Genprex, Inc. 10-Q Summary
Business Context and Reporting Period
Genprex is a clinical-stage biotechnology company developing Oncoprex immunogene therapy, primarily for non-small cell lung cancer. The platform uses nanovesicles to deliver cancer-fighting genes. The filing covers the unaudited three months ended March 31, 2019, compared with the three months ended March 31, 2018.
The company has no approved products and has never generated revenue from product sales. Its principal development activity is the Phase I/II clinical program evaluating Oncoprex in combination with erlotinib, along with related manufacturing, preclinical and regulatory activities.
Financial Results and Liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $508,042 | $51,621 | +$456,421 |
| General and administrative expense | $1,659,796 | $634,063 | +$1,025,733 |
| Total operating expenses | $2,170,769 | $686,631 | +$1,484,138 |
| Operating loss | $(2,170,769) | $(686,631) | Loss increased |
| Net loss | $(2,158,846) | $(694,001) | Loss increased |
| Basic and diluted loss per share | $(0.14) | $(0.06) | More negative |
| Net cash used in operating activities | $(1,641,793) | $(203,712) | Use increased $1,438,081 |
| Cash provided by financing activities | $0 | $77,398 | Decreased $77,398 |
| Cash balance at period end | $6,945,794 | $24,485 | Higher year over year |
Operating margins are not meaningful because the company has no revenue; all reported revenue-based margins are effectively negative. The accumulated deficit was $31,983,537 at March 31, 2019. Total assets were $7,476,392 and stockholders’ equity was $7,245,311.
The company reported no outstanding debt at March 31, 2019 and no interest expense in the quarter. Cash decreased by $1,655,124 during the quarter. Approximately $6.70 million of cash exceeded FDIC insurance limits, creating cash-concentration risk.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased approximately 884%, primarily due to commercialization activities, manufacturing strategy and process development, clinical data analysis and clinical strategy work.
- General and administrative expense increased approximately 162%, reflecting increased headcount, travel, consulting, professional services, communications and investor-relations activity.
- Net loss increased from $694,001 to $2,158,846, while loss per share increased from $0.06 to $0.14.
- Operating cash use increased substantially, driven by higher research, development and administrative spending.
- The company did not raise cash through stock sales or debt issuance during the quarter. It had issued 121,617 shares for services and 200,000 shares previously held in abeyance for an investor.
- Share-based compensation was $523,022 in Q1 2019 versus $223,512 in Q1 2018. Outstanding stock options increased to 5,905,583, and outstanding warrants totaled 3,864,551 at March 31, 2019.
Outlook, Risks, Contingencies and Unusual Items
Management expects research and development expenses to increase as clinical programs advance and regulatory approval is pursued. The company expects to require substantial additional capital and states that failure to raise funds could delay, reduce or terminate development programs or operations. Management indicated that existing cash was expected to fund current operations for at least the next 12 months, but also stated that existing capital may not be sufficient to complete development and commercialization of Oncoprex.
- The financial statements disclose substantial historical losses, no current revenue source and dependence on future equity, debt, government funding, collaborations or licensing transactions. The filing states that no assurance exists that additional capital will be available on acceptable terms.
- Clinical development, regulatory approval, patient enrollment, manufacturing scale-up and product commercialization remain uncertain. Oncoprex has not been submitted for marketing approval.
- The company relies on third parties, including MD Anderson, contract research organizations and contract manufacturers. The filing notes that the company currently relies on a sole-source manufacturer for clinical-trial support and does not have binding commercial supply agreements.
- Commitments to MD Anderson include approximately $2 million for the Phase I/II clinical trial and approximately $2 million for sponsored preclinical research; the agreements may be terminated.
- The TETF investment unit is valued at zero, but a $4.5 million promissory note could become payable if the company fails to maintain its Texas residency requirement before August 13, 2020.
- A former financial advisor has informally demanded warrants equal to 3% of outstanding shares as of December 1, 2015, with registration rights. The company disputes the claim and has recorded no liability because the potential effect was not probable or reasonably estimable.
- The company reports no current litigation, other than the disputed informal demand. Management states that no other known contingencies are reasonably likely to materially affect financial condition, results or liquidity.
- The filing contains a controls inconsistency: management concluded disclosure controls and procedures were effective as of March 31, 2019, while the risk-factor discussion states that internal control over financial reporting remained ineffective due to a material weakness involving lack of segregation of duties.
- The company issued 40,000 additional shares to service providers after quarter-end through April 30, 2019.
Most Important Facts for Investors to Verify
- Cash runway, quarterly cash-burn rate and the timing, size and terms of the next capital raise.
- Status, enrollment, data quality and regulatory plans for the Oncoprex Phase I/II clinical program, including any pathway toward accelerated approval.
- Manufacturing readiness, contract-manufacturer concentration and the cost and timing of commercial-scale production.
- Resolution and potential dilution or liability associated with the former financial advisor’s warrant demand.
- Remediation and independent assessment of the reported material weakness in internal control over financial reporting.
- Potential dilution from 5.9 million outstanding options, 3.9 million warrants, equity-plan share increases and future financing.
- Compliance with the Texas residency requirement tied to the potential $4.5 million TETF repayment obligation.
- Future obligations under MD Anderson license, clinical-trial and sponsored-research agreements, including royalties and contingent payments.