GEMI THER The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage precision medicine company developing novel therapeutic compounds to treat genetically defined, age-related macular degeneration ("AMD"). Our lead product candidate, GEM103, is a recombinant form of the human complement factor H protein ("CFH") and is designed to address complement hyperactivity and overall dysregulation caused by loss of function mutations thus restoring retinal health in patients with AMD. Native CFH serves multiple functions in maintaining retinal health, including regulating lipid metabolism in the retina, protecting the retina against lipid and protein by-products of oxidative stress, and regulating the complement system, which is part of the innate immune system. This multifaceted regulation plays an integral role in engagement and maintenance of complement-mediated immune responses that are involved in pathogen defense and cellular debris clearance.
In
In
The transaction is expected to close in the fourth quarter of 2022. The closing
of the Disc Merger is subject to approval by our stockholders and the
stockholders of Disc as well as other customary closing conditions, including
the effectiveness of a registration statement filed with the
Subject to the terms and conditions of the Disc Merger Agreement, at the effective time of the Disc Merger (the "Effective Time"), each then outstanding share of Disc common stock (including shares of Disc common stock issued upon conversion of Disc preferred stock and shares of Disc common stock issued in the concurrent financing transaction) will be converted into the right to receive a number of shares of the Company's common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of the Company's common stock) calculated in accordance with the Disc Merger Agreement (the "Exchange Ratio"). Further, at the Effective Time, each person who as of immediately prior to the Effective Time was a stockholder of record of Gemini or had the right to receive our common stock will be entitled to receive a contractual contingent value right ("CVR") issued by the Company subject to and in accordance with the terms and conditions of a Contingent Value Rights Agreement between the Company, the holder's representative and the rights agent (the "CVR Agreement"), representing the contractual right to receive payments from the post-closing combined company upon receipt of certain proceeds derived from consideration paid as a result of the disposition of our pre-Disc Merger assets, net of certain permitted deductions for expenses.
Concurrently with the execution and delivery of the Disc Merger Agreement,
certain parties have entered into agreements with Disc pursuant to which they
have agreed, subject to the terms and conditions of such agreements, to purchase
prior to the consummation of the Disc Merger shares of Disc common stock for an
aggregate purchase price of approximately
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The Company's future operations are highly dependent on the success of the Disc Merger and there can be no assurances that the Disc Merger will be successfully consummated. In the event that we do not complete the transaction with Disc, we may explore strategic alternatives, including, without limitation, another strategic transaction and/or pursue a dissolution and liquidation of the Company.
Since inception in 2015, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our product candidates. We do not have any products approved for sale, and we have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product.
To the extent we continue to pursue clinical development of GEM103 or any other product candidate, our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. We have not yet successfully completed any pivotal clinical trials, nor have we obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.
We are also working to advance GEM307, that could be effective for treatment of systemic diseases, towards IND filing.
COVID-19 pandemic
The ongoing coronavirus ("COVID-19") pandemic and the increased prevalence of variants of the virus, and government measures taken in response, have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The ongoing COVID-19 pandemic and related impacts have resulted in and will likely continue to result in significant disruptions to the global economy and capital markets around the world. We cannot predict the future progression or full impact of the outbreak and its effects on our business and operations.
We have not incurred impairment losses in the carrying values of our assets as a result of the ongoing COVID-19 pandemic, and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our condensed consolidated financial statements. Although the COVID-19 pandemic did not have a significant impact on our financial results in the second quarter of 2022, the full extent to which the ongoing COVID-19 pandemic may impact our business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain, and the estimates of the impact on our business may change based on new information that may emerge concerning COVID-19, including the duration of the pandemic, any potential subsequent waves or strains of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.
Business Combination
On
FSDC was incorporated in
On the day prior to the Closing Date, Old Gemini changed its name to "
In connection with the Business Combination, certain investors purchased an
aggregate of
We accounted for the Business Combination as a reverse recapitalization, which is the equivalent of Old Gemini issuing stock for the net assets of FSDC, accompanied by a recapitalization, with FSDC treated as the acquired company for accounting purposes. The net assets of FSDC were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Old Gemini. The shares and corresponding capital amounts and loss per share related to Old Gemini's outstanding convertible preferred stock and common stock prior to the Business Combination have been
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retroactively restated to reflect the conversion ratio established in the Merger Agreement (1.00 Old Gemini share for 0.2180 shares of our company (the "Conversion Ratio").
For additional information on the Business Combination, please read Note 2, Business Combination, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Financial Operations Overview
Revenue
We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts were to continue and were successful and we were to commercialize any of our product candidates, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.
Operating expenses
Research and development expenses
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the clinical development of our product candidates. We expense research and development costs as incurred, which include:
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expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
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expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our drug discovery efforts, preclinical studies, and clinical trials;
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expenses incurred under agreements with CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
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other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
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payments made in cash or equity securities under third-party licensing, acquisition and option agreements;
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employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions; and
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costs related to comply with regulatory requirements.
We recognize external development costs as incurred. Any advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. We estimate and accrue for the value of goods and services received from CROs, CMOs and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.
We do not track our research and development expenses on a program-by-program basis. Our direct external research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.
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Research and development activities have historically been central to our business model. We anticipate that our research and development expenses will decrease in 2022 compared to 2021 due to our planned reduced clinical efforts in 2022 and restructuring plans implemented in connection with our exploration of strategic alternatives. If we were to continue to pursue development efforts and we believe a regulatory approval of a product candidate appears likely, we would anticipate an increase in payroll and other expenses as a result of our preparation of regulatory filings and precommercial activities.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that would be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. The successful development and commercialization of any of our product candidates is highly uncertain. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:
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the scope, progress, timing, outcome and costs of any continued preclinical development activities, clinical trials and other related development activities;
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delays, suspensions, or other setbacks or interruptions encountered, including as a result of the ongoing COVID-19 pandemic;
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establishing an appropriate safety and efficacy profile with any Investigational New Drug application ("IND") enabling studies and obtaining clearance for future IND applications;
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successful patient enrollment in and the initiation and completion of any clinical trials;
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the timing, receipt and terms of any marketing approvals from applicable
regulatory authorities including the
•
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
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establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make and scale our products successfully;
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development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
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obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
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significant and changing government regulation;
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launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
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maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.
A change in any of these variables with respect to any of our programs would significantly change the costs, timing and viability associated with that program.
General and administrative expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology and administrative functions. General and administrative expenses also include insurance costs and professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We expense general and administrative costs as incurred.
We anticipate that our general and administrative expenses will decrease in 2022 as compared to 2021 due to restructuring plans we implemented. If we were to continue product development efforts and at any point in the future we believe a regulatory approval of a product candidate appears likely, we would anticipate an increase in payroll and other expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate. Additionally, depending on the outcome of our ongoing strategic alternative review process, there may be an increase in general and administrative expenses.
Other income (expense)
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Interest expense
Interest expense consists of interest accrued on the Term Loan we entered into
in
Interest income
Interest income consists of income earned on our cash, cash equivalents and restricted cash.
Loss on conversion of convertible notes
Immediately prior to the closing of the Business Combination, the outstanding principal and interest under the Notes converted into shares of Series B preferred stock, and we recorded other expense equal to the difference between the reacquisition price of the Notes and the net carrying amount of the Notes in the condensed consolidated statements of operations and comprehensive loss.
Provision for income taxes
We have not recorded any significant amounts related to income tax expense, we have not recognized any reserves related to uncertain tax positions, nor have we recorded any income tax benefits for the majority of our net losses we have incurred to date or for our research and development tax credits.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or our tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We continue to maintain a full valuation allowance against all of our net deferred tax assets based on our evaluation of all available evidence.
We file income tax returns in the
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an "ownership change," which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation's ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We may experience ownership changes as a result of subsequent shifts in our stock ownership.
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Results of operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
June 30,
2022 2021 Change
Operating expenses:
Research and development $ 2,580 $ 10,842 $ (8,262 )
General and administrative 4,654 5,478 (824 )
Total operating expenses 7,234 16,320 (9,086 )
Loss from operations (7,234 ) (16,320 ) 9,086
Other income (expense):
Interest expense (48 ) (121 ) 73
Interest income 149 5 144
Other expense - (11 ) 11
Other income 43 - 43
Net loss and comprehensive loss
Research and development expenses
Research and development expenses were
General and administrative expenses
General and administrative expenses were
Interest expense
Interest expense was
Comparison of the six months ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended
June 30,
2022 2021 Change
Operating expenses:
Research and development $ 12,384 $ 22,628 $ (10,244 )
General and administrative 10,027 10,182 (155 )
Total operating expenses 22,411 32,810 (10,399 )
Loss from operations (22,411 ) (32,810 ) 10,399
Other income (expense):
Interest expense (114 ) (1,969 ) 1,855
Interest income 158 6 152
Loss on conversion of convertible notes - (711 ) 711
Other expense - (11 ) 11
Other income 46 - 46
Net loss and comprehensive loss $ (22,321 ) $ (35,495 ) $ 13,174
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Research and development expenses
Research and development expenses were
General and administrative expenses
General and administrative expenses were
Interest expense
Interest expense was
Loss on conversion of convertible notes
The loss on conversion of convertible notes was
Liquidity and capital resources
Sources of liquidity and capital
Since inception, we have not generated any revenue from any product sales or any
other sources and have incurred significant operating losses and negative cash
flows from our operations. We have not yet commercialized any of our product
candidates and do not expect to generate revenue from sales of any product
candidates for several years, if at all. Our net loss was
Prior to the Business Combination, we funded our operations primarily with
proceeds from the sale of preferred stock, borrowings under convertible
promissory notes and borrowings under loan agreements. In
As of
Until required for use in our business, we typically invest our cash in investments that are highly liquid, readily convertible to cash with original maturities of 90 days or less at the date of purchase. We attempt to minimize the risks related to our cash and cash equivalents by maintaining balances in accounts only with accredited financial institutions and, consequently, we do not believe we are subject to unusual credit risk beyond the normal credit risk associated with ordinary commercial banking relationships.
On
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Cash flows
The following table summarizes our cash flows for the six months ended
Six Months Ended
June 30,
2022 2021
Net cash used in operating activities $ (25,836 ) $ (30,935 )
Net cash provided by (used in) financing activities (2,455 ) 193,909
Net increase (decrease) in cash, cash equivalents and
restricted cash $ (28,291 ) $ 162,974
Operating activities
We do not generate any cash inflows from our operating activities. Our cash flows from operating activities are significantly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in developing our platform, drug discovery efforts and related infrastructure.
During the six months ended
During the six months ended
Financing activities
During the six months ended
During the six months ended
Funding requirements
Our primary use of cash is to fund operating expenses, primarily related to our research and development activities. However, our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process, including to the extent we identify and enter into any potential strategic transaction. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
We currently expect our expenses to decrease in 2022 compared to 2021 due to our
planned reduced clinical efforts in 2022 and the implementations of the
restructurings announced in
•
advance preclinical development of our early-stage programs and clinical trials of our product candidates;
•
manufacture, or have manufactured on our behalf, including sourcing raw materials, our preclinical and clinical drug material and develop processes for late stage and commercial manufacturing;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;
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maintain and protect our intellectual property portfolio;
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•
manage the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims;
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manage the costs of operating as a public company; and
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realize the anticipated benefits of our restructuring plans.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, would be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
As of
Until such time as we can generate substantial product revenue, if ever, and subject to our pursuit of a potential strategic transaction and the consummation of such potential transaction (including the proposed merger transaction with Disc), we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Working capital
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Subject to our pursuit of a potential strategic transaction and the consummation of such potential transaction, our future funding requirements will depend on and could increase significantly as a result of many factors, including:
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the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials;
•
the costs, timing and outcome of regulatory review of our product candidates;
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the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;
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the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
•
the costs of raw materials and manufacturing commercial-grade product and necessary inventory to support commercial launch;
•
the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
•
the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
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•
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims;
•
our ability to establish and maintain collaborations and strategic alliances on favorable terms, if at all; and
•
the extent to which we acquire or in-license other product candidates and technologies.
Contractual obligations and commitments
Term loan
In
The Term Loan is governed by a loan and security agreement, entered into in
The Term Loan matures in
In
At the end of the loan term (whether at maturity, by prepayment in full or otherwise), we are required to pay a final end of term charge to SVB in the amount of 4.0% of the aggregate original principal amount advanced by SVB.
Convertible promissory notes
In
Contract research and manufacturing organizations
We enter into contracts in the normal course of business with CMOs, CROs and
other third parties for the manufacture of our product candidates and to support
clinical trials and preclinical research studies and testing. These contracts
are generally cancelable at any time by us following a certain period of notice.
Payments due upon cancellation consist only of payments for services provided or
expenses incurred, including noncancelable obligations of our service providers,
up to the date of cancellation. We recorded accrued expenses of approximately
Disc Merger Agreement
On
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recommend approval of the Disc Merger Agreement to our shareholders. The closing of the Disc Merger is subject to approval by our stockholders and the stockholders of Disc and other customary closing conditions.
If we are unable to satisfy certain closing conditions or if other mutual
closing conditions are not satisfied, Disc will not be obligated to complete the
Disc Merger. The Disc Merger Agreement contains certain termination rights of
each of us and Disc. Under certain circumstances detailed in the Disc Merger
Agreement, we could be required to pay Disc a termination fee of
Critical accounting policies and significant judgments and estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in
During the three and six months ended
Recently issued accounting pronouncements
Refer to Note 3, Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information regarding recently issued accounting pronouncements.
Emerging growth company and smaller reporting company status
We are an "emerging growth company," as defined in the Jumpstart Our Business
Startups Act of 2012 ("JOBS Act"), and we may take advantage of certain
exemptions from various reporting requirements that are applicable to other
public companies that are not emerging growth companies. We may take advantage
of these exemptions until we are no longer an emerging growth company under
Section 107 of the JOBS Act, which provides that an emerging growth company can
take advantage of the extended transition period afforded by the JOBS Act for
the implementation of new or revised accounting standards. We have elected to
avail ourselves of the extended transition period and, therefore, while we are
an emerging growth company, we will not be subject to new or revised accounting
standards at the same time that they become applicable to other public companies
that are not emerging growth companies, unless we choose to early adopt a new or
revised accounting standard. We will remain an emerging growth company until the
earlier of (1) the last day of the fiscal year (a) following the fifth
anniversary of the closing of our initial public offering, (b) in which we have
total annual gross revenue of at least
Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (i) the market value of
our common stock held by non-affiliates exceeds
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