Genprex, Inc. 10-Q Summary
Reporting period: Three and nine months ended September 30, 2020; filed November 12, 2020. Genprex is a clinical-stage gene therapy company with no product revenue. Its lead oncology candidate, REQORSA, uses the Oncoprex Nanoparticle Delivery System to deliver TUSC2 for non-small cell lung cancer. The company is also developing a preclinical diabetes gene therapy, GPX-002.
Financial Highlights
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.35 million | $0.47 million | $4.98 million | $1.48 million |
| General and administrative expense | $1.42 million | $1.91 million | $7.73 million | $6.77 million |
| Total expenses | $2.78 million | $2.38 million | $12.73 million | $8.26 million |
| Net loss | $2.77 million | $2.38 million | $12.71 million | $8.23 million |
| Net loss per share | $0.07 | $0.15 | $0.37 | $0.53 |
Because Genprex has no revenue, gross and operating margins are not meaningful. The company had $21.06 million of cash at September 30, 2020, compared with $2.00 million at December 31, 2019. Current assets were $22.71 million and current liabilities were $0.38 million, implying strong near-term balance-sheet liquidity. The company reported no outstanding debt.
Net cash used in operating activities was $10.04 million for the first nine months of 2020, compared with $5.20 million in the prior-year period. Financing activities provided $29.09 million, primarily from equity issuances, resulting in a $19.06 million increase in cash.
Material Changes Versus Prior Period
- R&D expense increased 189% in the third quarter and 237% for the first nine months, reflecting hiring, manufacturing activity, clinical strategy, and preparation for the Acclaim-1 and Acclaim-2 trials.
- Third-quarter G&A expense declined 26%, partly because of expense reclassification and lower travel and office costs during the COVID-19 pandemic. Nine-month G&A expense increased 14%, driven by financing and legal costs and accelerated stock-option vesting for a former executive.
- Equity financing and warrant and option exercises generated approximately $29.1 million of net cash during the first nine months. Common shares outstanding increased from 19.26 million at December 31, 2019 to 39.46 million at September 30, 2020, creating substantial dilution.
- Accumulated deficit increased to $53.19 million from $40.48 million at December 31, 2019.
- Share-based compensation was approximately $3.6 million for the first nine months, including significant option and warrant-related expense. Approximately $4.5 million of additional time-based compensation cost remained to be recognized over an estimated 2.26-year weighted-average period.
Outlook, Risks and Unusual Items
- Management planned to initiate both Acclaim-1, combining REQORSA with Tagrisso, and Acclaim-2, combining REQORSA with Keytruda, in the first half of 2021. Acclaim-1 had received FDA Fast Track Designation in January 2020.
- Management estimated that existing cash could fund current operations and planned clinical trial activities into mid-2022, but emphasized that the estimate depends on assumptions and additional capital will likely be required.
- The company has incurred losses since inception, has no current revenue source, and states that it must raise additional capital to continue development and commercialization. Failure to obtain financing could delay, reduce, or terminate programs or operations.
- Development, regulatory approval, manufacturing, clinical-trial enrollment, intellectual-property protection, third-party reliance, market acceptance, and competition remain material risks. The COVID-19 pandemic had not materially affected results through the filing date, but future effects remained uncertain.
- License agreements added obligations including upfront and maintenance fees, milestone payments, royalties, minimum royalties, and reimbursement of patent expenses. The MD Anderson license includes aggregate milestone payments of $4.15 million; the University of Pittsburgh license includes aggregate milestone payments of $3.975 million.
- Management reported that disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting arising from inadequate segregation of duties. Remediation efforts had begun but effectiveness had not yet been demonstrated.
- No material legal proceedings or off-balance-sheet arrangements were reported. Subsequent events included additional option grants, option exercises for $216,560, a lease extension through April 30, 2021, and a 5,000-share service issuance.
Investor Verification Checklist
- Verify the assumptions supporting management’s mid-2022 cash runway, including planned trial costs, manufacturing expenditures, and expected financing needs.
- Review the timing, design, enrollment requirements, funding, and regulatory status of the Acclaim-1 and Acclaim-2 trials.
- Assess dilution from the 39.46 million shares outstanding, 6.98 million outstanding options, and 2.37 million outstanding warrants as of September 30, 2020.
- Monitor remediation of the material weakness related to segregation of duties and the effectiveness of revised controls.
- Review milestone, royalty, maintenance-fee, and termination provisions under the MD Anderson and University of Pittsburgh license agreements.
- Evaluate the absence of revenue, continuing operating losses, increasing cash burn, and the company’s dependence on future equity or debt financing.