Genprex, Inc. 2020 Q2 Form 10-Q Summary
Business Context and Reporting Period
Genprex is a clinical-stage gene therapy company developing GPX-001 for non-small cell lung cancer and preclinical GPX-002 for potential type 1 and type 2 diabetes treatment. The unaudited report covers the three and six months ended June 30, 2020, compared with the corresponding 2019 periods.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $2.16 million | $3.63 million |
| General and administrative expense | $2.22 million | $6.31 million |
| Total expenses | $4.38 million | $9.95 million |
| Net loss | $4.37 million | $9.94 million |
| Net loss per share | $0.12 | $0.31 |
| Net cash used in operating activities | Not separately provided | $8.03 million |
| Net cash provided by financing activities | Not separately provided | $28.30 million |
At June 30, 2020, cash was $22.13 million, total assets were $24.75 million, current liabilities were $239,786, and stockholders’ equity was $24.51 million. The company reported no outstanding debt and no interest expense. Operating or net margins are not meaningful because the company has no revenue.
Material Changes Versus the Prior Comparable Period
- Six-month R&D expense increased 260% to $3.63 million from $1.01 million, primarily due to increased personnel utilization and expanded preclinical, clinical, manufacturing, and development activities.
- Six-month G&A expense increased 30% to $6.31 million from $4.86 million, driven principally by financing-related costs, legal fees, and accelerated vesting-related stock compensation.
- Six-month net loss increased to $9.94 million from $5.85 million, while operating cash use increased 150% to $8.03 million from $3.21 million.
- Cash increased by $20.12 million during the first six months, primarily from $28.30 million of equity financing proceeds.
- The company issued 13.58 million shares in registered direct offerings and received approximately $25.73 million in gross proceeds. Warrant and option exercises also generated approximately $2.57 million of gross proceeds.
- Shares outstanding increased to 38.63 million at June 30, 2020 from 19.26 million at December 31, 2019, creating substantial dilution.
- R&D supplies increased to $893,999 from $801,780, and intellectual property increased to $534,523 from $491,200.
Guidance, Outlook, Risks, and Unusual Items
- Management planned to initiate Phase I/II trials of GPX-001 with osimertinib and with pembrolizumab in 2021. GPX-001 received FDA Fast Track Designation in January 2020 for the osimertinib combination.
- The company expects continued significant R&D and administrative spending and does not expect product revenue unless it successfully completes development, obtains regulatory approval, and commercializes a product.
- Management stated that additional capital will be required. Future financing may be unavailable or unfavorable, and failure to obtain funding could delay, reduce, or terminate development programs or cause the company to cease operations in whole or in part.
- The company entered into an exclusive University of Pittsburgh license for diabetes gene therapy and a May 2020 exclusive worldwide MD Anderson license covering TUSC2 in combination with immunotherapies. These arrangements include upfront, maintenance, milestone, royalty, minimum royalty, and patent-cost obligations.
- Second-quarter G&A included approximately $1.5 million of expense from accelerated vesting of stock options following a former employee’s separation. Six-month share-based compensation was approximately $3.1 million.
- COVID-19 had no material reported impact on second-quarter financial results or operations, but management stated that future effects remain uncertain.
- Disclosure controls and procedures were deemed ineffective because of a material weakness in internal control over financial reporting arising from inadequate segregation of duties. Management began evaluating and implementing remediation measures.
- The filing reports no material legal proceedings, no off-balance-sheet arrangements, and no material contingencies known to management beyond disclosed license and development commitments.
Important Facts for Investors to Verify
- Confirm the adequacy and expected duration of the $22.13 million cash balance relative to planned 2021 clinical trials and continuing operating cash needs.
- Review the terms, timing, and potential dilution from outstanding warrants for 2.38 million shares and options for 6.83 million shares.
- Assess the likelihood, timing, and cost of the planned GPX-001 clinical trials and the regulatory path for both GPX-001 and GPX-002.
- Review milestone, royalty, minimum royalty, and termination provisions in the MD Anderson and University of Pittsburgh license agreements.
- Monitor remediation of the material weakness involving segregation of duties and the effectiveness of the replacement controls.
- Evaluate the company’s going-concern disclosure and its dependence on future equity, debt, or strategic financing despite having no current revenue.