When it comes to capital raises, I'd argue there are good capital raises and bad capital raises. While adding money to the balance sheet is seldom a negative, the impact it can have on shareholders or the stock price can absolutely create a negative overhang sometimes lasting for months, if not longer. It's easy to find examples of a "bad" capital raise as well as a good capital raise, but it is seldom you see both from the same company within a two month span, but that's exactly what we got with Genprex (GNPX) .
Out with the bad
In November, the company reported positive pre-clinical data combining TUS2 immunogene therapy (Oncoprex) with pembrolizumab as well the same combination along with chemotherapy for treatment of resistant metastatic lung cancers. These results came from humanized mice (mice with human immune cells). This news popped the stock from the $0.40 area to over a dollar intraday before shares slid back down to only a double. The very next day, the company raised $1.26 million at $0.40, roughly the closing price before the news. Additionally, the direct offering also gave the buyer warrants to purchase additional shares at $0.46, and reset older, significantly higher-priced warrants the buyer held down to that $0.46 level.
Immediately, I hated the offering. The amount wasn't high enough to help the company do anything more than add a quarter of life to its existence, and pre-clinical results rarely draw in strong hands as holders. Add the huge price discount to these points, and it wreaks of desperation. And I say this as someone with a good amount to benefit if the company is successful. I wasn't kind on Twitter with my thoughts. The stock spent the next six weeks in the penalty box falling into the $0.25 to $0.30 trading range.
In with the good
Earlier this week, the company announced the FDA granted Fast Track Designation for Oncoprex combined with EGFR inhibitor osimertinib for the treatment of non-small cell lung cancer (NSCLC). Osimertinib, sold as Tagrisso by AstraZeneca, is on pace for nearly $3 billion in sales for 2019, and is currently AstraZeneca's highest grossing product. The combination is aimed at treating patients with EFGR mutations that have progressed after treatment. It is similar to the company's current late-stage clinical trial combining Oncoprex with erlotinib.
The stock exploded higher on the news leaving behind the $0.35 level to touch $2.00. Yesterday, three days after the FDA news, the company sold 7.62 million shares for $1.05 each. Again, a big discount to the prior day's closing price, but I don't hate this offering. In fact, I like it very much. It's a good capital raise.
While some may be discouraged by the discount, the $8 million is a true difference maker. We aren't talking about just keeping the lights on. This level of cash, especially combined with the small November raise, will allow the company to initiate a Phase 1a/2 trial with Oncoprex + osimertinib plus continue their Oncoprex + erlotinib trial, which is much closer to completion.
Additionally, investors have a reason to be excited. They have a valid reason to hold. While an FDA fast track isn't uncommon, it is significant, especially for a small biotech. The potential reward has significantly increased creating a skew that now favors reward over risk. This fact is best demonstrated by the strength of the post-offering price action. Shares are trading well above the $1.05 level. While I suspect we could test revisit the $1.10 to $1.20 area, the upside potential for long-term, aggressive holders appears compelling now. It's still a tiny $25 million company, but that could make it easy for a behemoth like AstraZeneca (AZN) to snap it up if early trial results are strong. You could also have Roche (RHHBY) sweep in early to try and protect Tarceva by preventing AstraZeneca from strengthening Tagrisso. Yes, that may be farfetched speculation, but it's not impossible. For those who love a roll of the dice, Genprex may be worth a closer look.