Genprex, Inc. 2017 Form 10-K Summary
Business context and reporting period
Genprex, Inc. is a clinical-stage biotechnology company developing Oncoprex immunogene therapy, a systemic, non-viral nanovesicle delivery platform designed to deliver cancer-fighting genes to tumor cells. The lead program targets non-small cell lung cancer (NSCLC), primarily in combination with erlotinib. The filing covers the fiscal year ended December 31, 2017 and was filed April 17, 2018. Genprex had no approved products and generated no product revenue.
Oncoprex was being evaluated in an ongoing Phase I/II combination trial at MD Anderson. The Phase II portion began in June 2015, but enrollment was suspended in April 2016 while preliminary data were analyzed and FDA guidance was sought regarding revised cohorts and potential accelerated approval. As of December 31, 2017, 28 patients had been enrolled in the overall Phase I/II trial under the clinical study agreement.
Financial position and operating results
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $289,934 | $354,883 |
| General and administrative expense | $3,019,171 | $3,776,414 |
| Net loss | $(3,314,157) | $(4,132,159) |
| Basic and diluted loss per share | $(0.29) | $(0.38) |
| Net cash used in operating activities | $(2,171,594) | $(1,248,263) |
| Net cash used in investing activities | $(63,421) | $(89,534) |
| Net cash provided by financing activities | $793,971 | $2,705,872 |
| Cash at year-end | $161,251 | $1,602,295 |
| Working capital | $(637,390) | $1,353,167 |
| Accumulated deficit | $(17,452,352) | $(14,138,195) |
| Total stockholders’ equity | $428,574 | $1,624,868 |
Operating expenses totaled $3.31 million in 2017, producing an operating loss of $3.31 million. Interest expense was $1,890, compared with none in 2016. The filing does not identify material interest-bearing debt outstanding at December 31, 2017; however, the company received a $200,000 related-party loan in December 2017 that was repaid after year-end with IPO proceeds.
Genprex funded 2017 operations primarily through the sale of Series G preferred stock, receiving gross proceeds of $793,971. Cash declined by $1.44 million during the year. The company stated that year-end cash, together with the subsequent IPO proceeds, was expected to fund operations for at least 10 months, but not complete development and commercialization of Oncoprex.
Material changes versus the prior comparable period
- Net loss improved by approximately $818,000, or 20%, primarily because 2016 included unusually high equity-based compensation and related recruiting costs.
- Research and development expense decreased $64,949, or 18%, as management focused more heavily on completing the IPO; management expected R&D spending to increase significantly as clinical programs expanded.
- General and administrative expense decreased $757,243, or 20%, but excluding the unusually large 2016 equity-based compensation charge, underlying 2017 expense increased because of higher headcount, employee costs and IPO-related expenses.
- Cash used in operating activities increased $923,331, or 74%, reflecting increased personnel, operating and IPO-related costs.
- Financing proceeds fell $1.91 million from 2016 to 2017, when the company raised $2.71 million through stock issuances.
- Working capital moved from positive $1.35 million to negative $637,390, and year-end cash declined from $1.60 million to $161,251.
Clinical, strategic and operational outlook
Interim Phase II results for nine evaluable patients showed a reported 11% response rate and 78% disease-control rate, with four patients experiencing tumor regression and one complete response. Median response duration was three months. These results were preliminary, derived from a small, non-blinded study, and are not evidence of regulatory approval or definitive efficacy.
Management planned to present additional analyses to the FDA and either amend the protocol to add cohorts and sites or reopen enrollment under the existing protocol if agreement with the FDA was not reached. The company also planned to pursue Oncoprex combinations with checkpoint inhibitors, additional clinical sites, manufacturing scale-up, and strategic partnerships.
On April 3, 2018, after the reporting period, Genprex completed an initial public offering of 1,280,000 shares at $5.00 per share. Net proceeds were approximately $5.025 million. The proceeds were intended primarily to fund clinical development and operations; approximately $260,000 had been used by April 6, 2018. Related-party loans totaling approximately $270,000 were repaid with IPO proceeds.
Risks, contingencies and unusual items
- The independent auditor reported substantial doubt about Genprex’s ability to continue as a going concern because of recurring losses, limited cash and the need for additional financing.
- Genprex had never generated product revenue, had never been profitable, and expected continuing losses and negative cash flows for the foreseeable future.
- Oncoprex remained an investigational product. Regulatory approval was uncertain, and accelerated approval, Fast Track or Breakthrough Therapy status had not been granted based on the filing text.
- The Phase II trial was closed to new enrollment but remained classified as ongoing for follow-up, data collection and analysis.
- The company depended substantially on MD Anderson, contract research organizations and contract manufacturers. It did not have binding commercial supply agreements for Oncoprex.
- Genprex held an exclusive worldwide license covering 30 issued and two pending patents. Patent protection varied by jurisdiction and included expiration dates ranging from 2020 to 2030.
- The company owed MD Anderson royalties of 1.5% of net sales and certain sublicense receipts, and IRI royalties of 1.0% of net sales and certain other payments. A contingent NIH payment obligation of $240,000, increasing by $20,000 annually beginning in 2018, would arise upon regulatory approval.
- In October 2017, a former financial advisor demanded a warrant representing 3% of outstanding shares as of December 1, 2015, with piggyback registration rights. Genprex disputed the claim and had not accrued an expense or capitalization impact because the outcome was not probable or reasonably estimable.
- Related-party transactions included stock issuances, consulting arrangements and loans involving significant stockholders, directors or executive officers.
- The company was highly dependent on equity financing. Future issuances could dilute existing stockholders, and the filing disclosed substantial authorized equity, outstanding options and warrants.
Important facts for investors to verify
- Current cash runway, quarterly cash burn and whether additional equity or debt financing has been obtained since the IPO.
- FDA feedback on the Phase II protocol, cohort design, enrollment restart and any accelerated-approval or expedited-program designations.
- Updated clinical data using a materially larger patient population, including response durability, progression-free survival, overall survival and comparative safety.
- The status of the former advisor’s warrant demand and any resulting dilution or litigation exposure.
- Manufacturing readiness, commercial-scale supply agreements, product release testing and regulatory acceptance of contract manufacturing facilities.
- Current patent validity, remaining patent terms, license compliance and royalty or milestone obligations.
- Outstanding options, warrants, equity-plan reserves and potential dilution relative to the post-IPO share count.