GOSS - Gossamer: PAH Trial Results Make The Rout Complete

Summary

• Last year, Gossamer Bio failed its ulcerative colitis trial.
• Then, in late 2022, GOSS met the primary endpoint in the PAH trial, but overall, the trial was a failure.
• There is nothing further ahead for the company right now, although they will do a phase 3 trial in PAH.

Gossamer Bio ( GOSS ) is a late stage immunology focused company that recently announced positive phase 2 results from the TORREY trial in Pulmonary Arterial Hypertension (PAH) for lead candidate seralutinib, but the stock fell drastically on the data drop. Data showed that the molecule met the primary endpoint of statistically significant reduction in PVR in a heavily pretreated patient population. PVR or Pulmonary vascular resistance is defined as the resistance that blood must overcome to pass through the pulmonary vasculature. According to research :

PAH is associated with impaired biventricular deformation. Reduction in PVR is associated with improvements in both RV and LV deformation...

And also :

...a reduction in pulmonary vascular resistance (PVR') does not reflect how much farther a patient can walk without dyspnea but may have long term implications regarding survival, making PVR a potential surrogate end point for PAH...

Thus PVR is a valid surrogate endpoint for PAH trials. A six minute walk test or 6MWT is a functional endpoint, and while the trial was not powered for 6MWT, data favoured seralutinib for this endpoint, said the company. The drug was well-tolerated, and the company says it avoided side effects associated with systemic delivered imatinib in PAH.

There were a number of reasons the stock fell despite the molecule meeting the endpoint. Firstly, the PVR improvement was only 14.3%, and investors were looking for at least 20-30% improvement. In absolute terms, the least square mean difference in PVR for seralutinib was less than 100 across almost every subgroup level the company could device (see pages 19-22 of the above report), while for closest rival Merck's sotatercept , the LSMD from the PULSAR pivotal trial was as follows:

The least squares mean change from baseline in PVR was a decrease of 2 Wood units (162.2 dynes·sec·cm-5) in subjects in the sotatercept 0.3 mg group, a decrease of 3.2 Wood units (255.9 dynes·sec·cm-5) in the sotatercept 0.7 mg group, and a decrease of 0.2 Wood units (16.4 dynes·sec·cm-5) in the placebo group.

Moreover, sotatercept also did significantly well in 6MWD and other endpoints:

• 6-minute walk distance (an increase of 58.1 m in the sotatercept 0.3 mg group, increase of 50.1 m in the sotatercept 0.7 mg group, and increase of 28.7 m in the placebo group)

• N-terminal pro-B-type natriuretic peptide (decrease of 621.1 pg/ml in the sotatercept 0.3 mg group, decrease of 340.6 pg/ml in the sotatercept 0.7 mg group, and an increase of 310.4 pg/ml in the placebo group)

• World Health Organization functional class (improvement from baseline by at least 1 class in 12% in the placebo group, 31% in the sotatercept 0.3 mg group, and 17% in the sotatercept 0.7 mg group)

In 6MWD, seralutinib did much worse than sotatercept, see page 26. Even in the WHO Class III patients, where it performed better, seralutinib only scores 37 m, whereas sotatercept did 58 m in the overall population (I don't have data by class).

I must note that results in the class III subgroup - coupled with the fact that the trial did not enroll a balanced number of patients in the two arms by disease severity - give Gossamer some confidence to start a phase 3 trial, which they will do now, with 6MWD as the primary endpoint. This is a functional endpoint that is more useful for patients than any surrogate endpoint. However, a problem noted by Evaluate is the following:

The issue that will arise at that point is Merck & Co's sotatercept, which could reach the market in the second half of next year. If that happens, the FDA could ask Gossamer to include a sotatercept comparison arm, Gossamer executives conceded on a call today.

These are some of the reasons the stock went down as drastically as it did on the data drop. If the company manages to succeed in the phase 3 trial, things will be different. One way to do that could be to enroll more class III patients, a subgroup where it performed relatively better.

Gossamer stock has had other issues with its pipeline. Just last year, the company shelved its ulcerative colitis program after the complete failure of GB004 , an oral HIF-1? stabiliser, to meet any of the endpoints in the Shift-UC trial. Another program, GB001 for asthma and rhinosinusitis, is also not functional right now. The rest of its current pipeline is very early stage and does not merit consideration.

Financials

GOSS has a market cap of $164mn and a cash balance of $304mn, which exceeds the market cap. They have a high debt of $217mn, otherwise even the enterprise value of the company would have been negative. In theory, a company doing nothing should be valued at cash. So, if we ignore the debt ($210mn of this is long term debt), this company is valued below cash. Essentially, this means the market views the business very negatively.

For the quarter ended September 30, 2022, R&D expenses were $44.5 million, while G&A expenses were $11.5 million. At that rate, the company has enough cash to survive 5-6 quarters. After that, they will need to get a loan or dilute; however, if the market does not like the company, it will be difficult to dilute, and even if they can manage to get a loan, loan terms will not be favorable.

Bottomline

GOSS seems like a failure in every respect. Multiple trial failures and no backup pipeline make this a complete avoid.

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