Genprex, Inc. 2018 Q2 Form 10-Q Summary
Business Context and Reporting Period
Genprex is a clinical-stage gene therapy company developing Oncoprex immunogene therapy for non-small cell lung cancer (NSCLC). The unaudited Form 10-Q covers the three and six months ended June 30, 2018, compared with the corresponding 2017 periods. The company completed its initial public offering on April 3, 2018, and a private placement on May 9, 2018.
Financial Metrics
| Metric | Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $112,969 | $104,979 | $164,590 | $173,344 |
| General and administrative expense | $5,921,950 | $1,075,407 | $6,556,011 | $1,757,760 |
| Operating loss | $(6,036,090) | $(1,181,194) | $(6,722,719) | $(1,932,509) |
| Net loss | $(6,061,213) | $(1,181,175) | $(6,755,212) | $(1,932,478) |
| Net loss per share | $(0.45) | $(0.10) | $(0.53) | $(0.17) |
- Cash was $12.0 million at June 30, 2018, compared with $161,251 at December 31, 2017.
- Net cash used in operating activities was $3.31 million for the six months ended June 30, 2018, versus $1.32 million in the prior-year period.
- Net cash used in investing activities was $33,093, primarily for property, equipment and intellectual property.
- Net cash provided by financing activities was $15.19 million, principally from the IPO and private placement, compared with $228,974 in 2017.
- Current liabilities were $300,537 at June 30, 2018, and the company reported no notes payable to related parties. Stockholders’ equity was $12.59 million.
- Accumulated deficit was $24.21 million. The filing reports no debt other than obligations associated with ordinary operations and the repaid related-party notes.
- The filing does not provide a meaningful operating margin because the company has no revenue; its net loss represents essentially all operating costs and interest expense.
Material Changes Versus the Prior Comparable Period
- Second-quarter general and administrative expense increased by $4.85 million, driven by expanded operations, public-company costs, headcount and travel, and more than $2.6 million of additional equity-based compensation.
- Six-month general and administrative expense increased by $4.80 million to $6.56 million.
- Second-quarter research and development expense increased modestly as the company prepared to resume its Phase I/II clinical trial. Six-month research and development expense decreased by $8,754 because of a clinical-trial pause while data and potential FDA pathways were evaluated.
- The IPO generated gross proceeds of $6.4 million and estimated net proceeds of $5.025 million. The private placement generated approximately $9.25 million of net proceeds.
- Shares issued and outstanding increased substantially following the financings and conversion of preferred and non-voting common stock in connection with the IPO. The company reported 13,896,926 shares outstanding at June 30, 2018 and 15,071,366 shares outstanding as of August 14, 2018.
- Warrants outstanding increased to 2,252,187 at June 30, 2018, and stock options outstanding increased to 3,707,366.
Guidance, Outlook, Risks and Unusual Items
- Management expects research and development spending to increase as Oncoprex advances through clinical development and regulatory activities. The company cannot reliably estimate the timing or cost of completing development or when revenue may begin.
- Management stated that existing cash and financing proceeds were expected to fund current operations for at least 18 months from the filing date, but additional capital will likely be required to complete development and commercialization of Oncoprex.
- The company has never generated product revenue, has incurred losses since inception, and expects continued losses and negative cash flow for the foreseeable future. The financial statements disclose the need for additional financing and substantial doubt regarding continued operations if financing is not obtained.
- The MD Anderson Phase I/II trial evaluates Oncoprex with erlotinib in NSCLC. Enrollment had previously been suspended while the company evaluated data and sought FDA guidance regarding possible protocol changes, expanded enrollment and patient cohorts.
- The company has an approximately $2 million clinical trial commitment with MD Anderson expected to run through early 2023, although the agreement may be terminated at any time.
- A former financial advisor asserted a claim for warrants equal to 3% of outstanding shares as of December 1, 2015. Genprex believes the claim lacks merit, intends to defend it, and has recorded no related expense or capitalization effect because the outcome is not considered probable or reasonably estimable.
- Subsequent to quarter-end, the company issued 1,174,440 additional shares under the repricing provisions of the May private placement. The related warrants became exercisable for 2,283,740 shares at an exercise price of $4.25 per share.
- Subsequent events also included a consulting agreement with Viet Ly and a two-year sponsored research agreement with MD Anderson focused on TUSC2 combined with immunotherapies.
- Key risks include the need for additional financing, clinical and regulatory failure, patient-enrollment delays, reliance on third-party manufacturers and clinical research organizations, intellectual-property challenges, dilution, stock-price volatility and the company’s going-concern uncertainty.
Important Facts for Investors to Verify
- Whether the reported cash balance and subsequent financing proceeds are sufficient to fund operations for the stated 18-month period under actual spending rates.
- The status, enrollment, data and FDA interactions for the Oncoprex Phase I/II clinical trial, including any revised protocol or accelerated-approval pathway.
- The potential dilution from the 2.25 million outstanding warrants, 3.71 million options, subsequent repricing, and future equity financing.
- The company’s ability to secure additional capital before cash resources are exhausted and the continuing applicability of the going-concern warning.
- The outcome and potential capitalization impact of the former financial advisor’s warrant claim.
- The source filing’s cash-flow presentation: the financial statements report a six-month net cash increase of $11,840,283, while the MD&A table reports $11,840,284.