Genprex, Inc. 10-Q Summary: Period Ended September 30, 2017
Business Context and Reporting Period
Genprex, Inc. is a clinical-stage biopharmaceutical company developing immunogene therapies for cancer, with its lead product candidate, Oncoprex, in Phase II clinical trials for non-small cell lung cancer (NSCLC). The company is a "Smaller Reporting Company" and an "Emerging Growth Company." This report covers the quarterly period ended September 30, 2017. As of the filing date (November 27, 2017), the company was in the process of an Initial Public Offering (IPO), having filed a registration statement on Form S-1 in July 2017 and declared effective by the SEC in October 2017.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2017 | Nine Months Ended Sep 30, 2017 | Nine Months Ended Sep 30, 2016 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(715,098) | $(2,647,576) | $(3,133,092) |
| Net Loss Per Share (Basic/Diluted) | $(2.04) | $(7.77) | $(10.04) |
| Cash and Cash Equivalents (End of Period) | $373,945 | $373,945 | $968,579 |
| Accumulated Deficit | $(16,785,779) | $(16,785,779) | $(14,138,195) |
| Operating Cash Flow (9 Months) | $(1,960,028) | $(1,960,028) | $(399,620) |
| Financing Cash Flow (9 Months) | $794,019 | $794,019 | $1,205,866 |
Debt and Liquidity: The company has no long-term debt. Current liabilities totaled $395,257 as of September 30, 2017. The company holds an "Investment Unit" from the Texas Emerging Technology Fund (TETF) valued at zero, as repayment is contingent on a default event (failure to maintain Texas residency) which is within the company's control.
Material Changes vs. Prior Period
- Net Loss Reduction: Net loss for the nine months ended September 30, 2017, decreased by approximately $485,516 compared to the same period in 2016. This improvement was primarily driven by a significant reduction in share-based compensation expenses ($1.1 million in 2017 vs. $2.3 million in 2016) and a $120,000 reduction in intellectual property expense due to a modified agreement with the NIH.
- Operating Expenses: General and Administrative (G&A) expenses decreased by $490,341 year-over-year for the nine-month period, largely due to the lower share-based compensation mentioned above. However, excluding this non-cash item, G&A expenses actually increased due to higher headcount and professional fees related to IPO preparation.
- Cash Position: Cash reserves declined significantly from $1.6 million at year-end 2016 to $373,945 at September 30, 2017, reflecting a net cash decrease of $1.23 million for the nine-month period.
- Deferred Offering Costs: Deferred offering costs increased to $559,810 from $25,507 in the prior year, reflecting expenditures related to the ongoing IPO.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Capital Needs: Management states that the company has never generated revenue and expects to continue incurring significant losses. The company requires substantial additional capital to complete clinical trials and commercialize Oncoprex. The independent auditors have expressed "substantial doubt" regarding the company's ability to continue as a going concern without additional financing. The company plans to fund operations through the IPO and potential future equity or debt financings.
Clinical Status: Enrollment in the Phase II portion of the Phase I/II clinical trial for Oncoprex was suspended in April 2016 to analyze data and seek FDA guidance on expanding patient populations. The trial is considered "ongoing" for data collection and follow-up, but no new patients were being enrolled at the time of filing.
Risks and Contingencies:
- Going Concern: The company faces a high risk of insolvency if it cannot raise capital via the IPO or other means.
- Legal Proceedings: In October 2017, the company received an informal demand from a former financial advisor claiming entitlement to a warrant for 3% of outstanding shares. Management believes the claim lacks merit and intends to defend it vigorously.
- Regulatory Risk: Success depends entirely on FDA approval of Oncoprex, which is not guaranteed. The company has no approved products.
- Intellectual Property: The company relies on licensed technology from MD Anderson and the NIH. Failure to maintain these licenses or defend against infringement claims could be fatal to the business.
Investor Verification Checklist
- IPO Completion: Verify the final status of the IPO, the number of shares sold, and the total gross proceeds raised, as the filing was made while the offering was ongoing.
- Cash Runway: Assess the current cash balance against the projected burn rate to determine the immediate need for additional capital post-IPO.
- Clinical Trial Status: Confirm the current status of the Phase II clinical trial, specifically whether enrollment has resumed and if FDA guidance has been received regarding protocol amendments.
- Legal Claim Resolution: Monitor the status of the informal demand from the former financial advisor regarding the 3% warrant claim.
- Share-Based Compensation: Review future equity grant plans, as the reduction in share-based compensation in 2017 was a primary driver of the reduced net loss and may not be sustainable.