Genprex, Inc. 2019 Form 10-K Summary
Business context and reporting period
Genprex is a clinical-stage gene therapy company reporting for the fiscal year ended December 31, 2019. Its lead candidate, Oncoprex, is being developed for non-small cell lung cancer (NSCLC) using a TUSC2 tumor-suppressor gene delivered through intravenously administered nanovesicles. The company also held a preclinical diabetes gene therapy program at year-end.
Genprex had no approved products and generated no product revenue. Its common stock trades on the Nasdaq Capital Market under GNPX. The company reported 19.3 million common shares outstanding at December 31, 2019 and 32.85 million shares outstanding as of March 27, 2020, reflecting subsequent equity financings.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $2.0 million | $1.0 million | Up 102% |
| General and administrative expense | $8.7 million | $11.4 million | Down 24% |
| Total operating expenses | $10.7 million | $12.4 million | Down 14% |
| Net loss | $10.7 million | $12.4 million | Loss narrowed 14% |
| Net loss per share | $0.66 | $0.90 | Improved |
| Net cash used in operating activities | $6.9 million | $6.8 million | Up 1% |
| Net cash used in investing activities | $0.9 million | $0.1 million | Up 816% |
| Net cash provided by financing activities | $1.3 million | $15.4 million | Down 92% |
| Cash at year-end | $2.0 million | $8.6 million | Down 77% |
| Accumulated deficit | $40.5 million | $29.8 million | Increased |
Operating margins and profitability ratios are not meaningful because the company has no revenue. Interest expense was zero in 2019 versus $38,000 in 2018, and the filing reports no outstanding debt balance at year-end. Current liabilities were $511,000, compared with $388,000 in 2018, against current assets of $3.0 million.
Research and development spending increased primarily because Genprex accelerated preclinical research and manufacturing-process development. The decrease in general and administrative expense principally reflected lower equity-based compensation and the absence of certain 2018 IPO and private-placement costs. Investing cash outflows included $802,000 of research and development supplies purchased for future use.
Material changes versus the prior comparable period
- R&D expense more than doubled as the company prepared to advance clinical programs.
- General and administrative expense declined 24%, largely because 2018 included unusually high equity-based compensation and financing-related costs.
- Cash declined by $6.6 million during 2019, as operating and investing outflows exceeded financing proceeds.
- The November 2019 registered direct offering generated approximately $1.1 million of net proceeds and included warrants. Total outstanding warrants increased to approximately 7.5 million at year-end.
- Genprex issued 507,000 shares for services and recognized approximately $3.5 million of share-based compensation in 2019.
- Management identified a material weakness in internal control over financial reporting caused by insufficient segregation of duties. Management planned to add accounting staff and improve financial reporting systems.
Clinical progress, outlook and unusual items
In the Phase I/II trial of Oncoprex combined with erlotinib, 28 patients had been enrolled overall, including 10 Phase II patients. Of nine Phase II patients evaluable for response, the reported response rate was 11%, the disease-control rate was 78%, and one patient achieved a complete response. The filing cautions that these interim results were based on a small, non-randomized population and may not predict later-stage results.
On January 14, 2020, the FDA granted Fast Track Designation for Oncoprex in combination with osimertinib for EGFR-mutated NSCLC patients whose tumors progressed after osimertinib treatment. Genprex consequently prioritized a new Phase I/II osimertinib trial, expected to begin in late 2020 or early 2021, and did not plan to enroll additional patients in the erlotinib trial. The filing also describes plans to study Oncoprex with pembrolizumab and to continue preclinical work in other cancers.
On February 11, 2020, Genprex entered an exclusive license agreement with the University of Pittsburgh for a preclinical gene therapy intended to reprogram pancreatic cells for potential treatment of type 1 and type 2 diabetes.
Subsequent registered direct offerings in January and February 2020 generated approximately $23.4 million of aggregate net proceeds from the sale of 13.6 million shares. Management stated that year-end cash on a pro forma basis, including these financings, was expected to fund operations for at least 24 months, but also stated that additional capital will be required to complete development and commercialization.
Key risks include the absence of revenue and approved products, continuing losses and negative cash flows, dependence on additional equity or other financing, clinical-trial failure or delays, patient-enrollment challenges, regulatory uncertainty, reliance on contract manufacturers and clinical research providers, intellectual-property and license risks, competition, potential COVID-19-related disruption, and possible dilution from future securities issuances. The company also disclosed a former financial advisor’s claim for warrants, which management believes lacks merit.
Most important facts for investors to verify
- Whether the subsequent 2020 financings and share issuances provide sufficient liquidity for the planned osimertinib and other clinical programs.
- The design, enrollment, control group, endpoints and results of the planned Phase I/II Oncoprex-osimertinib trial.
- Whether the small interim erlotinib dataset can be replicated in larger, controlled studies.
- Progress in transferring Oncoprex manufacturing to commercial contract manufacturers and obtaining required regulatory approvals.
- Remediation of the material weakness related to segregation of duties and any subsequent auditor or management assessments.
- The terms, ongoing costs, milestones, royalties and development status of the University of Pittsburgh diabetes license.
- The number and terms of outstanding warrants, stock options and other potentially dilutive securities.
- The status and potential exposure from the former financial advisor’s warrant claim and other license-related obligations.