Genprex, Inc. 2019 Q3 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. The company has no approved products and has not generated revenue from product sales. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, filed November 14, 2019.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0 in 2019 and 2018 | $0 in 2019 and 2018 |
| Net loss | $2.4 million in 2019 versus $2.2 million in 2018 | $8.2 million in 2019 versus $8.9 million in 2018 |
| Research and development expense | $0.5 million versus $0.5 million | $1.5 million versus $0.7 million |
| General and administrative expense | $1.9 million versus $1.7 million | $6.8 million versus $8.3 million |
| Operating loss | $2.4 million versus $2.2 million | $8.3 million versus $8.9 million |
| Net loss per share | $0.15 versus $0.15 | $0.53 versus $0.67 |
| Cash used in operating activities | Not separately provided | $5.2 million versus $4.8 million |
Because the company has no revenue, gross and operating margins are not meaningful. Share-based compensation was approximately $2.9 million for the first nine months of 2019 and was a significant non-cash expense.
- Cash was $2.5 million at September 30, 2019, down from $8.6 million at December 31, 2018.
- Total assets were $4.1 million, including $801,780 of research and development materials purchased for future use.
- Current liabilities were $537,232 and stockholders’ equity was $3.5 million.
- The company reported no outstanding debt at September 30, 2019; interest expense was zero for the first nine months, compared with $37,982 in 2018.
- Net cash used in investing activities was $855,132, primarily reflecting research materials, intellectual property and equipment purchases.
- No financing cash was raised during the first nine months of 2019, compared with $15.0 million of net financing cash flow in the comparable 2018 period.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss increased by $189,626, primarily because general and administrative expense rose by $204,106.
- Nine-month net loss decreased by $711,498, primarily reflecting lower general and administrative expense and lower share-based compensation, partly offset by higher research and development spending.
- Nine-month research and development expense increased $823,148 as the company expanded preclinical work, manufacturing-process development, clinical strategy, site-selection activities and regulatory support.
- Nine-month operating cash use increased $412,545, while investing cash use increased $815,702 due mainly to the purchase of research and development materials.
- Shares outstanding increased to 15,842,855 at September 30, 2019 from 15,239,148 at December 31, 2018. The company also had 3,864,552 outstanding warrants and 5,905,583 outstanding stock options, creating potential future dilution.
- The $4.5 million TETF promissory note and related investment unit were terminated in August 2019, eliminating that contingent repayment obligation as described in the filing.
Guidance, Outlook, Risks and Unusual Items
- Management expects continuing significant research and development expenditures and does not expect product revenue unless and until a product is successfully developed, approved and commercialized.
- The company states that existing cash was expected to fund current operations for at least the next three months, but that existing capital would not be sufficient to complete development and commercialization of Oncoprex. Additional equity, debt, government funding or strategic collaboration financing will be required, with no assurance that funding will be available on acceptable terms or at all.
- Oncoprex development remains dependent on clinical-trial execution, patient enrollment, regulatory approval, manufacturing scale-up, third-party contractors and intellectual-property rights. MD Anderson clinical and preclinical agreements have projected costs of approximately $2 million each, and the clinical trial agreement is expected to run through early 2023.
- The company reported delays in reopening enrollment in its Phase II trial and may add other clinical sites. Early clinical findings may not be replicated in later or larger trials.
- Management concluded that disclosure controls and procedures were not effective as of September 30, 2019 because of a material weakness related to lack of segregation of duties. No material changes to internal control over financial reporting occurred during the quarter.
- Genprex disclosed a former financial advisor’s informal demand for warrants equal to 3% of outstanding shares as of December 1, 2015. The company believes the claim lacks merit and has not recorded an expense or capitalization effect because an impact was not probable or reasonably estimable.
- Nasdaq notified the company that its closing bid price had been below $1.00 for 30 consecutive business days. Genprex had until March 9, 2020, subject to potential extensions, to regain compliance. The company also reported noncompliance with Nasdaq’s audit committee composition requirement.
- The filing emphasizes substantial risks associated with continued losses, limited cash, future dilution, clinical and regulatory failure, competition, manufacturing dependencies, intellectual-property disputes and potential delisting.
- On October 1, 2019, after the reporting period, the company issued 5,000 shares to a service provider.
Most Important Facts for an Investor to Verify
- Current cash balance, monthly cash burn and whether additional financing has been completed or is committed after September 30, 2019.
- Progress, enrollment status, site expansion and regulatory feedback for the Oncoprex Phase I/II and planned clinical programs.
- Whether the company regained compliance with Nasdaq’s minimum bid price and audit committee requirements, and whether any delisting process was initiated.
- Status and potential financial impact of the former advisor’s warrant demand and any other intellectual-property or contractual disputes.
- Outstanding options, warrants, equity-plan reserves and future financing needs that could materially dilute existing shareholders.
- Remediation of the material weakness in segregation of duties and any subsequent changes in disclosure or financial reporting controls.