UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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
(State or Other Jurisdiction of
Incorporation or Organization)
1601 Trinity Street, Bldg B, Suite 3.322
Austin, Texas
(Address of Principal Executive Offices)
90-0772347
(I.R.S. Employer
Identification Number)
78712
(Zip Code)
Registrant’s Telephone Number, including area code: (512) 370-4081
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
The Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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 the
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:
Non-accelerated filer:
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Accelerated filer
Smaller reporting company
Emerging growth company
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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 ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2018 (the last business day of the registrant’s most recently
completed second fiscal quarter) was approximately $30.4 million, based on the closing price of the registrant’s common stock on June 29, 2018 of $7.6627 per share, as reported by the Nasdaq
Capital Market.
As of March 25, 2019, there were 15,536,765 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, subsequent to the date hereof pursuant to Regulation 14A in connection with
the registrant’s 2019 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the SEC not later than
120 days after the conclusion of the registrant’s fiscal year ended December 31, 2018.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
CONSOLIDATED FINANCIAL STATEMENTS
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F-1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements, principally under the headings “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In some cases, you can identify these statements by forward-
looking words such as “may,” “might,” “should,” “would,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or
“continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown
risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated
trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important
factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or
achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described
under “Risk Factors.”
While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this Annual Report on Form 10-
K describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the
impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity,
performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-
looking statements. You should not rely upon forward-looking statements as predictions of future events. Except as required by law, we are under no duty to
update any of these forward-looking statements to conform our prior statements to actual results or revised expectations, and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
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our ability to obtain additional funding to develop our current and potential product candidates;
the need to obtain regulatory approval of our current and potential product candidates;
the success of our clinical trials through all phases of clinical development;
compliance with obligations under intellectual property licenses with third parties;
any delays in regulatory review and approval of product candidates in clinical development;
our ability to commercialize our current and potential product candidates;
market acceptance of our current and potential product candidates;
competition from existing products or new products that may emerge;
potential product liability claims;
our dependence on third-party manufacturers to supply or manufacture our products;
our ability to establish or maintain collaborations, licensing or other arrangements;
our ability and third parties’ ability to protect intellectual property rights;
our ability to adequately support future growth; and
our ability to attract and retain key personnel to manage our business effectively.
You should carefully read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to this Annual
Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of
the forward-looking statements in this Annual Report on Form 10-K by these cautionary statements.
We caution you not to place undue reliance on the forward-looking statements contained in this Annual Report on Form 10-K, which speak only as of
the date of this Annual Report on Form 10-K.
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Item 1. Business.
Overview
PART I
Genprex™ is a clinical stage gene therapy company developing a new approach to treating cancer, based upon our novel proprietary technology
platform, including our initial product candidate, Oncoprex™ immunogene therapy, or Oncoprex. Our platform technologies are designed to administer
cancer fighting genes by encapsulating them into nanoscale hollow spheres called nanovesicles, which are then administered intravenously and taken up by
tumor cells where they express proteins that are missing or found in low quantities. Oncoprex has a multimodal mechanism of action whereby it 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. Oncoprex has also been shown to block mechanisms that create drug resistance.
We hold an exclusive worldwide license from The University of Texas MD Anderson Cancer Center, or MD Anderson, to patents covering the
therapeutic use of a series of genes that have been shown in preclinical and clinical research to have cancer fighting properties.
With Oncoprex, we are initially targeting non-small cell lung cancer, or NSCLC. Researchers at MD Anderson have conducted two Phase I clinical
trials and are currently conducting an ongoing Phase II clinical trial of Oncoprex in NSCLC. According to the World Health Organization, lung cancer is the
leading cause of cancer deaths worldwide, causing more deaths than breast, colon, kidney, liver, prostate or skin cancers, and lung cancer is one of the most
common types of cancer. Each year, there are over 2 million new lung cancer cases and 1.7 million deaths from lung cancer worldwide, and in the United
States there are over 228,000 new cases and more than 142,000 deaths from lung cancer per year. NSCLC represents 84% of all lung cancers. According to
the National Cancer Institute, the five-year survival rate for Stage IV (metastatic) NSCLC is less than 5%, and overall survival for lung cancer has not
improved appreciably in the last 25 years. We believe that there is a significant unmet medical need for new treatments for NSCLC in the United States and
globally, and we believe that Oncoprex may be suitable for a majority of NSCLC patients.
We believe that our platform technologies could allow delivery of a number of cancer fighting genes, alone or in combination with other cancer
therapies, to combat multiple types of cancer. Our research and development pipeline, discussed in “Our Pipeline” below, demonstrates our clinical and
preclinical progress to date.
Cancer results from genetic mutations. Mutations that lead to cancer are usually present in two major classes of genes: oncogenes, which are involved
in functions such as signal transduction and transcription; and tumor suppressor genes, which play a role in governing cell proliferation by regulating
transcription. Transduction is the process by which chemical and physical signals are transmitted through cells. Transcription is the process by which a cell’s
DNA sequence is copied to make RNA molecules, which then play a role in protein expression. In normal cells, mutations in oncogenes are discovered and
targeted for elimination by tumor suppressor genes. In cancer cells, the oncogene mutations may overwhelm the natural tumor suppression processes, or those
tumor suppression processes may be impaired or absent. Functional alterations due to mutations in oncogenes or tumor suppressor genes may result in the
abnormal and uncontrolled growth patterns characteristic of cancer. These genetic alterations facilitate such malignant growth by affecting signal transduction
pathways and transcription, thus inhibiting normal growth signaling in the cell, circumventing the natural process of apoptosis, evading the immune system’s
response to cancer, and inducing angiogenesis, which is the formation of new blood vessels that supply cancer cells.
The most common genetic alterations present in NSCLC are in tumor suppressor genes, against which few targeted small molecule drugs have been
developed. Each of the two sets of chromosomes in the cell nucleus includes two copies of each gene, called alleles, which may be identical or may show
differences. In most situations, tumor suppressor genes require both alleles of a gene to be deleted or inactivated to impair tumor suppression activity and lead
to tumor growth. The replacement of just one functional allele may therefore be enough to restore the normal cellular functions of growth regulation and
apoptosis.
Among the genetic conditions associated with lung cancer are the overexpression of epidermal growth factor receptors, or EGFRs, and mutations of
kinases. Kinases are enzymes that play an important role in signal transduction through the modification of proteins by adding or taking away phosphate
groups, a process called (de-)phosphorylation, to change the proteins’ function. When two EGFR transmembrane proteins are brought to proximity on the cell
membrane surface, or dimerize, either through a ligand, or binding molecule, that binds to the extracellular receptor, or through some other process, the
intracellular protein-kinase domains can autophosphorylate, and activate downstream processes, including cell signaling pathways that can lead to either cell
cycle arrest or cell growth and proliferation. EGFRs and kinases can act similarly to a switch that turns “on” and “off” when phosphate groups are either
added or taken away. Mutated kinases can have a malfunctioning on/off switch, causing the switch to be stuck in the “on” position or failing to turn the switch
“off,” leading to the loss of cell control.
A subset of NSCLC patients (approximately 10% of NSCLC patients of North American and European descent and approximately 30% to 50% of
NSCLC patients of Asian descent) carry an EGFR mutation that makes their tumors sensitive to
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tyrosine kinase inhibitors, or TKIs, such as erlotinib. However, even for these patients, tumor resistance to TKIs frequently develops within two years,
resulting in eventual disease progression. TKIs, such as erlotinib, generally do not benefit NSCLC patients who do not have this activating EGFR mutation.
However, our clinical and preclinical data have shown that the combination of Oncoprex and erlotinib can increase anti-tumor activity even in cancers
without the EGFR mutations, as well as in cancers that have become resistant to erlotinib. For this reason, we believe Oncoprex may be suitable for the
majority of NSCLC patients.
Cancer can spread when cells’ natural cancer suppression functions are impaired. The tumor suppressor gene called Tumor Suppressor Candidate 2, or
TUSC2 (which was formerly known as FUS1) has been shown to affect both cell proliferation and apoptosis. TUSC2 is a pan-kinase inhibitor, which means
that it has the ability to inhibit multiple kinase receptors, such as EGFR and platelet-derived growth factor receptor, or PDGFR. TUSC2 is frequently
inactivated early in the development of lung cancer, and loss of TUSC2 expression in NSCLC is associated with significantly worse overall survival
compared to patients with normal TUSC2 expression. Many types of cancer cells, including approximately 85% of NSCLC cells, lack expression of TUSC2.
Cancer can also spread when the body’s natural immune functions are impaired, including by the cancer cells themselves. PD-1, or Programmed
Death-1, is a receptor expressed on the surface of activated T cells, which are part of the body’s immune system. PD-L1, or Programmed Death Ligand-1, is a
protein/receptor expressed on the surface of cancer and other cells. The binding of PD-1 to PD-L1 has been speculated to contribute to cancer cells’ ability to
evade the body’s immune response. PD-1 and molecules like it are called immune checkpoints, because they can impede the normal immune response, for
example by blocking the T cells from attacking the cancer cells. In many cancers, PD-L1 receptors are up-regulated, and substantial research is now being
performed in the emerging field of immuno-oncology to discover drugs or antibodies that could block PD-L1 and similar receptors. It is believed that
blocking the PD-1/PD-L1 interaction pathway and other similar checkpoints, such as cytotoxic T-lymphocyte-associated protein 4, or CTLA-4, with drugs
called checkpoint inhibitors can prevent cancer cells from inactivating T cells.
Our Oncoprex immunogene therapy is designed to interrupt cell signaling pathways that cause replication and proliferation of cancer cells, and to
target and kill cancer cells via receptor pathways, and also to stimulate the natural immune responses against cancer. Oncoprex combines features of gene
therapy and immunotherapy in that it up-regulates TUSC2 expression in the cell, and also increases the anti-tumor immune cell population and down-
regulates PD-L1 receptors, thereby boosting the immune response to cancer.
Oncoprex consists of a TUSC2 gene encapsulated in a positively charged nanovesicle made from lipid molecules with a positive electrical charge.
Oncoprex is injected intravenously and can specifically target cancer cells, which generally have a negative electrical charge. Once Oncoprex is taken up into
a cancer cell, the TUSC2 gene is expressed into a protein that is capable of restoring certain defective functions arising in the cancer cell. Oncoprex
nanovesicles are designed to deliver the functioning TUSC2 gene to cancer cells while minimizing their uptake by normal tissue. Tumor biopsy studies
conducted at MD Anderson show that the uptake of TUSC2 in tumor cells after Oncoprex treatment is 10 to 25 times the uptake in normal cells. We believe
that Oncoprex, unlike other gene therapies, which either need to be delivered directly into tumors or require cells to be removed from the body, re-engineered
and then reinserted into the body, is the first systemic gene therapy to be used for cancer in humans.
Clinical data from the evaluation of 25 patients in our Phase I/II clinical trial, as well as our preclinical data, indicate that Oncoprex can be combined
with the widely used anti-cancer drug erlotinib (marketed as Tarceva® by Genentech, Inc.) in humans. Erlotinib is a tyrosine kinase inhibitor, or TKI, which
uses a mechanism of action similar to that of pan-kinase inhibitors to block the action of tyrosine kinases, which are a type of kinase involved in many cell
functions, including cell signaling, growth and division. In addition, MD Anderson researchers have conducted preclinical studies combining Oncoprex with:
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the TKI gefitinib (marketed as Iressa® by AstraZeneca Pharmaceuticals) in animals and in human NSCLC cells;
third generation TKIs such as osimertinib (marketed as Tagrisso® by AstraZeneca Pharmaceuticals);
MK2206 in animals (MK2206 is an inhibitor of AKT kinases, which affect cell signaling pathways downstream from tyrosine kinases);
an anti-PD-1 antibody such as pembrolizumab (marketed as Keytruda® by Merck & Co.) in humanized animal models;
an anti-PD-1 antibody equivalent to the checkpoint inhibitor nivolumab (marketed as Opdivo® by Bristol-Myers Squibb Company) in animals;
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an anti-CTLA4 antibody equivalent to ipilimumab (marketed as Yervoy® by Bristol-Myers Squibb Company) in animals.
The manufacturers of the marketed drugs were not involved in any of our clinical or preclinical studies. In studies involving marketed drugs, the drugs
were administered concurrently with Oncoprex without being modified in any way, and the antibodies used in our preclinical studies that did not use the
marketed drugs were the non-humanized equivalent to marketed drugs.
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Data from these clinical and preclinical studies indicate that combining Oncoprex with these other therapies yields results more favorable than either
these therapies or Oncoprex alone, with minimal side effects relative to other lung cancer drugs, thereby potentially making Oncoprex a therapy
complementary to these cancer treatments. In addition, based on our clinical and preclinical studies and on preclinical studies conducted by others, we believe
that Oncoprex could be combined with other lung cancer drugs that have similar mechanisms of action to the drugs mentioned above, such as pembrolizumab
(marketed as Keytruda® by Merck & Co.), nivolumab (marketed as Opdivo® by Bristol-Myers Squibb Company), durvalumab (marketed as Imfinzi® by
Medimmune/AstraZeneca), atezolizumab (marketed as Tecentriq® by Genentech/Roche), and osimertinib (marketed as Tagrisso® by AstraZeneca).
Researchers at MD Anderson have collaborated with other researchers to identify other genes, such as those in the 3p21.3 chromosomal region, that
may act as tumor suppressors or have other cancer fighting functions. We hold rights to certain of these genes under license agreements with MD Anderson.
Data from preclinical studies performed by others suggest that product candidates that could be derived from our technology platform could be effective
against other types of cancer, including breast, head and neck, renal cell (kidney), gliobastoma, and soft tissue cancer, as well as NSCLC. Therefore, our
platform technologies may allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types
of cancer.
MD Anderson researchers have completed the first phase of a Phase I/II clinical trial of Oncoprex in combination with erlotinib in patients with Stage
IV (metastatic) or recurrent NSCLC that is not potentially curable by radiotherapy or surgery, whether or not they have received prior chemotherapy, and
whether or not they have an activating EGFR mutation. The Phase I portion of the trial was a dose-escalating study with primary endpoints of establishing the
safety and tolerability of the combination of Oncoprex and erlotinib, and establishing the Maximum Tolerated Dose, or MTD. The secondary endpoint of the
Phase I portion of the trial was to assess the toxicity of the combination of Oncoprex with erlotinib. In the Phase I portion of the trial, which began in 2014,
18 subjects were treated, and the MTD was determined to be the highest tested dose: 0.6 mg/kg of Oncoprex administered every 21 days and 150 mg of
erlotinib per day. Toxicities were found to compare favorably with those of other lung cancer drugs.
The Phase II portion of the trial is designed to include subjects treated with the combination of Oncoprex and erlotinib at the MTD with the primary
goal of measuring the response rate, and secondary endpoints of stable disease, time to progression and overall survival. The response rate for cancer
therapies is defined under the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR); disease
control rate is defined under the RECIST criteria as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks.
Enrollment criteria for the second phase of the Phase I/II clinical trial are identical to those in the first phase. The Phase II portion of the trial began in
June 2015 and is ongoing at MD Anderson. Of the 39 patients allowed in the protocol for the Phase II portion of the trial, 10 have been enrolled and nine are
evaluable for response under the trial protocol, because they have received two or more cycles of treatment. Interim results show that four of the patients had
tumor regression and one patient had a Complete Response, or CR under the RECIST criteria. The patient with the CR had disappearance of the lung primary
tumor, as well as lung, liver, and lymph node metastases. The median response duration for all patients, which is defined as the median time between when
response is first noted to the time when cancer progression is observed, was three months. The response rate for the nine patients evaluated to date was 11%
and the disease control rate for the nine patients was 78%.
The response rate and disease control rate to date in the Phase II portion of our Phase I/II clinical trial substantially exceeds the response rate of 7%
(with no CRs) and disease control rate of 58% reported for a clinical trial of the TKI afatinib (marketed as Gilotrif® by Boehringer Ingelheim
Pharmaceuticals, Inc.) in a study referred to as the LUX-Lung 1 clinical trial. A total of 585 patients were enrolled in that Phase IIB/III clinical trial, whose
primary endpoint was overall survival and whose secondary endpoints were progression-free survival, RECIST response, quality of life and safety. The LUX-
Lung 1 clinical trial was a randomized, double blinded Phase IIB/III clinical trial treating subjects with Stage IIIB or IV adenocarcinoma, a type of NSCLC.
The Phase II portion of our Phase I/II trial is not blinded, and is designed to treat NSCLC subjects regardless of EGFR status.
Preliminary analysis of the early data from the Phase II portion of our Phase I/II trial supports our belief that Oncoprex may provide medical benefit in
several subpopulations of NSCLC patients for which there is an unmet medical need, and may provide pathways for accelerated approval by the US Food and
Drug Administration, or FDA. As a result of these initial findings, in April 2016, we suspended enrollment of new patients in the Phase II portion of the trial
to collect additional trial data and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand
enrollment and also to divide the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We have
completed the collection and analysis of the additional preliminary data and expect to present our findings to the FDA within the next several months. We
now have decided to continue this clinical trial under the current protocol without major modification at this time. We are maintaining our plan to seek a
pathway toward accelerated approval in one or more patient cohort populations. Although this clinical trial is currently closed to new patient enrollment, it is
not terminated, and is considered “ongoing” because activities such as patient follow-up and further data collection and analysis continue. We plan to reopen
enrollment in the Phase II portion of the trial at
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MD Anderson and at additional clinical trial sites.
In 2012, MD Anderson researchers completed a Phase I clinical trial of Oncoprex as a monotherapy. The primary objective of this Phase I trial was to
assess the toxicity of Oncoprex administered intravenously and to determine the MTD and recommended Phase II dose of Oncoprex alone. Secondary
objectives were to assess the expression of TUSC2 following intravenous delivery of Oncoprex in tumor biopsies and also to assess the anticancer activity of
Oncoprex. This trial demonstrated that Oncoprex was well tolerated and established the MTD and the therapeutic dosage for Oncoprex at 0.06 mg/kg
administered every 21 days. Although this trial was not designed to show changes in outcomes, a halt in cancer growth was observed in a number of patients,
and tumor regressions occurred in primary lung tumors and metastatic cancers in the liver, pancreas, and lymph nodes. In addition, pre- and post-treatment
patient biopsies demonstrated that intravenous Oncoprex selectively and preferentially targeted patients’ cancer cells, and suggested that clinical anti-cancer
activity was mediated by TUSC2.
We believe that Oncoprex’ 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 Oncoprex to provide treatment for patients with NSCLC and possibly other cancers,
who are not benefitting from currently offered therapies.
Our Oncoprex immunogene therapy technology was discovered through a lung cancer research consortium from MD Anderson and The University of
Texas Southwestern Medical Center, or UTSWMC, along with the National Cancer Institute, or NCI. The TUSC2 discovery teams included Jack A. Roth,
MD, FACS, chairman of our Scientific and Medical Advisory Board. We have assembled a team of experts in clinical and translational research, including
laboratory scientists, medical oncologists and biostatisticians, to pursue the development and commercialization of Oncoprex and other potential product
candidates.
Our technology discoveries and research and development programs have been the subjects of numerous peer-reviewed publications and have been
supported by Small Business Innovation Research, or SBIR, grants and grants from the National Institutes of Health, the United States Department of
Treasury, and the State of Texas. We hold a worldwide, exclusive license from MD Anderson to patents covering the therapeutic use of TUSC2 and other
genes that have been shown to have cancer fighting properties, as well as a number of related technologies, including 32 issued patents and one allowed
patent.
Our Pipeline
We are developing Oncoprex, our lead product candidate, to be administered with erlotinib for NSCLC. We are also conducting preclinical research
with the goal of developing Oncoprex to be administered with immunotherapies in NSCLC. In addition, we have conducted research into other tumor
suppressor genes associated with chromosome 3p21.3. Our research and development pipeline is shown below:
Our Strategy
We intend to develop and commercialize treatments for cancer based on our proprietary gene therapy platform, alone or in combination with other
cancer therapies. Key elements of our strategy include:
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Conduct Ongoing and New Clinical Trials. We plan to continue clinical trials of Oncoprex immunogene therapy in combination with erlotinib
for treatment of NSCLC, while exploring pathways to accelerated Food and Drug Administration, or FDA, approval of this combination in
subpopulations of NSCLC patients for whom there is currently no approved targeted therapy. We also plan to pursue a clinical trial of the
combination of Oncoprex with anti-PD-1
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immunotherapy. We may also pursue clinical trials of the combination of Oncoprex plus osimertinib (marketed as Tagrisso® by AstraZeneca)
and with additional targeted therapies and immunotherapies.
Investigate the Effectiveness of Oncoprex in Other Cancers We may also explore the combination of Oncoprex and erlotinib in other cancers
such as soft tissue sarcomas, kidney, head and neck, glioblastoma, and/or breast cancer, and we may pursue development of additional
proprietary genes alone or in combination with other drugs, such as EGFR TKIs and/or with immunotherapies.
Prepare to Commercialize Oncoprex. Successful commercialization requires careful alignment of Genprex’s business model with its
manufacturing strategy. As Genprex continues the development of Oncoprex, access to technology is a primary consideration. Manufacturing
strategy has been developed and incorporated into Genprex’s business plan. Genprex expects and plans to continue to refine its manufacturing
strategy to ensure scalable production of its drug candidates and prepare for commercialization. The Company believes that our manufacturing
team have significant experience to effectively anticipate and solve future manufacturing challenges, associated with scaling production to larger
volume, with CDMO partners. The company will continue to establish and demonstrate product bioequivalence as our processes evolve and
scale from existing pre-clinical lab settings through technology transfer to future settings including larger GMP scale processes and facilities.
Genprex is prepared to provide a GMP validation package for our large-scale manufacturing solutions. As the Company’s clinical trials progress,
manufacturing will be completed in parallel to ensure optimal drug delivery required for patient demand. This will require specialized expertise,
advanced manufacturing, and supply chain management capabilities that Genprex will leverage through our access to and, optimal use of,
innovative technologies. We also expect to review and optimize supply chain services such as stability studies, cold chain storage and shipping,
and supply and inventory management. In addition to meeting requirements for reproducibility, safety, and efficacy, the preparation to support
commercialization of Oncoprex is also designed to be cost effective. Genprex will continue to optimize its manufacturing capabilities and
process controls to support clinical trials and move toward commercialization.
Pursue Strategic Partnerships. As we gather additional clinical data, we plan to pursue strategic partnerships with other developers and
providers of anti-cancer drugs to investigate possible therapeutic combinations of Oncoprex with drugs manufactured by others, to accelerate the
development of our current and potential product candidates through co-development and to increase the commercial opportunities for our
current and potential product candidates.
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Develop Our Platform Technology. We plan to investigate the applicability of our platform technology with additional anti-cancer drugs.
Current Treatment of Cancer
Chemotherapy is the standard treatment for the majority of NSCLC patients, as it is for many cancer patients. Because it is a systemic, rather than a
targeted, approach to treating cancer, chemotherapy also kills healthy cells and has a number of other side effects.
A subset of NSCLC patients carry one or both of two EGFR mutations, referred to as exon 19 deletion and exon 21 substitution, which make their
tumors sensitive to TKIs. Because EGFR is frequently overexpressed in lung tumors, it has become a favored therapeutic target for pharmaceutical
companies. Several pharmacological and biological approaches, including TKIs, have been developed specifically to block activated EGFR for cancer
therapy. The class of drugs functioning as protein kinase inhibitors, or KIs, comprises the majority of targeted therapies for lung cancer, accounting for most
sales and use. Of the KIs, the TKI drugs are the most common, with drugs targeting EGFR kinases leading the sector growth. Several EGFR TKI therapies
are marketed commercially including market leader erlotinib, gefitinib, afatinib and osimertinib.
A leading small molecule EGFR TKI is erlotinib, which is approved in the U.S and Europe as a first-line therapy in metastatic NSCLC patients with
an activating EGFR mutation. Erlotinib was previously approved as a second-line treatment in patients with metastatic NSCLC after failure of at least one
prior chemotherapy regimen. Erlotinib has been used to treat more than 400,000 lung cancer patients.
However, while erlotinib is most effective in patients who have an activating EGFR mutation and are therefore described as “EGFR positive,” it is
significantly less effective in overall NSCLC populations and is generally not effective in patients without an activating EGFR mutation. Approximately 10%
of NSCLC patients of North American and European descent and approximately 30% to 50% of NSCLC patients of Asian descent have the activating EGFR
mutations. This means that the majority of NSCLC patients do not have activating EGFR mutations and are therefore “EGFR negative” and not optimal
candidates for erlotinib and other TKIs.
6
In addition, even among those patients who are EGFR positive and benefit from erlotinib therapy, most eventually become resistant to and ultimately
no longer respond to erlotinib therapy, resulting in eventual disease progression. Furthermore, clinical trials have shown that combining EGFR TKIs with
conventional chemotherapy does not increase survival for lung cancer patients.
While next generation TKIs show promise in targeting resistant EGFR positive tumors that carry a mutation known as T790M, only about one-half of
EGFR positive patients (5% to 7.5% of all NSCLC patients of North American and European descent and 15% to 25% of NSCLC patients of Asian descent)
carry the T790M mutation. This leaves a significant majority of NSCLC patients—those who are EGFR negative and those who are EGFR positive but have
become resistant to erlotinib and do not have the T790M mutation—without a targeted therapy for their cancer.
Our clinical and preclinical data indicate that the combination of our lead product candidate, Oncoprex, with erlotinib and other EGFR TKIs may
increase anti-tumor activity in cancers with or without the EGFR mutations and in cancers that have become resistant to erlotinib therapy, thus expanding the
number of patients who could benefit from those drugs.
TUSC2, the Active Agent in Oncoprex
TUSC2, which is the active agent in Oncoprex, is a multifunctional gene that plays a vital role in cancer suppression and normal cell regulation. Key
TUSC2 anti-cancer mechanisms of action include the inactivation of multiple oncogenic kinases, the induction of apoptosis, the control of cell signaling and
inflammation, and modulation of the immune system to fight cancer. Oncoprex has also been shown to block mechanisms that create drug resistance. Our
data indicate that Oncoprex in combination with both EGFR TKIs and with immunotherapies achieve results more favorable than results achieved with either
Oncoprex or such other therapies alone, and may make those drugs effective for patients who would not otherwise benefit from them.
Normal TUSC2 function is inactivated at the early onset of cancer development, making TUSC2 a potential target for all stages of cancer, including
metastatic disease. The TUSC2 protein is reduced or absent in approximately 85% of lung cancers. In patients with NSCLC, the loss of TUSC2 expression
has been associated with significantly worse overall survival than when TUSC2 expression is not impaired.
Studies show TUSC2 protein functions as a key mediator in the Apaf1-mediated mitochondrial apoptosis pathway by recruiting and directing
cytoplasmic Apaf1 protein to a critical cellular location and activating it in situ and by up-regulating activity of other proapoptotic effectors. Normal TUSC2
function mediates apoptosis in cancer cells through interaction with Apaf1 and down-regulates multiple tyrosine kinases including EGFR, AKT, PDGFR, c-
Kit, and c-Abl. TUSC2 mediates apoptosis in cancer cells but not normal cells through its interaction with Apaf1 and down-regulates tyrosine kinases
including EGFR, PDGFR, c-Kit, and c-Abl.
In normal cells, the proteins involved in the PI3K/AKT pathway (also called the mTOR pathway), in which PI3K, a kinase, generates messenger
molecules required to translocate AKT, another protein kinase, to the cell’s plasma membrane where it is phosphorylated and activated, play an important role
in cellular function and cellular trafficking. These proteins are often found to be aberrantly active in cancers, causing cells to lose their ability to control cell
growth, proliferation, and differentiation. Thus, mutations in PI3K (overexpression) and its upstream receptors, EGFR, have been associated with many forms
of cancers.
Similarly, proteins in the Ras/MAPK pathway, which is a signal transduction pathway that transduces signals to the cell nucleus where specific genes
are activated for cell growth, division and differentiation, play a critical role in cellular responses to various stress stimuli, including osmotic stress, DNA
damage, and proinflammatory factors. As shown in the figures below, the TUSC2 protein, a potent pan-kinase inhibitor, blocks multiple cell signaling
pathways downstream of the receptor (EGFR in the figures), leading to cell cycle interruption and thereby preventing cancer cell proliferation and survival.
7
Additionally, under stress conditions, such as oncogenic stress, cells go through a regulated process of programmed cell death, or cellular suicide,
called apoptosis, in order to control cell development and replication. The TUSC2 protein interacts via various apoptotic signaling pathways to stimulate
programmed cell death via the release of caspases, enzymes that play a significant role in apoptosis.
Pan-Kinase Inhibition by TUSC2
Stimulation of Apoptotic Signaling by TUSC2
Cancer and the Immune Response
When functioning normally, the body’s immune system recognizes and destroys cancer cells, as well as other mutated cells and foreign bodies. As
cancer develops over time, some mutations in cancer cells enable them to inhibit immune mechanisms, thus allowing the cancer cells to escape detection and
destruction by the immune system and leading to the cancer’s “immune tolerance.” Therapies are being developed to allow patients to overcome this immune
tolerance, some by stimulating the natural immune response and others by removing the inhibitions on the immune response created by the cancer. For
example, PD-1 is a protein found on certain types of T cells, which are part of the immune system. Because PD-1 prevents T cells from attacking other cells,
including in some cases cancer cells, inhibiting PD-L1 receptors, a process called PD-1 checkpoint inhibition, can facilitate the immune response to cancer.
8
In addition to its pro-apoptotic cytotoxicity and tyrosine kinase inhibitory activity, TUSC2 enhances the immune response to cancer. Data from
preclinical studies at MD Anderson have shown a therapeutic benefit from the combination of TUSC2 and anti-PD-1 antibody and a key role for TUSC2 in
regulating immune cell subpopulations including cytokines, natural killer, or NK, cells, and T lymphocytes. In addition, TUSC2 has been found to down-
regulate PD-L1 receptors on the surface of cancer cells.
NK cells, an important part of the innate immune system, have developed several mechanisms to distinguish healthy cells from target cells. These
mechanisms allow NK cells to kill cells that are deemed dangerous to the host, including cancer cells. However, one of the consequences of malignant
transformation is the ability of the cancer cell to evade the immune system. Cancer cells do so via the up-regulation and interplay of receptors, including
checkpoint inhibitors such as PD-1 and PD-L1.
As shown in the illustration below, TUSC2 has been found to stimulate the release of interleukin-15, or IL-15, resulting in up-regulation of mature NK
cells that circulate and target cancer cells.
Modulation by TUSC2 of the Immune Response to Cancer
The Genprex Platform and Oncoprex
Genprex is developing a novel approach to cancer treatment, based on our immunogene therapy platform, which is designed to deliver any of a
number of cancer fighting tumor-suppressor genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. The Genprex
platform consists of anti-cancer genes encapsulated in nanovesicles that can be delivered intravenously.
Our lead product candidate, Oncoprex, is the TUSC2 gene, as the active anti-cancer agent, encapsulated into nanovesicles made from fat molecules
with a positive electrical charge formulated for intravenous administration. In our ongoing Phase II clinical trial Oncoprex is injected intravenously
approximately every 21 days for as long as the patient continues to benefit, which is defined as tumor size stabilization or shrinkage.
Oncoprex has a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells,
re-establishes pathways for programmed cell death, or apoptosis, in cancer cells, and modulates the immune response against cancer cells. Oncoprex has also
been shown to block mechanisms that create drug resistance.
Oncoprex is a pan-kinase inhibitor shown to simultaneously inhibit the EGFR and AKT oncogenic kinase pathways in vitro and in vivo. Once the
cancer cell takes up the nanovesicle containing TUSC2, it is reprogrammed to die. Resistance to targeted drugs and checkpoint inhibitors develop through
activation of alternate bypass pathways. For example, when PD-1 is blocked, the TIM-3 checkpoint is up-regulated. We believe that Oncoprex’ multimodal
activity will block emerging bypass pathways, reducing the probability that drug resistance develops.
Our cancer gene therapy platform and its delivery system are highly targeted. While the TUSC2 gene induces apoptosis in cancer cells which have low
or absent TUSC2 expression, TUSC2 delivered by nanovesicles to normal cells is not toxic. Moreover, the nanovesicles are taken up by tumor cells after
Oncoprex treatment at 10 to 25 times the rate at which they are taken up by normal cells, because of selective endocytosis, or enveloping by the cell, of the
nanovesicle lipid formulation and the enhanced permeability and retention, or EPR, characteristics of tumor vasculature, without the need for external ligands,
or binding molecules. Pre- and posttreatment biopsies following intravenous injection of Oncoprex in a phase 1 clinical trial showed robust TUSC2 protein
expression in cancer cells at both primary and metastatic tumor sites.
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Our preclinical and clinical data indicate that Oncoprex is well tolerated and may be effective alone or in combination with targeted small molecule
therapies, thereby facilitating the action of both drugs, allowing use in expanded populations of patients who may benefit from advanced therapy regimens.
Data have shown that when Oncoprex is combined with EGFR TKI therapy, such as erlotinib, in EGFR mutated resistant cancers, the combination
therapy overcomes intrinsic and acquired therapeutic resistance by simultaneously inactivating the EGFR and the AKT signaling pathways to restore
apoptotic signaling. Overcoming EGFR resistance in a clinical setting could provide a path for approval of Oncoprex for patients who do not have an
activating EGFR mutation (90% of patients of American and European descent and 50% to 70% of those of Asian descent) and/or for patients who have an
activating EGFR mutation but who have become resistant to erlotinib.
Clinical and preclinical data indicate that Oncoprex, when combined with EGFR TKIs such as erlotinib, gefitinib, and osimertinib, provides a
synergistic effect that could also benefit the larger population of NSCLC patients who are EGFR negative (which means they are not expected to benefit from
EGFR TKI drugs alone). Further, our data show that Oncoprex may re-sensitize EGFR positive patients who become resistant to, and therefore no longer
benefit from, EGFR TKIs alone. Thus, Oncoprex may both significantly expand the benefit of EGFR TKIs to the majority of patients (90% of those of
American and European descent and 50% to 70% of those of Asian descent) who do not have EGFR activating mutations and would therefore not otherwise
be expected to benefit from EGFR TKI drugs, and also extend the usefulness and benefit of EGFR TKIs for the population of NSCLC patients who are EGFR
positive, but who do not have the T790 mutation and who have become refractory to erlotinib, for whom there is currently no well-accepted standard
treatment other than chemotherapy.
Many currently approved cancer therapeutics target only single molecules or a single specific genetic abnormality related to driving the proliferation
and survival of cancer cells. In contrast, Oncoprex works by targeting several molecules within the cancer cell to interrupt cell signaling pathways that cause
replication and proliferation of cancer cells, to target and kill cancer cells, to block mechanisms that create drug resistance and to stimulate the natural
immune response. Moreover, clinical and preclinical data show that Oncoprex works with other cancer drugs or their non-humanized equivalents, to produce
more effective anti-cancer effects than either produces alone. In conjunction with these other drugs and equivalents, Oncoprex has been shown to mediate an
anti-tumor response through up-regulation of NK cells, CD8+ T cells, and down-regulation of regulatory T cells, or Tregs, and PD-L1 receptors, activate
alternative immune mechanisms with the potential to complement checkpoint inhibitors. Published data indicate that effectiveness of these kinase inhibitors
and immunotherapy drugs is enhanced when they are combined with Oncoprex.
Delivery System
The Genprex immunogene therapy platform consists of anti-cancer genes encapsulated in nanovesicles delivered intravenously. The Oncoprex TUSC2
gene is encapsulated in a positively charged nanovesicle that binds to actively replicating (and therefore negatively charged) cancer cells, and then enters the
cancer cell through selective endocytosis. These nanoscale vesicles differ significantly from liposomes historically used for drug delivery in that they are true
particles encapsulating the therapeutic payload within a bilamellar lipid coat. Our collaborators at MD Anderson have optimized the characteristics of lipids
including N-(1-(2,3-Dioleoyloxy)propyl)-N,N,N-trimethylammonium methyl sulfate, or DOTAP:cholesterol and a DNA plasmid expressing the TUSC2
tumor suppressor gene which form a spherical particle with a hollow center, nanoscale in size, which encapsulates the TUSC2 gene for delivery as Oncoprex.
Operation of the Oncoprex TUSC2 Nanovesicle Delivery System
The particle size is small enough to allow Oncoprex to cross tight barriers in the lung, but large enough to avoid accumulation or clearance in the liver,
spleen and kidney. The cationic (positive) charge of the nanovesicle targets cancer cells, and direct nanovesicle fusion avoids target cell endocytosis. A Phase
I clinical trial showed that intravenous Oncoprex therapy selectively and preferentially targeted primary and metastatic tumor cells, resulting in anticancer
activity. The nanovesicles are non-immunogenic, allowing repetitive therapeutic dosing and providing extended half-life in the circulation.
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We believe that the nanovesicles used in Oncoprex are applicable to delivery of a range of therapeutic and prophylactic plasmid DNAs and RNA
interference constructs. The nanovesicle manufacturing methods we and our collaborators have developed have been optimized and we believe they may be
useful for a wide array of disease treatments. Clinical outcomes demonstrated that the delivery system used in Oncoprex is well tolerated in humans and can
deliver high therapeutic doses. The nanovesicle delivery system and safety database may be attractive to drug developers because it overcomes historical
technological boundaries with lipid-based delivery systems.
Platform Technologies
We hold an exclusive worldwide license to patents covering the therapeutic use of a series of genes in the 3p21.3 region of the human chromosome,
including TUSC2, that have been shown in preclinical and clinical research to have cancer fighting properties. While we are initially targeting NSCLC, data
from preclinical studies conducted by others indicate that product candidates derived from our immunogene therapy platform may also be effective with
respect to other types of cancer, including soft tissue, kidney, head and neck, and breast cancer. Preclinical and clinical data also indicate that our current and
potential product candidates are complementary to other successful cancer drugs. Therefore, our platform technologies may allow delivery of any of a number
of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. In addition, we are investigating biomarkers
to predict response and additional immunotherapies to combine with Oncoprex.
Preclinical and Clinical Development, Rationale and Strategy
Phase I Monotherapy Clinical Trial
In 2012, MD Anderson researchers completed a Phase I clinical trial of Oncoprex as a monotherapy. The primary objective of this Phase I trial was to
assess the toxicity of Oncoprex administered intravenously and to determine the maximum tolerated dose, or MTD, and recommended Phase II dose, of
Oncoprex alone. Secondary objectives were to assess the expression of TUSC2 following intravenous delivery of Oncoprex in tumor biopsies and also to
assess the anti-cancer activity of Oncoprex, although the study was not designed to show changes in outcomes. This trial demonstrated that Oncoprex was
well tolerated and established the MTD and the therapeutic dosage for Oncoprex at 0.06 mg/kg administered every 21 days. Although this trial was not
designed to show changes in outcomes, a halt in cancer growth was observed in some patients. Tumor regressions occurred in primary lung tumors and
metastatic cancers in the liver, pancreas, and lymph nodes. In addition, pre- and posttreatment patient biopsies demonstrated that intravenous Oncoprex
selectively and preferentially targeted patients’ cancer cells, and suggested that clinical anti-cancer activity was mediated by TUSC2.
In the Phase I Monotherapy Trial, Oncoprex was injected intravenously in stage IV (metastatic) lung cancer patients who had received traditional
platinum combination chemotherapy but still showed tumor progression at the time of entry into the study. Oncoprex was manufactured in GMP facilities to
meet specifications of size, appearance, and transfection efficiency. During the trial, manufacturing was transferred from Baylor College of Medicine to MD
Anderson, thus confirming reproducibility of the manufacturing process. Subjects received escalating doses ranging from 0.01 mg/kg to 0.09 mg/kg at three-
week intervals for a maximum of six cycles of a dose every three weeks. Fever is a common reaction to intravenous drug administration; accordingly,
dexamethasone, a steroid, and diphenhydramine, an antihistamine, were administered as a standard treatment to prevent fever and eliminated the only
clinically significant toxicity of fever.
In the Phase I Monotherapy Trial, 31 subjects were treated at six dose levels ranging from 0.01 to 0.09 mg/kg. Seventy percent of subjects had
received two or more prior chemotherapy regimens. Among four subjects treated without the fever-reducing premedications, all four subjects developed grade
2 or higher fevers within 24 hours of treatment. Among the 27 subjects premedicated with the fever-reducing premedications, the highest fever was grade 2,
which occurred in two subjects. The only serious adverse events, defined as grade 3, 4 or 5 events under the Common Terminology Criteria for Adverse
Events, or CTCAE, published by the U.S. Department of Health and Human Services, were grade 3 fever (experienced by three patients) and grade 3
hypotension (experienced by 1 patient). The only dose-limiting toxicities were two episodes of transient grade 3 hypophosphatemia (abnormally low levels of
phosphate in the blood) resulting in an MTD of 0.06 mg/kg. Twenty-three subjects received two or more doses, of whom five subjects, or 22% of the 23
subjects, achieved disease control for periods ranging from 2.6 months to 10.8 months. The median disease control period for these subjects was 5.0 months
(95% CI: 2.0-7.6), while the other 18 subjects’ cancer progressed during the Phase I Monotherapy Trial. Disease control for cancer therapies is defined under
the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks). Median
survival for all subjects in the Phase I Monotherapy Trial was 8.3 months (95% CI 6.0-10.5 months) and mean survival time was 13.2 months (95%CI 8.9-7.5
months) with a range of two to 23+ months.
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Two subjects had reductions in primary tumor size of 14% and 26%. One subject with stable disease, a 54-year-old female with a large cell
neuroendocrine carcinoma who received 12 cycles of Oncoprex therapy, had evidence of a durable metabolic response, which is a lasting reduction of
metabolic activity in the tumor, as shown by positron emission tomography, or PET, imaging. The response was documented with PET scans performed after
the second, fourth and sixth doses, all showing decreased metabolic activity in the tumor with no changes in size or number of metastases by computed
tomography, or CT, imaging. The illustration below is of the PET scan of this subject performed after the fourth dose. This subject had received six prior
chemotherapy regimens. Prior to entry in the Phase I Monotherapy Trial, two hepatic metastases were progressing on gemcitabine. The subject also had a
metastasis in the head of the pancreas and a peripancreatic lymph node, shown by the arrows in the illustration below. Illustration A shows the pretreatment
PET scan. The dose of Fluorodeoxyglucose (18F) was 8.8mCi. Illustration B shows the post treatment PET scan performed 20 days following the fourth dose
of Oncoprex. The dose of Fluorodeoxyglucose (18F) was 9.0mCi. All scans were performed within a 60 to 90 minute window after injection.
Metabolic Tumor Response in a Metastatic Lung Cancer Subject
This subject survived after subsequent therapy more than seven years after the final treatment with Oncoprex, to our knowledge, without evidence of
cancer progression in the responding sites.
To test whether the TUSC2 gene introduced by Oncoprex therapy was expressed following Oncoprex therapy in the Phase I Monotherapy Trial, pre-
treatment and 24-hour post-treatment tumor biopsies were obtained from seven subjects by percutaneous CT guidance from a central tumor location. A
quantitative real time reverse transcriptase PCR, or RT-PCR, analysis using a plasmid TUSC2 sequence-specific probe was performed on samples blinded to
time of biopsy. The RT-PCR analysis detected high levels of TUSC2 plasmid expression in six of seven post-treatment tumor specimens but not in
pretreatment specimens or negative controls.
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In addition, an in situ proximity ligation assay, or PLA, performed on paired biopsies from three subjects, demonstrated no TUSC2 protein staining in
pre-treatment tissues compared with intense TUSC2 protein staining in post-treatment tissues. For the PLA, anti-TUSC2 polyclonal antibodies were
developed to detect the presence of TUSC2. Pre-treatment and post-treatment biopsies were obtained from three patients. The top panel for each patient in the
illustration below represents the pre-treatment biopsy “controls” with DAPI, a type of blue stain. The bottom panel for each patient are post-treatment
biopsies, and represent overlays of blue DAPI staining and red anti-TUSC2 antibody staining. The blue stains in the top panels indicate the absence of
TUSC2 in the pre-treatment biopsies, and the red and purple (red overlaying blue) stains in the bottom panels indicate the presence of TUSC2 in robust
quantities in the post-treatment biopsies, showing that TUSC2 was successfully introduced into the tumors in the Phase I Monotherapy Trial.
Proximity Ligation Assay (PLA) for TUSC2 protein in tumor biopsies
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An RT-PCR gene expression profiling analysis of apoptotic pathway genes in a paired specimen showing high post-treatment levels of TUSC2 mRNA
and protein in one subject also showed up-regulation and downregulation of certain genes involved in both the intrinsic and extrinsic apoptotic pathways.
Antibodies to single and double stranded DNA were not detected 14 months after completion of 12 cycles of therapy in the subject, indicating that within that
period no anti-DNA antibodies had developed. The conclusion from the Phase I Monotherapy Trial was that Oncoprex administered intravenously in lung
cancer patients was well tolerated with demonstrable gene delivery to tumors with protein expression and evidence of antitumor activity. Although the
number of biopsies was limited due to regulatory constraints, the consistent results across test platforms suggests that these observations are reliable.
Based on the positive results from the Phase I Monotherapy Trial and preclinical data from studies of the combination of Oncoprex plus EGFR TKI
drugs, we are evaluating Oncoprex as a lung cancer therapeutic to be used in combination with the EGFR kinase inhibitor erlotinib in our ongoing Phase I/II
Combination Therapy Trial.
Preclinical Studies
Investigators at MD Anderson conducted preclinical research showing that Oncoprex alone blocked the activation of the c-Abl tyrosine kinase. A
number of other studies at MD Anderson have demonstrated the complementary effects of Oncoprex combined with a variety of targeted kinase inhibitory
agents, both marketed and in various stages of clinical development, including erlotinib, gefitinib, osimertinib, MK2206, and others. Researchers investigated
the use of Oncoprex combined with commercially available EGFR TKI drugs erlotinib and gefitinib, and conducted preclinical in vitro and in vivo studies
combining Oncoprex with these drugs in a variety of human lung cancer cell lines, including cancers with activating EGFR mutations and EGFR mutation
negative cancers. Lung cancers known to have intrinsic and acquired resistance to erlotinib therapy were also studied, as were Kras-related and other cancers.
Notably, studies in xenograft animal models demonstrated that Oncoprex and either erlotinib or gefitinib showed synergistic anti-cancer effects, superior to
either agent used alone, in both EGFR mutation negative cancers (generally not candidates for erlotinib) and in EGFR mutation positive cancers (optimal
candidates for erlotinib), including cancers known to be resistant to erlotinib therapy. The addition of Oncoprex to either erlotinib or gefitinib overcame drug-
induced resistance by simultaneously inactivating EGFR and AKT signaling pathways and by inducing apoptosis in erlotinib- or gefitinib-resistant cancers
with EGFR mutations and with EGFR mutation-negative cancers.
In one study, MD Anderson researchers tested the combination of erlotinib and Oncoprex against five human NSCLC cell lines: H1299, H322, A549,
H460, and H1975, the latter of which has the L858R and T790M EGFR mutations and is highly resistant to erlotinib. The results showed that the combination
of Oncoprex and erlotinib significantly reduced NSCLC colony formation beyond the effect of erlotinib, Oncoprex or controls alone (p<0.01 at both 1 and 2.3
uM concentrations for all cell lines). The cooperative interaction between erlotinib and Oncoprex was confirmed in vivo using a lung colony formation
metastases model in nu/nu mice with A549 human lung cancer cells injected in the tail vein. Mice were treated with the combination of Oncoprex and
erlotinib and various controls including empty nanovesicles, erlotinib alone, Oncoprex alone, and other controls.
The greatest reduction in lung colonies occurred with the Oncoprex with erlotinib combination (90% reduction) which was reduced compared to all
control groups (p<0.0005). In terms of total tumor nodules, the cooperative effect is greater than 0.9999. This means that there is less than a 1 in 10,000
chance that the low dose erlotinib with TUSC2 combination does not have a cooperative effect and greater than 9,999 in 10,000 chance that the cooperative
effect exists. P-value is the probability that the difference between two data sets was due to chance. The smaller the p-value, the more likely the differences
are not due to chance alone. In general, if the pvalue is less than or equal to 0.05, the outcome is considered statistically significant. The FDA’s evidentiary
standard of efficacy generally relies on a p-value of less than or equal to 0.05.
MD Anderson researchers also tested Oncoprex in TUSC2-deficient and erlotinib or gefitinib-resistant NSCLC cell lines. Treatment of the NSCLC
EGFR mutation negative cell lines H1299, H322, H358 and H460 cancer cell line showed that the Oncoprex combination significantly sensitized (p<0.001)
response of the cancer cell lines to both erlotinib or gefitinib treatment and synergistically induced apoptosis in vitro. The findings were confirmed in vivo in
an H322 orthotopic lung cancer mouse model. These studies included the K-ras mutant cell line H460, which is significant because patients with K-ras mutant
tumors are generally unresponsive to erlotinib or gefitinib. Synergistic induction of apoptosis was observed with the combination of Oncoprex and
concentrations of erlotinib or gefitinib similar to steady-state serum concentrations achievable with oral dosing. The combination of Oncoprex and either
erlotinib or gefitinib induced similar levels of tumor cell growth inhibition, apoptosis induction, and inactivation of oncogenic protein kinases.
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Data from these and other MD Anderson studies suggest a combination of Oncoprex with gefitinib or erlotinib can promote synergistic tumor cell
killing and overcome drug-induced resistance by simultaneously inactivating the EGFR and the AKT signaling pathways and by inducing apoptosis in
resistant cells with nonmutated EGFR. These data suggest that NSCLC patients with an activating EGFR mutation, whose cancer progresses on erlotinib, may
potentially benefit from Oncoprex with erlotinib combination therapy. These data also suggest that NSCLC patients without an activating EGFR mutation
(generally unresponsive to erlotinib) may potentially benefit from Oncoprex with erlotinib combination therapy.
In another study, MD Anderson researchers analyzed the effects of TUSC2 re-expression on the sensitivity of tumor cells to the AKT inhibitor
MK2206 in vitro and in mice. The AKT pathway is an important intracellular, converging positive regulator of apoptosis. AKT stimulates apoptosis and is
frequently dysregulated in cancers, and this has been associated with reduced sensitivity to anti-tumor drugs. The study showed that the combination of
TUSC2 transfection with MK2206 treatment suppressed tumor cell viability in vitro and effectively inhibited xenograft tumor growth in vivo more effectively
than either agent alone.
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Preclinical Study Showing that the TUSC2-Erlotinib Combination Significantly Inhibits Tumor Cell Viability and Colony Formation in NSCLC
Cells Without an Activating EGFR Mutation
Previous research has shown that NSCLC in cells that lack the activating EGFR mutations exon 19 deficiency and exon 21 substitution is not halted or
inhibited by erlotinib at pharmacologically relevant doses. In one preclinical study, MD Anderson researchers tested a group of EGFR negative NSCLC lines
for sensitivity to erlotinib after restoration of TUSC2 expression, both transiently and stably, and found a significant benefit resulting from the combination at
micromolar ranges between 1uM and 2.3uM. These concentrations are achievable in patient serum with standard dosing regimens and are pharmacologically
relevant. Cell viability was evaluated in 3 TUSC2 Tet-On stable clones that had been treated with doxycycline to induce TUSC2, and combined with
erlotinib. As expected, the cells that had not had TUSC2 expression restored were not sensitive to erlotinib alone, and the viability of cells in the A549,
H1299, and H175 cancer cell lines was 92%, 90%, and 98%, respectively. Induction of TUSC2 with doxycycline alone showed more cytoxicity than erlotinib
alone, resulting in 16%, 22%, and 5% cell death, respectively. However, when cells were exposed to doxycycline and treated with 2.3 μM erlotinib for 48
hours, a growth inhibitory effect was observed for all three cell lines (p<0.05), with the relative survival of the A549, H1299, and H175 cancer cells being
reduced by 48%, 42%, and 38%, respectively. Similarly, as shown in the graphs below, colony formation was significantly inhibited in cells transiently
transfected with TUSC2 and treated with erlotinib. The ability of A549, H1299, H322, and H460 cells to form colonies was reduced by 90%, 80%, 93%, and
85%, respectively. In dose titration experiments erlotinib also mediated increased inhibition of colony formation at nanomolar concentrations. Taken together,
the results clearly demonstrate the superiority of the TUSC2-erlotinib combination treatment over each agent alone, and indicate that the effect is independent
of the technique of exogenous gene expression. For both viability and colony formation assays the probability of a cooperative effect was greater than 0.99,
on a scale from 0 to 1. Zero means no probability of a true cooperative effect, and one means 100% probability of a cooperative effect given the observed
data.
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Inhibition of Colony Formation by a Combination of TUSC2 and Erlotinib
In the graphs above, “EV” means DOTAP: cholesterol (DC)—empty vector (EV) complex (the Oncoprex nanovesicle without the TUSC2 gene),
“PBS” means phosphate-buffered saline, and “EV + PBS” means EV and PBS, acting as a control; “ER” means erlotinib; “*” means p<0.05; and “**” means
p<0.01.
TUSC2-Erlotinib Combination Significantly Inhibits Tumor Growth and Metastasis and Induces Apoptotic Activity
In another preclinical study, MD Anderson researchers analyzed the effect of the combination of TUSC2 and erlotinib on inhibiting tumor growth and
metastasis in two NSCLC mouse xenograft models. Mice with established flank tumors of equal volumes were divided into different treatment groups: PBS,
used as a control; DC-TUSC2 complex (Oncoprex), referred to in the graphs below as “Fus1” or “TUSC2”; erlotinib alone, referred to in the graphs as “Erlo”
or “ER”; DOTAP:cholesterol (DC)—empty vector (EV) complex with erlotinib, referred to as “EV + Erlo” or “EV + ER”; and Oncoprex plus erlotinib,
referred to as “Combo,” “TUSC2 + ER” or “TUSC2 + Erlo.” In the H322 subcutaneous xenograft model, the combination of intravenous Oncoprex and
erlotinib was significantly superior (p<0.05) in reducing tumor volumes than either agent alone, as shown by graph A below. With adjustment for multiple
comparisons, the tumor growth rate of Oncoprex and erlotinib combination was the only group significantly smaller than the PBS control group (p<0.01). The
mean tumor volume was 421.25±89.27 mm3, compared with 1082.50±338.69 mm3, 801.25±144.60 mm3, 675.00±228.80 mm3, and 875.00±267.85 mm3, in
their counterparts receiving PBS, Oncoprex, erlotinib, or EV + erlotinib, respectively. In terms of tumor size, the posterior probability of cooperative effect
was 0.9928, which means that there were less than 100 in 10,000 chances that the effect of TUSC2-erlotinib combination was not cooperative.
MD Anderson researchers also developed a lung metastasis xenograft mouse model, using the human TUSC2-defective, EGFR negative A549
NSCLC cell line. Animals were treated with the same protocol as their subcutaneous counterparts. The number of tumor nodules on lung surfaces was
reduced by 82% after TUSC2-erlotinib treatment, compared to 41% and 54%, for TUSC2 alone or erlotinib treatment alone, respectively, as shown in graph
B below. The overall difference of the tumor nodule count among the five groups was significant (p<0.0001), as was the difference between the Oncoprex and
erlotinib combination group compared to each of the other groups (p<0.01).
As shown in graph C below, in resected tumor tissues assayed by TUNEL, the average number of apoptotic cells in the TUSC2 + erlotinib group was
many times higher than in any of the other groups, including the groups receiving erlotinib alone and USC2-nanovesicles alone.
17
These results show that the growth inhibitory benefit of TUSC2-erlotinib in vitro could be reproduced in vivo and validate the effects of this
combination.
Inhibition of Tumor Growth and Metastasis, and Induction of Apoptotic Activity, by a Combination
of TUSC2 and Erlotinib
In graphs B and C above, “*” means p<0.05; the values in graph C above represent percentages from at least 1000 counted cells.
Phase I/II Combination Clinical Trial: TUSC2 Nanovesicles with Erlotinib
Phase I Combination Trial
The Phase I Monotherapy Trial showed that Oncoprex is well tolerated, that high levels of TUSC2 expression are detected in the tumor post-treatment,
and that there is evidence of tumor growth suppression. Based on the positive results from the Phase I Monotherapy Trial and substantial preclinical evidence
that Oncoprex is complementary with EGFR TKIs, we obtained permission from FDA to begin a new Phase I/II trial at MD Anderson combining Oncoprex
with erlotinib in patients with Stage IV (metastatic) or recurrent NSCLC that is not potentially curable by radiotherapy or surgery, whether or not they have
received prior chemotherapy, and whether or not they have an activating EGFR mutation. This trial is referred to as the Phase I/II Combination Trial.
Enrollment in the Phase I portion of the Phase I/II Combination Trial, referred to as the Phase I Combination Trial, commenced in 2014 at MD Anderson with
Dr. Charles Lu as the Principal Investigator.
18
In the Phase 1 Combination Trial, 18 subjects were treated with the following dose levels:
Dose Level
1
2
3
4
Drug Doses
erlotinib (100 mg/day) + Oncoprex (0.045mg/kg)
erlotinib (100 mg/day) + Oncoprex (0.06mg/kg)
erlotinib (150 mg/day) + Oncoprex (0.045mg/kg)
erlotinib (150 mg/day) + Oncoprex (0.06mg/kg)
As in the Phase I Monotherapy Trial, subjects received a pre-treatment regimen of oral and intravenous dexamethasone and diphenhydramine to
reduce fever, along with an infusion of Oncoprex every three weeks. Subjects received oral erlotinib daily during each three-week cycle during the treatment
period.
The Phase I Combination Trial was also a dose escalation study with the primary purpose of determining the MTD. Dose Limiting Toxicities were
defined as grade 3, 4, or 5 events during the first cycle of treatment that were considered to be treatment related. At dose level 1 (Oncoprex .045 mg/kg plus
erlotinib 100 mg), one subject had grade 3 adverse events of fatigue, muscle weakness, and hyponatremia (low sodium level) considered to be related to the
study treatment (erlotinib); therefore, three additional subjects were treated at this dose level (six subjects total), none of whom suffered a Dose Limiting
Toxicity. At dose level 2 (Oncoprex .06 mg/kg plus erlotinib 100 mg), there were no Dose Limiting Toxicities. At dose level 3 (Oncoprex .45 mg/kg plus
erlotinib 150 mg), one subject had a grade 3 rash considered to be related to the study treatment (erlotinib); therefore, an additional three subjects were treated
at this dose level (six subjects total). No additional subjects suffered a Dose Limiting Toxicity at dose level 3. At dose level 4 (Oncoprex .06 mg/kg plus
erlotinib 150 mg), there were no Dose Limiting Toxicities; thus dose level 4 was determined to be the MTD.
Once the MTD for the study treatment combination was determined in the Phase 1 Combination Trial to be Dose Level 4, accrual proceeded on the
Phase II portion of the study. Since the eligibility criteria, drug administration details (other than dose) and evaluation details were identical for the Phase I
Combination trial and the Phase II Combination trial, three subjects in the Phase I Combination Trial who were treated at the MTD were included in the Phase
II Combination Trial.
Four patients in the Phase I Combination Trial had stable disease ranging from 12 weeks to 36 weeks. The following observations from our preclinical
studies and from the Phase I Combination Trial provided the rationale for proceeding with the Phase II Combination Trial combining Oncoprex with erlotinib:
•
•
•
•
TUSC2 inhibits a variety of tyrosine kinases including EGFR, PDGFR, c-kit, and c-abl;
expression of TUSC2 in NSCLC cells combined with TKIs is complementary in vitro and in vivo;
intravenous administration of a nanoparticle encapsulated TUSC2 expression plasmid effectively delivers TUSC2 to distant tumor sites and
mediates an anti-tumor effect in orthotopic human lung cancer xenograft models; and
when the TUSC2-nanoparticle is combined with a TKI, the suppression of tumor growth in mouse xenograft models is synergistic.
Phase II Combination Trial
The Phase II Combination Trial is designed to include subjects treated with the combination of Oncoprex and erlotinib at the MTD with the primary
goal of measuring the response rate, and secondary endpoints of stable disease, time to progression and overall survival. The response rate for cancer
therapies is defined under the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR); disease
control rate is defined under the RECIST criteria as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks.
Enrollment criteria for the second phase of the Phase I/II clinical trial are identical to those in the first phase. The Phase II portion of the trial began in
June 2015 and is ongoing at MD Anderson. The first subject enrolled in the Phase II portion of the study began erlotinib on Day 8, and subsequently every
other enrolled subject began erlotinib on Day 8. The rationale for delaying erlotinib was to allow exploratory analyses of potential differential effects of
Oncoprex nanoparticles alone and in combination with erlotinib on downstream pathway activation and potential biomarkers of erlotinib resistance. In the
Phase II Combination Trial, subjects will continue to receive three-week cycles of Oncoprex in combination with erlotinib until the occurrence of progressive
disease (PD), unacceptable toxicity, withdrawal of consent, or study treatment discontinuation for other reasons, whichever occurs first.
19
Of the 39 patients allowed in the protocol for the Phase II portion of the trial, 10 have been enrolled (three of whom were also subjects of the Phase I
Combination Trial) and nine are evaluable for response under the trial protocol, because they have received 2 or more cycles of treatment. None of the 10
subjects treated to date in the Phase II portion of the Phase I/II trial suffered a Dose Limiting Toxicity. Interim results show that four of the patients had tumor
regression and one patient had a Complete Response, or CR under the RECIST criteria. The median response duration for all patients, which is defined as the
median time between when response is first noted to the time when cancer progression is observed, was three months. The response rate for the nine patients
evaluated to date was 11% and the disease control rate for the nine patients was 78%.
The patient with the CR, a 58 year old female, upon enrollment in the study had metastatic NSCLC status following 6 cycles of pemetrexed and
carboplatin and two cycles of maintenance pemetrexed with cancer progression. The patient’s tumor has EGFR exon 18 and 20 missense mutations, which are
not sensitive to erlotinib. As shown in the illustrations below, this patient had disappearance of both the lung primary tumor and the lung, liver and lymph
node metastases.
Subject with RECIST Complete Response
Preliminary analysis of these data further supported our belief that Oncoprex may provide medical benefit in several subpopulations of NSCLC
patients for which there is an unmet medical need, and may provide pathways for accelerated FDA approval.
As a result of these initial findings, in April 2016, we suspended enrollment of new patients in the Phase II Combination Trial to collect additional trial
data and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand enrollment and/or also
to divide the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We have completed the
collection and analysis of the additional preliminary data and expect to present our findings to the FDA within the next several months. We now have decided
to continue this clinical trial under the current protocol without major modification at this time. We are maintaining our plan to seek a pathway toward
accelerated approval in one or more patient cohort populations. Although this clinical trial is currently closed to new patient enrollment, it is not terminated,
and is considered “ongoing” because activities such as patient follow-up and further data collection and analysis continue.
We plan to reopen enrollment in the current Phase II Combination Trial at MD Anderson and at additional clinical trial sites. Adding additional sites
will require approval of the Investigational Review Board, or IRB, of each site where the trial is conducted. Assuming enrollment of two or three patients per
month, we estimate that enrollment of the remaining patients for the Phase II Combination Trial could take a year, but because enrollment in clinical trials is
uncertain, that estimate is also subject to substantial uncertainty. Any estimate of the duration of the trial would also be subject to substantial uncertainty,
because treatment generally continues under the clinical trial protocol until the patient dies, experiences a serious adverse event or withdraws from the trial, or
until cancer progresses. Even after completion of treatment, patients continued to be monitored. We intend to use a portion of our available funds to add
additional clinical trial sites.
Preclinical Studies of TUSC2 in the Immune Response to Cancer
Previous research has shown that TUSC2 regulates cytokine expression in vitro. Cytokines are proteins that stimulate inflammation as part of the
immune response. Stable expression of TUSC2 in H1299 NSCLC cells altered expression of a wide spectrum of cytokines including IL2, IL7, IL8 and 10,
GM-CSF and PDGF-beta. TUSC2 is a positive regulator of innate immunity via regulation of IL-15 expression. IL-15 induces NK cell differentiation.
20
The systemic effect of the TUSC2 and anti-PD1 antibody combination was examined in two immunecompetent, syngeneic mouse models of Kras and
p53 mutant lung cancer. C57BL/6 mice were subcutaneously injected with murine adenocarcinoma lung carcinoma CMT/167-luc cells (KrasG12V mutation).
CMT/167 cells do not express TUSC2. Tumors from untreated mice, isotype antibody control, or those treated with anti-PD1 were used as controls. 344SQ
(KrasG12D allele and a knock-in Trp53R172HΔG allele) adenocarcinomas which metastasize to the lung in 126S2 mice were also used. When tumors
reached 50-100 mm3, mice were either injected intravenously with DOTAP:cholesterol (DC)-TUSC2 complex alone (at a dose of 25 μg of plasmid DNA and
10 nmol DC, every 48 hours for three injections), or (DC)-TUSC2 complex combined with anti-PD1 antibody (250 μg for four injections) alone or combined
with anti-CTLA4 (100ug for three injections). Tumor growth and development was monitored by scoring ex-vivo luminescence using the IVIS Imaging
System 200 Series. All tumor measurements were blinded to treatment and results were analyzed independently by biostatisticians.
Preclinical Study Showing that the TUSC2 and Anti-PD1 Combination Cooperatively Inhibits Growth of CMT/167 Lung Adenocarcinomas
Mouse experiments showed combined treatment with TUSC2 and anti-PD1 antibody superior to anti-PD1 alone in five independent experiments in
two different tumor models. Results of a representative experiment is shown in the graph below. By week 3 the reduction in tumor image intensity by the
combination of TUSC2 and anti-PD1 and TUSC2, anti-PD1, plus anti-CTLA4 was greater than the reduction with TUSC2 alone, anti-PD1 combined with
anti-CTLA4, or the isotype control. Spleens and blood were collected for immunological analysis profiling by multicolor flow cytometry. Immune profiling
panels were designed to evaluate response and major changes of specific regulatory innate and adaptive immune cells to TUSC2 or anti-PD1 treatment in
peripheral blood and spleen.
12-Preclinical Study Showing Effect of TUSC2 Anti-PD1 Combo on T Lymphocytes
Preclinical Study Showing the Effect of the TUSC2 and Anti-PD1 Combination on T Lymphocytes
The population of natural killer cells (NK), cytotoxic lymphocytes critical to innate immune function, was assessed in peripheral blood mononuclear
cells (PBMCs) in tumor bearing mice treated with anti-PD1, TUSC2 alone and the combination. As shown in the graph below, the NK cell population
increased strongly in the TUSC2 alone and TUSC2+PD1 groups which correlated with tumor regression. Anti-PD1 alone had no effect on NK cell
proliferation.
21
Tumor free mice without mutations that lead to metastasis were injected intravenously with TUSC2 which caused a threefold up-regulation of NK
cells in the peripheral blood of TUSC2 injected mice as compared with non-injected mice. CD8 T cells, which are cytotoxic T cells (CTL) for tumor killing,
act as a prognostic marker of tumor regression. Increased numbers of CTL were found in the TUSC2 and TUSC2+PD1 groups as compared with that of the
control group which directly correlated with the anti-tumor effect, as shown in the graph below. Lower levels of CD62L expression on T lymphocytes in
TUSC2 treated mice suggests that TUSC2 regulates T cell activation. Moreover, TUSC2 induced down-regulation of regulatory T cells (Treg, CD4+CD25+).
TUSC2 was shown to down-regulate checkpoint markers such as PD-1, CTLA-4, Tim-3, and LAG-3.
13-Effect of TUSC2 with Anti-PD1 on Immune Cell Populations in Peripheral Blood (Large)
Preclinical Study Showing that TUSC2 Immunogene Therapy is Synergistic with Anti-PD1 in Lung Cancer Syngeneic Mouse Models
Based on the prolonged responses that were observed in TUSC2 clinical trials, which suggest that TUSC2 may modulate the immune response, and on
the fact that checkpoint blockade immunotherapy against PD1 and PD-L1 has yielded durable antitumor activity in a subset of NSCLC patients, MD
Anderson researchers conducted a preclinical study to investigate the immune response to TUSC2 in immune cell populations and the synergistic antitumor
effect of TUCS2 in combination with anti-PD1 checkpoint blockade in syngeneic mouse NSCLC models.
Two Kras-mutant syngeneic mouse models were used to explore the effect of TUSC2+anti-PD1 (+/- anti-CTLA-4) on immune cells infiltration into
the tumor micro-environment. Activating Kras mutations are the most common driver mutations in lung adenocarcinomas. Lung cancer with mutant Kras has
a poor prognosis, is often resistant to conventional therapy, and readily becomes resistant to targeted therapies with kinase inhibitors. Studies by researchers
not at MD Anderson have found that PD1 expression was highly associated with the presence of Kras mutations and that PD-L1 expression was elevated in
premalignant Kras-mutant cells, suggesting that Kras mutation may affect the function of the PD1/PD-L1 immune checkpoint pathway.
The first syngeneic mouse model used a murine lung carcinoma cell line CMT/167-luc with a Kras G12V mutation and a low level of TUSC2
expression, implanted subcutaneously in C57BL/6 mice. The second syngeneic mouse model optimized an aggressive experimental metastatic lung cancer
model using 129SvE mice injected with SQ344 lung cancer cells, which contained KrasG12D allele. The SQ344 tumor model was found to be less sensitive
to anti-PD1 single agent treatment.
22
The graph below shows the protocol for and results of this preclinical study, in which anti-PD-1, TUSC2 and anti-CTLA-4 treatments were
administered in the SQ344 metastatic lung tumor mouse model. Figure A shows that SQ344 tumor cells have less expression of PD-L1 than in the CMT167
model, as determined by flow cytometry. The level of PD-L1 expression in SQ344 cells was only 4.5%, which was significantly lower than the level found in
the CMT 167 mouse tumor model (23.7% vs. 4.5%, p < 0.0001), suggesting that SQ344 would respond less strongly to an anti-PD1 agent than the CMT167
model. Figure B shows the protocol for the experiment, in which treatments were administered every three or four days in the mouse tumor cells. Figure C
shows the survival of the mice with the lung tumor cells treated with (a) no treatment, (b) a combination of anti-PD-1 and anti-CTLA-4, (c) TUSC2 alone, (d)
a combination of TUSC2 and anti-PD-1, and (e) a combination of TUSC2, anti-PD-1 and anti-CTLA-4. Figure D shows samples of untreated lung tissue and
lung tissue treated with TUSC2. Figure E shows tumor sizes after each of the treatments shown in Figure C after two weeks. Figures F, G and H shows the
infiltration by NK cells, the concentration of T regulatory, or Treg, cells and the concentration of myeloid-derived suppressor, or MDSC, cells, a type of
immune cells, in each case after treatment with (a) no treatment, (b) TUSC2 alone, (c) a combination of TUSC2 and anti-PD-1 and (d) a combination of anti-
PD-1 and anti-CTLA-4.
23
The results of this preclinical study indicate that TUSC2-sensitization to anti-PD1 could be produced in both Kras-mutant lung cancer mouse models.
14-Therapeutic Efficacy of TUSC2+Anti-PD1 in a Lung Metastasis Model (Large)
24
Preclinical Studies of Additional 3p21.3 Genes with Cancer-Fighting Properties
We have licensed rights to a group of candidate tumor suppressor genes, including 101F6, NPRL2, CACNA2D2, PL6, BLU, RASSF1, HYAL 1 and
HYAL2, in addition to TUSC2 (which is also referred to as FUS1), all of which are located in a sub-region of human chromosome 3 known as 3p21.3. Using
a number of techniques, MD Anderson researchers and their collaborators have identified these genes as potentially having cancer-fighting characteristics.
MD Anderson researchers have subsequently conducted a number of preclinical studies on certain of these genes, particularly 101F6 and NPRL2, as well as
TUSC2, both alone and in combination with other compounds, in order to assess their actual effects on NSCLC. Three of these preclinical studies are
described below. We plan to support continuing research into the cancer-fighting properties of these and other genes in the 3p21.3 sub-region as an important
part of our strategy.
Preclinical Study Showing Expression of Several Genes in the Human Chromosome 3p21.3 Sub-region by an Adenovirus Vector Results in Tumor Suppressor
Activities in Vitro and in Vivo
MD Anderson researchers conducted preclinical studies, both in vitro and in vivo, of several of the licensed genes located in the 3p21.3 sub-region, in
order to assess their effects on tumor cell proliferation and apoptosis in human lung cancer cells. The researchers used adenoviral vectors to introduce
individual wild-type genes into 3p-deficient tumor xenografts and tumor cell lines. This “forced expression” of the wild-type forms of TUSC2, 101F6, and
NPRL2 resulted in inhibition of tumor cell growth by induction of apoptosis and/or alteration of cell cycle pathways in vitro, compared to control.
Intratumoral injection of 101F6, TUSC2 and NPRL2 with adenoviral vectors, as well as systemic administration of these genes in an experimental mouse
model, suppressed the growth of tumor xenografts (in this case, human tissue grafted onto the mouse model) and inhibited lung metastases. The results of
these studies showed that the genes 101F6, NPRL2 and TUSC2 had the most significant anti-cancer effects of the tested genes and were therefore the most
promising genes for further study.
Preclinical Study Showing that Tumor Suppressor 101F6 and Ascorbate Inhibit Non–Small Cell Lung Cancer Growth
One of the promising tumor suppressor gene candidates, 101F6, expresses a protein found in normal lung bronchial epithelial cells and fibroblasts but
whose function is impaired in most lung cancers. This protein is involved in the regeneration of ascorbate, a well-known antioxidant that has been tested as a
supplemental therapeutic agent for human cancer prevention and therapy. MD Anderson researchers studied the effect of 101F6 in combination with
ascorbate on human lung cancer tissue, both in vitro and in vivo. In the in vitro portion of the study, 101F6 was transferred via nanoparticles similar to our
Oncoprex nanovesicles, and in combination with ascorbate, selectively targeted cancer cells and inhibited lung cancer cell growth to a greater extent than
either 101F6 or ascorbate alone. In vivo, the systemic injection of 101F6 nanoparticles in mouse tail veins, together with the intra-abdominal injection of
ascorbate, inhibited both tumor formation and growth in human NSCLC H322 lung cancer xenograft mouse models (P < 0.001) with greater effect than either
101F6 or ascorbate administered alone.
Preclinical Study Showing NPRL2 Sensitizes Human Non-Small Cell Lung Cancer (NSCLC) Cells to Cisplatin Treatment by Regulating Key Components in
the DNA Repair Pathway
Another of the promising tumor suppressor gene candidates, NPRL2, interacts with a kinase that is activated by cisplatin, an anti-cancer drug, leading
to downstream activation of apoptosis in response to the presence of intracellular high-molecular weight DNA fragments, which themselves result from the
breakup of DNA molecules induced by exposure to cisplatin. Mutations in the NPRL2 gene are associated with resistance to this cisplatin-mediated apoptosis.
MD Anderson researchers have conducted preclinical studies of NPRL2 with cisplatin in vitro in lung cancer cell cultures and in vivo in an experimental
mouse model of chest cavity cancer dissemination. Data from these studies suggest that the systemic introduction of the NPRL2 gene and the resulting
expression of the NPRL2 protein in cancer cells activates the DNA damage checkpoint pathway in cisplatin-resistant and NPRL2-negative cells. These
studies suggest that the combination of NPRL2 and cisplatin could resensitize cisplatin nonresponders to cisplatin treatment, helping to overcome resistance
to cisplatin.
25
Process Development and Manufacturing
Through years of Oncoprex process development, including production of multiple clinical material batches in compliance with current Good
Manufacturing Practices, or cGMP, we have developed a robust manufacturing system for Oncoprex. Unlike gene therapy agents in the past, which needed to
be prepared individually for each patient or required viral vectors for gene delivery, we believe that our nanovesicle delivery system is scalable for
commercial production, and the final product can be stored for later use. Manufacturing advances have resulted in improvements in scale, quality and
formulation for cGMP clinical materials. We have worked with multiple contract manufacturing organizations, or CMOs, to use our proprietary processes and
protocols to supply our clinical materials. We anticipate that our commercial product will continue to be manufactured for us by CMOs or pharmaceutical
partners. Our management is experienced in securing, producing and releasing GMP materials.
The production process for Oncoprex utilizes well-defined steps of fermentation using master cell bank, or MCB, stocks, purification, and
DOTAP:cholesterol (DC) nanovesicle production to incorporate the TUSC2 plasmid into nanovesicles for final formulation, packaging and storage. We have
produced Chemistry, Manufacturing and Control, or CMC, documentation to the satisfaction of the FDA for our Phase I and Phase I/II clinical trials, and we
have produced and tested and released MCB stocks for use. We intend to continue to improve our process development, formulation, packaging, storage,
long-term stability, and distribution as part of our ongoing technical programs to coincide with our pivotal clinical and commercialization goals.
Our CMOs have demonstrated the ability to scale sufficiently both in timeliness and quantity required for clinical application, and based on our
experience with those CMOs, we believe they will be able to scale production of Oncoprex in the future, both with respect to capacity and technology.
Production by outside CMOs requires advance planning to schedule their production lines in coordination with other manufacturing orders they may have, as
well as cost negotiation. Production costs may vary due to competition for production lines.
Currently, a CMO completes production of the TUSC2 DNA plasmids and transports them in a climate-controlled setting to our clinical test site at MD
Anderson, where they are stored in cold storage until needed. Pursuant to our research agreements with MD Anderson, MD Anderson has developed thorough
standard operating procedures for thawing, stabilizing, final formulation required for application, and short-term storage prior to administering Oncoprex.
This standardized process is both transferable and replicable at other clinical pharmacies, and we plan to scale this process for expanded clinical and
commercial use outside of MD Anderson.
MD Anderson is currently testing the shelf life of the final DOTAP:cholesterol formulation. A shelf life of at least one year has been established to
date, and testing is ongoing.
Intellectual Property
We hold a worldwide, exclusive license to 32 issued patents and one allowed patent for technologies developed at MD Anderson and UTSWMC.
These patents comprise various therapeutic, diagnostic, technical and processing claims.
26
The following table shows our families of issued patents and patent applications, together with information about the type of patent protection, the
jurisdiction and the patent expiration dates.
2
3
4
Patent
Family
1
Title and (Description)
Chromosome 3p21.3 genes are tumor
suppressors
(Use of our platform genes, including
TUSC2, and use of our non-viral nanovesicle
delivery system)
Type of Patent Protection
The patents in this family have claims
directed to compositions of matter, uses
of the compositions and processes for
preparing the compositions
Bioactive FUS1 Peptides and Nanoparticle-
Polypeptide Complexes (Pharmaceutical
formulation of TUSC2 (also referred to as
FUS1) nanoparticles, method of delivering
TUSC2 to cancer cells, and method of
treating cancer patients with TUSC2
nanoparticles)
Methods and Compositions of Non-Viral Gene
Therapy for Treatment of Hyperproliferative
Diseases
(Methods of delivery, including our nanovesicle
delivery system, of a series of genes that are
licensed to us, including TUSC2, and genes
that are not licensed to us)
The patents in this family have claims
directed to compositions of matter, uses
of the compositions and processes for
preparing the compositions
The patents in this family have claims
directed to compositions of matter, uses
of the compositions and processes for
preparing the compositions
Patent Expiration Dates
7/10/2021, except for the issued
US patents, which expire on
5/15/2024 and 7/29/2022
1/23/2030, 3/14/2026
7/29/2022
5/24/2020
Jurisdiction
United States (3 issued)
Australia (2 issued)
Japan (1 issued)
Canada (1 issued)
Europe (1 issued; validated in
Switzerland, Germany, Denmark,
Finland, France,
United Kingdom, Ireland,
Sweden, Netherlands)
United States (2 issued)
Korea (1 issued)
United States (1 allowed)
Canada (1 issued)
Europe (1 issued)
Belgium (1 issued)
France (1 issued)
Germany (1 issued)
Italy (1 issued)
Liechtenstein (1 issued)
Spain (1 issued)
Sweden (1 issued)
Switzerland (1 issued)
United Kingdom (1 issued)
Methods and Compositions Related to Novel
hTMC Promoter and Vectors for Tumor-
Selective and High-Efficient Expression of
Therapeutic Genes
(A genetic technology to improve the
effectiveness of gene therapy, relating to our
platform genes and other genes)
The patents in this family have claims
directed to compositions of matter, uses
of the compositions and processes for
preparing the compositions
United States (1 issued)
8/24/2029
Because the use of our platform genes, including TUSC2, and the use of our non-viral delivery system to deliver them, are covered by Family No. 1,
we believe that expiration of the patents in Family 3 will not affect our intellectual property protection for use of the genes which are licensed to us and are
part of our platform.
We also hold a non-exclusive license from the National Institutes of Health to 15 patents that expired on August 1, 2017. We are aware that others
have also licensed these technologies from the NIH. These patents relate to the DOTAP:cholesterol liposomes for delivery of therapeutic DNA, which is the
basic delivery system embodied in our nanovesicles. Through our license from MD Anderson, we have separate patent protection for the combination of our
nanovesicles with the genes we have licensed from MD Anderson, as well as for improvements that MD Anderson has made to the nanovesicle delivery
system. Because the license from the NIH is non-exclusive, we do not expect the expiration of the underlying patents to have a material effect on our
business. We have an ongoing obligation to pay the NIH a total of $240,000 (together with an additional $20,000 each year starting in 2018) upon our receipt
of regulatory approval for our current or potential product candidates.
In addition to the current licensed patents, Genprex is currently evaluating additional patent licenses from MD Anderson to add to the patent portfolio
and expand our commercial potential. We expect to evaluate technology transfer opportunities to leverage the commercial potential of our platform delivery
system and also seek complementary oncology therapies.
27
We have filed a trademark application for our company name and for the drug name “Oncoprex” for added protection of future product branding.
Licenses and Research Collaborations
Agreements with MD Anderson
We hold our Oncoprex technologies under a Patent and Technology License Agreement, referred to as the MD Anderson License Agreement, with
MD Anderson and The Board of Regents of the University of Texas System. The MD Anderson License Agreement was originally entered into as of July 20,
1994 between the Board of Regents of The University of Texas System, MD Anderson and Intron Therapeutics, Inc. (which later changed its name to
Introgen Therapeutics, Inc.), or Introgen.
The MD Anderson License Agreement originally covered a number of patents and technologies unrelated to TUSC2, but the TUSC2 technologies
were added by Amendment No. 3 to the MD Anderson License Agreement dated October 4, 2001. Under the MD Anderson License Agreement, we have
rights to patents covering use of various genes, including the TUSC2 gene, for treatment of cancer, as well as know-how and related intellectual property.
The exclusive licenses under the MD Anderson License Agreement, as amended, extend to the end of the term or terms for which patent rights under
the agreement have not expired, and expire on the expiration of all patents covered by the agreement. The last licensed patent under the MD Anderson
License Agreement will expire in January 2030. Upon the expiration of the exclusive licenses, the licensee will have a non-exclusive, fully paid-up right and
license to use and otherwise exploit the technology rights licensed under the agreement. MD Anderson may terminate the agreement in the event of the
licensee’s voluntary or involuntary bankruptcy or if the licensee’s business is placed in the hands of a receiver, assignee or trustee. In addition, MD Anderson
may terminate the agreement in the event of the licensee’s uncured breach.
Pursuant to a Technology Sublicense Agreement dated March 7, 2007, referred to as the Sublicense Agreement, Introgen sublicensed its rights under
the MD Anderson License Agreement to Introgen Research Institute, Inc. or IRI, a company formed and owned by Rodney Varner, our current President,
CEO and Chairman of the board of directors.
Pursuant to an Assignment and Collaboration Agreement dated April 13, 2009, referred to as the 2009 IRI Collaboration Agreement, IRI assigned its
rights under the Sublicense Agreement to us, and we granted back to IRI a non-exclusive, royalty-free license to use and practice the licensed technology for
non-commercial research purposes. As consideration for this assignment, we agreed to assume all of IRI’s obligations to MD Anderson under the MD
Anderson License Agreement, including ongoing patent related expenses and royalty obligations.
The 2009 IRI Collaboration Agreement was amended by an Amended Collaboration and Assignment Agreement dated July 1, 2011, referred to as the
2011 IRI Collaboration Agreement. The 2011 Collaboration Agreement provided that IRI would provide additional licensing opportunities and services to us,
in return for monthly payments and our obligation to pay to IRI a royalty of one percent (1%) on sales of products licensed to us under the MD Anderson
License Agreement. In 2012, IRI’s obligation to provide those opportunities and services, and our obligation to make monthly payments to IRI, were
terminated. The 2011 IRI Collaboration Agreement had an initial term of two years and renews automatically for additional consecutive periods of one year
each unless either we or IRI gives prior written notice of termination to the other party. In addition, either we or IRI may terminate the agreement in the event
of the other party’s voluntary or involuntary bankruptcy or uncured default.
Pursuant to a Technology Sublicense Agreement dated June 1, 2011, we granted to IRI a non-exclusive sublicense, for non-commercial purposes, to
the rights under the Sublicense Agreement.
At the time that we entered into the 2011 IRI Collaboration Agreement, Mr. Varner was not an officer or director of Genprex, but he was deemed to be
an “affiliate of the Company due to his beneficial ownership of approximately 39% of our issued and outstanding shares. At the time we acquired the
Oncoprex technologies under the 2009 IRI Collaboration Agreement, they were the subject of the Phase I Monotherapy Trial. We completed the Phase I
Monotherapy Trial and did substantial process development, manufacturing and regulatory work necessary to bring the technologies into the currently
ongoing Phase I/II Combination Trial.
Under the MD Anderson License Agreement, the Sublicense Agreement and the 2009 IRI Collaboration Agreement, we are obligated to pay all fees,
patent related expenses, royalties, and other amounts that become due with respect to the licensed patents, patent application and other technologies. We are
also obligated to pay to MD Anderson royalties of 1.5% of net sales attributed to sales of the licensed products, as well as 1.5% of advance payments received
by us (excluding amounts paid to us in reimbursement of development or other costs) from third parties pursuant to sublicense, marketing, distribution or
franchise arrangements. Under the 2011 IRI Collaboration Agreement, we are obligated to pay to IRI a royalty of 1.0% of net sales of licensed products and
1.0% of
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certain other payments received by us. This royalty obligation continues for 21 years after the later of the termination of the MD Anderson License
Agreement and the termination of the Sublicense Agreement. We have no other payment obligations to IRI under the 2009 IRI Collaboration Agreement or
the 2011 IRI Collaboration Agreement. We were not required to make any up-front payments to MD Anderson or IRI when we entered into the MD Anderson
License Agreement, the Sublicense Agreement or the 2009 IRI Collaboration Agreement. Under the 2011 IRI Collaboration Agreement, we were required to
make payments of $30,000 per month to IRI. We made 14 of these monthly payments, totaling $420,000, to IRI in 2011 and 2012, and our obligation to make
such monthly payments was terminated in 2012.
Our rights under the MD Anderson License Agreement are made subject to the rights of the U.S. government to the extent that the technology covered
by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government. Additionally, to the extent
there is any conflict between the MD Anderson License Agreement and applicable laws or regulations, applicable laws and regulations will prevail. Similarly,
to the extent there is any conflict between the MD Anderson License Agreement and MD Anderson’s funding agreement with the US government, the terms
of the funding agreement will prevail. Some, and possibly all, of our licensed intellectual property rights from MD Anderson have been developed in the
course of research funded by the U.S. government. As a result, the U.S. government may have certain rights to intellectual property embodied in our current
or future products pursuant to the Bayh-Dole Act of 1980. Government rights in certain inventions developed under a government-funded program include a
nonexclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right
to require us, or an assignee or exclusive licensee to such inventions, to grant licenses to any of these inventions to a third party if the U.S. government
determines that adequate steps have not been taken to commercialize the invention, that government action is necessary to meet public health or safety needs,
that government action is necessary to meet requirements for public use under federal regulations, or that the right to use or sell such inventions is exclusively
licensed to an entity within the U.S. and substantially manufactured outside the U.S. without the U.S. government’s prior approval. Additionally, we may be
restricted from granting exclusive licenses for the right to use or sell our inventions created pursuant to such agreements unless the licensee agrees to
additional restrictions (e.g., manufacturing substantially all of the invention in the U.S.). The U.S. government also has the right to take title to these
inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits.
In addition, the U.S. government may acquire title in any country in which a patent application is not filed within specified time limits. Additionally, certain
inventions are subject to transfer restrictions during the term of these agreements and for a period thereafter, including sales of products or components,
transfers to foreign subsidiaries for the purpose of the relevant agreements, and transfers to certain foreign third parties. If any of our intellectual property
becomes subject to any of the rights or remedies available to the U.S. government or third parties pursuant to the Bayh-Dole Act of 1980, this could impair
the value of our intellectual property and could adversely affect our business. The U.S. government has not exercised any of these rights or provided us with
any notice of its intent to exercise any of these rights with respect to any of the intellectual property licensed to us by MD Anderson. We are not aware of any
instance in which the U.S. government has ever exercised any such rights with respect to any technologies or other intellectual property developed under
funding agreements with the U.S. government.
Our current Phase I/II Combination Trial is being conducted at MD Anderson pursuant to a Clinical Study Agreement between Genprex and MD
Anderson dated February 10, 2014. Under this agreement, MD Anderson agreed to conduct the Phase I/II Combination Trial under the study protocol, which
includes treatment of up to 57 patients, and Genprex agreed to pay up to $1,738,818 to MD Anderson for conducting the clinical trial. As of December 31,
2018, we have paid approximately $530,000 to MD Anderson pursuant to this agreement, and a total of 28 patients have been enrolled in the Phase I/II
Combination Trial. This Clinical Study Agreement has a term of five years and may be terminated earlier by us upon thirty days’ notice, with due regard for
the health and safety of the study subjects. In addition, we and MD Anderson may terminate the Clinical Study Agreement immediately by written agreement,
MD Anderson may terminate the agreement immediately if the principal investigator of the Phase I/II Combination Trial is unable to continue to serve and we
and MD Anderson cannot agree on an acceptable successor, and either we or MD Anderson may terminate the agreement if necessary for the safety, health or
welfare of the clinical trial subjects.
In January 2015, we entered into an option agreement with MD Anderson. This option agreement, which was renewed in July 2018, grants exclusive
rights to us to negotiate, until March 13, 2019, an exclusive license agreement related to patents covering both a method for treating cancer and biomarker
technology that would allow us to identify patients who might benefit from this treatment. We have paid MD Anderson a total of $35,000 for this option
agreement. We are negotiating with MD Anderson to extend the term of this option agreement.
In February 2017, we entered into a second option agreement with MD Anderson. This option agreement, which was renewed in July 2018, grants
exclusive rights to us to negotiate, until March 13, 2019, an exclusive license agreement related to technology that would provide patent protection for the use
of TUSC2 with checkpoint inhibitors. We have paid MD Anderson a total of $37,803 for this option agreement. We are negotiating with MD Anderson to
extend the term of this option.
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License Agreement with P53, Inc.
On February 26, 2010, IRI and P53, Inc. entered into a Technology License Agreement, referred to as the P53 License Agreement, pursuant to which
IRI granted to P53, Inc., or P53, a worldwide, exclusive license under certain patents related to the nanovesicle delivery system that we are now using for the
delivery of TUSC2, but only for P53’s use in gene therapy products in which the sole active genes are p53 and MDA-7. As a result of the 2009 IRI
Collaboration Agreement, we are the licensor under the P53 License Agreement.
The P53 License Agreement authorizes P53 to develop, make and have made, use, offer for sale, sell, import and otherwise distribute the licensed
products. P53 agreed to submit quarterly reports of activities to IRI including at least such information as would allow IRI to calculate the amount owing to
IRI on account of such activities, as well as P53’s calculation of such amounts. As consideration for the P53 License Agreement, P53 agreed to pay IRI one-
half of all amounts invoiced by MD Anderson to IRI, up to a maximum of $15,000 to be paid by P53, for patent prosecution expenses incurred prior to the
effective date of the P53 License Agreement, as well as two-thirds (2/3) of IRI’s ongoing patent prosecution expenses, in each case with respect to the
licensed patents. Additionally, P53 agreed to pay all amounts that become due to IRI as a result of the P53 License Agreement or the sales, licensing, or other
activities of P53 under the P53 License Agreement. Pursuant to the P53 License Agreement, P53 has granted to IRI a fully-paid license with respect to
improvements made by P53 to the technology licensed to P53 under the P53 License Agreement. The P53 License Agreement remains in effect until the
expiration of the last of the patents licensed under the agreement. The last licensed patent under the P53 License Agreement will expire in May 2020. We may
terminate the agreement in the event of P53’s voluntary or involuntary bankruptcy or dissolution, assignment for the benefit of creditors or if a receiver or
trustee is appointed over P53’s business or properties. In addition, we may terminate the agreement in the event of P53’s breach of the agreement or if P53
challenges the validity or enforceability of any of the licensed patents. P53 may terminate the agreement upon 90 days’ written notice.
Grants
We have received grants from the following entities: Texas Emerging Technology Fund, SBA—Small Business Innovation Research, or SBIR,
program, the National Institutes of Health and the United States Department of the Treasury.
Competition
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have
competitors in the United States, Europe and elsewhere, including major multinational pharmaceutical companies, established biotechnology companies,
specialty pharmaceutical and generic drug companies and universities and other research institutions. Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large and established companies.
The unmet medical need for more effective cancer therapies is such that anticancer drugs are, by a significant margin, the leading class of drugs in
development. These include a wide array of products against cancer targeting many of the same indications as our drug candidates. There are a number of
drugs approved and under development for treatment of lung cancer. Treatments competitive with our primary product candidates generally fall into the
following categories: chemotherapies such as cisplatin, carboplatin, docetaxel and pemetrexed; targeted therapies such as erlotinib, gefitinib, afatinib and
osimertinib, and immunotherapies such as checkpoint inhibitors and CAR and CAR T cells, and oncolytic virus-based technology. Data indicate that
Oncoprex, when combined with targeted therapies and immunotherapies, may enhance the benefit of those therapies; therefore, we believe that Oncoprex
could be administered in combination with targeted therapies and immunotherapies and thus may not be a direct competitor of those drugs. In addition, new
drug candidates are constantly being conceived and developed. Any such competing therapy may be more effective and/or cost-effective than ours.
Many of our competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing
and manufacturing organizations than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining
regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and
marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical
companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the
product candidates that we develop obsolete. As a result of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or
discovering, developing and commercializing drugs for the cancer indications that we are targeting before we do or may develop drugs that are deemed to be
more effective or gain greater market acceptance than ours. Smaller or early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become
active in our target disease areas. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products
that are more effective or less costly than any
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product candidates that we are currently developing or that we may develop, which could render our products obsolete or noncompetitive. Any product
candidates that we successfully develop and commercialize may compete with existing and new therapies that may become available in the future. The
availability of reimbursement from government and other third-party payers will also significantly affect the pricing and competitiveness of our products.
Our commercial opportunities could be substantially limited in the event that our competitors develop and commercialize products that are more
effective, safer, less toxic, more convenient or less expensive than our comparable products. In geographies that are critical to our commercial success,
competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our product’s entry.
We believe the competitive factors that will determine the success of our programs will be the efficacy, safety, pricing and reimbursement, and convenience of
our current and potential product candidates.
Government Regulation
Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research,
development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, post-approval
monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product candidates that we
develop must be approved by the FDA before they may be legally marketed.
In the United States, the Food and Drug Administration, or FDA, regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act
and implementing regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining
regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of
substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, the
approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending
applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or
distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us.
Within the FDA, the Center for Biologics Evaluation and Research, or CBER, regulates gene therapy products. CBER works closely with the National
Institutes of Health, or NIH, and its Recombinant DNA Advisory Committee, or RAC, which makes recommendations to the NIH on gene therapy issues and
engages in a public discussion of scientific, safety, ethical and societal issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH
have published guidance documents with respect to the development and submission of gene therapy protocols, including informed consent documents. The
FDA also has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment, observing patients
involved in gene therapy studies for delayed adverse events, potency testing, and chemistry, manufacturing and control information in gene therapy
Investigational New Drugs, or INDs.
Ethical, social, and legal concerns about gene therapy, genetic testing, and genetic research could result in additional regulations restricting or
prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further
regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any
products. New government requirements may be established that could delay or prevent regulatory approval of our current and potential product candidates
under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies, or guidance changed, or interpretations by
agencies or courts changed, or what the impact of such changes, if any, may be.
U.S. Biological Products Development Process
The process required by the FDA before a biological product, including our Oncoprex product candidate, may be marketed in the United States
generally involves the following:
•
•
•
completion of preclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable requirements for
the humane use of laboratory animals or other applicable regulations;
submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials according to the FDA’s regulations, commonly referred to as good clinical
practices, or GCPs, and any additional requirements for the protection of human research patients and their health information, to establish the
safety, purity, and potency of the proposed biological product for its intended use;
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•
•
•
•
submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of
nonclinical testing and clinical trials;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the product is produced and tested to assess
compliance with current Good Manufacturing Practice, or cGMP, requirements to assure that the facilities, methods and controls are adequate
to preserve the product’s identity, strength, quality and purity;
potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA; and
FDA review and approval, or licensure, of the BLA.
Before testing any product candidate, including a gene therapy product, in humans, the product candidate enters the preclinical testing stage.
Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies
to assess the potential safety and activity of the product candidate. The conduct of certain preclinical tests must comply with federal regulations and
requirements, including GLPs.
Where a gene therapy study is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research, a protocol and related
documentation has to be submitted to and the clinical trial registered with the NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH
Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines. Compliance with the NIH Guidelines is mandatory for investigators at
institutions receiving NIH funds for research involving recombinant DNA; however, many companies and other institutions not otherwise subject to the NIH
Guidelines voluntarily follow them. The NIH is responsible for convening the RAC, a federal advisory committee, which discusses protocols that raise novel
or particularly important scientific, safety or ethical considerations at one of its quarterly public meetings. Current NIH guidelines specify that RAC review of
human gene transfer protocols should be limited to cases in which an oversight body, such as an Institutional Biosafety Committee or an Institutional Review
Board, or IRB, determines that a protocol would significantly benefit from RAC review, and has been determined to meet certain additional criteria. The OBA
will notify the FDA and the sponsor of the RAC’s decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and
reports are posted to the OBA web site and may be accessed by the public.
The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available
clinical data or literature and a proposed clinical protocol, to the FDA as part of the Investigational New Drug application, or IND. Some preclinical testing
may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical
trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical
trial can begin. With gene therapy protocols, if the FDA allows the IND to proceed, but the RAC decides that full public review of the protocol is warranted,
the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion of the RAC review process. The
FDA may also impose clinical holds on a product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA
imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. We are conducting a Phase
I/II clinical trial pursuant to an IND. However, we cannot be sure that issues will not arise that suspend or terminate our IND or that submission of any new
IND will result in the FDA allowing new clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trials.
Clinical trials involve the administration of the product candidate to volunteers or patients under the supervision of qualified investigators, generally
physicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the
objectives of the clinical trial, dosing procedures, patient selection and exclusion criteria, and the parameters to be used to monitor patient safety, including
stopping rules that assure a clinical trial will be stopped if certain adverse events occur. Each protocol and any amendments to the protocol must be submitted
to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements,
including the requirement that all patients provide informed consent. Further, each clinical trial must be reviewed and approved by an independent
Institutional Review Board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare
and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are
reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent, which must be signed by each clinical trial
patient or his or her legal representative, and must monitor the clinical trial until completed. Clinical trials involving biological product candidates also must
be reviewed by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted at
that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment.
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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
•
•
•
Phase I. The investigational product candidate is initially introduced into human patients and tested for safety. In the case of some products for
severe or life-threatening diseases, especially when the product candidate may be inherently too toxic to be ethically administered to healthy
volunteers, the initial human testing is often conducted in patients; gene therapy is usually administered to patients in Phase I trials. This is also
true in situations where toxicity can only be judged in patients with disease. An evaluation for preliminary evidence of efficacy can be
performed at this time.
Phase II. The investigational product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks,
to evaluate preliminarily the efficacy of the product candidate for specific targeted diseases, and to generate hypotheses for the dosage
tolerance, optimal dosage, and dosing schedule.
Phase III. Clinical trials are undertaken to evaluate further dosage, clinical efficacy, potency, and safety in an expanded patient population at
geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product candidate
and provide an adequate basis for product labeling.
Post-approval clinical trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These clinical trials
are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. The
FDA recommends that sponsors observe patients for potential gene therapy-related delayed adverse events with agents such as those we are developing for a
period of up to 15 years, including a minimum of five years of annual examinations followed by ten years of annual queries, either in person or by
questionnaire, of clinical trial patients.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and
clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be
promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other trials, tests in laboratory
animals or in vitro testing that suggest a significant risk for human patients, or any clinically important increase in the rate of a serious suspected adverse
reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor
determines that the information qualifies for expedited reporting. The sponsor must also notify the FDA of any unexpected fatal or life-threatening suspected
adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase I, Phase II and Phase III clinical trials may not be
completed successfully within any specified period, if at all. The FDA, the sponsor, or its data safety monitoring board may suspend a clinical trial at any time
on various grounds, including a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate
approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the investigational
product candidate has been associated with unexpected serious harm to patients.
There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of
clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly
available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other
aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after
completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. The NIH and the
FDA have a publicly accessible database, the Genetic Modification Clinical Research Information System, which includes information on gene therapy trials
and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these trials.
Concurrently with clinical trials, companies usually complete additional animal studies and also develop additional information about the physical
characteristics of the components of a product as well as finalize processes for manufacturing the components in commercial quantities in accordance with
cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the Public Health Service Act, or PHS
Act, emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be
capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity,
strength, quality, potency and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the components of a product candidate do not undergo unacceptable deterioration over their shelf life.
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U.S. Review and Approval Processes
After the completion of clinical trials of an investigational biologic product, FDA approval of a BLA must be obtained before commercial marketing
of the product may begin. The BLA must include results of product development, laboratory, and animal studies, human trials, information on the
manufacture and composition of the product, proposed labeling and other relevant information. The testing and approval processes require substantial time
and effort and there can be no assurance that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if
at all.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the
PDUFA user fees on an annual basis. PDUFA also imposes annual product fees and annual establishment fees on facilities used to manufacture prescription
drugs or biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a
small business. No user fees are assessed on BLAs for products designated as orphan drugs, unless the application also includes a non-orphan indication.
Within 60 days following submission, the FDA reviews the BLA to determine if it is substantially complete before the agency accepts it for filing. The
FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information.
In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to an initial filing review
before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews
the BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity
profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality,
potency and purity. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory
committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be
approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations when
making decisions. During the product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is
necessary to assure the safe use of the product. If the FDA concludes that a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the
FDA will not approve the BLA without a REMS, if required.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it
determines that the manufacturing processes and facilities are in substantial compliance with cGMP requirements and adequate to assure consistent
production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites, to
assure that the clinical trials were conducted in compliance with GCP requirements. To assure cGMP, GLP and GCP compliance, an applicant must incur
significant expenditure of time, money, and effort in the areas of training, record keeping, production, and quality control.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria
for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently from how we
interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes
all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major,
for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to
place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the
deficiencies identified in the letter, or withdraw the application.
If a product candidate receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for
use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications,
warnings, or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or
dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical
trials, sometimes referred to as Phase IV clinical trials, designed to assess further a biological product’s safety and effectiveness, and testing and surveillance
programs to monitor the safety of approved products that have been commercialized.
One of the performance goals agreed to by the FDA under the PDUFA is to review 90% of original standard BLAs within 10 months of the 60 day
filing date and 90% of original priority BLAs within six months of the 60 day filing date, whereupon a review decision is to be made. The FDA does not
always meet its PDUFA goal dates for standard and priority BLAs and its review goals are subject to change from time to time. The review process and the
PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification
regarding information already provided in the submission within the last three months before the PDUFA goal date.
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Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which
is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for
which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of
disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA
grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product
designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. There can be no assurance that we will
receive Orphan-Drug Designation for any indications or for any of our current and potential product candidates.
If a product candidate that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such
designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug
or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with
orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain
approval for the same product but for a different indication for which the orphan product has exclusivity.
Expedited Development and Review Programs
The FDA has four programs in place intended to facilitate and expedite development and review of new drugs and biologics intended to address unmet
medical needs in the treatment of serious or life-threatening conditions. These are Fast Track Designation, Breakthrough Therapy Designation, Accelerated
Approval Program, and Priority Review Designation.
The Fast Track program is intended to expedite or facilitate the process for reviewing a new product if it is intended for the treatment of a serious or
life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. Fast Track Designation
applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA
to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA
may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a
schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is
acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.
A new product can receive Breakthrough Therapy Designation if it is intended, alone or in combination with one or more other drugs, to treat a serious
or life-threatening disease or condition and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies on
one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A Breakthrough Therapy
Designation conveys all of the features of Fast Track Designation in addition to more intensive FDA guidance on an efficient development program,
organizational commitment involving senior managers, and eligibility for priority review. Specifically, FDA intends to expedite the development and review
of a Breakthrough Therapy by, where appropriate, intensively involving senior managers and experienced review staff in a proactive collaborative, cross-
disciplinary review. Where appropriate, FDA also intends to assign a cross-disciplinary project lead for the review team to facilitate an efficient review of the
development program. The FDA notes that a compressed drug development program still must generate adequate data to demonstrate that the drug or biologic
meets the statutory standard for approval. Omitting components of the development program that are necessary for such a determination can significantly
delay, or even preclude, marketing approval.
Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or
more clinically significant endpoints over available therapy. Breakthrough Therapy Designation intensifies FDA involvement to ensure an efficient drug
development program and is an organizational commitment from the FDA to involve its senior managers. A sponsor receiving Breakthrough Therapy
Designation has up to six months after receiving the Breakthrough Therapy Designation to request an Initial Comprehensive Multidisciplinary meeting to
discuss the drug development program. This initial meeting is a Type B meeting, used to discuss the overarching, high-level plan for drug development. These
discussions include topics such as planned clinical trials and endpoints, any resizing or adaptations to the trials, plans for expediting the manufacturing
development strategy and studies that potentially could be completed after approval. When Breakthrough Therapy Designation has been granted, the FDA is
encouraged to meet regularly with the sponsor and subsequent meetings are considered Type B meetings and are established based on the needs of the
program.
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The FDA may grant accelerated approval under its Accelerated Approval Program to a product candidate for a serious or life-threatening condition
upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a
clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible
morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative
treatments. Accelerated approval is usually contingent on a sponsor’s agreement to conduct adequate and well-controlled additional post-approval trials to
verify and describe the product’s clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional
materials, which could adversely impact the timing of the commercial launch of the product.
Fast Track Designation, Breakthrough Therapy Designation, and Accelerated Approval do not change the standards for approval but may expedite the
development process.
An application for a product candidate may be eligible to obtain Priority Review Designation if it is intended to treat a serious condition and, if
approved, would provide a significant improvement in safety or effectiveness. The FDA will attempt to direct additional resources to the evaluation of an
application for a new product designated for priority review in an effort to facilitate the review. A Priority Review Designation means FDA’s goal is to take
action on the marketing application within six months (compared to 10 months under standard review) of the 60-day filing date. Priority Review Designation
does not change the standards for approval but may expedite the review process.
We believe that Oncoprex represents a breakthrough, in that the TUSC2 gene is delivered with a non-viral lipid-based nanoparticle, rather than a viral
vector. In addition, Oncoprex may have broad applicability to many cancers, and we believe that Oncoprex represents a significant improvement in safety for
systemic use over previously approved products. For these reasons, we believe that our ongoing Phase II clinical trial may provide sufficient data to support
Accelerated Approval as a Breakthrough Therapy for Oncoprex immunogene therapy combined with erlotinib for the treatment of Stage IV non-small cell
lung cancer patients with unmet medical needs whose cancer has progressed on approved therapies. We intend to enroll specifically patients with an EGFR
mutation but without a T790M mutation. Patients in this group have benefited from Oncoprex + erlotinib therapy in our ongoing Phase II clinical trial, and
they have no approved treatments and thus have an unmet medical need which we believe could qualify for Fast Track or Breakthrough Therapy designation.
The current Phase II trial results represent a substantial improvement over the results of the Lux-Lung afatinib trial, which we believe may qualify Oncoprex
in combination with erlotinib for Fast Track or Breakthrough Therapy designation. We believe that the unmet medical need may qualify for Priority Review
based on a surrogate endpoint such as
clinical benefit, response rate, or progression free survival (PFS), with eligibility for Accelerated Approval.
Post-Approval Requirements
Maintaining post-approval compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and
financial resources. Rigorous and extensive FDA regulation of combination products continues after approval, particularly with respect to cGMP. We rely, and
expect to continue to rely, on third parties for the production and distribution of clinical and commercial quantities of any products that we may
commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and
quality assurance and maintenance of records and documentation. Other post-approval requirements include reporting of cGMP deviations that may affect the
identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and
efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official
lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for
distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a
release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA
also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer.
We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition
on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-
sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to
comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as
well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process,
approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity.
FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or untitled letters, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising
or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action
could have a material adverse effect on us.
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Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register the establishments where
the approved products are made with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state
agencies for compliance with cGMPs and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production
and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer,
or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally
require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional
labeling claims, are also subject to further FDA review and approval.
U.S. Patent Term Restoration
Depending upon the timing, duration, and specifics of the FDA approval of the use of our current and potential product candidates, some of our U.S.
patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to
as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term
lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an
IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable
to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The
U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
Biosimilars and Exclusivity
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products shown to be
highly similar to, or interchangeable with, an FDA-licensed reference biological product. The FDA has issued several guidance documents outlining an
approach to review and approval of biosimilars.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of
safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product
is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in
any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched
after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
However, complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products
are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.
The BPCIA includes, among other provisions:
•
•
•
A 12-year exclusivity period from the date of first licensure of the reference product, during which approval of a 351(k) application referencing
that product may not be made effective;
A four-year exclusivity period from the date of first licensure of the reference product, during which a 351(k) application referencing that
product may not be submitted; and
An exclusivity period for certain biological products that have been approved through the 351(k) pathway as interchangeable biosimilars.
The BPCIA also establishes procedures for identifying and resolving patent disputes involving applications submitted under section 351(k) of the PHS
Act.
A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing
exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based
on the voluntary completion of a pediatric clinical trial in accordance with an FDA-issued “Written Request” for such a clinical trial.
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The BPCIA is complex and its interpretation and implementation by the FDA remains unpredictable. In addition, government proposals have sought to
reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also
been the subject of recent litigation. As a result, the ultimate effect, implementation, and meaning of the BPCIA is subject to uncertainty.
Additional U.S. Regulation
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including
but not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, for
instance the Office of Inspector General, the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local
governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social
Security Act, the false claims laws, the physician payment transparency laws, the privacy and security provisions of the Health Insurance Portability and
Accountability Act, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and similar state laws,
each as amended.
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety
and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, may affect our business. These and other laws govern
our use, handling and disposal of various biological, chemical, and radioactive substances used in, and wastes generated by, our operations. If our operations
result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe
that we are in material compliance with applicable environmental laws and that continued compliance therewith is unlikely to have a material adverse effect
on our business. We cannot predict, however, how changes in these laws may affect our future operations.
Federal and State Fraud and Abuse Laws
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including
but not limited to, CMS, other divisions of the U.S. Department of Health and Human Services, for instance, the Office of Inspector General, DOJ, and
individual U.S. Attorney offices within the DOJ, and state and local governments. These federal and state laws, which generally will not be applicable to us or
our current and potential product candidates unless and until we obtain FDA marketing approval for any of our current and potential product candidates,
include, among others, anti-kickback statutes, the False Claims Act and related stated state and federal laws, the Stark Law and related state and federal laws,
transparency laws, privacy and regulation regarding providing drug samples, sales and marketing activities and our relationships with customers and payors
as follows.
The federal Anti-Kickback Statute prohibits, among other things, individuals and entities from knowingly and willfully offering, paying, soliciting, or
receiving any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, recommending, ordering, or arranging for
the purchase, lease, recommendation or order of any health care item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other
federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and
prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting
certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration that may be alleged
to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act to a stricter standard such that a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the Affordable Care Act
codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim
for purposes of the federal civil False Claims Act.
HIPAA created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a
scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control
or custody of, any healthcare benefit program, including private third-party payers, willfully obstructing a criminal investigation of a healthcare offense, and
knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
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Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity
from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, or
knowingly making, using, or causing to be made or used, a false statement to get a false claim paid. Several pharmaceutical and other health care companies
have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs
for the product. Other companies have been prosecuted for causing false claims to be submitted because of the company’s marketing of the product for
unapproved, and thus non-reimbursable, uses.
The majority of states also have statutes or regulations similar to the federal Anti-Kickback Statute and false claims laws, which apply to items and
services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.
We may also be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business.
HIPAA, as amended by HITECH, and their respective implementing regulations, including the final Omnibus Rule published in 2013, imposes requirements
on certain types of entities, including mandatory contractual terms, relating to the privacy, security, and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA’s security standards and certain privacy standards directly applicable to business associates, which
are independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a
service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal
penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern
the privacy and security of health information in specified circumstances, many of which differ from each other and from HIPAA in significant ways and may
not have the same requirements, thus complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act under the Affordable Care Act, and its implementing regulations, require that certain
manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program, with certain exceptions, annually report to CMS information related to certain payments or other transfers of value made or distributed to physicians
and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually
certain ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately, and completely the
required information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for
“knowing failures”. Certain states also mandate implementation of compliance programs, impose restrictions on pharmaceutical manufacturer marketing
practices, and/or require the tracking and reporting of gifts, compensation, and other remuneration to healthcare providers and entities.
Because of the breadth of these laws and the narrowness of the exceptions and safe harbors, it is possible that some of our business activities could be
subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, and results of
operations. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to,
without limitation, significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines,
disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual
damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect
our ability to operate our business and our results of operations.
In addition, as part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved products to physicians. This
practice is regulated by the FDA and other governmental authorities, including, in particular, requirements concerning record keeping and control procedures.
Any failure to comply with the regulations may result in significant criminal and civil penalties as well as damage to our credibility in the marketplace.
Coverage and Reimbursement
In many of the markets where we may do business in the future, the prices of pharmaceutical products are subject to direct price controls (by law) and
to reimbursement programs with varying price control mechanisms. In the United States, significant uncertainty exists as to the coverage and reimbursement
status of any product candidates for which we obtain product approval. Often private payers follow the coverage and reimbursement decisions of the
Medicare program, and it is difficult to predict how CMS may decide to cover and reimburse approved products, especially novel products, and those
determinations are subject to change.
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Moreover, the process for determining whether a third-party payer will provide coverage for a drug product may be separate from the process for
setting the price of a drug product or for establishing the reimbursement rate that such a payer will pay for the drug product. Third-party payers may limit
coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular
indication. A decision by a third-party payer not to cover our current and potential product candidates could reduce physician utilization of our products once
approved. A payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one
payer’s determination to provide coverage for a drug product does not assure that other payers will also provide coverage for the drug product. Coverage and
reimbursement for new products can differ significantly from payer to payer. As a result, the coverage determination process will require us to provide
scientific and clinical support for the use of our products to each payer separately and will be a time-consuming process. Additionally, third-party
reimbursement may not be available or may not be adequate to enable us to maintain price levels sufficient to realize an appropriate return on our investment
in product development.
The marketability of any product candidates for which we or our collaborators receive regulatory approval for commercial sale may suffer if the
government and third-party payers fail to provide adequate coverage and reimbursement. In addition, an emphasis on cost containment measures in the United
States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Third-party payers are increasingly challenging the prices
charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of drugs, medical devices and medical
services, in addition to questioning safety and efficacy. If these third-party payers do not consider our products to be cost-effective compared to other
available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our
products at a profit. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is
attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates
may be implemented in the future.
Health Care Reform
In March 2010, the Affordable Care Act was enacted, which affected, and may further affect, health care financing and delivery by both governmental
and private insurers, and therefore the pharmaceutical and biotechnology industry. The Affordable Care Act has affected and may continue to affect existing
government healthcare programs and may result in the development of new programs.
Among the Affordable Care Act’s provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise
described above, are the following:
•
•
•
•
•
•
•
•
an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents
apportioned among these entities according to their market share in some government healthcare programs;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the
average manufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of
the Average Manufacturer Price, or AMP;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and
biologics, including our current and potential product candidates, that are inhaled, infused, instilled, implanted or injected;
extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care
organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional
individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level,
thereby potentially increasing manufacturers’ Medicaid rebate liability;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated
prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient
drugs to be covered under Medicare Part D;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research;
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•
•
establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and
Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and
a licensure framework for follow on biologic products.
There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. As a result, there have been delays in the
implementation of, and action taken to repeal or replace, certain aspects of the Affordable Care Act. In January 2017, President Trump signed an Executive
Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from or delay the
implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers,
health insurers or manufacturers of pharmaceuticals or medical devices. In December 2018 a judge for the United States District Court for the Northern
District of Texas ruled that the entire Affordable Care Act is unconstitutional. The ruling, which is on hold pending appeal, was followed by a brief from the
Department of Justice stating that the district court’s ruling should be affirmed. While the Affordable Care Act remains in effect at the time of this filing, its
future is uncertain. With respect to repeal or revision of the Affordable Care and its replacement with new or revised legislation, it is unclear when such
legislation will be enacted, what it will provide and what impact it will have on the availability of healthcare and containing or lowering costs of healthcare.
The Trump Administration’s proposed fiscal year, or FY, 2020 budget includes extensive health policy provisions, the impact of which is
unpredictable. Among other changes, the proposed FY 2020 budget would authorize an administrative penalty for providers for ordering high-risk, high-cost
items or services without proper documentation, authorize civil monetary penalties for failure to report changes to information provided during Medicaid
enrollment or revalidation, and extend the Affordable Care Act Cost-Sharing Reduction payments through calendar year 2020. It is unclear how these and
other provisions of the FY 2020 budget resolution may affect our business in the future.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August
2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the fiscal year 2012 through 2021, was unable to reach required
goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to
providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to the Bipartisan Budget Act of 2015, will remain in effect through 2025
unless additional Congressional action is taken. Further, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which,
among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years.
We anticipate that the Affordable Care Act and other legislative reforms will result in additional downward pressure on the price that we receive for
any approved product, if covered, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs
may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent
us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible that there will be further legislation or
regulation that could harm our business, financial condition, and results of operations.
Environmental Regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety
and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, may affect our business. These and other laws govern
our use, handling and disposal of various biological, chemical, and radioactive substances used in, and wastes generated by, our operations. If our operations
result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe
that we are in material compliance with applicable environmental laws and that continued compliance therewith is unlikely to have a material adverse effect
on our business. We cannot predict, however, how changes in these laws may affect our future operations.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or
retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any
foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to influence
otherwise a person working in an official capacity.
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Government Regulation Outside of the United States
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things,
clinical trials and any commercial sales and distribution of our products. Because biologically-sourced raw materials are subject to unique contamination
risks, their use may be subjected to different types of restrictions in different countries.
Whether or not we obtain FDA approval for a product, we must obtain the required approvals from regulatory authorities in foreign countries prior to
the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that
requires the submission of a clinical trial application equivalent to an IND prior to the commencement of human clinical trials. In the European Union, for
example, a clinical trial authorization, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much like
the FDA and the IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trials may start.
The requirements and process governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to country. In
all cases, the clinical trials are to be conducted in accordance with GCP, applicable regulatory requirements, and the ethical principles that have their origin in
the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension, or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution in those countries.
Employees
As of March 25, 2019, we had seven full-time employees, and accordingly, a high percentage of the work performed for our development projects is
outsourced to qualified independent contractors.
Corporate Information
We were incorporated in Delaware in April 2009. Our principal executive offices are located at 1601 Trinity Street, Bldg B, Suite 3.322, Austin, TX
78712, and our telephone number is (877) 774-4679. Our corporate website address is www.genprex.com.
Information contained on, or that can be accessed through, our website or social medial sites does not constitute part of this Annual Report on Form
10-K or any other report or document we file with the SEC, and any references to our website and social media sites are intended to be inactive textual
references only.
This Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or
furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available (free of charge) on our
website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.
We have proprietary rights to a number of trademarks, including Oncoprex™, that are used in this Annual Report on Form 10-K. Solely for
convenience, the trademarks and trade names in this Annual Report on From 10-K are generally referred to without the ® and ™ symbols, but such
references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
All other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners.
We qualify as an “emerging growth company” as the term is used in The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and therefore,
we may take advantage of certain exemptions from various public company reporting requirements, including:
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a requirement to only have two years of audited financial statements and only two years of related selected financial data and management’s
discussion and analysis;
exemption from the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute
payments.
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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would
cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our capital
stock held by nonaffiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not
all, of the available benefits of the JOBS Act. We have taken advantage of some of the reduced reporting requirements in this Annual Report on Form 10-K.
Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In
addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we
will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider each of the following risks, together with all other
information set forth in this Annual Report on Form 10-K, including the financial statements and the related notes and “Management’s Discussion and
Analysis of Financial Conditions and Results of Operations”, before making a decision to purchase, hold or sell our common stock. The occurrence of any of
the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially
from those contained in forward-looking statements we have made in this report and those we may make from time to time. If any of the following risks
actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In
these circumstances, the market price of our common stock would likely decline and you may lose all or part of your investments. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Related to Our Financial Position and Need for Additional Capital
We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to
delay, limit, reduce or cease our operations.
We are using the proceeds from our initial public offering and private placement of our securities to advance Oncoprex through clinical development,
as well as for other purposes. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We will require
substantial additional future capital in order to complete clinical development and commercialize Oncoprex. If the FDA requires that we perform additional
preclinical studies or clinical trials, our expenses will further increase beyond what we currently expect and the anticipated timing of any potential approval of
Oncoprex would likely be delayed. Further, there can be no assurance that the costs we will need to incur to obtain regulatory approval of Oncoprex will not
increase.
We will continue to require substantial additional capital to continue our clinical development and commercialization activities. Because successful
development of our current and potential product candidates is uncertain, we are unable to estimate the actual amount of funding we will require to complete
research and development and commercialize our products under development.
The amount and timing of our future funding requirements will depend on many factors, including but not limited to:
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the progress, costs, results and timing of our clinical trials for Oncoprex;
the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;
the ability of third parties to deliver materials and provide services for us;
the costs associated with securing and establishing commercialization and manufacturing capabilities;
market acceptance of our current and potential product candidates;
the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;
our ability to maintain, expand and enforce the scope of our intellectual property portfolio, including the amount and timing of any payments
we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any
patents or other intellectual property rights;
our need and ability to hire additional management and scientific and medical personnel;
the effect of competing drug candidates and new product approvals;
our need to implement additional internal systems and infrastructure, including financial and reporting systems; and
the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration,
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licensing or other arrangements into which we may enter in the future.
Some of these factors are outside of our control. We expect that our existing cash, and marketable securities will be sufficient to fund our current
operations through at least the next 15 months. This period could be shortened if there are any significant increases in planned spending on development
programs or more rapid progress of development programs than anticipated. We believe that our existing capital may not be sufficient to enable us to
complete the development and commercialization of Oncoprex. Accordingly, we expect that we may need to raise additional funds in the future.
We may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding,
commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional funding may
not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders.
Any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our existing capital stock. In addition, the
issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline. Any debt financing secured by us
in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue business opportunities.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs,
our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and we could be forced to halt
operations. Accordingly, our business may fail, in which case you would lose the entire amount of your investment in our common stock.
In the past, our independent registered public accounting firm has included in its audit opinion a statement relating to our ability to continue as a going
concern, and in future years our financial condition and results of operations could result in a similar qualification. The reaction of investors to the inclusion
of a going concern statement by our auditors, and our potential inability to continue as a going concern, in future years could materially adversely affect our
share price and our ability to raise new capital or enter into strategic alliances.
We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some
of our technologies or product candidates or otherwise agree to terms unfavorable to us.
We have never been profitable, we have no products approved for commercial sale, and to date we have not generated any revenue from product sales. As
a result, our ability to reduce our losses and reach profitability is unproven, and we may never achieve or sustain profitability.
We have never been profitable and do not expect to be profitable in the foreseeable future. We have not yet submitted any drug candidates for approval
by regulatory authorities in the United States or elsewhere. From our inception on April 1, 2009, to December 31, 2018, we incurred an accumulated deficit of
approximately $29.8 million. We incurred net losses of approximately $12.4 million and approximately $3.3 million for the years ended December 31, 2018
and 2017, respectively.
To date, we have devoted most of our financial resources to our corporate overhead and research and development, including our preclinical
development activities and clinical trials. We have not generated any revenues from product sales. We expect to continue to incur losses for the foreseeable
future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for our current and potential product
candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our continuing product
development efforts. We anticipate that any such losses could be significant for the next several years. If Oncoprex or any of our other potential product
candidates fails in clinical trials or does not gain regulatory approval, or if our drug candidates do not achieve market acceptance, we may never become
profitable. As a result of the foregoing, we expect to continue to experience net losses and negative cash flows for the foreseeable future. These net losses and
negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing
or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the
FDA to perform studies or trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any
of our drug candidates. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.
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We have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on an annual basis, which may make it
difficult to predict our future performance.
We are a clinical stage company with a limited operating history. Our operations to date have been limited to conducting clinical and preclinical
research. We have not yet obtained any regulatory approvals for any of our drug candidates. Consequently, any predictions made about our future success or
viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. Our operating results are expected
to significantly fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Factors relating to our
business that may contribute to these fluctuations include:
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any delays in regulatory review and approval of our current and potential product candidates in clinical development, including our ability to
receive approval from the FDA for Oncoprex;
delays in the commencement, enrollment and timing of clinical trials;
the success of our clinical trials through all phases of clinical development;
potential side effects of our current and potential product candidates that could delay or prevent approval or cause an approved drug to be taken
off the market;
our ability to obtain additional funding to develop product candidates;
our ability to identify and develop additional drug candidates beyond Oncoprex;
competition from existing products or new products that continue to emerge;
the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
our ability to adhere to clinical trial requirements directly or with third parties such as contract research organizations, or CROs;
our dependency on third-party manufacturers to manufacture our products and key ingredients;
our ability to establish or maintain collaborations, licensing or other arrangements, particularly with MD Anderson;
our ability to defend against any challenges to our intellectual property including, claims of patent infringement;
our ability to enforce our intellectual property rights against potential competitors;
our ability to secure additional intellectual property protection for our drug candidates in development and associated technologies;
our ability to attract and retain key personnel to manage our business effectively; and
potential product liability claims.
Accordingly, the results of any historical quarterly or annual periods should not be relied upon as indications of future operating performance.
Risks Related to Development and Commercialization of Our Current and Potential Product Candidates
Our success depends greatly on the success of our development of Oncoprex for the treatment of non-small cell lung cancer, and our pipeline of product
candidates beyond this lead indication is extremely early stage and limited. Oncoprex and our product candidates are based on novel technology, which
makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval.
At this time we are actively pursuing development of only one product candidate, Oncoprex for non-small cell lung cancer. Therefore, we are
dependent on the success of Oncoprex in the near term. We cannot provide you any assurance that we will be able to successfully advance Oncoprex through
the development process, or that any development problems we experience in the future will not cause significant delays or unanticipated costs, or that such
development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or
transferring that process to commercial partners, or developing or validating product release assays in a timely manner, which may prevent us from
completing our clinical trials or commercializing our products on a timely or profitable basis, if at all. Immunotherapy, gene therapy and biopharmaceutical
product development are highly speculative undertakings and involve a substantial degree of uncertainty. Because Oncoprex and our other potential product
candidates are based upon novel technology, it is difficult to predict whether, either as stand-alone therapies or in combination with other drugs, they will
show consistently favorable results and to predict the time and cost of their development
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and of subsequently obtaining regulatory approval. Few gene therapy products have been approved in the United States or Europe. We may find it difficult to
enroll patients in our clinical studies, which could delay or prevent clinical studies of our current and potential product candidates. We may encounter delays
in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of FDA and other regulatory authorities. We may not be successful
in our efforts to identify or discover additional product candidates, or to develop product candidates that we have identified.
In addition, the clinical trial requirements of FDA, the European Commission, the European Medicines Agency, or the EMA, the competent authorities
of the European Union, or EU, Member States and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a
product candidate vary substantially according to the type, complexity, novelty and intended use and market of such product candidates. The regulatory
approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or more extensively studied
product candidates. Even if we are successful in developing additional product candidates, it is difficult to determine how long it will take or how much it will
cost to obtain regulatory approvals for these product candidates in either the United States or the EU, or how long it will take to commercialize any other
products for which we receive marketing approval. In addition, any future marketing authorization granted by the European Commission may not be
indicative of what FDA may require for approval and vice versa.
Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our current and
potential product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our current and potential product
candidates.
Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical
community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our current and potential product
candidates target prescribing treatments that involve the use of our current and potential product candidates in lieu of, or in addition to, existing treatments
with which they are already familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion
would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our current and
potential product candidates or demand for any products we may develop. Adverse events in our clinical trials, even if not ultimately attributable to our
current and potential product candidates, and the resulting publicity could lead to increased governmental regulation, unfavorable public perception, potential
regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved
and a decrease in demand for any such product candidates. Concern about the environmental spread of our product, whether real or anticipated, could also
hinder the commercialization of our products.
Prior to receiving Oncoprex, patients are required to undergo genetic screening to detect EGFR mutations and other mutations relevant to
cancer. Genetic testing has raised concerns regarding the appropriate utilization and the confidentiality of information provided by genetic testing. Genetic
tests for assessing a person’s likelihood of developing a chronic disease have focused public attention on the need to protect the privacy of genetic
information. Genetic testing information is also subject to significant restrictions under both federal and state law. For example, concerns have been
expressed that insurance carriers and employers may use these tests to discriminate on the basis of genetic information, resulting in barriers to the acceptance
of genetic tests by consumers. This could lead to governmental authorities restricting genetic testing or calling for limits on or regulating the use of genetic
testing, particularly for diseases for which there is no known cure. Any of these scenarios could decrease demand for Oncoprex or any other products for
which we may obtain marketing approval.
Delays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our ability to obtain
regulatory approval for Oncoprex and our other potential product candidates.
Oncoprex has been tested in only one prior Phase I clinical study, involving 31 patients. In that study, Oncoprex was tested as a monotherapy. We
believe that the best path for development is to develop a combination therapy of Oncoprex in combination with erlotinib, immunotherapies, and possibly
other drugs. We have an ongoing Phase I/II clinical trial testing Oncoprex in combination with erlotinib. Enrollment was completed in March 2015 for the
Phase I portion of this clinical trial, in which 18 patients were enrolled. The Phase II portion of our Phase I/II clinical trial is at an early stage, with a limited
number of patients enrolled, and the favorable results observed so far may not continue in the current clinical trial or be replicated in other clinical trials,
especially those involving larger numbers of patients. Even if the Phase I/II trial is successful, success in early clinical studies may not be indicative of results
obtained in later studies. The results from our Phase I/II trial may not demonstrate sufficient safety and efficacy to support the submission of marketing
approval for Oncoprex. Before we request marketing approval, the FDA may require us to conduct additional clinical studies or evaluate subjects for an
additional follow-up. Unless an accelerated approval process is allowed by the FDA, one or more Phase III studies is normally required for approval.
Delays in the commencement, enrollment and/or completion of clinical trials could increase our product development costs or delay or limit the
regulatory approval of our current and potential product candidates. We do not know whether any future trials or studies of our other potential product
candidates will begin on time or will be completed on schedule, if at all. The start or end of a
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clinical study is often delayed or halted due to changing regulatory requirements, changes in the proposed regulatory approval pathway for a drug candidate,
manufacturing challenges, including delays or shortages in available drug product, required clinical trial administrative actions, slower than anticipated
patient enrollment, changing standards of care, availability or prevalence of use of a comparative drug or required prior therapy, clinical outcomes or financial
constraints. For instance, delays or difficulties in patient enrollment or difficulties in retaining trial participants can result in increased costs, longer
development times or termination of a clinical trial. Clinical trials of a new product candidate require the enrollment of a sufficient number of patients,
including patients who are suffering from the disease the product candidate is intended to treat and who meet other eligibility criteria. Rates of patient
enrollment are affected by many factors, including the size of the patient population, the eligibility criteria for the clinical trial, that include the age and
condition of the patients and the stage and severity of disease, the nature of the protocol, the proximity of patients to clinical sites and the availability of
effective treatments and/or availability of other investigational treatment options for the relevant disease.
As the second phase of a Phase I/II clinical trial, MD Anderson researchers are conducting a Phase II clinical trial evaluating Oncoprex in combination
with erlotinib in NSCLC. Enrollment eligibility criteria for this clinical trial are broad and include stage IV and recurrent NSCLC not potentially curable by
radiotherapy or surgery, whether or not the patients have received prior chemotherapy, and whether or not they have an activating EGFR mutation. The Phase
II trial began in June 2015 and is ongoing at MD Anderson. Ten patients have been entered and nine are evaluable for response under the trial protocol,
because they have received two or more cycles of treatment. Preliminary analysis of the data from these patients further support our belief that Oncoprex may
provide medical benefit in several subpopulations of NSCLC patients for which there is an unmet medical need and may provide pathways for accelerated
approval.
As a result of these initial findings, in April 2016, we suspended enrollment of new patients in this Phase II clinical trial to collect additional trial data
and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand enrollment and also to divide
the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We expect to present our findings to the
FDA within the next several months. We now have decided to continue this clinical trial under the current protocol without major modification at this time.
We are maintaining our plan to seek a pathway toward accelerated approval in one or more patient cohort populations. Although the clinical trial is currently
closed to new patient enrollment, it is not terminated, and is considered “ongoing” because activities such as patient follow-up and further data collection and
analysis continue.
We plan to reopen enrollment under the current protocol at MD Anderson and several additional clinical trial sites. Adding additional sites will require
approval of the Investigational Review Board, or IRB, of each additional site where the trial is conducted. In June 2018, we entered into an Amendment No. 2
to our Clinical Trial Agreement with MD Anderson under which we and MD Anderson agreed upon plans and funding to move ahead with the trial. We
intend to use a portion of our available funds to add additional clinical trial sites.
A product candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate for product candidates is high
due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The results from preclinical testing or early clinical trials
of a product candidate may not predict the results that will be obtained in later phase clinical trials of the product candidate. We, the FDA or other applicable
regulatory authorities may suspend clinical trials of a product candidate at any time for various reasons, including, but not limited to, a belief that subjects
participating in such trials are being exposed to unacceptable health risks or adverse side effects, or other adverse initial experiences or findings. We may not
have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any problems or other
unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:
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inability to obtain sufficient funds required for a clinical trial;
inability to reach agreements on acceptable terms with current or prospective contract research organizations, or CROs, and trial sites, the terms
of which can be subject to extensive negotiation and
may vary significantly among different CROs and trial sites;
negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision
or requirement to conduct additional preclinical testing or clinical trials or abandon a program;
serious and unexpected side effects experienced by subjects in our clinical trials or by individuals using drugs similar to our current and
potential product candidates;
conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;
delays in enrolling research subjects in clinical trials;
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high drop-out rates and high fail rates of research subjects;
inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;
greater than anticipated clinical trial costs;
poor effectiveness of our current and potential product candidates during clinical trials; or
unfavorable FDA or other regulatory agency inspection and review of a clinical trial site or vendor.
We may have difficulty engaging or retaining clinical trial sites and/or enrolling patients in our clinical trials, which could delay or prevent development
of our current and potential product candidates.
Identifying and qualifying patients to participate in clinical trials of our current and potential product candidates is critical to our success. The timing
of our clinical trials depends on the speed at which we can engage and retain clinical trial sites and recruit patients to participate in testing our current and
potential product candidates. We have experienced delays in some of our clinical trials in the past due to difficulties with enrollment and we may experience
similar delays in the future. We have suspended enrollment of new patients in the Phase II portion of our Phase I/II clinical trial evaluating Oncoprex in
combination with erlotinib in NSCLC, and we may experience difficulties with enrollment upon reopening enrollment for the trial under the current protocol
or a modified protocol. If patients are unwilling to participate in our clinical trials because of negative publicity from adverse events in the industry or in the
trials for other third party product candidates, or for other reasons, including competitive clinical trials for similar patient populations, the timeline for
engaging sites, recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in
increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials
altogether.
We or our clinical trial sites may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired
characteristics in a clinical trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including:
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severity of the disease under investigation;
design of the clinical trial protocol, including the fact that certain of our clinical trials are randomized to current treatments;
size of the patient population;
eligibility criteria for the clinical trial in question;
perceived risks and benefits of the product candidate under study;
general level of excitement for the treatment approach;
comments on social media;
proximity and availability of clinical trial sites for prospective patients;
availability of competing therapies and clinical trials;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians; and
ability to monitor patients adequately during and after treatment.
We currently plan to seek initial marketing approval in the United States and subsequently in Europe. We may not be able to initiate or continue
clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA or the EMA, or other
regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to
conducting business in foreign countries, including:
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difficulty in establishing or managing relationships with CROs and physicians;
different standards for the conduct of clinical trials;
our inability to locate qualified local consultants, physicians and partners; and
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the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of
pharmaceutical and biotechnology products and treatments.
If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate
ongoing or planned clinical trials, any of which would have an adverse effect on our business.
Any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval. Even if we
complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product candidate, and the
approval may be for a narrower indication than we seek.
Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and we may decide, or
regulators may require us, to conduct additional clinical trials or nonclinical studies. In addition, data obtained from trials and studies are susceptible to
varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in
preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide
adequate data to demonstrate the efficacy and safety of a product candidate. Thirty-one patients were treated in our first Phase I clinical trial of Oncoprex used
as a monotherapy, and 28 patients have been enrolled to date (out of a possible total of 57) in our current Phase I/II clinical trial of Oncoprex in combination
with erlotinib in NSCLC. Of the 28 patients, 18 were enrolled in the Phase I portion of the Phase I/II trial, and three of these 18 are also enrolled in the Phase
II portion. Safety and efficacy results to date may not continue to be obtained as additional patients are treated and may not be duplicated in future clinical
trials. A number of companies in the pharmaceutical industry, including those with greater resources and experience than ours, have suffered significant
setbacks in clinical trials, even after seeing promising results in earlier clinical trials.
In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial
may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval.
Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts.
If Oncoprex is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be harmed.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to
numerous factors, including changes in trial protocols, differences in composition of the patient populations, adherence to the dosing regimen and other trial
protocols and the rate of drop out among clinical trial participants. We do not know whether any clinical trials we or any of our potential future collaborators
may conduct will demonstrate the consistent or adequate efficacy and safety that would be required to obtain regulatory approval and market any products. If
we are unable to bring Oncoprex to market, or to acquire other products that are on the market or can be developed, our ability to create stockholder value
will be limited.
Regulatory authorities also may approve a product candidate for more limited indications than requested, or they may impose significant limitations in
the form of narrow indications. These regulatory authorities may require warnings or precautions with respect to conditions of use or they may grant approval
subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims or allow the
promotional claims that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could
materially harm the commercial prospects for our product candidates and materially and adversely affect our business, financial condition, results of
operations and prospects.
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Even if we obtain regulatory approval of our current and potential product candidates, the products may not gain market acceptance among physicians,
patients, hospitals, cancer treatment centers, third-party payors and others in the medical community.
Ethical, social and legal concerns about gene therapy and genetic research could result in additional regulations restricting or prohibiting the products
and processes we may use. Even with the requisite approvals, the commercial success of our current and potential product candidates will depend in part on
the medical community, patients, and third-party payors accepting gene therapy products in general, and our current and potential product candidates in
particular, as medically useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-
party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product
revenue and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a
number of factors, including:
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the clinical indications for which our current and potential product candidates are approved;
physicians, hospitals, cancer treatment centers and patients considering our current and potential product candidates as a safe and effective
treatment;
the potential and perceived advantages of our current and potential product candidates over alternative treatments;
the prevalence and severity of any side effects;
product labeling or product insert requirements of the FDA or other regulatory authorities;
limitations or warnings contained in the labeling approved by the FDA;
the timing of market introduction of our current and potential product candidates as well as competitive products;
the cost of treatment – both in absolute terms and in relation to alternative treatments;
the availability of coverage, reimbursement and pricing by third-party payors and government authorities and the adequacy thereof;
the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors, including government authorities;
the willingness, ability and availability of healthcare providers that can comply with the transportation, handling, and temperature-controlled
storage requirements associated with our current and potential product candidates;
relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and
the effectiveness of our sales and marketing efforts, which are subject to various limitations under applicable law.
Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not
be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require
significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional
technologies marketed by our competitors and may be restricted by the allowed label.
Our current and potential product candidates may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received,
require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
In our Phase I clinical trial of Oncoprex as a monotherapy, the only serious adverse events, defined as grade 3, 4 or 5 events under the Common
Terminology Criteria for Adverse Events, or CTCAE, published by the U.S. Department of Health and Human Services, were grade 3 fever and grade 3
hypotension, and the only dose-limiting toxicities were two episodes of transient grade 3 hypophosphatemia (abnormally low levels of phosphate in the
blood).
The Phase I portion of our Phase I/II trial combining Oncoprex with erlotinib was a dose escalation study with the primary purpose of determining the
MTD. Dose Limiting Toxicities were defined as grade 3, 4 or 5 events during the first cycle of treatment that were considered to be treatment related. At dose
level 1 (Oncoprex .045 mg/kg plus erlotinib 100 mg), one subject had grade 3 adverse events of fatigue, muscle weakness and hyponatremia (low sodium
level) considered to be related to the study treatment (erlotinib); therefore, three additional subjects were treated at this dose level (six subjects total), none of
whom suffered a Dose Limiting Toxicity. At dose level 2 (Oncoprex .06 mg/kg plus erlotinib 100 mg), there were no Dose Limiting Toxicities. At dose level
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3 (Oncoprex .45 mg/kg plus erlotinib 150 mg), one subject had a grade 3 rash considered to be related to the study treatment (erlotinib); therefore, an
additional three subjects were treated at this dose level (six subjects total). No additional subjects suffered a Dose Limiting Toxicity at dose level 3. At dose
level 4 (Oncoprex .06 mg/kg plus erlotinib 150 mg), there were no Dose Limiting Toxicities; thus dose level 4 was determined to be the MTD. None of the 10
subjects treated to date in the Phase II portion of the Phase I/II trial suffered a Dose Limiting Toxicity.
Additional or unforeseen side effects from Oncoprex or any of our other potential product candidates could arise either during clinical development or,
if approved, after the approved product has been marketed. A showing that Oncoprex or any other product candidate causes undesirable or unacceptable side
effects could interrupt, delay or halt clinical trials and result in the failure to obtain or suspension or termination of marketing approval from the FDA and
other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities only with restrictive label warnings.
If any of our current and potential product candidates receives marketing approval and we or others later identify undesirable or unacceptable side
effects caused by such products:
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and
pharmacies;
we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the
labeling of the product;
we may be subject to limitations on how we may promote the product;
sales of the product may decrease significantly;
regulatory authorities may require us to take our approved product off the market;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
Any of these events could prevent us or our potential future collaborators from achieving or maintaining market acceptance of the affected product or
could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale
of our products.
Potential product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of Oncoprex and any other
products that we may develop.
In the event Oncoprex or any of our other potential product candidates is approved for marketing by the FDA and other regulatory authorities, we may
face potential product liability. If successful claims are brought against us, we may incur substantial liability and costs. If the use of our current and potential
product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our current and potential product candidates, our
regulatory approvals could be revoked or otherwise negatively affected, and we could be subject to costly and damaging product liability claims. We may not
be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Our internal computer systems, or those used by our CROs, contractors or consultants, may fail or suffer security breaches. There is also the potential for
other data breaches (e.g., via paper documents) or otherwise.
Despite the implementation of security measures, our internal computer systems and those of our CROs, contractors and consultants are vulnerable to
damage from computer viruses and unauthorized access, as well as being vulnerable to other system difficulties, failures or disruptions. If such an event were
to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For
example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or
applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, and the further development and
commercialization of our current and potential product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, contractors and consultants, could be subject to power shortages, telecommunications failures, wildfires, water
shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or
business interruptions. The occurrence of any of these business disruptions could seriously
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harm our operations and financial condition and increase our costs and expenses. Our ability to obtain clinical supplies of our current and potential product
candidates could be disrupted if the operations of our contract manufacturers are affected by a man-made or natural disaster or other business interruption.
Unfavorable global economic conditions could adversely affect our business, financial condition, or results of operations.
We do not carry insurance for all categories of risk that our business may encounter. In particular, we do not carry product liability insurance covering
any clinical trials liability that we may incur. Although we intend to obtain such insurance before we market any product, there can be no assurance that we
will secure adequate insurance coverage or that any such insurance coverage will be sufficient to protect our operations to significant potential liability in the
future. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of
operations.
We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have
competitors in the United States, Europe and elsewhere, including major multinational pharmaceutical companies, established biotechnology companies,
specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of our competitors have greater financial and
other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations than we do. Large
pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing
pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our
target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and
development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of these
factors, our competitors may succeed in obtaining patent protection and/or FDA approval or in discovering, developing and commercializing drugs for the
cancer indications that we are targeting before we do or may develop drugs that are deemed to be more effective or gain greater market acceptance than ours.
Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. In addition, many universities and private and public research institutes may become active in our target disease areas. Our competitors may
succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than any product
candidates that we are currently developing or that we may develop, which could render our products obsolete or noncompetitive.
There are a number of drugs approved and under development for treatment of lung cancer. Treatments competitive with our primary product
candidates generally fall into the following categories: chemotherapies such as cisplatin, carboplatin, docetaxel and pemetrexed; targeted therapies such as
erlotinib, gefitinib, afatinib and osimertinib, and immunotherapies such as checkpoint inhibitors and CAR and CAR T cells, and oncolytic virus-based
technology. Data indicate that Oncoprex, when combined with certain targeted therapies and immunotherapies, may enhance the benefit of those therapies;
therefore, we believe that Oncoprex could be administered in combination with targeted therapies and immunotherapies and thus may not be a direct
competitor of those drugs. In addition, new drug candidates are constantly being conceived and developed. Any such competing therapy may be more
effective and/or cost-effective than ours.
If our competitors market products that are more effective, safer or less expensive or that reach the market sooner than our future products, if any, we
may not achieve commercial success. In addition, because of our limited resources, it may be difficult for us to stay abreast of the rapid changes in each
technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products
developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.
Risks Related to Regulatory Approval and Marketing of Our Current and Potential Product Candidates and Other Legal Compliance Matters
We cannot be certain that Oncoprex will receive regulatory approval, and without regulatory approval we will not be able to market Oncoprex.
Our business currently depends largely on the successful development and commercialization of Oncoprex. Our ability to generate revenue related to
product sales will depend on the successful development and regulatory approval of Oncoprex for the treatment of cancer. Even if we complete the necessary
clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate. Further, if we do obtain regulatory
approval, it may only apply to a more narrow indication than we expect. Even if we obtain regulatory approval for a product candidate, our products will
remain subject to regulatory scrutiny.
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We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. The development of a product
candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States and regulatory authorities in
other countries, with regulations differing from country to country. We are not permitted to market our current and potential product candidates in the United
States until we receive approval of a Biologics License Application, or BLA, from the FDA. We have not submitted any marketing applications for any of our
current and potential product candidates.
BLAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for
each desired indication. BLAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining
approval of a BLA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take
years to complete, and approval is never guaranteed. If we submit a BLA to the FDA, the FDA must decide whether to accept or reject the submission for
filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators in other jurisdictions have their own
procedures for approval of product candidates. Even if a product is approved, the FDA may limit the indications for which the product may be marketed,
require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory
authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must comply prior to
marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain
regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other
countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials,
regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the
emergence of new information regarding our current and potential product candidates or other products. Also, regulatory approval for any of our current and
potential product candidates may be withdrawn.
If we are unable to obtain approval from the FDA or other regulatory agencies for Oncoprex, or if, subsequent to approval, we are unable to
successfully commercialize Oncoprex or our other potential product candidates, we will not be able to generate sufficient revenue to become profitable or to
continue our operations.
In addition, the clinical trial requirements of the FDA, the EMA, and other regulatory agencies and the criteria these regulators use to determine the
safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products.
The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively
studied pharmaceutical or other product candidates.
Regulatory requirements governing gene therapy products have changed frequently and may continue to change in the future. For example, in January
2017, the FDA Oncology Center of Excellence, or the Center of Excellence, was created to leverage the combined skills of regulatory scientists and reviewers
with expertise in drugs, biologics, and devices (including diagnostics). While the Center of Excellence is designed to help expedite the development of
oncology and malignant hematology-related medical products and support an integrated approach in the clinical evaluation of drugs, biologics and devices for
the treatment of cancer, the new Center of Excellence may initially create confusion within the FDA and especially in the Center of Biologics and Research
that is the primary review division for Oncoprex. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research
from the U.S. National Institutes of Health, or the NIH, are also subject to review by the NIH Office of Biotechnology Activities’ Recombinant DNA
Advisory Committee, or the RAC. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC review process can impede
the initiation of a clinical trial, even if the FDA has reviewed the study and approved its initiation. Conversely, the FDA can put an Investigational New Drug
application, or IND, on a partial or complete clinical hold even if the RAC has provided a favorable review. Also, before a clinical trial can begin at an NIH-
funded institution, that institution’s institutional review board, or IRB, and its Institutional Biosafety Committee will have to review the proposed clinical trial
to assess the safety of the study. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other
regulatory bodies to change the requirements for performing studies or for obtaining approval of any of our current and potential product candidates.
These regulatory review committees and advisory groups, and the new guidelines they promulgate, may lengthen the regulatory review process,
require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval
and commercialization of our current and potential product candidates or lead to significant post-approval limitations or restrictions. As we advance our
current and potential product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines.
Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability
to generate sufficient revenue to maintain our business.
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Even if we obtain regulatory approval for Oncoprex and/or another product candidate, our products will remain subject to regulatory oversight.
Oncoprex and/or any of our product candidates for which we obtain regulatory approval, will be subject to ongoing regulatory requirements for
manufacturing, labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. Any
regulatory approvals that we receive for our product candidates also may be subject to the specific obligations imposed as a condition for marketing
authorization by equivalent authorities in a foreign jurisdiction, particularly by the European Commission, limitations on the approved indicated uses for
which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4
clinical trials, and surveillance to monitor the quality, safety and efficacy of the product.
For example, in the United States, the holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to
meet the specifications in the BLA. The holder of an approved BLA also must submit new or supplemental applications and obtain FDA approval for certain
changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with the Federal Food Drug
and Cosmetic Act, or the FDCA, and implementing regulations and are subject to FDA oversight and post-marketing reporting obligations, in addition to
other potentially applicable federal and state laws.
In the EU, any future advertising and promotion of our products will be subject to EU laws governing promotion of medicinal products,
interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other legislation adopted by individual EU
Member States may apply to the advertising and promotion of medicinal products. These laws may limit or restrict the advertising and promotion of our
products to the general public and may impose limitations on our promotional activities with health care professionals. These laws require that promotional
materials and advertising for medicinal products are consistent with the product’s Summary of Product Characteristics, or SmPC, as approved by the
competent authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of the medicinal product. It
forms an intrinsic and integral part of the marketing authorization granted for the medicinal product. Promotion of a medicinal product that does not comport
with the SmPC is considered to constitute off-label promotion, which is prohibited in the EU. The applicable laws at EU level and in the individual EU
Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of
medicinal products in the EU could be penalized by administrative measures, fines and imprisonment.
In addition, product manufacturers and their facilities may be subject to payment of application and program fees and are subject to continual
review and periodic inspections by FDA and other regulatory authorities for compliance with current good manufacturing, or cGMP, requirements and
adherence to commitments made in the BLA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a
product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagree with the
promotion, marketing or labeling of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility or us,
including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If we fail to comply with applicable regulatory requirements for any product following approval, a regulatory authority may:
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issue a warning letter asserting that we are in violation of the law;
seek an injunction or impose administrative, civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by us or our strategic
partners;
restrict the marketing or manufacturing of the product;
seize or detain the product or otherwise demand or require the withdrawal or recall of the product from the market;
refuse to permit the import or export of products;
request and publicize a voluntary recall of the product; or
refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and adversely
affect our business, financial condition, results of operations and prospects.
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If the FDA does not find the manufacturing facilities of our future contract manufacturers acceptable for commercial production, we may not be able to
commercialize any of our current and potential product candidates.
We do not intend to manufacture the pharmaceutical products that we plan to sell. We are currently utilizing contract manufacturers for the production
of the active pharmaceutical ingredients and the formulation of drug product for the trials of Oncoprex currently being conducted or that will need to be
conducted prior to seeking regulatory approval. However, we do not have agreements for supplies of Oncoprex or any of our other potential product
candidates, and we may not be able to reach agreements with these or other contract manufacturers for sufficient supplies to commercialize Oncoprex if it is
approved. Additionally, the facilities used by any contract manufacturer to manufacture Oncoprex or any of our other potential product candidates must be the
subject of a satisfactory inspection before the FDA approves the product candidate manufactured at that facility. We are completely dependent on these third-
party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers
cannot successfully manufacture materials that conform to our specifications and the FDA’s current good manufacturing practices, or cGMP, standards and
other requirements of any governmental agency to whose jurisdiction we are subject, our current and potential product candidates will not be approved or, if
already approved, may be subject to recalls. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our
current and potential product candidates, including:
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the possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our current and potential product
candidates;
the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and
the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement
third-party manufacturer.
Any of these factors could cause the delay of approval or commercialization of our current and potential product candidates, cause us to incur higher
costs or prevent us from commercializing our current and potential product candidates successfully. Furthermore, if any of our current and potential product
candidates are approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis at commercially
reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially
equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may
take several years to establish an alternative source of supply for our current and potential product candidates and to have any such new source approved by
the government agencies that regulate our products.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and other federal and state healthcare
laws, and the failure to comply with such laws could result in substantial penalties. Our employees, independent contractors, consultants, principal
investigators, CROs, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements.*
State and federal regulatory and enforcement agencies continue actively to investigate violations of health care laws and regulations, and the United
States Congress continues to strengthen the arsenal of enforcement tools. Recently, the Bipartisan Budget Act of 2018, or the BBA, increased the criminal
and civil penalties that can be imposed for violating certain federal health care laws, including the Anti-Kickback Statute. Enforcement agencies also
continue to pursue novel theories of liability under these laws. Government agencies have recently increased regulatory scrutiny and enforcement activity
with respect to programs supported or sponsored by pharmaceutical companies, including reimbursement and co-pay support, funding of independent
charitable foundations and other programs that offer benefits for patients. Several investigations into these types of programs have resulted in significant civil
and criminal settlements.
We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, principal
investigators, CROs, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to:
comply with the laws of the FDA and similar foreign regulatory bodies; provide true, complete and accurate information to the FDA and similar foreign
regulatory bodies; comply with manufacturing standards we have established; comply with federal and state data privacy, security, fraud and abuse and other
healthcare laws and regulations in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to
disclose unauthorized activities to us. If we obtain FDA approval for any of our current and potential product candidates and begin commercializing those
products in the United States, our potential exposure under such laws would increase significantly, and our costs associated with compliance with such laws
would likely also increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as
proposed and future sales, marketing and education programs and interactions with physicians and other health care providers. In particular, the promotion,
sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws and
regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a
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wide range of pricing, discounting, marketing and promotion, including off-label uses of our products, structuring and commission(s), certain customer
incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use or misrepresentation of
information obtained in the course of patient recruitment for clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal
misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and
deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply
with these laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none
occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of fines or other sanctions. The laws that may affect our ability to operate include, but are not
limited to:
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the Federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility,
item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid
programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation;
federal civil and criminal false claims laws and civil monetary penalty laws, including the civil False Claims Act, which impose criminal and
civil penalties, through government, civil whistleblower or qui tam actions, on individuals and entities for, among other things, knowingly
presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other third-party payors that are false,
fictitious or fraudulent, or knowingly making, using or causing to be made or used, a false statement to avoid, decrease or conceal an obligation
to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other
things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain any healthcare benefit program or obtain,
by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control
of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare
offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false,
fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare
matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective
implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses, as
well as their respective business associates that perform services for them that involve the creation, use, maintenance or disclosure of,
individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information
without appropriate authorization;
the federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act,” created under the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care
Act, and its implementing regulations, which require certain manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the
United States Department of Health and Human Services information related to payments or other transfers of value made to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment
interests held by physicians and their immediate family members;
the U.S. FDCA, which prohibits, among other things, the adulteration or misbranding of drugs and medical devices;
the Foreign Corrupt Practices Act, or FCPA, and similar worldwide anti-bribery laws, which generally prohibit companies and their
intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm
consumers; and
we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be broader in
scope and may apply regardless of the payor.
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It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not
be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to be in compliance with such laws or regulations. Efforts to ensure that our business arrangements will comply with applicable healthcare laws
and regulations will involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not
comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such
actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our
business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from
participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings,
and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In
addition, the approval and commercialization of any of our current and potential product candidates outside the United States will also likely subject us to
foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
Coverage and reimbursement may be limited or unavailable in certain market segments for our current and potential product candidates, if approved,
which could make it difficult for us to sell our current and potential product candidates profitably.
The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients,
insurance companies and other third party payors, and others in the medical community. Even if we obtain approval to commercialize our current and
potential product candidates outside of the United States, a variety of risks associated with international operations could materially affect our business. Due
to the novel nature of our technology, we face uncertainty related to pricing and reimbursement for our current and potential product candidates. The
insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement
for new or current products could limit our ability to market those products and decrease our ability to generate revenue. If market opportunities for our
current and potential product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.
Successful sales of our products, if our current and potential product candidates are approved, depend on the availability of coverage and adequate
reimbursement from third-party payors. In addition, because our current and potential product candidates represent new approaches to the treatment of cancer,
we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our current and potential product
candidates. Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and
commercial payors are critical to new product acceptance.
Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and
treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors,
including, but not limited to, the third-party payor’s determination that use of a product is:
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a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors, and coverage and reimbursement
for products can differ significantly from payor to payor. As a result, obtaining coverage and reimbursement approval of a product from a government or
other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-
effectiveness data for the use of our products and to justify the level of coverage and reimbursement relative to other therapies, with no assurance that
coverage and adequate reimbursement will be obtained. Third party payors may also have difficulty in determining the appropriate coverage of Oncoprex and
our other potential product candidates that are combination products, if approved, due to the fact that they are combination products that include another drug.
To the extent there are any delays in determining such coverage or inadequate coverage and reimbursement for all aspects of our combination therapies, it
would adversely affect the market acceptance, demand and use of our current and potential product candidates. Any denial in coverage or reduction in
reimbursement from Medicare or other government programs may result in a similar denial or reduction in payments from private payors, which may
adversely affect our future profitability.
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We intend to seek approval to market our current and potential product candidates in both the United States and in selected foreign jurisdictions. If we
obtain approval in one or more foreign jurisdictions for our current and potential product candidates, we will be subject to rules and regulations in those
jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of biologics is subject to governmental control and other market
regulations which could put pressure on the pricing and usage of our current and potential product candidates. In these countries, pricing negotiations with
governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of
our current and potential product candidates will depend significantly on the availability of coverage and adequate reimbursement from third-party payors for
our current and potential product candidates and may be affected by existing and future health care reform measures.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling
healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care
system that could affect our ability to sell our products profitably. In particular the Affordable Care Act and its implementing regulations, among other things,
subjected biological products to potential competition by lower-cost biosimilars, revised the methodology by which rebates owed by manufacturers to the
state and federal government for covered outpatient drugs and certain biologics, including our current and potential product candidates, under the Medicaid
Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program,
extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected
manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government’s
comparative effectiveness research. The current Presidential Administration and U.S. Congress may seek to modify, repeal, or otherwise invalidate all, or
certain provisions of, the Affordable Care Act. There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. As a
result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the Affordable Care Act. While the extent to
which any such changes may affect our business is uncertain, steps have been taken to repeal and replace certain aspects of the Affordable Care Act.
Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the Affordable
Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has
considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal
legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of
2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain
individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on
January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain
Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed
on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the BBA, among
other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the
“donut hole”. Congress also could consider subsequent legislation to repeal or repeal and replace other elements of the Affordable Care Act. We continue to
evaluate the possible impact of the Affordable Care Act, as amended, and the possible repeal and/or replacement of the Affordable Care Act on our business.
In late 2018, the Centers for Medicare & Medicaid Services, or CMS, issued an advance notice of proposed rulemaking describing a potential
mandatory model to test Medicare reimbursement based on an “International Pricing Index”, or IPI. CMS is considering issuing a proposed rule that would
describe the model in more detail in spring 2019, with the goal of starting the model in spring 2020. If a model would proceed as described, we cannot
predict the requisite infrastructure and reporting requirements, existing and new data sources required to establish an IPI and the impact on price reporting and
reporting mechanics.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the
availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing
efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare
and/or impose price controls may adversely affect:
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the demand for our current and potential product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
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the level of taxes that we are required to pay; and
the availability of capital.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on
which we rely may not continue to meet regulatory requirements and have limited capacity.
We are currently utilizing contract manufacturers for the production of the active pharmaceutical ingredients and the formulation of drug product for
our trials of Oncoprex. However, we do not have agreements for supplies of Oncoprex or any of our other potential product candidates. Each supplier may
require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or
sublicense the intellectual property rights we may have or later obtain with respect to such activities.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for
Oncoprex, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials
must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the
implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of
production processes can lead to the introduction of contaminants, or to inadvertent changes in the properties or stability of our current and potential product
candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA
on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and cGMP regulations enforced by the FDA through its facilities
inspection program. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-
approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our current and potential product candidates or
any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the
preparation of our current and potential product candidates or our other potential products or the associated quality systems for compliance with the
regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products may not
be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party
contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or
applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be
costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or
commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other
things, refusal to approve a pending application for a new drug product or biologic product or revocation of a pre-existing approval. As a result, our business,
financial condition and results of operations may be materially harmed.
Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative
manufacturer would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional
studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a
delay in our desired clinical and commercial timelines.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our current and potential
product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet
contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical
trials may be delayed or we could lose potential revenue.
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If we obtain approval to commercialize any of our product candidates outside the United States, in particular in the EU, a variety of risks associated with
international operations could materially adversely affect our business.
We expect that we will be subject to additional risks in commercializing any of our product candidates outside the United States, including:
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different regulatory requirements for approval of drugs and biologics in foreign countries;
reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing
business in another country;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons,
floods and fires.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
have a material adverse effect on the success of our business.
We may become subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous
materials and certain waste products, including numerous environmental, health and safety laws and regulations, such as those governing laboratory
procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations may in the future involve the use of
hazardous materials, including chemicals and biological materials. Our operations may also produce hazardous waste products. We generally contract with
third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of
contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our
resources. We also could incur significant costs associated with civil or criminal fines and penalties. In addition, we may incur substantial costs in order to
comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research,
development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks Related to Our Dependence on Third Parties
We may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect our ability to
develop certain of our current and potential product candidates and our financial condition and operating results.
Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and
marketing approved products are expensive, we may enter into collaborations with companies that have the required expertise. Additionally, if any of our
current and potential product candidates receives marketing approval, we may enter into sales and marketing arrangements with third parties. If we are unable
to enter into arrangements on acceptable terms, if at all, we may be unable to effectively market and sell our products in our target markets. We expect to face
competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and
implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other
alternative arrangements for the development of our current and potential product candidates.
When we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the
control over the future success of that product candidate to the third party.
One or more of our collaboration partners may not devote sufficient resources to the commercialization of our current and potential product candidates
or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may contain provisions that are not
favorable to us. In addition, any collaboration that we enter into may be
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unsuccessful in the development and commercialization of our current and potential product candidates. In some cases, we may be responsible for continuing
preclinical and initial clinical development of a product candidate or research program under a collaboration arrangement, and the payment we receive from
our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators for our
current and potential product candidates, we would face increased costs, we may be forced to limit the number of our current and potential product candidates
we can commercially develop or the territories in which we commercialize them. As a result, we might fail to commercialize products or programs for which
a suitable collaborator cannot be found. If we fail to achieve successful collaborations, our operating results and financial condition could be materially and
adversely affected.
We rely, and expect to continue to rely, on third parties to conduct, supervise and monitor our clinical trials, and if these third parties perform in an
unsatisfactory manner, it may harm our business.
We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we have agreements governing their
activities, we may have limited influence over their actual performance. We control only certain aspects of our CROs’ activities. Nevertheless, we are
responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and
our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs are required to comply with the GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and
reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these
GCPs through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs,
the clinical data generated in our future clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials before
approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our ongoing
and future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our current and potential product
candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such
clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we are not able to directly monitor whether or not they devote sufficient time and resources to our clinical and
nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be
conducting clinical trials or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their
contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their
failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and
we may not be able to obtain regulatory approval for or successfully commercialize our current and potential product candidates. As a result, our financial
results and the commercial prospects for our current and potential product candidates would be harmed, our costs could increase and our ability to generate
revenues could be delayed.
We rely, and expect to continue to rely, on third parties to distribute, manufacture and perform release testing for our current and potential product
candidates and other key materials and if such third parties do not carry out their contractual duties or meet expected deadlines, we may not be able to
obtain regulatory approvals for our current and potential product candidates.
We intend to continue to rely on third-party contract manufacturing organizations, or CMOs, to produce our current and potential product candidates
and other key materials and on third-party contract testing organizations, or CTOs, for the establishment and performance of validated product release assays,
but we have not entered into binding agreements with any such CMOs or CTOs to support commercialization. Additionally, any CMO may not have
experience producing our current and potential product candidates at commercial levels and may not achieve the necessary regulatory approvals or produce
our products at the quality, quantities, locations and timing needed to support commercialization. We may change our manufacturing process, and there can be
no guarantee that the regulatory authorities will approve any new process in a timely manner or ever. Also, as a consequence of the manufacturing change,
there may be a requirement to conduct additional preclinical safety or efficacy studies, develop new manufacturing and release assays and/or repeat all or part
of the ascending dose safety study in animals or humans. Regulatory requirements ultimately imposed could adversely affect our ability to test, manufacture
or market products.
Although we intend to rely on third-party manufacturers for commercialization, we currently utilize a sole source manufacturer to support our clinical
trials. We may be unable to negotiate binding agreements with this manufacturer or additional manufacturers to support our commercialization activities at
commercially reasonable terms.
No manufacturer we know of currently has the experience or ability to produce our current and potential product candidates at reasonable commercial
levels or under full commercial requirements. We may encounter technical or scientific issues related to
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manufacturing or development that we may be unable to resolve in a timely manner or with available funds. Further, we have not completed the
characterization and validation activities necessary for commercial and regulatory approvals. If our manufacturing and testing partners do not obtain such
regulatory approvals, our commercialization efforts may be harmed.
Even if we timely develop a manufacturing process for Oncoprex and successfully transfer it to third-party manufacturers, if such third-party
manufacturers are unable to produce our current and potential product candidates in the necessary quantities, or in compliance with current Good
Manufacturing Practices, or cGMP, or in compliance with pertinent regulatory requirements, and within our planned time frame and cost parameters, the
development and sales of our products, if approved, may be materially harmed. The facilities used by our contract manufacturers to manufacture our current
and potential product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our BLA to the FDA. We do
not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs for the
manufacture of our current and potential product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our
specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their
manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance
and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our current and
potential product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would
significantly affect our ability to develop, obtain regulatory approval for or market our current and potential product candidates, if approved. In addition, any
failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the
manufacturing of our current and potential product candidates or that obtained approvals could be revoked, which would adversely affect our business and
reputation.
In addition, any significant disruption in our supplier relationships could harm our business. We source key materials, devices and equipment from
third parties, either directly through agreements with suppliers or indirectly through our manufacturers who have agreements with suppliers. There is a small
number of suppliers for certain key materials and components that are used to manufacture our current and potential product candidates. Such suppliers may
not sell these key materials to our manufacturers at the times or quantities we need them or on commercially reasonable terms. We may not have any control
over the process or timing of the acquisition of these key materials by our manufacturers.
We also expect to rely on other third parties to store and distribute our products for our clinical trials. Any performance failure on the part of our
distributors could delay clinical development or marketing approval of our current and potential product candidates or commercialization of our products, if
approved, producing additional losses and depriving us of potential product revenue.
We have completed and may in the future complete related party transactions that were not and may not be conducted on an arm’s length basis.
Our leading drug candidate, Oncoprex, is based upon patents and related technology covered by a patent and technology license agreement between
The University of Texas MD Anderson Cancer Center, or MD Anderson, and Introgen Therapeutics, Inc. (such technology license agreement is referred to as
the “MD Anderson License Agreement”), under which we have rights to patents covering use of various genes, including the TUSC2 gene, for treatment of
cancer, as well as know-how and related intellectual property. In 2007, the MD Anderson License Agreement was sublicensed by Introgen Therapeutics, Inc.
to Introgen Research Institute, Inc., a Texas corporation (IRI) and in 2009 this sublicense was assigned by IRI to us, and we granted back to IRI a
nonexclusive, royalty-free license to use and practice the licensed technology for non-commercial research purposes. As consideration for this assignment, we
agreed to assume all of IRI’s obligations to MD Anderson under the MD Anderson License Agreement, including ongoing patent related expenses and royalty
obligations. IRI also agreed in 2011 to provide additional technology licensing opportunities and services to us in return for monthly payments and our
obligation to pay to IRI a royalty of one percent (1%) on sales of products licensed to us under the MD Anderson License Agreement. We also granted a non-
exclusive, royalty-free sublicense to IRI in 2011 for non-commercial research purposes. IRI’s obligations to provide additional technology licensing
opportunities and services to us, and our obligation to make monthly payments to IRI, were terminated in 2012; however, our obligation to pay the one
percent (1%) royalty to IRI upon sales of products licensed to us under the MD Anderson License Agreement is ongoing. This royalty obligation continues
for 21 years after the later of the termination of the MD Anderson License Agreement and the termination of the sublicense assigned by IRI to us. IRI is
controlled by Rodney Varner and his immediate family members. Mr. Varner is currently Chairman of our board of directors, having joined our board of
directors on August 15, 2012, and has been our Chief Executive Officer since August 29, 2012; accordingly, in 2009 and 2011, when the above referenced
agreements between IRI and Genprex were entered into, Mr. Varner was neither a member of our board of directors nor an executive officer of Genprex.
When the 2011 agreement was entered into, Mr. Varner was deemed to be an “affiliate” of the Company due to his beneficial ownership of approximately
39% of our issued and outstanding shares. Although we believe that these transactions were conducted on an arm’s length basis, it is possible that the terms
were less favorable to us than they might have been in a transaction with an unrelated party.
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We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and
oversight of related-person transactions.
Risks Related to Our Intellectual Property
If we fail to obtain or protect our intellectual property, our business will be impaired.
If we are unable to obtain or protect intellectual property rights related to our current and potential product candidates, we may not be able to compete
effectively in our markets. Third party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. We
may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions
and end licenses.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise
experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. We may be involved in
lawsuits to protect or enforce our patents or the patents or our licensors, which could be expensive, time-consuming, and/or unsuccessful.
Obtaining and maintaining patent protection depends upon compliance with various procedural, document submission, fee payment, and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Issued patents covering our current and potential product candidates could be found invalid or unenforceable if challenged in court, or could expire before we
obtain product approval. The scope of our issued patents could be found to be narrower and provide less protection than we anticipate.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from MD Anderson, or otherwise
experience disruptions to our business relationships with MD Anderson or other future licensors, we could lose license rights that are important to our
business.
Under our license agreement with MD Anderson, we hold a worldwide, exclusive license to, among other things, manufacture and market products
utilizing certain inventions that are critical to our business. We expect to enter into additional license agreements in the future. Our existing license agreement
imposes various diligence, royalty and other obligations on us, and we expect that future license agreements will impose various diligence, milestone
payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor
may have the right to terminate the license, in which event we would not be able to market products covered by the license.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our current and potential product candidates.
We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time
and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product
candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced
against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on
our part to pay royalties and/or other forms of compensation to third parties.
In certain cases, patent prosecution of our licensed technology may be controlled solely by the licensor. If our licensors fail to obtain and maintain
patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity
with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution
of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to
our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues
and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing
agreement, including:
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the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe intellectual property of the licensor that is not subject to the licensing agreement;
the sublicensing of patent and other rights under our collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our
partners; and
the priority of invention of patented technology.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected product candidates.
The intellectual property rights we have licensed from MD Anderson are subject to the rights of the U.S. government.
The rights we have obtained pursuant to our license agreement with MD Anderson are made subject to the rights of the U.S. government to the extent
that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government.
Additionally, to the extent there is any conflict between our license agreement with MD Anderson and applicable laws or regulations, applicable laws and
regulations will prevail. Similarly, to the extent there is any conflict between our license agreement with MD Anderson and MD Anderson’s funding
agreement with the US government, the terms of the funding agreement will prevail. Some, and possibly all, of our licensed intellectual property rights from
MD Anderson have been developed in the course of research funded by the U.S. government. As a result, the U.S. government may have certain rights to
intellectual property embodied in our current or future products pursuant to the Bayh-Dole Act of 1980. Government rights in certain inventions developed
under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental
purpose. In addition, the U.S. government has the right to require us, or an assignee or exclusive licensee to such inventions, to grant licenses to any of these
inventions to a third party if the U.S. government determines that adequate steps have not been taken to commercialize the invention, that government action
is necessary to meet public health or safety needs, that government action is necessary to meet requirements for public use under federal regulations, or that
the right to use or sell such inventions is exclusively licensed to an entity within the U.S. and substantially manufactured outside the U.S. without the U.S.
government’s prior approval. Additionally, we may be restricted from granting exclusive licenses for the right to use or sell our inventions created pursuant to
such agreements unless the licensee agrees to additional restrictions (e.g., manufacturing substantially all of the invention in the U.S.). The U.S. government
also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual
property within specified time limits. In addition, the U.S. government may acquire title in any country in which a patent application is not filed within
specified time limits. Additionally, certain inventions are subject to transfer restrictions during the term of these agreements and for a period thereafter,
including sales of products or components, transfers to foreign subsidiaries for the purpose of the relevant agreements, and transfers to certain foreign third
parties. If any of our intellectual property becomes subject to any of the rights or remedies available to the U.S. government or third parties pursuant to the
Bayh-Dole Act of 1980, this could impair the value of our intellectual property and could adversely affect our business. The U.S. government has not
exercised any of these rights or provided us with any notice of its intent to exercise any of these rights with respect to any of the intellectual property licensed
to us by MD Anderson. We are not aware of any instance in which the U.S. government has ever exercised any such rights with respect to any technologies or
other intellectual property developed under funding agreements with the U.S. government.
If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates,
our competitive position could be harmed.
Our commercial success will depend in part on our ability and the ability of our licensors to obtain and maintain patent and other intellectual property
protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and
trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to
protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products
that are important to our business.
The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and
have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents,
including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights
may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of
the United States. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit
the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those
licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are
seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection
obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to
successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable
aspects of inventions made in the course of
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our development and commercialization activities before it is too late to obtain patent protection on them. It is also possible that as research and development
progresses, the direction of our intellectual property strategy and patent portfolio will change, resulting in strategic business decisions to allow certain patents
or patent applications to be abandoned or lapse.
With respect to patent rights, we do not know whether any of the pending patent applications relating to any of our current and potential product
candidates will result in the issuance of patents that effectively protect our technology or products, or if any of our licensors’ issued patents will effectively
prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual
discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at
all, until they are issued as a patent. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or
licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent
issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we
have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of
patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others
from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products.
Protecting against the unauthorized use of our or our licensor’s patented technology, trademarks and other intellectual property rights is expensive, difficult
and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our
intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial
amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical
industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the US Patent and Trademark
Office, or US PTO, and corresponding foreign patent offices. Numerous US and foreign issued patents and pending patent applications, which are owned by
third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more
patents are issued, the risk increases that our current and potential product candidates may be subject to claims of infringement of the patent rights of third
parties.
Third parties may in the future assert that we are employing their proprietary technology without authorization. There may be third-party patents or
patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our current
and potential product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may
later result in issued patents that our current and potential product candidates may infringe. In addition, third parties may obtain patents in the future and claim
that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing
process of any of our current and potential product candidates, or any final product itself, the holders of any such patents may be able to block our ability to
commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or
methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable
product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable
terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and
commercialize one or more of our current and potential product candidates. Defense of these claims, regardless of their merit, may involve substantial
litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us,
we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing
products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
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We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through
acquisitions and in-licenses.
Presently we believe that we have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our
current and potential product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held
by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our current and
potential product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable
to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The
licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing
strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive
advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or
acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully
obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
We may from time to time seek to enforce our intellectual property rights against infringers when we determine that a successful outcome is probable
and may lead to an increase in the value of the intellectual property. If we choose to enforce our patent rights against a party, then that individual or company
has the right to ask the court to rule that such patents are invalid or should not be enforced. Additionally, the validity of our patents and the patents we have
licensed may be challenged if a petition for post grant proceedings such as inter partes review and post grant review is filed within the statutorily applicable
time with the US PTO. These lawsuits and proceedings are expensive and would consume time and resources and divert the attention of managerial and
scientific personnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court will decide that such
patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of such
patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our intellectual property rights. In
addition, in recent years the U.S. Supreme Court modified some tests used by the US PTO in granting patents over the past 20 years, which may decrease the
likelihood that we will be able to obtain patents and increase the likelihood of a challenge of any patents we obtain or license.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be
significantly diminished.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable.
However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators,
sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent
disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In
addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
Our reliance on third parties may require us to share our trade secrets, which increases the possibility that a competitor will discover them or that our
trade secrets will be misappropriated or disclosed.
Because we rely on third parties to manufacture our current and potential product candidates, and because we collaborate with various organizations
and academic institutions on the advancement of our current and potential product candidates, we must, at times, share trade secrets with them. We seek to
protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research
agreements, consulting agreements or other similar agreements with our manufacturers, collaborators, advisors, employees and consultants prior to beginning
research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information,
such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential
information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, are used
inappropriately to create new inventions or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our
know-how and trade secrets, a competitor’s discovery of our
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trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating
to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a
specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by
us, although in some cases we may share these rights with other parties. We may also conduct joint research and development programs that may require us to
share trade secrets under the terms of research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our
competitors may discover our trade secrets through breach of these agreements, independent development or publication of information including our trade
secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets may
impair our competitive position and have an adverse impact on our business.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our
licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our
patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our
patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license
rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our
defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other
employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the
laws may not protect those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our
confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a
material adverse effect on the price of our common stock.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the
US PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We
employ an outside firm and rely on our outside counsel to pay these fees due to non-US patent agencies. The US PTO and various non-US governmental
patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application
process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late
fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of
the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be
able to enter the market and this circumstance would have a material adverse effect on our business.
Issued patents covering our current and potential product candidates could be found invalid or unenforceable if challenged in court.
If we, MD Anderson or one of our future licensing partners initiated legal proceedings against a third party to enforce a patent covering one of our
current and potential product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In
patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge
could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the US PTO, or
made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States
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or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign
jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover
our current and potential product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the
validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during
prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent
protection on our current and potential product candidates. Such a loss of patent protection would have a material adverse impact on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of
third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We may now and in the future employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the
proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our
employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in
addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we
are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual
property. We may have potential ownership disputes arising, for example, from conflicting obligations of consultants, collaborators or others who are
involved in developing our current and potential product candidates. Litigation may be necessary to defend against these and other claims challenging
inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights,
such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if
we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
The United States has enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have
narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to
increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of
patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the U.S. PTO, the laws and regulations governing patents could
change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the
future.
We have not yet registered the trademark for Oncoprex, and failure to secure such registration could adversely affect our business.
While we own pending trademark applications for the marks “GENPREX” and “ONCOPREX”, these marks have not yet been approved by the U.S.
Patent and Trademark Office. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond
to those rejections, we may be unable to overcome such rejections. In addition, in the US PTO and in comparable agencies in many foreign jurisdictions, third
parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings
may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our current and
potential product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a
trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If
the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a
suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some
foreign countries do not protect intellectual property rights to the same extent as federal
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and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the
United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our
technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing
products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our
products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial
costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and
the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights
around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Risks Related to Employee Matters and Managing Growth
We have no sales, marketing or distribution experience and we will have to invest significant resources to develop those capabilities or enter into
acceptable third-party sales and marketing arrangements.
We have no sales, marketing or distribution experience. To develop sales, distribution and marketing capabilities, we will have to invest significant
amounts of financial and management resources, some of which will need to be committed prior to any confirmation that Oncoprex or any of our other
potential product candidates will be approved by the FDA. For product candidates for which we decide to perform sales, marketing and distribution functions
ourselves or through third parties, we could face a number of additional risks, including that we or our third-party sales collaborators may not be able to build
and maintain an effective marketing or sales force, and we may experience difficulty in managing the growth of our organization. If we use third parties to
market and sell our products, we may have limited or no control over their sales, marketing and distribution activities on which our future revenues may
depend.
We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As of March 25, 2019, we had seven full-time employees. As we advance our current and potential product candidates through preclinical studies and
clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these programs. In addition, to meet our
obligations as a public company, we may need to increase our general and administrative capabilities. Our management, personnel and systems currently in
place may not be adequate to support this future growth. If we are unable to successfully manage this growth and increased complexity of operations, our
business may be adversely affected.
We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the intense competition
for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel
and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development
objectives, our ability to raise additional capital and our ability to implement our business strategy.
We are highly dependent on the development, regulatory, commercialization and business development expertise of our management team, key
employees and consultants. Any of our executive officers or key employees or consultants may terminate their employment at any time. If we lose one or
more of our executive officers or key employees or consultants, our ability to implement our business strategy successfully could be seriously harmed.
Replacing executive officers, key employees and consultants may be difficult and may take an extended period of time because of the limited number of
individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
Competition to hire and retain employees and consultants from this limited pool is intense, and we may be unable to hire, train, retain or motivate these
additional key personnel and consultants. Our failure to retain key personnel or consultants could materially harm our business.
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In addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and clinical strategies.
These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability
to us and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another
entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or
technologies that may compete with ours.
We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or
product candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that
later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or
profitable market opportunities. Our spending on current and future research and development programs for product candidates may not yield any
commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through strategic collaboration, licensing or other royalty arrangements in cases in which it would have
been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a
product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or
assume contingent liabilities, and subject us to other risks.
We may evaluate and enter into various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual
property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
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the assumption of additional indebtedness or contingent liabilities;
the issuance of our equity securities;
assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new
personnel;
the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or
acquisition;
retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;
risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or
product candidates and marketing approvals; and
our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or
even to offset the associated acquisition and maintenance costs.
In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire
intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and
this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.
Risks Related to Owning Our Common Stock
The market price of our common stock may be highly volatile, and you may lose all or part of your investment.
The market price of our common stock is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors,
including the following:
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reports of adverse events in other gene therapy products or clinical trials of such products;
inability to obtain additional funding;
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any delay in filing an IND or BLA for any of our current and potential product candidates and any adverse development or perceived adverse
development with respect to the FDA’s review of that IND or BLA;
failure to develop successfully and commercialize our current and potential product candidates;
failure to maintain our existing strategic collaboration or enter into new collaborations;
failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;
changes in laws or regulations applicable to future products;
inability to obtain adequate product supply for our current and potential product candidates or inability to do so at acceptable prices;
adverse regulatory decisions;
introduction of new products, services or technologies by our competitors;
failure to meet or exceed financial projections we may provide to the public;
failure to meet or exceed the financial projections of the investment community;
the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our strategic collaboration
partners or our competitors;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for
our technologies;
additions or departures of key scientific or management personnel;
significant lawsuits, including patent or stockholder litigation;
changes in the market valuations of similar companies;
sales of our common stock by us or our stockholders in the future; and
trading volume of our common stock.
In addition, companies trading in the stock market in general, and The Nasdaq Capital Market in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors
may negatively affect the market price of our common stock, regardless of our actual operating performance.
Nasdaq may delist our securities from its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional
trading restrictions.
Our common stock is listed on The Nasdaq Capital Market. We cannot assure you that, in the future, our securities will meet the continued listing
requirements to be listed on The Nasdaq Capital Market. If The Nasdaq Capital Market delists our common stock, we could face significant material adverse
consequences, including:
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a limited availability of market quotations for our securities;
a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent
rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
a limited amount of news and analyst coverage for our company; and
a decreased ability to issue additional securities or obtain additional financing in the future.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Global credit and financial markets have experienced volatility and disruptions in past years, including severely diminished liquidity and credit
availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. We
cannot assure you that further deterioration in credit and financial markets and confidence in
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economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment
or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary
debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms
could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical
development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive difficult
economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
We have no intention of declaring dividends in the foreseeable future.
The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash,
capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to
fund our operations. Investors in our common stock should not expect to receive dividend income on their investment, and investors will be dependent on the
appreciation of our common stock to earn a return on their investment.
We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will
make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take
advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies,
including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes
on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company
for up to five years following the year in which we completed our initial public offering, although circumstances could cause us to lose that status earlier. We
will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our
initial public offering, (b) in which we have total annual gross revenue of at least $1 billion or (c) in which we are deemed to be a large accelerated filer,
which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which
we have issued more than $1 billion in nonconvertible debt during the prior three-year period.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take
advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore,
will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in
rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes
in our business could significantly affect our financial position and results of operations.
We incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to existing and
new compliance initiatives.
As a public company, we incur, and will continue to incur, significant legal, accounting and other expenses. We are subject to the reporting
requirements of the Exchange Act, which require, among other things, that we file with the Securities and Exchange Commission, or the SEC, annual,
quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted
by the SEC and The Nasdaq Capital Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies,
including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in
July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate
governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas
such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period
and up to five years from their initial public offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to
implement these requirements sooner than budgeted or planned and
72
thereby incur unexpected expenses. Stockholder activism, the political environment and government intervention and regulatory reform may lead to
substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our
business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to continue to result in significant and possibly increasing legal and financial
compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel
from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The costs will decrease
our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For
example, we expect these rules and regulations to make it difficult and expensive for us to obtain and maintain director and officer liability insurance. We
cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could
also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our
financial reports to be inaccurate.
We are required pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, to maintain internal control over financial reporting and to
assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our
internal control over financial reporting.. Although we prepare our financial statements in accordance with accounting principles generally accepted in the
United States of America, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to
implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent
registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become
subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial
statements.
Our management has concluded that our internal controls over financial reporting were, and continue to be, ineffective, and as of the year ended
December 31, 2018, identified a material weakness in our internal controls due to the lack of segregation of duties. While management is working to
remediate the material weakness, there is no assurance that such changes, when economically feasible and sustainable, will remediate the identified material
weaknesses or that the controls will prevent or detect future material weaknesses. If we are not able to maintain effective internal control over financial
reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business.
Failure to continue improving our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls
requirements for publicly traded companies.
As a public company, we operate in a demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002, and the
related rules and regulations of the SEC. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate
internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial
reports and are important to help prevent financial fraud.
Management performed an annual assessment as of December 31, 2018 of the effectiveness of our internal control over financial reporting for its
annual report. Our management concluded that our internal control over financial reporting was, and continues to be, ineffective and as of the year ended
December 31, 2018, due to a material weakness in our internal controls due to the lack of segregation of duties. For as long as we remain an “emerging
growth company” as defined in the JOBS Act, we have and intend to continue to take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We may continue to take advantage of these reporting exemptions until we are
no longer an “emerging growth company.” To remediate the identified material weakness, we engaged an outside firm to assist management with such
accounting and will continue to use outside firms as a resource to deal with other non-recurring or unusual transactions. However, notwithstanding our
remediation efforts, there is no assurance we will not encounter future accounting errors in the future. If we cannot provide reliable financial reports or
prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,”
generally defined as a cumulative change in its equity ownership by “5-percent shareholders” of greater than 50
73
percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and certain
other pre-change tax attributes (such as research tax credits) to offset its post-change taxable income and taxes, as applicable, may be limited. We have
completed multiple rounds of financing since our inception which may have resulted in an ownership change or could result in an ownership change in the
future. We have not completed a Section 382 and 383 analysis regarding any limitations on our NOLs and research and development credit carryforwards and
such limitations could be significant. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a
result, our ability to use our NOLs and research and development credit carryforwards to offset our U.S. federal taxable income and taxes, as applicable, may
be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, similar rules may apply and there
may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market the market price of our
common stock could decline. There were 9,772,516 shares of our common stock outstanding as of March 25, 2019 that are subject to certain resale
restrictions under the securities laws. We are unable to predict the effect that sales of these shares may have on the market price of our common stock. In
addition, as of March 25, 2019, 11,483,449 shares of common stock that are either subject to outstanding options, reserved for future issuance under our
equity incentive plan, subject to outstanding warrants or issuable by us upon the instruction of one of our investors, will become eligible for sale in the public
market to the extent permitted by the provisions of various vesting schedules, lock-up agreements and applicable securities laws, disregarding the ownership
blockers relating to the securities under our 2018 private placement. We intend to file with the SEC a registration statement on Form S-8 under the Securities
Act covering the shares of common stock reserved for issuance under the 2009 Plan, the 2018 Plan and the ESPP. Shares registered under the S-8 registration
statement would be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements
described above, if applicable. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market
price of our common stock could decline If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market,
the market price of our common stock could decline.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in
additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We intend to seek to raise additional funds, and we may finance acquisitions or develop strategic relationships, in each case by issuing equity or
convertible debt securities in addition to the shares issued in our initial public offering, which would reduce the percentage ownership of our existing
stockholders. Our board of directors has the authority, in some instances without action or vote of the stockholders, to issue our authorized but unissued shares
of common or preferred stock. Our amended and restated certificate of incorporation authorizes us to issue up to 200,000,000 shares of voting common stock
and 10,000,000 shares of preferred stock. Future issuances of common or preferred stock would reduce your influence over matters on which stockholders
vote and would be dilutive to earnings per share. In addition, any newly issued preferred stock could have rights, preferences and privileges senior to those of
the common stock. Those rights, preferences and privileges could include, among other things, the establishment of dividends that must be paid prior to
declaring or paying dividends or other distributions to holders of our common stock or providing for preferential liquidation rights. These rights, preferences
and privileges could negatively affect the rights of holders of our common stock, and the right to convert such preferred stock into shares of our common
stock at a rate or price that would have a dilutive effect on the outstanding shares of our common stock.
Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under our 2018 Plan is 6,788,749 shares.
Additionally, the number of shares of our common stock reserved for issuance under our 2018 Plan will automatically increase on January 1 of each year,
beginning on January 1, 2019 and continuing through and including January 1, 2028, by 5% of the total number of shares of our capital stock outstanding on
December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. Unless our board of directors elects not to
increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to
fall.
If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our common
stock, then our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our
industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our common stock could be severely limited
and our stock price could be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could
74
cause our stock price or trading volume to decline. If one or more analysts who elect to cover us issue negative reports or adversely change their
recommendations regarding our common stock, our stock price could decline.
The concentration of our common stock ownership by our current management may limit your ability to influence corporate matters.
Our directors and executive officers beneficially own and are able to vote in the aggregate approximately 32.9% of our outstanding common stock,
assuming the exercise of all outstanding options held by our directors and executive officers. Accordingly, our directors and executive officers, as
stockholders, will continue to have the ability to exert significant influence over all corporate activities, including the election or removal of directors and the
outcome of tender offers, mergers, proxy contests or other purchases of common stock that could give our stockholders the opportunity to realize a premium
over the then-prevailing market price for their shares of common stock. This concentrated control will limit the ability of other stockholders to influence
corporate matters. In addition, such concentrated control could discourage others from initiating changes of control. In such cases, the perception of our
prospects in the market may be adversely affected and the market price of our common stock may decline.
Certain provisions in our organizational documents could enable our board of directors to prevent or delay a change of control.
Our organizational documents contain provisions that may have the effect of discouraging, delaying or preventing a change of control of, or
unsolicited acquisition proposals, that a stockholder might consider favorable. These include provisions:
•
•
•
•
•
•
•
•
•
•
requiring a majority vote of the outstanding shares of common stock to amend the bylaws;
providing that the authorized number of directors may be changed only by resolution of the board of directors;
providing that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at
least 66-2/3% of the voting power of all of our then outstanding common stock;
providing that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote
of a majority of directors then in office, even if less than a quorum;
dividing our board of directors into three classes;
requiring that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be
taken by written consent;
providing that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at
a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a
stockholder’s notice;
that do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in
any election of directors to elect all of the directors standing for election, if they should so choose);
providing that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the
board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and
providing that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding
brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our
stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our
certificate of incorporation or bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine. This exclusive
forum provision may limit a stockholder’s ability to bring such an action in a judicial forum that it finds favorable for such actions and may
discourage such actions.
Furthermore, our board of directors has the authority to issue shares of preferred stock in one or more series and to fix the rights and preferences of
these shares without stockholder approval. Any series of preferred stock is likely to be senior to our common stock with respect to dividends, liquidation
rights and, possibly, voting rights. The ability of our board of directors to issue preferred stock also could have the effect of discouraging unsolicited
acquisition proposals, thus adversely affecting the market price of our common stock.
In addition, Delaware law makes it difficult for stockholders that recently have acquired a large interest in a corporation to cause the merger or
acquisition of the corporation against the directors’ wishes. Under Section 203 of the Delaware General Corporation
75
Law, a Delaware corporation may not engage in any merger or other business combination with an interested stockholder for a period of three years following
the date that the stockholder became an interested stockholder except in limited circumstances, including by approval of the corporation’s board of directors.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate and executive offices are in located in leased facilities in Austin, Texas and Cambridge, Massachusetts. The Austin lease expires on
April 30, 2019. We are currently negotiating a renewal of the lease. The Cambridge lease is month-to-month. We believe our current facilities and those that
we believe are available to us are sufficient to meet our current needs and that suitable space will be available as and when needed. We do not own any real
property.
Item 3. Legal Proceedings.
We are not subject to any litigation.
In October 2017, we received an informal demand from a former financial advisor, claiming that it is entitled to a warrant to purchase shares of
common stock equal to three percent of our outstanding shares as of December 1, 2015, with “piggyback” registration rights. We believe this asserted claim
lacks merit, and we intend to defend the claim vigorously. We have not reflected any expense or any effect on our capitalization or otherwise related to this
demand because it is not yet possible to determine whether any effect is probable or reasonably estimable.
Item 4. Mine Safety Disclosures.
Not applicable.
76
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock began trading on the NASDAQ Capital Market under the symbol “GNPX” on March 29, 2018. Prior to that date, there was no
PART II
public trading market for our common stock.
Holders of Record
As of March 25, 2019, there were approximately 249 stockholders of record of our common stock. The actual number of stockholders is greater than
this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
This number of holders of record also does not include stockholders whose shares may be held in trust or by other entities.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in
the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare
dividends will be made at the discretion of our board of directors and will depend on, among other factors, our financial condition, operating results, capital
requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. In addition, the terms of
our loan and security agreement prohibit us from paying cash dividends.
Securities Authorized for Issuance Under Our Equity Compensation Plans
Information regarding securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12,
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of Part III of this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
During the 12 months ended December 31, 2018, we issued and sold the following unregistered securities (excluding those previously disclosed in a
Quarterly Report on Form 10-Q or in a Current Report on Form 8-K) :
(1)
(2)
On November 19, December 21 and December 31, 2018, we issued an aggregate of 133,167 shares of our common stock to consultants in
consideration of services provided by the consultants.
On November 2, 2018, we granted options to purchase an aggregate of 955,908 shares of our common stock under our 2018 Equity Incentive Plan to
two of our directors and one of our employees.
The offers, sales and issuances of the securities described in paragraph (1) were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) (or Regulation D promulgated thereunder) in that the issuance of securities to the accredited investors did not involve a public
offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these
transactions was an accredited investor under Rule 501 of Regulation D.
The offer, sale and issuance of the securities described in paragraph (2) were deemed to be exempt from registration under the Securities Act in
reliance on either Rule 701 thereunder in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided
under Rule 701 or Section 4(2) in that the issuance of securities to the accredited investors did not involve a public offering. The recipient of such securities
was our employee and received the securities under our 2009 Plan.
Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information
about us.
77
Use of Proceeds
On December 29, 2017, our Registration Statement on Form S-1, as amended (file No. 333-219386) was declared effective by the SEC for our initial
public offering of common stock. We issued 1,280,000 shares of common stock at an offering price of $5.00 per share for gross proceeds of $6.4
million. After deducting underwriting discounts, commissions and offering costs incurred by us of $1.375 million, the net proceeds from the offering were
$5.025 million. The offering was completed on April 3, 2018. The lead underwriter for the offering was Network 1 Financial Securities, Inc. No offering
costs were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities, or to
any of our affiliates.
As of December 31, 2018, we had used all of the net proceeds received from our initial public offering, primarily in advancing Oncoprex through
Phase I/II clinical trials, manufacturing pre-commercial clinical trial and preclinical study materials, conducting IND-enabling activities for Oncoprex and for
working capital and general corporate purposes. There was no material change in the use of proceeds from our initial public offering from the planned use as
described in our final prospectus filed with the Securities and Exchange Commission on March 29, 2018.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” and our financial statements and the related notes thereto, each included elsewhere in this Annual Report on Form 10-K.
The statements of operations data for the years ended December 31, 2018 and 2017 and the balance sheet data as of December 31, 2018 and 2017
are derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative
of the results that may be expected in any future period.
Statement of Operations Data:
Revenues
Depreciation
Research and development expense
General and administrative expense
Net loss
Net loss per share—basic and diluted
Weighted average number of common shares—basic and
diluted
Balance Sheet Data:
Cash and cash equivalents
Working capital (deficit)
Total assets
Accumulated deficit
Total stockholders’ equity
78
Year Ended December 31,
2017
2018
$
— $
5,885
971,427
11,386,229
$ (12,372,339) $
(0.90) $
$
—
3,242
289,934
3,019,171
(3,314,157)
(0.29)
13,771,020
11,500,032
As of December 31,
2018
2017
$
8,600,918 $
8,459,245
9,268,956
(29,824,691)
8,881,135
161,251
(637,390)
1,259,538
(17,452,352)
428,574
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain forward-looking
statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based
on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by
these statements. Factors that may cause differences between actual results and those contemplated by forward- looking statements include, but are not
limited to, those discussed in “Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, including any changes
that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot
guarantee future results, events, levels of activity, performance, or achievements.
Overview
Genprex™ is a clinical stage gene therapy company developing a new approach to treating cancer, based upon our novel proprietary technology
platform, including our initial product candidate, Oncoprex™ immunogene therapy, or Oncoprex. Our platform technologies are designed to encapsulate
cancer fighting genes into nanoscale hollow spheres called nanovesicles, which are then administered intravenously and taken up by tumor cells where they
express proteins that are missing or found in low quantities and modulate the immune environment to restore defective cancer fighting functions. We hold an
exclusive worldwide license from The University of Texas MD Anderson Cancer Center, or MD Anderson, to patents covering the therapeutic use of a series
of genes that have been shown in preclinical and clinical research to have cancer fighting properties. Researchers at MD Anderson have conducted a Phase I
clinical trial and the Phase I portion of a Phase I/II clinical trial and are conducting the Phase II portion of that Phase I/II clinical trial in non-small cell lung
cancer, or NSCLC. MD Anderson researchers have collaborated with other researchers to identify other genes, such as those in the 3p21.3 chromosomal
region, that may act as tumor suppressors or have other cancer fighting functions. Data from preclinical studies performed by others suggest that product
candidates that could be derived from our technology platform could be effective against other types of cancer, including breast, head and neck, renal cell
(kidney), and soft tissue cancer, as well as NSCLC. Therefore, our platform technologies may allow delivery of a number of cancer fighting genes, alone or in
combination with other cancer therapies, to combat multiple types of cancer.
On April 3, 2018, we completed our initial public offering, in which we sold an aggregate of 1,280,000 shares of our common stock at $5.00 per share,
resulting in net proceeds of $5.025 million after underwriting discounts, commissions, and offering expenses. On May 9, 2018, we completed a private
placement, in which we sold an aggregate of 828,500 shares of our common stock at $12.07 per share, resulting in net proceeds of $9.250 million after
underwriting discounts, commissions, and offering expenses.
JOBS Act and Recent Accounting Pronouncements
The JOBS Act, enacted in 2012, provides that an “emerging growth company” can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably
elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on
which adoption of such standards is required for other public companies.
We have implemented all new accounting pronouncements that are in effect and may affect our financial statements and we do not believe that there
are any other new accounting pronouncements that have been issued that would have a material impact on our financial position or results of operations.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our
estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and
they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently
uncertain.
79
Research and Development Costs
We record accrued expenses for costs invoiced from research and development activities conducted, on our behalf, by third-party service providers,
which include the conduct of pre-clinical studies and clinical trials and use of contract research and manufacturing activities. We record the costs of research
and development activities based upon the amount of services provided, and we include these costs in accrued liabilities in the balance sheets and within
research and development expense in the statement of operations. These costs are a significant component of our research and development expenses.
We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of
completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued
balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially
different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate of
patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued
expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers.
To date, there have been no material differences from our accrued expenses to actual expenses.
Income Taxes
Deferred tax assets or liabilities are recorded for temporary differences between financial statement and tax basis of assets and liabilities, using enacted
rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that a deferred tax
asset will not be realized. We have provided a full valuation allowance on our deferred tax assets, which primarily consist of cumulative net operating losses
from April 1, 2009 (inception) to December 31, 2018. Due to our history of operating losses since inception and losses expected to be incurred in the
foreseeable future, a full valuation allowance was considered necessary.
Impairment of Long-Lived Assets
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to
expense the difference between the fair value of such asset and its carrying value.
Components of our Results of Operations and Financial Condition
Operating expenses
We classify our operating expenses into three categories: research and development, general and administrative, and depreciation.
Research and development. Research and development expenses consist primarily of:
•
•
•
•
costs incurred to conduct research, such as the discovery and development of our current and potential product candidates;
costs related to production and storage of clinical supplies, including fees paid to contract manufacturers, manufacturing consultants, and cold-
storage facilities;
fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and
monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as patient screening fees, laboratory
work, and statistical compilation and analysis; and
costs related to compliance with drug development regulatory requirements.
We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs
incurred by third parties are expensed as the contracted work is performed.
We expect our research and development expenses to increase in the future as we advance our current and potential product candidates into and
through clinical trials and pursue regulatory approval of our current and potential product candidates in the United States and Europe. The process of
conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our current and
potential product candidates may be affected by a variety of factors
80
including the quality of our current and potential product candidates, early clinical data, investment in our clinical program, competition, manufacturing
capability and commercial viability. We may never succeed in achieving regulatory approval for any of our current and potential product candidates. As a
result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when
and to what extent we will generate revenue from the commercialization and sale of our current and potential product candidates.
General and administrative. General and administrative expense consists of personnel related costs, which include salaries, as well as the costs of
professional services, such as accounting and legal, travel, facilities, information technology and other administrative expenses. We expect our general and
administrative expense to increase in future periods due to the anticipated growth of our business and related infrastructure as well as accounting, insurance,
investor relations, and other costs associated with being a public company.
Depreciation. Depreciation expense consists of depreciation on our property and equipment. We depreciate our assets over their estimated useful life.
We estimate computer and office equipment to have a 5-year life.
Results of Operations
Comparison of the Years Ended December 31, 2018 and 2017
The following summarizes our results of operations for the years ended December 31, 2018 and 2017.
Research and Development Expense. Research and development expense consists primarily of the discovery and development of our current and
potential product candidates; costs related to production of clinical supplies, including fees paid to contract manufacturers, fees paid to clinical consultants,
clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and
evaluating clinical trial data; and costs related to compliance with drug development regulatory requirements.
Research and development expense was $971,427 for the year ended December 31, 2018 as compared to $289,934 for the year ended December 31,
2017. This increase of $681,493 was due to the Company’s focus on improving clinical strategies, expanding research activities, refining existing
manufacturing processes, and developing new manufacturing and logistics processes to support future research and development activities.
We expect research and development expense to increase in future periods as we expand our clinical programs to a greater number of sites and our
research programs to include new therapy combinations.
General and Administrative Expense. General and administrative expense primarily consists of personnel costs, travel, information technology,
facilities, and professional service fees. Professional services fees primarily consist of legal, accounting and consulting costs.
General and administrative expense for the year ended December 31, 2018 was $11,386,229 as compared to $3,019,171 for the year ended December
31, 2017. The $8,367,058 increase in general and administrative expense is related primarily to a larger than normal equity-based compensation amount
issued in 2018 to recruit and retain executive leadership, board members, and technical experts to our team. Excluding this expense, an increase of $4,225,568
for the year ended December 31, 2018 versus December 31, 2017 was primarily due to increased headcount, associated office space and employee-related
expenses, and expenses related to the Company’s initial public offering and private placement.
Interest Income. Interest income was $29,184 and $80 for the years ended December 31, 2018 and 2017, respectively. This increase of $29,104 was
entirely due to utilization of money market instruments in the year ended December 31, 2018.
Interest Expense. Interest expense was $37,982 and $1,890 for the years ended December 31, 2018 and 2017, respectively. This increase of $36,092
was entirely due to increase in utilization of debt in 2018 as we prepared for our initial public offering.
Depreciation Expense. Depreciation expense was $5,885 and $3,242 for the years ended December 31, 2018 and 2017, respectively. Depreciation is
generated from our fixed assets, which consist only of computer equipment at this time. The increase of $2,643 in depreciation is due to additional equipment
purchased and utilized by new employees during the year ended in December 31, 2018.
81
Liquidity and Capital Resources
From our inception through December 31, 2018, we have never generated revenue from product sales and have incurred net losses in each year since
inception. As of December 31, 2018, we had an accumulated deficit of $29,824,691. Prior to our initial public offering, we funded our operations primarily
through the sale and issuance of preferred stock. In connection with our initial public offering, we converted all preferred stock to common stock and
forward-split the common stock on a 6.6841954-to-1 basis. During 2017, we sold 22,473 shares of Series G preferred stock at $35.33 per share or 150,211
shares of common stock at $5.29 per share taking into account the conversion and forward-split, for a total of $793,971.
On April 3, 2018, we completed our initial public offering, whereby we sold 1,280,000 shares of common stock for net proceeds of $5,025,000. On
May 9, 2018, we completed a private placement whereby we sold 828,500 shares of common stock for net proceeds of $9,250,000 and issued warrants to
purchase shares of common stock. On August 1, 2018, pursuit to the terms of the private placement purchase agreement, we issued to the original investors of
the private placement an aggregate of 1,174,440 additional shares of our common stock.
As of December 31, 2018, we had $8,600,918 in cash.
We believe the net proceeds of our recent public offering, together with the cash at December 31, 2018, will be sufficient to meet our cash, operational
and liquidity requirements for at least 15 months.
We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and
begin to commercialize one or more of our current and potential product candidates, which we expect will take a number of years and which is subject to
significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations. Until such time as we can
generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt
financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into
such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay,
limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we
would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full.
Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market
conditions or strategic considerations.
The following table sets forth the primary sources and uses of cash for the years ended December 31, 2018 and 2017:
Net cash used in operating activities
Net cashed used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash
$
Years Ended December 31,
2017
2018
(2,171,594)
(6,846,534) $
(63,421)
(103,317)
793,971
15,389,518
(1,441,044)
8,439,667
Cash used in operating activities
Net cash used in operating activities was $6,846,534 and $2,171,594 for the years ended December 31, 2018 and 2017, respectively. The $4,674,940
increase in net cash used in operating activities was primarily due to increased general and administrative and research and development expenses in 2018 to
support increased operations during the year..
Cash used in investing activities
Net cash used in investing activities was $103,317 and $63,421 for the years ended December 31, 2018 and 2017, respectively. The increase in net
cash used in investing activities of $39,896 was due to increased patent prosecution expenses necessary to protect our intellectual property and greater
spending on computer equipment used by employees during the year ended December 31, 2018.
Cash provided by financing activities
Net cash provided by financing activities was $15,389,518 and $793,971 for the years ended December 31, 2018 and 2017, respectively. The increase
of $14,595,547 in net cash provided by financing activities was due to the Company’s initial public offering and private placement.
82
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our
investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in securities of high
credit quality. As of December 31, 2018, we had cash of $8,600,918 consisting of cash and investments in money market funds. A significant portion of our
investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are primarily short-
term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in market interest rates would not have a significant
impact on the total value of our portfolio. We actively monitor changes in interest rates.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this item are included after Part IV of this Annual Report on Form 10-K beginning on
page F-1.
83
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management with the participation of our Chief Executive Officer and our
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018. The term “disclosure controls and
procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer
and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our principal executive officer and our principal accounting and financial officer are responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management conducted an assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria described in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management concluded that
our internal controls over financial reporting were, and continue to be, ineffective as of December 31, 2018 due to a material weakness in our internal controls
due to the lack of segregation of duties.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the
objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events.
Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
In light of the material weakness described below, we performed additional analysis and other post-closing procedures to ensure our financial
statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this
report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
During the last quarter of fiscal 2018 and as our operational activities increased, management determined and continues to determine that it does not
have sufficient segregation of duties within its accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting
duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets
and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to maintain effective
segregation of duties on our assessment of our internal control over financial reporting and has concluded that the control deficiency represents a material
weakness. Management intends to further increase its accounting staff and enhance its system of financial accounting and reporting, as soon as economically
feasible and sustainable, to remediate this material weakness.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2018 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Internal Control over Financial Reporting
84
Because of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent material
errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks,
including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may
deteriorate.
Item 9B. Other Information.
None.
85
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item and not set forth below will be contained in our definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with our 2019 Annual Meeting of Stockholders, or the Proxy Statement, which is expected to be filed not later than 120
days after the end of our fiscal year ended December 31, 2018, and is incorporated herein by reference.
We have adopted a written Code of Business Conduct and Ethics, or Ethics Code, that applies to all officers, directors and employees, including our
principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Ethics Code is
available on our website at www.genprex.com. If we make any substantive amendments to the Ethics Code or grant any waiver from a provision of the Ethics
Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website or in a current report on Form 8-K.
Item 11. Executive Compensation.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
86
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1)
Financial statements.
The financial statements and supplementary data required by this item begin on page F-1.
(a)(2)
Financial Statement Schedules.
All schedules are omitted because the required information is inapplicable or the information is presented in the financial statements and the related
notes.
(a)(3)
Exhibits.
87
Exhibit
Number
3.1
Description of Exhibit
Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Current
Report on Form 8-K filed on April 10, 2018.
EXHIBIT INDEX
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1+
10.2+
10.3+
10.4+
10.5+
Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed
on April 10, 2018.
Form of Common Stock Certificate of the Registrant, incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on
Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Texas Emerging Technology Fund Award and Security Agreement dated August 13, 2010 by and between the Registrant and The State of
Texas, incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-219386, as amended,
originally filed on July 21, 2017.
Investment Unit, dated August 13, 2010, issued to the State of Texas, incorporated by reference to Exhibit 4.3 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Warrant Agreement, dated December 17, 2015, issued to DABS Advanced Biotech Solutions, LLC, incorporated by reference to Exhibit 4.4 of
the Registrant’s Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Warrant Agreement, dated December 17, 2015, issued to DABS Advanced Biotech Solutions, LLC, incorporated by reference to Exhibit 4.5 of
the Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Warrant Agreement, dated November 3, 2016, issued to Viet Ly, incorporated by reference to Exhibit 4.6 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Form of Underwriter’s Warrant Agreement, incorporated by reference to Exhibit 4.7 of the Registrant’s Registration Statement on Form S-1
(File No. 333-219386), as amended, originally filed on July 21, 2017.
Form of Warrant, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on May 10, 2018.
Warrant Agreement, dated July 27, 2018, issued to Cancer Revolution, LLC, incorporated by reference to Exhibit 4.1 of the Registrant’s
Current Report on Form 8-K filed on August 6, 2018.
Warrant Agreement, dated July 27, 2018, issued to Inception Capital Management, LLC, incorporated by reference to Exhibit 4.1 of the
Registrant’s Current Report on Form 8-K filed on August 6, 2018.
Warrant Agreement, dated July 27, 2018, issued to Cancer Biotech, LLC, incorporated by reference to Exhibit 4.1 of the Registrant’s Current
Report on Form 8-K filed on August 6, 2018.
Form of Indemnity Agreement by and between the Registrant and its directors and officers, incorporated by reference to Exhibit 10.1 of the
Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Registrant’s 2009 Equity Incentive Plan and Forms of Grant Notices and Agreements thereunder, incorporated by reference to Exhibit 10.2 of
the Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Genprex, Inc. 2018 Equity Incentive Plan and Forms of Stock Option Grant Notice, Option Agreement and Notice of Exercise thereunder,
incorporated by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K filed April 17, 2018.
Genprex, Inc. 2018 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K
filed April 17, 2018.
Genprex, Inc. Non-Employee Director Compensation Policy, incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on
Form 8-K filed on November 8, 2018.
88
Exhibit
Number
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15+
10.16+
10.17+
10.18
10.19
10.20
10.21+
Description of Exhibit
Patent and Technology License Agreement dated effective July 20, 1994, by and between the Board of Regents of the
University of Texas System, The University of Texas M.D. Anderson Cancer Center and Intron Therapeutics, Inc., incorporated by reference to
Exhibit 10.6 of the Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Amendment No. 3 to Patent and Technology License Agreement dated October 4, 2001, incorporated by reference to Exhibit 10.7 of the
Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Technology Sublicense Agreement effective March 7, 2007, by and between Introgen Therapeutics, Inc., and Introgen Research Institute, Inc.,
incorporated by reference to Exhibit 10.8 of the Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally
filed on July 21, 2017.
Assignment and Collaboration Agreement effective April 13, 2009, by and between Gensolve, Inc. and the Registrant, incorporated by
reference to Exhibit 10.9 of the Registrant's Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July
21, 2017.
Technology License Agreement dated as of February 26, 2010, by and between Introgen Research Institute, Inc. and P53, Inc., incorporated by
reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July
21, 2017.
Technology Sublicense Agreement effective June 1, 2011, by and between the Registrant and Introgen Research Institute, Inc., incorporated by
reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July
21, 2017.
Amended Collaboration and Assignment Agreement effective July 1, 2011, by and between Introgen Research Institute, Inc. and the Registrant,
incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1 (File No. 333-219386), as amended,
originally filed on July 21, 2017.
Clinical Study Agreement dated February 10, 2014, by and between The University of Texas M.D. Anderson Cancer Center and the Registrant,
incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1 (File No. 333-219386), as amended,
originally filed on July 21, 2017.
Amendment No. 1 to Clinical Study Agreement dated June 25, 2015, incorporated by reference to Exhibit 10.15 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-219386), as amended, originally filed on July 21, 2017.
Amended and Restated Executive Employment Agreement, dated May 23, 2018, by and between the Registrant and Julien L. Pham, M.D.,
M.P.H., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on May 30, 2018.
Executive Employment Agreement dated April 13, 2018, by and between the Registrant and Rodney Varner, incorporated by reference to
Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K filed on April 17, 2018.
Executive Employment Agreement dated April 13, 2018, by and between the Registrant and Ryan Confer, incorporated by reference to Exhibit
10.17 of the Registrant’s Annual Report on Form 10-K filed on April 17. 2018.
Master Service Agreement dated March 9, 2018, by and between the Registrant and World Wide Holdings, LLC d/b/a Invictus Resources,
incorporated by reference to Exhibit 10.22 of the Registrant’s Registration Statement on Form S-1 (File No. 333-219386), as amended,
originally filed on July 21, 2017.
Securities Purchase Agreement dated as of May 6, 2018, by and between the Registrant and the persons named on the signature pages thereto,
incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on May 10, 2018.
Form of Registration Rights Agreement, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on
May 10, 2018.
Consulting Agreement, dated August 13, 2018, by and between the Registrant and Viet Ly, incorporated by reference to Exhibit 10.1 of the
Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2018.
23.1*
Consent of Independent Registered Public Accounting Firm.
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
89
Exhibit
Number
Description of Exhibit
31.2*
32.1*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance document.
101.SCH* XBRL Taxonomy Extension Schema Document.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Document
*
+
Filed herewith.
Indicates management contract or compensatory plan.
Item 16. Form 10–K Summary.
None.
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 29, 2019
GENPREX, INC.
By: /s/ J. Rodney Varner
J. Rodney Varner
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints J. Rodney Varner and
Ryan M. Confer as his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
Signature
/s/ J. Rodney Varner
J. Rodney Varner
/s/ Ryan M. Confer
Ryan M. Confer
/s/ John N. Bonfiglio, PhD
John N. Bonfiglio, PhD
/s/ David E. Friedman
David E. Friedman
/s/ Robert W. Pearson
Robert W. Pearson
Title
Chief Executive Officer and
Member of the Board of Directors
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
March 29, 2019
March 29, 2019
Member of the Board of Directors
March 29, 2019
Member of the Board of Directors
March 29, 2019
Member of the Board of Directors
March 29, 2019
91
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Genprex, Inc.
Austin, Texas
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Genprex, Inc. (the “Company”) at December 31, 2018 and 2017, and the related statements of
operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December
31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Daszkal Bolton LLP
We have served as the Company’s auditor since 2014.
Boca Raton, FL
March 29, 2019
F-2
Genprex, Inc.
Balance Sheets
Assets
2018
2017
$
$
$
8,600,918 $
9,297
236,851
8,847,066
24,354
-
18,085
379,451
397,536
161,251
8,844
23,479
193,574
7,804
759,591
-
298,569
1,058,160
9,268,956 $
1,259,538
295,069 $
92,752
387,821
—
629,074
201,890
830,964
—
Current assets:
Cash
Accounts receivable
Prepaid expenses and other
Total current assets
Property and equipment, net
Other assets:
Deferred offering costs
Security deposits
Intellectual property, net
Total other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses
Other current liabilities
Total current liabilities
Investment unit
Commitments and contingencies
Stockholders' equity:
Common stock $0.001 par value: 200,000,000 shares authorized;
15,239,148 and 11,721,584 shares issued and outstanding, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
15,240
11,721
38,690,586
(29,824,691)
8,881,135
17,869,205
(17,452,352)
428,574
Total liabilities and stockholders' equity
$
9,268,956 $
1,259,538
See accompanying notes to the financial statements
F-3
Genprex, Inc.
Statements of Operations
Year Ended
December 31,
2018
2017
$
—
$
—
5,885
971,427
11,386,229
12,363,541
3,242
289,934
3,019,171
3,312,347
(12,363,541)
(3,312,347)
29,184
(37,982)
(8,798)
80
(1,890)
(1,810)
$
(12,372,339)
$
(3,314,157)
(0.90)
(0.29)
Revenues
Cost and expenses:
Depreciation
Research and development
General and administrative
Total costs and expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Other expense
Net loss
Net loss per share
Weighted average number of shares
Weighted average number of common shares (basic and diluted)
13,771,020
11,500,032
See accompanying notes to the financial statements
F-4
Genprex, Inc.
Statements of Changes in Stockholders’ Equity
Common Stock
Preferred Stock
Amount
$
Amount
$
Balance at December 31, 2016
Issuance of stock for cash
Issuance of stock for services
Share based compensation
Net loss
Balance at December 31, 2017
Issuance of stock for cash
Issuance of stock for services
Share based compensation
Net loss
Balance at December 31, 2018
Shares
11,364,167
150,211
207,206
—
—
11,721,584
3,282,940
234,624
—
—
15,239,148
$
$
11,364
150
207
—
—
11,721
3,284
235
—
—
15,240
Shares
—
—
—
—
—
—
—
—
—
—
—
$
$
Additional
Paid-In
Capital
$ 15,751,699
793,821
1,095,023
228,662
—
$ 17,869,205
15,386,234
553,068
4,882,079
—
$ 38,690,586
Accumulated
Deficit
Total
—
—
—
(3,314,157)
$ (17,452,352) $
$ (14,138,195) $ 1,624,868
793,971
1,095,230
228,662
(3,314,157)
428,574
15,389,518
553,303
4,882,079
(12,372,339) (12,372,339)
$ (29,824,691) $ 8,881,135
—
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying notes to the financial statements
F-5
Genprex, Inc.
Statements of Cash Flows
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Share based compensation
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other
Deposits
Deferred offering costs
Accounts payable and accrued expenses
Net cash used in operating activities
Cash flows from investing activities:
Additions to property and equipment
Additions to intellectual property
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuances of common stock
Net cash provided by financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
2018
2017
$
(12,372,339)
$
(3,314,157)
5,885
5,435,382
(453)
(213,372)
(18,085)
759,591
(443,143)
(6,846,534)
(22,435)
(80,882)
(103,317)
15,389,518
15,389,518
3,242
1,323,892
(663)
4,873
—
(734,084)
545,303
(2,171,594)
(5,889)
(57,532)
(63,421)
793,971
793,971
8,439,667
(1,441,044)
161,251
1,602,295
$
8,600,918
$
161,251
See accompanying notes to the financial statements
F-6
Genprex, Inc.
Notes to Financial Statements
Note 1 – Description of Business and Basis of Presentation
Genprex, Inc. ("we" or "the Company"), is a clinical stage gene therapy company developing a new approach to treating cancer, based upon a novel
proprietary technology platform, including our initial product candidate, Oncoprex immunogene therapy for non-small cell lung cancer (NSCLC). Our
platform technologies are designed to administer cancer fighting genes by encapsulating them into nanoscale hollow spheres called nanovesicles, which are
then administered intravenously and taken up by tumor cells where they express proteins that are missing or found in low quantities. Oncoprex has a
multimodal mechanism of action whereby it 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. Oncoprex has also been shown to block
mechanisms that create drug resistance.
We are subject to all the risks inherent in a start-up company in the biopharmaceutical industry. The biopharmaceutical industry is subject to rapid and
technological change. We have numerous competitors, including major pharmaceutical and chemical companies, specialized biotechnology firms, universities
and other research institutions. These competitors may succeed in developing technologies and products that are more effective than any that are being
developed by us or that would render our technology and products obsolete and noncompetitive. Many of these competitors have substantially greater
financial and technical resources than us. In addition, many of our competitors have significantly greater experience than us in pre-clinical testing and human
clinical trials of new or improved pharmaceutical products and in obtaining Food and Drug Administration (“FDA”) and other regulatory approvals on
products for use in health care.
Capital Requirements, Liquidity and Going Concern Considerations
Our financial statements are prepared using the generally accepted accounting principles 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 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 patents.
Management recognizes that we must obtain additional resources to successfully commercialize our intellectual property. 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 will continue to be materially affected. These 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 accompanying audited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and reflect
all adjustments, which are of a normal and recurring nature, that are, in the opinion of management, necessary for a fair presentation of our financial position
and results of operations for the related periods. The results of operations for any interim periods are not necessarily indicative of results to be expected for
the full year. A summary of our significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
Capital Stock
In connection with the Company’s completed IPO (see Subsequent Events Note) 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.
F-7
Use of Estimates
The preparation of our 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 financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Cash
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 no cash equivalents, and had $8,465,768 and $0 in excess of
FDIC insured limits of $250,000 at December 31, 2018 and December 31, 2017 respectively.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses approximate fair value because of the immediate or
short-term maturity of these financial instruments.
ASC 820 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 Materials Costs
Research and development expenditures are comprised of costs incurred to conduct research and development activities. These include payments to
collaborative research partners, including wages and associated employee benefits, facilities and overhead costs. These expenditures relate to Phase 1 and 2
clinical trials and are expensed as incurred. Purchased materials to be used in future research are capitalized and included in prepaid expenses.
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 during 2010 and 2011. The award proceeds were used for the development and future commercialization of our nanomolecular therapy product for
the treatment of cancer. In consideration for the award, we provided the TETF with an "Investment Unit", consisting of (i) a Promissory Note ("Note") and
(ii) a right to purchase our equity shares ("Warrant"). The funds received for this award were assigned to the Investment Unit, and classified separately from
equity as "mezzanine" in the balance sheet.
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 external legal and related costs associated with patents and other proprietary technology acquired, licensed by, or maintained
by us that we believe contribute to a probable economic benefit toward such patents and activities. These
F-8
legal costs incurred in connection with the 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.
Financial Instruments
We have elected the Fair Value Option to account for the Investment Unit at fair value as a combined hybrid financial instrument containing a Warrant and a
Note (see Investment Unit Note). Prior to its exercise, the Warrant component was not classified within equity, as the exercise price of the warrants was
affected by the market price of our stock in a future qualifying financing transaction and was not considered to be indexed to our own stock. The Note is not
classified within liabilities, as our management can determine the timing of the repayment obligation, if any. As a result, the Warrant and Note that comprised
the Investment Unit were aggregated and classified within the mezzanine section of the balance sheet.
Due to the contingent terms of the financial instruments, changes in the fair value of the Investment Unit were calculated and realized in earnings. There
were no changes in the fair value of the Investment Unit at December 31, 2018.
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 years ended December 31, 2018 and December 31, 2017, there were no
deemed impairments of our long-lived assets.
Recent Accounting Developments
Accounting pronouncements issued but not effective until after December 31, 2018 are not expected to have a significant effect on our financial condition,
results of operations, or cash flows.
Note 3 – Intellectual Property
We have exclusive license agreements on thirty two (32) issued and one (1) allowed patent for technologies developed by researchers at the National Cancer
Institute, The University of Texas MD Anderson Cancer Center, and The University of Texas Southwestern Medical Center. 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 – Investment Unit
The Texas Emerging Technology Fund (“TETF”) was created as an incentive for economic development to the Texas economy by providing financial support
that leverage private investment for the creation of high-quality technology jobs in Texas. The award received required us to comply with certain performance
conditions to ensure the monies the Company received were used for development activities in the state of Texas, and that we maintained our corporate nexus
in Texas. Further, in connection with the award, the Company issued an Investment Unit to the TETF. As further described below, the Investment Unit
consists of a Promissory Note and a Right to Purchase:
Promissory Note
The Promissory Note is an obligation to repay the $4.5 million principal amount, with interest accrued at 8% per annum, but only if an event of default occurs
prior to August 13, 2020. If no event of default occurs prior to August 13, 2020, the Promissory Note and all related interest will be cancelled.
Consistent with the stated objectives of the TETF, an event of default that would trigger the repayment obligation under the Promissory Note is our failure to
maintain our principal place of business or our principal executive offices headquartered in the State of Texas (referred to as the “Residency Requirement”)
until August 13, 2020.
F-9
Warrant
The Warrant is an obligation to issue (a Right to purchase by the TETF) shares of the same class of stock to be issued in a “First Qualifying Financing
Transaction,” at 80% of the per share transaction value (effectively a 20% discount). Alternatively, the TETF could exercise its right to purchase at any time
prior to the occurrence of a First Qualifying Financial Transaction for $0.001 per share.
The Warrant included a provision that required changes in the strike price, driven by the pricing of the “First Qualifying Financing Transaction.” As a result,
the Warrants embedded in the Investment Unit were accounted for as a derivative financial instrument and classified outside from equity under ASC 815-40-
15 as the settlement adjustment from the future transaction did not permit for the strike price to be considered fixed.
On March 12, 2014, the TETF exercised its Right to Purchase for $0.001 per share, and we issued to the TETF an aggregate of 184,797 shares of our Series B
preferred stock. Upon completion of the Company’s IPO, the TETF’s shares were converted to Common Stock and forward-split resulting in 1,235,219 shares
of Common Stock.
Accounting for the Investment Unit
We accounted for the Investment Unit as a hybrid financial instrument under FASB Statement 155, and measured the Investment Unit at the amount of
proceeds received from the TETF award. The First Qualifying Financial Transaction occurred during December 2013, resulting in an adjustment to the fair
value of the Investment Unit in the amount of approximately $2.5 million. The TETF exercised the Warrant for $0.001 per share. We received notice of
purchase from the TETF during March 2014, and issued 184,797 shares of series B Preferred Stock, which has since been converted to 1,235,219 shares of
Common Stock upon completion of the Company’s IPO. Upon exercise by the TETF of the Warrant, the remaining component within the Investment Unit
was the Promissory Note. The Investment Unit was valued at zero, because our obligation to repay the Promissory Note arises from an event of default (a
failure to maintain the Texas Residency Requirement), which is an event which rests entirely within our control.
Note 5 – Equity
Initial Public Offering
On April 3, 2018, the Company completed its IPO, whereby the Company sold an aggregate of 1,280,000 shares of its common stock, at $5.00 per share,
resulting in estimated net proceeds of $5,025,000 after underwriting discounts, commissions and estimated offering expenses of $895,000. Additionally, the
underwriters have been issued warrants to purchase common stock equal to 3% of the securities sold in the IPO, or 38,400 shares of Common Stock.
Private Investment
On May 9, 2018, the Company completed a private placement, whereby the Company sold to investors an aggregate of 828,500 shares of its common stock at
$12.07 per share and warrants to purchase up to 621,376 shares of the Company’s common stock with an initial exercise price equal to $15.62 per share. The per
share price and warrant exercise price were subject to automatic adjustment, if applicable, based on the volume weighted average daily prices on the three days
after the registration statement registering the resale of the shares of common stock sold to the investors and the shares of the common stock issuable upon
exercise of the warrant was declared effective and the Company's shareholders approved the transaction. In no event would the purchase price or warrant exercise
price be less than $4.25 per share. The Company received net proceeds of $9,250,000 after commissions and expenses.
On August 1, 2018, following the effectiveness of our Registration Statement on Form S-1 (File No. 333-225090) and pursuant to the terms of the Purchase
Agreement and Warrants, we issued to the original investors of the private placement an aggregate of 1,174,440 shares of our common stock and the Warrants
became exercisable for a total of 2,283,740 shares of our common stock with an exercise price equal to $4.25 per share.
Stock Issuances
During the year ended December 31, 2018, we issued (i) 200,009 shares of Common Stock, taking into account the forward-split ratio from the Company’s
IPO, for service provided to us, valued at $553,303, and we issued (ii) 3,282,940 shares of Common Stock in the Company’s IPO and Private Investment for
cash of $16,400,000.
During the year ended December 31, 2017, we issued (i) 207,206 shares of Common Stock, taking into account the forward-split ratio from the Company’s
IPO, for service provided to us, valued at $1,095,230 and we issued (ii) 22,473 shares of Series G Preferred Stock, which has since been converted to
Common Stock and forward-split representing 150,211 shares of Common Stock, for cash of $793,971.
F-10
Preferred Stock
In connection with the Company’s IPO, all Preferred Stock included in Series A through Series G, totaling 1,394,953 shares at December 31, 2017, were
converted to 9,324,177 shares of Common Stock in associated with the forward-split (See Capital Stock Note). Upon the completion of the IPO, the Company
is authorized to issue 10,000,000 shares of Preferred Stock at a par value of $0.001 per share, none of which are outstanding as of December 31, 2018.
Common Stock
Upon the completion of the IPO, all of the Company’s non-voting Common Stock automatically converted to into Voting Common Stock on a one-to-one
basis. Immediately following the completion of the IPO, the Company is authorized to issue 200,000,000 shares of Common Stock at a par value of $0.001
per share, all of which is Voting Common Stock. There are 15,239,148 shares of Common Stock outstanding at December 31, 2018.
Common Stock Purchase Warrants
Common Stock purchase warrant activity for years ended December 31, 2018 and 2017 respectively are as follows:
Outstanding at January 1, 2017
Issued
Cancelled or expired
Exercised
Outstanding at December 31, 2017
Issued
Cancelled or expired
Exercised
Outstanding at December 31, 2018
Number of
Warrants
Weighted Avg.
Exercise Price
748,060 $
—
—
—
748,060 $
3,166,492
(15,385)
(34,615)
3,864,552 $
5.17
—
—
—
5.17
4.47
—
—
4.60
In the year ending December 31, 2018, we granted (i) warrants to purchase 38,400 shares of our Common Stock at $6.25 per share to the underwriter of the
Company’s IPO and (ii) warrants to purchase 2,283,740 shares of our Common Stock at $4.25 per share to the investors in the Company’s private placement.
We also granted warrants to purchase up to 844,352 shares of Common Stock in consideration of services valued at $2,203,506 including (i) 425,000 shares of
common stock to Cancer Revolution, LLC, (ii) 225,000 shares of common stock to Cancer Biotech, LLC, (iii) 144,352 shares of common stock to Inception
Capital Management, LLC, and (iv) up to 50,000 shares of Common Stock to World Wide Holdings, LLC at $5.00 per share.
On January 29, 2018, the Company entered into an agreement with FundAthena, Inc. whereby the Company agreed to grant warrants to purchase 6,000 shares of
our Common Stock at $5.00 per share in consideration of services valued at $30,000 provided to the company. As of December 31, 2018, the Company has not
issued these warrant shares.
On September 20, 2018, World Wide Holdings, LLC exercised their warrant to purchase 50,000 shares via a cashless exercise option. As a result, the
Company issued 34,615 shares of Common Stock to World Wide Holdings in exchange for the cashless exercise of the warrant and the remaining 15,385
shares of Common Stock were cancelled.
2018 Equity Incentive Plan
The Company’s board of directors and stockholders has 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, and affiliates.
A total of 4,160,000 shares of Common Stock are available 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 2018 Plan. No further grants will be made under the 2009 Plan and 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.
F-11
In addition, the number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each 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.
2018 Employee Stock Purchase Plan
The Company’s board of directors and stockholders has 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 authorizes the issuance of 208,500 shares of the Company’s common stock pursuant to
purchase rights granted to our eligible employees. The number of shares of common stock reserved for issuance will automatically increase on January 1 of
each calendar year, from January 1, 2019 by the lesser of 2% of the total number of shares of our common stock outstanding on December 31 of the preceding
calendar year or a number determined by the administrator of the ESPP.
Stock Options
At December 31, 2017, the Company had outstanding stock options to purchase 2,628,749 shares of Common Stock, taking into account the forward-split
ratio from the Company’s IPO. In the year ending December 31, 2018, the Company granted stock options to employees to purchase 2,034,525 shares of
Common Stock at a weighted average share price of $6.21.
As of December 31, 2018, the Company has outstanding stock options to purchase 4,535,681 shares of Common Stock that have been granted to various
employees, vendors and independent contractors. Some of these options vest immediately while others vest over periods ranging from twelve (12) to forty-
eight (48) months, are exercisable for a period of ten years, and enable the holders to purchase shares of our Common Stock at exercise prices ranging from
$0.001 - $9.80. 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. The weighted average remaining contractual term for the outstanding options at December 31, 2018 and 2017 is 7.73 and 7.34, years,
respectively.
Stock option activity for the years ended December 31, 2018 and 2017, respectively, is as follows:
Outstanding at January 1, 2017
Options granted
Options exercised
Options expired
Outstanding at December 31, 2017
Options granted
Options exercised
Options expired
Outstanding at December 31, 2018
Note 6 - Related Party Transactions
Domecq Sebastian, LLC
Number of
Shares
Weighted Avg.
Exercise Price
2,628,749
$
—
—
—
2,628,749
2,034,525
—
$
(127,593)
$
4,535,681
1.31
—
—
—
1.31
6.21
—
—
3.31
Domecq-Sebastian LLC (“Domecq”) is an entity affiliated with David Nance, a former director and officer who is now deceased. During December 2017, we
entered into a promissory note with Domecq for a total amount of $200,000 that carried a 15% interest rate and is due and payable on or before March 31,
2018. The note carried a 18% default interest on amounts paid after the maturity date. This note was subsequently repaid in full in April 2018.
Introgen Research Institute
Introgen Research Institute (“IRI”) is a Texas-based technology company, currently affiliated with Rodney Varner, our CEO. 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, providing 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 the University of Texas MD Anderson Cancer Center (“UTMDACC”).
F-12
Rodney Varner
Rodney Varner is the Company’s Chief Executive Officer. On March 28, 2018, we entered into a promissory note with Rodney Varner, Trustee, for a total
amount of $45,000 that carried a 0% interest rate and is due and payable on or the earlier of (i) five days after funding of the Company’s initial public
offering, or (ii) April 30, 2018, the maturity date. If paid after the maturity date, the note carried a 10% interest rate. This note was paid in full prior to the
maturity date in April 2018.
Viet Ly
Viet Ly manages several investment funds that have provided the Company with investment funds since 2013. On March 9, 2018, we entered into a
promissory note with Viet Ly for a total amount of $25,000 that carried a 0% interest rate and is due and payable on or before June 9, 2018, the maturity date.
If paid after the maturity date, the note carried a 10% interest rate. This note was paid in full prior to the maturity date in April 2018.
The Company entered into a consulting agreement with Viet Ly on April 19, 2018. The Company agreed to pay Mr. Ly an initial rate of $175,000 per year,
with compensation variable from time-to-time as determined by the Company, for strategic consulting services.
Note 7 - 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 at 1 Broadway, Floor 14, Cambridge, MA 02142. The Company does not have a long-term agreement in place to occupy this location, but
rather occupies on a month-to-month basis.
On April 16, 2018, the Company also 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 located 1601 Trinity Street, Bldg B, Suite 3.322, Austin, Texas 78712. The Company paid $4,000 per month to occupy this
location and the lease was effective until October 31, 2018. In November 2018, the Company amended and renewed the lease at a rate of $2,050 per month
effective until April 30, 2019.
Commitments
We have entered into a clinical trial agreement with the University of Texas MD Anderson Cancer Center to administer a phase I/II clinical trial, combining
FUS1-nanoparticles and Erlotinib in Stage IV lung cancer patients. The trial is 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 July 2018, the Company entered into a two-year sponsored research agreement with MD Anderson Cancer Center in Houston, Texas, to sponsor pre-
clinical studies focused on the combination of TUSC2 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.
In 2009, we agreed to assume certain contractual and other obligations of IRI in consideration for the sublicense rights, expertise, and assistance associated
with the assignment of certain technologies and intellectual property. We also agreed to pay royalties of one percent (1%) on sales of resulting Licensed
Products, for a period of 21 years following the termination of the last of the MD Anderson License Agreement and Sublicense Agreement, to IRI and we
assumed patent prosecution costs and an annual minimum royalty of $20,000 payable to the National Institutes of Health (“NIH”).
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 them in consideration for 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 at $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 (and related expense) will be recognized when we obtain regulatory approval (the event that triggers the payment
obligation).
F-13
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 Company’s financial condition, results of
operations or liquidity.
During October 2017, we received an informal demand from a former financial advisor, claiming that it is entitled to a warrant to purchase shares of common
stock equal to three (3) percent of our outstanding shares at December 1, 2015. We believe this asserted claim lacks merit, and we intend to defend the claim
vigorously.
Note 8 – Income Taxes
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income
taxes. The sources and tax effects of the differences are as follows:
Income tax provision at the federal statutory rate
Effect of operating losses
21%
-21%
0%
At December 31, 2018, the Company has a net operating loss carryforward of approximately $9.6 million for Federal and state purposes. This loss will be
available to offset future taxable income. If not used, this carryforward will begin to expire in 2029. The deferred tax asset relating to the operating loss
carryforward has been fully reserved at December 31, 2018 and December 31, 2017. The principal differences between the operating loss for income tax
purposes and reporting purposes are shares issued for services and share-based compensation and a temporary difference in depreciation expense.
Note 9 – Subsequent Events
Option Grants
On January 27, 2019, the Company’s Board of Directors approved the issuance of stock option grants to purchase a total of 40,000 shares of Common Stock to
key service providers and 1,362,703 shares of Common Stock to Company executives. On February 12, 2019, the Company’s Board of Directors approved the
issuance of stock option grants to purchase a total of 96,894 shares of Common Stock to employees and 45,976 shares of Common Stock to an independent
director.
Share Issuances to Consultants
The Company issued 97,617 shares of common stock to consultants during the first three months of 2019 including (i) 5,000 shares of common stock to Jack A.
Roth on January 1, 2019, (ii) 24,000 shares of common stock to OpenWater Capital on January 26, 2019, (iii) 35,000 shares of common stock to Caro Partners on
January 31, 2019, and (iv) 33,617 shares of common stock to Acorn Management Partners on March 1, 2019.
Appointment of Independent Director
On February 12, 2019, the Company’s Board of Directors appointed John N. Bonfiglio, PhD, MBA, as a Class III director to the Board.
Additional Issuance of Private Placement Securities
On March 15, 2019, pursuant to the terms of the Securities Purchase Agreement entered into in connection with the Company’s May 2018 private placement, the
Company issued to one of the purchasers in the private placement an aggregate of 200,000 additional shares of the Company’s common stock.
F-14
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
Genprex, Inc.
Austin, Texas
We hereby consent to the use of our report dated March 29, 2019, on the financial statements of Genprex, Inc. for the years ended December 31, 2018 and
2017, included herein on this Annual Report on Form 10-K of Genprex, Inc.
/s/ Daszkal Bolton LLP
Fort Lauderdale, Florida
March 29, 2019
{01368/0005/00217770.1}
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, J. Rodney Varner, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Genprex, Inc., a Delaware corporation (the “registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 29, 2019
{01368/0005/00232563.1}
By:
/s/ J. Rodney Varner
J. Rodney Varner
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Ryan M. Confer, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Genprex, Inc., a Delaware corporation (the “registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 29, 2019
{01368/0005/00232564.1}
By:
/s/ Ryan M. Confer
Ryan M. Confer
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Genprex, Inc. (the “Company”) for the period ended December 31, 2018 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, J. Rodney Varner, Chief Executive Officer of the
Company, and Ryan M. Confer, Chief Financial Officer of the Company, hereby certifies, pursuant to Rule 13a-14(b) of the Securities Exchange Act
of 1934, as amended and 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 29, 2019
By:
/s/ J. Rodney Varner
J. Rodney Varner
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Ryan M. Confer
Ryan M. Confer
Chief Financial Officer
(Principal Financial Officer)
This certification accompanies the Report, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether
made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.
{01368/0005/00232565.1}