Let's Look at the Big Picture of Genprex

After GNPX's private placement on Tuesday, I spoke with the CEO, Rodney Varner. Here's what I found out and what my views are on the developer of cancer and diabetes therapies.

Every so often, you have an event in the market or in a sector or even in a specific stock that tests the vision of investors.

 

It's a simple matter of seeing the forest through the trees. If that doesn't resonate with you then, how about the concept of playing chess when everyone else is playing checkers.

 

I wasn't sure how the market would react to the cancer- and diabetes-therapy developer Genprex's ( GNPX)  private placement Tuesday, after the stock skyrocketed earlier the day on news that may be more important than some realize. I had a chance to briefly chat with the company's CEO, Rodney Varner, after the close. As is my usual approach, I'm going to sprinkle in some opinion with some Q&A.

 

Let's get the offering details out of the way: The company sold roughly 3.117 million shares to a single fund at $3.85, raising an additional $12 million. The first reaction was to sell the news. Shares were trading just below $5 and dropped 10% almost immediately. It's a natural sell-the-headlines or discounted offering reaction. That's not necessarily always the correct action, though.

 

When we look at this offering, the first reaction by many is that the company didn't need the money right now. It raised more than $25 million earlier this year, and while trials will be expensive, that's a pretty strong balance to attack the trials. But what if the money isn't for the Acclaim-1 or Acclaim-2 cancer-therapy trials? We've already seen Genprex license a promising, but young, treatment in the diabetes space.

 

But let's circle back to the placement deal. The buyer was a single, institutional, health care-dedicated investor. What may have been lost in the offering was a discount or not, this buyer took a 7%-plus stake in the company. Seven percent is significant. This isn't a hoard of retail folks buying 500 to 1,000 shares at $3.85 and looking to flip for $0.50 or $1.00.

 

Do I love the discount? I would have preferred 15%, but given the last big raise was at $3.10, we have a nice rising support level on the institutional side. This is a long-term positive and the deal didn't come with warrants, so there is no ceiling staring buyers in the face.

 

Here are a few questions I had for Rodney and his answers:

 

Can you give folks a little background about why the completion of the manufacturing scale-up is so important?

First, manufacturing is one of the greatest challenges in gene therapy. Many drug developers have had great difficulty delivering cancer-fighting genes into cancer cells safely and effectively. Most gene therapies use viral delivery systems, which have unwanted side effects. Ours is non-viral, and after treating more than 50 patients, it has a favorable safety profile and demonstrated ability to deliver genes into tumors. Some therapies require the drug to be manufactured specifically for each individual patient, which is very expensive and limiting in practical application. We have shown that we can manufacture our drug at large scale, and the drug can be stored, shipped, and delivered to distant locations for use as needed.

Our manufacturing is done in several steps. DNA plasmid is manufactured, and this plasmid is formulated with DOTAP cholesterol molecules, which encapsulate the plasmid and carry it through the bloodstream into cells. (DOTAP is a type of cationic lipid that's used as a surfactant and also used in vitro and in vivo applications.) Our DNA plasmid has been made at a commercial plasmid manufacturer for quite some time. However, we were recently able to significantly increase efficiency in production which will result in a much lower plasmid cost per dose.

Until now, the second step of combining the DOTAP molecules with DNA plasmid has been done at (the University of Texas') MD Anderson's manufacturing facility at small scale. Each dose was formulated as it was needed for a patient and delivered to the clinic where it was injected. It was sufficient for our earlier trials, but not for larger, multi-site trials, and certainly not for commercialization. We believe that we have successfully transferred the formulation of DOTAP with plasmid DNA from the research lab setting to commercial manufacturers and scaled up the process to allow production at much larger scale. This is a major accomplishment.

... I would add ... the required shipping and storage temperature in only two to eight degrees Celsius, not minus 50 to minus 80 degrees Celsius required by many biologics.

When do you anticipate enrollment beginning? Will Acclaim-1 and Acclaim-2 start at the same time?

We anticipate enrollment beginning in both trials in the first half of 2021. We are working on both now and are not yet announcing which will start first.

If you have success with both trials, would you prioritize one combination over another? Would success in one have any bearing on a future in the other?

No, if both trials are successful, we believe each would be a fantastic program. (The non-small cell lung cancer drug) Tagrisso's 2019 sales were around $3 billion, and (cancer drug) Keytruda's are much larger than that. There isn't much overlap between patients who receive Tagrisso and those who receive Keytruda. We believe that success in either of these trials would bring great value to our company. If we are successful in combining with both, then we believe we could potentially address a majority of late-stage non-small cell lung cancer patients.

Overall, I like seeing a big buyer step in. I'm intrigued as to where the $12 million might be deployed. Genprex has begun pulling synergistic technologies for cancer treatment and cancer prevention into its mix. It's possible, though one cannot say for sure, that this $12 million is a forest situation. The view isn't as simple as what's in front of you.

While the recent news may seem ho-hum, manufacturing is incredibly important. These updates also show Genprex continues to remain exactly on track with what I wrote a few months ago in regards to timelines for 2020 and 2021.

This name falls into the speculative category of investments, but still remains one of my favorite names for 2021 and beyond.

At the time of publication, Timothy Collins was long GNPX.