Genprex, Inc. 2018 Form 10-K Summary
Business context and reporting period
Genprex is a clinical-stage gene therapy company developing Oncoprex immunogene therapy, its lead candidate for non-small cell lung cancer (NSCLC). Oncoprex delivers the TUSC2 tumor-suppressor gene through intravenously administered lipid nanovesicles and is being evaluated primarily in combination with erlotinib. The filing covers the fiscal year ended December 31, 2018, not a standalone fourth quarter.
The company had no approved products or product revenue and had seven full-time employees as of March 25, 2019. Development, manufacturing, and clinical activities are substantially outsourced, including to MD Anderson Cancer Center and contract manufacturers.
Financial performance, liquidity, and capital structure
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $971,427 | $289,934 |
| General and administrative expense | $11.386 million | $3.019 million |
| Net loss | $12.372 million | $3.314 million |
| Basic and diluted loss per share | $0.90 | $0.29 |
| Net cash used in operating activities | $6.847 million | $2.172 million |
| Net cash provided by financing activities | $15.390 million | $793,971 |
| Cash and cash equivalents at year-end | $8.601 million | $161,251 |
| Working capital | $8.459 million | $(637,390) |
| Accumulated deficit | $29.825 million | $17.452 million |
| Total stockholders’ equity | $8.881 million | $428,574 |
Operating expenses increased substantially. Research and development expense rose by $681,493, reflecting expanded clinical strategy, research, manufacturing-process refinement, and logistics work. General and administrative expense increased by $8.367 million, primarily because of unusually high equity-based compensation for executive leadership, directors, and technical personnel. Excluding that compensation, management reported a $4.226 million increase largely related to headcount, office and employee costs, public-company expenses, and professional services.
Cash used in investing activities was $103,317, primarily for intellectual property and equipment. The company reported no material debt balance at year-end. Certain short-term related-party notes were repaid in April 2018. A Texas Emerging Technology Fund promissory note is carried at zero and would require repayment only if specified Texas residency conditions are breached before August 13, 2020.
Financing included a $5.025 million net initial public offering completed April 3, 2018, and a $9.250 million net private placement completed May 9, 2018. The company stated that available cash was expected to fund current operations for at least 15 months from the filing, but additional capital will likely be required to complete development and commercialization.
Material changes versus the prior comparable period
- Net loss increased approximately 273% to $12.372 million from $3.314 million.
- Research and development expense increased approximately 235%.
- General and administrative expense increased approximately 277%, driven substantially by equity-based compensation and public-company costs.
- Operating cash burn increased approximately 215% to $6.847 million.
- Year-end cash increased by $8.440 million following the IPO and private placement.
- Common shares outstanding increased to 15.239 million at December 31, 2018 from 11.722 million at December 31, 2017, before considering additional dilution from warrants and options.
- Outstanding warrants increased to 3.865 million, with a weighted-average exercise price of $4.60, and outstanding options increased to 4.536 million.
Clinical progress, outlook, and unusual items
The Phase II portion of the Oncoprex-erlotinib trial allowed 39 patients; 10 had been enrolled and nine were evaluable for response. Interim data reported a 11% response rate, a 78% disease-control rate, four patients with tumor regression, and one complete response. The median response duration was three months. These data are preliminary, based on a small, non-blinded study, and may not be replicated in larger or later-stage trials.
Enrollment in the Phase II trial had been suspended since April 2016 while additional data were collected and analyzed. The company elected to continue under the existing protocol, with plans to reopen enrollment at MD Anderson and additional sites. Management continued to pursue a potential accelerated-approval pathway and planned to seek FDA guidance, but no regulatory approval, Fast Track designation, Breakthrough Therapy designation, or accelerated approval had been obtained as of the filing.
The company also planned preclinical and potential clinical work combining Oncoprex with checkpoint inhibitors and other targeted therapies. Manufacturing is performed through contract organizations, and additional process validation, scale-up, supply-chain, and commercial manufacturing work remains necessary.
- The company has never generated product-sale revenue or achieved profitability and expects continuing losses and negative cash flows.
- Management disclosed substantial dependence on future equity, debt, collaboration, licensing, or other financing.
- The company’s internal control over financial reporting was ineffective because of a material weakness involving inadequate segregation of duties. Management was pursuing remediation and using outside accounting support.
- An informal demand from a former financial advisor seeks a warrant equal to 3% of outstanding shares as of December 1, 2015. Genprex believes the claim lacks merit and has recorded no related expense or capitalization impact because the effect was not considered probable or reasonably estimable.
- The company holds an exclusive worldwide license to 32 issued patents and one allowed patent, with the last licensed patent expected to expire in January 2030. License obligations include royalties and patent-related expenses.
- Subsequent events included additional option grants, consultant share issuances, appointment of an independent director, and issuance of 200,000 additional shares under the 2018 private placement.
Key investor verification items
- Verify current cash runway, quarterly cash burn, and the timing and terms of any subsequent financing.
- Assess whether the preliminary Phase II response and disease-control data are supported by updated enrollment, follow-up, statistical analysis, and independent review.
- Confirm whether the Phase II trial has reopened, the number of active sites and patients, and the FDA’s position on any accelerated-approval strategy.
- Reconcile the fully diluted share count, including 15.239 million year-end shares, 3.865 million warrants, 4.536 million options, subsequent issuances, and automatic equity-plan increases.
- Monitor remediation of the material weakness in internal control over financial reporting.
- Review the former financial advisor’s warrant demand and any developments that could create dilution or litigation expense.
- Evaluate dependence on MD Anderson, contract manufacturers, clinical research organizations, and the company’s ability to maintain its licensed intellectual property.
- Confirm the terms and maturity of the TETF contingent obligation and any other debt or financing restrictions.