, Suite 401, Livonia, MI

 

48152

(Address of principal executive offices)

 

(Zip Code)

(734) 245‑1700

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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, $0.001 par value

 

GEMP

 

The Nasdaq Stock Market LLC

 

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  ☒

 

The number of outstanding shares of the registrant’s common stock, $0.001 par value, as of August 6, 2019 was 14,872,411.  

 

 

 

 

 

Gemphire Therapeutics Inc.

FORM 10-Q

INDEX

 

 

 

 

PART I 

FINANCIAL INFORMATION

 

 

 

 

ITEM 1 

Financial Statements

 

 

 

 

 

Condensed Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

3

 

 

 

 

Condensed Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 (unaudited)

4

 

 

 

 

Condensed Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018 (unaudited)

5

 

 

 

 

Condensed Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)

6

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

7

 

 

 

ITEM 2 

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

23

 

 

 

ITEM 3 

Quantitative and Qualitative Disclosures about Market Risk

36

 

 

 

ITEM 4 

Controls and Procedures

36

 

 

 

PART II 

OTHER INFORMATION

37

 

 

 

ITEM 1 

Legal Proceedings

37

 

 

 

ITEM 1A :

Risk Factors

37

 

 

 

ITEM 2 

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

ITEM 3 

Default upon Senior Securities

43

 

 

 

ITEM 4 

Mine Safety Disclosures

43

 

 

 

ITEM 5 

Other Information

43

 

 

 

ITEM 6 

Exhibits

44

 

 

 

SIGNATURES 

 

46

 

2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

 

 

Gemphire Therapeutics Inc.

Condensed Balance Sheets

(in thousands, except share amounts and par value)

 

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

 

2019

 

2018

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,643

 

$

18,954

 

Restricted cash

 

 

15

 

 

 —

 

Prepaid expenses

 

 

252

 

 

715

 

Other assets

 

 

78

 

 

17

 

Total current assets

 

 

3,988

 

 

19,686

 

Right-of-use assets and deposits

 

 

26

 

 

 8

 

Total assets

 

$

4,014

 

$

19,694

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,668

 

$

2,044

 

Accrued liabilities

 

 

382

 

 

438

 

Term loan - current portion

 

 

 —

 

 

9,437

 

Total current liabilities

 

 

2,050

 

 

11,919

 

Long-term liabilities:

 

 

 

 

 

 

 

    Other liabilities

 

 

 —

 

 

 1

 

Total liabilities

 

 

2,050

 

 

11,920

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized as of June 30, 2019 and December 31, 2018, no shares issued or outstanding as of June 30, 2019 and December 31, 2018.

 

 

 —

 

 

 —

 

Common stock, $0.001 par value; 100,000,000 shares authorized as of June 30, 2019 and December 31, 2018, 14,265,411 shares issued and outstanding at June 30, 2019 and December 31, 2018.

 

 

22

 

 

22

 

Additional paid–in capital

 

 

92,774

 

 

91,863

 

Accumulated deficit

 

 

(90,832)

 

 

(84,111)

 

Total stockholders’ equity

 

 

1,964

 

 

7,774

 

Total liabilities and stockholders’ equity

 

$

4,014

 

$

19,694

 

 

See accompanying notes to condensed financial statements.

3

Gemphire Therapeutics Inc.

Condensed Statements of Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

2019

 

2018

 

2019

 

2018

 

Operating expenses:

    

 

 

    

 

 

    

 

 

    

 

 

    

General and administrative

 

$

1,115

 

$

2,574

 

$

2,522

 

$

4,661

 

Research and development

 

 

1,234

 

 

3,960

 

 

2,627

 

 

8,937

 

Total operating expenses

 

 

2,349

 

 

6,534

 

 

5,149

 

 

13,598

 

Loss from operations

 

 

(2,349)

 

 

(6,534)

 

 

(5,149)

 

 

(13,598)

 

Interest income (expense), net

 

 

10

 

 

(144)

 

 

(820)

 

 

(304)

 

Other expense

 

 

(581)

 

 

 —

 

 

(752)

 

 

 —

 

Loss before income taxes

 

 

(2,920)

 

 

(6,678)

 

 

(6,721)

 

 

(13,902)

 

Provision (benefit) for income taxes

 

 

 

 

 

 

 

 

 

Net loss

 

 

(2,920)

 

 

(6,678)

 

 

(6,721)

 

 

(13,902)

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(2,920)

 

$

(6,678)

 

$

(6,721)

 

$

(13,902)

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (Note 9)

 

$

(0.20)

 

$

(0.47)

 

$

(0.47)

 

$

(1.04)

 

Number of shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

14,265,411

 

 

14,232,313

 

 

14,265,411

 

 

13,340,941

 

 

See accompanying notes to condensed financial statements.

4

Gemphire Therapeutics Inc.

Condensed Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

Paid–In

 

Accumulated

 

Equity

 

 

    

Shares

    

Amount

  

 

  

Shares

    

Amount

    

Capital

    

Deficit

    

(Deficit)

 

Balance at January 1, 2018

 

 —

 

$

 —

 

 

 

10,633,042

 

$

18

 

$

64,397

 

$

(60,474)

 

$

3,941

 

Issuance of common stock

 

 —

 

 

 —

 

 

 

3,592,858

 

 

 4

 

 

25,146

 

 

 —

 

 

25,150

 

Issuance costs

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

(2,093)

 

 

 —

 

 

(2,093)

 

Exercise of stock options

 

 —

 

 

 —

 

 

 

6,413

 

 

 —

 

 

23

 

 

 —

 

 

23

 

Share–based compensation — employee

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

1,019

 

 

 —

 

 

1,019

 

Share–based compensation — non–employee

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 1

 

Net loss

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(7,224)

 

 

(7,224)

 

Balance at March 31, 2018

 

 —

 

$

 —

 

 

 

14,232,313

 

$

22

 

$

88,493

 

$

(67,698)

 

$

20,817

 

Share–based compensation — employee

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

908

 

 

 —

 

 

908

 

Share–based compensation — non–employee

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

 

 1

 

Net loss

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(6,678)

 

 

(6,678)

 

Balance at June 30, 2018

 

 —

 

$

 —

 

 

 

14,232,313

 

$

22

 

$

89,402

 

$

(74,376)

 

$

15,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 —

 

$

 —

 

 

 

14,265,411

 

$

22

 

$

91,863

 

$

(84,111)

 

$

7,774

 

Share–based compensation — employee

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

473

 

 

 —

 

 

473

 

Net loss

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(3,801)

 

 

(3,801)

 

Balance at March 31, 2019

 

 —

 

$

 —

 

 

 

14,265,411

 

$

22

 

$

92,336

 

$

(87,912)

 

$

4,446

 

Share–based compensation — employee

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

438

 

 

 —

 

 

438

 

Net loss

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(2,920)

 

 

(2,920)

 

Balance at June 30, 2019

 

 —

 

$

 —

 

 

 

14,265,411

 

$

22

 

$

92,774

 

$

(90,832)

 

$

1,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed financial statements.

5

Gemphire Therapeutics Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

June 30, 

 

 

 

2019

 

2018

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(6,721)

 

$

(13,902)

 

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

 

 

 

 

 

 

 

Share-based compensation

 

 

911

 

 

1,929

 

Non-cash discount amortization on term loan

 

 

822

 

 

154

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

384

 

 

(223)

 

Accounts payable

 

 

(376)

 

 

(1,456)

 

Accrued and other liabilities

 

 

(57)

 

 

(16)

 

Net cash used in operating activities

 

 

(5,037)

 

 

(13,514)

 

Investing activities

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

 —

 

 

 —

 

Financing activities

 

 

 

 

 

 

 

Repayment of principal

 

 

(10,259)

 

 

 —

 

Exercise of stock options

 

 

 —

 

 

23

 

Proceeds from sale of common stock

 

 

 —

 

 

25,150

 

Offering costs

 

 

 —

 

 

(2,093)

 

Net cash (used in) provided by financing activities

 

 

(10,259)

 

 

23,080

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(15,296)

 

 

9,566

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

18,954

 

 

18,473

 

Cash, cash equivalents and restricted cash at end of period

 

$

3,658

 

$

28,039

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

 —

 

$

 —

 

Cash paid for interest

 

$

75

 

$

232

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,643

 

$

28,039

 

Restricted cash

 

 

15

 

 

 —

 

Total cash, cash equivalents and restricted cash

 

$

3,658

 

$

28,039

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed financial statements.

 

 

6

Table of Contents 

Gemphire Therapeutics Inc.

Notes to Condensed Financial Statements (unaudited), continued

 

1. The Company and Basis of Presentation

 

The Company, headquartered in Livonia Michigan, is a clinical‑stage biopharmaceutical entity focused on developing and commercializing therapies for the treatment of dyslipidemia, a serious medical condition that increases the risk of life threatening cardiovascular disease, particularly orphan indications as well as NAFLD/NASH (nonalcoholic fatty liver disease/non-alcoholic steatohepatitis). The Company’s primary activities to date have been conducting research and development activities, planning and conducting clinical trials, performing business and financial planning, recruiting personnel and raising capital. On July 24, 2019, the Company entered into a definitive agreement (the “Merger Agreement”) with GR Merger Sub Inc., a Delaware corporation and the Company’s wholly owned subsidiary (“Merger Sub”), and NeuroBo Pharmaceuticals, Inc., a Delaware corporation (“NeuroBo”), pursuant to which Merger Sub will merge with and into NeuroBo, with NeuroBo surviving as a wholly owned subsidiary of the Company in an all-stock transaction (the “Merger”). (See Note 14 – Subsequent Events.)  

 

The Company is subject to certain risks, which include risks related to the proposed Merger and the need to research, develop, and clinically test potentially therapeutic products, initially one product candidate gemcabene (also known as CI‑1027); obtain regulatory approval for its products and commercialize them around the world, if approved; expand its management scientific staff; finance its operations; and find collaboration partners to further advance development and commercial efforts.

 

 

Follow-On Public Offering

 

On February 12, 2018, the Company completed an underwritten public offering (the Follow-On Offering) of 3,142,858 shares of common stock at the public offering price of $7.00 per share. As part of such offering, the Company issued 450,000 additional shares of common stock representing partial exercise of the underwriters’ overallotment option. The Company received net proceeds of approximately $23.1 million after deducting underwriting discounts and commissions and offering expenses.

Capital Requirements

 

The Company has sustained operating losses since inception and expects such losses to continue over the next several years. Management plans to continue financing the Company’s operations with equity and/or debt issuances. The Company’s management believes the Company’s cash and cash equivalents on hand are not adequate to fund the Company’s operations for at least the next 12 months (see Going Concern section below). If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate part or all of its research and development programs or discontinue its operations.

 

Basis of Presentation

 

The accompanying condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed financial statements may not include all disclosures required by U.S. GAAP; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 18, 2019. The condensed balance sheet at December 31, 2018 was derived from the audited financial statements.

 

In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.

7

Table of Contents 

Gemphire Therapeutics Inc.

Notes to Condensed Financial Statements (unaudited), continued

 

 

Going Concern

The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), the Company has disclosed its conclusions regarding whether there is substantial doubt about the entity’s ability to continue as a going concern within one year from the date of the issuance of these financial statements.

 

In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of June 30, 2019, the Company had an accumulated deficit of $90.8 million. The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $3.6 million at June 30, 2019 are not sufficient to fund the Company's current operating plan for at least twelve months after the date the condensed financial statements are issued. The Company has no current source of revenue to sustain its present activities and does not expect to generate revenue until, and unless, the Food and Drug Administration (FDA) or other regulatory authorities approve, and the Company successfully commercializes, gemcabene or any other product candidate it may pursue in the future or unless certain development and commercialization milestones are met under the Beijing SL Agreement (See Note 14 – Subsequent Events). Until such time, if ever, the Company expects to finance its cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. The Company does not have any committed external source of funds beyond the upfront gross payment of $2.5 million due from Beijing SL under the Beijing SL Agreement (See Note 14 – Subsequent Events)  and there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, or the proposed Merger is not consummated, the Company may have to significantly reduce or terminate its operations or delay, further scale back or discontinue the development of gemcabene or the board of directors may elect to dissolve and liquidate the Company’s assets. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

2. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of deposit to be cash equivalents. The Company invests excess cash in readily available checking and savings accounts and invests in highly liquid investments in money market accounts.

 

8

Table of Contents 

Gemphire Therapeutics Inc.

Notes to Condensed Financial Statements (unaudited), continued

 

Restricted Cash

 

The Company considers the cash security requirement related to a commercial credit card arrangement with Silicon Valley Bank as restricted cash (See Note 4 – Debt).

 

Fair Value of Financial Instruments

 

The Company’s condensed financial instruments include principally cash and cash equivalents, other assets, accounts payable, accrued liabilities and debt. The carrying amounts for these condensed financial instruments reported in the balance sheets approximate their fair values. See Note 10 — Fair Value Measurements, for further discussion of fair values.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of personnel‑related costs, including salaries and share‑based compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees related to intellectual property and corporate matters and professional fees for accounting and other services.

 

Research and Development Expenses

 

Research and development expenses consist of costs incurred in performing research and development activities, including compensation for research and development employees, costs associated with preclinical studies and trials, regulatory activities, manufacturing activities to support clinical activities, license fees, non‑legal patent costs, fees paid to external service providers that conduct certain research and development activities, clinical costs and an allocation of overhead expenses. Research and development costs are expensed as incurred.

 

Income Taxes

 

The Company utilizes the liability method of accounting for income taxes as required by Accounting Standards Codification (ASC) 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Currently, there is no provision for income taxes, as the Company has incurred operating losses to date, and a full valuation allowance has been provided on the net deferred tax assets.

 

Share‑Based Compensation

 

The Company accounts for share‑based compensation in accordance with the provisions of ASC 718, Compensation — Stock Compensation (ASC 718). Accordingly, compensation costs related to equity instruments granted are recognized at the grant‑date fair value. The Company records forfeitures when they occur. Share‑based compensation arrangements to non‑employees are accounted for in accordance with the applicable provisions of ASC 718 and ASC 505, Equity, using a fair value approach.

Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s  Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of development and commercialization of therapeutics for the treatment of dyslipidemia, a serious medical condition that increases the risk of life threatening cardiovascular disease particularly orphan indications. Accordingly, the Company has a single reportable segment.

9

Table of Contents 

Gemphire Therapeutics Inc.

Notes to Condensed Financial Statements (unaudited), continued

 

Jumpstart Our Business Startups Act Accounting Election

 

As an emerging growth company under the Jumpstart Our Business Startups Act (JOBS Act), the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company has irrevocably elected not to avail itself of this exemption and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

Recent Accounting Pronouncements

 

Recent Accounting Pronouncements Adopted

In January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. This pronouncement is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted for the accounting guidance on financial liabilities under the fair value option. The Company adopted this standard on January 1, 2019 and it did not have a material impact on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017 and July 2018. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. The Company adopted the standard on January 1, 2019, and applied the modified retrospective approach to each lease in existence at the adoption date. As such, the Company did not restate comparative periods and did not recognize any cumulative adjustment to retained earnings on the date of the adoption given that no difference in operating expense resulted upon adoption. The Company elected the package of practical expedients provided under the standard. The Company recognized approximately $0.1 million of lease assets and liabilities on the balance sheet as of January 1, 2019. The new standard did not have an impact on the Company's statements of comprehensive loss or statements of cash flows.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The objective of this ASU is to eliminate the diversity in practice related to the classification of restricted cash or restricted cash equivalents in the statement of cash flows. For public business entities, this ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented. The Company adopted this standard on January 1, 2018 and it did not have a material impact on the Company’s financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2016-09), which provides guidance about which changes to the terms or conditions of a share-based payment awards require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard on January 1, 2018 and it did not have a material impact on the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should generally apply the requirements of Topic 718 to nonemployee awards except in circumstances where there is specific guidance on inputs to an option pricing model and the attribution of cost. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods

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Notes to Condensed Financial Statements (unaudited), continued

 

or services to customers as part of a contract accounted for under Topic 606. This guidance is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted this standard on January 1, 2019 and it did not have an impact on the Company’s financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The new guidance modifies the disclosure requirements in Topic 820 as follows:

 

·

Removals: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements.

·

Modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

·

Additions: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

This guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should all be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the new guidance on its financial statements.

3. Accrued Liabilities

 

Accrued liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 30,

 

December 31,

 

 

 

2019

 

2018

 

Accrued compensation and other payroll liabilities

 

$

20

 

$

137

 

Legal costs

 

 

269

 

 

106

 

Accrued interest

 

 

 —

 

 

43

 

Lease liability

 

 

18

 

 

 —

 

Other research and development expenses

 

 

54

 

 

135

 

Other general and administrative expenses

 

 

21

 

 

17

 

Total

 

$

382

 

$

438

 

 

 

 

 

 

 

 

 

 

 

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Notes to Condensed Financial Statements (unaudited), continued

 

4. Debt

 

Term Loan

 

On January 25, 2019, the Company agreed to prepay in full all outstanding indebtedness under the Loan and Security Agreement (the “Original Loan Agreement”) with Silicon Valley Bank (SVB) dated July 24, 2017 (the “Initial Effective Date”), as amended by the First Amendment, dated July 31, 2018 (the “First Amendment” and, the Original Loan Agreement, as amended by the First Amendment, the “Loan Agreement”). Effective January 28, 2019, the Company prepaid in full all outstanding indebtedness under the Term Loan. As of the date of repayment, the Company had approximately $8.9 million in principal and interest outstanding as well as a final payment fee due of $1.0 million. Upon repayment, approximately $0.8 million of unamortized note discounts were recognized as interest expense.

The obligations, liabilities, covenants, and terms that are expressly specified in the Loan Agreement and any other related loan and collateral security documents issued by the Company to SVB in connection with the transaction evidenced by the Loan Agreement as surviving termination shall continue to survive notwithstanding the payment, including without limitation, the Company’s indemnity obligations and the Company’s obligation to pay to SVB a success fee of 3.5% of the funded principal amount of the Term Loan in the event any of the following occur on or before 5:00 PM, Eastern time, on July 24, 2024: (a) the Company receives FDA approval for any new drug application for gemcabene, (b) a sale or other transfer of all or substantially all of the assets of the Company occurs, (c) a merger or consolidation of the Company with or into another person or entity occurs where the holders of the Company’s outstanding voting equity securities immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities of the successor immediately following such transaction or (d) any sale by the holders of the Company’s outstanding voting equity securities where such holders do not continue to hold at least a majority of the Company’s issued and outstanding voting equity securities immediately following the consummation of such transaction. The Merger, upon completion, will trigger a success fee of $350,000 (See Note 14 - Subsequent Events). The Warrant to purchase 36,000 shares (subject to adjustment) of the Company’s common stock dated as of July 31, 2018 between the Company and SVB remains outstanding and exercisable in accordance with its terms.

The Company was required to reserve $15,000 in cash related to a SVB commercial credit card arrangement in February 2019 upon the prepayment of the Term Loan. The cash reserve is reflected as restricted cash in the accompanying condensed balance sheets.

 

5. Commitments and Contingencies

 

Pfizer License Agreement

 

In April 2011, the Company and Pfizer Inc. (Pfizer) entered into an exclusive license agreement for the clinical product candidate gemcabene, which was subsequently amended and restated in August 2018 (as so amended, the Pfizer Agreement). In exchange for this worldwide exclusive license to certain patent rights and a non-exclusive royalty bearing right and license to certain related data to make, use, develop, commercialize, import and otherwise exploit the clinical product candidate gemcabene, the Company agreed to certain milestone and royalty payments on future sales (See Note 6 — License Agreement). As of June 30, 2019, there was sufficient uncertainty with regard to both the outcome of the clinical trials and the ability to obtain sufficient funding to support any of the cash milestone payments under the Pfizer Agreement, and as such, no liabilities were recorded related to the Pfizer Agreement.

 

Other Agreements

 

In May 2016, the Company entered into a non-cancellable lease agreement for its headquarters location, commencing in the third quarter of 2016. The initial term of the agreement is 3 years with an initial monthly base rent of approximately $8,400 and increasing to approximately $8,900 during the last year of the lease term. The total rent expense under this operating classified lease was $26,000 during the three month periods ended June 30, 2019 and 2018, respectively, and $52,000 during the six month periods ended June 30, 2019 and 2018, respectively.

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Notes to Condensed Financial Statements (unaudited), continued

 

Supplemental cash flow information related to the operating lease was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

Six months ended

 

 

 

June 30, 2019

 

June 30, 2018

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liability:

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

53

 

$

52

 

 

 

 

 

 

 

 

 

Right-of -use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

Operating leases

 

$

70

 

$

-

 

 

Supplemental balance sheet information related to the operating lease was as follows (in thousands, except weighted average data):

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

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

Weighted average discount rate

 

 

5.5%

 

 

5.5%

 

 

Maturity of the lease liability was as follows (in thousands):

 

 

 

 

 

 

 

 

As of

 

 

 

June 30, 2019

 

2019 (period from July 1, 2019 to December 31, 2019)

 

$

18

 

 

 

 

 

 

Total lease payments

 

$

18

 

Less imputed interest

 

 

 -

 

 Total

 

$

18

 

 

Other Commitments and Contingencies

 

In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legal proceedings that relate to contractual allegations, patent infringement, employment-related matters and other claims. The Company establishes accruals for matters which it believes that losses are probable and can be reasonably estimated. Although it is not possible to predict with certainty the outcome of these matters, the Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on its results of operations or financial position.

6. License Agreement

 

The Company is party to the Pfizer Agreement, as amended on August 2, 2018, for a worldwide exclusive license to certain patent rights and a non-exclusive royalty bearing right and license to certain related data to make, use, develop,

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Notes to Condensed Financial Statements (unaudited), continued

 

commercialize, import and otherwise exploit the clinical product candidate gemcabene. Pfizer retains the right to make, use and import gemcabene solely for internal research purposes.

 

In partial exchange for the rights granted by Pfizer, the Company agreed to issue shares of its common stock to Pfizer representing 15% of the Company’s fully diluted capital at the close of its first arms‑length Series A financing, which occurred on March 31, 2015.

 

The Company agreed to make milestone payments totaling up to $37 million upon the achievement of certain milestones, including the first new drug application (or its foreign equivalent) in any country, regulatory approval in each of the United States, Europe and Japan, the first anniversary of the first regulatory approval in any country, and upon achieving certain aggregate sales levels of gemcabene. Future milestone payments under the Pfizer Agreement, if any, are not expected to begin for at least several years and extend over a number of subsequent years.

 

The Company also agreed to pay Pfizer tiered royalties on a country‑by‑country basis based upon the annual amount of net sales, as specified in the Pfizer Agreement, until the later of: (a) five (5) years after the first commercial sale in such country; (b) the expiration of all regulatory or data exclusivity for gemcabene in such country; and (c) the expiration or abandonment of the last valid claim of the licensed patents, including any patent term extensions or supplemental protection certificates in such country (collectively, the Royalty Term). Under the Pfizer Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize gemcabene.

 

On March 31, 2015, upon the closing of the Series A preferred stock financing, the Company issued 675,250 shares of its common stock, at a fair market value of $0.9 million, to Pfizer in connection with the first equity payment, pursuant to which Pfizer became the owner of more than 5% of the Company’s capital stock. The transaction was recorded as acquired in‑process research and development expenses based on the fair value of the common shares issued since no processes or activities that would constitute a “business” were acquired and none of the rights and underlying assets acquired had alternative future uses or reached a stage of technological feasibility. None of the other milestone or royalty payments were triggered as of June 30, 2019.

 

The Pfizer Agreement will expire upon expiration of the last Royalty Term. On expiration (but not earlier termination), the Company will have a perpetual, exclusive, fully paid-up, royalty-free license under the licensed patent rights and related data to make, use, develop, commercialize, import and otherwise exploit the clinical product candidate gemcabene. Either party may terminate the Pfizer Agreement for the other party’s material breach following a cure period or immediately upon certain insolvency events relating to the other party. Pfizer may immediately terminate the Pfizer Agreement in the event that (i) the Company or any of its affiliates or sublicenses contests or challenges, or supports or assists any third party to contest or challenge, Pfizer’s ownership of or rights in, or the validity, enforceability or scope of any of the patents licensed under the Pfizer Agreement or (ii) the Company or any of its affiliates or sublicensees fails to achieve the first commercial sale in at least one country by April 16, 2024. Furthermore, upon termination of the Pfizer Agreement by Pfizer for any of the foregoing reasons, the Company grants Pfizer a non-exclusive, fully paid-up, royalty free, worldwide, transferrable, perpetual and irrevocable license to use any intellectual property rights arising from the development or commercialization of gemcabene by the Company and any trademarks identifying gemcabene and agrees to transfer regulatory filings and approvals to Pfizer or permit Pfizer to cross-reference and rely on such regulatory filings and approvals for gemcabene. The Company may terminate the License Agreement for convenience upon 90 days’ written notice and payment of an early termination fee.

 

7. Stockholders’ Equity

 

Common Stock

 

The Company had 14,265,411 shares of its common stock issued and outstanding as of June 30,  2019 and December 31, 2018. Voting, dividend and liquidation rights of the holders of the common stock are subject to the Company’s articles of incorporation, corporate bylaws and underlying shareholder agreements.

 

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Notes to Condensed Financial Statements (unaudited), continued

 

In the first quarter of 2018, the Company completed the Follow-On Offering of 3,592,858 shares of common stock which includes 450,000 shares of common stock purchased by the underwriters upon the partial exercise of their overallotment option, at the public offering price of $7.00 per share. The Company received net proceeds of approximately $23.1 million after deducting underwriting discounts and commissions and offering expenses. The costs incurred related to the Follow-On Offering were $2.1 million.    

Warrants

 

During the three and six month periods ending June 30, 2019 and 2018,  no warrants were exercised. As of June 30, 2019 and December 31, 2018, warrants to purchase 1,014,204 shares of common stock were outstanding.

 

Dividend Rights

 

Common stockholders are entitled to receive dividends at the sole discretion of the board of directors of the Company. There have been no dividends declared on common stock as of June 30, 2019. 

 

Voting Rights

 

The holders of common stock are entitled to one vote for each share of common stock along with all other classes and series of stock of the Company on all actions to be taken by the stockholders of the Company, including actions that would amend the certificate of incorporation of the Company to increase the number of authorized shares of the common stock.

 

Liquidation Rights

 

In the event of any liquidation, dissolution, or winding‑up of the Company, the holders of common stock shall be entitled to share in the remaining assets of the Company available for distribution post preferential distributions made to preferred stockholders, if any.

 

8. Share‑Based Compensation

 

Share-based compensation expense was included in general and administrative and research and development expenses as follows in the accompanying condensed statements of comprehensive loss (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

 

 

2019

    

 

2018

 

    

 

2019

 

    

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

 

 

Stock Options

 

In April 2015, the Company adopted a 2015 Equity Incentive Plan (the 2015 Plan) under which 320,615 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants. The 2015 Plan permits the grant of incentive and non‑statutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other stock‑based awards.

 

Amended and Restated 2015 Equity Incentive Plan

 

In April 2016, the Company’s board of directors approved the Company’s amended and restated 2015 Plan (the A&R 2015 Plan). The Company’s stockholders also approved the A&R 2015 Plan in April 2016 and the A&R 2015 Plan

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Notes to Condensed Financial Statements (unaudited), continued

 

became effective immediately upon the execution and delivery of the underwriting agreement related to the IPO. The A&R 2015 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and other forms of equity awards, as well as performance cash awards.

 

Under the A&R 2015 Plan, the number of shares of common stock reserved for issuance thereunder automatically increases on January 1st of each year, for a period of 10 years commencing on January 1, 2017 and ending on (and including) January 1, 2026, to an amount equal to 20% of the Company’s fully-diluted shares as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Company’s board of directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the shares reserved for such year, or that the increase in shares reserved for such year will be less than would have otherwise been allowed under the provision. Effective January 1, 2019,  501,001 shares were added to the A&R 2015 Plan under the share reserve provision. As a result, the total shares available under the A&R 2015 Plan for future issuance was 1,030,583  shares as of June 30, 2019.

 

Inducement Plan

 

In September 2016, the Company’s board of directors approved the Company’s Inducement Plan (the Inducement Plan). The Company initially reserved 300,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules. The Plan was approved by the Company’s board of directors without stockholder approval pursuant to Rule 5635(c)(4), and the terms and conditions of the Plan are substantially similar to the Company’s stockholder-approved A&R 2015 Plan. The total shares available under the Inducement Plan for future issuance was 249,479 shares as of June 30, 2019.

2016 Employee Stock Purchase Plan

In April 2016, the Company’s board of directors approved the 2016 Employee Stock Purchase Plan (the ESPP) in order to enable eligible employees to purchase shares of the Company’s common stock at a discount following the effective date of the IPO. The Company’s stockholders also approved the ESPP in April 2016 and the ESPP became effective immediately upon the execution and delivery of the underwriting agreement related to the IPO. The Company initially reserved 150,000 shares of common stock for issuance under the ESPP. As of June 30, 2019,  no shares have been purchased under the ESPP. 

 

During the three months ended June 30, 2019 and 2018, the Company granted an aggregate of zero and 350,000 stock options, respectively, and zero and 822,000 stock options during the six months ended June 30, 2019 and 2018, respectively, under the A&R 2015 Plan and the Inducement Plan to its officers, directors, employees and consultants, generally vesting over a four-year period. The weighted average grant date fair value for option shares granted during the three and six months ended June 30, 2018  was $3.57 and $5.07  per share, respectively. 

 

The Company measures the fair value of stock options to employees, consultants and directors on the date of grant with service‑based and performance‑based vesting criteria using the Black‑Scholes option pricing model and market-based vesting criteria using a Monte Carlo simulation model. The Company does not have sufficient history to support a calculation of volatility and expected term. As such, the Company has used a weighted‑average volatility considering the volatilities of several guideline companies.

For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life of the options was determined based on the mid‑point between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk‑free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.

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Notes to Condensed Financial Statements (unaudited), continued

 

The weighted‑average assumptions used in the Black‑Scholes option‑pricing and Monte Carlo simulation models are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

    

 

2019

    

2018

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected stock price volatility

 

 

 —

 

66.0%

 

 

 —

 

66.3%

 

Expected life of options (years)

 

 

 —

 

5.7

 

 

 —

 

5.8

 

Expected dividend yield

 

 

 —

 

0%

 

 

 —

 

0%

 

Risk free interest rate

 

 

 —

 

2.9%

 

 

 —

 

2.7%

 

 

During the three months ended June 30, 2019 and 2018,  87,021  and 127,062 stock options vested, respectively, and 166,133 and 307,410 stock options vested during the six months ended June 30, 2019 and 2018, respectively. During the three months ended June 30, 2019 and 2018,  70,800 and 111,389 stock options were forfeited, respectively, and 77,800 and 114,889 stock options were forfeited during the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019,  2,722,973 stock options were outstanding, 1,930,014 stock options were vested and 1,280,062 shares in the aggregate were available for future issuance under the A&R 2015 and Inducement Plans.

 

Unrecognized share‑based compensation cost for stock options issued under the A&R 2015 Plan and the Inducement Plan was $2.8 million as of June 30, 2019. The unrecognized share‑based expense is expected to be recognized over a weighted average period of 1.1 years. 

 

9. Net Loss Per Common Share

 

Basic earnings or loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share of common stock is computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, if dilutive. The Company’s stock options and warrants are considered common stock equivalents while outstanding for this purpose. Diluted earnings are computed utilizing the treasury method for stock options and warrants. No incremental common stock equivalents were included in calculating diluted loss per share because such inclusion would be anti‑dilutive given the net loss reported for the three and six months ended June 30, 2019 and 2018. The following table sets forth the computation of basic and diluted loss per share for the three and six months ended June 30, 2019 and 2018 (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

    

2019

    

2018

    

2019

    

2018

    

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributed to common stockholders

 

$

(2,920)

 

$

(6,678)

 

$

(6,721)

 

$

(13,902)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

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Notes to Condensed Financial Statements (unaudited), continued

 

The following potential common shares were not considered in the computation of diluted net loss per share as their effect would have been anti‑dilutive during the three and six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

Stock options

 

2,722,973

 

3,164,838

 

2,722,973

 

3,164,838

 

 

 

Warrants

 

1,014,204

 

978,204

 

1,014,204

 

978,204

 

 

 

 

 

10. Fair Value Measurements

 

The Company follows accounting guidance that emphasizes that fair value is a market‑based measurement, not an entity specific measurement. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are defined on a three level hierarchy:

 

Level 1 inputs:  Unadjusted quoted prices for identical assets or liabilities in active markets;

 

Level 2 inputs:  Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, weather directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3 inputs:  Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

 

As of June 30, 2019 and December 31, 2018, the fair values of cash and cash equivalents, restricted cash, other assets, accounts payable, accrued liabilities and other liabilities approximated their carrying values because of the short‑term nature of these assets or liabilities. The estimated fair value of the Company’s Term Loan while outstanding was based on amortized cost which was deemed to approximate fair value. There were no transfers between fair value hierarchy levels during the three and six months ended June 30, 2019 and 2018.

There were no instruments measured on a recurring fair value basis as of June 30, 2019 and December 31, 2018. In addition, no financial instruments were measured on a non‑recurring basis for any of the periods presented.

 

11. Income Taxes

 

The effective tax rate for the three and six month periods ended June 30, 2019 and 2018 was zero percent. As a result of the analysis of all available evidence as of June 30, 2019 and December 31, 2018, the Company recorded a full valuation allowance on its net deferred tax assets. Consequently, the Company reported no income tax benefit for the three and six  month periods ended June 30, 2019 and 2018. If the Company’s assumptions change and the Company believes that it will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be recognized as a reduction of future income tax expense.  If the assumptions do not change, each period the Company could record an additional valuation allowance on any increases in the deferred tax assets.

 

12. Defined Contribution Plan

 

The Company adopted a 401(k) defined contribution plan on September 5, 2017, effective as of January 1, 2017, for all employees over age 21. Employees can defer up to 100% of their compensation through payroll withholdings into the plan subject to federal law limits. Effective January 1, 2018, the Company began matching contributions on deferrals at 100% of deferrals up to 3% of one’s contributions and 50% on deferrals over 3%, but not exceeding 5% of one’s contributions in order to satisfy certain non-discrimination tests required by the Internal Revenue Code. Employee contributions and any employer matching contributions made to satisfy certain non-discrimination tests required by the Internal Revenue Code are 100% vested upon contribution. Discretionary employer matches vest over a six-year period

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beginning on the second anniversary of an employee’s date of hire. The amount of matching contributions made during the three month periods ended June 30, 2019 and 2018 was $19,000 and $29,000, respectively, and $47,000 and $54,000 during the six month periods ended June 30, 2019 and 2018, respectively.  

13. Related Party Transactions

 

 

In the first quarter of 2018, in connection with an underwritten public offering of 3,592,858 shares of common stock, the offering included 14,286 shares sold to 1 officer, for aggregate proceeds totaling approximately $0.1 million and 71,429 shares sold to 1 investor who is an affiliate of 1 officer and board member, for proceeds totaling approximately $0.5 million.

 

14. Subsequent Events

 

License Agreement with Beijing SL

 

On July 23, 2019, the Company entered into a License and Collaboration Agreement (the “Beijing SL Agreement”) with Beijing SL Pharmaceutical Co., Ltd. (“Beijing SL”), pursuant to which the Company granted Beijing SL an exclusive royalty-bearing license to research, develop, manufacture and commercialize pharmaceutical products comprising, as an active ingredient, gemcabene in mainland China, Hong Kong, Macau and Taiwan (each, a “region,” and collectively, the “Territory”).

 

Under the terms of the Beijing SL Agreement, Beijing SL will be responsible, at its expense, for developing and commercializing products containing gemcabene (each, a “Licensed Product”) in the Territory, with certain assistance from the Company. To the extent mutually agreed to in writing, the Company and Beijing SL will collaborate on the Phase 3 clinical trial for homozygous familial hypercholesterolemia or other clinical trials with the Company as the sponsor designed to enroll patients both inside and outside the Territory (a “Global Study”), but Beijing SL will be responsible, at its expense, for the conduct of any Global Study to the extent solely in the Territory, subject to the Company’s final decision making authority, and the Company will be responsible, at its expense, for the conduct of any Global Study to the extent solely outside of the Territory. Under a territory development plan, the parties shall develop Licensed Products with respect to the Territory. Beijing SL will be responsible for development activities, including non-clinical and clinical studies directed at obtaining regulatory approval of the Licensed Product in the Territory. Beijing SL has agreed to use commercially reasonable efforts to commercialize the Licensed Products for each indication that receives regulatory approval in the Territory and shall prepare and present a commercialization plan that shall be subject to approval by the joint steering committee.

 

Pursuant to the Beijing SL Agreement, Beijing SL will make an upfront gross payment of $2.5 million to the Company within 45 days of the effective date of the Beijing SL Agreement. Additionally, with respect to each Licensed Product, the Company will be eligible to receive (i) payments for specified developmental and regulatory milestones (including submission of a new drug application to China’s National Medical Product Administration, dosing of the first patient in a phase 3 clinical trial in mainland China and regulatory approval for the first and each additional indication of a Licensed Product in the Territory) totaling up to $6 million in the aggregate and (ii) payments for specified global net sales milestones of up to $20 million in the aggregate multiplied by the ratio of the net sales of a Licensed Product sold by Beijing SL in the Territory divided by the global net sales of a Licensed Product, which net sales milestone payments are payable once, upon the first achievement of such milestone.

 

Beijing SL will also be obligated to pay the Company tiered royalties ranging from the mid-teens to twenty percent on the net sales of all Licensed Products in the Territory until the latest of (a) the date on which any applicable regulatory exclusivity with respect to such Licensed Product expires in such region, (b) the expiration or abandonment of the last valid patent claim or joint patent claim covering such Licensed Product in each region and (c) the fifth anniversary of the first commercial sale of such Licensed Product in such region (the “Royalty Term”). Future milestone payments under the Beijing SL Agreement, if any, are not expected to begin for at least one year and will extend over a number of subsequent years. The Company cannot determine the date on which Beijing SL’s potential royalty payment obligations

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Notes to Condensed Financial Statements (unaudited), continued

 

to the Company would expire because Beijing SL has not yet developed any Licensed Products under the Beijing SL Agreement and therefore the Company cannot at this time identify the date of the first commercial sale or the periods of any regulatory exclusivity or patent claims with respect to any Licensed Product.

 

On a Licensed Product-by-Licensed Product and region-by-region basis upon the expiration of the Royalty Term, the license granted to Beijing SL shall be deemed perpetual, fully paid-up and royalty free with respect to such Licensed Product in such region. Either party may terminate the Agreement (x) with written notice for the other party’s material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, the Company may terminate the agreement in its entirety if Beijing SL or its affiliates or sublicensees commence a proceeding challenging the validity, enforceability or scope of any of the Company’s patents.

 

To the extent rights granted to Beijing SL under the Beijing SL Agreement are controlled by the Company pursuant to the Pfizer Agreement between Gemphire and Pfizer, such rights are subject to the terms and conditions of such agreement with Pfizer, and Beijing SL has agreed to comply with such terms and conditions.

 

The Beijing SL Agreement contemplates that Beijing SL and the Company shall, no later than 60 days following the effective date of the Beijing SL Agreement, negotiate in good faith and execute a clinical supply agreement and, no later than twelve months prior to the anticipated date of the first commercial sale of a Licensed Product, if any, negotiate in good faith and execute a commercial supply agreement, pursuant to which Beijing SL shall purchase from the Company, and the Company shall use commercially reasonable efforts to supply, gemcabene or Licensed Product for clinical or commercial purposes, as applicable, until manufacturing and regulatory transfers are complete.

 

Each of the Company and Beijing SL has agreed to indemnify the other party against certain losses and expenses relating to the development or commercialization of a Licensed Product by the indemnifying party, the negligence or willful misconduct of the indemnifying party or its directors, officers, employees or agents or a breach of the indemnifying party’s representations, warranties or covenants.

 

Merger Agreement with NeuroBo

 

On July 24, 2019, the Company entered into the Merger Agreement with NeuroBo pursuant to which, the Company’s wholly owned subsidiary, Merger Sub, will merge with and into NeuroBo, with NeuroBo surviving as a wholly owned subsidiary of the Company, in an all-stock transaction. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (a) each share of NeuroBo common stock outstanding immediately prior to the Effective Time (excluding shares held as treasury stock, held by NeuroBo and dissenting shares) will be converted into the right to receive shares of Gemphire common stock equal to the Exchange Ratio described below; and (b) each outstanding NeuroBo stock option that has not previously been exercised prior to the Effective Time will be assumed by the Company.

 

Under the exchange ratio formula in the Merger Agreement (the “Exchange Ratio”), upon the closing of the Merger, on a pro forma basis and based upon the number of shares of common stock expected to be issued in the Merger, former Company security holders immediately prior to the Merger are expected to own approximately 4.06% of the combined company and former NeuroBo security holders immediately prior to the Merger are expected to own approximately 95.94% of the combined company, on a fully-diluted basis and assuming that the Company has the minimum net cash amount of negative $3 million at closing and that NeuroBo raises the minimum required amount of $24,240,000 in its Series B Preferred Stock financing described below. The ownership percentages are subject to adjustment to the extent that the Company’s net cash at the Effective Time is negative or to reflect aggregate gross proceeds received by NeuroBo in its financing before the closing of the Merger above the minimum required amount and up to and including $50 million.

 

Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by the Company’s stockholders and NeuroBo’s stockholders, the continued listing of the common stock on the Nasdaq Capital

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Notes to Condensed Financial Statements (unaudited), continued

 

Market, the conversion of all NeuroBo preferred stock and NeuroBo convertible notes into NeuroBo common stock and satisfaction by the Company of a minimum parent cash amount of negative $3 million at closing.

 

Prior to signing the Merger Agreement, NeuroBo entered into subscription agreements with investors for a Series B Preferred Stock financing for approximate gross proceeds of $24,240,000, the minimum required amount under the Merger Agreement, and may enter into additional subscription agreements and receive additional proceeds between signing and closing of the Merger.

 

The Merger Agreement contains certain termination rights for both the Company and NeuroBo, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $1,000,000, or in some circumstances reimburse the other party’s expenses up to a maximum of $500,000.

 

Following the closing of the Merger, NeuroBo’s Chief Executive Officer, John L. Brooks III, will serve as Chief Executive Officer of the Company and the board of directors of the Company will be six directors, consisting of five directors designated by NeuroBo and Steven Gullans, the Company’s current President and Chief Executive Officer.

Contingent Value Rights Agreement

At the Effective Time, the Company will enter into a Contingent Value Rights Agreement (the “CVR Agreement”). Pursuant to the Merger Agreement and the CVR Agreement, for each share of the Company’s common stock held, stockholders of record as of immediately prior to the Effective Time will receive one contingent value right (“CVR”) entitling such holders to receive in the aggregate, 80% of the Gross Consideration (as defined in the CVR Agreement which contemplates the post-Merger combined company’s prior retention of an aggregate of $500,000) less other Permitted Deductions (each as defined in the CVR Agreement) received during the 15-year period after the closing of the Merger (the “CVR Term”) from the grant, sale or transfer of rights to the Company’s product candidate gemcabene (other than a grant, sale or transfer of rights involving a sale or disposition of the post-Merger combined company) that is entered into during the 10-year period after the closing of the Merger or pursuant to the Beijing SL Agreement, but not including the $2.5 million upfront gross payment pursuant to the Beijing SL Agreement. Under the CVR Agreement, the combined company agreed to commit $1 million to support the further development of gemcabene through the quarter ending March 31, 2020, to be funded following execution of the Beijing SL Agreement and the receipt by the Company of the $2.5 million upfront gross payment payable under the Beijing SL Agreement. The CVRs are not transferable, except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not accrue interest and will not be registered with the SEC or listed for trading on any exchange. The CVR Agreement will be effective prior to the closing of the Merger and will continue in effect until the later of the end of the CVR Term and the payment of all amounts payable thereunder, unless and until earlier terminated upon termination of the Merger Agreement.

Change in Control Payments and Severance Awards

On July 24, 2019, the Company entered into amendments to the employment agreements (the “Amendments”) of Dr. Steven Gullans, Chief Executive Officer and President, Dr. Charles Bisgaier, Chief Scientific Officer and Chairman of the board of directors, and Seth Reno, Chief Commercial Officer (the “Executives”) to reduce the cash severance obligation owed to each Executive in connection with the termination of their employment upon the closing of the Merger. Pursuant to the Amendments, if the Merger is completed, each of Dr. Gullans, Dr. Bisgaier and Mr. Reno will receive a lump sum cash payment within thirty days after the effective date of the Merger in an amount equal to $75,000,  $330,000 and $297,536, respectively, subject to a reduction for withholding tax, in lieu of the cash compensation such Executives would otherwise be entitled to receive in connection with a termination following a change in control pursuant to such Executives’ employment agreements.

 

In connection with the Executives agreeing to the Amendments, on July 24, 2019, the Company issued each of Dr. Gullans, Dr. Bisgaier and Mr. Reno a restricted stock award representing 300,000,  100,000 and 100,000 shares,

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Notes to Condensed Financial Statements (unaudited), continued

 

respectively, of common stock. The restricted stock awards were made pursuant to Restricted Stock Grant Notices and Restricted Stock Agreements (the “Award Agreements”). Such Award Agreements provide that such shares shall fully vest immediately prior to the Effective Time, provided that the Executive has executed and delivered to the Company a release and waiver of claims and such release is not subsequently revoked. The Company shall automatically reacquire for no consideration all unvested shares upon the earliest to occur of (i) the Executive’s termination of continuous service (unless such termination results from the completion of the Merger prior to March 31, 2020) or (ii) March 31, 2020 if the Merger has not been completed. The Award Agreements provide that the holders shall have all rights and privileges of a holder of common stock, including for purposes of voting and receiving dividends.

 

Grants were also made to the Company’s non-employee directors (45,000 shares of restricted stock in the aggregate) and employees (62,000 shares of restricted stock in the aggregate) pursuant to Award Agreements on July 24, 2019. The non-employee director Award Agreements do not require the execution and delivery of a release and waiver of claims.

 

On July 23, 2019, the Company’s non-employee directors agreed to waive payment of the cash retainer for the remainder of 2019 otherwise payable to such directors pursuant to the Company’s non-employee director compensation policy.

 

Nasdaq Compliance

On August 8, 2019, the Company received a notice from the Nasdaq Stock Market (“Nasdaq”) stating that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock was below the $1.00 per share minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until February 4, 2020, to regain compliance with the Minimum Bid Price Rule. To regain compliance with the Minimum Bid Price Rule, the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time during this 180-day period. If the Company regains compliance with the Minimum Bid Price Rule, Nasdaq will provide the Company with written confirmation and will close the matter.

If the Company does not regain compliance with the rule by February 4, 2020, the Company may be eligible for an additional 180 calendar day compliance period. To qualify, the Company would need to meet the continued listing requirement for market value of publicly held shares and all other applicable standards for initial listing on The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. However, if it appears to Nasdaq that the Company will not be able to cure the deficiency, or if the Company is not eligible for a second compliance period, Nasdaq will notify the Company that its common stock will be subject to delisting. In the event of such a notification, the Company may appeal the determination, but there can be no assurance Nasdaq would grant the Company’s request for continued listing.

The notice has no immediate impact on the listing of the Company’s common stock, which will continue to trade on The Nasdaq Capital Market under the symbol “GEMP”. The Company believes that the completion of its proposed Merger with NeuroBo, including the reverse stock split of the Company’s common stock contemplated by the Merger Agreement, will address the Nasdaq compliance matter described above. The Company will continue to monitor the bid price of its common stock and consider various other options available to it if its common stock does not trade at a level that is likely to regain compliance. See Part II “Other Information,” Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.   

 

  

 

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed financial statements and related notes included in Part I “Financial Information”, Item I “Financial Statements” of this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the fiscal year ended December 31, 2018 included in our Annual Report on Form 10-K filed on March 18, 2019.  

 

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “target,” “contemplate,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward‑looking statements.

 

These forward‑looking statements reflect our management’s beliefs and views with respect to future events, are based on estimates and assumptions as of the date of this report and are subject to known and unknown risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in these forward-looking statements. We discuss many of these risks in greater detail under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K filed on March 18, 2019 and under Part II “Other Information,” Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q and in subsequent reports filed with or furnished to the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward‑looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward‑looking statements.

Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, changed circumstances or otherwise, except as may be required by applicable laws or regulations. 

Overview

 

We are a clinical‑stage biopharmaceutical company focused on developing and commercializing therapies for the treatment of dyslipidemia, a serious medical condition that increases the risk of life threatening cardiovascular disease, particularly orphan indications such as homozygous familial hypercholesterolemia (HoFH), as well as NAFLD/NASH. Our therapeutic compound, gemcabene, has been tested as monotherapy and in combination with statins and other drugs in over 1,100 subjects, which we define as healthy volunteers and patients, across 25 Phase 1 and Phase 2 clinical trials and has demonstrated promising evidence of efficacy, safety and tolerability.

As described below, on July 24, 2019, we entered into a Merger Agreement with NeuroBo pursuant to which our wholly owned subsidiary, Merger Sub, will merge with and into NeuroBo, with NeuroBo surviving as a wholly owned subsidiary of the Company in an all-stock transaction.

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Our Company was co‑founded in November 2008 as a limited liability company under the name Michigan Life Therapeutics, LLC (MLT) by former Pfizer Inc. employees, including Dr. Charles Bisgaier, who were responsible for licensing exclusive worldwide rights to gemcabene from Pfizer in April 2011. In October 2014, we incorporated a new entity under the name Gemphire Therapeutics Inc. in Delaware. In November 2014, we entered into a merger agreement with Gemphire whereby MLT was merged with and into Gemphire, with Gemphire as the surviving entity and all outstanding units of membership interest in MLT were exchanged for shares of common stock of Gemphire. The purpose of the merger was to change the jurisdiction of our incorporation from Michigan to Delaware and to convert from a limited liability company to a corporation.

To date, our primary activities have been conducting research and development activities, planning and conducting clinical trials, performing business and financial planning, recruiting personnel and raising capital. We do not have any products approved for sale and have not generated any revenue. We do not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve, and we successfully commercialize, gemcabene or any other product candidate we may pursue in the future or unless certain development and commercialization milestones are met under the Beijing SL Agreement. Refer to Note 14— “Subsequent Events” to our condensed financial statements included in Part I “Financial Information”, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for further information. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. Our net losses were $2.9 million and $6.7 million during the three month periods ended June 30, 2019 and 2018, respectively, and our net losses were $6.7 million and $13.9 million during the six month periods ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had an accumulated deficit of $90.8 million. Our net losses may fluctuate significantly from quarter‑to‑quarter and year‑to‑year, depending on the timing of our preclinical studies, clinical trials and our expenditures on other research and development activities.

We have funded our operations to date primarily through the issuance and sale of common stock and warrants in public offerings and a private placement, the proceeds of our term loan facility with Silicon Valley Bank (the “Term Loan”) which we prepaid in full on January 28, 2019, and, prior to our IPO, the issuance of preferred stock and convertible notes. As of June 30, 2019, we had cash and cash equivalents of $3.6 million.

 

Key Developments

 

Clinical and Research Program Updates 

During 2016 to 2018, we initiated and completed three Phase 2b clinical trials for gemcabene in HoFH, hypercholesterolemia, including heterozygous familial hypercholesterolemia (HeFH) and atherosclerotic cardiovascular disease (ASCVD) patients on maximally tolerated statins, and SHTG. We reported top line data from our 8 patient trial for HoFH (COBALT-1 trial) in the second quarter of 2017, top line data from our 105 patient trial for hypercholesterolemia on high‑intensity statin therapy including HeFH and ASCVD patients (ROYAL-1 trial) in the third quarter of 2017, and top line data from our 91 patient trial in severe hypertriglyceridemia (SHTG) patients (INDIGO-1 trial) in the second quarter of 2018. As previously announced, all three of these trials achieved statistical significance for their primary endpoints.

An investigator initiated Phase 2a pediatric NAFLD trial was begun in the fourth quarter of 2017 to study gemcabene in adolescents 12-17 years old. The study enrolled six patients and in August 2018, the Data Safety Monitoring Board (DSMB) halted the trial early due to “unanticipated problems” in the first three patients. Specifically, the primary efficacy endpoint of ALT increased beyond baseline levels in two of these three patients. In addition, all three patients had an increase in the secondary endpoint of liver fat fraction as measured by MRI-PDFF. All patients gained weight and had increased TGs during study treatment, in contrast to data in other gemcabene trials. Patient compliance was compromised as assessed by unused tablets and blood drug levels. Three observations were reported as AEs considered related to gemcabene. No events were reported as SAEs and no Suspected Unexpected Serious Adverse Reaction (SUSAR) report was filed with the FDA by the Primary Investigator. The risk for increased liver fat with gemcabene

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treatment is unknown at this time. The patients are being monitored for 12 months post-final dose. We intend to work closely with the trial site physicians and other KOLs to identify potential reasons for the unanticipated problems in the pediatric NAFLD study but cannot assure you that it will be possible to determine the reasons for the unexpected problems.

Top-line data was reported in June 2019 from a Phase 2a proof-of-concept trial treating familial partial lipodystrophy disease (FPLD) patients with gemcabene. This study was an investigator-initiated study at the University of Michigan and was initiated in early 2018. Five FPLD patients were enrolled in this open-label study with two patients having lamin A (LMNA) gene mutations and three patients with unknown causes of the condition. Average baseline serum triglyceride levels were 587.3 mg/dL and average MRI-PDFF liver fat fraction was 14.1%. All patients received a 300 mg/day dose of gemcabene for the first 12 weeks, with randomization to either the same dose (n=3) or a higher dose of 600 mg/day (n=2) for the subsequent 12 weeks. 

Gemcabene treatment resulted in a median change in serum triglycerides (TG) of -19.6% for the five patients at twelve weeks (the primary endpoint). The range of TG responses was +40.4 % to -52.9%, with three patients showing decreases.  Secondary endpoints included measurement of liver fat fraction by MRI-PDFF which showed reduction in 2 of the 3 responding patients. Four patients completed treatment and a fifth one discontinued at 22 weeks (with data carried forward as 24 weeks). Gemcabene appeared to be generally safe and well-tolerated in these five patients. There was one serious adverse event of benign paroxysmal positional vertigo, considered unrelated to gemcabene.

As announced in the third quarter of 2018, we completed and submitted to the FDA the results from our two year rodent carcinogenicity studies. These studies were submitted as part of a request for the FDA to remove the partial clinical hold that prevents us from conducting human studies of gemcabene that are greater than six months in duration. In response to our submission, the FDA did not lift the hold and requested that we provide additional data, including two preclinical studies, namely, a subchronic (13 week) study of gemcabene in PPARα knock-out mice and a study of gemcabene in in vitro PPAR transactivation assays using monkey and canine PPAR isoforms. We are working to complete studies requested by the FDA and expect to submit this additional data to the FDA in the fourth quarter of 2019. In addition, the FDA informed us that an End of Phase 2 (EOP2) meeting to reach an agreement on the design of Phase 3 registration and long term safety exposure trials for our target indications in dyslipidemia would not take place until the partial clinical hold is lifted. See “—Liquidity and Capital Resources” below regarding our need to raise additional capital to continue to fund the further development of gemcabene, including submission of the additional information requested by the FDA to make a decision regarding lifting the partial clinical hold, if the proposed Merger is not consummated in a timely fashion.

Pfizer License Agreement

In the third quarter of 2018, we announced that our gemcabene in-licensing agreement with Pfizer was renegotiated providing three additional years to for us to achieve our first commercial sale, by April 2024. See “—Pfizer Agreement” below.

Workforce Reduction

 

In September 2018, our board of directors approved a workforce reduction to reduce costs and conserve cash resources in light of the FDA’s request for additional data described above and the resulting delay in our Phase 3 trials. The workforce reduction included 5 employees, which represented approximately 33% of our workforce at such time, and was completed in the fourth quarter of 2018. We recorded severance related charges totaling approximately $1.6 million, which included cash severance payments of approximately $0.5 million, a non-cash charge of approximately $1.1 million related to the accelerated vesting of outstanding stock options for certain affected employees, and $30,000 for continued health insurance coverage. We may incur additional costs not currently contemplated due to events associated with or resulting from the workforce reduction.

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SVB Loan Repayment

In January 2019, we prepaid in full all outstanding indebtedness under our Loan Agreement with SVB. See “—Term Loan” below. 

Nasdaq Compliance

On March 20, 2019, we received written notice from the Nasdaq Stock Market (Nasdaq) stating that we no longer comply with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5450(b)(1)(A) for continued listing on the Nasdaq Global Market because our stockholders’ equity, as reported in our Annual Report on Form 10-K for the year ended December 31, 2018, had fallen below $10 million. The notification letter also indicated that we do not meet the alternative compliance standards for the Nasdaq Global Market set forth in Nasdaq Listing Rule 5450(b).

Under applicable Nasdaq rules, we had 45 calendar days from the date of the notification letter, or until May 6, 2019, to submit a plan to regain compliance. On May 6, 2019, our Board approved an application to transfer our common stock to the Nasdaq Capital Market, which has a minimum stockholders’ equity requirement of $2.5 million for continued listing, and we timely submitted our plan and application to transfer our common stock to the Nasdaq Capital Market. On May 10, 2019, we received approval from Nasdaq to transfer the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market. The transfer was effective at the opening of business on May 14, 2019.

On August 8, 2019, we received a notice from Nasdaq stating that, for the last 30 consecutive business days, the closing bid price for our common stock was below the $1.00 requirement for continued listing under the Minimum Bid Price Rule. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until February 4, 2020, to regain compliance with the Minimum Bid Price Rule. To regain compliance with the Minimum Bid Price Rule, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time during this 180-day period. If we regain compliance with the Minimum Bid Price Rule, Nasdaq will provide us with written confirmation and will close the matter.

If we do not regain compliance with the rule by February 4, 2020, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to meet the continued listing requirement for market value of publicly held shares and all other applicable standards for initial listing on The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. However, if it appears to Nasdaq that we will not be able to cure the deficiency, or if we are not eligible for a second compliance period, Nasdaq will notify us that our common stock will be subject to delisting. In the event of such a notification, we may appeal the determination, but there can be no assurance Nasdaq would grant our request for continued listing.

The notice has no immediate impact on the listing of our common stock, which will continue to trade on The Nasdaq Capital Market under the symbol “GEMP”. We believe that the completion of the proposed Merger with NeuroBo, including the reverse split of our common stock contemplated by the Merger Agreement, will address the Nasdaq compliance matter described above. We will continue to monitor the bid price of our common stock and consider various other options if our common stock does not trade at a level that is likely to regain compliance.

See Part II “Other Information,” Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.