Genprex, Inc. 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 never generated revenue from product sales. This unaudited Form 10-Q covers the three and six months ended June 30, 2019, filed August 13, 2019.
Key financial metrics
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $502,040 | $1,010,082 |
| General and administrative expense | $3,198,728 | $4,858,524 |
| Operating loss | $(3,703,886) | $(5,874,655) |
| Net loss | $(3,695,240) | $(5,854,086) |
| Net loss per share | $(0.24) | $(0.38) |
| Net cash used in operating activities | Not separately provided | $(3,207,588) |
At June 30, 2019, cash was $4.50 million, total current assets were $5.80 million, total current liabilities were $938,764, and stockholders’ equity was $5.33 million. The company had no outstanding debt. Its accumulated deficit was $35.68 million. Research and development materials of $848,706 were capitalized for future use.
Material changes versus the prior comparable period
- Six-month R&D expense increased to $1.01 million from $164,590, primarily due to expanded manufacturing, clinical strategy, preclinical research, and planned clinical-program activities.
- Six-month G&A expense decreased to $4.86 million from $6.56 million. Equity-based compensation declined to $2.30 million from $3.53 million, while cash-based G&A also decreased due to reduced use of external professional services.
- Six-month net loss improved to $5.85 million from $6.76 million, although the company remained entirely dependent on external financing.
- Operating cash use declined modestly to $3.21 million from $3.31 million, but investing cash use increased to $896,788 from $33,093, primarily because of purchases of research and development materials.
- Cash declined by $4.10 million during the first six months of 2019, compared with an $11.84 million increase in the prior-year period, when the company received approximately $15.39 million of financing cash proceeds.
- Shares outstanding increased to 15.80 million at June 30, 2019 from 15.24 million at December 31, 2018. The company also had 3.86 million warrants and 5.91 million stock options outstanding, creating potential dilution.
Guidance, outlook, commentary, risks and unusual items
Management expects continued significant expenditures for clinical development and does not expect product revenue unless and until regulatory approval and commercialization occur, which may take several years or may never occur. Management states that additional capital will be required and that failure to raise financing could delay, reduce, or terminate development programs and could cause the company to cease operations in whole or in part.
The filing states that existing capital was expected to fund current operations for at least the next six months, but would not be sufficient to complete development and commercialization of Oncoprex. No formal revenue, earnings, or cash-burn guidance was provided.
- Oncoprex remains the company’s primary and largely sole development program. The Phase II portion of the Oncoprex/erlotinib trial remained ongoing, with enrollment delays and potential plans to add other clinical sites.
- The company continues to face substantial clinical, manufacturing, regulatory, patient-enrollment, intellectual-property, competition, and commercialization risks. FDA approval has not been sought for marketing, and approval is not assured.
- The company has clinical-trial and sponsored-research commitments with MD Anderson totaling approximately $4 million in projected costs, with the clinical trial expected to run through early 2023.
- The option to negotiate an exclusive license relating to TUSC2 with immunotherapies was extended through December 31, 2019. The company was also working to extend a separate option relating to TUSC2 with EGFR therapies and biomarkers.
- A former financial advisor has asserted an informal claim for a warrant representing 3% of outstanding shares as of December 1, 2015. Genprex believes the claim lacks merit and has not recorded an expense or capitalization impact because the outcome was not probable or reasonably estimable.
- The TETF promissory note has a potential $4.5 million repayment obligation, plus 8% interest, if an event of default occurs before August 13, 2020, principally involving failure to maintain the Texas residency requirement. The investment unit was carried at zero at June 30, 2019.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2019. Separately, the risk factors repeat that management had identified a material weakness in internal control over financial reporting as of December 31, 2018 related to lack of segregation of duties.
Most important facts for investors to verify
- Cash runway relative to the company’s quarterly operating cash burn and the timing and terms of any future equity or debt financing.
- Progress, enrollment status, site expansion, clinical data, and FDA interactions for the Oncoprex Phase I/II program.
- Whether the company can secure adequate manufacturing capacity, clinical supplies, and regulatory-compliant processes.
- Potential dilution from future financing, 5.91 million outstanding options, 3.86 million warrants, and additional equity compensation.
- Status and potential financial or dilution impact of the former financial advisor’s warrant claim and the TETF repayment contingency.
- Remediation of the internal-control material weakness and whether future filings continue to report effective controls.
- Ability to maintain MD Anderson license and option rights and satisfy related clinical, research, royalty, and intellectual-property obligations.