Genprex, Inc. - Quarter Report: 2021 March (Form 10-Q)

 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549  

 

FORM 10-Q

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to ______________

 

Commission file number: 001-38244

 

GENPREX, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	90 - 0772347
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
3300 Bee Cave Road, #650-227, Austin, TX	78746
(Address of principal executive offices)	(Zip Code)

 

(512) 537-7997

(Registrant’s telephone number, including area code)

 

1601 Trinity Street, Bldg. B, Suite 3.322, Austin, TX 78712

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		GNPX		The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒		Smaller reporting company	☒
			Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒    

 

As of May 10, 2021, the registrant had 47,363,729 shares of common stock, par value $0.001 per share, outstanding.

 

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GENPREX, INC.

TABLE OF CONTENTS

 

				Page No.
PART I		FINANCIAL INFORMATION		5
ITEM 1.		FINANCIAL STATEMENTS		5
		Condensed Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020		5
		Condensed Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)		6
		Condensed Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2021 and 2020 (unaudited)		7
		Condensed Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)		8
		Notes to Unaudited Condensed Financial Statements		9
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		26
ITEM 4.		CONTROLS AND PROCEDURES		26
PART II		OTHER INFORMATION		27
ITEM 1.		LEGAL PROCEEDINGS		27
ITEM 1A.		RISK FACTORS		27
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		27
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES		27
ITEM 4.		MINE SAFETY DISCLOSURES		27
ITEM 5.		OTHER INFORMATION		27
ITEM 6.		EXHIBITS		27
SIGNATURES			29

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

 

●

our business strategies;

  

●

the timing of regulatory submissions;

  

●

our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;

  

●

the timing and costs of clinical trials and the timing and costs of other expenses;

  

●

the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole;

  

●

market acceptance of our products;

  

●

our intellectual property;

  

●

our reliance on third party organizations;

  

●

our competitive position;

  

●

our industry environment;

  

●

our anticipated financial and operating results, including anticipated sources of revenues;

  

●

assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches;

  

●

management’s expectation with respect to future acquisitions;

  

●

our goals, intentions, plans and expectations, including the introduction of new products and markets; and

  

●

our cash needs and financing plans.

 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.

 

References to Genprex

 

Throughout this Quarterly Report on Form 10-Q, the “Company,” “Genprex,” “we,” “us,” and “our” refers to Genprex, Inc. and “our board of directors” refers to the board of directors of Genprex, Inc.

 

 

 

 

		March 31,				December 31,
		2021				2020
Assets			(unaudited)
Current assets:
Cash and cash equivalents		$	47,068,703			$	27,319,685
Accounts receivable			127				127
Prepaid expenses and other			201,004				384,553
Supplies			3,107,900				3,011,042
Total current assets			50,377,734				30,715,407
Property and equipment, net			37,300				39,441
Other assets:
Security deposits			10,741				10,741
Intellectual property, net			610,696				601,625
Total other assets			621,437				612,366
Total assets		$	51,036,471			$	31,367,214
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	338,968			$	192,968
Other current liabilities			274,658				257,756
Total current liabilities			613,626				450,724
Stockholders’ equity:
Preferred stock $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock $0.001 par value: 200,000,000 shares authorized; 47,314,820 and 43,117,681 shares issued and outstanding, respectively			47,315				43,118
Additional paid-in capital			115,287,472				89,295,601
Accumulated deficit			(64,911,942	)			(58,422,229	)
Total stockholders’ equity			50,422,845				30,916,490
Total liabilities and stockholders’ equity		$	51,036,471			$	31,367,214

 

		Three Months Ended
		March 31,
		2021				2020
Revenues		$	—			$	—
Cost and expenses:
Depreciation			6,242				5,353
Research and development			2,169,143				1,477,877
General and administrative			4,316,310				4,092,996
Total costs and expenses			6,491,695				5,576,226
Operating loss			(6,491,695	)			(5,576,226	)
Interest income			1,982				10,006
Net loss		$	(6,489,713	)		$	(5,566,220	)
Net loss per share—basic and diluted		$	(0.14	)		$	(0.20	)
Weighted average number of common shares— basic and diluted			45,546,106				27,952,742

 

		Common Stock								Additional				Accumulated
		Shares				Amount				Paid-In Capital				Deficit				Total
Balance at December 31, 2019			19,263,841			$	19,264			$	43,483,740			$	(40,479,459	)		$	3,023,545
Issuance of stock for cash			13,581,000				13,581				25,718,059				—				25,731,640
Issuance of stock for services			5,000				5				1,545				—				1,550
Share based compensation			—				—				752,444				—				752,444
Net loss			—				—				—				(5,566,220	)			(5,566,220	)
Balance at March 31, 2020			32,849,841			$	32,850			$	69,955,788			$	(46,045,679	)		$	23,942,959
Balance at December 31, 2020			43,117,681			$	43,118			$	89,295,601			$	(58,422,229	)		$	30,916,490
Issuance of stock for cash			4,192,139				4,192				25,320,138				—				25,324,330
Issuance of stock for services			5,000				5				20,645				—				20,650
Share based compensation			—				—				651,088				—				651,088
Net loss			—				—				—				(6,489,713	)			(6,489,713	)
Balance at March 31, 2021			47,314,820			$	47,315			$	115,287,472			$	(64,911,942	)		$	50,422,845

 

		Three Months Ended March 31,
		2021				2020
Cash flows from operating activities:
Net loss		$	(6,489,713	)		$	(5,566,220	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			6,242				5,353
Share based compensation			671,738				753,994
Changes in operating assets and liabilities:
Accounts receivable			—				655
Prepaid expenses and other			187,282				102,148
Accounts payable and accrued expenses			146,493				202,134
Other current liabilities			12,676				(15,592	)
Net cash used in operating activities			(5,465,282	)			(4,517,528	)
Cash flows from investing activities:
Additions to property and equipment			(91,701	)			(11,412	)
Additions to intellectual property			(9,071	)			(44,744	)
Additions to research and development supplies			(9,258	)			(80,857	)
Net cash used in investing activities			(110,030	)			(137,013	)
Cash flows from financing activities:
Proceeds from issuances of stock			25,324,330				25,731,640
Net cash provided by financing activities			25,324,330				25,731,640
Net increase in cash and cash equivalents			19,749,018				21,077,099
Cash and cash equivalents, beginning of period			27,319,685				2,002,492
Cash and cash equivalents, end of period		$	47,068,703			$	23,079,591
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	—			$	—
Cash paid for taxes		$	—			$	—

 

Note 1 - Description of Business and Basis of Presentation

 

We are a clinical stage gene therapy company focused on developing life-changing treatments for cancer and diabetes. Our lead cancer drug candidate, REQORSA™ Immunogene therapy drug (sometimes referred to as GPX-001), is being developed to treat non-small cell lung cancer ("NSCLC"). The active agent in REQORSA is a TUSC2 gene expressing plasmid that is encapsulated in a DOTAP cholesterol nanoparticle.  TUSC2 is a tumor suppressor gene which has both tumor killing (via apoptosis) and immunomodulatory effects. We utilize our novel proprietary ONCOPREX® Nanoparticle Delivery System to deliver the TUSC2 gene expressing plasmid to cancer cells. The TUSC2 gene is one of a series of genes whose therapeutic use is covered by our exclusive worldwide licenses from The University of Texas MD Anderson Cancer Center ("MD Anderson"). 

 

We are planning to initiate our Acclaim-1 and Acclaim-2 clinical trials in 2021. Acclaim-1 is a Phase 1/2 clinical trial using a combination of REQORSA with AstraZeneca PLC’s Tagrisso® in patients with late-stage NSCLC with mutated epidermal growth factor receptors ("EGFRs") whose disease progressed after treatment with Tagrisso. In January 2020, we received Food and Drug Administration ("FDA") Fast Track Designation for the Acclaim-1 patient population. Acclaim-2 is a Phase 1/2 clinical trial using a combination of REQORSA with Merck & Co.’s Keytruda® in late-stage NSCLC patients.

 

In diabetes, we are developing a gene therapy that is exclusively licensed from the University of Pittsburgh of the Commonwealth System of Higher Education ("University of Pittsburgh") for the treatment of Type 1 and Type 2 diabetes. This potential treatment is designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. Our diabetes product candidate is currently being evaluated in preclinical studies.

 

Oncology Platform

 

Utilizing our non-viral ONCOPREX Nanoparticle Delivery System, we are developing cancer treatments that are designed to administer cancer fighting genes. We encapsulate the gene-expressing plasmids using ONCOPREX lipid nanoparticles, and administer them intravenously, where they are then taken up by tumor cells and express proteins that are missing or found in low quantities in the tumor cells. With our lead drug candidate, REQORSA, there is a multimodal mechanism of action whereby REQORSA interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for apoptosis, or programmed cell death, in cancer cells, and modulates the immune response against cancer cells. REQORSA has also been shown to block mechanisms that create drug resistance.

 

We believe that our ONCOPREX Nanoparticle Delivery System could allow delivery of a number of cancer-fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. We believe that REQORSA’s combination of pan-kinase inhibition, direct induction of apoptosis, anti-cancer immune modulation and complementary action with targeted drugs and immunotherapies is unique, and positions REQORSA to provide treatment for patients with NSCLC and possibly other cancers, who are not benefitting from current therapies.

 

Diabetes Gene Therapy

 

Our diabetes gene therapy, also referred to as GPX-002, was developed by lead researcher Dr. George Gittes, at the Rangos Research Center at the University of Pittsburgh Medical Center Children’s Hospital. This potential treatment is designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. The therapy utilizes a procedure in which an adeno-associated virus vector delivers Pdx1 and MafA genes to the pancreas.

 

Capital Requirements, Liquidity and Going Concern Considerations

 

Our condensed financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying condensed financial statements, we have sustained substantial losses from operations since inception and have no current source of revenue. In addition, we have used, rather than provided, cash in our operations. We expect to continue to incur significant expenditures to further clinical trials for the commercial development of our product candidates.

 

Management recognizes that we must obtain additional capital resources to successfully commercialize our product candidates.  To date, we have received funding in the form of equity and debt, and we plan to seek additional funding in the future. However, no assurances can be given that we will be successful in raising additional capital.  If we are not able to timely and successfully raise additional capital, the timing of our clinical trials, financial condition and results of operations may be materially and adversely affected. These condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities.

 

 

 

Note 2 - Summary of Significant Accounting Policies

 

The Company’s condensed financial statements have been prepared in accordance with GAAP. However, they do not include all the information and footnotes required by GAAP for complete financial statements. In our opinion, the unaudited condensed financial statements include all adjustments (consisting of normal recurring accruals) necessary to make the unaudited condensed financial statements not misleading. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2021. For more complete financial information, these unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2020 included in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 26, 2021. A summary of our significant accounting policies consistently applied in the preparation of the accompanying condensed financial statements follows.

 

Capital Stock

 

In connection with the Company’s initial public offering ("IPO") in April 2018, all of the Company’s preferred stock and non-voting common stock were converted into shares of the Company’s common stock. The Company’s common stock was then forward-split at a ratio of 6.6841954-to-1. Furthermore, prior to the closing of the IPO, the Company’s Certificate of Incorporation was amended and restated to provide the Company with the authority to issue up to 210,000,000 shares of stock consisting of 200,000,000 shares of common stock at a par value of $0.001 per share and 10,000,000 shares of preferred stock at a par value of $0.001 per share.

 

Use of Estimates

 

The preparation of our condensed financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

We consider all highly liquid short-term investments with an initial maturity of three months or less to be cash equivalents. Any amounts of cash in financial institutions which exceed FDIC insured limits expose us to cash concentration risk. We have cash equivalents in a J.P. Morgan money market account and had $47,256,175 and $27,091,596 in excess of FDIC insured limits of $250,000 at March 31, 2021 and December 31, 2020, respectively.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

 

Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, defines fair value, provides a consistent framework for measuring fair value under GAAP and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

 

Level 1: Quoted prices for identical instruments in active markets.

 

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3: Instruments with primarily unobservable value drivers.

 

 

Property and Equipment

 

Furniture and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.

 

Research and Development Costs

 

Research and development expenditures consist of costs incurred to conduct research and development activities. These include payments to collaborative research partners, manufacturing partners, and clinical strategy partners, wages and associated employee benefits, facilities and overhead costs. These expenditures relate to our preclinical, Phase 1, and Phase 2 clinical trials and are expensed as incurred. Purchased materials to be used in future research are capitalized and included in research and development supplies. Research and development supplies purchased and capitalized for future use were $3,107,900 and $3,011,042 at March 31, 2021 and December 31, 2020, respectively.

 

Awards

 

In 2010, we were awarded $4.5 million from the State of Texas Emerging Technology Fund (“TETF”). The award was received in two tranches of $2.25 million each during 2010 and 2011. The award proceeds were used to further the development and future commercialization of REQORSA, our lead product candidate for NSCLC. In consideration of the award, we provided the TETF with an investment unit that consisted of a promissory note ("Note") and a warrant to purchase equity ("Warrant"). The Warrant was exercised in March 2014 and TETF was issued 1,235,219 shares of our common stock. The investment unit, including the Note, was terminated on August 15, 2019. 

 

In 2010, we also were awarded approximately $244,500 from the U.S. Treasury Department for our QTDP Program Nanoparticle Therapy for Lung Cancer. The award was received during 2011 for our historical activities, and required no prospective expenditures. We accounted for these funds received as revenue at that time.

 

Intellectual Property

 

Intellectual property consists of legal and related costs associated with patents and other proprietary technology and rights developed, acquired, licensed by, or maintained by us that we believe contribute to a probable economic benefit toward such patents and activities. These costs incurred in connection with obtaining and maintaining intellectual property protection, such as patent applications and patent maintenance, are capitalized. Intellectual property is stated at cost, to be amortized on a straight-line basis over the estimated useful lives of the assets.

 

 

Accounting for Stock-Based Compensation

 

We use the fair value-based method of accounting for stock-based compensation for options granted to employees, independent consultants and contractors. We measure options granted at fair value determined as of the grant date, and recognize the expense over the periods in which the related services are rendered based on the terms and conditions of the award. Generally, where the award only has a service condition, the requisite service period is the same as the vesting period.

 

Long-Lived Assets

 

We review long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. We recognize an impairment loss if the carrying value of the asset exceeds the expected future cash flows. During the three months ended March 31, 2021 and the year ended December 31, 2020, there were no deemed impairments of our long-lived assets.

 

Recent Accounting Developments

 

Accounting pronouncements issued but not effective until after March 31, 2021 are not expected to have a significant effect on our financial condition, results of operations, or cash flows.

 

Note 3 - Intellectual Property

 

On February 11, 2020, we entered into an exclusive license agreement with the University of Pittsburgh for patented gene therapy technologies relating to the potential treatment of type 1 and type 2 diabetes. 

 

On May 4, 2020, the Company entered into an exclusive worldwide license agreement with The Board of Regents of the University of Texas System on behalf of MD Anderson relating to a portfolio of 16 patent applications and related technology for the treatment of cancer using the Company’s lead drug candidate and immunotherapies. 

 

We have exclusive license agreements on 28 issued patents and 18 pending patent applications worldwide for technologies developed by researchers at the National Cancer Institute, MD Anderson, the University of Texas Southwestern Medical Center, and the University of Pittsburgh. These patents comprise various therapeutic, diagnostic, technical and processing claims. These license rights will be amortized on a straight-line basis over the estimated period of useful lives of the underlying patents or the license agreements.

 

Note 4 - Equity

 

Registered Direct Offerings

 

On January 21, 2020, the Company completed a registered direct offering in which the Company sold to an accredited investor 961,000 shares of the Company’s common stock at $0.24 per share. The Company received net proceeds of approximately $200,000 after commissions and expenses.

 

On January 23, 2020, the Company completed a registered direct offering in which the Company sold to investors an aggregate of 7,620,000 shares of the Company’s common stock at $1.05 per share. The Company received net proceeds of approximately $7.2 million after commissions and expenses.

 

On February 19, 2020, the Company amended its Registration Statement on Form S-3 to increase the maximum offering size by approximately $3,000,000. On February 21, 2020, the Company completed a registered direct offering pursuant to the amended S-3 Registration Statement, in which the Company sold to investors an aggregate of 5,000,000 shares of the Company’s common stock at $3.50 per share. The Company received net proceeds of approximately $16.0 million after commissions and expenses. 

 

On December 24, 2020, the Company completed a registered direct offering in which the Company sold to an accredited investor 3,116,884 shares of the Company’s common stock at $3.85 per share. The Company received net proceeds of approximately $11.2 million after commissions and expenses.

 

On February 10, 2021, the Company completed a registered direct offering in which the Company sold to investors an aggregate of 4,000,000 shares of the Company's common stock at $6.25 per share. The Company received net proceeds of approximately $23.2 million after commissions and expenses.

 

Stock Issuances

 

During the three months ended March 31, 2021, we issued (i) 4,000,000 shares of common stock in a registered direct offering for gross proceeds of $25,000,000, (ii) 192,139 shares of common stock upon the exercise of options for cash proceeds of $324,330, and (iii) 5,000 shares of common stock for services provided to us, valued at $20,650.

 

During the year ended December 31, 2020, we issued (i) 16,697,884 shares of common stock from registered direct offerings for gross proceeds of $37,731,643, (ii) 1,277,743 shares of common stock upon the exercise of options for cash proceeds of $1,320,155, (iii) 5,511,599 shares of common stock upon the exercise of warrants for cash proceeds of $2,537,731, (iv) 199,630 shares of common stock upon the exercise of warrants on a cashless basis, and (v) 51,432 shares of common stock for service provided to us valued at $154,648.

 

 

Preferred Stock

 

In connection with the Company’s IPO, all preferred stock included in Series A through Series G preferred stock, totaling 1,394,953 shares were converted to an aggregate of 9,324,177 shares of the Company's common stock in connection with the forward-split (See Note 2 - Capital Stock). Upon the completion of the IPO, the Company became authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share, none of which are outstanding at March 31, 2021.

 

Common Stock

 

Upon the completion of the IPO, all of the Company’s non-voting common stock automatically converted into voting common stock on a one-for-one basis. Immediately following the completion of the IPO, the Company became authorized to issue 200,000,000 shares of common stock with a par value of $0.001 per share, all of which are voting common stock. There were 47,314,820 shares of the Company's common stock outstanding at March 31, 2021.

 

Common Stock Purchase Warrants

 

Common stock purchase warrant activity for the period and year ended March 31, 2021 and December 31, 2020 is as follows:

 

 

 

During the three-month period ended March 31, 2021, the Company issued warrants to purchase up to 25,000 shares of common stock to Bear Creek Capital, LLC, a service provider, at an exercise price of $7.22 per share. During the three-month period ended March 31, 2021, we recorded share-based compensation of $115,628 associated with this warrant. 

 

During the year ending December 31, 2020, (i) investors and placement agents of the Company's May 2018 private placement and November 2019 registered direct offering exercised warrants to purchase 5,511,599 shares of common stock for cash proceeds of $2,537,731, (ii) the Company issued 315,182 shares of common stock to the placement agents of the November 2019 registered direct offering upon the exercise of warrants on a cashless basis, and (iii) the Company issued warrants to purchase up to 550,000 shares of common stock to service providers, including 500,000 shares of common stock to Cancer Revolution, LLC, an entity owned and managed by Viet Ly, an advisor to the Company, at an exercise price of $2.27 per share and 50,000 shares of common stock to Capital City Technical Consulting, Inc., a service provider, at an exercise price of $3.81 per share. During the year ending December 31, 2020, we recorded share-based compensation of $450,000 associated with Company milestone-based vesting of the Cancer Revolution, LLC warrants. We expect to record $124,000 of share-based compensation for time-based vesting over the next three years and another $300,000 of share-based compensation based on performance-based vesting. 

 

On January 29, 2018, the Company entered into an agreement with a consultant whereby the Company agreed to grant warrants to purchase up to 6,000 shares of common stock at an exercise price of $5.00 per share in consideration of services valued at $30,000 provided to the Company. At March 31, 2021, the Company has not issued these warrants.

 

 

2018 Equity Incentive Plan

 

The Company’s board of directors and stockholders approved and adopted the Company’s 2018 Equity Incentive Plan (“2018 Plan”), which became effective on the completion of the IPO on April 3, 2018. The 2018 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, other forms of equity compensation and performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to the Company’s non-employee directors and consultants.

 

A total of 4,160,000 shares of common stock were originally reserved for issuance under the 2018 Plan, which includes 554,963 shares of common stock reserved for issuance under our 2009 Equity Incentive Plan that were added to the 2018 Plan. No grants have been made under the 2009 Plan since our IPO, and no further grants will be made under the 2009 Plan. Any shares subject to outstanding stock options under the 2009 Plan that would otherwise be returned to the 2009 Plan will instead be added to the shares initially reserved under the 2018 Plan.

 

In addition, the number of shares of common stock reserved for issuance under the 2018 Plan is automatically increased on January 1 of each calendar year, beginning on January 1, 2019 by 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the administrator of the 2018 Plan. On January 1, 2019, 2020, and 2021, the number of shares of common stock reserved for issuance under the 2018 Plan was increased by an aggregate of 761,957, 963,192, and 2,155,884 shares, respectively.

 

2018 Employee Stock Purchase Plan

 

The Company’s board of directors and stockholders approved and adopted the Company’s 2018 Employee Stock Purchase Plan (“ESPP”), which became effective on the completion of the IPO on April 3, 2018. The ESPP has not yet been utilized as a benefit available to our employees. The ESPP authorizes the issuance of 208,500 shares of the Company’s common stock pursuant to purchase rights that may be granted to our eligible employees. The number of shares of common stock reserved for issuance under the ESPP is automatically increased on January 1 of each calendar year, beginning on January 1, 2019, by 2% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the administrator of the ESPP. The administrator of the ESPP determined not to increase the number of shares reserved for issuance under the ESPP on January 1, 2021.

 

Stock Options

 

As of March 31, 2021, the Company had outstanding stock options to purchase 7,974,430 shares of common stock that have been granted to various executives, employees, directors, and independent contractors. These options can vest immediately or over periods ranging from 12 to 48 months, are exercisable for a period of up to ten years, and enable the holders to purchase shares of our common stock at exercise prices ranging from $0.001 to $9.80 per share. The per-share fair values of these options range from $0.001 to $7.93, based on Black-Scholes-Merton pricing models with the following assumptions:

 

 

 

 

During the three-month period ending March 31, 2021, the Company (i) granted stock options to purchase an aggregate of 1,332,500 shares of the Company's common stock with exercise prices ranging from $3.66 to $7.22 per share to employees, board members, and consultants, (ii) cancelled options to purchase 10,000 shares of common stock at an exercise price of $7.22 per share due to the termination of a former employee, and (iii) issued 192,139 shares of the Company's common stock upon the exercise of options held by a consultant, a former board member, and a former executive, with exercise prices ranging from $1.28 to $2.15 per share.

 

During the year ending December 31, 2020, the Company (i) granted stock options to purchase an aggregate of 2,466,529 shares of the Company's common stock with exercise prices ranging from $1.28 to $4.42 per share to employees, board members, and consultants, (ii) cancelled options to purchase 327,640 shares of common stock at exercise prices ranging from $5.29 to $9.80 due to expiration of options and separation of a former executive, and (iii) issued 1,277,743 shares of the Company's common stock upon the exercise of options held by former board members and a former executive with exercise prices ranging from $0.015 to $2.15 per share.

Stock option activity for the three months ended March 31, 2021 and year ended December 31, 2020 is as follows:

 

 

Share-Based Compensation

 

For the three months ended March 31, 2021, the Company's total share-based compensation was approximately $0.7 million, nearly all of which represents the vesting of options and warrants issued to service providers, executives, employees, and board members. The Company’s total compensation cost related to non-vested time-based stock option awards granted to executives, employees, and board members and not yet recognized was approximately $8.5 million for the quarter ended March 31, 2021. The Company expects to record this stock-based compensation expense over the next three years using a graded vesting method. As of March 31, 2021, the weighted average term over which these expenses are expected to be recognized is 2.30 years. 

 

As of March 31, 2021, there are no performance-based stock option awards outstanding. 

 

 

 

Note 5 - Related Party Transactions

 

Introgen Research Institute

 

Introgen Research Institute (“IRI”) is a Texas-based technology company, currently affiliated with Rodney Varner, our Chief Executive Officer and director. In April 2009, prior to Mr. Varner becoming an officer and director of our Company in August 2012, we entered into an Assignment and Collaboration Agreement with IRI, which provides us with the exclusive right to commercialize a portfolio of intellectual property. This agreement was amended in 2011 to include additional sublicensing of additional intellectual property made available to IRI from MD Anderson.

 

Viet Ly

 

The Company entered into a consulting agreement with Viet Ly, an advisor to the Company, on April 19, 2018. The Company agreed to pay Mr. Ly $175,000 initially, with compensation variable from time-to-time as determined by the Company, for strategic consulting services. The Company paid Mr. Ly an aggregate of $28,500 during the three months ended March 31, 2021 for strategic services. In April 2020, the Company issued Cancer Revolution LLC, an entity owned by Mr. Ly, a warrant to purchase up to 500,000 shares of common stock at the fair market value of the common stock on the issuance date of the grant that vests based on the achievement of certain Company milestones. On February 10, 2021, the Company issued an option to Mr. Ly to purchase up to 100,000 shares of common stock at the fair market value of the common stock on the issuance date of the grant that vests ratably per month through February 2022. 

 

 

Note 6 - Commitments and Contingencies

 

Leases

 

On April 16, 2018, the Company executed a service agreement with CIC Innovation Communities, LLC to establish and lease offices at the Cambridge Innovation Center in Cambridge, Massachusetts. On April 1, 2020, the Company provided notice of cancellation of our lease in the Cambridge Innovation Center in Cambridge, Massachusetts, effective as of April 30, 2020. 

 

On April 16, 2018, the Company executed a space utilization agreement with the Board of Regents of the University of Texas System to establish and lease offices at the Dell Medical School in Austin, Texas. On March 23, 2021, the Company was informed by Dell Medical School that the University of Texas desired to use the space and not renew the space utilization agreement. The lease terminates on April 30, 2021 and the Company pays $462 per month to occupy this location. See Note 8 - Subsequent Events.

 

 

Commitments

 

MD Anderson Cancer Center

 

The Company entered into a clinical study agreement with the MD Anderson, to administer the Company’s phase 1/2 clinical trial, combining REQORSA-nanoparticles and Tarceva in Stage 4 lung cancer patients. The trial was expected to run through the end of 2018 with a projected total cost of approximately $2 million. Payments are due and payable when invoiced throughout the clinical trial period. The agreement may be terminated at any time. In 2020, the Company received Fast Track Designation ("FTD") from the FDA for its Acclaim-1 trial which combines REQORSA plus Tagrisso in patients who have previously failed Tagrisso treatment. Given the FTD and with Tagrisso now considered a new standard of care in the U.S. for NSCLC with an epidermal growth factor receptor ("EGFR") mutation, the Company is no longer enrolling ONC-002 and plan to initiate Acclaim-1 and Acclaim-2 in 2021.

In July 2018, the Company entered into a two-year sponsored research agreement with MD Anderson to sponsor preclinical studies focused on the combination of REQORSA with an immunotherapy with a projected total cost of approximately $2 million. Payments are due and payable when invoiced throughout the clinical trial period. The agreement may be terminated at any time. This agreement has been extended through May 2022.

 

In 2011, the Company agreed to assume certain contractual and other obligations of IRI in consideration for the sublicense rights, expertise, and assistance associated with certain technologies and intellectual property originally licensed to another party under a 1994 License Agreement with MD Anderson (“Original MD Anderson License Agreement”). These technologies and intellectual property were later sublicensed to IRI (the “IRI Sublicense”). The Company also agreed to pay royalties of 1% on sales of certain licensed products for a period of 21 years following the termination of the later of the Original MD Anderson License Agreement and the IRI Sublicense. The Company assumed patent prosecution costs and an annual minimum royalty of $20,000 payable to the National Institutes of Health.

 

On March 3, 2021, the Company entered into an amendment (the “MD License Amendment”) to the Patent and Technology License Agreement dated May 4, 2020 with MD Anderson. The MD License Amendment grants the Company a worldwide, exclusive, sublicensable license to an additional portfolio of six patents and one patent application and related technology for methods for treating cancer by administration of a TUSC2 therapy in conjunction with EGFR inhibitors or other anti-cancer therapies in patients predicted to be responsive to TUSC2 therapy. Pursuant to the MD License Amendment, the Company agreed to (i) pay annual maintenance fees ranging from the mid five figures to the low six figures, (ii) total milestone payments of $6,150,000, (iii) a one-time fee in the mid five figures and (iv) certain patent related expenses.

 

 

National Institutes of Health

 

Our $191,393 payment obligation to the National Institutes of Health (“NIH”) represented a current obligation, of which $15,393 of 2016 patent prosecution costs were paid in the fourth quarter of 2016 and $176,000 was included in accounts payable at December 31, 2016 (consisting of accrued annual royalties of $140,000 and patent costs of $36,000). During the first quarter of 2017, we modified the terms of our accrued royalty obligation to NIH. Under the modified agreement, NIH agreed to extinguish $120,000 of the accrued royalties payable to it in consideration of payment by us of (i) accrued patent costs of $36,000, (ii) a royalty payment of $20,000, and (iii) a contingent payment of $240,000, increasing by $20,000 per year starting in 2018, to be paid upon our receipt of FDA approval. The payments for the patent costs of $36,000 and royalties of $20,000 were paid during the second quarter of 2017.

 

As a result of our modified agreement with the NIH, we have recognized the exchange of the $120,000 fixed obligation for the $240,000 contingent obligation as a $120,000 reduction to intellectual property expense (classified within general and administrative expense) during the first quarter of 2017. The $240,000 contingent obligation, which increases annually by $20,000 and is $300,000 as of December 31, 2020, will be recognized when we obtain regulatory approval (the event that triggers the payment obligation).

 

University of Pittsburgh

 

Pursuant to the Exclusive License Agreement dated February 11, 2020 by and between the Company and the University of Pittsburgh, the Company agreed to pay (i) an initial licensing fee of $25,000, (ii) annual maintenance fees of $25,000 for the first three years and $40,000 for each subsequent year following the first anniversary of the agreement, (iii) royalties ranging from 1.5% to 3% of net sales of licensed technologies, (iv) an annual minimal royalty payment of $250,000 per year beginning in the year of the first commercial sale of licensed technology, (v) a share of non-royalty sublicense income of 20%, and (vi) an aggregate of of $3,975,000 in milestone payments. Unless earlier terminated pursuant to its terms, the agreement expires upon the later of (i) 20 years after the first commercial sale of the licensed technology thereunder and (ii) expiration of the last valid claim under the patent rights.

 

Contingencies

 

From time to time we may become subject to threatened and/or asserted claims arising in the ordinary course of our business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material impact on our financial condition, results of operations or liquidity.

 

 

 

Note 7 - Significant Events

 

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The pandemic has become widespread in the United States, including markets in which the Company operates or may operate in the future. The COVID-19 pandemic has had a notable impact on general economic conditions, including, but not limited to, the temporary closures of many businesses, “shelter in place” orders and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19, in addition to many other unknowns. To date, the Company has not experienced any material impact on its financial results or operations as a result of the COVID-19 pandemic. The extent to which the COVID-19 pandemic could impact the Company's operations or financial results is uncertain. The Company continues to monitor the impact of the COVID-19 pandemic closely.

 

 

Note 8 - Subsequent Events

 

Share Issuance

On April 1, 2021, the Company issued 5,000 shares of common stock to a service provider in consideration of services to be provided through June 30, 2021.

 

Option Exercises

On April 21, 2021, the Company issued 43,909 shares of common stock to a former executive upon the exercise of options for cash proceeds of $71,133. 

 

Leases

On April 30, 2021, the Company's space utilization agreement with the Board of Regents of the University of Texas System to lease offices at the Dell Medical School in Austin, Texas was terminated by the University of Texas due to their need to utilize the space. The Company is actively searching for a new location for office space.