2016 Letter to Shareholders
2016 Letter to Shareholders
Our mission at Gemphire is to become a leading biopharmaceutical company that develops and commercializes innovative
Our mission at Gemphire is to become a leading biopharmaceutical company that develops and commercializes innovative
therapies for cardiometabolic diseases including dyslipidemia and nonalcoholic steatohepatitis (NASH). I am pleased to report
therapies for cardiometabolic diseases including dyslipidemia and nonalcoholic steatohepatitis (NASH). I am pleased to report
that, since becoming a public company in 2016, we made solid progress towards this objective and remain well positioned to
since becoming a public company in 2016 we made solid progress towards this objective and remain well positioned to
continue our momentum in 2017. Our clinical programs are advancing to further validate the therapeutic potential of our first-
continue our momentum in 2017. Our clinical programs are advancing to further validate the therapeutic potential of our first-
in-class, late stage small molecule drug candidate gemcabene that we licensed from Pfizer, originally being developed there as
in-class, late-stage small molecule drug candidate gemcabene that we licensed from Pfizer, originally being developed there as
the next class after statins and fibrates.
the next class after statins and fibrates.
Cardiovascular disease remains the number one cause of death in the world and there is renewed interest in the medical
Cardiovascular disease remains the #1 cause of death in the world and there is renewed interest in the medical community in
the importance of cholesterol control. This was particularly apparent at this year’s American College of Cardiology (ACC)
community in the importance of cholesterol control. This was particularly apparent at this year’s American College of
Cardiology (ACC) annual meeting which we attended. Center stage at the ACC meeting were data from cardiovascular
annual meeting which we attended. Center stage at the March ACC meeting were data from cardiovascular outcome trials on a
outcome trials on a new injectable class of cholesterol lowering agents, PCSK9 inhibitors, which demonstrated that sustained
new injectable class of cholesterol lowering agents, PCSK9 inhibitors, which demonstrated that sustained reductions in LDL-C
reductions in LDL-C translated into additional reductions in major cardiovascular events, beyond what can be achieved with
translated into additional reductions in major cardiovascular events, beyond what can be achieved with statins. The data
provide good, tangible evidence further validating the hypothesis that lowering LDL-C can reduce cardiovascular risk for
statins. The data provide good, tangible evidence further validating the hypothesis that lowering LDL-C can reduce
patients. The results have positive implications for the cardiovascular treatment space and support our development strategy
cardiovascular risk for patients. The results have positive implications for the cardiovascular treatment space and support our
for gemcabene in high risk cardiovascular patients.
development strategy for gemcabene in high risk cardiovascular patients.
We now have an extensive Phase 2 clinical program underway designed to demonstrate gemcabene’ s utility across multiple
We now have an extensive Phase 2 clinical program underway designed to demonstrate gemcabene’s utility across multiple
indications in dyslipidemia. The Royal-1 trial is targeting the broadest patient population, including those with heterozygous
indications in dyslipidemia. The Royal-1 trial is targeting the broadest patient population, including those with heterozygous
familial hypercholesterolemia (HeFH) and atherosclerotic cardiovascular disease (ASCVD), who have high baseline LDL-C
familial hypercholesterolemia (HeFH) and atherosclerotic cardiovascular disease (ASCVD), who have high baseline LDL-C
while on maximum statin therapy. The other ongoing trials include INDIGO-1, evaluating the ability of gemcabene to lower
while on maximum statin therapy. The other ongoing trials include INDIGO-1, evaluating the ability of gemcabene to lower
triglycerides in severe hypertriglyceridemia (SHTG) patients and COBALT-1, investigating gemcabene in the orphan
triglycerides in severe hypertriglyceridemia (SHTG) patients and COBALT-1, investigating gemcabene in the orphan
homozygous familial hypercholesterolemia (HoFH) indication. The positive interim data we reported from COBALT-1 in
homozygous familial hypercholesterolemia (HoFH) indication. The positive interim data we reported from COBALT-1 in
January this year showed a reduction in LDL-C that appears consistent with both the goals of the trial and prior Phase 2 trial
January this year showed a reduction in LDL-C that appears consistent with both the goals of the trial and prior Phase 2 trial
data as an add-on to stable statin therapy (Trial 1027-018 recently published in the Journal of Clinical Lipidology). In
data as an add-on to stable statin therapy (Trial 1027-018 recently published in the Journal of Clinical Lipidology). In
addition, COBALT-1 interim data compares favorably with the reductions reported with other therapies recently approved to
addition, COBALT-1 interim data compares favorably with the reductions reported with other therapies recently approved to
treat HoFH patients. The significant interest we are seeing across our trials from investigators and patients underscores the
treat HoFH patients. The significant interest we are seeing across our trials from investigators and patients underscores this
large unmet patient need despite current available therapies.
large unmet patient need despite current available therapies.
The next development priority for gemcabene is targeted to NASH. Our Phase 2 trial AZURE-1 is planned to commence in
The next development priority for gemcabene is targeted to NASH. Our Phase 2 trial AZURE-1 is planned to commence in
the second half of 2017. We are moving forward with this program on the strength of positive proof of concept data with
the second half of 2017. We are moving forward with this program on the strength of positive proof of concept data with
gemcabene in an established preclinical model of NASH as well as our understanding of the drug’s mechanism of action to
gemcabene in an established preclinical model of NASH as well as our understanding of the drug’s mechanism of action to
lower fat and inflammation - key hallmarks of NASH disease. There are currently no approved treatments for NASH. Given
lower fat and inflammation - key hallmarks of NASH disease. There are currently no approved treatments for NASH. Given
the high prevalence of NASH in the developed world, this is a sizable additional opportunity to the cardiovascular disease
the high prevalence of NASH in the developed world, this is a sizable additional opportunity to the cardiovascular disease
market for gemcabene.
market for gemcabene.
Our confidence reflects the talent and experience of our management team and advisory board. In 2016, we strengthened our
Our confidence reflects the talent and experience of our management team and advisory boards. In 2016, we strengthened our
team further with the appointment of industry veteran Dr. Lee Golden as our Chief Medical Officer. Together, my colleagues
team further with the appointment of industry veteran Dr. Lee Golden as our Chief Medical Officer. Together, my colleagues
have helped discover and develop Lipitor® and gemcabene at Pfizer while also being involved in numerous cardiometabolic
have helped discover and develop Lipitor® and gemcabene at Pfizer while also being involved in numerous cardiometabolic
trials over the last several decades.
trials over the last several decades.
This is a very exciting time for Gemphire. In many respects, 2017 has the potential be a transformational year as we report
This is a very exciting time for Gemphire. In many respects, 2017 has the potential be a transformational year as we report
top-line results from the Phase 2b COBALT-1, ROYAL-1 and INDIGO-1 trials, launch the Phase 2 AZURE-1 trial in patients
top-line results from the Phase 2b COBALT-1, ROYAL-1 and INDIGO-1 trials, launch the Phase 2 AZURE-1 trial in patients
with NASH, and explore potential clinical and commercial partnerships that may accelerate the development of gemcabene.
with NASH, and explore potential clinical and commercial partnerships that may accelerate the development of gemcabene.
Upon completion of one or more of our Phase 2b trials, we intend to request one or more end-of-Phase 2 meetings with the
Upon completion of one or more of our Phase 2b trials, we intend to request one or more end-of-Phase 2 meetings with the
FDA to reach an agreement on the design of Phase 3 registration trials and long-term safety exposure for our target indications.
FDA to reach an agreement on the design of Phase 3 registration trials and long-term safety exposure for our target indications.
We intend to pursue similar discussions with Canadian and European health authorities and consider other markets as
We intend to pursue similar discussions with Canadian and European health authorities and consider other markets as
appropriate.
appropriate.
Gemphire ended the year 2016 with a cash balance of $24 million which was supplemented in March 2017 with an additional
Gemphire ended the year 2016 with a cash balance of $24 million which was supplemented in March 2017 with an additional
$12.5 million from the completion of a successful private placement.
$12.5 million from the completion of a successful private placement.
I am grateful to my colleagues and our investors for their support, hard work and commitment to our success. We are all
I am grateful to my colleagues and our investors for their support, hard work and commitment to our success. We are all
looking forward to a very productive year ahead.
looking forward to a very productive year ahead.
Sincerely,
Sincerely,
Mina Sooch
Mina Sooch
President and Chief Executive Officer
President and Chief Executive Officer
March 30, 2017
March 30, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
(cid:58)
(cid:133)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
Commission file number 001-37809
Gemphire Therapeutics Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
17199 N. Laurel Park Drive, Suite 401, Livonia, MI
(Address of principal executive offices)
47-2389984
(IRS Employer Identification No.)
48152
(Zip Code)
(248) 681-9815
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of Each Class
Common stock, $0.001 par value
Name of Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:1407)Yes (cid:1408)No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:1407)Yes (cid:1408)No
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 (cid:58) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted 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 and post such files). Yes (cid:58) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes (cid:58) No (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:133)
Non-accelerated filer (cid:58)
(Do not check if a smaller reporting company)
Accelerated filer (cid:133)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Securities Exchange Act of 1934). Yes (cid:133) No (cid:58)
The registrant was not a public company as of June 30, 2016, the last day of the registrant’s most recently completed second quarter. The aggregate market value of the
registrant’s common stock held by non-affiliates of the registrant as of August 5, 2016, the initial trading date on the NASDAQ Global Market was $30.3 million based on
the closing price of the registrant’s common stock of $9.20, as reported by Nasdaq on that date. Shares of the registrant’s common stock held by executive officers,
directors and holders of 10% or more of the registrant’s common stock have been excluded from this calculation because such persons may be deemed affiliates of the
registrant; such exclusions do not reflect a determination that such persons are affiliates of the registrant for any other purpose.
The number of outstanding shares of the registrant’s common stock, $0.001 par value, as of March 3, 2017 was 9,272,582.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant’s 2017 Annual Meeting of Stockholders to be filed subsequently are incorporated by reference into Part III of this Annual
Report on Form 10-K.
Gemphire Therapeutics Inc.
FORM 10-K
INDEX
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1(cid:29)
Item 1A(cid:29) Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B(cid:29) Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2(cid:29)
Item 3(cid:29)
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4(cid:29) Mine Safety Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5(cid:29) Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6(cid:29)
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7(cid:29) Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . .
Item 7A(cid:29) Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8(cid:29)
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . .
Item 9(cid:29)
Item 9A(cid:29) Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B(cid:29) Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10(cid:29) Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11(cid:29) Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12(cid:29) Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13(cid:29) Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . .
Item 14(cid:29) Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
5
48
88
88
88
89
89
90
91
105
106
133
133
133
133
134
134
134
134
Item 15(cid:29) Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
137
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Unless the context requires otherwise, references in this Annual Report on Form 10-K (this “Report”) to "we," "us,"
"the Company" and "our" refer to Gemphire Therapeutics Inc.
This Report, including under the headings “Business,” "Risk Factors," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," contains forward-looking statements. We may, in some cases, use words
such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "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. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. Forward-looking statements in this Report include, but
are not limited to, statements about:
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our anticipated timing of regulatory submissions; commencement and completion of
preclinical studies and clinical trials, meetings with the FDA and other regulatory authorities;
and product approvals for gemcabene or any other product candidates we may pursue in the
future;
the outcome of our ongoing preclinical toxicology studies related to our partial clinical hold
with respect to clinical trials of longer than six months in duration;
the outcome of our Phase 2 and Phase 3 clinical trials of gemcabene and our ability to
replicate positive results from a completed clinical trial in a future clinical trial;
our expected clinical trial designs and regulatory pathways;
our expectation that the FDA will not require us to complete a cardiovascular outcomes trial
prior to approval;
our expectations for the attributes of gemcabene or any other product candidate we may
pursue in the future, including pharmaceutical properties, efficacy, safety, dosing regimens
and cost, as compared to other lipid-lowering therapies;
our ability to design an efficient development plan;
our expectation that our existing capital resources will be sufficient to enable us to complete
our planned late stage clinical trials and complete certain preclinical studies;
our plans to advance the late-stage clinical development of gemcabene across multiple target
indications, pursue oral combination opportunities for gemcabene, maximize the global
commercial value of gemcabene and leverage the expertise and experience of our
management team to evaluate future in-license acquisition opportunities;
our estimates regarding industry trends and market potential for gemcabene;
if approved, our ability to maintain regulatory approval of gemcabene and respond and adhere
to regulatory requirements;
our ability to identify, in-license or acquire, develop and, if approved, successfully
commercialize best-in-class products, including gemcabene or any other product candidates
we may pursue in the future;
our ability to enhance brand awareness among key thought leaders and physicians;
3
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if approved, the rate and degree of market acceptance of gemcabene or any other product
candidates we may pursue in the future;
if approved, our ability to compete with other companies that are, or may be, developing or
selling products that may compete with gemcabene;
reimbursement policies, including any future changes to such policies or related government
legislation and our ability to sell gemcabene, if approved;
regulatory and legal developments in the United States and in foreign countries;
our ability to obtain and maintain intellectual property protection for gemcabene or any other
product candidates we may pursue in the future and not infringe upon the intellectual property
of others;
our ability to fund our working capital requirements;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our
needs for, or ability to, obtain additional financing;
the ability of any third parties with whom we collaborate for the development and
commercialization of gemcabene to successfully perform their assigned functions;
our ability to retain and recruit key scientific and management personnel;
our financial performance; and
our expectations regarding the period during which we qualify as an emerging growth
company under the JOBS Act.
These forward-looking statements reflect our management's beliefs and views with respect to future events and are based
on estimates and assumptions as of the date of this Report and are subject to risks and uncertainties. We discuss many of
these risks in greater detail under "Risk Factors." 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.
Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise.
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject.
These statements are based upon information available to us as of the date of this Report, and while we believe such
information forms a reasonable basis for such statements, such information may be limited or incomplete, and our
statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially
available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely
upon these statements.
4
PART I
ITEM 1.
BUSINESS
Overview
Gemphire is a clinical-stage biopharmaceutical company that is committed to helping patients with cardiometabolic
disorders, including dyslipidemia and NASH. We are focused on providing new treatment options for cardiometabolic
diseases through our complementary, convenient, cost-effective product candidate, gemcabene, as add-on to the standard
of care especially statins that will benefit patients, physicians, and payors. We are developing our product candidate
gemcabene (CI-1027), a novel, once-daily, oral therapy, for high risk cardiovascular patients who are unable to achieve
normal levels of LDL-C or triglycerides with currently approved therapies, primarily statin therapy and for those patients
who present with NASH. Gemcabene’s mechanism of action is designed to enhance the clearance of very low-density
lipoproteins (VLDLs) in the plasma and inhibit the production of fatty acids and cholesterol in the liver. Gemcabene is
liver-directed and inhibits apolipoprotein C-III (apoC-III) protein in the liver and may inhibit acetyl-CoA carboxylase
(ACC) and HMG-CoA Synthase in the liver. Gemcabene has been tested as monotherapy and in combination with all
doses of statins and other drugs in 895 subjects, which we define as healthy volunteers and patients, across 18 Phase 1
and Phase 2 clinical trials and has demonstrated promising evidence of efficacy, safety and tolerability.
Cardiovascular disease is a major health concern, causing more deaths globally than any other disease. Dyslipidemia
leads to cardiovascular disease and is generally an important predictor of cardiovascular events including heart attack
and stroke. Dyslipidemia is generally characterized by an elevation of low-density lipoprotein cholesterol (LDL-C), or
bad cholesterol, triglycerides, or fat in the blood, or both. It represents one of the largest therapeutic areas with annual
worldwide drug sales of approximately $22 billion in 2013. We estimate more than 40% of Americans have elevated
LDL-C or triglycerides, or both. Statins, such as atorvastatin or rosuvastatin, are standard of care for LDL-C lowering,
while fibrates, prescription fish oils and niacin are standard of care for triglyceride lowering. Although these drugs are
highly prescribed and capable of reducing LDL-C and triglyceride levels, many patients are unable to effectively manage
their dyslipidemia with currently approved therapies and are in need of additional treatment options. For example,
approximately 40% of patients on statins are unable to meet their LDL-C lowering goal, and doubling a statin dose has
shown to incrementally lower LDL-C levels by a nominal percentage (approximately 6% based on historical evidence),
while increasing safety and tolerability concerns. An even higher percentage of patients with severe hypertriglyceridemia
do not achieve triglyceride levels low enough to reduce the risk of developing co-morbidities such as pancreatitis.
Non-alcoholic steatohepatitis (NASH) is part of a group of conditions called nonalcoholic fatty liver disease (NAFLD)
that affects one out of four people in the United States. In the United States NASH affects up to approximately 2-5% of
the population, or between six to eight million people. The presentation of NASH resembles alcoholic liver disease but
occurs in people who drink little or no alcohol. The major feature of NASH is excess fat content in the liver, along with
inflammation and liver damage. It can lead to liver cirrhosis, fibrosis, hepatocellular carcinoma, liver failure,
liver-related death and liver transplantation. NASH can also lead to an increased risk of cardiovascular disease, which is
a leading cause of death in this patient population. Prevalence of NASH has increased due to the growing number of
obese and diabetic patients. It is more common in women than in men and currently there are no FDA approved
therapies for treating NASH.
We believe gemcabene possesses a differentiated product profile compared to other therapies in the market and in
clinical development. Key attributes of our product candidate include the following:
(cid:120) Cost-effective, once-daily, oral therapy. Gemcabene is a small molecule formulated as a tablet and is
cost effective to manufacture. As a once-daily, oral therapy, gemcabene, if approved, would be more
convenient than other non-statin therapies, many of which require frequent injections or multiple daily
doses. We expect to take a value-based approach to pricing across all the target indications.
(cid:120) Promising safety and tolerability. Gemcabene was observed to be well tolerated in 895 subjects across
18 Phase 1 and Phase 2 trials both as monotherapy and in combination with statins. No subjects died and
no subjects experienced a serious adverse event (SAE) that was considered to be related to gemcabene.
Adverse events (AEs) reported were generally mild to moderate in intensity. Gemcabene did not appear to
increase the reporting of myalgia (muscle pain) when added to statin therapy and no treatment related
events of myalgia were reported in any gemcabene monotherapy arm in the dyslipidemia trials.
5
(cid:120) First-in-class mechanism. Gemcabene’s pleotropic mechanism of action hits multiple established targets
that lower LDL-C, TG, and hsCRP in plasma. Gemcabene has been observed to reduce production of
cholesterol and triglyceride pathways inside the liver. This gemcabene effect may be due to inhibition of
acetyl CoA carboxylase (ACC) and HMG-CoA Synthase in the liver. Gemcabene has also been shown to
enhance clearance of VLDL in the plasma. This is likely due to gemcabene’s effect on reduction of apoC-
III gene expression and reduction of plasma apoC-III levels, which may facilitate the uptake of VLDL
remnants via hepatic remnant receptors. Gemcabene’s effects on hsCRP may be due to its effect on
reduction of IL-6 expression, as well as its direct effects on inhibiting transcription factors C/EBP-(cid:533) and
NF-kB interaction with the CRP gene.
(cid:120) Significant lipid-lowering of LDL-C, high-sensitivity C-reactive protein (hsCRP) and triglycerides.
In Phase 2 trials, patients with hypercholesterolemia treated with gemcabene as monotherapy were
observed to have significantly lowered LDL-C by approximately 30% from baseline and significantly
lowered hsCRP by approximately 40% from baseline. In addition, patients with hypertriglyceridemia
((cid:149)200 mg/dL) were observed to have significantly lowered triglycerides by approximately 40%, and based
on post-hoc analysis, gemcabene was observed to lower triglycerides by up to 60% in patients with severe
triglyceride levels ((cid:149)500 mg/dL). Our product candidate’s ability to meaningfully lower levels of multiple
key lipids attributable to cardiovascular disease may expand its use across multiple indications within the
dyslipidemia and NASH Market.
(cid:120) Additive effect in combination with statins. In a Phase 2 trial in patients with uncontrolled
hypercholesterolemia while on stable statin therapy (Trial 2017-018), gemcabene was observed to
significantly lower LDL-C by an additional 25% to 31% from baseline. This data indicates that gemcabene
may better treat a large population of patients who are unable to reach their lipid goal with statins and other
currently prescribed therapies, including those medications commonly used for diabetes and NASH
patients.
(cid:120) No drug-drug interactions when combined with high-intensity statin doses. In two Phase 1 trials,
gemcabene was tested in combination with high-intensity statin doses, 80 mg simvastatin and 80 mg
atorvastatin. No clinically relevant drug-drug interactions were observed. In addition, gemcabene has been
formulated as a fixed-dose combination tablet with various atorvastatin doses, which may offer additional
convenience and compliance to patients.
We are pursuing gemcabene in the following indications (representing approximately 20 million addressable at-risk
patients in the United States) as a treatment for: (1) dyslipidemia in patients on maximally tolerated statin therapy,
unable to reach their lipid-lowering goal, and (2) in patients diagnosed with NASH as monotherapy or in combination
with other approved treatments.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
homozygous familial hypercholesterolemia (HoFH), a rare genetic lipid disorder which results in elevated
LDL-C usually due to mutations in both alleles, a pair of genes on a chromosome, responsible for a specific
trait of the LDL-receptor gene. There are approximately 300-2,000 patients in the US and 6,000 to 45,000
patients worldwide;
heterozygous familial hypercholesterolemia (HeFH), a more prevalent genetic lipid condition which results
in elevated LDL-C usually due to a mutation in one allele of the LDL-receptor gene. The US population is
estimated at .5M - 1.5M and an additional 15 - 30M worldwide;
atherosclerotic cardiovascular disease (ASCVD), patients with hypercholesterolemia, or patients with
elevated LDL-C who have had or are at risk for a cardiovascular event, such as heart attack, stroke, and/or
revascularization. This is an estimated 10M patients in the US of which approximately half have mixed
dyslipidemia. Worldwide estimates of ASCVD patients range from 100 - 120M;
severe hypertriglyceridemia (SHTG), in which patients with elevated triglycerides are at an increased risk
of developing co-morbidities such as pancreatitis. There are 3 - 3.5M patients in the US and another
estimated 60 - 75M worldwide; and
6
(cid:120)
non-alcoholic steatohepatitis (NASH) and non-alcoholic fatty liver disease (NAFLD), are severe diseases
of the liver caused by inflammation and a buildup of fat in the organ, which can lead to liver cirrhosis,
fibrosis, hepatocellular carcinoma, liver failure, liver related death and liver transplantation. There is an
estimated 80M patients with NAFLD and 6 to 8M patients with NASH in the US.
We initially began pursuing HoFH given that gemcabene has received orphan drug designation for this indication. We
believe we can design an efficient development plan to provide a new treatment alternative for these patients.
Furthermore, we believe that gemcabene’s potential ability to treat patients in the most severe segment of the
dyslipidemia market, HoFH, can further enhance brand awareness among key thought leaders and physicians. We are in
parallel developing gemcabene for HeFH, ASCVD, SHTG and NASH given gemcabene’s: (1) promising clinical data
and mechanism in these indications; (2) cost-effective manufacturing process; (3) convenient oral dosing; (4) viability as
safe adjunctive combination therapy; and (5) large commercial potential. By the end of 2017, we expect to report top-
line data from all three dyslipidemia trials (COBALT-1, ROYAL-1 and INDIGO-1). We expect to initiate our clinical
trial in NASH (AZURE-1) in 2017, with top-line data available in the second half of 2018.
Gemcabene Pipeline Indications
Indication
Phase(cid:3)1
Phase(cid:3)2a Phase(cid:3)2b
Phase(cid:3)3
NDA
Anticipated(cid:3)Milestones
Homozygous(cid:3)Familial(cid:3)
Hypercholesterolemia
(HoFH)
Hypercholesterolemia –
Heterozygous(cid:3)Familial(cid:3)
Hypercholesterolemia(cid:3)(HeFH)
Hypercholesterolemia –
Atherosclerotic(cid:3)
Cardiovascular(cid:3) Disease(cid:3)
(ASCVD)
Severe(cid:3)Hypertriglyceridemia
(SHTG)
Non(cid:882)alcoholic(cid:3) Steatohepatitis(cid:3)
(NASH)(cid:3) /(cid:3)Non(cid:882)alcoholic(cid:3) Fatty(cid:3)
Liver(cid:3)Disease(cid:3)(NAFLD)
COBALT(cid:882)1 Phase(cid:3)2b(cid:3)trial(cid:3)(n=8) ongoing(cid:3)and(cid:3)
interim(cid:3)data(cid:3)provided(cid:3)January(cid:3)30,(cid:3)2017;(cid:3)top(cid:882)line(cid:3)
data(cid:3)expected(cid:3)in(cid:3)June(cid:3)2017
ROYAL(cid:882)1 Phase(cid:3)2b(cid:3)trial(cid:3)(n=104)(cid:3)ongoing(cid:3)and(cid:3)top(cid:882)
line(cid:3)data(cid:3)expected(cid:3)in(cid:3)3Q(cid:3)2017
INDIGO(cid:882)1 Phase(cid:3)2b(cid:3)trial(cid:3)(n=90) ongoing(cid:3)and(cid:3)top(cid:882)
line(cid:3)data(cid:3)expected(cid:3)in(cid:3)4Q(cid:3)2017
AZURE(cid:882)1 Phase(cid:3)2(cid:3)trial(cid:3)protocol(cid:3)designed(cid:3)with(cid:3)
plans(cid:3)to(cid:3)enroll(cid:3)in(cid:3)2H(cid:3)2017;(cid:3)top(cid:882)line(cid:3)data(cid:3)expected(cid:3)
in(cid:3)2H(cid:3)2018
Upon completion of one or more of our trials, we intend to request one or more End of Phase 2 (EOP2) meetings with
the U.S. Food and Drug Administration (FDA) to reach an agreement on the design of Phase 3 registration trials and
long-term safety exposure for our target indications. We intend to pursue similar discussions with Canadian and
European health authorities. Other markets will be considered as appropriate.
We believe it is unlikely the FDA will require us to initiate a cardiovascular outcomes trial for our target dyslipidemia
indications. The FDA has not required the initiation or completion of cardiovascular outcomes trials for recent approvals
of certain dyslipidemia therapies, including non-statin therapies targeting LDL-C for the treatment of HoFH, HeFH and
ASCVD and triglyceride lowering for treatment of SHTG. Cardiovascular outcomes trials require evaluation of
cardiovascular clinical conditions in large patient populations over a long period of time and are both costly and
time-consuming. However, for commercial and competitive reasons, such as the potential to broaden the label claims,
we intend to review with the FDA a design for a cardiovascular outcomes trial enriched with diabetic and obese
(“diabesity”) patients which we may initiate before an NDA submission and complete post-approval.
Our company was co-founded by Dr. Charles Bisgaier, who was responsible for licensing exclusive worldwide rights to
gemcabene from Pfizer in April 2011. Prior to co-founding the original Esperion Therapeutics, Inc. (Esperion) in 1998,
which was acquired by Pfizer in 2004, Dr. Bisgaier worked at Parke-Davis, a division of Warner-Lambert Company
from 1990 to 1998, and was instrumental in the discovery and development of gemcabene, as well as the development of
Lipitor and Lopid. Many of our employees and consultants have been involved in the historical development of
7
gemcabene and other innovative dyslipidemia product candidates in development, including ETC-216, a synthetic
high-density lipoprotein mimetic based on ApoAI-Milano (developed by the original Esperion, Pfizer, and currently The
Medicines Company), ACP-501 (developed by AlphaCore Pharma, later acquired by AstraZeneca) and ETC-1002
(developed by the original Esperion, Pfizer and the current Esperion). We have organized a medical and scientific
advisory board including Drs. John Kastelein, Evan Stein, Robert Hegele, Dirk Blom, Harold Bays, Peter Toth, Jay
Horton, David Cohen, Rohit Loomba, Brian Krause, Gerald Watts, Todd Leff, and Kevin Williams, who combined have
been involved in numerous dyslipidemia, cardiovascular and NASH clinical trials (e.g., statins from their earliest trials,
fibrates, ezetimibe, cholesteryl ester transfer protein (CETP) inhibitors, extended release niacin, antisense
oligonucleotides (mipomersen), monoclonal antibodies including PCSK9 inhibitors and multiple development stage
NASH drugs) and published numerous research papers. The management team, led by our CEO Mina Sooch,
collectively has significant experience in operating and financing biopharmaceutical companies and discovering,
developing and commercializing treatments in the cardiovascular and orphan markets.
Our Strategy
Our goal is to become a leading cardiometabolic biopharmaceutical company that develops and commercializes
best-in-class therapies for lipid disorders including dyslipidemia and NASH
The core elements of our strategy to achieve our goal are the following:
(cid:120) Advance the late-stage clinical development of gemcabene across multiple target indications. We are
focused on a broad spectrum of indications for dyslipidemia patients ranging from the orphan indication
HoFH to more prevalent conditions, such as HeFH, ASCVD and SHTG. The data from our 18 Phase 1 and
Phase 2 trials and multiple preclinical studies have provided us with a comprehensive set of information
and key insights into gemcabene’s mechanism of action, lipid-lowering effects and safety profile.
Furthermore, recent approvals of cardiovascular therapies in gemcabene’s target indications, such as
biologic PCSK9 inhibitors for HoFH, HeFH and ASCVD and prescription fish oils for SHTG have
provided us with a better understanding of current FDA views on approval of new dyslipidemia drugs. As a
result, we believe that we have identified indications for gemcabene with favorable, precedent regulatory
pathways and the highest likelihood of commercial success compared to other potential indications for
gemcabene. By the end of 2017, we should read out our three late stage clinical dyslipidemia trials for
gemcabene: an 8 patient open label trial for HoFH, a 104 patient trial for hypercholesterolemia on
high-intensity statin therapy including HeFH and ASCVD patients, and a 90 patient trial for SHTG.
(cid:120) Expand the breadth of indications beyond dyslipidemia for gemcabene. We are pursuing the utility of
gemcabene in NASH and/or NAFLD given its mechanism of action that decreases the production of the
apoC-III protein and may inhibit ACC, which has been observed to result in the lowering of triglycerides in
the plasma and inhibiting de novo lipogenesis, and may reduce liver fat. We have completed pre-clinical
testing for gemcabene in an established NASH preclinical model (STAM™) designed by SMC
Laboratories of Japan. We expect to initiate our NASH trial (AZURE-1) in the second half of 2017.
(cid:120) Pursue oral combination opportunities for gemcabene. Oral combination therapy is the current
paradigm for the treatment of dyslipidemia (and expected for treatment of NASH), as patients typically
require multiple drugs to address their dyslipidemia as well as other co-morbidities such as diabesity.
Based on existing data demonstrating additive effects on LDL-C and triglyceride lowering as well as no
drug-drug interactions with statins, we believe that gemcabene has the potential to be developed as a
fixed-dose combination with low to high dose statins, which, if approved, may enhance adoption in the
market and patient compliance. As part of our development strategy, we plan to formulate and manufacture
gemcabene in fixed-dose combination with statins and other lipid-lowering agents.
(cid:120) Continue to build out our patent portfolio for gemcabene. We believe our patents and patent
applications provide us with a significant competitive advantage. As of February 20, 2017, we had 49
issued patents and 24 pending patent applications for gemcabene in the United States and internationally
directed to formulations, compositions, methods of use and methods of manufacturing. We intend to
aggressively prosecute and defend our patent portfolio and pursue new patents in order to ensure the long
term commercial success of gemcabene.
8
(cid:120) Maximize the global commercial value of gemcabene. We have retained all commercial and
manufacturing rights to gemcabene. We intend to evaluate our strategic alternatives to collaborate with
global biopharmaceutical companies for the development and commercialization of gemcabene. We
believe we could independently commercialize gemcabene for the treatment of patients with HoFH in the
United States with a targeted sales force and would seek commercial partners outside of the United States.
We may co-promote the SHTG indication with a partner with our internal sales force and distributor(s). For
larger indications, such as HeFH, ASCVD, and NASH we would assess partnership opportunities for
Phase 3 development and the worldwide commercialization of gemcabene.
(cid:120) Leverage the expertise and experience of our management team to evaluate future in-licensing and
acquisition opportunities. Across our leadership team, we have discovered and/or developed Lipitor,
Lopid, ETC-1002, ETC-216, ACP-501, CER-209, CER-001 and PNT-2258, and commercialized many
lipid regulating and orphan drugs including Crestor, Myalept and Lynparza. Our team is well-qualified to
identify and in-license or acquire clinical-stage cardio-metabolic assets, and we intend to evaluate these
opportunities to diversify our pipeline and generate long-term growth.
Overview of Dyslipidemia Market
According to the World Health Organization, cardiovascular disease is the number one cause of death in the world,
responsible for 17.5 million, or approximately one in three, deaths in 2012. Cardiovascular disease is influenced by both
environment and genetics. Environmental factors include diet, smoking, excess weight and sedentary lifestyle. Genetic
defects can cause certain types of cardiovascular disease, such as familial hypercholesterolemia, a condition in which
mutations on a gene are responsible for the elevated LDL-C levels in patients. Cardiovascular burden in the US is
expanding at an alarming rate. The prevalence of CVD was in 41.5% in 2015, due to the rising effects of obesity and the
earlier onset of type 2 diabetes. It is estimated that 45% of the US population will have at least one cardiovascular
condition by 2035.
Dyslipidemia is characterized by an elevation of LDL-C, triglycerides or both. Dyslipidemia leads to cardiovascular
disease and is generally an important predictor of cardiovascular events, including heart attack and stroke,. It is
estimated that 71 million American adults, or approximately 33%, have high LDL-C levels, which is a major risk factor
for cardiovascular disease. We estimate from 2013 data that over 33 million patients are prescribed statins, of which a
little more than half, or 19 million, are secondary prevention patients.1 Of these 19 million secondary prevention
patients, approximately 10 million are ASCVD patients who are not at their LDL-C goal. Furthermore, it is estimated
that over 30% of American adults have elevated triglycerides above 150 mg/dL, and high levels of triglycerides are even
evident in patients with normal cholesterol levels. If untreated, elevated triglycerides levels may lead to more serious
illnesses, such as atherosclerosis (plaque build-up in the arteries) and severely elevated triglyceride levels may lead to
pancreatitis (inflammation of the pancreas). The dyslipidemia market has achieved approximately $22 billion in
worldwide drug sales in 2013 and remains one of the largest therapeutic markets.
9
Global Dyslipidemia Market
2013 Worldwide Drug Sales of $22 Billion1
Fixed-dose
combo
8%
Prescription
fish oils
9%
Bile acid
sequestrants
4%
Niacin
4%
Cholesterol
absorption
inhibitor
13%
Statins
55%
Fibrates
7%
ASCVD / HeFH Approved Therapies*
Statins
Cholesterol absorption inhibitor
(ezetimibe)
Fixed-dose combo
(statins + ezetimibe)
PCSK9 inhibitors (Repatha, Praluent)
Bile acid sequestrants
HoFH Approved Therapies*
Statins
Ezetimibe
PCSK9 inhibitor (Repatha)
Juxtapid
Kynamro
LDL-apheresis
SHTG Approved Therapies*
Fibrates
Prescription fish oils
Niacin
Statins
*Adjunct to diet
1
© 2015 DR/Decision Resources, LLC. All rights reserved. Reproduction, distribution, transmission or publication is prohibited. Reprinted
with permission. DR/Decision Resources, LLC (“DR”) makes no representation or warranty as to the accuracy or completeness of the data
(“DR Material”) set forth herein and shall have, and accept, no liability of any kind, whether in contract, tort (including negligence) or
otherwise, to any third party arising from or related to use of the DR Material by Gemphire Therapeutics Inc. Any use which Gemphire
Therapeutics Inc. or a third party makes of the DR Material, or any reliance on it, or decisions to be made based on it, are the sole
responsibilities of Gemphire Therapeutics Inc. and such third party. In no way shall any data appearing in the DR Material amount to any
form of prediction of future events or circumstances and no such reliance may be inferred or implied.
Recent Developments in the Dyslipidemia Market
In 2015 there were key advisory panel meetings and regulatory approvals for non-statin LDL-C lowering drugs.
Specifically, Biologics License Applications (BLAs) for two PCSK9 inhibitors were considered by the FDA and have
subsequently been approved in the United States and Europe. We believe these approvals signal the FDA’s continued
view that LDL-C lowering is an acceptable surrogate endpoint for traditional drug approval in certain lipid indications
and that cardiovascular outcomes trials would not be required for such approvals. The FDA however noted that one
should accept very little risk from a novel LDL-C-lowering drug when approving for a broad population only based on
its effects on LDL-C. The approved PCSK9 products are described below. Their FDA-approved labels indicate that their
effects on cardiovascular morbidity and mortality have not yet been determined.
(cid:120) On August 27, 2015, Repatha®, developed by Amgen Inc. (Amgen), was approved in the United States for
use along with diet and maximally tolerated statin therapy in adults with HoFH, HeFH and ASCVD, who
need additional lowering of LDL-C.
(cid:120) On July 24, 2015, Praluent®, developed by Regeneron Pharmaceuticals, Inc. (Regeneron) and
Sanofi-Aventis U.S., LLC (Sanofi), was approved in the United States for use as adjunct to diet and
maximally tolerated statin therapy for the treatment of adults with HeFH and ASCVD, who require
additional lowering of LDL-C.
10
(cid:120) On July 21, 2015 and September 28, 2015, the European Commission approved Repatha and Praluent
respectively, each with a broader label compared to that in the United States. The approved indications in
Europe included the treatment of adults with primary hypercholesterolemia or mixed dyslipidemia as:
(1) combination therapy with maximally tolerated dose of statin or statin and other lipid-lowering drugs; or
(2) monotherapy or combination therapy with other lipid-lowering drugs in patients who are
statin-intolerant, or for whom statin is contraindicated. Repatha is also approved for the treatment of HoFH
in adults and adolescents aged 12 years and over in combination with other lipid-lowering drugs.
(cid:120) On November 1, 2016 Pfizer announced the discontinuation of the global clinical development program for
bococizumab, its investigational Proprotein Convertase Subtilisin Kexin type 9 (PCSK9) inhibitor. The
totality of clinical information now available for bococizumab, taken together with the evolving treatment
and market landscape for lipid-lowering agents, led Pfizer to discontinue the development program,
including the two ongoing SPIRE-1 and SPIRE-2 cardiovascular outcome studies.
(cid:120) On February 2, 2017 Amgen announced that the FOURIER trial evaluating whether Repatha (evolocumab)
reduces the risk of cardiovascular events in patients with clinically evident ASCVD met its primary
composite endpoint (cardiovascular death, non-fatal myocardial infarction (MI), non-fatal stroke,
hospitalization for unstable angina or coronary revascularization) and the key secondary composite
endpoint (cardiovascular death, non-fatal MI or non-fatal stroke). No new safety issues were observed.(cid:3)
At the close of 2016, the sales of PCSK9 inhibitors Repatha and Praluent have been limited post-launch as a result of
access being limited by pricing and payors.
Regulatory Precedents for Approval in Dyslipidemia Indications
Historical data suggest a linear relationship between LDL-C and cardiovascular disease, showing that lower LDL-C
levels reduces the risk of mortality and other cardiovascular events (for example, every 39 mg/dL LDL-C lowering
results in 24% cardiovascular risk reduction). The chart below by Cholesterol Treatment Trialists’ (CTT) Collaboration
provides the foundation for this ‘LDL-C hypothesis’.
11
Lowering LDL-C Decreases Cardiovascular Risk
Elevated LDL-C lowering is the #1 Modifiable Risk Factor
Sources: CTT Cholesterol Treatment Trialist’s Collaboration and Study Papers for each Trial
CV = Cardiovascular; MACE=Major Adverse Cardiovascular Events
*
A-Z p=.14 and IDEAL p=.07
Key For LDL-C Lowering Drug with Successful Trial Results: Gemfibrozil: HHS; Atorvastatin: IDEAL, TNT, PROVE-IT, ASCOT-LLA,
SPARCL; Pravastatin: ALLHAT, CARE, PROSPER, LIPID, WOSCOPS; Simvastatin: A-Z, HPS, 4S; Lovastatin: AFCAPS; Rosuvastatin:
JUPITER; Ezetimibe: IMPROVE-IT.
For nearly three decades (1987 to 2015), the FDA has accepted LDL-C lowering as a surrogate endpoint for reducing
cardiovascular risk for traditional approval on over 15 lipid-lowering drugs without requirements to initiate or complete
a cardiovascular outcomes trial. Traditional approval may be based on surrogate endpoints such as LDL-C and blood
pressure that are known to predict clinical benefit, in contrast to accelerated approval based on surrogate endpoints that
are only reasonably likely to predict clinical benefit and require confirmatory evidence of actual benefit after approval.
With traditional approval based on LDL-C reduction, the FDA does not have a regulatory mechanism to require any
further efficacy trials and does not require sponsors to conduct a post-approval cardiovascular outcomes trial. Sponsors
who have chosen to conduct cardiovascular outcomes trials before or after traditional approval, which is encouraged by
the FDA, have voluntarily done so to seek additional claims.
In approving drugs, the FDA considers the magnitude of effect in relation to the safety profile. Not only has the use of
LDL-C as a surrogate marker to predict the risk of cardiovascular events been accepted by the FDA but the importance
12
of LDL-C lowering has also been recognized by clinical organizations such as American College of Cardiology,
American Heart Association (AHA), National Cholesterol Education Program Adult Treatment Panel III (NCEP
ATP-III), American Association of Clinical Endocrinologists, and National Lipid Association.
These approvals have occurred over the last decade, as have studies showing that certain LDL-C lowering statin and
non-statin drugs did not in fact provide cardiovascular benefits (e.g., Niacin in AIM-HIGH trial) and/or show unexpected
safety concerns (e.g., ezetimibe in ENHANCE with cancer). In addition, a class of drugs known as cholesteryl ester
transfer protein inhibitors (CETPi) with a different mechanism (which increases high-density lipoprotein cholesterol
(HDL-C) while sometimes lowering LDL-C), has 3 drugs that failed to demonstrate efficacy in Phase 3 cardiovascular
outcome trials. The first CETPi drug, Pfizer’s torcetrapib, lowered LDL-C but showed increased cardiovascular event
rates in patients due to off-target effects in ILLUMINATE, which we believe established a higher FDA standard for
cardiovascular outcomes trials for the CETPi class.
In patient populations such as HoFH and SHTG, we believe the FDA recognizes that an outcomes trial would be
difficult and as a result has established precedent drug approvals over time based on surrogate endpoints (LDL-C for
cardiovascular risk and triglycerides for pancreatitis risk, respectively). Recent examples include Juxtapid (2012),
Kynamro (2013) and Repatha (2015) for HoFH and Vascepa (2012) for SHTG.
In the broader populations HeFH and ASCVD, the FDA recently approved PCSK9 inhibitors based on LDL-C as the
surrogate endpoint and did not require the completion of cardiovascular outcomes trial in these high-risk dyslipidemia
patients. The FDA approved Praluent and Repatha based on LDL-C reduction as an adjunct to maximally tolerated statin
therapy (and diet), but did not approve these drugs for monotherapy or primary patients, noting that such approval may
be premature in the absence of cardiovascular outcomes data.
Collectively, recent approvals of new cardiovascular drugs, results from clinical trials of non-statin product candidates,
and our recent regulatory guidance that we received from the FDA regarding our development plans have provided us
with some assurance that LDL-C lowering product candidates in development, such as gemcabene, will not be required
to conduct cardiovascular outcomes trials in the United States and Europe prior to approval for our target indications
planned in combination with statins assuming a favorable benefit/risk profile.
hsCRP Biomarker of Interest
Inflammation plays a significant role in the propagation of atherosclerosis and susceptibility to cardiovascular events. Of
the wide array of inflammatory biomarkers that have been studied, hsCRP (or CRP) has received the most attention for
its use in risk reclassification of cardiovascular disease. Recently, at the 2015 European Society for Cardiology meeting,
Merck presented a post-hoc analysis of the IMPROVE-IT trial which confirmed the importance of lowering both LDL-C
and hsCRP levels to below 70 mg/dL and 2 mg/L, respectively, with a 27% relative risk reduction in cardiovascular
events occurring in patients that were able to attain these target levels compared to those patients who achieved neither
of these target levels. These findings support the potential for novel non-statin therapies that can demonstrate clinical
efficacy in both LDL-C and hsCRP reduction. Gemcabene’s ability to substantially lower hsCRP in conjunction with
LDL-C may offer further benefit to the cardiovascular health of patients.
Overview of NASH Market
NASH is an advanced form of NAFLD in which a buildup of excess triglycerides in the liver (steatosis), usually in the
context of metabolic dysregulation, results in liver damage (hepatocyte ballooning) and increased inflammation. This
condition can lead to hepatic fibrosis and cirrhosis and eventually hepatocellular carcinoma (HCC) in some patients.
NASH is now one of the most common causes for liver transplantation. There are currently no approved medications for
treating NASH in any market across the globe. Disease management chiefly involves lifestyle modification, some off-
label medication use, and monitoring for disease progression. Off-label medications typically include antioxidant,
antidiabetic, and lipid modifying agents. Despite the potentially serious liver complications, the natural progression of
NASH is relatively slow, and CV disease is the leading cause of death among NASH patients, partly as a result of the
disease and partly due to the common comorbidities in patients with NASH, including type 2 diabetes and obesity.
NASH is now the second most common cause for liver transplantation in the U.S. and it is anticipated to become
the leading cause by 2020.
13
Regulatory Trends for Approval in NASH
As the NASH competitive landscape matures, the clinical and regulatory pathways are evolving. In February of 2017,
the FDA approved a significant amendment to Intercept Pharmaceuticals, Inc.’s obeticholic acid (OCA) protocol
signaling potential standards for future NASH trials: (1) only one primary endpoint is required for success – either
improvement in fibrosis or NASH resolution – but not both; and (2) the FDA agreed upon an objective definition of
NASH resolution.
(cid:3)
Our Target Indications
We believe that oral, once-daily gemcabene as an add-on to statin and other existing therapies is differentiated by the
ability to lower multiple risk factors (LDL-C, hsCRP and triglycerides) and, if approved, presents a significant
opportunity across multiple indications in dyslipidemia and NASH. These indications span from HoFH to more
prevalent conditions, such as HeFH, ASCVD, SHTG and NASH, in which therapies are required to reduce elevated
levels of LDL-C, triglycerides, inflammation or any combination thereof. Our target indications are summarized below
with a total of approximately 14 million addressable dyslipidemia patients in the United States who could be treated with
gemcabene, and another six million patients with NASH in the U.S.
Patient Related Large Markets for Dyslipidemia and NASH
Homozygous Familial Hypercholesterolemia (HoFH)
HoFH is a rare genetic disease that is usually caused by mutation in both alleles of the LDL receptor gene responsible for
removing LDL from the blood. As a result of having defective or deficient LDL receptor function, HoFH patients exhibit
severely high LDL-C levels, are at very high risk of experiencing premature cardiovascular events, such as a heart attack
or stroke, and develop premature and progressive atherosclerosis. LDL-C levels in HoFH patients are often in the range
of 500 mg/dL to 1,000 mg/dL, compared to a normal target range of 70 mg/dL to 100 mg/dL. Unless treated, most
patients with HoFH do not survive adulthood beyond 30 years of age. There are approximately 300 to 2,000 HoFH
14
patients in the United States and 6,000 to 45,000 patients in the rest of the world based on an estimated prevalence rate
of one in 160,000 to one in one million.
Current available treatments for HoFH generally include a combination of dietary intervention, statins, ezetimibe and
other approved LDL-C lowering therapies, including lipoprotein apheresis. However, even when combination therapies
are utilized, many patients still have high LDL-C levels and are still at high risk of cardiovascular disease. The FDA has
approved two non-statin therapies for HoFH, Juxtapid, marketed by Aegerion Pharmaceuticals, Inc. (Aegerion), and
Kynamro, marketed by Sanofi. Although these drugs have demonstrated efficacy, they have significant safety and
tolerability concerns, including boxed warnings for liver toxicity on the product labels. Recently, the FDA has also
approved Amgen’s PCSK9 inhibitor, Repatha, for HoFH patients, but this therapy has limitations due to its mechanism
of action reliant on functional LDL-receptors. In clinical trials, Repatha has shown substantially less LDL-C lowering
from baseline in patients with HoFH compared to LDL-C lowering in patients with other hypercholesterolemia
indications.
On February 6, 2014, gemcabene received orphan drug designation by the FDA for treatment of HoFH. We believe that
pursuing the HoFH indication may enable gemcabene to reach the market sooner than for other indications due to:
(1) approval pathway based on a single, small Phase 3 trial; (2) no requirement for cardiovascular outcomes trials; and
(3) potential for priority review by the FDA in light of the unmet medical need in this orphan population. Furthermore,
we believe that gemcabene’s potential to treat patients in the most severe segment of the dyslipidemia market on top of
statins and other lipid-lowering therapies (including ezetimibe and Repatha) will enhance brand awareness among key
thought leaders and physicians.
Heterozygous Familial Hypercholesterolemia (HeFH)
The HeFH patient population is generally comprised of individuals who have one defective gene that leads to elevated
LDL-C levels between 190 mg/dL and 500 mg/dL. These patients are prone to premature cardiovascular events. The
incidence of patients with HeFH is estimated to be one in 200 and one in 500, and, accordingly, we estimate there are
approximately 0.5 to 1.5 million patients with HeFH in the United States and 15 to 30 million in the rest of the world.
Current approved treatments for HeFH include statins, ezetimibe, bile acid sequestrants and the recently approved
injectable PCSK9 inhibitors. Despite the availability of various treatments, many patients are still unable to achieve
recommended LDL-C levels. In addition, patients, physicians and payors may prefer more convenient, cost-effective,
oral drugs.
We believe obtaining approval for the HeFH indication will enable gemcabene to reach a large market of patients with
the inability to attain their LDL-C goal using current therapies (including high-intensity statins, ezetimibe and PCSK9
inhibitors). An approval in HeFH would allow gemcabene to be introduced into another indication for very high LDL-C
levels and enable physicians globally to have another oral, once-daily, cost-effective, well-tolerated with high intensity
statins option in treating this complex patient population, while also lowering LDL-C, hsCRP, and triglycerides.
Atherosclerotic Cardiovascular Disease (ASCVD)
ASCVD represents patients who have experienced or are at risk of a cardiovascular event and are unable to meet their
LDL-C lowering goal of less than 70 mg/dL with maximally tolerated statin therapy. This population also includes many
patients who, in addition to not being able to meet their LDL-C lowering goal, have elevated triglyceride levels greater
than 150 mg/dL and less than 500 mg/dL, categorized as mixed dyslipidemia. We estimate that approximately 10 million
patients in the United States and 200 million patients in the rest of the world have a need for additional therapies to
effectively and safely bring them closer to their LDL-C and triglyceride lowering goals.
Currently approved treatments for both primary hypercholesterolemia and ASCVD include statins, ezetimibe, bile acid
sequestrants, niacin, fibrates and recently approved PCSK9 inhibitors. While these drugs have demonstrated efficacy in
lipid-lowering in this population, they do not sufficiently address the patients with mixed dyslipidemia who need to
lower both LDL-C and triglycerides.
We believe that there is a meaningful number of underserved ASCVD patients who are: (1) unable to reach LDL-C and
triglyceride goals on maximally tolerated statin therapy; (2) require LDL-C reduction beyond the 6% reduction observed
when statin dose is doubled; or (3) unable to tolerate higher doses of statins. If gemcabene is approved for this
15
indication, it may potentially offer patients, especially diabesity patients, a preferred well-tolerated combination therapy
with a statin and/or ezetimibe that is convenient, oral, once-daily, cost effective, and effective in achieving LDL-C,
hsCRP and triglyceride goals.
Severe Hypertriglyceridemia (SHTG)
Elevated triglycerides are often caused by an inherited disorder or exacerbated by uncontrolled diabetes mellitus,
obesity, hypothyroidism and sedentary habits. A recent scientific statement on “Triglycerides and Cardiovascular
Disease” issued by the American Heart Association based on a review of the pivotal role of triglycerides in lipid
metabolism, reaffirmed that triglycerides are not directly atherogenic, but represent an important biomarker of
cardiovascular disease. Patients with severe triglycerides greater than 500 mg/dL, or SHTG, have increased risk of
developing pancreatitis, a painful and potentially life-threatening inflammation of the pancreas. Based on a 1.1%
prevalence rate in the United States, as published by the American Heart Association, we estimate there are
approximately 3.5 million patients with SHTG in the United States and 75 million patients in the rest of the world.
Current available treatments for SHTG consist of dietary modifications to lower the intake of fatty foods and the use of
fibrates, prescription fish oils and niacin. These treatments are often inadequate in lowering triglyceride levels below
500 mg/dL, the level at which patients are at an increased risk for developing pancreatitis. Due to the severely elevated
triglyceride levels in this patient population, reducing triglyceride levels below 500 mg/dL may require reductions in
triglyceride levels of 40% or more. Current therapies, even in combination, are often insufficient in achieving such a
result. In addition, many of the existing treatments do not combine well with statins for treating SHTG.
We believe that pursuing SHTG may enable gemcabene to reach a large population of patients with triglyceride levels
above 500 mg/dL and offer a convenient, oral, once-daily dosing with no food effects that may have the potential to
result in better efficacy than standard of care, while being well-tolerated with statins.
Non-alcoholic Steatohepatitis (NASH)
NASH is a severe disease of the liver caused by inflammation and a buildup of fat in the organ. In the United States,
NASH affects up to approximately 2-5% of the population roughly at 6 million NASH patients. An additional 10-30% of
Americans have fat in their liver, but no inflammation or liver damage, a condition called NAFLD or “fatty liver.” The
underlying cause of NASH is unclear, but it most often occurs in persons who are middle-aged and overweight or obese.
Many patients with NASH have elevated serum lipids, diabetes or pre-diabetes. Progression of NAFLD/NASH can lead
to liver cirrhosis, fibrosis, hepatocellular carcinoma, liver failure and liver-related death. Liver transplantation is
currently the only treatment for advanced cirrhosis with liver failure.
At this time, there are no approved treatments by the FDA for NAFLD/NASH. Based on the current understanding of
pathophysiological mechanisms associated with NASH, several compounds are in clinical development, although none
have been approved to date. The Clinical Trials website lists many trials for NASH. These compounds target the
regulation of dyslipidemia (e.g. acetyl CoA carboxylase inhibitors, bile acid/fatty acid conjugates), inflammation (e.g.
combined CCR2/CCRCR5 inhibitor) and/or fibrosis (e.g. 6-ethylchenodeoxycholic acid).
Gemcabene may be effective in treating patients for NASH given its mechanism of action around inflammation and
triglycerides, especially for diabesity patients. Gemcabene will likely be used as an oral combination with statins and
other to be approved NASH drugs with complementary mechanisms.
Our Product Candidate — Gemcabene
Our product candidate, gemcabene, is a novel, once-daily, oral therapy designed to target known lipid metabolic
pathways to lower levels of LDL-C, hsCRP and triglycerides. Gemcabene shares many of the attributes of statin therapy,
including broad therapeutic applications, convenient route of administration and cost-effective manufacturing process,
but does not appear to increase the reporting of myalgia when added to statin therapy. Gemcabene has also shown
additive LDL-C lowering in combination with stable low, moderate or high-intensity statin therapy. We also plan to
develop a fixed-dose combination product of gemcabene with atorvastatin to enhance market adoption and maximize the
likelihood of commercial success.
16
We are developing multiple indications for gemcabene, ranging from HoFH, an orphan indication, to more prevalent
conditions, such as HeFH, ASCVD, SHTG and NASH. By the end of 2017, we should read out all three late stage
dyslipidemia clinical trials for gemcabene: an 8 patient trial for HoFH (COBALT-1), a 104 patient trial for
hypercholesterolemia on high-intensity statin therapy including HeFH and ASCVD patients (ROYAL-1), and a
90 patient trial for SHTG (INDIGO-1). In addition, we expect to launch our NASH clinical trial (AZURE-1) in the
second half of 2017.
We licensed global rights to gemcabene from Pfizer in April 2011. We will continue to leverage the extensive
preclinical, clinical, manufacturing and formulation work previously conducted to further advance the development of
gemcabene.
Mechanism of Action
Gemcabene has a mechanism of action that involves: (1) enhancing the clearance of VLDL; and (2) blocking the overall
production of hepatic triglyceride and cholesterol synthesis. Based on prior clinical trials, the combined effect for these
mechanisms has been observed to result in a reduction of plasma VLDL-C, LDL-C, triglycerides and hsCRP, as well as
elevation of HDL-C. Gemcabene mainly distributes to the liver where it has its effect as the active molecule.
(1)
ApoC-III protein is known to be causal in cardiovascular disease. Gemcabene enhances VLDL
clearance by decreasing apoC-III messenger RNA (mRNA) expression, thereby reducing apoC-III
protein production and plasma levels. ApoC-III is a small protein (~9 kDa) that inhibits hepatic uptake
of triglyceride-rich particles such as VLDL. VLDL lipoproteins are catabolized to VLDL remnants in
plasma. The VLDL remnants are either cleared from the plasma via remnant receptors or are further
catabolized to LDL. The reduction in apoC-III exposes apolipoprotein E (apoE), a 35 kDa protein that
is also present on the VLDL lipoproteins and VLDL remnants. ApoE is essential for the normal
catabolism of triglyceride-rich particles. This favors the enhanced clearance of the VLDL remnants via
ApoE remnant receptors and reduces the formation of LDL particles, while also breaking down
triglycerides by lipoprotein lipase to deliver more fatty acids to muscle and adipose tissue. We have
observed in preclinical studies that gemcabene significantly clears VLDL in the plasma with
corresponding reductions in the liver apoC-III mRNA levels and apoC-III plasma protein levels in rats.
In a hypertriglyceridemic human clinical trial, gemcabene was shown to significantly decrease both
apoC-III and triglycerides.
Reduction of Plasma ApoC-III and TG in Rats
Gemcabene
(30mg/kg)
Gemcabene
(100mg/kg)
)
5
=
n
(
e
s
a
B
m
o
r
f
n
o
i
t
c
u
d
e
R
t
n
e
c
r
e
P
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
-30%
-34%
-59%
-82%
Reduction of Plasma ApoC-III and TG
in Humans
TG<200mg/dL
(n=11)
TG>200mg/dL
(n=21)
TG>500mg/dL
(n=6)
-14%
-15%
n
o
i
t
c
u
d
e
R
t
n
e
c
r
e
P
0
-10
-20
-30
-40
-50
-60
-70
-31%
-39%
-49%
-60%
ApoC-III
TG
Gemcabene Effect on Plasma Triglycerides and
Apoliproteins in the Male Sprague-Dawley Rat (One-
Week Exposure)
ApoC-III
TG
(cid:42)(cid:72)(cid:80)(cid:70)(cid:68)(cid:69)(cid:72)(cid:81)(cid:72)(cid:183)(cid:86)(cid:3)(cid:11)(cid:22)(cid:19)(cid:19)(cid:80)(cid:74)(cid:18)(cid:71)(cid:68)(cid:92)(cid:12)(cid:3)(cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:79)(cid:68)(cid:86)(cid:80)(cid:68)(cid:3)(cid:36)(cid:83)(cid:82)(cid:38)(cid:16)(cid:44)(cid:44)(cid:44)
and Plasma Triglycerides
(Study 1027-004, 12 weeks)
17
(2)
Gemcabene reduces de novo lipogenesis through both hepatic cholesterol and TG synthesis, which
lowers TG-rich lipoproteins (e.g., VLDLs) and their metabolic product (LDL) in the plasma.
Gemcabene has been shown to inhibit radiolabeled acetate incorporation into TG and cholesterol in
primary rat hepatocytes in culture and in the liver of mice, supporting gemcabene’s mechanism of
action by inhibition of the synthesis of both fatty acids and cholesterol. Gemcabene may act as an
inhibitor of ACC targeting the rate-limiting enzyme in fatty acid synthesis, subsequently leading to a
decreased hepatic triglyceride production. Gemcabene, also appears to inhibit HMGCoA synthase, an
early step in the cholesterol synthesis pathway.
Gemcabene Inhibits de novo Synthesis of Both Cholesterol and Triglycerides
Inhibition of Cholesterol and Triglyceride Synthesis
from [14C]-Acetate in Primary Rat Hepatocytes
i
s
s
e
h
t
n
y
S
l
o
r
e
t
s
e
o
h
C
l
i
s
s
e
h
t
n
y
S
e
d
i
r
e
c
y
g
i
r
T
l
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
)
l
o
r
t
n
o
C
e
c
h
e
V
%
l
i
(
-100
Gemcabene
10 (cid:43)M
Gemcabene
30 (cid:43)M
Atorvastatin
1 (cid:43)M
CE 156860 3 (cid:43)M
(ACC Inhibitor)
Source: Research Report 76100065 (2013)
The diagram below depicts the novel mechanisms of gemcabene. We will continue to undertake preclinical studies to
further clarify gemcabene’s involvement in various metabolic pathways.
18
Gemcabene Novel Mechanism of Action
In addition, we believe gemcabene may result in the reduction of inflammation, inflammatory markers and triglycerides
(as a result of reduced apoC-III production) in the plasma of a patient in an inflammatory state. C-reactive Protein (CRP)
is an inflammatory marker protein. CRP levels increase in response to inflammatory states and are associated with
medical conditions such as atherosclerosis and other cardiovascular diseases, arthritis, hypertension, obesity, insulin
resistance, and fatty liver disease. CRP expression is regulated by proteins in the nucleus of cells known as nuclear
hormone receptors (NHRs). In inflammatory states, cytokines, such as interleukin-6 (IL-6) and interleukin (IL1-(cid:533)),
activate NHRs, such as C/EPB-(cid:533), C/EPB-(cid:303) and nuclear factor kappa B (NF-(cid:539)B), and lead them to bind to the CRP
promoter and increase CRP mRNA production. Based on preclinical studies, gemcabene may inhibit the interaction of
these NHRs on the CRP promoter and therefore reduce CRP mRNA production. Gemcabene has also been shown in
preclinical studies to inhibit tissue necrosis factor-(cid:302) (TNF-(cid:302)) induced expression of the inflammatory cytokine IL-6 in
human coronary artery endothelial cells and in a human hepatoma cell line. Overall, gemcabene may not only decrease
the expression of CRP, but may also decrease the expression of the inflammatory cytokine IL-6 resulting in a reduction
of inflammation. Gemcabene has been shown to reduce the level of CRP in human clinical trials, to decrease
inflammation in a mouse model of arthritis, a mouse model of NASH, and to decrease pain in a rat model of thermal
hyperalgesia.
The apoC-III promoter also contains a NF-(cid:539)B binding site, and as such, the apoC-III gene may be upregulated under a
chronic inflammatory state. Gemcabene’s ability to reduce apoC-III mRNA levels may result from gemcabene inhibiting
NF-(cid:539)B interaction with its binding site on the apoC-III promoter. We are further exploring this common transcription
factor NF-(cid:539)B as a binding site for gemcabene to reduce hsCRP and apoC-III. In contrast, Gemcabene has not been
shown to directly or strongly bind to PPARs. See “Additional Studies and Trials.”
19
Clinical Experience
Gemcabene has been assessed in 18 Phase 1 and Phase 2 clinical trials. One Phase 1 trial was not completed when the
program was previously discontinued. Across all trials, 1,289 adult subjects have participated, including healthy
volunteers and patients with various underlying conditions (see summary table below). Of the subjects, 895 have been
exposed to at least one dose of gemcabene.
We believe that gemcabene’s efficacy across the clinical and non-clinical trials support our development plan focused on
HoFH, HeFH, ASCVD, SHTG and NASH patients. In Phase 2 studies, patients treated with gemcabene were observed
to have significantly lowered LDL-C, hsCRP and triglycerides with results from the trials summarized below:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
In a four week, double-blind, multiple dose, Phase 1 trial in 50 healthy subjects (Trial 1027-003),
gemcabene monotherapy doses (450 mg, 600 mg and 900 mg) significantly lowered LDL-C from baseline
by approximately 30%.
In an eight week, double-blind, placebo-controlled, Phase 2 trial in 66 patients with elevated LDL-C on
background stable statin therapy (Trial 1027-018), both gemcabene doses (300 mg and 900 mg) in
combination with statins significantly lowered LDL-C from baseline by approximately 25% to 31%.
Additionally, gemcabene demonstrated reductions in hsCRP of up to 54%.
In an eight week, double-blind, placebo-controlled, Phase 2 trial in 277 patients with hypercholesterolemia
(Trial A4141001), gemcabene monotherapy doses (300 mg, 600 mg and 900 mg) significantly lowered
LDL-C, with the 600 mg and 900 mg doses lowering LDL-C by approximately 30%. Gemcabene
monotherapy doses (600 mg and 900 mg) also significantly lowered hsCRP by approximately 40%.
In a 12-week, double-blind, placebo-controlled, Phase 2 trial (Trial 1027-004), 94 of the 161 patients had
elevated triglycerides ((cid:149) 200 mg/dL). For those patients, gemcabene lowered triglycerides in all dose arms,
with the 300 mg dose lowering triglycerides by 40%. A post-hoc analysis of nine patients with severe
triglyceride levels ((cid:149)500 mg/dL) treated with 150 mg and 300 mg suggest gemcabene has the potential to
lower triglycerides by as much as 60%.
Gemcabene was observed to be well tolerated at single doses up to 1,500 mg and multiple doses up to 900 mg/day. This
includes 837 subjects who received multiple doses of up to 900 mg for up to 12 weeks. Safety of the subjects in these
trials was evaluated by AE monitoring, clinical laboratory assessments, electrocardiograms (ECGs), physical
examinations, and vital sign assessments. Across all trials, 10 healthy volunteers or patients reported a
treatment-emergent SAE, none of which were considered by the clinician to be related to gemcabene. No deaths
occurred in any of the trials. AEs reported were generally mild to moderate in intensity with the most common events
being headache, weakness, nausea, dizziness, upset stomach, infection and abnormal bowel movements. Gemcabene,
when compared with placebo, was not associated with an increased incidence of myalgia or liver enzyme elevations,
whether as monotherapy or in combination with statin therapy. Elevated levels of liver enzymes, specifically alanine
transaminase (ALT) and/or aspartate aminotransferase (AST), were observed in a few patients (0.23% of gemcabene
patients compared to 0.26% of placebo patients had ALT or AST levels more than three times the upper limit of normal
(ULN)) returning to baseline after cessation of treatment. Small mean increases in serum creatinine and blood urea
nitrogen (BUN) have been observed in some trials. The increase was reversible with all creatinine values returning to
baseline within approximately two weeks of cessation of gemcabene. No clinically meaningful changes were observed in
physical examinations or vital signs, including blood pressure.
In addition, gemcabene demonstrated promising clinical pharmacology attributes across 10 completed Phase 1 trials in
healthy subjects, such as once-daily dosing, no meaningful drug-drug interactions with high-intensity statins and no
observed food effect. Gemcabene can be taken with or without food. Gemcabene was observed to: (1) be rapidly
absorbed following oral administration with time of maximum concentration within two hours and (2) reach maximum
plasma concentration (Cmax) and area under the curve over 24 hours (AUC 0-24) that were dose proportional following
both single- and multiple-dose administration. Steady state concentrations were achieved within six days of repeated
dose administration. Average half-life ranged from 32 to 41 hours. Gemcabene’s primary route of elimination was renal.
In addition, no significant drug-drug interactions were observed with digoxin, a cardiovascular drug for the treatment of
atrial fibrillation, atorvastatin and simvastatin, both agents used as background therapy in patients with HoFH, HeFH and
ASCVD. Patients with SHTG and NASH often have statin therapy prescribed as well. There were no observed clinically
20
relevant effects on QTc, a measure of cardiac rhythm, and no observed clinically relevant effect on blood pressure. Renal
clearance was slightly decreased and was associated with a slight increase in serum creatinine.
Based on the results of these trials, we believe gemcabene has the potential to have a differentiated profile as an oral
once-daily, well tolerated adjunct therapy with promising evidence of efficacy in lowering of LDL-C, hsCRP and
triglycerides in patients with dyslipidemia and NASH.
Gemcabene Phase 2 Completed Clinical Trials
Gemcabene has been evaluated in seven Phase 2 trials across a diverse patient population. These trials explored safety,
tolerability and efficacy and multiple doses of gemcabene as monotherapy and in combination with low-, moderate- and
high-intensity statins. The table below summarizes our completed Phase 2 clinical trials.
Summary of Phase 2 Completed Clinical Trials with Gemcabene
Key Lipid and
Other
Endpoints
Duration
12 weeks HDL-C, TG,
LDL-C,
hsCRP, apoB,
Total
cholesterol
12 weeks Systolic BP,
Diastolic BP
Trial
Number
1027-004 . . . . .
Patient / Indication
Low HDL-C and
normal or elevated
TG (including
SHTG)
Trial Objectives
Double-blind, placebo-controlled,
randomized trial to determine the
efficacy and safety of gemcabene in
subjects with low HDL-C and either
normal or elevated triglycerides
Doses
150, 300, 600,
900 mg
# Patients
GEM=129
placebo=32
1027-012 . . . . .
Hypertension
1027-014 . . . . .
Healthy Obese
Non-diabetic
1027-015 . . . . .
Hypertension
Double-blind, placebo-controlled,
randomized trial to determine the
effect of gemcabene compared to
quinapril
Double-blind, placebo-controlled,
randomized trial to determine the
effect of gemcabene on insulin
sensitivity
Double-blind, placebo-controlled,
randomized trial to determine the
effect of gemcabene on blood
pressure
1027-018 . . . . . Hypercholesterolemia
(not at goal on stable
statin)
Double-blind, placebo-controlled,
randomized trial to determine the
efficacy and safety of gemcabene on
stable statin therapy
A4141001 . . . . Hypercholesterolemia Double-blind, placebo-controlled,
randomized trial to determine the
efficacy and safety of gemcabene as
monotherapy or in combination with
atorvastatin (after statin washout)
900 mg
(with quinapril
20 mg)
GEM=43
quinapril=18
placebo=41
900 mg
GEM=26
4 weeks
placebo=27
900 mg
GEM=23
4 weeks
Insulin
sensitivity
Systolic BP,
Diastolic BP
300, 900 mg
GEM=42
8 weeks LDL-C,
(with various low,
moderate and high
intensity statins)
placebo=24
hsCRP, apoB,
TG, HDL-C,
VLDL, Total
cholesterol
300, 600, 900 mg
GEM=208
8 weeks LDL-C,
(with 10, 40,
80 mg
atorvastatin)
atorvastatin=52
placebo=17
A4141004 . . . .
Osteoarthritis
Double blind, placebo controlled,
randomized trial to determine the
efficacy and safety of gemcabene in
patients with osteoarthritis of the
knee
150, 450, 900 mg
GEM=242
4 weeks
(with rofecoxib
25 mg)
rofecoxib=79
placebo=83
hsCRP, apoB,
TG, HDL-C,
Total
cholesterol
Pain
assessment,
CGIC, PGIC,
SODA
SODA=Sequential occupational dexterity assessment, PGIC=Patients global impression of change, CGIC=Clinical
global impression of change, GEM=gemcabene; TG=triglycerides.
21
Gemcabene Phase 2 Trial in Patients with Hypercholesterolemia on Stable Statin Therapy (Trial 1027-018)
This Phase 2 double-blind, placebo-controlled, randomized trial in patients with hypercholesterolemia was designed to
assess the efficacy and safety of gemcabene when added to stable statin therapy. A majority of the patients were on
moderate- to high-intensity statin therapy for at least three months (high (cid:167)20%, mod (cid:167)60% and low (cid:167)20%). Gemcabene
was administered at 300 mg and 900 mg once-daily for eight weeks. The primary endpoint was median percent change
from baseline in LDL-C. Other endpoints included median percent change from baseline in hsCRP, apoB, total
cholesterol, VLDL-C and triglycerides at Week 8. A total of 66 patients were randomized and 61 patients were evaluated
for efficacy. Baseline LDL-C levels were similar across the treatment arms at approximately 150 mg/dL.
Efficacy: As presented in the figure below, patients treated with gemcabene were observed to have significantly
lowered LDL-C from baseline at 300 mg and 900 mg by 25% (p=0.005) and 31% (p<0.001), respectively. Patients
treated with gemcabene were also observed to have significantly lowered hsCRP, apoB and total cholesterol. At 900 mg,
patients treated with gemcabene demonstrated significantly lowered hsCRP by 54% (p<0.001). At 300 mg and 900 mg,
patients treated with gemcabene demonstrated significantly lowered apoB by 20% (p=0.033) and 24% (p=0.003),
respectively. At 300 mg and 900 mg, patients treated with gemcabene demonstrated significantly lowered total
cholesterol by 18% (p=0.008) and 22% (p<0.001), respectively. It was further observed that all four (4) patients treated
with 900 mg gemcabene on high-intensity statins have a mean LDL-C reduction of 24%.
We believe these results support the continued development of gemcabene for the treatment HoFH, HeFH and ASCVD
indications on maximally tolerated statins. Classification of statin dose intensity is defined in the 2013 ACC guidelines.
Median Percent Change from Baseline at Week 8 in Patients with Hypercholesterolemia
on Background Stable Statin Therapy
-8%
0%
)
8
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(
C
-
L
D
L
-10%
-20%
-30%
-40%
LDL-C
hsCRP
0%
)
8
k
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M
(
P
R
C
s
h
-10%
-11%
-20%
-30%
-40%
-50%
-60%
-26%
p=0.196
-54%
p<0.001
)
8
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W
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e
P
n
a
i
d
e
M
(
B
o
p
a
-25%
p=0.005
-31%
p<0.001
apoB
0%
-4%
-20%
p=0.033
-24%
p=0.003
-10%
-20%
-30%
-40%
Placebo +
Statin
(n=22)
GEM
300 mg +
Statin
(n=18)
GEM
900 mg +
Statin
(n=21)
Placebo +
Statin
(n=21)
GEM
300 mg +
Statin
(n=18)
GEM
900 mg +
Statin
(n=20)
Placebo +
Statin
(n=22)
GEM
300 mg +
Statin
(n=17)
GEM
900 mg +
Statin
(n=20)
22
LDL-C Median Percent Change from Baseline at Week 8 in Patients with Hypercholesterolemia
on Background Stable Statin Therapy
n
Median Baseline LDL-C . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Median Week 8 LDL-C . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Median % Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
p-Value vs. Placebo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*N/A = not applicable
Placebo + Statin GEM 300 mg + Statin GEM 900 mg + Statin
21
142.5
103
(cid:237)31.0%
<0.001
18
143.5
101.5
(cid:237)24.8%
0.005
22
153.3
137
(cid:237)7.9%
N/A
Safety: Gemcabene was observed to be well tolerated. Patients taking either 300 mg or 900 mg of gemcabene were
observed to have a safety profile similar to that of placebo (300 mg: 20%; 900 mg: 23%; placebo: 29%). One patient
experienced an SAE in the gemcabene 900 mg treatment arm, which was not considered related to treatment. Three
patients (placebo: 2, gemcabene 300 mg: 1) withdrew from the trial due to an AE, all of which were considered possibly
related to treatment. AEs reported were generally mild to moderate in intensity. The most frequent AE in the placebo
arm was infection (13%). The most frequent AEs in the gemcabene treatment arms were headache (10%) and infection
(10%). There were no meaningful changes in liver enzymes ALT and AST. One patient in the 300 mg gemcabene
treatment arm had a single laboratory assessment with a rise in creatine kinase of 5 × upper limit of normal (ULN). No
clinically meaningful changes in physical examinations or vital signs from baseline to the end of the trial were observed
for any patient.
Gemcabene Phase 2 Trial in Patients with Hypercholesterolemia (Trial A4141001)
This Phase 2 double-blind, placebo-controlled, randomized trial was designed to assess the efficacy and safety of
gemcabene administered as monotherapy, atorvastatin monotherapy or gemcabene initiated simultaneously in
combination with atorvastatin in the treatment of patients with hypercholesterolemia. When applicable, patients were
washed out of statins and other lipid-lowering therapies. Gemcabene was administered as monotherapy once-daily at
300 mg, 600 mg or 900 mg or in combination with atorvastatin once-daily at 10 mg, 40 mg and 80 mg. The primary
endpoint was percent change in LDL-C from baseline at Week 8. Secondary endpoints included percent change in
hsCRP, apoB, HDL-C and triglycerides from baseline at Week 8. A total of 277 patients were randomized and 255
patients with at least one post baseline assessment were included in the efficacy analysis. Baseline LDL-C levels for the
evaluable patients after washout were similar across treatment arms at approximately 175 mg/dL.
Efficacy: As presented in the figure below, patients treated with gemcabene were observed to have significantly
lowered LDL-C by 17% (p=0.0013), 26% (p=0.0001) and 29% (p=0.0001) as monotherapy at 300 mg, 600 mg and
900 mg, respectively. The LDL-C lowering effect was seen within two weeks and was stable for the duration of the eight
week trial. It is important to note that the patients included in this trial were statin responsive (able to reach goal near or
below 100 mg/dL) at 10 mg, 40 mg and 80 mg atorvastatin monotherapy. While the trial demonstrated gemcabene
provided additional dose dependent LDL-C lowering (statistically significant at 600 mg and 900 mg when compared to
atorvastatin alone), the gemcabene treatment effect was less pronounced due to the patients already being at or below
LDL-C goal of 100 mg/dL on atorvastatin monotherapy. Patients treated with gemcabene were observed to have lowered
hsCRP by 26% (p=0.1612), 42% (p=0.0070) and 35% (p=0.0018) as monotherapy at 300 mg, 600 mg and 900 mg,
respectively.
Patients treated with gemcabene in combination with atorvastatin aggregated over the dose range were observed to have
mean LDL-C lowering of 50% (p=0.0852), 52% (p=0.0045) and 54% (p=0.0006) at 300 mg, 600 mg and 900 mg,
respectively. Patients treated with gemcabene in combination with atorvastatin aggregated over the dose range were
observed to have median hsCRP lowering of 47% (p=0.0237), 54% (p=0.0017) and 60% (p=0.0001) at 300 mg, 600 mg
and 900 mg, respectively.
We believe these results support the continued development of gemcabene for the treatment HoFH, HeFH and ASCVD
indications including mixed dyslipidemia.
23
LDL-C Mean Percent Change from Baseline in Patients with Hypercholesterolemia
(with wash-out of statins)
0
-10
-20
-30
)
n
o
i
t
c
u
d
e
R
t
n
e
c
r
e
P
n
a
e
M
(
C
-
L
D
L
-40
0
2
4
Time (Weeks)
6
8
Placebo, Baseline = 172 mg/dL (n=15)
GEM 300 mg, Baseline = 178 mg/dL (n=13)
GEM 600 mg, Baseline = 167 mg/dL (n=15)
GEM 900 mg, Baseline = 180 mg/dL (n=15)
Safety: Gemcabene was observed to be well tolerated. Patients taking any dose of gemcabene (300 mg, 600 mg or 900
mg) were observed to have a safety profile similar to that of atorvastatin monotherapy. A similar percentage of patients
experienced an associated AE between placebo (18%), atorvastatin monotherapy arms (14%) compared to gemcabene
monotherapy (18%) and gemcabene plus atorvastatin treatment arms (17%). Three patients in the gemcabene plus
atorvastatin arm experienced a SAE, none of which were considered related to treatment. 16 patients (placebo: 1,
atorvastatin monotherapy: 2, gemcabene monotherapy: 6, gemcabene plus atorvastatin: 7) withdrew from the trial due to
AEs, nine (atorvastatin monotherapy: 2, gemcabene monotherapy: 4, gemcabene plus atorvastatin: 3) of which were
considered possibly related to treatment. AEs reported were generally mild to moderate in intensity. 14 patients
(placebo: 1, atorvastatin monotherapy: 2, gemcabene monotherapy: 1, gemcabene plus atorvastatin: 10) reported an AE
considered severe in intensity, one (gemcabene plus atorvastatin: 1) of which was considered possibly related to
treatment. The most frequently occurring AEs across all treatment arms were infection (8%), pain (6%) and headache
(6%). Small mean increases in serum creatinine and BUN were observed in the gemcabene monotherapy arms. One
patient treated with 600 mg gemcabene plus atorvastatin had a clinically significant ALT elevation (>3 × ULN on two
separate occasions) that returned to near normal levels while treatment continued. No other patient had a pre-specified
clinically significant lab abnormality in ALT, AST, creatinine kinase or serum creatinine. No clinically meaningful
changes in physical examinations or vital signs from baseline to the end of the trial were observed for any patient. The
AEs experienced by more than 10% of patients in any treatment group are summarized below.
24
Adverse Events by Body System Occurring With (cid:149) 10% of Patients in
Any Treatment Group for Study A4141001
Pbo
N=17
AE
Category
All Adverse Events
Body as a whole 5 (29)
Asthenia . . 0 (0)
Back Pain . 0 (0)
Headache . 0 (0)
Infection . . 3 (18)
Pain . . . . . 0 (0)
Digestion . . . . 2 (12)
Constipation 1 (6)
Diarrhea . . 1 (6)
Dyspepsia . 0 (0)
Flatulence . 1 (6)
Nausea . . . 0 (0)
Musculoskeletal 1 (6)
Arthralgia . 0 (0)
Myalgia . . . 0 (0)
Atorvastatin Mono
10 mg
N=17
40 mg
N=18
80 mg
N=17
Gemcabene 300 mg +
Atorvastatin
10
mg
N=17
40 mg
N=18
80 mg
N=18
Mono
N=16
Gemcabene 600 mg +
Atorvastatin
Gemcabene 900 mg +
Atorvastatin
Mono
N=18
10 mg
N=18
40 mg
N=16
80 mg
N=18
Mono
N=17
10 mg
N=18
40 mg
N=16
80 mg
N=18
4 (24)
0 (0)
0 (0)
1 (6)
1 (6)
2 (12)
2 (12)
1 (6)
0 (0)
1 (6)
0 (0)
0 (0)
2 (12)
2 (12)
1 (6)
5 (28)
1 (6)
1 (6)
3 (17)
1 (6)
1 (6)
5 (28)
3 (17)
0 (0)
0 (0)
1 (6)
1 (6)
3 (17)
2 (11)
1 (6)
4 (24)
2 (11)
0 (0)
1 (6)
0 (0)
0 (0)
3 (18)
0 (0)
3 (18)
0 (0)
0 (0)
1 (6)
2 (12)
0 (0)
1 (6)
5 (31) 3 (18) 5 (28)
0 (0)
0 (0)
0 (0)
1 (6)
0 (0)
0 (0)
1 (6)
0 (0)
1 (6)
1 (6)
3 (19) 1 (6)
3 (17)
1 (6)
0 (0)
3 (31) 3 (18) 4 (22)
2 (12) 1 (6)
0 (0)
1 (6)
2 (13) 0 (0)
0 (0)
1 (6)
1 (6)
1 (6)
2 (13) 0 (0)
2 (11)
2 (13) 0 (0)
2 (11)
0 (0)
0 (0)
1 (6)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
4 (22)
0 (0)
1 (6)
0 (0)
1 (6)
1 (6)
3 (17)
1 (6)
0 (0)
1 (6)
1 (6)
2 (11)
2 (11)
0 (0)
1 (6)
7 (39)
1 (6)
1 (6)
1 (6)
3 (17)
2 (11)
4 (22)
1 (6)
1 (6)
0 (0)
1 (6)
0 (0)
0 (0)
0 (0)
0 (0)
7 (39)
2 (11)
2 (11)
2 (11)
2 (11)
1 (6)
5 (28)
1 (6)
1 (6)
1 (6)
1 (6)
1 (6)
3 (17)
1 (6)
2 (11)
4 (25)
0 (0)
0 (0)
1 (6)
0 (0)
1 (6)
3 (19)
1 (6)
1 (6)
1 (6)
0 (0)
1 (6)
3 (19)
2 (13)
1 (6)
4 (22)
1 (6)
2 (11)
1 (6)
0 (0)
0 (0)
4 (22)
1 (6)
1 (6)
2 (11)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
4 (24)
1 (6)
0 (0)
1 (6)
0 (0)
0 (0)
4 (24)
1 (6)
0 (0)
1 (6)
0 (0)
3 (18)
0 (0)
0 (0)
0 (0)
5 (28)
0 (0)
0 (0)
2 (11)
2 (11)
1 (6)
3 (17)
1 (6)
0 (0)
0 (0)
1 (6)
1 (6)
3 (17)
2 (11)
1 (6)
8 (50)
1 (6)
1 (6)
0 (0)
1 (6)
1 (6)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
0 (0)
10 (56)
0 (0)
0 (0)
1 (6)
3 (17)
2 (11)
3 (17)
0 (0)
0 (0)
0 (0)
0 (0)
2 (11)
0 (0)
0 (0)
0 (0)
AE = adverse event; Mono = monotherapy; Pbo = placebo.
Source: Report A4141001, Table 40 (Cowmeadow et al., 2003)
Gemcabene Phase 2 Trial in Patients with Elevated Triglycerides (Trial 1027-004)
This Phase 2 double-blind, placebo-controlled, randomized trial was designed to assess the efficacy and safety of
gemcabene in patients with low HDL-C and either normal or elevated triglycerides. Gemcabene was administered at
150, 300, 600 and 900 mg once-daily for 12 weeks. The objectives of this trial were to evaluate percentage change from
baseline in HDL-C, LDL-C, triglycerides and other lipids and apolipoprotein variables at Week 12. A total of 161
patients were randomized. At baseline, 67 patients were normotriglyceridemic (<200 mg/dL) and 94 patients were
hypertriglyceridemic ((cid:149)200 mg/dL). Baseline triglycerides were approximately 370 mg/dL across the treatment arms
with hypertriglyceridemia with the exception of the 600 mg treatment arm (580 mg/dL). A total of 155 patients (89
hypertriglyceridemic patients) had a post randomization assessment to be evaluated for efficacy. Baseline LDL-C levels
for the evaluable patients, regardless of the triglyceride stratum, were similar across the treatment arms at approximately
110 mg/dL.
Efficacy: As presented in the figure below, patients with triglyceride levels greater than 200 mg/dL
(hypertriglyceridemic patients), treated with gemcabene at 150 mg and 300 mg were observed to have lowered
triglycerides by 27% (p=0.002) and 39% (p<0.001), respectively compared to baseline. Although patients treated with
gemcabene at 600 mg and 900 mg were observed to have lower triglycerides, the lowering effect was not significant
when compared to placebo. Therefore, the anticipated dose for treatment of patients with elevated triglyceride levels is
150 mg or 300 mg. Notably, patients treated with gemcabene were observed to have significantly lowered LDL-C by
19% (p<0.001) and 20% (p<0.001) at 600 mg and 900 mg, respectively, compared to baseline.
A post-hoc analysis of the nine patients with severe triglyceride levels ((cid:149)500 mg/dL; baseline means of two weeks prior
and time zero was approximately 600 mg/dL) treated with 150 mg and 300 mg suggest gemcabene has the potential to
lower triglycerides by as much as 60%.
We believe these results support the continued development of gemcabene for the treatment SHTG and ASCVD patients
with mixed dyslipidemia.
25
Triglyceride Median Percent Change from Baseline at Week 12 in Patients with High to Severe
Hypertriglyceridemia
Baseline(cid:3)Triglycerides(cid:3)(cid:1096) 200(cid:3)mg/dL
()
(cid:882)5%
(cid:882)27%
(cid:882)39%
0%
(cid:882)10%
(cid:882)20%
(cid:882)30%
(cid:882)40%
(cid:882)50%
(cid:882)60%
Baseline(cid:3)Triglycerides(cid:3)(cid:1096)(cid:3)500(cid:3)mg/dL
(Severe(cid:3)Hypertriglyceridemic(cid:3)SHTG(cid:3)Patients)
(cid:882)10%
(cid:882)59%
(cid:882)60%
0%
(cid:882)10%
(cid:882)20%
(cid:882)30%
(cid:882)40%
(cid:882)50%
(cid:882)60%
(cid:3)
)
2
1
k
e
e
W
(cid:3)
(cid:3)
t
a
e
g
n
a
h
C
(cid:3)
t
n
e
c
r
e
P
n
a
d
e
M
i
(cid:3)
(cid:3)
)
2
1
k
e
e
W
(cid:3)
(cid:3)
t
a
e
g
n
a
h
C
(cid:3)
t
n
e
c
r
e
P
n
a
d
e
M
i
(cid:3)
(
(cid:3)
G
T
(cid:882)70%
Placebo
(n=18)
GEM(cid:3)150(cid:3)mg
(n=20)
GEM(cid:3)300(cid:3)mg
(n=21)
(
(cid:3)
G
T
(cid:882)70%
Placebo
(n=4)
GEM(cid:3)150(cid:3)mg
(n=3)
GEM(cid:3)300(cid:3)mg
(n=6)
Prospective(cid:3)Analysis:(cid:3)Bays(cid:3)et(cid:3)al(cid:3)2003
Post(cid:882)Hoc(cid:3)Analysis
Safety: Gemcabene was observed to be well tolerated. Patients taking any dose of gemcabene (150 mg, 300 mg, 600
mg or 900 mg) were observed to have a safety profile similar to that of placebo. Fewer patients experienced an
associated AE in the placebo arm (9%) compared to gemcabene treatment arms (17%). Three patients (placebo: 1,
gemcabene: 2) experienced SAEs, none of which were considered related to treatment. Six patients (placebo: 2,
gemcabene: 4) withdrew from the trial due to AEs, four (placebo: 1, gemcabene: 3) of which were considered possibly
related to treatment. AEs reported were generally mild to moderate in intensity. Two patients (placebo: 1, gemcabene:
1) reported an AE considered severe in intensity. The most frequent AEs in the placebo arm were infection (16%),
accidental injury (6%), back pain (6%), dyspepsia (6%), headache (6%) and sinusitis (6%). The most frequently
observed AEs in the gemcabene arms were infection (12%), headache (7%) and asthenia (5%). Two patients had ALT
values that met the definition of a clinically important laboratory abnormality (placebo: 1, 600 mg gemcabene: 1). One
patient had elevated BUN values considered clinically significant (600 mg gemcabene: 1). All of these laboratory
abnormalities were considered mild to moderate. No clinically meaningful changes in physical examinations or vital
signs from baseline to the end of the trial were observed for any patient.
Gemcabene Phase 1 Clinical Trials
Gemcabene has been evaluated in ten completed Phase 1 trials in healthy volunteers. These trials explored safety,
tolerability, pharmacokinetics, pharmacodynamics and dose response as monotherapy and in combination with
high-intensity statin doses and other drugs. The table below summarizes our completed Phase 1 trials. Select trials are
described in more detail below.
26
Summary of Phase 1 Clinical Trials of Gemcabene in Healthy Volunteers
Trial
Number
1027-001 . . . . . . . . . Single-dose trial to evaluate safety, tolerability and
Trial Objectives
pharmacokinetics (PK) of gemcabene
Doses
25, 100, 300, 600, 1,050,
1,500 mg
# Volunteers
GEM = 12
Duration
Single Dose
1027-002 . . . . . . . . . Single-dose trial to evaluate the effect of food on the PK of
450 mg
GEM = 12
Single Dose
gemcabene
1027-003 . . . . . . . . . Double blind, placebo controlled, randomized trial to evaluate
the PK and pharmacodynamics (PD) at multiple doses of
gemcabene
50, 150, 450, 750/600,
900 mg
GEM = 40
4 Weeks
placebo = 10
1027-008 . . . . . . . . . Trial to determine the potential drug-drug interactions of
900 mg
GEM = 20
15 Days
simvastatin with gemcabene
1027-009 . . . . . . . . . Trial to evaluate the bioequivalence between a capsule and
tablet formulation of gemcabene
(with 80 mg simvastatin)
300 mg
GEM = 16
Single Dose
1027-010 . . . . . . . . . Trial to evaluate the mass balance and metabolism of
600 mg
GEM = 6
Single Dose
gemcabene
1027-011 . . . . . . . . . Trial to determine the potential drug-drug interactions of
900 mg
GEM = 12
10 Days
digoxin with gemcabene
(with 0.25 mg digoxin)
A4141002 . . . . . . . . Trial to determine the potential drug-drug interactions of
300, 900 mg
GEM = 20
22 Days
atorvastatin with gemcabene
(with 80 mg atorvastatin)
A4141003 . . . . . . . . Trial to evaluate the effect of gemcabene on QT interval
A4141005 . . . . . . . . Trial to evaluate the effect of gemcabene on the glomerular
900 mg
900 mg
GEM = 20
8 Days
GEM = 12
10 Days
filtration rate
(with 3,235 mg lohexol)
Note: One trial (A4141006; 23 volunteers) was stopped prior to completion as a result of discontinuation of the
program. The trial was designed to evaluate multiple fixed-dose combinations of gemcabene with atorvastatin.
Gemcabene Phase 1 Drug-Drug Interaction Trials to Assess PK on Statins (Trials 1027-008 and A4141002)
Two open-label, multiple-dose, Phase 1 trials were conducted to assess PK of gemcabene in combination with
high-intensity statins. In Trial 1027-008, 900 mg of gemcabene was co-administered with 80 mg simvastatin in 20
healthy volunteers. In Trial A4141002, 300 mg and 900 mg of gemcabene were co-administered with 80 mg atorvastatin
in 20 healthy volunteers. In both trials, treatment with gemcabene in combination with statins was observed to be well
tolerated by volunteers. Furthermore, as presented in the figures below, the PK profiles with and without 900 mg
gemcabene were observed to be similar, suggesting no clinically relevant drug-drug interactions with either 80 mg
simvastatin or 80 mg atorvastatin.
PK Profiles of High-Intensity Statins Co-administered with Gemcabene
r
o
t
i
b
h
n
i
I
e
s
a
t
c
u
d
e
R
A
o
C
G
M
H
e
v
i
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A
-
L
m
/
s
t
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l
a
v
i
u
q
e
g
n
,
n
o
i
t
a
r
t
n
e
c
n
o
C
35
30
25
20
15
10
5
0
Trial 1027-008
Simvastatin 80 mg
Simvastatin 80 mg + GEM 900mg
Trial A4141002
Atorvastatin 80 mg
Atorvastatin 80 mg + GEM 300 mg
Atorvastatin 80 mg + GEM 900 mg
L
m
g
n
/
,
n
o
i
t
a
r
t
n
e
c
n
o
C
n
i
t
a
t
s
a
v
r
o
t
A
30
25
20
15
10
5
0
0
4
8
12
Time (Hr)
16
20
24
0
4
8
12
Time (Hr)
16
20
24
27
Gemcabene Preclinical Studies
As part of a comprehensive nonclinical toxicology program, over 30 exploratory and definitive single and repeated-dose
toxicity studies with gemcabene were conducted in mice, rats, dogs and monkeys. There are very few outstanding
nonclinical studies needed for registration such as two-year carcinogenicity studies in rodents and juvenile toxicology.
Gemcabene was well tolerated in these completed studies, including a 26-week repeat dose study in rats and monkeys
and 52-week repeat dose study in monkeys. The completed studies support conducting clinical trials up to six months.
In multiple preclinical efficacy studies, gemcabene was observed to have lowering effects on plasma LDL-C,
triglycerides and anti-inflammatory markers in diet-induced and genetic preclinical models of dyslipidemia.
In Vivo Proof of Principle Study for HoFH
In LDL-receptor deficient mice, gemcabene at 60 mg/kg/day was observed to reduce LDL-C up to 55% as monotherapy
and 72% in combination with statins. This dose in mice is equivalent to approximately a 450 mg gemcabene tablet per
day in humans. This LDL-receptor deficient animal model has been reported in literature to be fairly predictive of HoFH
therapies in practice. For example, statin lowering of approximately 20% in LDL-receptor deficient-mice model
correlates well to the approximately 15% to 20% LDL-C lowering observed in HoFH patients, and Juxtapid lowering of
approximately 50% to 80% in LDL-receptor deficient-rabbits model correlates well to the approximately 40% to 50% in
HoFH patients.
Gemcabene Preclinical HoFH Mice Model
)
n
o
i
t
c
u
d
e
R
t
n
e
c
r
e
P
(
C
-
L
D
L
0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
-80%
-22%
-55%
-72%
Atorvastatin (60)
(n=10)
GEM (60)
(n=10)
Oral Dose (mg/kg/day)
GEM (60) + Atorvastatin (60)
(n=10)
28
In Vivo Proof of Principle for Hepatic Triglyceride Reduction
Gemcabene was studied in a chow-fed Sprague-Dawley rat model to explore the effects on fat content in the liver. The
results of gemcabene 10 and 30 mg/kg/day doses in this rat model were similar to gemfibrozil. Gemcabene treatment
significantly reduced hepatic triglycerides by 74% in chow-fed Sprague-Dawley rats.
Hepatic Lipids in Male Sprague-Dawley Rats Treated with Gemfibrozil or Gemcabene
In Vivo Proof of Concept for NASH (STAM Murine Model of NASH and Hepatocellular Carcinoma)
NASH was induced in 40 male mice by a single subcutaneous injection of 200 μg streptozotocin solution 2 days after birth
and feeding with a high fat diet. Histological analyses of the liver were the key endpoints for the determination of an effect
of gemcabene in this preclinical model of NASH. NASH is defined by the presence and pattern of specific histological
abnormalities on liver biopsy. The NAFLD Activity Score (NAS) is a composite score that was developed as a tool to
measure changes in NAFLD during therapeutic trials. NAS is a composite score comprised of three components that
includes scores for steatosis, lobular inflammation and hepatocyte ballooning. NAS was defined as the unweighted sum
of the scores for steatosis, lobular inflammation and hepatocyte ballooning. Steatosis grade is quantified as the percentage
of hepatocytes that contain fat droplets. The fibrosis stage of the liver is evaluated separately from NAS by histological
evaluation of the intensity of sirius red staining of collagen in the pericentral region of liver lobules. NAS scores of 0-2
are not considered diagnostic for NASH, NAS scores of 3-4 are considered either not diagnostic, borderline or positive for
NASH, while NAS scores of 5-8 are largely considered diagnostic for NASH. A treatment effect for NASH is based on
differences in both NAS and fibrosis levels.
29
The gemcabene 30 and 300 mg/kg groups and telmisartan group (included as a positive control) showed significant
reduction in NAS compared with the Vehicle in NASH group. Since gemcabene reduced steatosis and ballooning scores,
the data suggested that gemcabene improved NASH pathology by inhibiting hepatocyte damage and ballooning cell
formation.
STAM Model NAFLD Activity Score (NAS)
p<0.001
p<0.0001
n.s.
p<0.05
p<0.0001
7
6
5
4
3
2
1
D
S
±
e
r
o
c
S
y
t
i
v
i
t
c
A
D
L
F
A
N
0
Vehicle in N orm al
G e m cabene 30 m g/kg
G e m cabene 100 m g/kg
G e m cabene 300 m g/kg
Telmisartan 10 m g/kg
Vehicle in N A S H
Sirius red-stained liver sections were evaluated to determine liver fibrosis. Liver sections from the Vehicle in NASH
group showed increased collagen deposition in the pericentral region of liver lobule compared with the Vehicle in
Normal group. All gemcabene groups showed significant decreases in fibrosis area compared with the Vehicle in NASH
group.
STAM Model Fibrosis (Sirius Red-Positive Area)
p<0.0001
p<0.01
p<0.001
p<0.001
p<0.0001
D
S
±
)
%
(
a
e
r
a
e
v
i
t
i
s
o
p
-
d
e
r
s
u
i
r
i
S
1.2
1.0
0.8
0.6
0.4
0.2
0.0
G e m cabene 300 m g/kg
G e m cabene 100 m g/kg
G e m cabene 30 m g/kg
V ehicle in N A S H
Telmisartan 10 m g/kg
V ehicle in N orm al
30
Additionally, hepatic gene expression and plasma markers indicative of inflammation (e.g., CRP and CCR2/CCR5), and
lipid modulation (e.g., ApoC-III and ACC1) were significantly reduced as were other markers. Gemcabene demonstrated
proof of concept on NAS score and fibrosis, supporting further development in the clinic.
Gemcabene Clinical Development Plan
In June and September 2015, Gemphire received FDA feedback from its Type C meetings related to the development of
gemcabene for the treatment of patients with HoFH. The FDA indicated that historically LDL-C has been accepted as a
surrogate endpoint for cardiovascular risk reduction for lipid-altering drugs to support traditional approval, including
patients with HoFH. The FDA reiterated weighing the magnitude of LDL-C reduction in light of the drug’s safety profile
(e.g., benefit/risk) when using a surrogate endpoint such as LDL-C. Our investigational new drug application (IND) was
submitted to the FDA in December 2015 and is in effect. We have also received approvals to initiate studies in the
dyslipidemic indications in Canada and Israel.
We have initiated three late stage clinical trials in 2016, and plan to initiate a late stage trial in NASH in 2017. Upon
completion of one or more of these clinical trials, we intend to request one or more EOP2 meetings with the FDA and
other foreign regulatory authorities to discuss the design and scope of the Phase 3 registration trials and long-term safety
exposure needed for registration. We would expect to launch multiple Phase 3 registration trials no later than 2018 for
our targeted indications. The development programs for our targeted indications are described below. The in-vitro drug
transport studies have been completed in accordance with FDA guidelines, and we expect to conduct a few additional
clinical pharmacology Phase 1 trials to support registration.
HoFH: COBALT Program
The clinical development program HoFH patients is expected to include one Phase 2 (GEM-201, COBALT-1) and one
Phase 3 (GEM-202, COBALT-2) registration trial.
COBALT-1 is an open-label, dose-escalation study in subjects with HoFH. Up to 8 subjects with genetically diagnosed
or meeting clinical criteria are given once daily gemcabene and sequentially titrated every four weeks. Gemcabene doses
are 300 mg, 600 mg and 900 mg. Patients are on a background of maximized tolerated stable statin therapy, with or
without ezetimibe and with or with evolocumab. The primary endpoint will be LDL-C lowering from baseline at 4, 8,
and 12 weeks, the acceptable surrogate endpoint for approval. Other endpoints will include hsCRP, apoB, non-HDL-C,
triglycerides, VLDL and total cholesterol. Safety of these patients will be assessed by AE monitoring, clinical laboratory
assessments, ECGs, physical examinations and vital sign assessments. An interim analysis on the first two genetically
diagnosed HoFH patients was performed in January 2017. The mean percent reduction in LDL-C for these two subjects
was 28%. As of March 2017, six patients have been enrolled in COBALT-1 with two additional patients being evaluated
for enrollment for a total of 6 to 8 patients, which we believe will be sufficient to support advancement into Phase 3.
Top-line results at the 600 mg target commercial dose are expected by end of June 2017.
The Phase 3 registration trial (COBALT-2) is estimated to enroll 30 to 60 patients, and will be conducted globally with
the potential for patients to continue in an open-label safety extension. It is anticipated that a single Phase 3 registration
trial is expected to be sufficient to support registration.
Hypercholesterolemia HeFH/ASCVD: ROYAL Program
The clinical development program for adult patients with hypercholesterolemia (including but not limited to HeFH and
ASCVD) with elevated LDL-C levels while on maximally tolerated high-intensity statin therapy is expected to include
one Phase 2 trial (GEM-301, ROYAL-1) followed by Phase 3 registration trials. Current precedent for this high-risk
population of patients is that reductions in LDL-C is an acceptable surrogate for registration.
ROYAL-1 is a 12 week, multicenter, double-blind, placebo-controlled, randomized trial in patients with HeFH and/or
ASCVD on stable moderate or high intensity statin therapy with or without ezetimibe. The study will include 104
subjects in two arms, gemcabene 600 mg or placebo. The primary endpoint will be LDL-C lowering from baseline at
12 weeks. Other endpoints will include hsCRP, apoB, non HDL-C, triglycerides, VLDL and total cholesterol. Safety of
these patients will be assessed by AE monitoring, clinical laboratory assessments, ECGs, physical examinations and vital
sign assessments. Enrollment initiated in November 2016 and completed in February 2017 with 105 patients, earlier than
originally expected, and we expect top-line results will now be available in the third quarter of 2017.
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After our Phase 2 trial and after EOP2 discussions with the FDA meeting and other regulatory agencies, we believe we
will be able to better define the Phase 3 registration trials and long-term safety exposure needed for registration.
SHTG: INDIGO Program
The clinical development program for adult patients with SHTG with elevated triglyceride levels is expected to include
one Phase 2 trial (GEM-401, INDIGO-1) designed to meet anticipated registration standards, followed by a single
Phase 3 registration trial.
INDIGO-1 is a 12 week, multicenter, double-blind, placebo-controlled, randomized trial in patients with severe
hypertriglyceridemia (SHTG) (TG(cid:149)500mg/dL) with or without statin therapy. The study will enroll 90 subjects into one
of three arms, gemcabene 300 mg, gemcabene 600 mg and placebo. The primary endpoint will be TG lowering from
baseline after 12 weeks. Other endpoints will include LDL-C, hsCRP, apoB, non HDL-C, VLDL and total cholesterol.
Safety of these patients will be assessed by AE monitoring, clinical laboratory assessments, ECGs, physical
examinations and vital sign assessments. We announced that pre-screening activities initiated in December 2016 and
top-line results are expected in the fourth quarter of 2017.
After completion of the Phase 2 trial and after EOP2 discussions with the FDA and other regulatory agencies, we believe
we will be able to better define the Phase 3 registration trials and long-term safety exposure needed for registration.
NASH: AZURE Program
We plan to submit an IND to initiate a Phase 2 clinical program in NASH patients. The trial design will be finalized after
review with regulatory authorities.
AZURE-1 (GEM-501) is expected to be a 16 week, multicenter, double-blind, placebo-controlled, randomized study in
patients with NASH. Adult patients with MRI-PDFF detected hepatic steatosis (liver fat content) >10% and either biopsy
proven NASH with no more than moderate fibrosis, or a magnetic resonance elastography threshold suggestive of
NASH with moderate fibrosis will be eligible for enrollment. We expect to enroll 81 subjects in the Phase 2 trial with 27
subjects randomized to one of three arms: gemcabene 300 mg, gemcabene 600 mg, or placebo. The primary endpoint
will be the change in fat content from baseline as detected by MRI-PDFF. We expect to initiate this POC study in the
second half of 2017, and we anticipate top-line results in the second half of 2018.
After completion of the Phase 2 trial and after EOP2 discussions with the FDA and other regulatory agencies, we believe
we will be able to better define the Phase 3 registration trials and long term safety exposure needed for registration.
Additional Studies and Trials
Studies in Response to Partial Clinical Hold for Compounds in PPAR Class
Peroxisome proliferation-activated receptor (PPAR) agonists are drugs which bind and turn on the many PPARs in the
nucleus. PPARs comprises three subtypes, PPAR(cid:302), PPAR(cid:534) and PPAR(cid:533) (also referred to as PPAR(cid:303)). When the PPARs
are activated by natural or pharmaceutical molecules those molecules can regulate (turn-off or turn-on) the transcription
(making the messenger RNA) of genes that regulate the storage and mobilization of lipids (fats), glucose metabolism,
and inflammatory responses. PPAR-(cid:302) and PPAR(cid:534) are the molecular targets of a number of marketed drugs to treat
metabolic syndrome including lowering triglycerides and cholesterol such as fibrate drugs and to treat diabetes mellitus
and insulin resistance such as thiazolidinedione drugs.
Beginning in 2004, the FDA began issuing partial clinical holds to all sponsors of PPARs or agents deemed to have
PPAR-like properties from preclinical studies. The FDA takes the position that preclinical data suggest PPAR agonists
are carcinogenic in rodents. In 2004, the FDA determined that gemcabene was a PPAR agonist and issued a partial
clinical hold. Our current IND is subject to the same partial clinical hold. The partial clinical hold permits clinical trials
of up to six months for gemcabene and also requires us to conduct two-year rat and mouse carcinogenicity studies before
conducting clinical trials of longer than six months. Our two-year rat and mouse carcinogenicity studies are underway
and scheduled for completion by the end of 2017 and draft reports will be issued shortly thereafter.
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We believe the apparent weak PPAR(cid:302) effects observed in rodents (for example, peroxisome proliferation and elevation
of liver weight) are likely rodent-specific phenomena, and, based on scientific publications reviewing nonclinical and
clinical experience, share little apparent relevance for human risk assessment. In a recently completed PPAR agonist
receptor binding assays we observed essentially no gemcabene binding to the mouse, rat, or human PPAR(cid:302), PPAR(cid:533), or
PPAR(cid:534) receptors, whereas reference agents for each of the receptors showed the expected binding, including the
marketed PPAR(cid:302) agents, such as fibrates, including gemfibrozil. We believe the PPAR(cid:302) responses in the rat are
secondary and perhaps related to the mobilization or formation of a naturally occurring molecule that binds to PPAR(cid:302) in
response to gemcabene administration.
Cardiovascular Outcomes Trials
We believe it is well accepted that every 1.6 mg/dL lowering of LDL-C through the cholesterol synthesis pathway
results in a 1% lowering of cardiovascular disease risk. The FDA has not required any approved therapy targeting
LDL-C lowering, including non-statin therapies, to initiate or complete a cardiovascular outcomes trial in connection
with its approval of HoFH, HeFH and ASCVD therapies. Based on recent drug approvals, we believe it is unlikely that
the FDA will require us to initiate or complete a cardiovascular outcomes trial for any of the targeted indications,
although we would plan to initiate a cardiovascular outcomes trial, for illustration in high-risk ASCVD patients with
mixed dyslipidemia, prior to NDA filing to pursue broader label indications related to cardiovascular disease risk
reduction. Notwithstanding our current expectations, the FDA could require us to initiate or complete a cardiovascular
outcomes trial as a condition to filing or approving an NDA for gemcabene.
Future In-licensing and Acquisition Opportunities
Our scientific team is well-qualified to identify, in-license or acquire, and develop additional product candidates to
diversify our pipeline and generate long-term growth. We continually evaluate and prioritize interesting product
candidates based on scientific merit, regulatory pathways, and commercial differentiation. Our focus is on
cardiometabolic product candidates.
Sales and Marketing
Given our current stage of development, we have not yet established a commercial organization or distribution
capabilities, nor have we entered into any partnership or co-promotion arrangements with an established pharmaceutical
company. To develop the appropriate commercial infrastructure to launch gemcabene in the United States, if approved,
for the narrower indications of HoFH, we may build out a specialty sales force to reach a concentrated number of
approximately 50 lipid centers and 500 lipidologists across the country. This would require additional financial and
managerial resources. We may co-promote the SHTG indication with a partner or use a contract sales force along with
our internal sales force and distributor(s). We may engage in partnering discussions with third parties from time to time.
As we further develop and seek approval as well as launch commercial sales of gemcabene outside of the United States
or for broader patient populations in the United States, including patients with HeFH, ASCVD and NASH, we may
establish partnerships with one or more pharmaceutical company collaborators, depending on, among other things, the
applicable indications, the related costs and our available resources.
Chemistry, Manufacturing and Controls (CMC)
Gemcabene is a small molecule drug candidate that can be synthesized as a single polymorph crystalline monocalcium
salt, using readily available raw materials and based on conventional chemical processes.
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely on contract
manufacturers to produce both the drug substance and drug product amounts required for our preclinical studies and
clinical trials under current good manufacturing practices (cGMP), a quality system regulating CMC activities.
Since 2015 to date, research and development performed for both drug substance and drug product resulted in a
manufacturing process utilized for the production of clinical supply for on-going clinical trials. More specifically, drug
substance and drug product process and analytical development have been completed in compliance with the FDA
guidelines for Phase 2 clinical trials, and on-going activities are directed to process and method validations for
compliance with Phase 3 clinical trials. In addition, our drug product manufacturer has sufficient analytical and process
development data to support the manufacture of tablets of various strengths. On-going stability studies for both the drug
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substance and drug product currently support more than two years of shelf life, sufficient for this stage of development.
CMC activities are also oriented towards the initiation of the production of the registration stability lots and validations
to support NDA filing and regulatory approvals necessary for the commercial stage.
Our contract manufacturers are currently producing, and will produce in the future, our bulk drug substance and drug
product for use in our preclinical studies and clinical trials on a purchase order basis, and do not have any long term
arrangements. We intend to identify and qualify our current manufacturers as well as alternative manufacturers to
provide bulk drug substance and drug product prior to the NDA submission to the FDA to ensure the regulatory support
necessary for multiple manufacturing sites in order to supply sufficient commercial quantities at the drug launch and
forward. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture
commercial quantities of our drug substances and drug product candidates, if approved for marketing by the applicable
regulatory authorities.
Pfizer License Agreement
In April 2011, we entered into a license agreement with Pfizer (the Pfizer Agreement) for a worldwide exclusive license
to certain patent rights to make, use, sell, offer for sale and import the clinical product candidate gemcabene. In
exchange for this license, we agreed to issue shares of our common stock to Pfizer representing 15% of our fully diluted
capital at the close of the first arms-length series A financing, which occurred on March 31, 2015.
We agreed to make milestone payments totaling up to $37 million upon the achievement of certain milestones, including
the first regulatory submission 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 or any product containing 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.
We have 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 expiration of the last valid claim of the licensed patent rights, including
any patent term extensions or supplemental protection certificates. The royalty rates range from the high single digits to
the low teens depending on the level of net sales. Under the Pfizer Agreement we are obligated to use commercially
reasonable efforts to develop and commercialize gemcabene.
The Pfizer Agreement will expire upon expiration of the last royalty term. Either party may terminate the Pfizer
Agreement for the other party’s uncured material breach and specified bankruptcy events. Pfizer may terminate the
Pfizer Agreement if we or any of our sublicensees challenge the validity, enforceability or ownership of the licensed
patents. Additionally, Pfizer may revoke the license if we are unable to adequately commercialize gemcabene by April
2021.
Intellectual Property
Our patent estate includes patents and/or patent applications to forms of gemcabene, methods of using gemcabene, and
methods of manufacturing gemcabene. The patent estate includes patents licensed from Pfizer and additional patents and
applications that have been filed subsequent to obtaining the license that are entirely owned by Gemphire. Charles
Bisgaier, a co-founder of Gemphire, is an inventor on nine of the pending eleven patent families. As of February 20,
2017, Gemphire’s patent estate, including patents we own or license from third parties, on a worldwide basis, included
four issued U.S. patents, eight pending U.S. patent applications, 45 issued patents in foreign jurisdictions including
Canada, France, Germany, Great Britain, Ireland, Italy, Mexico and Spain and 16 pending patent applications in foreign
jurisdictions including Australia, Canada, China, Europe, Hong Kong, Japan and Mexico. Of our worldwide patents and
pending applications, all relate to our product candidate gemcabene.
U.S. Patent number 6,861,555, which was in-licensed from Pfizer, includes claims directed to the calcium salt crystal
form of gemcabene that is used in our clinical formulations and will constitute the commercial product as well as other
crystalline forms of gemcabene. This patent is expected to expire in 2021; however, we may select this patent for patent
term extension from the U.S. Patent and Trademark Office (USPTO) if such an extension is available. Given the
expected length of the regulatory review, the expiry date of this patent may be extended to 2023, or possibly 2024.
Assuming market approval of gemcabene in 2019, data exclusivity would provide exclusivity for gemcabene out to
about 2024. Furthermore, and importantly in our case, the FDA orphan designation for HoFH may provide us seven
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years of market exclusivity for gemcabene in the United States for HoFH. This market exclusivity would provide
protection for gemcabene for treating HoFH out to about 2026. Related foreign patents, which have issued in
jurisdictions including Canada, Denmark, Finland, France, Germany, Great Britain, Ireland, Italy, the Netherlands,
Sweden, Spain, Japan, Mexico and New Zealand, are expected to expire in 2021, absent any adjustments or extensions.
U.S. Patent Number 8,557,835, which was also in-licensed from Pfizer, includes claims directed to pharmaceutical
compositions comprised of combinations of gemcabene with statins and methods of using a combination of gemcabene
and a statin for treating several conditions including hyperlipidemia. This patent is expected to expire in 2021, absent
any extension. Related foreign patents, which have issued in jurisdictions including France, Germany, Great Britain,
Ireland, Italy, Spain, Mexico, and Singapore are expected to expire in 2018, absent any adjustments or extensions.
U.S. Patent No. 8,846,761, which is owned by Gemphire, includes claims directed to methods of reducing risk of
pancreatitis for patients with TG(cid:149) 500 mg/dL with gemcabene treatment. This patent is expected to expire in 2032,
absent any extension. Foreign patents have issued in Australia, Mexico and Europe. The European patent was validated
into 21 European countries. Foreign counterpart patent applications are pending in Australia, Canada, China, Europe,
Hong Kong, Mexico and Japan, and any patents issuing from such applications are expected to expire in 2031, absent
any adjustments or extensions.
U.S. patent application number 14/370,722, which we own, is directed to methods of decreasing a patient’s risk for
developing coronary heart disease or preventing, delaying or reducing the severity of a secondary cardiovascular event
by administering gemcabene with a statin. Related patent applications are pending in foreign jurisdictions including
Australia, Canada, China, Europe, Japan and Mexico. Any patent that may issue in this family, absent any patent term
adjustment or extension, is expected to expire in 2033.
In 2015-2017, we filed, two non-provisional patent applications on methods of large scale manufacturing for making
dicarboxyalkyl ethers (US Application Number 14/942,765 and corresponding PCT application
Number PCT/US2015/060917), any patent issuing from this patent family is expected to expire in 2035. In addition, we
filed U.S. provisional patent applications of which 62/300,393, 62/314,597, 62/411,997 and 62/412,017, are pending,
and two PCT applications one for methods of treating mixed dyslipidemia using gemcabene in combination with statins
and treatment of NASH using gemcabene as a monotherapy (PCT/US2016/060837), and the other relating to fixed dose
combinations and modified release formulations of gemcabene and statins (PCT/US2016/060849). Two U.S. Patent
Applications were filed as continuations of PCT/US2016/060837. U.S. Patent Application Number 15/416,911, is
directed to methods of treating NASH by administering gemcabene as a monotherapy and U.S. Patent Application
Number 15/424,620, is directed methods for treating Mixed Dyslipidemia by administering gemcabene and a statin.
Any patent that may issue in either of these two families, absent any patent term adjustment or extension, is expected to
expire in 2037.
As background, the patent term is typically 20 years from the date of filing a non-provisional application. In the United
States, a patent’s term may be lengthened several ways. First, patent term adjustment (PTA) compensates a patentee for
administrative delays by the USPTO in granting a patent. Second, in certain instances, a patent term extension (PTE) can
be granted to recapture a portion of the term effectively lost as a result of the FDA regulatory review period, as provided
under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. This
restoration period cannot be longer than five years for approval of a drug compound, and the total patent term, including
the restoration period, must not exceed 14 years following FDA approval. Only one patent applicable to an approved
drug is eligible for the PTE and the application for the extension must be submitted prior to the expiration of the patent
and within 60 days from market approval. Independent of patent protection, in the United States, the Hatch-Waxman Act
provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval
of an NDA for a new chemical entity (NCE). Under this provision, gemcabene may be eligible for up to five years of
data and market exclusivity under the Hatch-Waxman Act, because it is considered a NCE because the FDA has not
previously approved any other drug containing the active ingredient of gemcabene. In Europe, under the Data
Exclusivity Directive, pharmaceutical companies may receive up to 11 years to market their product without risk of
competition. In Japan, under the Pharmaceuticals Act of Japan, the market authorization holder, based on the length of a
required study period reexamination, may have up to 10 years before a generic can enter the market.
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Competition
Our industry is highly competitive and subject to rapid and significant innovation and change. The market for lipid
regulating therapies is especially large and competitive. Our potential competitors include large pharmaceutical and
biopharmaceutical companies, specialty pharmaceutical and generic drug companies, academic institutions, government
agencies and research institutions. Gemcabene, if approved, will face intense competition. Key competitive factors
affecting its commercial success will include efficacy, safety, tolerability, reliability, convenience of dosing, price and
reimbursement. Although there are currently no approved therapies for NASH, the market for NASH is continuing to
evolve with many drug candidates in late stage development.
Statins are the most commonly used therapy to lower LDL-C in the dyslipidemia market. They are used by patients with
HoFH as well as HeFH and ASCVD. Branded statins include AstraZeneca’s Crestor (rosuvastatin), Merck’s Zocor
(simvastatin) and Pfizer’s Lipitor (atorvastatin) among others. Generic statins are marketed by several companies
including Apotex Inc., Mylan N.V. (Mylan), Dr. Reddy’s Laboratories Ltd. and Lupin Pharmaceuticals, Inc. (Lupin)
among others.
Non-statin based therapies are also used to lower LDL-C in dyslipidemia patients. Merck’s Zetia (ezetimibe) is a
common non-statin therapy that is often combined with statins for HoFH, HeFH and ASCVD patients. Merck’s Vytorin
and Liptruzet are fixed-dose combination therapies that combine ezetimibe with statins. Non-statin therapies are
combined with statins to improve LDL-C lowering or to offer other efficacy benefits, including Daiichi Sankyo Inc.’s
(Daiichi Sankyo) Welchol, a bile acid sequestrant and niacin. Non-statin therapies are also used to treat HoFH. These
therapies include Aegerion’s Juxtapid, a once-daily oral microsomal triglyceride transfer protein (MTP) inhibitor and
Ionis and Genzyme Corporation’s, a Sanofi Company (Genzyme), Kynamro, a once-weekly injectable apoB antisense
therapy. These agents have boxed warnings associated with liver toxicity and significant tolerability issues on their
labels. Amgen’s Repatha, an injectable PCSK9 inhibitor, was recently approved for HoFH, HeFH and ASCVD, and
Sanofi’s and Regeneron’s PCSK9 inhibitor, Praluent, was recently approved for HeFH and ASCVD.
There are multiple product candidates in late stage development for HoFH, HeFH and ASCVD. CymaBay Therapeutic’s
(CymaBay) MBX-8025 (Phase 2), Regeneron’s RGEN-1500 (Phase 2), and Madrigal’s MGL-3196 (Phase 2) are in
development for the treatment of HoFH. For hypercholesterolemia, including HeFH and ASCVD, drugs in development
include oral CETPi, Merck’s anacetrapib (Phase 3), Eli Lilly and Company’s evacetrapib (recently discontinued
Phase 3), and Amgen/Dezima’s TA-8995 (Phase 2), current Esperion’s oral product, ETC-1002 (completed Phase 2),
The Medicines Company/Alnylam Pharmaceuticals, Inc.’s (Alnylam) injectable PCSK9 inhibitor, ALN-PCSsc
(completed Phase 2), Eli Lilly’s injectable PCSK9 inhibitor, LY3015014 (Phase 2), and Pfizer’s injectable PCSK9
inhibitor bococizumab (recently discontinued Phase 3).
The market for LDL lowering therapy is both large and competitive, and the diagram below depicts the opportunity for
gemcabene in 2nd line oral therapy, especially with discontinuation of competing oral CETPi and injectable PCSK9
inhibitor.
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Competitive LDL-C Lowering Landscape
Fibrates, niacin and prescription fish oil are common therapies used to lower triglycerides in patients with severe
hypertriglyceridemia. Examples of branded fibrates include AbbVie Inc.’s (AbbVie) Tricor and Trilipix, and an example
of a branded niacin includes AbbVie’s Niaspan, an extended-release niacin. In addition, AbbVie markets combination
therapies, such as Advicor (niacin extended release and lovastatin) and Simcor (niacin extended release and simvastatin).
Prescribed generic versions of fibrates, such as gemfibrozil, are manufactured by many companies including Impax
Laboratories, Inc. (Impax), Teva Pharmaceutical Industries Ltd. (Teva), Mylan and Lupin among others. Generic
versions of niacins are manufactured by many companies including Teva, Lupin and Zydus Pharmaceuticals (USA),
Inc., among others. Commonly used prescription fish oils include GlaxoSmithKline plc’s (GlaxoSmithKline) Lovaza,
AstraZeneca’s Epanova and Amarin’s Vascepa. Drugs that are in development for SHTG include Ionis’ volanesorsen
(Phase 2).
Currently there are currently no approved therapies for NASH and older medications are written off label to treat the
disease. There are currently more than thirty assets in various stages of development for NASH. Several drug candidates
are in late stage development and may be approved for the NASH indication as soon as 2019/2020: OCALIVA
(Obeticholic Acid) (FXR Agonist) being developed by Intercept Pharmaceuticals, Inc., Elafibranor (PPAR Agonist)
being developed by Genfit SA, Selonsertib (formerly GS-4997) (ASK-1 Inhibitor) being developed by Gilead Sciences,
Inc., GS-0976 (ACC Inhibitor) being developed by Gilead Sciences, Inc., Cenicriviroc (CVC) (CCR2/CCR5 Inhibitor)
being developed by Tobira Therapeutics, Inc. (a wholly-owned subsidiary of Allergan plc), Emricasan (Caspase
Inhibitor) being developed by Conatus Pharmaceuticals Inc., Aramchol (Synthetic Fatty Acid/Bile Acid Conjugate)
being developed by Galmed, GR-MD-02 (Galectin-3 Inhibitor) being developed by Galectin Therapeutics, and MGL-
3196 (THR Agonist) being developed by Madrigal.
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Government Regulation
Government authorities at the federal, state and local level in the United States and in other countries extensively
regulate, among other things, the research, development, testing, manufacture (including any manufacturing changes),
packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring
and reporting, import and export of pharmaceutical products, such as those we are developing.
United States — FDA Regulation
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug
and Cosmetic Act (FDC Act) and other federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing,
distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products.
Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial
sanctions by the FDA, including FDA refusal to approve pending NDAs, partial or full clinical holds, warning or untitled
letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil
penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States
typically involves preclinical laboratory and animal tests, the submission of an investigational new drug application
(IND) to the FDA, which must become effective before clinical trials may commence, and adequate and well-controlled
clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought.
Satisfaction of the FDA’s pre-market approval requirements typically takes many years and the actual time required may
vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical studies include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials
to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical studies must
comply with federal regulations and requirements, including good laboratory practices, or GLP. The results of
preclinical studies are submitted to the FDA as part of an IND along with other information, including information about
product chemistry, manufacturing and controls, available clinical data, and a proposed clinical trial protocol. Long term
preclinical studies, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is
submitted.
An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises
concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case,
the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the
supervision of a qualified investigator. Clinical trials must be conducted: (1) in compliance with federal regulations;
(2) in compliance with good clinical practice (GCP), an international standard meant to protect the rights and health of
patients and to define the roles of clinical trial sponsors, administrators and monitors; as well as (3) under protocols
detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be
evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to
the FDA as part of the IND.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions
if it believes that the clinical trial is either not being conducted in accordance with FDA requirements or presents an
unacceptable risk to the clinical trial patients. The clinical trial protocol and informed consent information for patients in
clinical trials must also be submitted to an IRB, for approval. An IRB must operate in compliance with FDA regulations.
An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply
with the IRB’s requirements or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases
may overlap.
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(cid:120) Phase 1 trials: The drug is initially introduced into healthy volunteers or patients, with the target disease or
condition. The drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects
associated with increasing doses, and, if possible, early evidence of effectiveness.
(cid:120) Phase 2 trials: The drug is administered to a limited patient population to determine the effectiveness of the
drug for a particular indication, dosage tolerance, optimum dosage and to identify common adverse effects
and safety risks.
(cid:120) Phase 3 trials: If the drug demonstrates evidence of effectiveness and an acceptable safety profile in
Phase 2 trials, Phase 3 trials, including registration trials, are undertaken to obtain additional information
about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed
clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to
provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate
and well-controlled Phase 3 registration trials to demonstrate the efficacy of the drug. A single Phase 3
registration trial with other confirmatory evidence may be sufficient in rare instances where the study is a
large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a
clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a
potentially serious outcome and confirmation of the result in a second trial would be practically or ethically
impossible.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and, more
frequently, if SAEs occur. Phase 1, Phase 2 and Phase 3 trials may not be completed successfully within any specified
period, or at all.
After completion of the required clinical trials, an NDA is prepared and submitted to the FDA. FDA approval of the
NDA is required before marketing of the product may begin in the United States. The NDA must include, among other
things, the results of all preclinical studies, clinical trials and other testing, a compilation of data relating to the product’s
pharmacology, chemistry, manufacture and controls, and the proposed product labeling. The cost of preparing and
submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user
fee, currently exceeding $2,374,000 for fiscal year 2016, and the manufacturer and/or applicant under an approved NDA
are also subject to annual product and establishment user fees, currently exceeding $114,000 per product and $585,000
per establishment. These fees are typically increased annually.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based
on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the
submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals
in the review of new drug applications. Most such applications for standard review drug products are reviewed within
ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can
be applied to drugs that the FDA determines offer major advances in treatment, diagnosis, or prevention of diseases or
provide a treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs
intended to treat a serious or life-threatening disease relative to the currently approved products. The review process for
both standard and priority review may be extended by the FDA for three additional months to consider certain
late-submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety
or efficacy, to an advisory committee — typically a panel that includes clinicians and other experts — for review,
evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the
recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA,
the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will
inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless it is
compliant with cGMP, is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe
and effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete
response letter. A complete response letter generally outlines the deficiencies in the submission and may require
substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those
deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an
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approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of
information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific
indications. Even if the FDA approves a product, it may limit the approved indications for use for the product, require
that contraindications, warnings or precautions be included in the product labeling, or require that post-approval studies,
including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval. As a condition of NDA
approval, the FDA may also require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of
the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare
professionals, and elements to assure safe use. Elements to assure safe use can include, but are not limited to, special
training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring,
and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability
of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the
drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is
not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or
manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before
the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that
in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does
in reviewing NDAs.
Fast Track Designation and Accelerated Approval
The FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment
of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the
potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new product
candidate may request that the FDA designate the product candidate for a specific indication as a fast track drug
concurrent with, or after, the filing of the IND for the product candidate. The FDA must determine if the product
candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.
Under the fast track program and the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious
or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a
surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured
earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or
mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the
availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that
substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be
measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to
rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to
confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical
benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All
promotional materials for product candidates approved under accelerated regulations are subject to prior review by FDA.
In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with
the FDA, the FDA may initiate review of sections of a fast track drug’s NDA before the application is complete. This
rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the
remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing
an application does not begin until the last section of the NDA is submitted. Additionally, the fast track designation may
be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the
clinical trial process.
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Breakthrough Therapy Designation
The FDA is also required to expedite the development and review of the application for approval of drugs that are
intended to treat a serious or life-threatening disease or condition where preliminary clinical evidence indicates that the
drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.
Under the breakthrough therapy program, the sponsor of a new product candidate may request that the FDA designate
the product candidate for a specific indication as a breakthrough therapy concurrent with, or after, the filing of the IND
for the product candidate. The FDA must determine if the product candidate qualifies for breakthrough therapy
designation within 60 days of receipt of the sponsor’s request. The FDA must take certain actions, such as holding
timely meetings and providing advice, intended to expedite the development and review of an application for approval of
a breakthrough therapy. Even if a product qualifies for this program, the FDA may later decide that the product no
longer meets the conditions for qualification.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or
condition — generally a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan Drug
Designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic
identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not
convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA
applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug
designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that
indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the
same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product
with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the
same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug
designation are tax credits for certain research and a waiver of the NDA application user fee.
Pediatric Information
Under the Pediatric Research Equity Act (PREA), NDAs or supplements to NDAs must contain data to assess the safety
and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing
and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or
partial waivers for submission of data, as well as deferrals for several reasons, including a finding that the drug is ready
for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to
be collected before the pediatric studies begin. Unless otherwise required by regulation, PREA does not apply to any
drug for an indication for which orphan designation has been granted.
The Best Pharmaceuticals for Children Act (BPCA) provides NDA holders a six-month extension of any exclusivity —
patent or non-patent — for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s
determination that information relating to the use of a new drug in the pediatric population may produce health benefits
in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and
reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority
applications, with all of the benefits that designation confers.
Special Protocol Assessment
A company may reach an agreement with the FDA under the Special Protocol Assessment (SPA) process as to the
required design and size of clinical trials intended to form the primary basis of an efficacy claim. Under the FDC Act
and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited
circumstances, such as if the FDA identifies a substantial scientific issue essential to determining safety or efficacy after
the clinical trial begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the
sponsor and FDA agree to the change in writing, or if the clinical trial sponsor fails to follow the protocol that was
agreed upon with the FDA.
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Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain
clinical trial information. Information related to the product, patient population, phase of investigation, clinical trial sites
and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also
obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be
delayed until the new product or new indication being studied has been approved. Competitors may use this
publicly-available information to gain knowledge regarding the progress of development programs.
Post-Approval Requirements
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA
closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for
direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and
promotional activities involving the internet. Drugs may be marketed only for the approved indications and in
accordance with the provisions of the approved labeling.
AE reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may
require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved
product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In
addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs
after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with
the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by
the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly,
manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain
compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a
company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously
unrecognized problems are subsequently discovered.
The Hatch-Waxman Amendments
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims
cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then
published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the
Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of
approval of an abbreviated new drug application (ANDA). An ANDA provides for marketing of a drug product that has
the same active ingredient in the same strength, route of administration and dosage form as the listed drug and has been
shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants
are not required to conduct, or submit results of, preclinical studies or clinical trials to prove the safety or effectiveness
of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug,
and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the
FDA’s Orange Book. Specifically, the applicant must certify that: (1) the required patent information has not been filed;
(2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is
sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the new product. The ANDA
applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or
carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the
applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents
claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents
are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the
FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the
ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement
lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within
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45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until
the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is
favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book
for the referenced product has expired.
Exclusivity
Upon NDA approval of a drug containing a NCE, which is a drug substance that contains an active moiety that has not
been approved by the FDA in any other NDA, that moiety will receive five years of marketing exclusivity during which
the FDA cannot approve any ANDA seeking approval of a generic version of that moiety. Certain changes to a drug,
such as the addition of a new indication to the package insert, may receive a three-year period of exclusivity during
which the FDA cannot approve an ANDA for a generic drug that includes the change.
If no Paragraph IV certification is made, an ANDA may not be filed until expiry of the NCE exclusivity period,
however, if a Paragraph IV certification is filed, the ANDA may be submitted one year before the NCE exclusivity
period expires. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus,
no ANDA may be filed before the expiration of the exclusivity period.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. The allowable
patent term extension is calculated as half of the drug’s testing phase — the time between IND application and NDA
submission — and all of the review phase — the time between NDA submission and approval up to a maximum of five
years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence.
The extension may not extend the patent beyond 14 years from market approval.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An
interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim
patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must
determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim
patent extensions are not available for a drug for which an NDA has not been submitted.
Prescription Drug Marketing Act
As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to
physicians. The Prescription Drug Marketing Act (PDMA) imposes requirements and limitations upon the provision of
drug samples to physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state
licensing program meets certain federal guidelines that include minimum standards for storage, handling and record
keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.
United States — Anti-Kickback, False Claims Laws and Other Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws
have been applied to restrict certain general business and marketing practices in the pharmaceutical industry in recent
years. These laws include anti-kickback statutes, false claims statutes and other statutes pertaining to health care fraud
and abuse.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or
receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or
order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare
programs. The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation
Act (PPACA) amended the intent element of the federal Anti-Kickback Statute so that a person or entity no longer needs
to have actual knowledge of the statute or specific intent to violate it in order to be in violation. This statute has been
interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers
and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are
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drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations
may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Violations of the Anti-Kickback Statute
are punishable by penalties including imprisonment, criminal fines, civil monetary penalties, damages, disgorgement and
exclusion from participation in federal healthcare programs.
Federal false claims laws, including the civil False Claims Act, prohibit any person or entity from knowingly presenting,
or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be
made, a false statement to have a false claim paid. This includes claims made to programs where the federal government
reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it
purchases off the Federal Supply Schedule. Recently, several pharmaceutical and other healthcare companies have been
prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by
the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to
customers with the expectation that the customers would bill federal programs for the product. In addition, certain
marketing practices, including off-label promotion, may also violate false claims laws. Additionally, PPACA amended
the federal Anti-Kickback Statute such that a violation of that statute can serve as a basis for liability under the federal
civil False Claims Act. The majority of states also have statutes or regulations similar to the federal Anti-Kickback
Statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs,
or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the Civil Monetary Penalties Statute, which
prohibits the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer/payor knows or
should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular
supplier, and the healthcare fraud provisions of the Health Insurance Portability and Accountability Act of 1996
(HIPAA), which prohibits knowingly and willfully executing or attempting to execute a scheme to defraud any
healthcare benefit program or obtain by means of false or fraudulent pretenses, representations, or promises any money
or property owned by or under the control of any healthcare benefit program in connection with the delivery of or
payment for healthcare benefits, items, or services.
For example, several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among
other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to
set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the
expectation that the customers would bill federal programs for the product. In addition, certain marketing practices
undertaken by pharmaceutical companies, including off-label promotion, may violate false claims laws.
Pursuant to PPACA, the Centers for Medicare & Medicaid Services (CMS) has issued a final rule that requires
manufacturers of certain prescription drugs, devices, biologics, and medical supplies for which payment is available
under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to collect and report
information on payments or transfers of value to physicians and teaching hospitals, as well as investment interests held
by physicians and their immediate family members. The first reports were due in 2014 and must be submitted on an
annual basis. The reported data were posted by CMS in searchable form on a public website on September 30, 2014, and
will be posted on an annual basis. Failure to submit required information may result in civil monetary penalties.
In addition, several states now require prescription drug companies to report expenses relating to the marketing and
promotion of drug products and to report gifts and payments to individual physicians in these states. Other states prohibit
various other marketing-related activities. Still other states require the posting of information relating to clinical studies
and their outcomes. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies
to implement compliance programs and/or marketing codes. Several additional states are considering similar proposals.
Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws
may face civil penalties.
Other federal and state requirements include the following:
(cid:120) HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (the
HITECH Act) and its implementing regulations, which imposes obligations, including mandatory
contractual terms, on certain people and entities with respect to safeguarding the privacy, security and
transmission of individually identifiable health information; and
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(cid:120) State and foreign laws also govern the privacy and security of health information in some circumstances,
many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
United States Healthcare Reform
Current and future legislative proposals to further reform healthcare or reduce healthcare costs may result in lower
reimbursement for our products. The cost containment measures that payors and providers are instituting and the effect
of any healthcare reform initiative implemented in the future could significantly reduce our revenues from the sale of our
products.
For example, in March 2010, PPACA was signed into law. PPACA has begun to, and will likely continue to,
substantially change healthcare financing and delivery by both governmental and private insurers, and significantly
impact the pharmaceutical industry. The PPACA, among other things: established an annual, nondeductible fee on any
entity that manufactures or imports certain specified branded prescription drugs and biologic agents; revised the
methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs
under the Medicaid Drug Rebate Program are calculated; increased the minimum Medicaid rebates owed by most
manufacturers under the Medicaid Drug Rebate Program; extended the Medicaid Drug Rebate program to utilization of
prescriptions of individuals enrolled in Medicaid managed care organizations; implemented a new Medicare Part D
coverage gap discount program; expanded the entities eligible for discounts under the Public Health Services
pharmaceutical pricing program; created a new Patient Centered Outcomes Research Institute; and provided incentives
to programs that increase the federal government’s comparative effectiveness research.
In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011,
President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select
Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select
Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, triggering
the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to
providers of 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2025 unless
additional Congressional action is taken. Additionally, in January 2013, President Obama signed into law the American
Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years.
With the election of President Donald J. Trump in November and his inauguration in January 2017, we expect that
additional state and federal healthcare reform measures will be adopted in the future, including the possible repeal and
replacement of PPACA and related legislation, regulations and programs. Any new state and federal healthcare reform
measures could limit the amounts that federal and state governments will pay for healthcare products and services, which
could result in reduced demand for our products or additional pricing pressure. We are unsure of the ways in which
PPACA will continue to be challenged, repealed, amended or replaced in the months and years to come.
Review and Approval of Drug Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying
regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among
other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not
it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable
foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or
jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional
product testing and additional administrative review periods. The time required to obtain approval in other countries and
jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one
country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory
approval in one country or jurisdiction may negatively impact the regulatory process in others.
Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has
been implemented through national legislation of the member states. Under this system, an applicant must obtain
approval from the competent national authority of a European Union member state in which the clinical trial is to be
conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a
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favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with
supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the
member states and further detailed in applicable guidance documents.
To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a marketing
authorization application (MAA) either under a centralized or decentralized procedure.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is
valid for all European Union member states. The centralized procedure is compulsory for specific products, including for
medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced
therapy products and products with a new active substance indicated for the treatment of certain diseases. For products
with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for
which a centralized process is in the interest of patients, the centralized procedure may be optional.
Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the
European Medicines Agency (EMA) is responsible for conducting the initial assessment of a drug. The CHMP is also
responsible for several post-authorization and maintenance activities, such as the assessment of modifications or
extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum
timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or
oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might
be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of
public health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that
the opinion of the CHMP is given within 150 days.
The decentralized procedure is available to applicants who wish to market a product in various European Union member
states where such product has not received marketing approval in any European Union member states before. The
decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an
application performed by one member state designated by the applicant, known as the reference member state. Under
this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft
summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned
member states. The reference member state prepares a draft assessment report and drafts of the related materials within
210 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report
and related materials, each concerned member state must decide whether to approve the assessment report and related
materials.
If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to
public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the
European Commission, whose decision is binding on all member states.
Data and Market Exclusivity in the European Union
In the European Union, NCEs qualify for eight years of data exclusivity upon marketing authorization and an additional
two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union
from referencing the innovator’s data to assess a generic (abbreviated) application for eight years, after which generic
marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years.
The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten
years, the marketing authorization (MA) holder obtains an authorization for one or more new therapeutic indications
which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in
comparison with existing therapies. Even if a compound is considered to be a NCE and the sponsor is able to gain the
prescribed period of data exclusivity, another company nevertheless could also market another version of the drug if
such company can complete a full MAA with a complete database of pharmaceutical test, preclinical studies and clinical
trials and obtain marketing approval of its product.
Data and Market Exclusivity in Japan
Japan has no established system for data exclusivity or marketing exclusivity. However, the Pharmaceuticals Act of
Japan (PAA) provides for a re-examination system after drug approval. This system imposes an obligation on the MA
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holder to continue to collect clinical data after market approval during a study period. The MA holder must apply for
reexamination to the Minster of Health Labor and Welfare within three months of the expiration of the study period.
During the study and reexamination period no generic drug may be approved, effectively providing a form of market
exclusivity. The study period is determined by the drug category. The study period for an orphan drug is 10 years from
MA, the study period for an NCE is eight years from MA, and for an improvement (new indication, formulation, etc.)
the study period is four to six years from MA.
Patent Term Extension in Japan
The term of a patent that covers the approved drug may be extended for the shorter of five years, or the period during
which the patent could not be worked (exploited) due to obtaining regulatory approval. This period is calculated from the
later of the patent registration date (grant date) or the clinical trial start date to the regulatory approval date.
Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying
regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical
trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA
approval for a product, we would need to obtain the necessary approvals by the comparable regulatory authorities of
foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval
process varies from country to country and can involve additional product testing and additional administrative review
periods. The time required to obtain approval in other countries might differ from and be longer than that required to
obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or
delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain
regulatory approval. Sales of any of our product candidates, if approved, will depend, in part, on the extent to which the
costs of the products will be covered by third-party payors, including government health programs such as Medicare and
Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will
provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the
payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug
products on an approved list, or formulary, which might not include all of the approved drugs for a particular indication.
In order to secure coverage and adequate reimbursement for any product that might be approved for sale, we may need
to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of
the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Our product
candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a
drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to
provide coverage for a drug product does not assure that other payors will also provide coverage or adequate
reimbursement for the drug product. Third-party reimbursement may not be sufficient to enable us to maintain price
levels high enough to realize an appropriate return on our investment in product development.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of
drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical
products and services and examining the medical necessity and cost-effectiveness of medical products and services, in
addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective
compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if
they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The U.S. government,
state legislatures and foreign governments have shown significant interest in implementing cost containment programs to
limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and
requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and
measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments
for pharmaceuticals such as the product candidates that we are developing and could adversely affect our net revenue
and results.
47
Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products
may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of
additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies.
For example, the European Union provides options for its member states to restrict the range of drug products for which
their national health insurance systems provide reimbursement and to control the prices of medicinal products for human
use. European Union member states may approve a specific price for a drug product or may instead adopt a system of
direct or indirect controls on the profitability of the company placing the drug product on the market. Other member
states allow companies to fix their own prices for drug products, but monitor and control company profits. The
downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result,
increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border
imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no
assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable
reimbursement and pricing arrangements for any of our products.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the
government and third-party payors fail to provide coverage and adequate reimbursement. In addition, the emphasis on
managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing.
Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the
PPACA contains provisions that may reduce the profitability of drug products, including, for example, increased rebates
for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory
discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to
federal health care programs. Even if favorable coverage status and adequate reimbursement level status are obtained for
one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement
rates may be implemented in the future.
Employees
As of February 20, 2017, we had sixteen employees, all of whom are full-time, four of whom hold Ph.D. or M.D.
degrees, nine of whom were engaged in research and development activities and seven of whom were engaged in
business development, finance, information systems, facilities, human resources or administrative support. None of our
employees is represented by a labor union or subject to a collective bargaining agreement. We consider our relationship
with our employees to be good.
Corporate Information
We were formed in Michigan as Michigan Life Therapeutics, LLC (MLT) in November 2008. In October 2014, we
incorporated a new entity under the name Gemphire Therapeutics Inc. in Delaware. MLT then merged with and into
Gemphire, with Gemphire as the surviving entity. 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. Our principal
executive offices are located at 17199 N. Laurel Park Dr., Suite 401, Livonia, MI 48152, and our telephone number is
(734) 245-1700. Our corporate website address is www.gemphire.com. Information contained on or accessible through
our website is not a part of this Report, and the inclusion of our website address in this Report is an inactive textual
reference only.
ITEM 1A.
RISK FACTORS
Our business, prospects, financial condition or results of operations could be materially adversely affected by any of the
risks and uncertainties set forth below, as well as in any amendments or updates reflected in subsequent filings with the
Securities and Exchange Commission (SEC). In assessing these risks, you should also refer to other information
contained in this Report, including our financial statements and related notes.
Risks Related to the Development of Gemcabene or any Future Product Candidate
We currently depend entirely on the success of gemcabene, our only product candidate. We may never receive
marketing approval for, or successfully commercialize, gemcabene for any indication.
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We currently have only one product candidate, gemcabene, in clinical development, and our business depends on its
successful clinical development, regulatory approval and commercialization. The research, testing, manufacturing,
labeling, approval, sale, marketing and distribution of a drug product are subject to extensive regulation by the FDA and
other regulatory authorities in the United States and other countries, where regulations differ from country to country.
We are not permitted to market gemcabene in the United States until we receive approval of a new drug application
(NDA) from the FDA or in any foreign countries until we receive the requisite approval from such countries. We have
not submitted an NDA to the FDA or comparable applications to other regulatory authorities or received marketing
approval for gemcabene. Before obtaining regulatory approval for the commercial sale of gemcabene for a particular
indication, we must demonstrate through preclinical testing and clinical trials that gemcabene is safe and effective for
use in that target indication. This process can take many years and may be followed by post-marketing studies and
surveillance, which will require the expenditure of substantial resources beyond our current cash and cash equivalents.
Of the large number of drugs in development in the United States, only a small percentage of drugs successfully
complete the FDA regulatory approval process and are commercialized. Accordingly, even if we are able to complete
development of gemcabene, we cannot assure you that gemcabene will be approved or commercialized.
Obtaining approval of an NDA is an extensive, lengthy, expensive and uncertain process, and the FDA may delay, limit
or deny approval of gemcabene for many reasons, including:
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the data collected from preclinical studies and clinical trials of gemcabene may not be sufficient to support
the submission of an NDA;
(cid:120) we may not be able to demonstrate to the satisfaction of the FDA that gemcabene is safe and effective for
any indication;
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the results of clinical trials may not meet the level of statistical significance or clinical significance required
by the FDA for approval;
the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;
the FDA may not find the data from preclinical studies and clinical trials sufficient to demonstrate that
gemcabene’s clinical and other benefits outweigh its safety risks;
the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;
the FDA may not accept data generated at our clinical trial sites;
the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the
advisory committee may recommend against approval of our application or may recommend that the FDA
require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved
labeling or distribution and use restrictions;
the FDA may require development of a risk evaluation and mitigation strategy (REMS) as a condition of
approval;
the FDA may identify deficiencies in the manufacturing processes or facilities of third party manufacturers
with which we enter into agreements for clinical and commercial supplies; or
the FDA may change its approval policies or adopt new regulations.
The results of previous clinical trials may not be predictive of future results, and the results of our current and
planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.
The results from the prior preclinical studies and clinical trials for gemcabene discussed elsewhere in this report may not
necessarily be predictive of the results of future preclinical studies or clinical trials. Even if we are able to complete our
planned clinical trials of gemcabene according to our current development timeline, the results from our prior clinical
trials of gemcabene may not be replicated in these future trials. Many companies in the pharmaceutical and
biotechnology industries (including those with greater resources and experience than us) have suffered significant
49
setbacks in late-stage clinical trials after achieving positive results in early stage development, and we cannot be certain
that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings
made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously
unreported AEs. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and
many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials
nonetheless have failed to obtain FDA approval. If we fail to produce positive results in our clinical trials of gemcabene,
the development timeline and regulatory approval and commercialization prospects for gemcabene and our business and
financial prospects, would be adversely affected.
Further, gemcabene may not be approved even if it achieves its primary endpoint in Phase 3 registration trials. The FDA
or non-U.S. regulatory authorities may disagree with our trial design and our interpretation of data from preclinical
studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a
product candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that
has the potential to result in approval by the FDA or another regulatory authority. Furthermore, any of these regulatory
authorities may also approve our product candidate for fewer or more limited indications than we request or may grant
approval contingent on the performance of costly post-marketing clinical trials.
We commenced three Phase 2b clinical trials in 2016 and plan to initiate a fourth Phase 2 clinical trial in 2017. If
successful, we plan to eventually seek regulatory approvals of gemcabene initially in the United States, Canada and
Europe, and we may seek approvals in other geographies. Before obtaining regulatory approvals for the commercial sale
of any product candidate for any target indication, we must demonstrate with substantial evidence gathered in preclinical
studies and adequate and well-controlled clinical studies, and, with respect to approval in the United States, to the
satisfaction of the FDA, that the product candidate is safe and effective for use for that target indication. We cannot
assure you that the FDA or non-U.S. regulatory authorities would consider our planned clinical trials to be sufficient to
serve as the basis for approval of gemcabene for any indication. The FDA and non-U.S. regulatory authorities retain
broad discretion in evaluating the results of our clinical trials and in determining whether the results demonstrate that
gemcabene is safe and effective. If we are required to conduct clinical trials of gemcabene in addition to those we have
planned prior to approval, such as a cardiovascular outcomes trial, we will need substantial additional funds, and we
cannot assure you that the results of any such outcomes trial or other clinical trials will be sufficient for approval.
If clinical trials of gemcabene or any future product candidate fail to demonstrate safety and efficacy to the
satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of such
product candidate.
Before obtaining marketing approval from regulatory authorities for the sale of gemcabene, we must complete
preclinical development (including, but not limited to, two-year rat and mouse carcinogenicity studies), and supportive
pharmacology studies and Phase 2 and Phase 3 clinical trials to demonstrate the safety and efficacy in humans.
Preclinical development and extensive clinical trials will also be required before obtaining marketing approval from
regulatory authorities for any other product candidate we may pursue in the future. Clinical testing is expensive, difficult
to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more
clinical trials can occur at any stage of development.
We, or our future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that
could result in increased development costs, delay, limit or prevent our ability to receive marketing approval or
commercialize gemcabene or any other product candidate we may pursue in the future, including:
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regulators or institutional review boards (IRBs) may not authorize us or our investigators to commence a
clinical trial or conduct a clinical trial at a prospective trial site;
government or regulatory delays and changes in regulatory requirements, policy and guidelines may
require us to perform additional clinical trials or use substantial additional resources to obtain regulatory
approval;
(cid:120) we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical
trial protocols with prospective trial sites;
50
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clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require
us, to conduct additional clinical trials or abandon product development programs;
the number of patients required for clinical trials may be larger than we anticipate, enrollment in these
clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a
higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual
obligations to us in a timely manner, or at all;
our patients or medical investigators may be unwilling to follow our clinical trial protocols;
(cid:120) we might have to suspend or terminate clinical trials for various reasons, including a finding that the
participants are being exposed to unacceptable health risks;
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the cost of clinical trials may be greater than we anticipate;
the supply or quality of any product candidate or other materials necessary to conduct clinical trials may be
insufficient or inadequate; and
the product candidate may have undesirable side effects or other unexpected characteristics, causing us or
our investigators, regulators or IRBs to suspend or terminate the trials.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary
regulatory approvals could be delayed or prevented.
We or our future collaborators may not be able to initiate or continue clinical trials for gemcabene or any future product
candidate if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as
required by the FDA or analogous regulatory authorities outside the United States. Orphan indications, in particular,
have small populations, and it may be difficult for us to locate and enroll sufficient patients in trials for
orphan-designated indications. Patient enrollment can be affected by many factors, including:
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severity of the disease under investigation;
availability and efficacy of medications already approved for the disease under investigation;
eligibility criteria for the trial in question;
competition for eligible patients with other companies conducting clinical trials for product candidates
seeking to treat the same indication or patient population;
our payments for conducting clinical trials;
perceived risks and benefits of the product candidate under study;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
the ability to monitor patients adequately during and after treatment; and
proximity and availability of clinical trial sites for prospective patients.
Three of our Phase 2b clinical trials of gemcabene commenced in 2016 and we expect a fourth Phase 2 trial of
gemcabene will commence in 2017 and may take up to 12 months to enroll; however, we cannot assure you that our
timing and enrollment assumptions are correct given the above factors. Our inability to enroll a sufficient number of
51
patients for our clinical trials or retain sufficient enrollment through the completion of our trials would result in
significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical
trials may result in increased development costs for our product candidates and cause our stock price to decline.
We or others could discover that gemcabene or any product candidate we may pursue in the future lacks sufficient
efficacy, or that it causes undesirable side effects that were not previously identified, which could delay or prevent
regulatory approval or commercialization.
Because gemcabene has been tested in relatively small patient populations and for limited durations to date, it is possible
that our clinical trials have or will indicate an apparent positive effect of gemcabene that is greater than the actual
positive effect, if any, or that additional and unforeseen side effects may be observed as its development progresses. The
discovery that gemcabene lacks sufficient efficacy, or that it causes undesirable side effects (including side effects not
previously identified in our completed clinical trials), could cause us or regulatory authorities to interrupt, delay or
discontinue clinical trials and could result in the denial of regulatory approval by the FDA or other non-U.S. regulatory
authorities for any or all targeted indications. The most common events reported to date have been headache, weakness,
nausea, dizziness, upset stomach, infection, abnormal bowel movements, myalgia and abnormal kidney function tests.
The discovery that gemcabene or any future product candidate lacks sufficient efficacy or that it causes undesirable side
effects that were not previously identified could prevent us from commercializing such product candidate and generating
revenues from its sale. In addition, if we receive marketing approval for gemcabene and we or others later discover that
it is less effective, or identify undesirable side effects caused by gemcabene:
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regulatory authorities may withdraw their approval of the product;
(cid:120) we may be required to recall the product, change the way this product is administered, conduct additional
clinical trials or change the labeling or distribution of the product (including REMS);
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the
product;
(cid:120) we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
(cid:120) we could be sued and held liable for harm caused to patients;
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the product may be rendered less competitive and sales may decrease; or
our reputation may suffer generally both among clinicians and patients.
Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the
affected product or could substantially increase the costs and expenses of commercializing the product, which in turn
could delay or prevent us from generating significant, or any, revenues from the sale of the product.
If we fail to receive regulatory approval for any of our planned indications for gemcabene or fail to develop
additional product candidates, our commercial opportunity will be limited.
We have initially focused on the development of gemcabene for our target indications in cardiovascular diseases and
recently expanded our program to include a clinical trial to support an indication for gemcabene in NASH and/or
nonalcoholic fatty liver disease (NAFLD). However, we cannot assure you that we will be able to obtain regulatory
approval of gemcabene for any indication, or successfully commercialize gemcabene, if approved. If we do not receive
regulatory approval for, or successfully commercialize, gemcabene for one or more of our targeted or other indications,
our commercial opportunity will be limited.
We may pursue clinical development of additional product candidates, including product candidates that we acquire or
in-license. Acquiring, in-licensing, developing, obtaining regulatory approval for and commercializing additional
product candidates will require substantial additional funding and are prone to the risks of failure inherent in drug
52
product development. We cannot assure you that we will be able to successfully advance any additional product
candidates through the development process.
Even if we obtain FDA approval to market additional product candidates, we cannot assure you that any such product
candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other
commercially available alternatives. If we are unable to successfully develop and commercialize additional product
candidates, our commercial opportunity will be limited.
Changes in regulatory requirements or FDA guidance, or unanticipated events during our clinical trials, may result
in changes to clinical trial protocols or additional clinical trial requirements, such as the initiation or completion of a
cardiovascular outcomes trial, which could result in increased costs to us and could delay our development timeline.
Changes in regulatory requirements or FDA guidance, or unanticipated events during our clinical trials, may force us to
amend clinical trial protocols or the FDA may impose additional clinical trial requirements. Amendments to our clinical
trial protocols would require resubmission to the FDA and IRBs for review and approval, and may adversely impact the
cost, timing or successful completion of a clinical trial. If we experience delays completing, or if we terminate, any of
our Phase 2 or Phase 3 trials, or if we are required to conduct additional clinical trials, such as a cardiovascular outcomes
trial prior to approval, the commercial prospects for gemcabene may be harmed and our ability to generate product
revenue will be delayed.
For cardiovascular disease related indications, if the FDA requires us to conduct a cardiovascular outcomes trial sooner
than planned, we may not be able to identify and enroll the requisite number of patients in that trial. Even if we are
successful in enrolling patients in a cardiovascular outcomes trial, we may not ultimately be able to demonstrate that
lowering LDL-C levels using gemcabene provides patients with an incremental lowering of cardiovascular disease risks,
and our failure to do so may delay or prejudice our ability to obtain FDA approval for gemcabene. Although the validity
of lipid-lowering effects (including LDL-C reduction) as a surrogate endpoint for cardiovascular benefit continues to be
debated in the medical community, given historical precedent and recent FDA guidance, our current development
timeline for gemcabene does not contemplate the completion of a cardiovascular outcomes trial prior to approval. Such
trial would be costly and time-consuming and, regardless of the outcome, would adversely affect our development
timeline and financial condition.
For nonalcoholic steatohepatitis (NASH) related indications, the current guidance for approval for a therapy for NASH is
based on changes in hepatic biopsy histological scoring and fibrosis staging. Although it is not expected to change over
the near term, we cannot predict if the FDA and other global health authorities may change to an endpoint that is more
clinically based. If such an endpoint is required, such trial(s) would be costly and time-consuming and, regardless of the
outcome, would adversely affect our development timeline and financial condition.
We have not generated any revenue and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any
revenue from our development stage product candidate, gemcabene, and we do not currently have any other products or
product candidates. We do not know when, or if, we will generate any revenue. We do not expect to generate significant
revenue unless or until we obtain marketing approval of, and commercialize, gemcabene. Our ability to generate revenue
depends on a number of factors, including our ability to:
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successfully complete preclinical carcinogenicity studies to remove the partial clinical hold to allow us to
complete longer term registration trials for marketing approval of gemcabene;
obtain favorable results from and complete the clinical development of gemcabene for our planned
indications, including successful completion of our Phase 2 and Phase 3 trials for these indications;
submit an application to regulatory authorities for gemcabene and receive marketing approval in the United
States and foreign countries;
contract for the manufacture of commercial quantities of gemcabene, if approved, at acceptable cost levels;
53
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establish sales and marketing capabilities to effectively market and sell gemcabene, if approved, in the
United States and the European Union, alone or with a pharmaceutical partner; and
achieve market acceptance of gemcabene in the medical community and with third-party payors.
Even if gemcabene is approved for commercial sale in one or all of the initial indications that we are pursuing, it may not
gain market acceptance or achieve commercial success. In addition, we anticipate incurring significant costs associated
with commercializing gemcabene. Moreover, some of the indications we are targeting are small enough to be eligible for
orphan drug designation, and our potential patient market is relatively smaller than other drugs, and therefore the price of
gemcabene may need to be higher than other drugs. We may not achieve profitability soon after generating product
revenue, if ever, and may be unable to continue operations without continued funding.
We depend on intellectual property licensed from Pfizer for gemcabene, and the termination of this license would
harm our business.
Pfizer has granted us a worldwide exclusive license to make, use, sell, offer for sale and import the clinical product
candidate gemcabene, along with certain intellectual property for the purposes of development and commercialization of
gemcabene. We or Pfizer may terminate this license in the event of a material breach that remains uncured for 30 days
from the date that the breaching party is provided with notice of such breach, provided that if such breach is capable of
being cured, the cure period may be extended up to an additional 60 days, or immediately upon certain insolvency events
relating to the other party. Pfizer may immediately terminate this license in the event that we, or any of our affiliates,
consent, challenge, support or assist 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 this license. Furthermore, upon termination of the
license agreement for cause by Pfizer, we must grant Pfizer a non-exclusive license to use any intellectual property rights
arising from the development or commercialization of gemcabene. Additionally, Pfizer may revoke the license if we are
unable to adequately commercialize gemcabene by April 2021.
Disputes may arise between us and Pfizer regarding intellectual property subject to this license agreement, including
with respect to:
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the scope of rights granted under the license agreement and other interpretation-related issues;
(cid:120) whether and the extent to which our technology and processes infringe on intellectual property of Pfizer
that is not subject to the licensing agreement;
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the amount and timing of milestone and royalty payments;
the rights of Pfizer under the license agreement;
our right to sublicense patent and other rights to third parties under collaborative development
relationships; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by Pfizer and us and our partners.
Any disputes with Pfizer may prevent or impair our ability to maintain our current licensing arrangement. We depend on
the intellectual property and the historical preclinical and clinical data package licensed from Pfizer to develop and
commercialize gemcabene. Termination of our license agreement could result in the loss of significant rights and would
harm our ability to further develop and commercialize gemcabene. In addition, Pfizer has a non-exclusive, sub
licensable, royalty-free right and license for non-commercial research or development purposes to intellectual property
rights relating to gemcabene that are developed by us after the effective date of the license with Pfizer.
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The development of gemcabene or pursuit of any future product candidate for broad patient populations will be more
costly and commercial pricing for any approved indication would likely be lower.
We are initially pursuing development of gemcabene for the treatment of patients with HoFH, HeFH, ASCVD and
SHTG. We also plan to pursue development of gemcabene for the treatment of NASH and/or NAFLD. Expanding our
development and commercialization of gemcabene or any future product candidate in these or other broader patient
populations would be more costly and take longer to complete and would be subject to development and
commercialization risks that may not be applicable to HoFH orphan indication.
Specifically, this may involve clinical trials with larger numbers of patients possibly taking the drug for longer periods of
time. In addition, we believe that the FDA and, in some cases, the European Medicines Agency (EMA) may require a
clinical outcomes trial demonstrating a reduction in cardiovascular events either prior to or after the submission of an
application for marketing approval for the broader LDL-C indications. Clinical outcomes trials are particularly expensive
and time consuming to conduct because of the larger number of patients required to establish that the drug being tested
has the desired effect. It may also be more difficult for us to demonstrate the desired outcomes in these trials than to
achieve validated surrogate endpoints. In addition, in considering approval of gemcabene for broader patient populations
with less severely elevated lipid levels, the FDA and other regulatory authorities may place greater emphasis on the side
effect and risk profile of the drug in comparison to the drug’s efficacy and potential clinical benefit than in smaller, more
severely afflicted patient populations. These factors may make it more difficult for us to achieve marketing approvals of
gemcabene for these broader patient populations.
Moreover, if we pursue and are able to successfully develop and obtain marketing approval of gemcabene and any future
product candidate in broader patient populations, we likely will not be able to obtain the same pricing level that we
expect to obtain for orphan indications. The pricing of some drugs intended for orphan populations is often related to the
size of the patient population, with smaller patient populations often justifying higher prices. If the pricing is lower in
broader patient populations, we may not be able to maintain higher pricing in the population of more severely afflicted
patients. This would lead to a decrease in revenue from sales to more severely afflicted patients and could make it more
difficult for us to achieve or maintain profitability.
We do not have drug research or discovery capabilities and will need to acquire or license product candidates from
third parties to expand our product candidate pipeline.
We currently have no drug research or discovery capabilities. Accordingly, if we are to expand our product candidate
pipeline beyond gemcabene, we will need to acquire or license product candidates from third parties. We will face
significant competition in seeking to acquire or license promising product candidates. Many of our competitors for such
promising product candidates may have significantly greater financial resources and more extensive experience in
preclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical
products, and thus, may be a more attractive option to a potential licensor than us. If we are unable to acquire or license
additional promising product candidates, we will not be able to expand our product candidate pipeline.
If we are able to acquire or license other product candidates, such license agreements will likely impose various
obligations upon us, and our licensors may have the right to terminate the license thereunder in the event of a material
breach or, in some cases, at will. A termination of future licenses could result in our loss of the right to use the licensed
intellectual property, which could adversely affect our ability to develop and commercialize a future product candidate,
if approved, as well as harm our competitive business position and our business prospects.
We may expend our limited resources to pursue a particular indication and fail to capitalize on indications that may
be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we are currently focusing only on development programs
that we identify for specific indications for gemcabene. As a result, we may forego or delay pursuit of opportunities for
other indications, or with other potential product candidates that later prove to have greater commercial potential. Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future research and development programs for specific indications or future
product candidates may not yield any commercially viable product. If we do not accurately evaluate the commercial
potential or target market for gemcabene, we may not gain approval or achieve market acceptance of that candidate, and
our business and financial results will be harmed.
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Risks Related to Our Financial Position and Need for Additional Capital
We have incurred only losses since inception. We expect to incur losses for the foreseeable future and may never
achieve or maintain profitability.
Since inception, we have incurred only operating losses. Our net losses were $14.6 million, $9.0 million and $0.3 million
for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had an accumulated
deficit of $27.1 million. We have financed our operations primarily through the issuance of common stock in our initial
public offering (IPO), a private placement of our preferred stock and the issuance of convertible debt securities. We have
devoted substantially all of our financial resources and efforts on research and development, including clinical
development of gemcabene. We expect that it will be a number of years, if ever, before we have a product candidate
ready for commercialization. We expect to continue to incur significant expenses and increased operating losses for the
foreseeable future.
To become and remain profitable, we must develop and eventually commercialize a product with market potential. This
will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical
trials, obtaining regulatory approval for a product candidate, manufacturing, marketing and selling any drug for which
we may obtain regulatory approval and satisfying any post-marketing requirements. We are in the early stages of most of
these activities. We may never succeed in these activities and, even if we do, we may never generate revenues that are
significant or large enough to achieve profitability.
If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our
failure to become and remain profitable would decrease the value of the company and could impair our ability to raise
capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the
value of our company could also cause you to lose all or part of your investment.
We will need substantial additional capital in the future. If additional capital is not available, we will have to delay,
reduce or cease operations.
Although we believe that cash on hand will be sufficient to fund our operations into at least late 2018, we will need to
raise additional capital to continue to fund the further development of gemcabene and our operations. Our future capital
requirements may be substantial and will depend on many factors including:
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the scope, size, rate of progress, results and costs of researching and developing gemcabene and initiating
and completing our preclinical studies and clinical trials;
the cost, timing and outcome of our efforts to obtain marketing approval for gemcabene in the United
States and other countries, including to fund the preparation and filing of an NDA with the FDA for
gemcabene and to satisfy related FDA requirements and regulatory requirements in other countries;
the number and characteristics of any additional product candidates we develop or acquire, if any;
our ability to establish and maintain collaborations on favorable terms, if at all;
the timing and amount of milestone and royalty payments;
the amount of revenue, if any, from commercial sales, should any product candidate receive marketing
approval;
the costs associated with commercializing gemcabene or any future product candidates, if we receive
marketing approval, including the cost and timing of developing sales and marketing capabilities or
entering into strategic collaborations to market and sell gemcabene or any future product candidates;
the cost of manufacturing gemcabene or any future product candidates and any product we successfully
commercialize; and
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the costs associated with general corporate activities, such as the cost of filing, prosecuting and enforcing
patent claims and making regulatory filings.
Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. Because the
outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to
successfully complete the development, regulatory approval and commercialization of gemcabene and any future
product candidates. Additional financing may not be available when we need it or may not be available on terms that are
favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic
considerations, even if we believe we have sufficient funds for our current or future operating plans. If adequate funds
are unavailable to us on a timely basis, or at all, we may not be able to continue the development of gemcabene or any
future product candidate, or commercialize gemcabene or any future product candidate, if approved, unless we find a
strategic partner.
Raising additional capital may cause dilution to our stockholders and restrict our operations or require us to
relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a
combination of equity and debt financings as well as potential strategic collaborations and licensing arrangements. We
do not have any committed external source of funds.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership
interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely
affect your rights as a common stockholder. Debt financing or 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 capital expenditures or declaring dividends.
If we raise funds through strategic collaborations 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 product
candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when
needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market
ourselves. This may reduce the value of our common stock.
In the past, we issued options to acquire common stock at prices significantly below the initial public offering price.
Pursuant to our A&R 2015 Plan, our management is authorized to grant stock options to our employees, directors and
consultants. The aggregate number of shares of our common stock remaining available for issuance under the A&R 2015
Plan is 2 355,200 shares at December 31, 2016. The number of shares of our common stock reserved for issuance under
the A&R 2015 Plan will automatically increase on January 1 of each year, continuing through and including January 1,
2026, to an amount equal to 20% of the fully-diluted shares as of December 31 of the preceding calendar year, or a lesser
number of shares determined by our board of directors.
In September 2016 our board of directors approved the Inducement Plan. We initially reserved 300,000 shares of
common stock to be used exclusively for grants of awards to individuals who were not previously our employees or
directors, as an inducement material to the individual’s entry into employment with us within the meaning of
Rule 5635(c)(4) of the NASDAQ Listing Rules. The Inducement Plan was approved by our board of directors without
stockholder approval pursuant to Rule 5635(c)(4), and the terms and conditions of the Inducement Plan are substantially
similar to our stockholder-approved A&R 2015 Plan. At December 31, 2016, 102,000 shares remained available for
issuance under the Inducement Plan.
To the extent these outstanding options are ultimately exercised or the number of shares available for future grant under
our equity incentive plans each year are increased, investors will sustain further dilution.
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Risks Related to Government Regulation
Gemcabene is subject to a partial clinical hold with respect to clinical trials of longer than six months in duration
until ongoing preclinical toxicology studies are complete, which may lead to a significant delay in the commencement
of long term clinical trials by us or the failure of gemcabene to obtain marketing approval.
In 2004, the FDA determined that gemcabene was a potential peroxisome proliferator-activated receptor (PPAR)
agonist. As a result, the FDA imposed a partial clinical hold, which restricts us from conducting clinical trials for
gemcabene beyond six months in duration, and requires us to conduct two-year rat and mouse carcinogenicity studies
before conducting trials of longer than six months. The FDA has issued these notices to all sponsors of product
candidates with PPAR properties based on preclinical studies. We plan to complete our two-year rat and mouse
carcinogenicity studies by the end of 2017, with draft reports issued soon after. Clinical trials may be delayed due to
these clinical restrictions and additional oversight by the FDA. For example, if the results of the two-year rat and mouse
carcinogenicity studies do not address FDA concerns related to the partial clinical hold, our Phase 3 long term safety
exposure registration trials of longer than six months could be delayed. Also, the findings in the carcinogenicity studies
could impact the NDA review, and, if approved, labeling and use of gemcabene.
Even if we receive marketing approval for gemcabene or any product candidate we may pursue in the future in the
United States, we may never receive regulatory approval to market such product candidate outside of the United
States.
In addition to the United States, we intend to seek regulatory approval to market gemcabene in Canada and Europe and
potentially other markets. If we pursue additional product candidates in the future, we may seek regulatory approval of
such product candidates outside the United States. In order to market any product outside of the United States, however,
we must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of these
other countries. Approval procedures vary among countries and can involve additional product candidate testing and
additional administrative review periods. The time required to obtain approvals in other countries might differ from that
required to obtain FDA approval. The marketing approval processes in other countries may include all of the risks
detailed above regarding FDA approval in the United States as well as other risks. In particular, in many countries
outside of the United States, products must receive pricing and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial delays in bringing products to market in such countries.
Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining
marketing approval in one country may have a negative effect on the regulatory process in others. Failure to obtain
marketing approval in other countries or any delay or other setback in obtaining such approval would impair our ability
to market gemcabene or any future product candidate in such foreign markets. Any such impairment would reduce the
size of our potential market, which could have an adverse impact on our business, results of operations and prospects.
Even if we obtain marketing approval for gemcabene or any product candidate we may pursue in the future, such
product candidate could be subject to post-marketing restrictions or withdrawal from the market, and we may be
subject to substantial penalties if we fail to comply with regulatory requirements or experience unanticipated
problems with a product candidate following approval.
Any product candidate for which we, or our future collaborators, obtain marketing approval in the future, as well as the
manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such
drug, among other things, will be subject to continual requirements of and review by the FDA and other regulatory
authorities. These requirements include submissions of safety and other post-marketing information and reports,
registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and
corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians
and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to
limitations on the indicated uses for which the drug may be marketed or to the conditions of approval, including the
requirement to implement a REMS, which could include requirements for a restricted distribution system.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor
the safety or efficacy of a product candidate. The FDA and other agencies, including the Department of Justice, closely
regulate and monitor the post-approval marketing and promotion of drugs to ensure that they are manufactured,
marketed and distributed only for the approved indications and in accordance with the provisions of the approved
labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we,
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or our future collaborators, do not market a product candidate for which we, or they, receive marketing approval for only
their approved indications, we, or they, may be subject to warnings or enforcement action for off-label promotion.
Violation of the Federal Food, Drug, and Cosmetic Act (FDC Act) and other statutes, including the False Claims Act,
relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of
federal and state health care fraud and abuse laws and state consumer protection laws.
In addition, later discovery of previously unknown AEs or other problems with our product candidate or its
manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results,
including:
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litigation involving patients taking our drug;
restrictions on such drugs, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a drug;
restrictions on drug distribution or use;
requirements to conduct post-marketing studies or clinical trials;
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refusal to approve pending applications or supplements to approved applications that we submit;
product recall or public notification or medical product safety alerts to healthcare professionals;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
damage to relationships with any potential collaborators;
unfavorable press coverage and damage to our reputation;
refusal to permit the import or export of drugs;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
We may seek to avail ourselves of mechanisms to expedite the development or approval of gemcabene or any other
product candidate we may pursue in the future, such as fast track designation, but such mechanisms may not actually
lead to a faster development or regulatory review or approval process.
We may seek fast track designation, priority review, or accelerated approval for gemcabene or any other product
candidate we may pursue in the future. For example, if a drug is intended for the treatment of a serious or
life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the
drug sponsor may apply for FDA fast track designation. However, the FDA has broad discretion with regard to these
mechanisms, and even if we believe a particular product candidate is eligible for any such mechanism, we cannot assure
you that the FDA would decide to grant it. Even if we do obtain fast track or priority review designation or pursue an
accelerated approval pathway, we may not experience a faster development process, review or approval compared to
conventional FDA procedures. The FDA may withdraw a particular designation if it believes that the designation is no
longer supported by data from our clinical development program.
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A breakthrough therapy designation by the FDA for a product candidate may not lead to a faster development or
regulatory review or approval process, and it may not increase the likelihood that a product candidate will receive
marketing approval.
Depending on the results of our clinical trials, we may seek a breakthrough therapy designation for gemcabene or any
other product candidate we may pursue in the future. A breakthrough therapy is defined as a drug that is intended, alone
or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and
preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies
on one or more clinically significant endpoints. For drugs that are designated as breakthrough therapies, interaction and
communication between the FDA and the sponsor can help to identify the most efficient path for clinical development
while minimizing the number of patients placed in ineffective control regimens.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe a product
candidate meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not
to make such designation. We cannot be sure that our evaluation of a product candidate as qualifying for breakthrough
therapy designation will meet the FDA’s requirements. In any event, the receipt of a breakthrough therapy designation
for a product candidate may not result in a faster development process, review or approval compared to conventional
FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more product candidate
qualifies as a breakthrough therapy, the FDA may later decide that the product no longer meets the conditions for
qualification or decide that the time period for FDA review or approval will not be shortened.
Recently-enacted and future legislation may increase the difficulty and cost for us and our future collaborators to
obtain marketing approval of our product candidate and affect its pricing.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and
proposed changes regarding the healthcare system that could prevent or delay marketing approval of a product candidate,
restrict or regulate post-approval activities and affect our ability, or the ability of our future collaborators, to profitably
sell any drug for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare
reform measures that may be adopted in the future, may result in more rigorous coverage criteria and cause downward
pressure on the price that we, or our future collaborators, may receive for any approved drug.
For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act (collectively, the PPACA). This is a sweeping law
intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, improve
healthcare quality, enhance remedies against fraud and abuse, add new transparency requirements for certain
components of the health care and health insurance industries, impose new taxes and fees on the health industry and
impose additional health policy reforms. Among the provisions of the PPACA of importance to gemcabene and any
future product candidates are:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription
drugs and biologic agents, apportioned among these entities according to their market share in certain
government healthcare programs;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs,
respectively;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted or injected;
extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are
enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer
Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level,
thereby potentially increasing a manufacturer’s Medicaid rebate liability;
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a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare
Part D;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing
program; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research.
There have been judicial and Congressional challenges and amendments to certain aspects of the PPACA, and we expect
there will be additional challenges and amendments to, and attempts to repeal, the PPACA in the future. In addition,
other legislative changes have been proposed and adopted since the PPACA was enacted. These new laws have resulted
in additional reductions in Medicare and other healthcare funding and otherwise may affect the prices we may obtain for
any product candidate for which marketing approval is obtained. Any reduction in reimbursement from Medicare or
other government-funded programs may result in a similar reduction in payments from private payors. Moreover,
recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products. The implementation of cost containment measures or other healthcare reforms may prevent us from
being able to generate revenue, attain profitability or commercialize our drugs.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and
promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be
enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such
changes on the marketing approvals of a product candidate, if any, may be. In addition, increased scrutiny by the U.S.
Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us
and our future collaborators to more stringent drug labeling and post-marketing testing and other requirements.
Governments outside of the United States tend to impose strict price controls, which may adversely affect our
revenues from the sales of a drug, if any.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a drug. To obtain reimbursement or pricing approval in
some countries, we, or our future collaborators, may be required to conduct a clinical trial that compares the
cost-effectiveness of our drug to other available therapies. If reimbursement of our drug is unavailable or limited in
scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.
Our relationships with healthcare providers and third-party payors will be subject to applicable fraud and abuse and
other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future earnings, among other penalties and consequences.
Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any
product candidate for which we obtain marketing approval. Our current and future arrangements with third-party payors
and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may
constrain the business or financial arrangements and relationships through which we market, sell and distribute any
product candidate for which we obtain marketing approval. Restrictions and obligations under applicable federal and
state healthcare laws and regulations include the following:
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the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind,
to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made under a federal healthcare
program such as Medicare and Medicaid;
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the federal false claims and civil monetary penalties laws, including the civil False Claims Act imposes
criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities
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for knowingly presenting, or causing to be presented, to the federal government, claims for payment that
are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money
to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) imposes criminal and
civil liability for, among other things, executing a scheme to defraud any healthcare benefit program or
making false statements relating to healthcare matters;
(cid:120) HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its
implementing regulations, also imposes obligations, including mandatory contractual terms, on certain
people and entities with respect to safeguarding the privacy, security and transmission of individually
identifiable health information;
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the federal Physician Payments Sunshine Act under the PPACA requires certain manufacturers of drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the
Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for
Medicare & Medicaid Services within the U.S. Department of Health and Human Services information
related to physician payments and other transfers of value and physician ownership and investment
interests; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may
apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental third-party payors, including private insurers, and some state laws require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government in addition to requiring drug
manufacturers to report information related to payments to physicians and other health care providers or
marketing expenditures. Certain state and foreign laws also govern the privacy and security of health
information in ways that differ from each other and often are not preempted by HIPAA, thus complicating
compliance efforts.
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable
healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude
that our business practices may not comply with current or future statutes, regulations or case law involving applicable
fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these
laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and
Medicaid, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and future
earnings, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities
with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Defending against any such actions can be costly, time-consuming and may require significant financial and personnel
resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our
business may be impaired.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws,
and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to
compete in domestic and international markets. We can face criminal liability and other serious consequences for
violations which can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations,
U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury
Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S.
domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and
national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption
laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners from
authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to
recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to
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sell our products abroad once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent
registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of
government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for
the corrupt or other illegal activities of our employees, agents, contractors, and other partners, even if we do not
explicitly authorize or have actual knowledge of such activities. Our violations of the laws and regulations described
above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import
privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other
consequences.
Our employees may engage in misconduct or other improper activities, including violating applicable regulatory
standards and requirements or engaging in insider trading, which could significantly harm our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional
failures to comply with the regulations of the FDA and applicable non-U.S. regulators, provide accurate information to
the FDA and applicable non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United
States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular,
sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive
programs and other business arrangements. Employee misconduct could also involve the improper use of, including
trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious
harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take
to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with
these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of
significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare
programs such as Medicare and Medicaid, disgorgement, individual imprisonment, contractual damages, reputational
harm, diminished profits and future earnings, and the curtailment or restructuring of our operations.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label uses. If we are found to have improperly promoted off-label uses, we may become subject to significant
liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription
products, such as gemcabene, if approved. In particular, a product may not be promoted for uses that are not approved by
the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing
approval for gemcabene or any future product candidate for a certain indication, physicians may nevertheless prescribe
gemcabene or such future product candidate to their patients in a manner that is inconsistent with the approved label. If
we are found to have promoted such off-label uses, we may become subject to significant liability. The federal
government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined
several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent
decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot
successfully manage the promotion of gemcabene or any future product candidate, if approved, we could become subject
to significant liability, which would adversely affect our business and financial condition.
Risks Related to the Commercialization of Gemcabene or Any Future Product Candidate
We face substantial competition, which may result in others discovering, developing or commercializing products
before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We expect to face competition
with respect to gemcabene, if approved, and will face competition with respect to any product candidates that we may
seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical
companies, biotechnology companies, universities and other research institutions and government agencies worldwide.
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The lipid-lowering therapies market is highly competitive and dynamic and dominated by the sale of statin treatments
including the cheaper generic versions of statins. Our success will depend, in part, on our ability to obtain a share of the
market for our planned indications. Other pharmaceutical companies may develop lipid-lowering therapies for the same
indications that compete with gemcabene, if approved, that do not infringe the claims of our patents, pending patent
applications or other proprietary rights which could adversely affect our business and results of operations.
Lipid-lowering therapies currently on the market that would compete with gemcabene, if approved, include the
following:
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statins, such as Crestor marketed by AstraZeneca, Livalo marketed by Kowa Pharmaceuticals
America, Inc. (Kowa), Zocor marketed by Merck & Co., Inc. (Merck), Lipitor marketed by Pfizer, and
their generic versions;
cholesterol absorption inhibitors, such as Zetia, marketed by Merck;
apoB antisense Kynamro marketed by Genzyme Corporation, a Sanofi company, and MTTP inhibitor
Juxtapid marketed by Aegerion Pharmaceuticals, Inc.;
combination therapies, such as Vytorin and Liptruzet, both marketed by Merck;
other lipid-lowering monotherapies, including: fibrates, such as TriCor and Trilipix, both marketed by
AbbVie Inc. (AbbVie), and Lipofen marketed by Kowa; niacin, such as Niaspan marketed by AbbVie; bile
acid sequestrants, such as Welchol, marketed by Daiichi Sankyo Inc.; combination therapies, such as
Advicor and Simcor, both of which are marketed by AbbVie; and their generic version of these drugs;
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prescription fish oils, such as Lovaza marketed by GlaxoSmithKline, Epanova marketed by AstraZeneca
and Vascepa marketed by Amarin Corporation plc; and
(cid:120) PCSK9 inhibitors, such as Praluent, developed by Sanofi-Aventis U.S. LLC, and Regeneron
Pharmaceuticals, Inc. and Repatha marketed by Amgen Inc.
(cid:120) Several other pharmaceutical companies have other lipid-lowering therapies in development that may be
approved for marketing in the United States or outside of the United States. Based on publicly available
information, we believe the current therapies in development that would compete with gemcabene include:
o
o
o
for HoFH, RGEN-1500 being developed by Regeneron Pharmaceuticals, Inc. MGL-3196
developed by Madrigal Pharmaceuticals (Madrigal) for HoFH, and ALN-PCSsc being developed
by The Medicines Company and Alnylam Pharmaceuticals, Inc.;
for HeFH and ASCVD, drugs include: oral cholesteryl ester transfer protein inhibitors, such as
anacetrapib being developed by Merck and TA-8995 being developed by Amgen/Dezima; ATP
citrate lyase inhibitor, ETC-1002 developed by current Esperion; PCSK9 inhibitors, such as
ALN-PCSsc being developed by The Medicines Company and Alnylam Pharmaceuticals, Inc.,
and MGL-3196 developed by Madrigal (HeFH only);
for SHTG, ISIS-APOCIII-LRX being developed by Ionis Pharmaceuticals, Inc. (formerly Isis
Pharmaceuticals, Inc.); and
This means that there is significant competition for investigational sites and patients to enroll in clinical studies.
Additionally, since some drug candidates may be further along in development, approval of such drug candidates could
lead to the FDA and other global health authorities to request and/or require changes to ongoing or future clinical trial
designs that could impact timelines and cost.
The biomarkers and pathogenesis of NASH are less understood than the dyslipidemia market and for that reason there
are many mechanisms of action under investigation to better understand how to effectively treat the disease. Currently
accepted diagnosis of the NASH is confirmed through liver biopsy which is invasive, time consuming and costly. Future
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growth and evolution of the NASH market may rely on development of less invasive technologies to increase diagnoses
rates to broaden the drug treated patient population. Several companies have late stage assets (Phase 3 or outcomes
studies) well under way with projected market approval dates in NASH as soon as 2019/2020. For NASH, the market is
currently evolving with no approved therapies for the indication across the globe. Current thought leader opinions are
pointing to a multiple mechanistic approach to effectively treat NASH.
Several pharmaceutical companies have NASH therapies in development that may be approved for marketing in the
United States or outside of the United States. Based on publicly available information, we believe the current therapies
in development that would compete with gemcabene in NASH include but are not limited to:
o OCALIVA (Obeticholic Acid) (FXR Agonist) being developed by Intercept Pharmaceuticals, Inc.;
o Elafibranor (PPAR Agonist) being developed by Genfit SA;
o Selonsertib (formerly GS-4997) (ASK1 Inhibitor) being developed by Gilead Sciences, Inc.;
o GS-0976 (ACC Inhibitor) being developed by Gilead Sciences, Inc.;
o Cenicriviroc (CVC) (CCR2/CCR5 Inhibitor) being developed by Tobira Therapeutics, Inc. (a wholly-owned
subsidiary of Allergan plc);
o Emricasan (Caspase Inhibitor) being developed by Conatus Pharmaceuticals Inc.
o Aramchol (Synthetic Fatty Acid/Bile Acid Conjugate) being developed by Galmed;
o GR-MD-02 (Galectin-3 Inhibitor) being developed by Galectin Therapeutics; and
o MGL-3196 (THR Agonist) being developed by Madrigal.
Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are
developing or that would render our product candidates obsolete or non-competitive. Our competitors may also render
our technologies obsolete by advances in existing technological approaches or the development of new or different
approaches, potentially eliminating the advantages in our drug discovery process. Our competitors may also obtain
marketing approval from the FDA or other regulatory authorities for their products more rapidly than we may obtain
approval for ours, which could result in our competitors establishing a strong market position before we are able to enter
the market.
Many of our competitors have significantly greater name recognition, financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing
approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result
in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These third parties compete with us in recruiting and retaining qualified scientific and
management personnel, establishing clinical trial sites and patient registration for clinical trials and entering into
strategic transactions, as well as in acquiring technologies complementary to, or necessary for, our programs.
We lack experience commercializing products, which may have an adverse effect on our business.
If gemcabene or any product candidate we may pursue in the future receives marketing approval, we will need to
transition from a company with a development focus to a company capable of supporting commercial activities, and we
may not be successful in making that transition. We have never filed an NDA, and have not yet demonstrated an ability
to obtain marketing approval for, or to commercialize, any product candidate. As a result, our clinical development and
regulatory approval process, and our ability to successfully commercialize any approved products, may involve more
inherent risk, take longer, and cost more than it would if we were a company with experience obtaining marketing
approval for and commercializing a product candidate.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and
market gemcabene, if approved, or any other product candidate we may pursue, we may not be successful in
commercializing such product candidate if and when approved.
We do not have a global sales or marketing infrastructure and have no capabilities in place at the present time for the
sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for
which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or
outsource part or all of these functions to other third parties.
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There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements
with third parties to perform these services. For example, recruiting and training a sales force is expensive and time
consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a
sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely
or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we
cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize gemcabene or any future product candidate on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians
to prescribe our product candidate;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive
disadvantage relative to companies with more extensive product lines;
unforeseen costs and expenses associated with creating an independent sales and marketing organization;
and
inability to obtain sufficient coverage and reimbursement from third-party payors and governmental
agencies.
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product
revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell a
product that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties
to sell and market any product candidate or may be unable to do so on terms that are favorable to us. We likely will have
little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and
market a drug effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in
collaboration with third parties, we will not be successful in commercializing gemcabene or any future product
candidate.
Even if gemcabene or any future product candidate receives marketing approval, it may fail to achieve the degree of
market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for
commercial success.
Even if gemcabene or any future product candidate receives marketing approval, it may nonetheless fail to gain
sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. If such
product candidate does not achieve an adequate level of acceptance, we may not generate significant product revenues
and we may not become profitable. The degree of market acceptance of a product candidate, if approved for commercial
sale, will depend on a number of factors, including:
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efficacy and potential advantages compared to alternative treatments;
the ability to offer our product for sale at competitive prices;
the willingness of the target patient population to try new therapies and of physicians to prescribe these
therapies;
any restrictions on the use of our product together with other medications;
interactions of our product with other medicines patients are taking;
inability of certain types of patients to take our product;
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demonstrated ability to treat patients and, if required by any applicable regulatory authority in connection
with the approval for target indications, to provide patients with incremental cardiovascular disease
benefits, as compared with other available therapies;
the relative convenience and ease of administration of gemcabene, including as compared with other
treatments available for approved indications;
the prevalence and severity of any adverse side effects;
limitations or warnings contained in the labeling approved by the FDA;
availability of alternative treatments already approved or expected to be commercially launched in the near
future;
the effectiveness of our sales and marketing strategies;
our ability to increase awareness through marketing efforts;
guidelines and recommendations of organizations involved in research, treatment and prevention of various
diseases that may advocate for alternative therapies;
our ability to obtain sufficient third-party coverage and adequate reimbursement;
the willingness of patients to pay out-of-pocket in the absence of third-party coverage; and
physicians or patients may be reluctant to switch from existing therapies even if potentially more effective,
safe or convenient.
If the FDA or a comparable foreign regulatory authority approves generic versions of gemcabene or any future
product candidates that receive marketing approval, or such authorities do not grant our product candidates
appropriate periods of data exclusivity before approving generic versions of our products, the sales of our products
could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication,
“Approved Drug Products with Therapeutic Equivalence Evaluations.” Manufacturers may seek approval of generic
versions of reference listed drugs through submission of abbreviated new drug applications (ANDAs) in the United
States. In support of an ANDA, a generic manufacturer need not conduct clinical studies. Rather, the applicant generally
must show that its product has the same active ingredient(s), dosage form, strength, route of administration and
conditions of use or labeling as the reference listed drug and that the generic version is bioequivalent to the reference
listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be
significantly less costly to bring to market than the reference listed drug and companies that produce generic products
are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant
percentage of the sales of any branded product or reference listed drug may be typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the
reference listed drug has expired. The FDC Act provides a period of five years of non-patent exclusivity for a new drug
containing a new chemical entity (NCE). Specifically, in cases where such exclusivity has been granted, an ANDA may
not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV
certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic
product, in which case the applicant may submit its application four years following approval of the reference listed
drug. It is unclear whether the FDA will treat the active ingredients in our product candidates as NCEs and, therefore,
afford them five years of NCE data exclusivity if they are approved. If any product we develop does not receive five
years of NCE exclusivity, it may nonetheless be eligible for three years of exclusivity, which means that the FDA may
approve generic versions of such product three years after its date of approval. Manufacturers may seek to launch these
generic products following the expiration of the applicable marketing exclusivity period, even if we still have patent
protection for our product.
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Competition that gemcabene or any future product candidates may face from generic versions of our products could
materially and adversely impact our future revenue, profitability and cash flows and substantially limit our ability to
obtain a return on the investments we have made in any such product candidate.
Even if we are able to commercialize gemcabene or any future product candidate, the profitability of such product
candidate will likely depend in significant part on third-party reimbursement practices, which, if unfavorable, would
harm our business.
Our ability to commercialize a drug successfully will depend in part on the extent to which coverage and adequate
reimbursement will be available from government health administration authorities, private health insurers and other
organizations. Government authorities and third-party payors, such as private health insurers and health maintenance
organizations, decide which medications they will pay for and establish reimbursement levels. Government authorities
and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for
particular medications. Increasingly, third-party payors are requiring that drug companies provide them with
predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure
that coverage will be available for any product candidate that we commercialize and, if coverage is available, whether
the level of reimbursement will be adequate. Assuming we obtain coverage for gemcabene, if approved, by a third-party
payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find
unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing
physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription
drugs. Patients are unlikely to use a product candidate, if approved, unless coverage is provided and reimbursement is
adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate
reimbursement is critical to new product acceptance. If reimbursement is not available or is available only to limited
levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing
approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more
limited than the purposes for which a product candidate is approved by the FDA or similar regulatory authorities outside
the United States. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or
at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim
reimbursement levels for a new product, if applicable, may also not be sufficient to cover our costs and may not be made
permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used,
may be based on reimbursement levels already set for lower cost medicines and may be incorporated into existing
payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by
government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of
medicines from countries where they may be sold at lower prices than in the United States. Third-party payors often rely
upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. However, no
uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the
United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As
a result, the coverage determination process is often a time-consuming and costly process that will require us to provide
scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and
adequate reimbursement will be applied consistently or obtained in the first instance.
Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors
for any approved products that we develop could have an adverse effect on our operating results, our ability to raise
capital needed to commercialize products and our overall financial condition.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization
of any product candidate that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidate in human clinical
trials and will face an even greater risk if we commercially sell any products that we may develop. Product liability
claims might be brought against us by patients, healthcare providers or others selling or otherwise coming into contact
with gemcabene or any future product candidate during product testing, manufacturing, marketing or sale. For example,
we may be sued on allegations that a product candidate caused injury or that the product is otherwise unsuitable. Any
such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, including as a result of interactions with alcohol or other drugs, negligence, strict
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liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot
successfully defend ourselves against claims that our product candidate caused injuries, we could incur substantial
liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for any product candidate that we are developing;
injury to our reputation and significant negative media attention;
(cid:120) withdrawal of clinical trial participants;
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increased FDA warnings on product labels;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
distraction of management’s attention from our primary business;
loss of revenue; and
the inability to commercialize any product candidate that we may develop.
Any product liability or clinical trial insurance coverage that we do obtain may not be adequate to cover all liabilities
that we may incur. We may need to increase our insurance coverage as we expand clinical trials and if we successfully
commercialize gemcabene or any other product candidate we may pursue in the future. Insurance coverage is
increasingly expensive, and we may not be able to obtain product liability insurance on commercially reasonable terms
or in an amount adequate to satisfy any liability that may arise.
If we or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we
could become subject to fines or penalties or incur costs that could have an adverse effect on the success of our
business.
Our research and development activities involve the controlled use of potentially hazardous substances, including
chemical and biological materials, by ourselves and our third-party manufacturers. Our manufacturers are subject to
federal, state and local laws and regulations in the United States and abroad governing laboratory procedures and the
use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our
manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed
standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous
materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities
may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held
liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance
for liabilities arising from medical or hazardous materials. Although we maintain workers’ compensation insurance to
cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous
materials, this insurance may not provide adequate coverage against potential liabilities. Compliance with applicable
environmental, health and safety laws and regulations is expensive, and current or future environmental regulations may
impair our research, development and production efforts, which could harm our business, prospects, financial condition
or results of operations.
Federal legislation and actions by state and local governments may permit reimportation of drugs from foreign
countries into the United States, including foreign countries where the drugs are sold at lower prices than in the
United States, which could adversely affect our operating results.
We may face competition for gemcabene, if approved, from cheaper lipid-lowering therapies sourced from foreign
countries that have placed price controls on pharmaceutical products. The Medicare Modernization Act contains
provisions that may change U.S. importation laws and expand pharmacists’ and wholesalers’ ability to import cheaper
versions of an approved drug and competing products from Canada, where there are government price controls. These
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changes to U.S. importation laws will not take effect unless and until the Secretary of Health and Human Services
certifies that the changes will pose no additional risk to the public’s health and safety and will result in a significant
reduction in the cost of products to consumers. The Secretary of Health and Human Services has so far declined to
approve a reimportation plan. Proponents of drug reimportation may attempt to pass legislation that would directly allow
reimportation under certain circumstances. Legislation or regulations allowing the reimportation of drugs, if enacted,
could decrease the price we receive for any product we may develop and adversely affect our future revenues and
prospects for profitability.
Risks Related to our Dependence on Third Parties
We will be unable to directly control all aspects of our clinical trials due to our reliance on clinical research
organizations (CROs) and other third parties that assist us in conducting clinical trials.
We will rely on CROs to conduct part or all of our preclinical studies and clinical trials for any product candidate,
including our Phase 2 and Phase 3 trials for gemcabene. As a result, we will have limited control over the conduct,
timing and completion of these clinical trials and the management of data developed through the clinical trials.
Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in
coordinating activities. Outside parties may:
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have staffing difficulties;
fail to comply with contractual obligations;
experience regulatory compliance issues;
undergo changes in priorities or become financially distressed; or
form relationships with other entities, some of which may be our competitors.
These factors may adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject
us to unexpected cost increases that are beyond our control.
Moreover, the FDA and other global health authorities require us to comply with standards, commonly referred to as
good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are
protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and
requirements.
Problems with the timeliness or quality of the work of any CRO may lead us to seek to terminate our relationship with
any such CRO and use an alternative service provider. Making this change may be costly and may delay our clinical
trials, and contractual restrictions may make such a change difficult or impossible to effect. If we must replace any CRO
that is conducting our clinical trials, our clinical trials may have to be suspended until we find another CRO that offers
comparable services. The time that it takes us to find alternative organizations may cause a delay in the
commercialization of gemcabene or may cause us to incur significant expenses to replicate data that may be lost.
Although we do not believe that any CRO on which we may rely will offer services that are not available elsewhere, it
may be difficult to find a replacement organization that can conduct our clinical trials in an acceptable manner and at an
acceptable cost. Any delay in or inability to complete our clinical trials could significantly compromise our ability to
secure regulatory approval of gemcabene and preclude our ability to commercialize gemcabene, thereby limiting or
preventing our ability to generate revenue from its sales.
We rely completely on third parties to supply and manufacture our preclinical and clinical drug supplies for
gemcabene, and we intend to rely on third parties to produce commercial supplies of gemcabene and preclinical,
clinical and commercial supplies of any future product candidate.
We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our
clinical drug supply of gemcabene, or any future product candidates, for use in the conduct of our preclinical studies and
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clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical
or commercial scale. The process of manufacturing drug products is complex, highly regulated and subject to several
risks. For example, the facilities used by our contract manufacturers to manufacture the active pharmaceutical ingredient
(or drug substance) and final drug product for gemcabene, or any future product candidates, must be inspected by the
FDA and other comparable foreign regulatory agencies in connection with our submission of an NDA or relevant foreign
regulatory submission to the applicable regulatory agency. In addition, the manufacturing of drug substance or product is
susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, or
vendor or operator error. Moreover, the manufacturing facilities in which gemcabene or any future product candidates
are made could be adversely affected by equipment failures, labor shortages, natural disasters, power failures or other
factors.
We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers to comply
with current good manufacturing practices (cGMP) for manufacture of both active drug substances and finished drug
products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and
the strict regulatory requirements of the FDA or applicable foreign regulatory agencies, we will not be able to secure
and/or maintain regulatory approval for our products. In addition, we have no direct control over our contract
manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel. Failure to satisfy
the regulatory requirements for the production of those materials and products may affect the regulatory clearance of our
contract manufacturers’ facilities generally. If the FDA or a comparable foreign regulatory agency does not approve
these facilities for the manufacture of gemcabene or any future product candidates, or if it withdraws its approval in the
future, we may need to find alternative manufacturing facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market gemcabene or such future product candidates. Furthermore, all of our contract
manufacturers are engaged with other companies to supply and/or manufacture materials or products for such
companies, which exposes our manufacturers to regulatory and sourcing risks for the production of such materials and
products. To the extent practicable, we attempt to identify more than one supplier, but some raw materials are available
only from a single source or only one supplier has been identified, even in instances where multiple sources exist.
We have relied upon third-party manufacturers for the manufacture of our product candidate for preclinical and clinical
testing purposes and intend to continue to do so in the future, including for commercial purposes. If our third party
manufacturers are unable to supply drug substance and/or drug product on a commercial basis, we may not be able to
successfully produce and market gemcabene, if approved, or could be delayed in doing so. For instance, we rely on one
supplier for the drug substance for gemcabene. The manufacturer of the drug substance for gemcabene will need to
manufacture batches of the drug substance that will serve as the validation batches that will be reviewed by the FDA in
connection with its review of the NDA for gemcabene and as the supply of gemcabene, if approved and successfully
launched commercially. If there is any delay or problem with the manufacture of these batches of drug substance or if
there is a delay in producing finished product from these batches, the approval of gemcabene may be delayed or any
potential launch of gemcabene may be adversely affected. We will rely on comparison of product specifications
(identity, strength, quality, potency) to demonstrate equivalence of the current drug substance and/or drug product to the
drug substance and/or drug product used in previously completed preclinical and clinical testing. If we are unable to
demonstrate such equivalence, we may be required to conduct additional preclinical and/or clinical testing of our product
candidate.
These and other problems with any manufacturer may lead us to seek to terminate our relationship with any such
manufacturer and use an alternative manufacturer. Making this change may be costly, time consuming and difficult to
effectuate, and may delay our research and development activities. If we must replace any manufacturer, our research
and development activities may have to be suspended until we find another manufacturer that offers comparable
services. The time that it takes us to find alternative organizations may cause a delay in the development and
commercialization of gemcabene or any future product candidate.
We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not
realize the benefits of such alliances or licensing arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing
arrangements with third parties that we believe will complement or augment our development and commercialization
efforts with respect to gemcabene and any future product candidates that we may develop. Any of these relationships
may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities
that dilute our existing stockholders or disrupt our management and business. Our likely collaborators include large and
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mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. If
we enter into any such arrangements with any third parties, we will likely have limited control over the amount and
timing of resources that our collaborators dedicate to the development or commercialization of gemcabene or any future
product candidate. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities
to successfully perform the functions assigned to them in these arrangements. We cannot be certain that, following a
strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.
Collaborations involving gemcabene or any future product candidate pose the following risks to us:
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collaborators have significant discretion in determining the efforts and resources that they will apply to
these collaborations;
collaborators may not perform their obligations as expected;
collaborators may not pursue development and commercialization or may elect not to continue or renew
development or commercialization programs based on clinical trial results, changes in the collaborator’s
strategic focus or available funding or external factors such as an acquisition that diverts resources or
creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a
clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or
indirectly with our product candidate if the collaborators believe that competitive products are more likely
to be successfully developed or can be commercialized under terms that are more economically attractive
than ours;
a collaborator with marketing and distribution rights to one or more product candidates may not commit
sufficient resources to the marketing and distribution of any such product candidate;
collaborators may not properly maintain or defend our intellectual property rights or may use our
proprietary information in such a way as to invite litigation that could jeopardize or invalidate our
proprietary information or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation
and potential liability;
disputes may arise between the collaborators and us that result in the delay or termination of the research,
development or commercialization of our product candidate or that result in costly litigation or arbitration
that diverts management attention and resources;
(cid:120) we may lose certain valuable rights under circumstances identified in our collaborations, including if we
undergo a change of control;
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue
further development or commercialization of the applicable product candidates;
collaborators may learn about our discoveries and use this knowledge to compete with us in the future;
the results of collaborators’ preclinical or clinical studies could harm or impair other development
programs;
there may be conflicts between different collaborators that could negatively affect those collaborations and
potentially others;
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the number and type of our collaborations could adversely affect our attractiveness to future collaborators
or acquirers;
collaboration agreements may not lead to development or commercialization of our product candidate in
the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a
business combination, the continued pursuit and emphasis on our product development or
commercialization program under such collaboration could be delayed, diminished or terminated; and
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collaborators may be unable to obtain the necessary marketing approvals.
If future collaboration partners fail to develop or effectively commercialize gemcabene or any future product candidate
for any of these reasons, such product candidate may not be approved for sale and our sales of such product candidate, if
approved, may be limited, which would have an adverse effect on our operating results and financial condition.
If we are not able to establish new collaborations on commercially reasonable terms, we may have to alter our
development and commercialization plans.
We face significant competition in attracting collaborators. Whether we reach a definitive agreement for collaboration
will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors related to the
associated product candidate. Those factors may include the design or results of clinical trials, the likelihood of approval
by the FDA or similar regulatory authorities outside the United States, the potential market for the product candidate, the
costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing
products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge
to such ownership without regard to the merits of the challenge and industry and market conditions generally. The
collaborator may also consider alternative product candidates or technologies for similar indications that may be
available to collaborate on and whether such a collaboration could be more attractive than the one with us.
Much of the potential revenue from future collaborations may consist of contingent payments, such as payments for
achieving regulatory milestones or royalties payable on sales of our product candidate, if approved. The milestone and
royalty revenue that we may receive under these collaborations will depend upon our collaborators’ ability to
successfully develop, introduce, market and sell new our product candidate, if approved. In addition, collaborators may
decide to enter into arrangements with third parties to commercialize products developed under collaborations related to
our product candidate, which could reduce the milestone and royalty revenue received, if any.
We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms
with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition,
there have been a significant number of recent business combinations among large pharmaceutical companies that have
resulted in a reduced number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so,
we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or
delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or
commercialization activities at our own expense. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on
acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product
candidate or bring it to market and generate product revenue.
Risks Related to our Intellectual Property
If we are unable to adequately protect our proprietary technology or maintain issued patents sufficient to protect
gemcabene or any future product candidate, others could compete against us more directly, which would have an
adverse impact on our business, results of operations, financial condition and prospects.
Our commercial success will depend in part on our success obtaining and maintaining issued patents and other
intellectual property rights in the United States and elsewhere and protecting our proprietary technology. If we do not
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adequately protect our intellectual property and proprietary technology, competitors may be able to use our technologies
and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve
profitability. We licensed patents relating to our current product candidate, gemcabene, from Pfizer. Pursuant to the
license agreement, we are responsible for filing, prosecuting and maintaining the patent rights in Pfizer’s name at our
own cost and expense. In connection with this obligation, we are granted the first right to control the enforcement of the
license patents against any third-party infringement actions. Risks related to our Pfizer license are discussed elsewhere in
this “Risk Factors” section under “We depend on intellectual property licensed from Pfizer for gemcabene, and the
termination of this license would harm our business.” The termination of this license could result in the loss of
significant rights, which would harm our business.
As of February 20, 2017, our patent estate, including patents we own or license from third parties, on a worldwide basis,
included four issued U.S. patents, eight pending U.S. patent applications, 45 issued patents in foreign jurisdictions
including Canada, France, Germany, Great Britain, Ireland, Italy, Mexico and Spain and 16 pending patent applications
in foreign jurisdictions including Australia, Canada, China, Europe, Hong Kong, Japan and Mexico. Our worldwide
patents and pending applications all relate to our product candidate, gemcabene. Our patents claiming the gemcabene
composition of matter generically, which were in-licensed from Pfizer, have all expired; however, our clinical
formulation comprises a specific calcium salt crystal form of gemcabene, which form is claimed in U.S. Patent
Number 6,861,555. This patent, which was in-licensed from Pfizer, is expected to expire in 2021, absent any patent term
extension. Our current patent estate includes eight patent families that have claims directed to methods of treatment
using gemcabene. These patent families include, for example, U.S. Patent Number 8,557,835, licensed from Pfizer that
has claims directed to using a statin-gemcabene combination for treating hyperlipidemia, angina pectoris and
atherosclerosis. U.S. Patent Number 8,557,835 is expected to expire in 2021, absent any patent term extension, and
corresponding foreign patents are expected to expire in 2018, absent any adjustment or extension. Additionally, U.S.
Patent Number 8,846,761 and U.S. Patent Application Number 14/370,722, are owned by us. U.S. Patent
Number 8,846,761 is directed to methods of decreasing a subject’s risk for developing pancreatitis by administering
gemcabene and is expected to expire in 2032, absent any patent term extension. Any foreign patent in this family that
may issue is expected to expire in 2031, absent any patent term extension. U.S. Patent Application Number 14/370,722,
is directed to methods of decreasing a patient’s risk for developing coronary heart disease or preventing, delaying or
reducing the severity of a secondary cardiovascular event by administering gemcabene with a statin. Related patent
applications are pending in foreign jurisdictions including Australia, Canada, China, Europe, Japan and Mexico. Any
patent that may issue in this family, absent any patent term adjustment or extension, is expected to expire in 2033.
In 2015-2017, we filed two non-provisional patent applications on methods of large scale manufacturing for making
dicarboxyalkyl ethers (US Application Number 14/942,765 and corresponding PCT application
Number PCT/US2015/060917), any patent issuing from this patent family is expected to expire in 2035. In addition, we
filed U.S. provisional patent applications of which 62/300,393, 62/314,597, 62/411,997 and 62/412,017, are pending,
and two PCT applications one for methods of treating mixed dyslipidemia using gemcabene in combination with statins
and treatment of NASH using gemcabene as a monotherapy (PCT/US2016/060837), and the other relating to fixed dose
combinations and modified release formulations of gemcabene and statins (PCT/US2016/060849). Two U.S. Patent
Applications were filed as continuations of PCT/US2016/060837. U.S. Patent Application Number 15/416,911, is
directed to methods of treating NASH by administering gemcabene as a monotherapy and U.S. Patent Application
Number 15/424,620, is directed methods for treating Mixed Dyslipidemia by administering gemcabene and a statin.
Any patent that may issue in either of these two families, absent any patent term adjustment or extension, is expected to
expire in 2037.
The patent prosecution process is expensive and time-consuming, and we and our current or future licensors, licensees or
collaboration partners may not be able to prepare, file and prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we or our licensors will fail to identify patentable aspects of
inventions made in the course of development and commercialization activities before it is too late to obtain patent
protection on them. Our and our licensors’ patent applications cannot be enforced against third parties practicing the
technology claimed in such applications unless and until a patent issues from such applications, and then only to the
extent the issued claims cover the technology.
We cannot assure you that any of our patents have, or that any of our pending patent applications will mature into issued
patents that will include, claims with a scope sufficient to protect gemcabene or any future product candidate. Others
have developed technologies that may be related or competitive to our approach, and may have filed or may file patent
applications and may have received or may receive patents that overlap or conflict with our patent applications, either by
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claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. The
patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal
and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may
obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or
circumvented. U.S. patents and patent applications may also be subject to interference proceedings, ex parte
reexamination, or inter partes review proceedings, supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, or comparable proceedings lodged in various national and regional
patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or
reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference,
re-examination, opposition, post-grant review, inter partes review, supplemental examination or revocation proceedings
may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against
competitors. Furthermore, an adverse decision in an interference proceeding can result in a third-party receiving the
patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize
gemcabene.
Furthermore, the issuance of a patent, while presumed valid, is not conclusive as to its validity or its enforceability and it
may not provide us with adequate proprietary protection or competitive advantages against competitors with similar
products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent
protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized
disclosure or use of any technical knowledge or trade secrets by consultants, vendors, former employees and current
employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the
United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If these
developments were to occur, they could have a material adverse effect on our sales.
Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers
who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to
obtain evidence of infringement in a competitor’s or potential competitor’s product. Any litigation to enforce or defend
our patent rights, if any, even if we were to prevail, could be costly and time-consuming and would divert the attention
of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate
and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held
unenforceable, or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us,
including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If, in any
proceeding, a court invalidated or found unenforceable our patents covering gemcabene or any future product candidate,
our financial position and results of operations would be adversely impacted. In addition, if a court found that valid,
enforceable patents held by third parties covered gemcabene or any future product candidate, our financial position and
results of operations would also be adversely impacted.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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(cid:120)
any of our patents, or any of our pending patent applications, if issued, will include claims having a scope
sufficient to protect gemcabene;
any of our pending patent applications will result in issued patents;
(cid:120) we will be able to successfully commercialize gemcabene or any future product candidate, if approved,
before our relevant patents expire;
(cid:120) we were the first to make the inventions covered by each of our patents and pending patent applications;
(cid:120) we were the first to file patent applications for these inventions;
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(cid:120)
others will not develop similar or alternative technologies that do not infringe our patents;
any of our patents will be valid and enforceable;
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(cid:120)
any patents issued to us will provide a basis for an exclusive market for our commercially viable products,
will provide us with any competitive advantages or will not be challenged by third parties;
(cid:120) we will develop additional proprietary technologies or product candidates that are separately patentable; or
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that our commercial activities or products will not infringe upon the patents of others.
Patents have a limited lifespan. The natural expiration of a patent is generally 20 years after its effective filing date.
Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the
extensive period of time between patent filing and regulatory approval for a product candidate, the time during which we
can market a product candidate under patent protection is limited, and our patent may expire before we obtain such
approval. Without patent protection for gemcabene or any future product candidates, we may be open to competition
from generic versions of our product candidates, which may affect the profitability of our product candidates.
If we do not obtain protection under the Hatch-Waxman Act and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidate, our business may be materially harmed.
Depending upon the timing, duration of regulatory review, and date of FDA marketing approval of gemcabene or any
future product candidate, if any, one of our U.S. patents may be eligible for patent term restoration under the Drug Price
Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act
provides for a patent restoration term of up to five years as compensation for the time the product is under FDA
regulatory review (patent term extension). The duration of patent term extension is calculated based on the time spent in
the regulatory review process. Our basic U.S. composition of matter patent for gemcabene has expired. We plan to seek
patent term extension for one of our patents related to gemcabene. However, we may not be granted an extension
because of, for example, failing to apply within the applicable deadline, expiration of relevant patents prior to obtaining
approval, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of
patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of
any such extension is less than we request, our revenue could be reduced, possibly materially.
In addition, we believe that gemcabene is a NCE in the United States and may be eligible for data exclusivity under the
Hatch-Waxman Act. A single-ingredient drug can be classified as a NCE if the FDA has not previously approved any
other new drug containing the same active ingredient. Under sections 505(c)(3)(E)(ii) and 505(j)(5)(F)(ii) of the FDC
Act, as amended, a NCE that is granted marketing approval may, even in the absence of patent protections, be eligible
for five years of data exclusivity in the United States following marketing approval. During the data exclusivity period,
if granted, the FDA is precluded from approving 505(b)(2) applications or abbreviated new drug applications submitted
by another company that references the FDA’s findings of safety and efficacy for the approved NDA. In the European
Union, NCEs qualify for eight years of data exclusivity upon marketing authorization and an additional two years of
market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from
reviewing a generic application for eight years, after which generic marketing authorization can be approved but the
generic drug may not be marketed during the two-year marketing exclusivity period. However, gemcabene may not be
considered to be a NCE for these purposes or be entitled to the period of data exclusivity. If we are not able to gain or
exploit the period of data exclusivity, we may face significant competitive threats to our commercialization of
gemcabene from other manufacturers, including the manufacturers of generic alternatives. Further, even if our
compound is considered to be a NCE and we are able to gain the prescribed period of data exclusivity, another company
nevertheless could gain marketing approval for the same compound if they independently generate preclinical and
clinical data and get market approval through the NDA process without benefit of our data.
If we fail to maintain orphan drug exclusivity for gemcabene for HoFH, we will have to rely on data and marketing
exclusivity for HoFH that is not based on an orphan drug designation, if any, and on our intellectual property rights.
As part of our business strategy, in the United States we have obtained orphan drug designation for gemcabene for the
treatment of HoFH. We may submit an application to the FDA for other orphan drug designations for gemcabene such as
for the treatment of TG greater than approximately 750 mg/dL (F) or Familial Partial Lipodystrophy under the Orphan
Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition,
defined, in part, as a patient population of fewer than 200,000 in the United States.
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In the United States, the company that first obtains FDA approval for a designated orphan drug for the specified rare
disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This orphan
drug exclusivity prevents the FDA from approving another application, including a full NDA, to market the same drug
for the same orphan indication, except in very limited circumstances. For purposes of small molecule drugs, the FDA
defines “same drug” as a drug that contains the same active pharmaceutical ingredient (API) and is intended for the same
use as the drug in question. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use
that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing
rights in the United States may be lost if the FDA later determines that the request for designation was materially
defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the
rare disease or condition.
The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for
life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the European
Union. Orphan drug designation from the EMA provides ten years of marketing exclusivity following drug approval,
subject to reduction to six years if the designation criteria are no longer met.
Even if we are able to obtain and maintain orphan drug exclusivity for gemcabene for HoFH, the designation may not
effectively protect it from competition for HoFH because different drugs can be approved for the same condition.
Moreover, even with an orphan drug designation, the FDA can subsequently approve a different formulation of the same
API for the same condition if the FDA concludes that the later formulation of the API is safer, more effective or makes a
major contribution to patient care.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect
gemcabene and any product candidate we may pursue in the future.
In 2011, the United States enacted wide-ranging patent reform legislation with the America Invents Act (AIA).
An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a
“first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed
by different parties claiming the same invention. A third party that files a patent application in the U.S. Patent and
Trademark Office (USPTO) after that date but before us could therefore be awarded a patent covering an invention of
ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going
forward of the time from invention to filing of a patent application, but circumstances could prevent us from promptly
filing patent applications on our inventions.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent
infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies
to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO
proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third
party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even
though the same evidence would be insufficient to invalidate the claim if first presented in a district court action.
Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have
been invalidated if first challenged by the third party as a defendant in a district court action. The AIA and its
implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents.
Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years, such as Association for
Molecular Pathology v. Myriad Genetics, Inc. (Myriad I), Mayo Collaborative Services v. Prometheus Laboratories, Inc.
and Alice Corporation Pty. Ltd. v. CLS Bank International, either narrowing the scope of patent protection available in
certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty
with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect
to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO,
the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain
new patents or to enforce our existing patents and patents that we might obtain in the future.
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We may not be able to protect or practice our intellectual property rights throughout the world.
In jurisdictions where we have not obtained patent protection, competitors may use our intellectual property to develop
their own products and further, may export otherwise infringing products to territories where we have patent protection,
but where it is more difficult to enforce a patent as compared to the U.S. Competitor products may compete with
gemcabene, if approved, or any future product candidate in jurisdictions where we do not have issued or granted patents
or where our issued or granted patent claims or other intellectual property rights are not sufficient to prevent competitor
activities in these jurisdictions. The legal systems of certain countries, particularly certain developing countries, make it
difficult to enforce patents and such countries may not recognize other types of intellectual property protection,
particularly that relating to pharmaceuticals. This could make it difficult for us to prevent the infringement of our patents
or marketing of competing products in violation of our proprietary rights generally in certain jurisdictions. Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention
from other aspects of our business.
The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United
States, and many companies have encountered significant difficulties in protecting and defending such rights in such
jurisdictions. If we, or our licensors, encounter difficulties in protecting, or are otherwise precluded from effectively
protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may
be diminished and we may face additional competition from others in those jurisdictions. Many countries have
compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
many countries limit the enforceability of patents against government agencies or government contractors. In these
countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we,
or any of our licensors, are forced to grant a license to third parties with respect to any patents relevant to our business,
our competitive position in the relevant jurisdiction may be impaired and our business and results of operations may be
adversely affected.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which
could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents and other intellectual property rights. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be expensive and time consuming. In addition, in an
infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, or may refuse to stop the
other party from using the technology on the grounds that our patents do not cover the technology in question. An
adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted
narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type
of litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and
pursue such infringement claims, which typically last for years before they are concluded.
Litigation proceedings may fail and, even if successful, may result in substantial costs and distraction of our
management and other employees. We may not be able to prevent, alone or with our collaborators, misappropriation of
our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the United
States.
In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or
developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse
effect on the price of our common stock.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the
outcome of which would be uncertain and could have an adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market
and sell gemcabene and any other product candidate we may pursue in the future and use our proprietary technologies
without infringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical
industries are characterized by extensive litigation regarding patents and other intellectual property rights. We may in the
future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights
with respect to our medicines and technology, including interference or derivation proceedings, post-grant reviews, inter
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partes reviews, or other procedures before the USPTO or other similar procedures in foreign jurisdictions. Third parties
may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we
are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third
party to continue developing and marketing our medicines and technology. However, we may not be able to obtain any
required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be
non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us. We
could be forced, including by court order, to cease developing and commercializing the infringing technology or
medicine. In addition, we could be found liable for substantial monetary damages, potentially including treble damages
and attorneys’ fees, if we are found to have willfully infringed. A finding of infringement could prevent us from
commercializing a product candidate or force us to cease some of our business operations, which could harm our
business. Alternatively, we may need to redesign our infringing products, which may be impossible or require substantial
time and monetary expenditure. Claims that we have misappropriated the confidential information or trade secrets of
third parties could have a similar negative impact on our business.
The cost to us of any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our
favor, could be substantial and may result in substantial costs and distraction of our management and other employees.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can
because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could delay our research and development efforts and limit our ability to continue our
operations.
We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed
alleged trade secrets of their former employers.
Our employees and consultants have been previously employed at other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although we are not aware of any claims currently pending against
us, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information or intellectual property of the former employers of our employees. Litigation
may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation
could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to
paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their
work product could hamper or prevent our ability to commercialize gemcabene, which would adversely affect our
commercial development efforts.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of any
product we may pursue could be significantly diminished.
We may rely upon trade secrets, know-how and continuing technological innovation to develop and maintain our
competitive position. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with
our employees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and
other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. In addition, we cannot guarantee that we have executed these agreements with
each party that may have or have had access to trade secrets.
Moreover, because we acquired certain rights to gemcabene from Pfizer, we must rely on Pfizer’s practices, and those of
its predecessors, with regard to parties that may have had access to trade secrets related thereto. Any party with whom
they or we have executed such an agreement may breach that agreement and disclose our proprietary information,
including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim
that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the
outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to
protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent them, or those to whom they disclose such trade secrets, from using that
technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor or other third-party, our competitive position would be harmed.
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We have filed U.S. applications for certain of our trademarks, but we have not yet obtained registration of any of our
trademarks.
We have filed U.S. applications for three trademarks, “Gemphire”, the Gemphire logo and “Advancing a class on top of
statins”, but we have not yet obtained registration of any of our trademarks in the United States or other countries. If we
do not secure and maintain registrations for our trademarks, we may encounter more difficulty in enforcing them against
third parties than we otherwise would, which could affect our business. We have also not yet registered trademarks for
any product candidate in any jurisdiction. When we file trademark applications for a product candidate, those
applications may not be allowed for registration, and registered trademarks may not be obtained, maintained or enforced.
During trademark registration proceedings in the United States and foreign jurisdictions, we may receive rejections. We
are given an opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition,
in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose
pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may
be filed against our trademarks, and our trademarks may not survive such proceedings.
In addition, any proprietary name we propose to use with gemcabene or any future product candidate in the United
States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a
trademark. The FDA typically conducts a review of proposed drug names, including an evaluation of potential for
confusion with other drug names. If the FDA objects to any proposed proprietary drug name for any product candidate,
we may be required to expend significant additional resources in an effort to identify a suitable substitute proprietary
drug name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be
acceptable to the FDA.
If we register any of our trademarks, our trademarks or trade names may be challenged, infringed, circumvented or
declared generic or determined to infringe on other marks. We may not be able to protect our rights to these trademarks
and trade names or may be forced to stop using these names, which we need for name recognition by potential partners
or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade
names, we may not be able to compete effectively and our business may be adversely affected.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection
could be reduced or eliminated for noncompliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural,
documentary, fee payment or other provisions during the patent application process. In addition, periodic maintenance
and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over
the lifetime of the patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other
means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or
lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
In such an event, our competitors might be able to enter the market, which would have an adverse effect on our business.
Risks Related to Employee Matters and Managing Growth
We are dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified
personnel, we may not be able to successfully implement our business strategy.
We are highly dependent on our management, scientific and medical personnel, including Dr. Charles L. Bisgaier, our
co-founder, Chairman of our board of directors and Chief Scientific Officer, and Mina Sooch, our President, Chief
Executive Officer and director. We have entered into employment agreements with our executive officers, but any
employee may terminate his or her employment with us. The loss of the services of either Dr. Bisgaier or Ms. Sooch, any
of our executive officers, other key employees or consultants and other scientific and medical advisors in the foreseeable
future, might impede the achievement of our research, development and commercialization objectives. We rely on
consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and
commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have
commitments under consulting or advisory contracts with other entities that may limit their availability to us. Recruiting
and retaining qualified scientific personnel and business and commercial personnel will also be critical to our success.
We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous
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pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of
scientific personnel from universities and research institutions. Failure to succeed in clinical trials may also make it more
challenging to recruit and retain qualified scientific personnel.
We will need to develop and expand our company, and we may encounter difficulties in managing this development
and expansion, which could disrupt our operations.
As of December 31, 2016, we had twelve full-time employees, and we expect to increase our number of employees and
the scope of our operations as we further the clinical development of gemcabene and continue to operate as a public
company. To manage our anticipated development and expansion, we must continue to implement and improve our
managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified
personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day
activities and devote a substantial amount of time to managing these development activities. Due to our limited
resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional
qualified personnel. This may result in weaknesses in our infrastructure, and give rise to operational mistakes, loss of
business opportunities, loss of employees and reduced productivity among remaining employees. The physical
expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as
the development of gemcabene. If our management is unable to effectively manage our expected development and
expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be
reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to
commercialize gemcabene or any future product candidate, if approved, and compete effectively will depend, in part, on
our ability to effectively manage the future development and expansion of our company.
A variety of risks associated with operating internationally for us and our collaborators could adversely affect our
business.
In addition to our U.S. operations, we may pursue international operations in the future and would face risks associated
with such global operations, including possible unfavorable regulatory, pricing and reimbursement, legal, political, tax
and labor conditions, which could harm our business. We plan to conduct clinical trials outside of the United States. We
are subject to numerous risks associated with international business activities, including:
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compliance with differing or unexpected regulatory requirements for gemcabene or any other product
candidate;
different medical practices and customs affecting acceptance of gemcabene, if approved, or any other
approved product in the marketplace;
language barriers;
the interpretation of contractual provisions governed by foreign law in the event of a contract dispute;
difficulties in staffing and managing foreign operations, and an inability to control commercial or other
activities where we are relying on third parties;
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potential liability under the Foreign Corrupt Practice Act of 1977 or comparable foreign regulations;
production shortages resulting from any events affecting raw material supply or manufacturing capability
abroad;
foreign government taxes, regulations and permit requirements;
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requirements;
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economic weakness, including inflation, natural disasters, war, events of terrorism or political instability in
particular foreign countries;
fluctuations in currency exchange rates, which could result in increased operating expenses and reduced
revenues;
compliance with tax, employment, immigration and labor laws, regulations and restrictions for employees
living or traveling abroad;
changes in diplomatic and trade relationships; and
challenges in enforcing our contractual and intellectual property rights, especially in those foreign countries
that do not respect and protect intellectual property rights to the same extent as the United States.
Our business and operations would suffer in the event of system failures or unplanned events.
Despite the implementation of security measures, our internal computer systems and those of our current and future
contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. While we are not aware of any such material system
failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it
could result in a material disruption of our development programs and our business operations. For example, the loss of
clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were
to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur liability and the further development and commercialization of our product candidates could
be delayed.
Furthermore, any unplanned event, such as flood, fire, explosion, tornadoes, earthquake, extreme weather condition,
medical epidemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that
result in us being unable to fully utilize the facilities, may have an adverse effect on our ability to operate our business,
particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss
of access to these facilities may result in increased costs, delays in the development of our product candidates or
interruption of our business operations.
Risks Related to our Common Stock
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses of
our common stock.
The trading price of our common stock O is likely to be highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control, including limited trading volume. In addition to the
factors discussed in this “Risk Factors” section and elsewhere in this report, these factors include:
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adverse results or delays in preclinical studies, clinical trials, regulatory decisions or the development status
of gemcabene or any product candidates we may pursue in the future;
decisions to initiate a clinical trial, not initiate a clinical trial, or terminate an existing clinical trial;
adverse regulatory decisions, including failure to receive regulatory approval for gemcabene;
changes in applicable laws, rules or regulations;
disputes with Pfizer regarding our licensed rights to gemcabene;
adverse developments concerning our manufacturers, suppliers, collaborators and other third parties;
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our failure to commercialize gemcabene or any product candidates we may pursue in the future;
the success of competitive drugs;
additions or departures of key scientific or management personnel;
unanticipated safety concerns related to the use of gemcabene or any product candidates we may pursue in
the future;
our announcements or our competitor’s announcements regarding new products, enhancements, significant
contracts, acquisitions or strategic partnerships and investments;
changes in the structure of healthcare payment systems;
the size and growth of our target markets;
our failure, or companies perceived to be similar to us, to meet external expectations or management
guidance;
fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be
similar to us;
publication of research reports about us or our industry, recommendations, earning results or estimates or
withdrawal of research coverage by securities analysts;
changes in the market valuations of similar companies;
changes in general economic, political and market conditions in any of the regions in which we conduct our
business;
changes in our capital structure or dividend policy, future issuances of securities, sales of large blocks of
common stock by our stockholders or our incurrence of additional debt;
trading volume of our common stock;
changes in accounting practices and ineffectiveness of our internal controls;
disputes, litigation or developments relating to proprietary rights;
timing of milestones and royalty payments; and
other events or factors, many of which are beyond our control.
In addition, the stock market in general, NASDAQ, and the stock of biopharmaceutical companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors may negatively affect the market price of our
common stock, regardless of our actual operating performance. In the past, securities class action litigation has often
been instituted against companies following periods of volatility in the market price of a company’s securities. This type
of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources,
which would harm our business, operating results or financial condition.
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Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may
be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove
our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other
change in control of us that stockholders may consider favorable, including transactions in which you might otherwise
receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in
the future for shares of our common stock, thereby depressing the market price of our common stock. In addition,
because our board of directors is responsible for appointing the members of our management team, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that not all members of the board are elected at one time;
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from the board;
establish advance notice requirements for stockholder proposals that can be acted on at stockholder
meetings and nominations to our board of directors;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions
by our stockholders by written consent;
prohibit stockholders from calling special meetings;
authorize our board of directors to issue preferred stock without stockholder approval, which preferred
stock may include rights superior to the rights of the holders of common stock, and which could be used to
institute a shareholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership
of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board
of directors; and
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require the approval of the holders of at least two-thirds of the votes that all our stockholders would be
entitled to cast to amend or repeal certain provisions of our charter or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware
General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from
merging or combining with us for a period of three years after the date of the transaction in which the person acquired in
excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the
market price of our common stock will be and as a result it may be difficult for you to sell your shares of our common
stock.
Prior to the IPO there has been no public market for shares of our common stock. Although our common stock has been
approved for listing on NASDAQ, an active trading market for our shares may never develop or be sustained. You may
not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active.
Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may
impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common
stock as consideration.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of
our stock, the price of our stock could decline.
If one or more of the analysts covering our business downgrade their evaluations of our stock or publish inaccurate or
unfavorable research about our business, the price of our stock could decline. If one or more of these analysts cease to
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cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price and
trading volume to decline.
Our executive officers, directors, principal stockholders and their affiliates exercise significant control over our
company, which will limit your ability to influence corporate matters and could delay or prevent a change in
corporate control.
As of December 31, 2016, our officers, directors, five percent or greater stockholders and their respective affiliates had
beneficial ownership, in the aggregate, of approximately 63.7% of our outstanding common stock.
These stockholders, if they act together, will be able to influence our management and affairs and control the outcome of
matters submitted to our stockholders for approval, including the election of directors, amendments of our organizational
documents, and any merger, consolidation, sale of all or substantially all of our assets or other major corporate
transaction. These stockholders acquired their shares of common stock for substantially less than the current trading
price of our common stock, and these stockholders may have interests, with respect to their common stock, that are
different from yours. In addition, this concentration of ownership might adversely affect the market price of our common
stock, have the effect of delaying, deferring or preventing a change of control of our company, or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of us.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to
emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging
growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other
public companies that are not “emerging growth companies,” including exemption from compliance with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. Under the JOBS Act, emerging growth companies can also delay adopting
new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably
elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject
to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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 the IPO, (b) in which we have total annual gross revenue of at least $1 billion, or (c) in
which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by
non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than
$1 billion in non-convertible debt during the prior three-year period.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,”
which would allow us to take advantage of many of the same exemptions from disclosure requirements including
exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If
some investors find our common stock less attractive as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
We will incur increased costs as a result of operating as a public company, and our management will be required to
devote substantial time to new compliance initiatives.
As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant
legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the
reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC annual,
quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act
and rules subsequently implemented by the SEC and NASDAQ have imposed various requirements on public
companies, including establishment and maintenance of effective disclosure and financial controls and corporate
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governance practices. Our management and other personnel will need to devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and
will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may
make it more difficult and more expensive for us to obtain director and officer liability insurance.
Further, there are significant corporate governance and executive compensation related provisions in the Dodd-Frank
Wall Street Reform and Consumer Protection Act that require the SEC to adopt additional rules and regulations in these
areas such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many
of these requirements over a longer period and up to five years from the pricing of the IPO. We intend to take advantage
of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than
budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and
the current high level of government intervention and regulatory reform may lead to substantial new regulations and
disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our
business in ways we cannot currently anticipate.
We are subject to Section 404 of the Sarbanes-Oxley Act and the related rules of the SEC that generally require our
management and independent registered public accounting firm to report on the effectiveness of our internal control over
financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 of
the Sarbanes-Oxley Act requires an annual management assessment of the effectiveness of our internal control over
financial reporting. However, for so long as we remain an “emerging growth company” as defined in the JOBS Act, we
intend to take advantage of certain exemptions from various reporting requirements that are applicable to public
companies that are not emerging growth companies, including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Once we are no longer an “emerging growth
company” or, if before such date, we opt to no longer take advantage of the applicable exemption, we will be required to
include an opinion from our independent registered public accounting firm on the effectiveness of our internal control
over financial reporting.
To date, we have never conducted a review of our internal control for the purpose of providing the reports required by
these rules. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to
document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard,
we will need to continue to dedicate internal resources, hire additional finance and accounting personnel, potentially
engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over
financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are
functioning as documented and implement a continuous reporting and improvement process for internal control over
financial reporting. During the course of our review and testing, we may identify deficiencies and be unable to remediate
them before we must provide the required reports. We or our independent registered public accounting firm may not be
able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm
our operating results, cause investors to lose confidence in our reported financial information and cause the trading price
of our stock to fall. Furthermore, if we have a material weakness in our internal control over financial reporting, we may
not detect errors on a timely basis and our financial statements may be materially misstated.
In addition, as a public company we will be required to timely file accurate quarterly and annual reports with the SEC
under the Exchange Act. In order to report our results of operations and financial statements on an accurate and timely
basis, we will depend on CROs to provide timely and accurate notice of their costs to us. Any failure to report our
financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from
NASDAQ or other adverse consequences that would materially harm our business.
We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock and,
consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our capital stock and do not currently intend to do so in the
foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and
expansion of our business. Therefore, the success of an investment in shares of our common stock will depend upon any
future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even
maintain the price at which you purchased them.
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A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the
market in the near future, which could cause the market price of our common stock to drop significantly, even if our
business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales,
or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market
price of our common stock. As of December 31, 2016, we had 9,270,255 shares of common stock outstanding. This
included 2,121,435 shares that we sold in the IPO that, may be resold in the public market immediately without
restriction. The remaining 7,148,820 shares, as well as any shares purchased by our affiliates in the IPO, are currently or
will be restricted as a result of securities laws.
Moreover, holders of an aggregate of approximately 1,436,161 shares of our common stock will have rights, subject to
some conditions, to require us to file registration statements covering their shares or to include their shares in registration
statements that we may file for ourselves or other stockholders.
An aggregate of 355,200 shares reserved under the A&R 2015 Plan, 102,000 shares reserved under the Inducement Plan
and 150,000 shares reserved under our employee stock purchase plan remained available for issuance as of December
31, 2016. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our
common stock.
Our issuance of the common stock in connection with the IPO may have resulted in an “ownership change” at the
time of issuance, or has increased the risk that we could experience an ownership change in the future. Any
ownership change would significantly limit our ability to utilize our net operating loss carryforwards and certain
other tax attributes.
As of December 31, 2016, we had approximately $6.2 million in U.S. federal and state net operating loss carryforwards,
which will begin to expire in 2034 for federal and 2026 for state, that we can use in certain circumstances to offset any
future taxable income and thus reduce any federal income tax liability. We also had net tax credit carryforwards of $0.7
million and $24,000 available to reduce future tax liabilities, if any, for U.S. federal and state purposes, respectively. Our
ability to utilize these net operating losses and tax credit carryforwards to offset future taxable income may be
significantly limited if we have experienced or if we experience in the future an “ownership change,” as defined in
Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. In general, an ownership change will occur
if there is a cumulative change in our ownership by “5-percent shareholders” (as defined in the Code) that exceeds 50
percentage points over a rolling three-year period. A corporation that experiences an ownership change will generally be
subject to an annual limitation on the corporation’s subsequent use of net operating loss carryovers that arose from
pre-ownership change periods and use of losses that are subsequently recognized with respect to assets that had a
built-in-loss on the date of the ownership change. The amount of the annual limitation generally equals the value of the
corporation immediately before the ownership change multiplied by the long-term tax-exempt interest rate (subject to
certain adjustments). To the extent that the limitation in a post-ownership-change year is not fully utilized, the amount of
the limitation for the succeeding year will be increased.
We do not expect to have experienced an ownership change as a result of our issuance of common stock in connection
with the IPO. Nevertheless, the rules regarding the determination of whether an ownership change exists are complicated
and are subject to differing interpretations, and it is possible that such issuances might be treated as having resulted in an
ownership change. We have not completed a study to assess whether an ownership change for purposes of Section 382
has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs
and complexities associated with such study. Even if there was no ownership change as a result of such issuance, the
issuance of stock pursuant to the IPO will be taken into account in determining the cumulative change in our ownership
for Section 382 purposes. As a result, the IPO has materially increased the risk that we could experience an ownership
change in the future. If we experience an ownership change, we may not be able to fully utilize our net operating losses,
resulting in additional income taxes and a reduction in our stockholders’ equity.
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Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive
forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that, subject to limited exceptions, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action
asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our
stockholders, any action asserting a claim against us arising pursuant to any provision of the Delaware General
Corporation Law, as amended, our amended and restated certificate of incorporation or our amended and restated
bylaws, any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of
incorporation or our amended and restated bylaws or any other action asserting a claim against us that is governed by the
internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital
stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate
of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may
discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these
provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or
more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such
matters in other jurisdictions, which could adversely affect our business and financial condition.
Unstable market and economic conditions may have serious adverse consequences on our business, financial
condition and stock price.
The global credit and financial markets have experienced extreme volatility and disruptions in the past several years,
including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic
growth, increases in unemployment rates and uncertainty about economic stability. We cannot assure you that further
deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business
strategy may be adversely affected by any such economic downturn, volatile business environment or continued
unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it
may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any
necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth
strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In
addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not
survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule
and on budget.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 2.
PROPERTIES
We lease an approximately 5,300 square foot facility in Livonia, Michigan that is primarily used for our headquarters
and our research and development activities under a 3 year non-cancellable facility lease that commenced in
August 2016. We also lease approximately 1,450 square feet for limited use of office space relating to research and
development in our previous Northville, Michigan headquarters location under a cancelable lease agreement that became
effective in August 2016 and expires in September 2017. We believe that these facilities are adequate to meet our current
needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our
operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to
have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us
because of defense and settlement costs, diversion of management resources and other factors.
88
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock has been listed on the NASDAQ Global Market under the symbol “GEMP” since August 5,
2016. Our common stock priced at $10.00 per share in our initial public offering on August 4, 2016. Prior to that date,
there was no public trading market for our common stock. The following table sets forth for the periods indicated the
high and low sale prices per share of our common stock as reported on the NASDAQ Global Market:
The following table sets forth the high and low intra-day sales prices of our common stock for the periods indicated.
2016
Third quarter (from August 5, 2016) . . . . . . . . . . . $
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
High
Low
13.98
11.95
$
$
8.50
7.25
Stockholders
On March 3, 2017, we had 9,272,582 shares of common stock outstanding and 114 holders of record of our common
stock. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers
and other nominees. The transfer agent and registrar for our common stock is Computershare, Inc.
Dividend Policy
We have never declared or paid any dividends on our common stock, and we do not currently intend to pay any
dividends on our common stock for the foreseeable future. Any future determination to pay dividends on our common
stock will be, subject to applicable law, at the discretion of our Board of Directors and will depend upon, among other
factors, our results of operations, financial condition, capital requirements, and contractual restrictions in loan or other
agreements.
Recent Sales of Unregistered Equity Securities
On March 10 2017, we entered into a securities purchase agreement for a private placement with a select group of
accredited investors whereby, on March 15, 2017 we issued and sold 1,324,256 units at a price of $9.47 per unit for
gross proceeds of approximately $12.5 million. Each unit consists of one share of our common stock and a warrant to
purchase 0.75 shares of common stock. The warrants have an exercise price of $10.40 per share and are exercisable for a
period of five years from the date of issuance. The private placement included 56,678 units sold to 3 board members, for
aggregate proceeds totaling approximately $0.5 million and 52,798 units sold to 1 investor who is related to 1 board
member, for proceeds totaling approximately $0.5 million. Piper Jaffray & Co. acted as sole lead placement agent and
Laidlaw & Company (UK) Ltd. and LifeSci Capital LLC acted as co-placement agents in connection with the private
placement and will receive fees of approximately $1.0 million in the aggregate.
The securities were issued and sold in the private placement only to accredited investors in reliance on the exemption
from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and
Rule 506 of Regulation D promulgated thereunder, have not been registered under the Securities Act of 1933, as
amended, or state securities laws, and may not be offered or sold in the United States absent registration with the SEC or
an applicable exemption from such registration requirements. We have agreed to file a registration statement with the
SEC covering the resale of the shares of common stock issued in the private placement and issuable upon exercise of the
warrant issued in the private placement.
89
Use of Proceeds from Registered Securities
On August 4, 2016, our Registration Statement on Form S-1 (File No 333-210815) relating to our IPO was declared
effective by the Securities and Exchange Commission (SEC). The Registration Statement registered an aggregate of
3,450,000 shares of our common stock, including 450,000 shares of common stock registered to cover in full over-
allotments by the underwriters. On August 10, 2016, we closed our IPO whereby 3,000,000 shares of our common
stock were sold at a public offering price of $10.00 per share. On September 8, 2016, we closed the sale of 27,755 shares
of our common stock at the public offering price of $10.00 per share, representing a partial exercise of the underwriters’
over-allotment option, following which, the IPO terminated.
The managing underwriters of the IPO were Jefferies LLC and RBC Capital Markets, LLC. We paid to the underwriters
of the initial public offering underwriting discounts and commissions totaling approximately $2.1 million. In addition,
we incurred expenses of approximately $2.1 million which, when added to the underwriting discounts and commissions,
amounted to total expenses of approximately $4.2 million. Thus, the net offering proceeds, after deducting underwriting
discounts and commissions and offering expenses, were approximately $26.1 million.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed
with the SEC pursuant to Rule 424(b) on August 8, 2016.
Securities Authorized for Issuance under Equity Compensation Plans
The information called for by this item is incorporated by reference to our Proxy Statement for the 2017 Annual Meeting
of Stockholders. See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters.”
ITEM 6.
SELECTED FINANCIAL DATA
We have derived the following selected statement of operations data for the years ended December 31, 2016, 2015 and
2014 and the selected balance sheet data as of December 31, 2016 and 2015 from our audited financial statements
included elsewhere in this report. The selected balance sheet information as of December 31, 2014 is derived from our
audited financial statements which are not included in this report.
Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the
selected financial data below in conjunction with “Part II, Item 7. “Management’s Discussion and Analysis of Financial
90
Condition and Results of Operations” and our financial statements and the related notes included in Part II, Item 8
“Financial Statements and Supplementary Data” in this Report.
Statements of Operations Data:
Year Ended
December 31,
2016
2015
2014
Operating expenses:
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in–process research and development . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on convertible note extinguishment . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustment to redemption value on Series A convertible preferred
5,956 $
8,740
—
14,696
(14,696)
114
—
(4)
(14,586)
—
(14,586)
—
(14,586) $
(14,586) $
3,177 $
3,991
908
8,076
(8,076)
(762)
(198)
7
(9,029)
—
(9,029)
—
(9,029) $
(9,029) $
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(366)
(2,968)
Premium upon substantial modification of convertible notes with
certain stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to common stockholders . . . . . . . . . . . . . . . . . . . $
Net loss per share:
—
(14,952) $
(1,047)
(13,044) $
214
52
—
266
(266)
(55)
—
1
(320)
—
(320)
—
(320)
(320)
—
—
(320)
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(2.57) $
(4.54) $
(0.21)
Number of shares used in per share calculations:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,809,396
2,875,053
1,521,703
Balance Sheet Information:
Year Ended
December 31,
2016
2015
2014
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes (including premium conversion derivative) . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . .
24,033 $
24,754
—
4,122
—
(27,059)
20,632
3,620 $
4,490
6,769
8,917
7,953
(12,392)
(12,380)
317
330
810
861
—
(584)
(531)
ITEM 7
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
financial statements and notes included in Part II, Item 8 “Financial Statements and Supplementary Data” of this
Report.
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
and nonalcoholic fatty liver disease (NAFLD/NASH). Dyslipidemia is generally characterized by an elevation of
91
LDL-C, or bad cholesterol, triglycerides, or fat in the blood, as well as inflammation, especially in diabesity patients. We
are developing our product candidate gemcabene, a novel, once-daily, oral therapy, for high risk cardiovascular patients
who are unable to achieve normal levels of LDL-C or triglycerides with currently approved therapies, primarily statin
therapy and for those patients who present with NASH. Gemcabene’s mechanism of action is designed to enhance the
clearance of VLDLs in the plasma and inhibit the production of fatty acids and cholesterol in the liver. Gemcabene has
been tested as monotherapy and in combination with statins and other drugs in 895 subjects, which we define as healthy
volunteers and patients, across 18 Phase 1 and Phase 2 clinical trials and has demonstrated promising evidence of
efficacy, safety and tolerability.
We are pursuing gemcabene in the following indications as a treatment in addition to maximally tolerated statin therapy
for patients who are unable to reach their lipid-lowering goals: HoFH, HeFH, ASCVD, SHTG and NASH. We believe
we can design an efficient development plan to provide a new treatment alternative for HoFH patients while
demonstrating gemcabene’s potential ability to treat patients in the most severe segment of the dyslipidemia market can
further enhance brand awareness among key thought leaders and physicians. We are developing in parallel gemcabene
for HeFH, ASCVD, SHTG and NASH given gemcabene’s: (1) promising clinical data and mechanism in these
indications; (2) cost-effective manufacturing process; (3) convenient oral dosing; (4) viability as adjunct combination
therapy; and (5) large commercial potential. During 2016, we initiated three late stage clinical trials for gemcabene in
HoFH, hypercholesterolemia, including HeFH and ASCVD patients on maximally tolerated statins, and SHTG. By the
end of 2017, we expect to report top-line data from all three dyslipidemia trials (COBALT-1, ROYAL-1 and INDIGO-
1). We plan to initiate a fourth Phase 2 clinical trial in 2017 to study gemcabene in NASH. Upon completion of one or
more of these clinical trials, we intend to request an End of Phase 2 (EOP2) meeting with the FDA to reach an agreement
on the design of Phase 3 registration trials and long term safety exposure for our target indications. We intend to pursue
similar discussions with Canadian and European health authorities.
Our Company was co-founded in November 2008 as a limited liability company under the name Michigan Life
Therapeutics, LLC (MLT) by former Pfizer 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.
In April 2016, our board of directors approved an amendment to our certificate of incorporation to effect a 1-for-3.119
reverse stock split (the Reverse Stock Split) for all common and Series A preferred stock. The Reverse Stock Split
became effective on April 27, 2016 upon the filing of the amendment to the certificate of incorporation. The authorized
shares and par value of the common stock and Series A preferred stock were not adjusted as a result of the Reverse
Stock Split.
On August 4, 2016, our Registration Statement on Form S-1 (File No 333-210815) relating to our initial public offering
(“IPO”) of our common stock was declared effective by the SEC. Pursuant to such Registration Statement, on August
10, 2016, we closed our IPO whereby 3,000,000 shares of our common stock were sold at a public offering price of
$10.00 per share. On September 8, 2016, we closed the sale of 27,755 shares of our common stock at the public offering
price of $10.00 per share, representing a partial exercise of the underwriters’ over-allotment option, following which, the
IPO terminated. We received net proceeds of approximately $26.1 million after deducting underwriting discounts and
commissions of $2.1 million and other offering expenses of $2.1 million.
To date, our primary activities have been conducting research and development activities, planning 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 gemcabene and we successfully commercialize gemcabene. 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. Through December
31, 2016, we have funded our operations primarily through the issuance of common stock in our IPO, totaling $30.3
million in gross proceeds, and the issuance of preferred stock and convertible notes, totaling $14.8 million in gross
proceeds. Our net losses were $14.6 million, $9.0 million and $0.3 million during the years ended December 31, 2016,
92
2015 and 2014, respectively. As of December 31, 2016, we had an accumulated deficit of $27.1 million. We anticipate
that our expenses will increase substantially as we:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
continue clinical trials for gemcabene and for any other product candidate in our future pipeline;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
contract to manufacture our product candidates;
establish on our own or with partners, a sales, marketing and distribution infrastructure to commercialize
any products for which we may obtain regulatory approval;
(cid:120) maintain, expand and protect our intellectual property portfolio;
(cid:120)
(cid:120)
(cid:120)
hire additional staff, including clinical, scientific, operational and financial personnel, to execute our
business plan;
add operational, financial and management information systems and personnel, including personnel to
support our product development and potential future commercialization efforts; and
to enable us to operate as a public company.
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.
Recent Developments
On March 10 2017, we entered into a securities purchase agreement for a private placement with a select group of
accredited investors whereby, on March 15, 2017 we issued and sold 1,324,256 units at a price of $9.47 per unit for
gross proceeds of approximately $12.5 million. Each unit consists of one share of our common stock and a warrant to
purchase 0.75 shares of common stock. The warrants have an exercise price of $10.40 per share and are exercisable for a
period of five years from the date of issuance. The private placement included 56,678 units sold to 3 board members, for
aggregate proceeds totaling approximately $0.5 million and 52,798 units sold to 1 investor who is related to 1 board
member, for proceeds totaling approximately $0.5 million.
The securities were issued and sold in the private placement have not been registered under the Securities Act of 1933,
as amended, or state securities laws, and may not be offered or sold in the United States absent registration with the SEC
or an applicable exemption from such registration requirements. We have agreed to file a registration statement with the
SEC covering the resale of the shares of common stock issued in the private placement and issuable upon exercise of the
warrant issued in the private placement.
Financial Operations Overview
Revenue
To date, we have not generated any revenue. We do not expect to generate revenue unless or until we obtain regulatory
approval of and commercialize gemcabene. If we fail to complete the development of gemcabene, or any other product
candidate we may pursue in the future, in a timely manner, or fail to obtain regulatory approval, our ability to generate
future revenue would be compromised.
Operating Expenses
Our operating expenses are classified into three categories: general and administrative, research and development and
acquired in-process research and development.
93
General and Administrative
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 administrative activities. Other
significant costs include legal fees relating to intellectual property and corporate matters and professional fees for
accounting and other services. We anticipate that our general and administrative expenses will continue to be higher than
comparable periods in the future to support our continued research and development activities, potential
commercialization of gemcabene, if approved, and any future product candidates we may develop and the increased
costs of operating as a public company. These increases will include increased costs related to the hiring of additional
personnel and fees for legal and professional services, significantly increased share-based compensation costs related to
stock options issued in conjunction with our IPO and anticipated future option grants in conjunction with personnel
additions, as well as other public-company related costs.
Research and Development
To date, our research and development expenses have related primarily to the clinical stage development of gemcabene.
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, nonlegal patent costs, fees paid
to external service providers that conduct certain research and development, clinical costs and an allocation of overhead
expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as
the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the
status of the study or project, and the invoices received from our external service providers. We adjust our accrual as
actual costs become known. Research and development activities are central to our business model.
We expect that gemcabene will have higher development costs during its later stages of clinical development, as
compared to costs incurred during its earlier stages of development, primarily due to the increased size and duration of
the later-stage clinical trials, so we expect our research and development expenses to significantly increase in the future
as we continue to conduct preclinical studies and clinical trials for gemcabene and potentially develop other product
candidates. However, it is difficult to determine with certainty the duration, costs and timing to complete our current or
future preclinical programs and clinical trials of gemcabene. The duration, costs and timing of clinical trials and
development of gemcabene will depend on a variety of factors that include, but are not limited to, the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
per patient trial costs;
the number of patients that participate in the trials;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring or other studies requested by regulatory agencies;
the duration of patient follow-up;
the phase of development of the product candidate;
arrangements with contract research organizations and other service providers; and
the efficacy and safety profile of the product candidates.
94
Acquired In-Process Research and Development
We include costs to acquire or in-license product candidates in acquired in-process research and development expenses.
When we acquire the right to develop and commercialize a new product candidate, any up-front payments, or any future
milestone payments that relate to the acquisition or licensing of such a right are immediately expensed as acquired
in-process research and development in the period in which they are incurred. These costs are immediately expensed
provided that the payments do not also represent processes or activities that would constitute a “business” as defined
under generally accepted accounting principles in the United States (GAAP), or provided that the product candidate has
not achieved regulatory approval for marketing and, and absent obtaining such approval, has no alternative future use.
Royalties owed on future sales of any licensed product will be expensed in the period the related revenues are
recognized.
Interest Income (Expense)
Interest income (expense) consists of activity related to convertible notes issued by us, activity associated with the
underlying premium conversion derivative related to such notes, and interest earnings from cash and cash equivalents.
The notes we issued had an annual interest rate of 8%. The interest on the Interim Notes compounded on an annual basis
while the interest on the Convertible Notes compounded daily. The principal and accrued and unpaid interest on the
Convertible Notes converted into shares of the Company’s Series A preferred stock upon the closing of the Series A
preferred stock financing on March 31, 2015, which shares of Series A preferred stock, and accrued dividends thereon,
converted into common stock immediately prior to the closing of the IPO. The principal and accrued and unpaid interest
on the Interim Notes converted into shares of common stock immediately prior to the closing of the IPO.
We expect to earn interest income in future periods from the investment of cash and cash equivalents and a significant
decrease in interest income (expense) given the conversion of the principal and accrued and unpaid interest on both the
Convertible Notes and Interim Notes in August 2016.
Loss on convertible note extinguishment
Loss on convertible note extinguishment consists of losses stemming from a convertible note amendment accounted for
as note extinguishment.
Other (Expense) Income
Other (expense) income relates to foreign currency exchange gains and losses. Foreign currency exchange gains and
losses relate to transactions and monetary asset and liability balances denominated in currencies other than the U.S.
dollar. Foreign currency gains and losses may continue to fluctuate in the future due to changes in foreign currency
exchange rates.
95
Results of Operations
Comparison of Years Ended December 31, 2016 and 2015
The following table summarizes our operating results for the periods indicated:
For the Year Ended
December 31,
2015
Change
2016
(in thousands)
Operating expenses:
5,956 $ 3,177 $ 2,779
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . $
4,749
3,991
8,740
Research and development . . . . . . . . . . . . . . . . . . . . . . . .
908
—
(908)
Acquired in–process research and development . . . . . . .
6,620
8,076
14,696
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
(6,620)
(8,076)
(14,696)
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
876
(762)
114
Interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198
(198)
—
Loss on convertible note extinguishment . . . . . . . . . . . . . . .
(11)
7
(4)
Other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,557)
(9,029)
(14,586)
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . .
—
—
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,586) $ (9,029) $ (5,557)
General and Administrative
General and administrative expenses for the year ended December 31, 2016 were $6.0 million compared to $3.2 million
for the year ended December 31, 2015. The $2.8 million increase was primarily attributable to an increase in staffing and
professional services associated largely with supporting our clinical trials and becoming a public company in 2016.
General and administrative expenses included $1.2 million and $0.3 million in share-based compensation expense during
the year ended December 31, 2016 and 2015, respectively.
Research and Development
Research and development expenses for the year ended December 31, 2016 were $8.7 million compared to $4.0 million
for the year ended December 31, 2015. The $4.7 million increase was primarily attributable to increased staffing and
fees paid to external service providers for clinical trial development, regulatory consulting, preclinical studies and
manufacturing activities to support clinical advancement of gemcabene. Research and development expenses included
$0.6 million in share-based compensation expense during the year ended December 31, 2016. There was no share-based
compensation expense during the year ended December 31, 2015.
Acquired In-process Research and Development
No acquired in-process research and development expenses were incurred during the year ended December 31, 2016.
Acquired in-process research and development expenses during the year ended December 31, 2015 were $0.9 million
which was the result of an equity milestone payment under our license agreement with Pfizer. We issued 675,250 shares
of common stock to Pfizer and immediately expensed the equity milestone payment in the first quarter of 2015 as
acquired in-process research and development expenses at the fair value equivalent of the shares issued in the amount of
$0.9 million.
Interest Income (Expense)
Interest income (expense) for the year ended December 31, 2016 was $0.1 million compared to $(0.8) million for the
year ended December 31, 2015. The $0.9 million increase in net interest income, primarily non-cash, was largely due to
the amortization of the note premium associated with the July 2015 Interim Notes, fair value adjustments of the
derivative liability associated with the Interim Notes, and interest earnings of $23,000 from IPO cash proceeds. Interest
income was offset in part by non-cash interest expense associated with the conversion of the April 2016 Interim Notes
96
along with the amortization of the underlying beneficial conversion feature. The unpaid principal and accrued interest on
the Convertible Notes converted into shares of Series A preferred stock on March 31, 2015 and no Convertible Notes
were outstanding following such date. The principal and accrued and unpaid interest on the Interim Notes converted to
common stock immediately prior to the closing of the IPO, and as a result, no Interim Notes were outstanding as of
December 31, 2016.
Loss on convertible note extinguishment
Non-cash loss on convertible note extinguishment for the years ended December 31, 2016 and 2015 was zero and
$0.2 million, respectively. The convertible notes issued in July 2015 were amended in December 2015. The amendment
added a new contingent conversion feature, serving to extend the maturity date by five months and revise certain
conversion premiums. As a result of the modifications made to such convertible notes, we accounted for the amendment
as a note extinguishment which gave rise to the $0.2 million non-cash loss in 2015. During the year ended 2016, there
were no modifications to convertible notes that required note extinguishment accounting treatment.
Provision for Income Taxes
Provision for income taxes consists of federal and state income taxes in the United States, as well as deferred income
taxes and changes in related valuation allowance reflecting the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Currently, there is no provision for income taxes, as we have incurred operating losses to date, and a full valuation
allowance has been provided on the net deferred tax assets as of December 31, 2016 and December 31, 2015.
Comparison of the Years Ended December 31, 2015 and 2014
The following table summarizes our operating results for the periods indicated:
Operating expenses:
For the Year Ended
December 31,
2014
(in thousands)
Change
2015
214 $ 2,963
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,177 $
3,939
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . .
908
Acquired in–process research and development . . . . . . . . .
7,810
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,810)
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(707)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(198)
Loss on convertible note extinguishment . . . . . . . . . . . . . . . . .
6
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,709)
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . .
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,029) $ (320) $ (8,709)
3,991
908
8,076
(8,076)
(762)
(198)
7
(9,029)
—
52
—
266
(266)
(55)
—
1
(320)
—
General and Administrative
General and administrative expenses for the year ended December 31, 2015 were $3.2 million compared to $0.2 million
for the year ended December 31, 2014. The $3.0 million increase was primarily attributable to an increase in staffing and
professional services. General and administrative expenses included $0.3 million and $53,000 in share-based
compensation expense in the years ended December 31, 2015 and 2014, respectively.
Research and Development
Research and development expenses for the year ended December 31, 2015 were $4.0 million compared to $52,000 for
the year ended December 31, 2014. The $3.9 million increase was primarily attributable to preclinical studies and
manufacturing activities to support clinical advancement of gemcabene and fees paid to external service providers for
clinical trial development and regulatory consulting.
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Acquired In-process Research and Development
Acquired in-process research and development expenses for the year ended December 31, 2015 were $0.9 million. There
were no acquired in-process research and development expenses during the year ended December 31, 2014. The increase
was attributable to an equity milestone payment under our license agreement with Pfizer. We issued 675,250 shares of
common stock to Pfizer and immediately expensed the equity milestone payment in the first quarter of 2015 as acquired
in-process research and development expenses at the fair value equivalent of the shares issued in the amount of
$0.9 million.
Interest Expense
Non-cash interest expense for the year ended December 31, 2015 was $0.8 million compared to $55,000 for the year
ended December 31, 2014. The $0.7 million increase was primarily due to the issuance of convertible notes in the first,
third and fourth quarters of 2015. Cash interest paid during the years ended December 31, 2015 and 2014 was $2,000
and zero, respectively. The convertible notes issued through the first quarter of 2015 were converted to Series A
preferred shares on March 31, 2015. The convertible notes issued in July and December 2015 were outstanding at
December 31, 2015.
Loss on convertible note extinguishment
Non-cash loss on convertible note extinguishment for the years ended December 31, 2015 and 2014 was $0.2 million
and zero, respectively. The convertible notes issued in July 2015 were amended in December 2015. The amendment
added a new contingent conversion feature, serving to extend the maturity date by five months and revise certain
conversion premiums. As a result of the modifications made to such convertible notes, we accounted for the amendment
as a note extinguishment which gave rise to the $0.2 million non-cash loss in 2015.
Provision for Income Taxes
Provision for income taxes consists of federal and state income taxes in the United States, as well as deferred income
taxes and changes in related valuation allowance reflecting the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Currently, there is no provision for income taxes, as we have incurred operating losses to date, and a full valuation
allowance has been provided on the net deferred tax assets as of December 31, 2015 and December 31, 2014.
Liquidity and Capital Resources
Capital Resources
As of December 31, 2016, our principal sources of liquidity consisted of cash and cash equivalents of approximately
$24.0 million. Our cash and cash equivalents are invested in cash deposits and money market accounts.
We have not generated any revenue, and we anticipate that we will continue to incur losses for the foreseeable future.
We anticipate that our expenses will increase substantially as we:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
continue clinical trials for gemcabene and for any other product candidate in our future pipeline;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
contract to manufacture our product candidates;
establish on our own or with partners, a sales, marketing and distribution infrastructure to commercialize
any products for which we may obtain regulatory approval;
(cid:120) maintain, expand and protect our intellectual property portfolio;
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(cid:120)
(cid:120)
(cid:120)
hire additional staff, including clinical, scientific, operational and financial personnel, to execute our
business plan;
add operational, financial and management information systems and personnel, including personnel to
support our product development and potential future commercialization efforts; and
to enable us to operate as a public company.
Historical Capital Resources
On August 4, 2016, our Registration Statement on Form S-1 (File No 333-210815) relating to our IPO of our common
stock was declared effective by the SEC. Pursuant to such Registration Statement, on August 10, 2016, we closed our
IPO whereby 3,000,000 shares of our common stock were sold at a public offering price of $10.00 per share. On
September 8, 2016, we closed the sale of 27,755 shares of our common stock at the public offering price of $10.00 per
share, representing a partial exercise of the underwriters’ over-allotment option, following which, the IPO terminated.
We received net proceeds of approximately $26.1 million after deducting underwriting discounts and commissions of
$2.1 million and other offering expenses of $2.1 million.
Our primary source of cash prior to the IPO was proceeds from the issuance of preferred stock and from the issuance of
convertible notes and promissory notes described below. The proceeds from the issuances of preferred stock and from
the issuances of the convertible and promissory notes have been used to fund our operations.
From March 2009 through October 2014, we issued promissory notes for aggregate net proceeds of $0.3 million. The
promissory notes compounded at an 8% rate per annum basis and were exchanged for the convertible notes described
below on November 1, 2014.
From November 2014 through February 2015, we issued convertible notes for aggregate net proceeds of $2.4 million
(the “Convertible Notes”). The Convertible Notes converted into shares of the Company’s Series A preferred stock upon
close of the Series A preferred stock financing on March 31, 2015. The conversion equaled 125% of the unpaid principal
plus unpaid accrued interest on the Convertible Notes.
In March 2015, we issued Series A convertible preferred stock for aggregate net proceeds of approximately $1.5 million.
On August 10, 2016, immediately prior to the closing of the IPO, the Company’s Series A preferred stock, together with
accrued dividends thereon, converted into 827,205 shares of common stock.
In July and December 2015, we entered into convertible note financings in which we issued 8% convertible notes in an
aggregate principal amount of $5.5 million to various investors. In February and April 2016, we issued additional 8%
convertible notes in an aggregate principal amount of $5.2 million to various investors (collectively with the July and
December 2015 notes, the “Interim Notes”). The principal and accrued and unpaid interest on the Interim Notes
converted into shares of common stock immediately prior to the closing of the IPO.
The following table summarizes our cash flows for the periods indicated:
For the Year Ended
December 31,
2015
(in thousands)
2014
2016
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . $ (11,043)$ (5,433) $ (195)
—
Net cash provided by (used in) investing activities . . . . . . . . . .
509
Net cash provided by financing activities . . . . . . . . . . . . . . . . . .
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,413 $ 3,303 $ 314
—
31,456
—
8,736
Cash Flow from Operating Activities
For the year ended December 31, 2016, cash used in operating activities of $11.0 million was attributable to a net loss of
$14.6 million which included $1.6 million in non-cash expenses and a net change of $1.9 million in our net operating
assets and liabilities. The non-cash (income) expenses consisted of $1.7 million of share-based compensation offset by
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net non-cash interest income of $(0.1) million related to both the Interim Notes and the premium conversion derivative.
The net change in operating assets and liabilities was primarily attributable to increases in our accounts payable and
accrued liabilities associated with our increased operating expenses and a net decrease in our deferred offering costs
following the completion of our IPO.
For the year ended December 31, 2015, cash used in operating activities of $5.4 million was attributable to a net loss of
$9.0 million, partially offset by $2.2 million in non-cash expenses and a net change of $1.4 million in our net operating
assets and liabilities. The non-cash expenses consist of $0.3 million of share-based compensation, non-cash interest of
$0.8 million related to both the convertible notes and to the premium conversion derivative, $0.9 million related to a
non-cash purchase of acquired in-process research and development pursuant to the issuance of common stock and
$0.2 million related to a non-cash loss on extinguishment of convertible notes. The change in operating assets and
liabilities was attributable to increases in accounts payable and accrued liabilities associated with our increased operating
expenses.
For the year ended December 31, 2014, cash used in operating activities of $0.2 million was attributable to a net loss of
$0.3 million, partially offset by $108,000 in non-cash expenses and a net change of $17,000 in our net operating assets
and liabilities. The non-cash expenses consisted of $53,000 of share-based compensation and non-cash interest of
$55,000 related to both the convertible notes and to the premium conversion derivative. The change in operating assets
and liabilities was primarily attributable to increases in accrued liabilities associated with our increased operating
expenses.
Cash Flow from Investing Activities
There were no sources or uses of funds from investing activities for all periods presented.
Cash Flow from Financing Activities
Net cash provided by financing activities during the year ended December 31, 2016 was $31.5 million consisting of
$26.3 million in IPO proceeds, net of discounts, commissions and other offering costs of $4.0 million paid through
December 31, 2016, and $5.2 million in proceeds from the issuance of Interim Notes in February 2016 and April 2016.
Net cash provided by financing activities was $8.7 million during the year ended December 31, 2015. Net cash provided
by financing activities during the year ended December 31, 2015 consisted of $1.5 million in proceeds from the issuance
of Series A preferred stock and $7.4 million in proceeds from the issuance of Convertible Notes and Interim Notes,
offset by financing costs of $0.2 million associated with the proposed initial public offering.
Net cash provided by financing activities during the year ended December 31, 2014 was $0.5 million, consisting of
$0.4 million in proceeds from the issuance of Convertible Notes and $0.1 million in proceeds received from the issuance
of promissory notes.
Liquidity and Capital Resource Requirements
We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until,
and unless, the FDA or other regulatory authorities approve gemcabene and we successfully commercialize gemcabene.
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. We
do not have any committed external source of funds. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional
funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to
relinquish valuable rights to our technologies, future revenue streams 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 through collaborations,
strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our
product development, future commercialization efforts, or grant rights to develop and market gemcabene that we would
otherwise prefer to develop and market ourselves.
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We believe the $24.0 million cash on hand at December 31, 2016, together with the net proceeds from the private
completed on March 15, 2017 will be sufficient to fund our operations through completion of all three of the
dyslipidemia Phase2b studies in 2017 as well as completion of the AZURE-1 study in the second half of 2018. The
development of gemcabene is subject to numerous uncertainties, and we have based these estimates on assumptions that
may prove to be substantially different than we currently anticipate and could use our cash resources sooner than we
expect. Additionally, the process of advancing early-stage product candidates and testing product candidates in clinical
trials is costly, and the timing of progress in these clinical trials is uncertain. Our ability to successfully transition to
profitability will be dependent upon achieving a level of product sales adequate to support our cost structure. We cannot
assure that we will ever be profitable or generate positive cash flow from operating activities.
Furthermore, we will need to raise additional capital to continue to fund the further development of gemcabene and other
potential product candidates, our operations, and commercialization of gemcabene and other potential product
candidates, if approved.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2016, which represent material expected
or contractually committed future obligations.
Facility lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
101 $ 159 $
101 $ 159 $
— $
— $
— $ 260
— $ 260
Payments Due by Period
Less than 1 year 1–3 Years 3–5 Years More than 5 years Total
(in thousands)
In May 2016, we entered into a 3 year non-cancellable facility lease commencing August 1, 2016 and made an initial
payment of approximately $91,000, $75,000 of which is treated as prepaid rent. The initial term of the agreement is three
years with an initial monthly base rent of approximately $8,400. Additionally, in the course of our normal operations, we
have entered into cancellable purchase commitments with our suppliers for various key research and clinical services
and raw materials. The purchase commitments covered by these arrangements are subject to change based on our
research and development efforts.
In April 2011, we entered into a license agreement with Pfizer (the Pfizer Agreement) for a worldwide exclusive license
to certain patent rights to make, use, sell, offer for sale and import the clinical product candidate gemcabene. In
exchange for this license, we agreed to issue shares of our common stock to Pfizer representing 15% of our fully diluted
capital at the close of our first arms-length Series A financing, which occurred in March 2015.
We agreed to make milestone payments totaling up to $37 million upon the achievement of certain milestones, including
the first regulatory submission 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 or any product containing 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.
We have 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 expiration of the last valid claim of the licensed patent rights, including
any patent term extensions or supplemental protection certificates. The royalty rates range from the high single digits to
the low teens depending on the level of net sales. Under the Pfizer Agreement we are obligated to use commercially
reasonable efforts to develop and commercialize gemcabene.
The Pfizer Agreement will expire upon expiration of the last royalty term. Either party may terminate the Pfizer
Agreement for the other party’s uncured material breach and specified bankruptcy events. Pfizer may terminate the
Pfizer Agreement if we or any of our sublicensees challenge the validity, enforceability or ownership of the licensed
patents. Upon termination of the license agreement for cause by Pfizer, we must grant Pfizer a non-exclusive license to
use any intellectual property rights arising from the development or commercialization of gemcabene. Additionally,
Pfizer may revoke the license if we are unable to adequately commercialize gemcabene by April 2021.
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Pfizer has a non-exclusive, sub licensable, royalty-free right and license for non-commercial research or development
purposes to intellectual property rights relating to gemcabene that are developed by us after the effective date of the
license with Pfizer.
As of December 31, 2016, no obligations were recorded related to the Pfizer Agreement due to the inability to
reasonably estimate the timing and outcomes of the gemcabene trials as well as the timing and amounts of future sales of
gemcabene, if any.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. These accounting principles require us to make
estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenue and expense during the periods presented. We believe that the
estimates and judgments upon which we rely are reasonably based upon information available to us at the time that we
make these estimates and judgments. To the extent that there are material differences between these estimates and actual
results, our financial results will be affected. The accounting policies that reflect our more significant estimates and
judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial
results are described below.
The following is not intended to be a comprehensive list of all of our accounting policies or estimates. Our accounting
policies are more fully described in Note 2 — Summary of Significant Accounting Policies, included in “Item 8 —
Financial Statements and Supplementary Data” in this report.
Income Taxes
We utilize 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 we have
incurred operating losses to date, and a full valuation allowance has been provided on the net deferred tax assets. MLT
was treated as a partnership for federal and state income tax purposes. Accordingly, no provision was made for income
taxes for periods prior to October 30, 2014, since the net losses incurred up to that time (subject to certain limitations)
was passed through to the income tax returns of its members. Upon incorporation on October 30, 2014 we became
taxable as a corporation.
Since incorporation, we have filed U.S. federal and Michigan state income tax returns. Our deferred tax assets were
primarily comprised of federal and state tax net operating loss carryforwards, acquired intangibles and tax credit
carryforwards and were recorded using enacted tax rates expected to be in effect in the years in which these temporary
differences are expected to be utilized. As of December 31, 2016, the tax effect of our federal and state net operating loss
carryforwards was approximately $2.1 million and $0.2 million, respectively, and our federal and state research and
development credit carryforwards were $0.7 million and $24,000, respectively. As of December 31, 2015, the tax effect
of our federal and state net operating loss carryforwards was approximately $2.4 million and $0.3 million, respectively,
and our federal research and development credit carryforward was $95,000. We did not have any state research and
development credit carryforwards in 2015. The federal net operating loss and tax credit carryforwards will begin to
expire in 2034 if not utilized. The state net operating loss carryforwards will begin to expire in 2026 if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical
or future ownership percentage change rules provided by the Internal Revenue Code of 1986, as amended, and similar
state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit
carryforwards before their utilization. However, due to uncertainties surrounding our ability to generate future taxable
income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets.
Convertible Preferred Stock
We initially record preferred stock that may be redeemed at the option of the holder, or based on the occurrence of
events outside our control, in mezzanine equity at the value of the proceeds received. Subsequently, if it is probable that
the preferred stock will become redeemable, we recognize changes in the redemption value immediately as they occur
102
and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. If it is
not probable that the preferred stock will become redeemable, we do not adjust the carrying value. In the absence of
retained earnings these charges are recorded against additional paid-in-capital, if any, and then to accumulated deficit.
Since the conversion of the Series A preferred stock into shares of common stock in August 2016 upon the closing of the
IPO, there was no convertible preferred stock issued.
Share-Based Compensation
Our share-based compensation for share-based awards is accounted for in accordance with authoritative guidance and is
estimated at the grant date based on the fair value of the award and recognized as expense ratably over the requisite
vesting period of the award. Determining the appropriate fair value of share-based awards requires judgment. We
calculate the fair value of each award to employees on the date of grant based on the fair value of our common stock.
See “— Common Stock Valuation” below.
We calculate the fair value of each stock option award to employees on the date of grant under the Black-Scholes
option-pricing model using certain assumptions related to the fair value of our common stock, the option’s expected
term, our expected stock price volatility, risk free interest rates and our expected dividend rate.
For options to purchase common stock issued to non-employees, including consultants, we record share-based
compensation based on the fair value of the options. We calculate the fair value of each share-based award to
non-employees on each measurement date based on the fair value of our common stock. The fair value of options
granted to non-employees is remeasured as the options vest and is recognized in the statements of operations during the
period the related services are rendered.
The fair value of each stock option grant was determined using the methods and assumptions discussed below. Each of
these inputs is subjective and generally requires significant judgment and estimation by management.
(cid:120) Fair Value of Common Stock. As discussed below in “— Common Stock Valuation,” because there was
no public market for our common stock prior to our IPO, our board of directors has determined the fair
value of the common stock by considering a number of objective and subjective factors, including based on
contemporaneous valuations of our common stock performed by an unrelated valuation specialist.
Currently, the fair value of our common stock is based on the quoted market price.
(cid:120) Expected Term. The expected term represents the period that share-based awards are expected to be
outstanding. The expected term for option grants is determined using the simplified method. The simplified
method deems the term to be the average of the time-to-vesting and the contractual life of the share-based
awards. The expected term for options issued to nonemployees is the contractual term.
(cid:120) Expected Volatility. Since we do not have a trading history of our common stock, the expected volatility
was derived from the historical stock volatilities of comparable peer public companies within our industry
that we consider to be comparable to our business over a period equivalent to the expected term of the
share-based awards.
(cid:120) Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the
share-based awards’ expected term.
(cid:120) Expected Dividend Rate. The expected dividend is zero as we have not paid and do not anticipate paying
any dividends on our common stock for the foreseeable future.
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The estimated grant-date fair value of our share-based awards was calculated using Black-Scholes option-pricing model,
based on the following assumptions for the following periods presented:
Year Ended
December 31,
2016
2015
(cid:3)
2014
Expected stock price volatility . . .
Expected life of options (years) . . .
Expected dividend yield . . . . . . . .
Risk free interest rate . . . . . . . . . .
71.4 %
6.0
0 %
1.2 %
71.0 %
5.5
0 %
1.7 %
— %
—
— %
— %
If any of the assumptions used in the Black-Scholes option-pricing model change significantly, share-based
compensation for future awards may differ materially compared with the awards granted previously.
For 2016, 2015 and 2014, share-based compensation was $1.7 million, $0.3 million and $53,000, respectively. As of
December 31, we had unrecognized share-based compensation expense totaling $11.2 million.
Common Stock Valuation
During periods when there was an absence of a public trading market for our common stock prior to the IPO, on each
grant date, we developed an estimate of the fair value of our common stock in order to determine an exercise price for
each share-based award. We determined the fair value of our common stock using methodologies, approaches and
assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as Compensation. Our board of directors exercised reasonable
judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of
our common stock, including having contemporaneous and retrospective valuations of our common stock performed by
an unrelated valuation specialist, valuations of comparable securities transactions, sales of our convertible preferred
stock to unrelated third parties, the rights, preferences and privileges of our common stock versus our preferred stock,
our operating and financial performance, our stage of development, current business conditions, our projections,
business developments, the lack of liquidity of our capital stock and general and industry specific economic outlook.
For our common stock valuations performed from November 1, 2014 up until the issuance of our Series A convertible
preferred stock (the Series A preferred stock) in March 2015, the fair value of our common stock was estimated entirely
using a hybrid of two market approaches, specifically a proposed Series A preferred stock Securities Transaction —
Backsolve method and the Series A preferred stock post-money value. This later approach considers the implied equity
value based on a common equivalent capitalization table associated with an IPO exit.
Once the Series A preferred stock round was consummated in March 2015, common stock valuations began to rely on
the indications of value realized in the transaction through June 30, 2015. The fair value of our common stock was
estimated using a hybrid of two market approaches, specifically the realized Series A preferred stock Recent Securities
Transaction — Backsolve method and the Series A preferred stock post-money value. This later approach considers our
implied equity value based on a common equivalent capitalization table associated with an IPO exit.
During the third quarter of 2015, the fair value of our common stock was estimated using a hybrid of two market
approaches, specifically the value of a potential Series B convertible preferred stock financing utilizing a Proposed
Securities Transaction — Backsolve method and the value of a potential Series B financing post-money as a common
stock equivalent for an IPO exit. Lastly, the completed Series A preferred stock Recent Securities Transaction —
Backsolve method was considered in the event that a Series B convertible preferred stock financing or an IPO could not
be achieved.
Beginning in the fourth quarter of 2015 and up until the closing of the IPO, the fair value of our common stock was
estimated using a hybrid of two market approaches, specifically the value of a potential Series B convertible preferred
stock financing utilizing a Proposed Securities Transaction — Backsolve method and a pre-money IPO value for an IPO
exit. Lastly, the completed Series A preferred stock Recent Securities Transaction — Backsolve method was considered
in the event that a Series B convertible preferred stock financing or an IPO could not be achieved.
104
We considered the various methods for allocating the enterprise value across our classes and series of capital stock to
determine the fair value of our common stock at each valuation date. The methods we used consisted of the following:
(cid:120) Option pricing method (OPM). Under the option pricing method, shares are valued by creating a series of
call options with exercise prices based on the liquidation preferences and conversion terms of each equity
class. The values of the preferred and common stock are inferred by analyzing these options.
(cid:120) Probability-weighted expected return method (PWERM). The PWERM is a scenario-based analysis that
estimates the value per share based on the probability-weighted present value of expected future investment
returns, considering each of the possible outcomes available to us, as well as the economic and control
rights of each share class.
Our per share common stock value was estimated by allocating the equity value using a hybrid combination of OPM and
PWERM. We used either PWERM or a combination of the OPM and the PWERM as described above to allocate the
equity value to each element of our capital structure, including our common stock. For both approaches, we applied a
discount to the valuations due to the lack of marketability of the ordinary shares. We calculated the discount for lack of
marketability using a Finnerty model and applied it as appropriate to each allocation.
The dates of our valuations did not always coincide with the dates of our option grants. In such instances, management’s
estimates were based on the most recent valuation of shares of our common stock. For grants occurring between
valuation dates, for financial reporting purposes, we considered the preceding valuations and our assessment of
additional objective and subjective factors we believed were relevant as of the grant date to determine the fair value of
our common stock.
Related Party Transactions
See Note 14 — “Related Party Transactions” and Note 4 — “Debt” included in “Item 8 — Financial Statements and
Supplementary Data” in this Report regarding the impact of certain related party transactions with respect to facility rent
and financing activity related to the issuance of our various note instruments and convertible Series A preferred stock
prior to the close of the IPO.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as
defined under the rules and regulations of the SEC.
Recent Accounting Pronouncements
See Note 2 — “Summary of Significant Accounting Policies” included in “Item 8 — Financial Statements and
Supplementary Data” in this Report regarding the impact of certain recent accounting pronouncements on our financial
statements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in our financial instruments and in our financial position is the potential loss arising from
adverse changes in interest rates. As of December 31, 2016, we had cash and cash equivalents of $24.0 million. We
generally hold our excess cash in interest-bearing money market accounts. Our primary exposure to market risk is
interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term
maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in
interest rates would not have a material effect on the fair market value of our cash equivalents.
105
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
108
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109
110
Statements of Changes in Convertible Preferred Stock and Stockholders' and Members' Equity (Deficit) . . . . . . .
111
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Gemphire Therapeutics Inc.
We have audited the accompanying balance sheets of Gemphire Therapeutics Inc. (formerly known as Michigan Life
Therapeutics, LLC) (the Company) as of December 31, 2016 and 2015, and the related statements of comprehensive
loss, changes in convertible preferred stock and stockholders' and members' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule
included in Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Gemphire Therapeutics Inc. (formerly known as Michigan Life Therapeutics, LLC) at December 31, 2016 and 2015, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Detroit, Michigan
March 20, 2017
107
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Balance Sheets
(in thousands, except share amounts and par value)
December 31, December 31,
2016
2015
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liabilities, convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium conversion derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 5)
Series A convertible preferred stock, $0.001 par value; no shares authorized as of
December 31, 2016 and 2,325,581 shares authorized as of December 31, 2015, no shares
issued or outstanding as of December 31, 2016 and 745,637 shares issued and
outstanding as of December 31, 2015, aggregate liquidation preference as of December
31, 2016 and 2015 of zero and $7,953, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of December 31,
2016 and no shares authorized as of December 31, 2015, no shares issued or
outstanding as of December 31, 2016 and 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value; 100,000,000 and 17,674,419 shares authorized as
of December 31, 2016 and 2015, respectively, 9,270,255 and 3,758,488 shares issued
and outstanding at December 31, 2016 and 2015, respectively. . . . . . . . . . . . . . . . . . . .
Additional paid–in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) . . . . . . . . . $
24,033 $
713
24,746
—
8
24,754 $
3,620
23
3,643
847
—
4,490
2,008 $
2,113
—
—
—
4,121
1
4,122
531
1,617
1,795
4,629
345
8,917
—
8,917
—
7,953
—
—
17
47,674
(27,059)
20,632
24,754 $
12
—
(12,392)
(12,380)
4,490
See accompanying notes.
108
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
Operating expenses:
Year Ended
December 31,
2015
2016
2014
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in–process research and development . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on convertible note extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,586) $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,586) $
Adjustment to redemption value on Series A convertible preferred stock .
Premium upon substantial modification of convertible notes with certain
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . $ (14,952) $ (13,044) $
Net loss per share:
3,177 $
3,991
908
8,076
(8,076)
(762)
(198)
7
(9,029)
—
(9,029)
—
(9,029) $
(9,029) $
(2,968)
5,956 $
8,740
—
14,696
(14,696)
114
—
(4)
(14,586)
—
(14,586)
—
(1,047)
(366)
—
214
52
—
266
(266)
(55)
—
1
(320)
—
(320)
—
(320)
(320)
—
—
(320)
Basic and diluted (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(2.57) $
(4.54) $
(0.21)
Number of shares used in per share calculations:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,809,396
2,875,053
1,521,703
See accompanying notes.
109
Balance at January 1, 2014 . . .
Net loss prior to merger . . . . . .
Effect of merger . . . . . . . . . . . .
Restriction of initial common
stock issuances . . . . . . . . . . . . .
Issuance of restricted stock
awards . . . . . . . . . . . . . . . . . . .
Share–based compensation —
employee . . . . . . . . . . . . . . . . .
Net loss post-merger . . . . . . . .
Balance at December 31, 2014
Issuance of convertible Series
A preferred stock, net of
issuance costs . . . . . . . . . . . . . .
Redemption value
adjustment — Series A
preferred stock . . . . . . . . . . . . .
Issuance of common stock . . . .
Convertible note
extinguishment loss . . . . . . . . .
Issuance of restricted stock
awards . . . . . . . . . . . . . . . . . . .
Share–based compensation —
employee . . . . . . . . . . . . . . . . .
Share–based compensation —
non–employee . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015
Redemption value
adjustment — Series A
preferred stock . . . . . . . . . . . . .
Conversion of Series A
preferred stock to common
stock . . . . . . . . . . . . . . . . . . . . .
Separation of convertible note
beneficial conversion feature
upon contingency resolution . .
Conversion of convertible notes
to common stock . . . . . . . . . . .
Issuance of common stock from
offering . . . . . . . . . . . . . . . . . .
Issuance costs of offering . . . . .
Share–based compensation —
employee . . . . . . . . . . . . . . . . .
Share–based compensation —
non–employee . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Statements of Changes in Convertible Preferred Stock and Stockholders’ and Members’ Equity (Deficit)
(in thousands, except share amounts)
Series A Convertible
Preferred Stock
Members'
Common Stock
Shares
Additional
Paid–In
Amount Capital Deficit
Total
Accumulated Equity
Shares
Amount Deficit
— $
—
—
— $
—
—
— $
(264)
(124)
—
388 1,987,817
—
6
— $
—
—
—
—
—
—
—
—
—
—
— (556,589)
(2)
— 1,605,008
5
—
—
—
—
— 3,036,236
—
—
9
— $
—
(6)
2
(5)
53
—
44
(Deficit)
(264)
(124)
—
— $
—
(388)
—
—
—
(196)
(584)
—
—
53
(196)
(531)
745,637
4,985
—
—
—
—
—
—
—
—
—
—
—
2,968
—
—
—
—
677,685
—
3
(1,130)
908
(1,838)
—
(2,968)
911
—
—
—
—
—
—
(106)
(941)
(1,047)
—
44,567
—
—
—
—
—
131
—
—
—
131
—
—
745,637
—
—
7,953
—
—
—
—
— 3,758,488
—
—
12
153
—
—
—
(9,029)
(12,392)
153
(9,029)
(12,380)
—
366
—
—
—
(285)
(81)
(366)
(745,637)
(8,319)
—
827,205
1
8,318
—
8,319
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
— $
—
—
—
372
—
372
— 1,656,807
1
11,444
—
11,445
— 3,027,755
—
—
3
—
30,275
(4,168)
—
—
30,278
(4,168)
—
—
—
1,498
—
1,498
—
—
— 9,270,255 $
—
—
—
—
220
(14,586)
17 $ 47,674 $ (27,059) $ 20,632
—
(14,586)
220
—
See accompanying notes.
110
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Statements of Cash Flows
(in thousands)
For the Year Ended
December 31,
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
2016
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
2015
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
2014
(cid:3)(cid:3)
Operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net loss to net cash used in operating activities:
(14,586) $
(9,029) $
(320)
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest on promissory notes to related parties . . . . . . . . . . . . . . . . . . . .
Non-cash interest on convertible notes to related parties . . . . . . . . . . . . . . . . . . . .
Non-cash interest on convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash discount amortization on convertible notes to related parties . . . . . . . . .
Non-cash discount amortization on convertible notes . . . . . . . . . . . . . . . . . . . . . .
Revaluation of premium conversion derivative . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash loss on extinguishment of convertible notes . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest upon conversion of convertible notes . . . . . . . . . . . . . . . . . . . .
Non-cash acquisition of in–process research and development . . . . . . . . . . . . . . .
Change in assets and liabilities:
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
Proceeds from issuance of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of convertible notes to related parties . . . . . . . . . . . . . . . . . .
Issuance costs related to convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of promissory notes to related parties . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Series A convertible preferred stock . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Supplemental disclosure of cash flow information:
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Supplemental non-cash financing transactions:
Conversion of Series A preferred stock to common stock . . . . . . . . . . . . . . . . . . . . . . $
Conversion of convertible notes common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Conversion of convertible notes to Series A preferred stock . . . . . . . . . . . . . . . . . . . . $
Exercise of premium conversion derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Redemption value change of Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . $
Issuance of common stock for acquisition of in–process research and development . $
Bifurcation of premium conversion derivative related to convertible notes . . . . . . . . $
Convertible note extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Premium conversion derivative reduction upon convertible note extinguishment . . . . $
Conversion of related party promissory notes to convertible notes . . . . . . . . . . . . . . . $
Separation of beneficial conversion feature associated with convertible notes . . . . . . $
Offering costs in other assets paid in prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Offering costs in accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . . . . $
1,718
—
145
256
(17)
(276)
(850)
—
649
—
284
—
40
100
62
261
297
198
—
908
53
19
5
1
7
5
18
—
—
—
(55)
1,477
496
(11,043)
(10)
444
1,012
(5,433)
2
(6)
21
(195)
—
—
—
2,651
2,500
(10)
—
—
—
30,278
(3,963)
31,456
20,413
3,620
24,033 $
5,560
1,856
—
—
1,522
3
—
(205)
8,736
3,303
317
3,620 $
390
25
—
94
—
—
—
—
509
314
3
317
— $
— $
— $
2 $
—
—
8,319 $
11,445 $
— $
— $
366 $
— $
505 $
— $
— $
— $
372 $
205 $
— $
— $
— $
2,778 $
685 $
2,968 $
908 $
842 $
1,426 $
182 $
— $
— $
— $
642 $
—
—
—
—
—
—
55
—
—
359
—
—
—
See accompanying notes.
111
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements
1. The Company and Basis of Presentation
On November 10, 2008, Michigan Life Therapeutics, LLC (MLT) was organized as a limited liability company (LLC) in
Michigan. On October 30, 2014, Gemphire Therapeutics Inc. (Gemphire) was incorporated as a C corporation in the
state of Delaware. On November 1, 2014, MLT entered into a merger agreement with Gemphire whereby MLT was
merged with and into Gemphire with Gemphire as the surviving entity; all outstanding membership interests of MLT
were exchanged for shares of Gemphire’s common stock. The purpose of the merger was to change the jurisdiction of
MLT from Michigan to Delaware and to convert from an LLC to a corporation. All financial results presented prior to
November 1, 2014 are from the operations of MLT. MLT and Gemphire are collectively referred to as the “Company” in
the accompanying notes to the financial statements. The Company’s headquarters are located in Livonia, Michigan.
The Company 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
and NAFLD/NASH (nonalcoholic fatty liver disease). The Company’s primary activities have been conducting research
and development activities, planning clinical trials, performing business and financial planning, recruiting personnel and
raising capital. The Company is subject to certain risks, which include 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; expand its management scientific staff; finance its
operations; and, find collaboration partners to further advance development and commercial efforts.
Initial Public Offering and Capital Requirements
On August 4, 2016, the Company’s Registration Statement on Form S-1 (File No 333-210815) relating to its IPO of its
common stock was declared effective by the Securities and Exchange Commission (SEC). Pursuant to such Registration
Statement, on August 10, 2016, the Company closed its IPO whereby 3,000,000 shares of its common stock were issued
and sold at a public offering price of $10.00 per share. On September 8, 2016, the Company closed the sale of 27,755
shares of its common stock at the public offering price of $10.00 per share, representing a partial exercise of the
underwriters’ over-allotment option, following which, the IPO terminated. The Company received net proceeds of
approximately $26.1 million after deducting underwriting discounts and commissions of $2.1 million and other offering
expenses of $2.1 million.
Immediately prior to the IPO, the Company amended and restated its certificate of incorporation and bylaws to, among
other things, change its authorized capital stock to consist of (i) 100,000,000 shares of common stock and (ii) 10,000,000
shares of undesignated preferred stock. Both the common stock and the preferred stock have a par value of $0.001 per
share.
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 operations with equity issuances. The Company’s management
believes the cash and cash equivalents on hand are adequate to fund the Company’s operations for at least the next 12
months. 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.
Basis of Presentation
Certain prior period balances have been reclassified to conform to the current period presentation. Specifically, the
Company reclassified all current deferred tax liabilities as long term in the amount of $10,000 on its December 31, 2015
balance sheet in conformity with the adoption of Accounting Standards Update (ASU) 2015-17, Income Taxes (Topic
740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17).
Reverse Stock Split
In April 2016, the board of directors approved an amendment to the Company’s certificate of incorporation to effect a 1-
for-3.119 reverse stock split (the Reverse Stock Split) for all common and Series A preferred stock. The Reverse Stock
112
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
Split became effective on April 27, 2016 upon the filing of the amendment to the certificate of incorporation. The
authorized shares and par value of the common stock and Series A preferred stock were not adjusted as a result of the
Reverse Stock Split. All issued and outstanding common and Series A preferred stock, options for common stock and
per share amounts contained in the financial statements were retroactively adjusted to reflect the Reverse Stock Split for
all periods presented.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the 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 highly
liquid investments in money market accounts.
Fair Value of Financial Instruments
The Company’s financial instruments include principally cash and cash equivalents, other current assets, accounts
payable, accrued liabilities and debt. The carrying amounts for these financial instruments reported in the balance sheets
approximate their fair values. See Note 11 — Fair Value Measurements, for further discussion of fair value.
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, clinical costs and an allocation of overhead
expenses. Research and development costs are expensed as incurred.
Acquired In-Process Research and Development Expenses
The Company includes costs to acquire or in-license product candidates in acquired in-process research and development
expenses. The Company has acquired the right to develop and commercialize its product candidate gemcabene. These
costs are immediately expensed provided that the payments do not also represent processes or activities that would
constitute a “business” as defined under GAAP or provided that the product candidate has not achieved regulatory
approval for marketing and absent obtaining such approval, has no alternative future use. Royalties owed on future sales
of any licensed product will be expensed in the period the related revenues are recognized.
113
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
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. MLT was treated as a partnership for federal and state income tax purposes. Accordingly, no
provision was made for income taxes for periods prior to November 1, 2014, since the Company’s net loss (subject to
certain limitations) was passed through to the income tax returns of its members. Upon incorporation on October 30,
2014, the Company became taxed as a corporation.
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. Additionally, as a result of the early adoption of ASU 2016-09, Compensation – Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, the Company has made an
accounting policy election to record 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. The compensation costs of these arrangements are subject to re-measurement as the equity
instruments vest and are recognized as expense over the related service period (typically the vesting period of the
awards).
Common Stock Valuation
Due to the absence of an active market for the Company’s common stock prior to the close of the IPO, the Company
utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’
Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the
fair value of its common stock. The valuation methodology included estimates and assumptions that required the
Company’s judgment. These estimates and assumptions included a number of objective and subjective factors, including
external market conditions affecting the biopharmaceutical industry sector, and the likelihood of achieving a liquidity
event, such as an initial public offering or sale. Significant changes to the key assumptions used in the valuations could
have resulted in different fair values of common stock at each valuation date.
Convertible Preferred Stock
On March 31, 2015, the Company issued 745,637 shares of Series A convertible preferred stock (the Series A preferred
stock). On August 10, 2016, immediately prior to the closing of the IPO, the Company’s Series A preferred stock,
together with accrued dividends thereon, converted into 827,205 shares of common stock. The Series A preferred stock
prior to conversion was classified outside of permanent equity, in mezzanine equity, on the Company’s balance sheet.
The Company initially records preferred stock that may be redeemed at the option of the holder, or based on the
occurrence of events outside of the Company’s control, at the value of the proceeds received. Subsequently, if it is
probable that the preferred stock will become redeemable, the Company recognizes changes in the redemption value
immediately as they occur and adjusts the carrying amount of the instrument to equal the redemption value at the end of
each reporting period. If it is not probable that the preferred stock will become redeemable, the Company does not adjust
the carrying value. In the absence of retained earnings, these charges are recorded against additional paid-in-capital, if
any, and then to accumulated deficit See Note 7 — Convertible Series A Preferred Stock for further discussion. As a
result of their conversion to common stock on August 10, 2016 as described above, no shares of Series A preferred stock
were outstanding as of December 31, 2016.
114
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
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 and NAFLD/NASH. Accordingly, the
Company has a single reporting segment.
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
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers — Topic 606, which supersedes
the revenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services. In 2015, the FASB
agreed to allow companies to delay the implementation of this standard for one year effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is
permitted only for periods beginning after December 15, 2016. The Company plans to adopt this standard on January 1,
2018 and to select the modified retrospective transition method. The Company plans to modify its accounting policies to
reflect the requirements of this standard however, the planned adoption will not affect the Company’s financial
statements and related disclosures for these periods or future periods until the Company generates revenues.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements —
Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern (ASU 2014-15), which requires management to evaluate, in connection with preparing financial statements for
each annual and interim reporting period, whether there are conditions or events that, considered in the aggregate, raise
substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial
statements are issued (or within one year after the date that the financial statements are available to be issued, when
applicable) and provide related disclosures. ASU 2014-15 is effective for the annual period ending after December 15,
2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company elected to adopt this
standard early as of December 31, 2015 and did not have a material impact on the Company’s financial statements.
In November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes (ASU 2015-17). The new guidance simplifies the presentation of
deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. ASU 2015-17 applies to all entities that present a classified statement of financial
position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset
and presented as a single amount is not affected by this ASU. For public entities, ASU 2015-17 is effective for financial
statements issued for annual periods beginning after December 15, 2016 with earlier application permitted. The new
guidance may be applied either prospectively or retrospectively to all periods presented. The Company adopted this
standard effective April 1, 2016 on a retrospective basis for each period presented. The adoption of this standard did not
have a material impact on the Company’s financial statements.
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
115
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The
guidance is effective in the first quarter of fiscal 2019. Early adoption is permitted for the accounting guidance on
financial liabilities under the fair value option. The Company is currently evaluating the impact of the new guidance on
its financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). 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 and is to be applied utilizing a modified
retrospective approach. The Company is currently evaluating the new guidance to determine the impact it may have on
its financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. This ASU simplifies the accounting for share-based payment award
transactions including: income tax consequences, classification of awards as either equity or liabilities and classification
on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard effective July
1, 2016 on a retrospective basis for each period presented. The adoption of this standard did not have a material impact
on the Company’s financial statements.
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 is currently evaluating the requirements of this
new guidance and has not yet determined its impact on the Company’s financial statements.
3. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Accrued offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Legal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other research and development expenses . . . . . . . . . . . . . . . . . . . .
Other general and administrative expenses . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
54
706
1,259
94
2,113 $
575
234
2
759
47
1,617
As of December 31,
2015
2016
116
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
4. Debt
Promissory Notes to Related Parties
The Company issued promissory notes to related parties (the Promissory Notes) at a compound interest rate of 8% per
annum for an aggregate principal amount of $0.3 million on various dates from March 2009 through October 2014 with
maturity dates through October 31, 2014. The Promissory Notes along with accrued interest were exchanged for
convertible notes (the Convertible Notes) on November 1, 2014, in the amount of $0.4 million inclusive of accrued
interest.
Convertible Notes
The Company completed a series of convertible note financings with certain investors beginning on November 1, 2014
and ending on February 18, 2015 (the Convertible Notes), whereby a total of $2.7 million was loaned to the Company,
of which $2.0 million was loaned in 2015. Interest for the Convertible Notes compounded on a daily basis at a rate of
8 percent per annum. The Convertible Notes converted into shares of the Company’s Series A preferred stock upon close
of the Series A preferred stock financing on March 31, 2015. The conversion equaled 125% of the unpaid principal plus
unpaid accrued interest on the Convertible Notes.
At the time of their issuance, the Convertible Notes contained a conversion premium with regard to the conversion into
the Series A preferred stock. The Company determined that the redemption feature under the Convertible Notes qualified
as an embedded derivative and was separated from its debt host. The bifurcation of the embedded derivative from its
debt host resulted in a discount to the Convertible Notes. The discount was amortized to interest expense over the term
of the Convertible Notes using the straight-line method. The embedded derivative was accounted for separately on a fair
market value basis. The Company recorded the fair value changes of the premium conversion derivative associated with
the Convertible Notes to interest expense that amounted to $0.4 million and $18,000 for the years ended December 31,
2015 and 2014, respectively. As a result of their conversion into shares of Series A preferred stock on March 31, 2015 as
described above, there were no Convertible Notes outstanding during 2016.
Interim Notes
On July 31, 2015, the Company entered into a convertible interim note financing (collectively with the notes issued in
December 2015, February 2016 and April 2016, the Interim Notes), pursuant to which certain investors agreed to loan
the Company approximately $2.8 million. On August 10, 2016, immediately prior to the closing of the IPO, the
Company’s Interim Notes, together with accrued interest thereon, converted into 1,656,807 shares of common stock.
The Interim Notes accrued interest at a rate of 8% per annum, compounded annually, and would automatically convert
into shares issued to investors in the Company’s next equity financing round that results in gross proceeds of at least
$5.0 million (a Qualified Financing). The conversion would be equal to unpaid principal at 115% plus any unpaid
accrued interest. The investors would be paid out principal at 200% if a change of control occurred before the next
financing round. In the event that a Qualified Financing, change of control, or an IPO did not occur before July 31, 2016,
the parties would then negotiate a price for conversion into a new round of stock.
In December 2015, the Company amended the Interim Notes and certain investors agreed to loan the Company an
additional $2.7 million for a revised financing total of $5.5 million. The Interim Notes continued to accrue interest at an
8% rate per annum compounded annually, but were amended to automatically convert into shares of the same class of
the Company’s next convertible preferred stock financing round (the Preferred Stock Financing). The conversion into
shares issued in the Preferred Stock Financing would be equal to unpaid principal at 115% plus unpaid accrued interest.
In the event that either a change of control occurs or the Company completes a public transaction which results in the
Company’s stockholders holding securities listed on a national securities exchange, including an IPO, before the
Preferred Stock Financing, the Interim Notes, as amended, would automatically convert into shares of the Company’s
common stock at a conversion price of $6.70585 per share (which represents the original issue price of the Series A
preferred stock) based on 100% of outstanding principal and unpaid accrued interest. Lastly, if a Preferred Stock
117
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
Financing, change of control, or public transaction did not occur before December 31, 2016, the parties agreed to then
negotiate a conversion price into a new round of stock.
In February 2016, certain investors agreed to loan the Company an additional $0.2 million for a revised financing total of
$5.6 million. The Interim Notes continued to accrue interest at an 8% rate per annum compounded annually, but were
amended to automatically convert into shares of the same class of the Company’s next Preferred Stock Financing. The
conversion into shares issued in the Preferred Stock Financing would be equal to unpaid principal at 115% plus unpaid
accrued interest. In the event that either a change of control occurs or the Company completes a public transaction which
results in the Company’s stockholders holding securities listed on a national securities exchange, including an IPO,
before the Preferred Stock Financing, the Interim Notes, as amended, would automatically convert into shares of the
Company’s common stock at a conversion price of $6.70585 per share (which represents the original issue price of the
Series A preferred stock as adjusted for the Reverse Stock Split (as defined below)) based on 100% of outstanding
principal and unpaid accrued interest. Lastly, if a Preferred Stock Financing, change of control, or public transaction did
not occur before December 31, 2016, the parties agreed to then negotiate a conversion price into a new round of stock.
In April 2016, the Company amended the Interim Notes and certain investors agreed to loan the Company an additional
$5.0 million for a revised financing total, including Interim Notes previously issued, of $10.6 million. The Interim Notes
continued to accrue interest at an 8% rate per annum compounded annually, but were amended so that 125% of the
unpaid principal and accrued interest, would automatically convert into shares of the same class of the Company’s next
convertible preferred stock financing round of at least $5.0 million (the Qualified Financing). In the event that either a
change of control occurs or the Company completes a public transaction which results in the Company’s stockholders
holding securities listed on a national securities exchange, including an IPO, before the Qualified Financing, 100% of
outstanding principal and unpaid accrued interest on the Interim Notes, as amended, would automatically convert into
shares of the Company’s common stock at a conversion price of $6.70585 per share, as adjusted for the Reverse Stock
Split. Lastly, if a Qualified Financing, change of control, or public transaction did not occur, the Interim Notes would
become payable on demand anytime after December 31, 2016. The Company incurred issuance costs related to the April
2016 financing in the amount of $10,000. The Interim Notes were discounted for the issuance costs, and the discount
was amortized to interest expense over their remaining term using the straight-line method.
On August 10, 2016, immediately prior to the closing of the IPO, the Company’s Interim Notes, together with accrued
interest thereon, converted into 1,656,807 shares of common stock. At the time of their issuance, the Interim Notes
contained a conversion premium with regard to the conversion into shares at the time of the next Qualified Financing.
The Company determined that the redemption feature under the Interim Notes qualified as an embedded derivative and
was separated from its debt host. The bifurcation of the embedded derivative from its debt host resulted in a discount to
the Interim Notes. The discount was amortized to interest expense over the term of the Interim Notes using the
straight-line method. The embedded derivative was accounted for separately on a fair market value basis. The fair value
of the derivative associated with the Interim Notes was $0.3 million at December 31, 2015 and was included as premium
conversion derivative on the accompanying balance sheets. As a result of the conversion of the Interim Notes, together
with accrued interest thereon, into common stock immediately prior to the closing of the IPO, there was no premium
conversion derivative outstanding as of December 31, 2016. The Company recorded the fair value changes of the
premium conversion derivative associated with the Interim Notes to interest income (expense) that amounted to $0.2
million, $(0.1) million and zero for the years ended December 31, 2016, 2015 and 2014, respectively.
As a result of their conversion to common stock on August 10, 2016 as described above, there were no Interim Notes
outstanding as of December 31, 2016.
5. Commitments and Contingencies
Pfizer License Agreement
In April 2011, the Company and Pfizer Inc. (Pfizer) entered into an exclusive license agreement (the Pfizer Agreement)
for the clinical product candidate gemcabene. In exchange for this worldwide exclusive right and license to certain
patent rights to make, use, sell, offer for sale and import the clinical product gemcabene, the Company agreed to certain
milestone and royalty payments on future sales (See Note 6 — License Agreement). As of December 31, 2016, there was
118
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
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 license agreement, and as such, no liabilities were recorded related
to the license agreement.
Series A Preferred Stock Dividends
Holders of the Series A preferred stock were entitled to cumulative accruing dividends at a simple rate of 8% per year on
the original issue price of the preferred stock of $6.70585 per share, as adjusted for the Reverse Stock Split. The
dividends effectively accrued daily on each share of preferred stock. The dividends were payable upon the earliest to
occur of (1) the date determined by the Board, (2) the liquidation of the Company (including a deemed liquidation event)
or (3) the conversion or redemption of at least a majority of the outstanding shares of Series A preferred stock. If the
board reasonably believed that the Company was not legally able to pay the dividends in cash at the payment date, or if
elected by the majority of the Series A preferred stockholders or if issued in connection with an IPO, the dividends were
to be paid in shares of common stock at the conversion price for the Series A preferred stock in effect at that time, which
was the original issue price of the Series A preferred stock as adjusted from time to time for any stock dividends,
combinations, splits or recapitalizations. Since the dividends were payable upon a contingent event, the Company did not
record them in the accompanying financial statements as of December 31, 2015; however, cumulative unpaid dividends
for the Series A preferred stock totaled $0.3 million as of December 31, 2015. On August 10, 2016, immediately prior to
the closing of the IPO, the Company’s Series A preferred stock, together with accrued dividends thereon, converted into
827,205 shares of common stock, and as such, there were no cumulative unpaid dividends for the Series A preferred
stock as of December 31, 2016.
Other Agreements
Both cancellable and non-cancellable facility agreements were in place that provided for fixed monthly rent for the years
ended December 31, 2016, 2015 and 2014. The total rent expense was $58,000, $23,000 and $6,000 for the years ended
December 31, 2016, 2015 and 2014, respectively. In May 2016, the Company entered into a new lease agreement for its
headquarters location, commencing in August 2016. The initial term of the agreement is 3 years with an initial monthly
base rent of approximately $8,400. In conjunction with entering into the new lease agreement, the Company cancelled its
original Northville, Michigan lease agreement, as amended, effective August 31, 2016 and renegotiated a new
cancellable lease agreement for limited use of office space in the Northville location that expires in September 2017.
Future minimum lease payments under fixed non-cancellable operating leases that expire on various dates through
August 2019 consist of the following (in thousands):
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
101
101
58
260
December 31,
6. License Agreement
In April 2011, the Company entered into the Pfizer Agreement for a worldwide exclusive license to certain patent rights
to make, use, sell, offer for sale and import the clinical product candidate gemcabene. In exchange for this license, 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 regulatory submission 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
119
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
aggregate sales levels of gemcabene or any product containing 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 expiration of the last valid claim of the licensed patent rights
including any patent term extensions or supplemental protection certificates. 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 market 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 December 31, 2016.
The Pfizer Agreement will expire upon expiration of the last royalty term. Either party may terminate the Pfizer
Agreement for the other party’s uncured material breach or upon specified bankruptcy events. Pfizer may terminate the
Pfizer Agreement if the Company or any of its sublicenses challenge the validity, enforceability or ownership of the
licensed patents. Upon termination of the license agreement for cause by Pfizer, we must grant Pfizer a non-exclusive
license to use any intellectual property rights arising from the development or commercialization of gemcabene.
Additionally, Pfizer may revoke the license if the Company is unable to adequately commercialize gemcabene by April
2021.
Pfizer has a non-exclusive, sub licensable, royalty-free right and license for non-commercial research or development
purposes to intellectual property rights relating to gemcabene that are developed by us after the effective date of the
license with Pfizer.
7. Convertible Series A Preferred Stock
On March 31, 2015, the Company issued 745,637 shares of Series A preferred stock at a per share price of $6.70585, as
adjusted for the Reverse Stock Split, or $5.0 million in the aggregate, consisting of $1.5 million in cash and $3.5 million
representing 125% of the principal and accrued and unpaid interest on the Convertible Notes, all of which converted into
shares of Series A preferred stock. On August 10, 2016, immediately prior to the closing of the IPO, the Company’s
Series A preferred stock, together with accrued dividends thereon, converted into 827,205 shares of common stock.
Prior to their conversion into shares of common stock, the Series A preferred stock had the following rights and
preferences:
Dividend Rights
Dividends effectively accrued on a daily basis at a simple rate of 8% per annum on the sum of the original per share
issue price. Dividends were effectively deemed declared daily and were payable upon the occurrence of certain events.
In addition, the holders of the Series A preferred stock had rights to participate in common stock dividends, entitling
holders of Series A preferred stock to a dividend payable at the same time as the dividend paid on common stock based
on the number of shares of common stock each share of Series A preferred stock would convert into if such shares had
converted on the record date.
There were no dividends deemed payable and accrued as of December 31, 2016 due to the conversion of the Series A
preferred stock, together with accrued dividends thereon, on August 10, 2016 immediately prior to the closing of the
IPO. There were no dividends deemed payable and accrued as of December 31, 2015, but unpaid dividends were
$0.3 million as of December 31, 2015. See Note 5 — Commitments and Contingencies.
120
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
Voting Rights
Each share of Series A preferred stock was entitled to vote together with the common stock on all actions to be taken by
the stockholders of the Company, based on the number of shares of common stock into which each share of Series A
preferred stock could be converted. A separate vote of a majority of the outstanding shares of Series A preferred stock
was required to (1) issue or authorize any class or series of equity securities or equivalents, (2) effect any transaction that
results in a change in control, (3) change the principal business of the Company, enter new lines of business, or exit the
current line of business, (4) issue of convertible debt above a certain threshold, or (5) materially sell, transfer, license,
pledge or encumber technology or intellectual property. A management stock option plan approved by the board of
directors, however, was not subject to a separate vote of the Series A preferred stockholders, but any subsequent
increases to the authorized option pool were subject to approval by the Series A preferred stock holders via a separate
vote.
Liquidation Rights
In the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, merger,
consolidation or transaction in which over 50% of the Company’s voting power was transferred, or a sale, lease, transfer,
exclusive license or disposition of all or substantially all of the assets of the Company, the Series A preferred stock
holders were entitled to the assets of the Company legally available for distribution before any distribution or payment
was made to the holders of common stock. The distribution amount would have been equal the original issue price of the
Series A preferred stock (as adjusted for any stock dividends, combinations, splits or other recapitalizations since
issuance), plus any accrued or declared but unpaid dividends thereon. After payment of the full liquidation preference to
the Series A preferred stock holders, the remaining assets legally available for distribution would have been distributed
to the holders of common stock and holders of the Series A preferred stock pro rata based on the number of shares of
common stock each share of Series A preferred stock would convert into if such shares had converted immediately prior
to such liquidation, dissolution, or winding-up.
Conversion Rights
Shares of Series A preferred stock, at the option of the holder, could have been converted at any time into shares of
common stock. The conversion rate would have been obtained by dividing the Series A preferred stock original issue
price of $6.70585 per share, as adjusted for the Reverse Stock Split, by the conversion price per share in effect at the
time of conversion. The Series A conversion price was initially equal to the original issue price, but could be adjusted on
a broad-based weighted average basis in connection with certain dilutive events. The Series A holder was also entitled to
receive additional shares of common stock for any unpaid Series A dividends (whether or not declared).
Shares of Series A preferred stock would have automatically converted into common stock based upon the then-effective
Series A conversion price upon the affirmative vote or consent of the holders of at least a majority of the outstanding
shares of the Series A preferred stock, or at the closing of a firmly underwritten public offering.
The conversion price for the Series A preferred stock was $6.70585 per share (as adjusted for the Reverse Stock Split) at
the time of the conversion of the Series A preferred stock, together with accrued dividends thereon, immediately prior to
the closing of the IPO on August 10, 2016.
Redemption Rights
The holders of at least 80% of the outstanding shares of Series A preferred stock could have required the Company to
redeem all outstanding shares of Series A preferred stock at any time on or after December 31, 2020 at a redemption
price equal to the greater of 150% of the liquidation preference of the Series A preferred stock or the fair market value
per share plus any unpaid declared dividends. The liquidation preference of the Series A preferred stock was defined as
an amount per share equal to $6.70585, as adjusted from time to time for any stock dividends, combinations, splits or
recapitalizations, plus any accrued or declared but unpaid dividends thereon.
121
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
The redemption value for redeemable preferred stock could have at times been based on fair market value. The
assumptions used in calculating the estimated fair market value at each reporting period represented the Company’s best
estimate, however, inherent uncertainties were involved. As a result, if factors or assumptions changed, the estimated fair
value could have been materially different.
The Company recognized changes in the redemption value immediately as they occurred and adjusted the carrying
amount of the instrument to equal the redemption value at the end of each reporting period since it was probable that the
instruments would have become redeemable. In the absence of retained earnings, these charges were recorded against
additional paid-in-capital, if any, and then to accumulated deficit.
The Company evaluated the Series A preferred stock and determined that it was considered an equity host under ASC
815, Derivatives and Hedging. In making this determination, the Company’s analysis followed the whole instrument
approach that compared an individual feature against the entire Series A preferred stock instrument that included that
feature. The Company’s analysis was based on a consideration of the economic characteristics and risks of the Series A
preferred stock. More specifically, the Company evaluated all of the stated and implied substantive terms and features of
the Series A preferred stock, including: (1) redemption features and their underlying exercisability, (2) existence of any
protective covenants, (3) nature of dividends rights, (4) nature of voting rights, and (5) the existence and nature of any
conversion rights. As a result of the above, the Company concluded that the Series A preferred stock represented an
equity host, and as such, the redemption and/or conversion features of the Series A preferred stock were considered to be
clearly and closely related to the associated Series A preferred stock host instrument. Accordingly, the redemption
and/or conversion features of the Series A preferred stock were not considered an embedded derivative that required
bifurcation.
8. Stockholders’ and Members’ Equity (Deficit)
The membership interests of MLT were converted to 1,431,228 shares of the Company’s common stock on November 1,
2014. The MLT members’ deficit was transferred to stockholders’ deficit on the accompanying balance sheets upon
conversion to a C Corporation at that time.
Common Stock
The Company had 9,270,255 and 3,758,488 shares of its common stock issued and outstanding as of December 31, 2016
and December 31, 2015, respectively. 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.
Dividend Rights
Common stock holders 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 December 31, 2016.
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
holders of the Company’s preferred stock. There was no preferred stock outstanding as of December 31, 2016.
122
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
Deferred Offering Costs
IPO offering costs of $4.2 million, consisting of underwriting discounts and commissions, legal, accounting and other
direct fees and costs, were initially capitalized and subsequently offset against the Company’s IPO proceeds upon the
close of the offering in August 2016. There were no deferred offering costs capitalized as of December 31, 2016. As of
December 31, 2015, offering costs of $0.8 million were capitalized.
9. Share-Based Compensation
Share-based compensation expense was included in general and administrative and research and development costs as
follows in the accompanying statements of comprehensive loss (in thousands):
Year Ended
December 31,
2016
2015
2014
General and administrative . . . . . . . . . . .
Research and development . . . . . . . . . . .
Total share-based compensation . . . . .
$
$
1,166
552
1,718
$
$
284
—
284
$
$
53
—
53
Restricted Stock Awards
During the year ended December 31, 2016, the Company did not grant any restricted stock awards (RSAs). During the
years ended December 31, 2015 and 2014, the Company granted an aggregate of 44,657 and 1,605,008 RSAs,
respectively, to certain of its employees, members of its board of directors and consultants subject to a 2014
Shareholders Agreement (the Agreement). The RSAs are subject to various vesting schedules and generally vest ratably
over a six to twenty four month period coinciding with their respective service periods. During the years ended
December 31, 2016, 2015 and 2014, no RSAs were forfeited.
A summary of RSA grant activity is as follows:
Number of
Shares
Weighted-Average
Fair Value (per share)
Non-vested at December 31, 2013 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2014 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2015 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2016 . . . . . . . . . . . . . .
—
1,605,008
(610,395)
994,613
44,567
(691,087)
348,093
-
(344,084)
4,009
$
$
$
$
$
$
$
$
$
$
—
0.09
0.09
0.09
0.21
0.09
0.09
—
0.09
0.21
There were no RSAs granted during the year ended December 31, 2016. The grant-date fair value of the RSAs issued
during the years ended December 31, 2015 and 2014 was $9,000 and $140,000 respectively. Grant date fair market value
in prior years was based on traditional valuation techniques and methods in determining the fair value of the Company’s
equity as a private company including market, income, and cost valuation approaches. A number of objective and
subjective factors were considered including contemporaneous and retrospective valuations of its common stock
performed by an unrelated valuation specialist, sales of the Company’s convertible preferred stock to unrelated third
parties, valuations of comparable peer public companies, the lack of liquidity of the Company’s capital stock and general
123
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
and industry-specific economic outlook. The fair value of the Company’s common stock was determined by the
Company’s board of directors prior to the IPO.
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.
Amendment and Restatement of 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 A&R 2015 Plan 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. The Company initially reserved 2,400,000 shares of common stock for issuance
under the A&R 2015 Plan.
During the years ended December 31, 2016 and 2015, the Company granted an aggregate of 1,825,700 and 305,278,
respectively, of stock options under the A&R 2015 Plan or the 2015 Plan to its officers, directors, employees and
consultants, generally vesting over a three or four-year period.
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. During the year ended December 31, 2016, 198,000 stock options to newly-hired officers and
employees were granted under the Inducement Plan, generally vesting over a four-year period.
124
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
The following table summarizes the Company’s stock option plan activity for the year ended December 31, 2016 and
2015 as follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (years)
Outstanding at December 31, 2014 . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/Cancelled . . . . . . . . . . . . . . .
Outstanding at December 31, 2015 . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/Cancelled . . . . . . . . . . . . . . .
Outstanding at December 31, 2016 . .
Vested and exercisable at
December 31, 2016 . . . . . . . . . . . . . . .
Vested and expected to vest at
December 31, 2016 . . . . . . . . . . . . . . . .
Number of
Options
— $
305,278 $
(2,436) $
— $
302,842 $
2,023,700 $
- $
(83,742) $
2,242,800 $
373,158 $
2,242,800 $
—
2.42
1.34
—
2.43
10.07
—
9.12
9.07
5.86
9.07
Aggregate
Intrinsic
Value(1)
—
—
—
—
1,031,000
—
—
—
(2,759,000)
— $
—
—
—
9.60 $
—
—
—
9.48 $
9.06 $
740,000
9.48 $
(2,759,000)
(1)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options
and the fair value of our common stock as of December 31, 2016 and 2015 of $7.84 and $5.83 per share,
respectively.
The weighted average fair value per share of options granted during the years ended December 31, 2016 and 2015 was
$6.37 and $1.50, respectively.
The Company measures the fair value of stock options with service-based and performance-based vesting criteria to
employees, consultants and directors on the date of grant using the Black-Scholes option pricing model. The fair value of
equity instruments issued to non-employees is re-measured as the award vests. The Company does not have 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. As a result of the early
adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, the Company has made an accounting policy election to record forfeitures when they occur.
125
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows:
Year Ended
December 31,
2016
2015
(cid:3)
2014
Expected stock price volatility . . . .
Expected life of options (years) . . .
Expected dividend yield . . . . . . . . .
Risk free interest rate . . . . . . . . . . .
71.4 %
6.0
0 %
1.2 %
71.0 %
5.5
0 %
1.7 %
— %
—
— %
— %
During the years ended December 31, 2016 and 2015, 276,248 and 104,907 stock options vested, respectively. The
weighted average fair value per share of options vesting during the years ended December 31, 2016 and 2015 was $4.59
and $1.05, respectively. During the year ended December 31, 2016, 83,742 stock options were forfeited. During the
years ended December 31, 2015 and 2014, no stock options were forfeited. As of December 31, 2016, 457,200 shares
were available for future issuance under the A&R 2015 and Inducement Plans.
Unrecognized share-based compensation cost for the RSAs and stock options issued under the Company’s 2014
Shareholders Agreement, A&R 2015 Plan and Inducement Plan was $11.2 million as of December 31, 2016.
Approximately $11.2 million of the unrecognized compensation cost was related to the stock options and under $1,000
related to the RSAs. The non-employee portion of the unrecognized compensation cost was estimated utilizing the
Company’s fair market value for its common stock as of December 31, 2016. The unrecognized share-based expense is
expected to be recognized over a weighted average period of 3.2 years for the stock options and 0.1 years for the RSAs.
Adoption of 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 December 31, 2016, no shares were
purchased under the ESPP.
10. 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. The holders of the Series A preferred stock had rights to
participate in common stock dividends, entitling the holders of Series A preferred stock to a dividend payable at the
same time and rate per share as the dividend paid on common stock based the number of shares of common stock each
share of Series A preferred stock would have converted into if such shares had converted on the record date. The
Series A preferred stock, however, did not have a contractual obligation to share in the losses of the Company, and as
such, no losses were allocated to the Series A preferred stock for the purposes of the basic loss per share calculation
while they were outstanding. Prior to the Company’s incorporation, no common shares were outstanding when the
Company operated as MLT.
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 RSAs, stock options, shares of Series A preferred stock,
Convertible Notes and Interim Notes are considered common stock equivalents while outstanding for this purpose.
Diluted earnings is computed utilizing the treasury method for the RSAs and stock options, and in the case of the
Series A preferred stock, either the two-class method or the if-converted method, whichever was more dilutive. Diluted
earnings with respect to the Convertible Notes and Interim Notes utilized the if-converted method, but was not
applicable during the years ended December 31, 2016, 2015 and 2014 as no conditions required for conversion had
126
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
occurred during these periods while the instruments were outstanding. 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 years ended December 31, 2016, 2015 and 2014. The following table sets forth the computation of basic and
diluted loss per share as of December 31, 2016, 2015 and 2014 (in thousands, except share and per share amounts):
Numerator:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,586) $
Adjustment to redemption value on Series A convertible preferred stock .
Premium upon substantial modification of convertible notes with certain
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(366)
—
Net loss attributed to common stock holders . . . . . . . . . . . . . . . . . . . . . . $ (14,952) $
(9,029) $
(2,968)
(1,047)
(13,044) $
(320)
—
—
(320)
Denominator:
2016
Year Ended
2015
2014
Basic and diluted weighted average common shares outstanding . . . . .
Basic and diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,809,396
2,875,053
(2.57) $
(4.54) $
1,521,703
(0.21)
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:
Restricted stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Fair Value Measurements
2016
4,009
2,242,800
—
—
Year Ended
2015
348,093
302,842
745,637
828,751
2014
994,613
—
—
—
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 December 31, 2016 and 2015, the fair values of cash and cash equivalents, other assets, accounts payable and
accrued liabilities approximated their carrying values because of the short-term nature of these assets or liabilities. The
estimated fair value of the Company’s Interim Notes was based on amortized cost which was deemed to approximate
fair value. The derivative liability associated with the conversion premium on the Interim Notes was based on cash flow
models discounted at current implied market rates evidenced in recent arms-length transactions representing expected
returns by market participants for similar instruments which were based on Level 3 inputs. There were no transfers
between fair value hierarchy levels during the years ended December 31, 2016 and 2015.
127
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
The fair value of financial instruments measured on a recurring basis is as follows (in thousands):
Description
Liabilities:
Total
As of December 31, 2015
Level 1 Level 2 Level 3
Premium conversion derivative . . . . . . . . . . . . . . . . . . $ 345 $ — $ — $ 345
— $ 345
Total liabilities at Fair Value . . . . . . . . . . . . . . . . . . . . . . $ 345 $
— $
The following table provides a roll-forward of the Company’s premium conversion derivative liabilities measured at fair
value on a recurring basis using unobservable level 3 inputs (in thousands):
For the Year Ended December 31,
2016
2015
2014
Balance as of beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 345 $
Issuance of underlying convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of premium conversion derivative . . . . . . . . . . . . . . . . . . . .
Reversal of premium conversion derivative associated with note extinguishment
Redemption of underlying convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
73 $
842
297
(182)
(685)
— $ 345 $
505
(850)
—
—
—
55
18
—
—
73
There were no financial instruments measured on a recurring basis as of December 31, 2016 and on a non-recurring
basis for any of the periods presented.
12. Income Taxes
The effective tax rate for the years ended December 31, 2016, 2015 and 2014 was zero percent. MLT was treated as a
partnership for federal and state income tax purposes. Accordingly, no provision was made for income taxes for periods
prior to the merger, since the Company’s net loss (subject to certain limitations) was passed through to the income tax
returns of its members. Upon the incorporation of Gemphire on October 30, 2014, the Company became taxed as a
corporation.
A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income
taxes included in the accompanying statements of comprehensive loss is as follows:
Income tax (benefit) provision at federal statutory
rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax, net of federal benefit . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended December 31,
2016
2015
2014
(34.0)%
40.2
(4.7)
1.1
(4.0)
1.4
— %
(34.0)%
38.2
(4.0)
0.6
(0.8)
— %
(34.0)%
36.8
(4.0)
1.2
—
— %
128
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of (in
thousands):
Deferred tax assets:
Federal and state operating loss carryforwards . . . . . . . $
Research and development costs deferral election . . . . .
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . .
Research and development credit carryforwards . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets, net of valuation allowance . .
Deferred tax liabilities:
Restricted stock awards . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended December 31,
2015
2016
2,289 $
5,254
351
13
—
12
633
768
9,320
(9,320)
—
—
—
— $
2,723
—
345
—
460
4
41
95
3,668
(3,657)
11
(11)
(11)
—
As of December 31, 2016 and 2015, the Company had gross deferred tax assets of approximately $9.3 million and
$3.7 million, respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any,
the amount and timing of which are uncertain. The Company has had significant pre-tax losses since its inception. The
Company has not yet generated revenues and faces significant challenges to becoming profitable. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance of $9.3 million and $3.7 million as of December 31,
2016 and 2015, respectively. U.S. net deferred tax assets will continue to require a valuation allowance until the
Company can demonstrate their realizability through sustained profitability or another source of income.
As of December 31, 2016 and 2015, the tax effect of the Company’s federal net operating loss carryforwards was
approximately $2.1 million and $2.4 million, respectively. The Company had federal research credit carryforwards as of
December 31, 2016 and 2015 of approximately $0.7 million and $95,000, respectively. The federal net operating loss
and tax credit carryforwards will begin to expire in 2034 if not utilized. As of December 31, 2016 and 2015, the
Company had state net operating loss carryforwards with a tax effect of approximately $0.2 million and $0.3 million,
respectively. The Company had state research credit carryforwards of $24,000 as of December 31, 2016 and no state
research credit carryforwards as of December 31, 2015. The state net operating loss carryforwards will begin to expire in
2026, if not utilized, and the state research credit carryforwards will begin to expire in 2023 if not utilized.
Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the
ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar
state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-
percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month
time period testing period, or beginning the day after the most recent ownership change, if shorter. The annual limitation
may result in the expiration of net operating losses and credits before utilization.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were
no uncertain tax positions as of December 31, 2016 and 2015, and as such, no interest or penalties were recorded to
income tax expense.
The Company’s corporate returns are subject to examination for the 2014 and 2015 tax years for federal and subject to
examination for the 2015 tax year in various state jurisdictions. Prior to this period, the Company filed partnership
returns, resulting in its income being passed through to its members.
129
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
13. Supplementary Data — Quarterly Financial Data (unaudited)
The following table presents certain unaudited quarterly financial information for each of the eight fiscal quarters in the
period ended December 31, 2016. This quarterly information has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the periods presented. The results for these quarterly periods are not necessarily
indicative of the operating results for a full year or any future period.
Three Months Ended
December 31,
2016 (B)
September 30,
2016
(in thousands, except per share amounts)
Operating expenses:
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustment to redemption value on Series A convertible
preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to common stockholders . . . . . . . . . . . . . . . $
Net loss per share:
2,389 $
4,839
7,228
(7,228)
13
1
(7,214)
—
(7,214)
—
(7,214) $
(7,214) $
—
(7,214) $
Basic and diluted (A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(0.78) $
Operating expenses:
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in–process research and development . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on convertible note extinguishment . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustment to redemption value on Series A convertible
1,047 $
1,464
—
2,511
(2,511)
137
(198)
2
(2,570)
—
(2,570)
—
(2,570) $
(2,570) $
June 30,
2016
(cid:3)
March 31, (cid:3)
2016
(cid:3)
(cid:3)
(cid:3)
1,051 $ 1,050 (cid:3)
1,176 (cid:3)
2,226 (cid:3)
(2,226)(cid:3)
127 (cid:3)
(4)(cid:3)
(2,103)(cid:3)
— (cid:3)
(2,103)(cid:3)
— (cid:3)
(3,878) $ (1,391) $ (2,103)(cid:3)
(3,878) $ (1,391) $ (2,103)(cid:3)
1,466 $
1,936
3,402
(3,402)
(475)
(1)
(3,878)
—
(3,878)
—
789
1,840
(1,840)
449
—
(1,391)
—
(1,391)
—
(67)
(0.56) $
June 30,
2015
(149)(cid:3)
(150)
(3,945) $ (1,541) $ (2,252)(cid:3)
(cid:3)
(0.42) $ (0.65)(cid:3)
(cid:3)
(cid:3)
March 31, (cid:3)
2015
(cid:3)
(cid:3)
(cid:3)
475 (cid:3)
206 (cid:3)
908 (cid:3)
1,589 (cid:3)
(1,589)(cid:3)
(690)(cid:3)
— (cid:3)
— (cid:3)
(2,279)(cid:3)
— (cid:3)
(2,279)(cid:3)
— (cid:3)
(2,569) $ (1,611) $ (2,279)(cid:3)
(2,569) $ (1,611) $ (2,279)(cid:3)
658 $
952
—
1,610
(1,610)
—
—
(1)
(1,611)
—
(1,611)
—
997 $
1,369
—
2,366
(2,366)
(209)
—
6
(2,569)
—
(2,569)
—
Three Months Ended
December 31,
2015
September 30,
2015
(in thousands, except per share amounts)
preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(150)
(152)
(149)
(2,517)(cid:3)
Premium upon substantial modification of convertible notes
with certain stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to common stockholders . . . . . . . . . . . . . . . $
Net loss per share:
(1,047)
(3,767) $
Basic and diluted (A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1.14) $
130
—
—
— (cid:3)
(2,721) $ (1,760) $ (4,796)(cid:3)
(cid:3)
(0.60) $ (2.27)(cid:3)
(0.87) $
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
(A)
(B)
Net loss per share for the year does not equal the sum of the four historical quarters loss per share due to
changes in weighted-average shares outstanding.
Activity for the quarterly period ending December 31, 2016 reflects activity post IPO depicting a ramp-up of
research and development expenses given the additional IPO proceeds and an increase in general and
administrative expenses attributed to becoming a public company.
14. Related Party Transactions
The Company rented an office in Northville, Michigan from an LLC owned by two officers under short-term agreements
during the years ended December 31, 2016, 2015 and 2014. The original facility lease, as amended, was cancelled and
replaced with a cancellable lease agreement in August 2016 for limited use of office space in the same Northville
location. The new lease agreement became effective in August 2016 and expires in September 2017. Rent expense under
the related party agreements was $21,000, $23,000 and $6,000 during the years ended December 31, 2016, 2015 and
2014, respectively. A prepaid rent balance related to the short-term agreements amounted to zero and $3,000 as of
December 31, 2016 and 2015, respectively.
During the first quarter of 2015, the Company issued $2.0 million of additional Convertible Notes (the 2015 Notes) as
part of the Convertible Notes described in Note 4 — Debt. The 2015 Notes included four notes in the aggregate of
$0.3 million issued to investors who were related to one board member and three officers of the Company. On March 31,
2015, all of the Convertible Notes (including the 2015 Notes) were converted into 516,421 shares of Series A preferred
stock. The conversion included a total of 68,649 shares of Series A preferred stock issued to two officers of the
Company, and 63,967 shares of Series A preferred stock issued to investors related to one board member and three
officers of the Company.
During the third quarter of 2015, the Company issued $2.8 million of Interim Notes as described in Note 4 — Debt.
Such Interim Notes included five notes issued to two officers and three board members (or entities they control) in the
amount of $0.5 million. In addition, such Interim Notes included four notes to investors who were related to three of the
Company’s officers and to one of the Company’s key employees in the amount of $0.3 million.
In December 2015, the Company issued an additional $2.7 million of Interim Notes, as described in Note 4 — Debt,
which included six notes issued to two officers and four board members in the amount of $0.6 million. The December
2015 Interim Note issuances also included five notes to investors who were related to three of the Company’s officers in
the amount of $0.2 million.
In February 2016, the Company issued an additional $0.2 million of Interim Notes, as described in Note 4 — Debt,
which included two notes issued to two board members (or entities they control) in the amount of $81,000. The February
2016 Interim Note issuances also included a $20,000 note to an investor who is related to an officer of the Company.
In April 2016, the Company issued an additional $5.0 million of Interim Notes, as described in Note 4 — Debt, which
included two notes to investors who were related to two of the Company’s officers in the aggregate amount of
$0.2 million. The April 2016 Interim Notes issuances also included three notes to investors who were related to three of
the Company’s directors in the aggregate amount of $2.3 million.
The IPO included 154,450 shares sold to 5 officers and 3 board members, totaling $1.5 million. In addition, 500,000
shares were sold to 1 investor who is related to 1 of the Company’s directors, totaling $5.0 million, and 47,000 shares
totaling $0.5 million were sold to 14 investors who are related to 5 officers of the Company.
15. Subsequent Events
On March 10 2017, the Company entered into a securities purchase agreement for a private placement with a select
group of accredited investors whereby, on March 15, 2017 the Company issued and sold 1,324,256 units at a price of
$9.47 per unit for gross proceeds of approximately $12.5 million. Each unit consists of one share of the Company’s
131
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Notes to Financial Statements - continued
common stock and a warrant to purchase 0.75 shares of common stock. The warrants have an exercise price of $10.40
per share and are exercisable for a period of five years from the date of issuance. The private placement included 56,678
units sold to 3 board members, for aggregate proceeds totaling approximately $0.5 million and 52,798 units sold to 1
investor who is related to 1 board member, for proceeds totaling approximately $0.5 million.
The securities were issued and sold in the private placement have not been registered under the Securities Act of 1933,
as amended, or state securities laws, and may not be offered or sold in the United States absent registration with the SEC
or an applicable exemption from such registration requirements. The Company have agreed to file a registration
statement with the SEC covering the resale of the shares of common stock issued in the private placement and issuable
upon exercise of the warrant issued in the private placement.
132
ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in
our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We designed and evaluate our disclosure controls and procedures recognizing that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desired
control objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design
of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15(d)- 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) as of December 31, 2016. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2016.
Management’s Annual Report on Internal Control Over Financial Reporting
This annual report does not include a report of management’s assessment regarding internal control over financial
reporting or an attestation report of our registered public accounting firm due to a transition period established by rules
of the SEC for newly public companies.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act) during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is included in and incorporated by reference from the Company’s Definitive Proxy
Statement (the “Proxy Statement”) for our 2017 Annual Meeting of Stockholders, which will be filed by the Company
with the SEC within 120 days of the end of the fiscal year covered by this Report.
133
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is included in and incorporated by reference from the Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is included in and incorporated by reference from the Proxy Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this Item is included in and incorporated by reference from the Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is included in and incorporated by reference from the Proxy Statement.
PART IV
ITEM 15.
EXHIBITS and FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Financial Statements at Item 8 herein.
2. Financial Statement Schedules
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Description
Beginning
Balance of
Period
Additions
Charged to
Charged to
Ending
Balance of
Costs and Expenses Paid in Capital Releases Period
(in thousands)
For the Year Ended December 31, 2014
Valuation allowance for deferred taxes . . . . $
For the Year Ended December 31, 2015
Valuation allowance for deferred taxes . . . . $
For the Year Ended December 31, 2016
Valuation allowance for deferred taxes . . . . $
—
$
72
$
72
$
3,447
$
—
138
$
$
—
$
72
—
$
3,657
3,657 $
5,937 $
(274) $
— $
9,320
No other financial statement schedules are provided because the information called for is not required or is
shown either in the financial statements or notes thereto.
134
3. Exhibits:
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
3.1
Third Amended and Restated Certificate of Incorporation of Gemphire Therapeutics Inc. (incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on
August 10, 2016).
3.2
Amended and Restated Bylaws of Gemphire Therapeutics Inc. (incorporated by reference to Exhibit 3.2
4.1
4.2
to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on August 10, 2016).
Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant’s Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
Investor Rights Agreement, dated as of March 31, 2015, by and among the Registrant and the Investors
listed therein as amended by First Amendment to Investor Rights Agreement, dated as of April 14, 2016
(incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1, File
No. 333-210815, filed on April 18, 2016).
10.1*
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
10.2*
Form of Amended and Restated 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to
the Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed
on June 13, 2016).
10.3*
Form of 2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the
Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
10.4*
Employment Agreement by and between the Registrant and Mina Sooch (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, File No. 333-210815, filed on April
18, 2016).
10.5*
Employment Agreement by and between the Registrant and Jeffrey S. Mathiesen (incorporated by
reference to Exhibit 10.6 to the Registrant's Amendment No. 1 to the Registration Statement on Form S-
1, File No. 333-210815, filed on June 13, 2016).
10.6*
Employment Agreement by and between the Registrant and Charles L. Bisgaier (incorporated by
reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, File No. 333-210815,
filed on April 18, 2016).
10.7*
Form of Executive Officer Employment Agreement (incorporated by reference to Exhibit 10.8 to the
10.8+
10.9
10.10
10.11
Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
License Agreement, dated April 16, 2011, by and between the Registrant and Pfizer Inc. (incorporated by
reference to Exhibit 10.9 to the Registrant’s Amendment No. 1 to the Registration Statement on Form S-
1, File No. 333-210815, filed on June 13, 2016).
Office Space Sublease Agreement, dated as of January 1, 2015, by and between the Registrant and
Michigan Life Ventures, LLC, as amended on May 6, 2015, August 31, 2015, September 25, 2015,
October 23, 2015, December 16, 2015 and March 4, 2016 (incorporated by reference to Exhibit 10.10 to
the Registrant’s Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
Lease Agreement, dated as of May 18, 2016 and commencing on August 1, 2016, by and between the
Registrant and North Laurel Project, LLC (incorporated by reference to Exhibit 10.11 to the Registrant's
Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on June 13,
2016).
Form of Note Purchase Agreement dated July 31, 2015 as amended on December 10, 2015, March 27,
2016 and April 14, 2016 (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration
Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
10.12
Form of Joinder Agreement to Note Purchase Agreement (incorporated by reference to Exhibit 10.13 to
the Registrant’s Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
135
10.13
Fourth Amendment to Note Purchase Agreement and Convertible Promissory Notes dated April 26, 2016
(incorporated by reference to Exhibit 10.14 to the Registrant’s Amendment No. 1 to the Registration
Statement on Form S-1, File No. 333-210815, filed on June 13, 2016).
10.14*
Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.15 to the
Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
10.15*
Gemphire Therapeutics Inc. Inducement Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on October 3, 2016).
10.16*
Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise under the Gemphire
Therapeutics Inc. Inducement Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, File No. 001-37809, filed on October 3, 2016).
23.1
31.1
Consent of Ernst &Young LLP.
Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of The Sarbanes Oxley Act of 2002
31.2
Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of The Sarbanes Oxley Act of 2002
32.1
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
+
Indicates management contract or compensatory plan.
Registrant has omitted and filed separately with the SEC portions of the exhibit pursuant to a confidential
treatment request under Rule 406 promulgated under the Securities Act.
136
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 20, 2017
GEMPHIRE THERAPEUTICS INC.
By: /S/ MINA SOOCH
Mina Sooch
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
/s/ MINA SOOCH
Mina Sooch
TITLE
DATE
President and Chief Executive Officer
March 20, 2017
(Principal Executive Officer)
/s/ JEFFREY S. MATHIESEN
Jeffrey S. Mathiesen
Chief Financial Officer (Principal Financial and
Accounting Officer)
March 20, 2017
/s/ CHARLES L. BISGAIER, Ph.D.
Charles L. Bisgaier, Ph.D.
Chief Scientific Officer and Chairman of the
Board of Directors
March 20, 2017
/s/ STEVE GULLANS, Ph.D.
Steve Gullans, Ph.D.
/s/ P. KENT HAWRYLUK
P. Kent Hawryluk
/s/ KENNETH KOUSKY
Kenneth Kousky
/s/ PEDRO LICHTINGER
Pedro Lichtinger
/s/ ANDREW SASSINE
Andrew Sassine
Member of the Board of Directors
March 20, 2017
Member of the Board of Directors
March 20, 2017
Member of the Board of Directors
March 20, 2017
Member of the Board of Directors
March 20, 2017
Member of the Board of Directors
March 20, 2017
137
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
EXHIBIT INDEX
3.1
Third Amended and Restated Certificate of Incorporation of Gemphire Therapeutics Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on
August 10, 2016).
3.2
Amended and Restated Bylaws of Gemphire Therapeutics Inc. (incorporated by reference to Exhibit 3.2
4.1
4.2
to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on August 10, 2016).
Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant’s Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
Investor Rights Agreement, dated as of March 31, 2015, by and among the Registrant and the Investors
listed therein as amended by First Amendment to Investor Rights Agreement, dated as of April 14, 2016
(incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1, File
No. 333-210815, filed on April 18, 2016).
10.1*
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
10.2*
Form of Amended and Restated 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to
the Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed
on June 13, 2016).
10.3*
Form of 2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the
Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
10.4*
Employment Agreement by and between the Registrant and Mina Sooch (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, File No. 333-210815, filed on April
18, 2016).
10.5*
Employment Agreement by and between the Registrant and Jeffrey S. Mathiesen (incorporated by
reference to Exhibit 10.6 to the Registrant's Amendment No. 1 to the Registration Statement on Form S-
1, File No. 333-210815, filed on June 13, 2016).
10.6*
Employment Agreement by and between the Registrant and Charles L. Bisgaier (incorporated by
reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, File No. 333-210815,
filed on April 18, 2016).
10.7*
Form of Executive Officer Employment Agreement (incorporated by reference to Exhibit 10.8 to the
10.8+
10.9
10.10
10.11
Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
License Agreement, dated April 16, 2011, by and between the Registrant and Pfizer Inc. (incorporated by
reference to Exhibit 10.9 to the Registrant’s Amendment No. 1 to the Registration Statement on Form S-
1, File No. 333-210815, filed on June 13, 2016).
Office Space Sublease Agreement, dated as of January 1, 2015, by and between the Registrant and
Michigan Life Ventures, LLC, as amended on May 6, 2015, August 31, 2015, September 25, 2015,
October 23, 2015, December 16, 2015 and March 4, 2016 (incorporated by reference to Exhibit 10.10 to
the Registrant’s Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
Lease Agreement, dated as of May 18, 2016 and commencing on August 1, 2016, by and between the
Registrant and North Laurel Project, LLC (incorporated by reference to Exhibit 10.11 to the Registrant's
Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on June 13,
2016).
Form of Note Purchase Agreement dated July 31, 2015 as amended on December 10, 2015, March 27,
2016 and April 14, 2016 (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration
Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
10.12
Form of Joinder Agreement to Note Purchase Agreement (incorporated by reference to Exhibit 10.13 to
the Registrant’s Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).
138
Gemphire Therapeutics Inc.
(Formerly Known as Michigan Life Therapeutics, LLC)
Form 10-Q
10.13
Fourth Amendment to Note Purchase Agreement and Convertible Promissory Notes dated April 26, 2016
(incorporated by reference to Exhibit 10.14 to the Registrant’s Amendment No. 1 to the Registration
Statement on Form S-1, File No. 333-210815, filed on June 13, 2016).
10.14*
Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.15 to the
Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on
June 13, 2016).
10.15*
Gemphire Therapeutics Inc. Inducement Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on October 3, 2016).
10.16*
Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise under the Gemphire
Therapeutics Inc. Inducement Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, File No. 001-37809, filed on October 3, 2016).
23.1
31.1
Consent of Ernst & Young LLP
Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of The Sarbanes Oxley Act of 2002
31.2
Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of The Sarbanes Oxley Act of 2002
32.1
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
+
Indicates management contract or compensatory plan.
Registrant has omitted and filed separately with the SEC portions of the exhibit pursuant to a confidential
treatment request under Rule 406 promulgated under the Securities Act.
139
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