© Copyright 2017, Zacks Investment Research. All Rights Reserved.

Inspyr Therapeutics, Inc. (NSPXD-OTC)

Current Price (01/05/17) $0.57

Valuation $3.00

OUTLOOK

SUMMARY DATA

Risk Level Above Avg.,

Type of Stock N/A Industry Med-Drugs

On November 18, 2016, Inspyr Therapeutics, Inc. (NSPX) filed form 10-Q with financial results for the third quarter of 2016. Net loss for the quarter was $1.2 million, or $0.88 per share, and actual cash burn was approximately $0.6 million. The company recently raised gross proceeds of $1.0 million in a private placement and now has sufficient capital to fund operations through the end of the second quarter of 2017. Inspyr is currently conducting a Phase 2 clinical trial of mipsagargin in glioblastoma multiforme (GBM, a type of brain cancer) and will be conducting preclinical studies of mipsagargin in combination with Nexavar® in hepatocellular carcinoma (HCC) in anticipation of a Phase 1b combination study of those two compounds in patients with advanced HCC.

52-Week High $5.24 52-Week Low $0.53 One-Year Return (%) -89.12 Beta -0.09 Average Daily Volume (sh) 4,367 Shares Outstanding (mil) 1 Market Capitalization ($mil) $1 Short Interest Ratio (days) N/A Institutional Ownership (%) 17 Insider Ownership (%) 24

Annual Cash Dividend $0.00 Dividend Yield (%) 0.00 5-Yr. Historical Growth Rates Sales (%) N/A Earnings Per Share (%) N/A Dividend (%) N/A

P/E using TTM EPS N/A

P/E using 2016 Estimate -1.6

P/E using 2017 Estimate -0.9

Small-Cap Research

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NSPXD: Update on Development of Mipsagargin…

Based on our probability adjusted DCF model that takes into account potential future revenues from mipsagargin in GBM and HCC, NSPXD is valued at $3/share. This model is highly dependent upon continued clinical success of mipsagargin and will be adjusted accordingly based upon future clinical results.

January 5, 2017 David Bautz, PhD

312-265-9471 dbautz@zacks.com

ZACKS ESTIMATES

Revenue (In millions of $)

Q1 Q2 Q3 Q4 Year

(Mar) (Jun) (Sep) (Dec) (Dec)

2015 0 A 0 A 0 A 0 A 0 A

2016 0 A 0 A 0 A 0 E 0 E

2017 0 E

2018 0 E

Earnings per Share (EPS is operating earnings before non-recurring items)

Q1 Q2 Q3 Q4 Year

(Mar) (Jun) (Sep) (Dec) (Dec)

2015 -$1.66 A -$1.37 A -$1.12 A -$0.90 A -$4.99 A

2016 -$0.36 A -$0.35 A -$0.88 A -$0.54 E -$2.13 E

2017 -$2.09 E

2018 -$1.13 E

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WHAT’S NEW

® Business Update Inspyr Therapeutics, Inc. (NSPX) is a biotechnology company focused on the targeted delivery of a novel anti-cancer agent specifically to cancerous tissue, thus mitigating systemic adverse effects that are typical with standard chemotherapeutic agents. The novel cytotoxic therapeutic agent is thapsigargin, which is a potent inhibitor of the intracellular sarcoplasmic/endoplasmic reticulum calcium adenosine triphosphastase (SERCA) pump protein. This inhibition causes calcium levels to rise significantly and triggers apoptosis (cell death). The company’s goals over the next 12-18 months are (assuming the ability to raise sufficient funds): 1) Developing the clinical protocol for and initiation of the next clinical trial with single-agent mipsagargin in

patients with advanced HCC. 2) Development and completion of a non-clinical study of mipsagargin in combination with Nexavar® in liver tumor

models. 3) Development of a Phase 1b clinical protocol of mipsagargin in combination with Nexavar® in patients with

Nexavar®-naïve HCC. 4) Completing the ongoing Phase 2 clinical trials of mipsagargin. 5) Development and completion of a non-clinical study of mipsagargin in combination with standard of care agents

in orthotopic glioblastoma tumor models. 6) Partnering discussions with larger pharmaceutical companies. 7) Prioritization of the next thapsigargin prodrug development candidate. Thapsigargin as an Anti-Cancer Agent Unlike traditional chemotherapeutic agents, which are somewhat selective based on the blockage of pathways that are required for rapid proliferation, thapsigargin inhibits the SERCA pump, which is required for both quiescent as well as proliferating cells. Thus, there is no selectivity with thapsigargin between benign and cancerous cells and systemic administration of thapsigargin is highly toxic (Denmeade et al., 1993). To overcome this limitation, a protease-activated prodrug strategy was developed whereby a chemically modified derivative of thapsigargin (12ADT) was produced and coupled to a protease-specific peptide carrier (Denmeade et al., 1998). 12ADT was shown to retain the cytotoxicity of thapsigargin while allowing the easy coupling of different peptides (Jakobsen et al., 2001).

In order to target 12ADT to different types of cancers, specific enzymes that are found in high levels in tumors relative to other tissues in the body are identified and a peptide is designed that is recognized predominantly by that enzyme. The peptide is then covalently linked to 12ADT to create a prodrug, with the end result being that the prodrug can safely travel through the body without eliciting harmful side effects and 12ADT is only liberated in the presence of tumor specific enzymes. This is akin to a hand grenade, where the peptide acts as the “pin” and 12ADT is the “bomb”. When the “pin” is removed, the insoluble 12ADT immediately enters the nearby cancer cells, and after sufficient quantities of 12ADT have accumulated, the cell dies. This is depicted in the following graphic.

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The company’s lead compound, mipsagargin, harbors a peptide that is recognized by prostate specific membrane antigen (PSMA), an enzyme that is expressed on the vasculature of almost all solid tumors while having little to no expression on normal tissue, as shown in the following figure.

Mipsagargin Phase 2 Clinical Results in Hepatocellular Carcinoma Inspyr previously tested mipsagargin in a multi-site, single arm Phase 2 clinical trial in 25 hepatocellular carcinoma (HCC) patients with advanced stage liver disease who had failed first line treatment with sorafenib (Nexavar®) (NCT01777594). Eighteen of the 25 patients were Child Pugh A while seven were Child Pugh B, which is indicative of more advanced liver disease. Nineteen patients were dosed with 40 mg/m2 on days 1, 2 and 3, of a 28-day cycle while six patients were treated with 40 mg/m2 on day 1 and 66 mg/m2 on days 2 and 3 of a 28-day cycle. Of the 19 evaluable patients, 24% had received two or more prior systemic therapies. The results from the study showed that mipsagargin was well tolerated, with the most frequently occurring grade ≥ 2 adverse events being increased creatinine (n=8, 32%), fatigue (n=7, 28%), and increased ALT and AST (n=6, 24%). Notably, typical side effects of standard chemotherapeutic agents such as severe nausea, vomiting, diarrhea, neuropathy, evidence of bone marrow suppression, and hair loss were not seen in the study. In addition, there were no immunosuppressive side effects seen with treatment, which means the drug could potentially be paired with an immunotherapy. There were five serious adverse events that were determined to be mipsagargin-related: 3 patients had acute renal failure or acute renal injury, 1 patient had congestive cardiac failure, and 1 patient experience grade 3 chest pain. The company has stated that the effect on the kidney is dose dependent, non-cumulative, and 100% rapidly reversible with hydration. The following table gives the final results from the study.

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Some may look at a treatment with no complete responses (CR) or partial responses (PR) and think that it is not effective. Liver cancer is unique in that it is quite rare to see tumor regression due to the advanced nature of liver disease and cirrhosis outside of the cancer that exists in most HCC patients, particularly those patients who are Child-Pugh B or C. What may be occurring is that as mipsagargin kills the tumor cells, they are being replaced with scar tissue, thus on standard imaging there doesn’t appear to be a change in size where the tumor was located. However, the time to progression (TTP) of 4.5 months in a patient population refractory to sorafenib was highly favorable to the TPP of 2.7 months seen historically in this patient population. To better understand mipsagargin’s anti-tumor effect, the company performed dynamic contrast enhanced magnetic resonance imaging (DCE-MRI), which allows for analysis of the vascular blood flow within the tumor. The DCE-MRI data demonstrated substantially decreased blood flow in the tumors, indicative of a pharmacodynamic proof-of-concept for the mechanism of action of mipsagargin. The following images show DCE-MRI images taken from two HCC patients before and after treatment with mipsagargin. The images on the left shows metastatic lymph nodes, which after treatment appear to show a “necrotic hole” where there does not appear to be cancer present. However, since the size of the “hole” did not change, the patient is graded as having stable disease even though all cancer cells may be gone. The images on the right are DCE-MRI scans that show decreased vascular enhancement, indicative of the cancer no longer being present.

Mipsagargin Development Plan in HCC

Inspyr is planning to conduct non-clinical studies of mipsagargin combined with Nexavar® (the standard of care treatment for newly diagnosed HCC) in liver cancer models. Each of the tumor models express PSMA and one of the cell lines is resistant to Nexavar®. Results from these studies are expected in the second quarter of 2017. Concurrently, the company is finalizing the plans for a Phase 1b clinical trial of mipsagargin in combination with Nexavar® in patients with advanced HCC. Update on Mipsagargin in Glioblastoma Multiforme In February 2014, Inspyr initiated a Phase 2 investigator-sponsored clinical trial of mipsagargin in patients with glioblastoma multiforme (GBM) at the University of California, San Diego Moores Cancer Center, which is funding the trial, and is being led by Dr. David Piccioni and Dr. Santosh Kesari (NCT02067156). The study is a two-stage, single-arm, open-label study designed to evaluate the activity, safety, and central nervous system (CNS) exposure

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of mipsagargin in up to 34 patients with recurrent or progressive GBM. After enrolling the first 12 patients, the study has now advanced to the second stage, where enrollment will continue up to 34 patients total, indicating that the first cohort of patients exhibited potential signs of efficacy and that mipsagargin was well-tolerated. As of October 20, 2016 a total of 26 patients have been treated as part of the trial. The company previously announced that mipsagargin demonstrated clinical benefit in a subset of GBM patients, with the results being presented in a poster at the Society for Neuro-Oncology 20th Annual Scientific Meeting. Below is an overview of GBM as well as the data presented on the Phase 2 clinical trial.

Mipsagargin for the Treatment of GBM Mipsagargin is being tested as a potential therapy for GBM based on data showing PSMA expression in GBM samples but not in normal brain tissue (Nomura et al., 2014). This is depicted in the following figure, which shows how normal brain tissue shows little to no PSMA expression, but expression of PSMA is quite strong in GBM (denoted by the brown staining). One study found 91% of GBM patient samples had ≥2+ PSMA staining (Wernicke et al., 2011).

The following images show brain scans from one of the patients in the ongoing Phase 2 trial that had a response to mipsagargin treatment. The image on the left was taken prior to treatment while the image on the right was taken after eight months of treatment, which shows a clear decrease in the size of the lesion.

Thus far, three of 11 evaluable patients have demonstrated at least stable disease at the first disease assessment (2 stable disease and 1 partial response), one of which met the primary endpoint of six-month progression-free survival. There were no dose-limiting toxicities noted. Importantly, while PSMA staining of tumor tissue samples taken from patients has shown variability, all three responders have >2+ staining, suggesting that an enrichment strategy could be employed in future studies by only including those patients with PSMA expression in their tumors. Additions to Senior Management and Board of Directors In October 2016, Inspyr made key additions to the company’s management team and Board of Directors:

Michael Elliot was appointed as Vice President of Clinical Operations. In this role, Mr. Elliot will be responsible for managing Inspyr’s clinical trial operations. He has 20 years of experience in clinical trial management, spanning Phase 1 through Phase 3 trials, both in the U.S. and internationally and has overseen 59 company-sponsored trials. Prior to joining Inspyr, Mr. Elliot was Senior Director, Clinical Operations at NGM Biopharmaceuticals, where he led the clinical operations group for the company.

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Claire Thom, Pharm D. was appointed to the Board of Directors. Ms. Thom has 20 years of experience in the pharmaceutical industry including drug development, new product planning, and marketing. From 2013 to her retirement in July 2016, Ms. Thom was the Senior Vice President Global Therapeutic Head for Oncology at Astellas Pharma. Prior to Astellas, Ms. Thom served as Senior Vice President of Portfolio Management, Drug Development Management and Strategic Business Operations at Millenium Pharmaceuticals.

Richard Buller, MD, PhD was appointed to the Board of Directors. Dr. Buller has over 25 years of experience leading the development of novel oncology products, including 15 regulatory submissions for eight oncology products. Most recently, Dr. Buller served as Vice President of Translational Oncology at Pfizer before becoming Head of Oncology Clinical Development. Prior to that he was Vice President, Translational Medicine for Exelixis, Inc. and was a member of the Joint Development Committees with partners Bristol Myers Squibb and Sanofi Aventis.

Financial Update On November 18, 2016, Inspyr filed form 10-Q with financial results for the third quarter of 2016. As expected, the company reported no revenues for the quarter. Net loss for the third quarter was $1.2 million, or $0.88 per share. The net loss consisted of $0.38 million of R&D expenses, $0.51 million of G&A expenses, and $0.3 million in a non-cash charge due to the change in the fair value of derivative liability. Total cash burn for the quarter was $0.6 million and the company exited the third quarter with approximately $0.3 million in cash and cash equivalents. On December 12, 2016, the company announced a private placement with institutional and accredited investors resulting in gross proceeds of $1.0 million through the issuance of 1,000 shares of Series B convertible preferred stock at a price of $1,000 per share. The Series B convertible preferred stock is initially convertible into 1.33 million shares of common stock at an exercise price of $0.75 per share. Investors in the private placement were also issued Series J warrants to purchase an aggregate 1.33 million shares of common stock (exercisable for five years at $0.90 per share), Series K warrants to purchase an aggregate 1.33 million shares of common stock (exercisable for six months at $0.75 per share), and Series L warrants to purchase an aggregate 1.33 million shares of common stock (exercisable for 12 months at $0.75 per share). We anticipate the company now has sufficient capital to fund operations through the second quarter of 2017. On November 4, 2016, Inspyr enacted a 1-for-30 reverse stock split of the company’s common stock. As of November 18, 2016, Inspyr had approximately 1.4 million shares of common stock outstanding. When factoring in the potential conversion of the Series A convertible preferred (0.4 million shares), Series B convertible preferred (1.3 million shares), outstanding stock options (0.3 million), and outstanding warrants (5.3 million), the fully diluted share count currently stands at approximately 8.7 million shares. Valuation We value Inspyr using a probability-adjusted discounted cash flow model that takes into account potential revenues from the sale of mipsagargin in HCC and GBM. We estimate that for HCC, a Phase 3 trial will commence in 2018, an NDA will be filed in 2021, and approval of mipsagargin will occur in 2022. For GBM, we estimate a Phase 3 trial commencing in 2019, with an NDA filing in 2022 and approval in 2023. Given the limited treatment options for patients with HCC, we model for mipsagargin to have 40% peak market share, which translates to approximately $2 billion in peak revenues. For GBM, we model for approximately $300 million in peak sales in the U.S. and E.U. combined. For both indications we model for Inspyr to partner mipsagargin and receive a 15% royalty on net sales. We apply a 20% discount rate and a 15% probability of approval for HCC and a 10% probability of approval in GBM. This results in a net present value for mipsagargin in HCC of $40 million and in GBM of $15.0 million. Combined with an estimated $30 million in capital requirements gives a net present value for the company of approximately $25 million. Dividing this by the company’s fully diluted share count of 8.7 million shares leads to a valuation of approximately $3.00.

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PROJECTED FINANCIALS

Inspyr Therapeutics, Inc. Income Statement

Inspyr Therapeutics, Inc. 2015 A Q1 A Q2 A Q3 A Q4 E 2016 E 2017 E 2018 E

Mipsagargin (HCC) $0 $0 $0 $0 $0 $0 $0 $0

YOY Growth - - - - - - - -

Mipsagargin (GBM) $0 $0 $0 $0 $0 $0 $0 $0

YOY Growth - - - - - - - -

MIpsagargin (Prostate Cancer) $0 $0 $0 $0 $0 $0 $0 $0

YOY Growth - - - - - - - -

Mipsagargin (Kidney Cancer) $0 $0 $0 $0 $0 $0 $0 $0

YOY Growth - - - - - - - -

Grants & Collaborative Revenue $0 $0 $0 $0 $0 $0 $0 $0

YOY Growth - - - - - - - -

Total Revenues $0 $0 $0 $0 $0 $0 $0 $0 YOY Growth - - - - - - - -

Cost of Sales $0 $0 $0 $0 $0 $0 $0 $0

Product Gross Margin - - - - - - - -

Research & Development $2.303 $0.323 $0.323 $0.379 $0.350 $1.375 $2.200 $2.500

General & Administrative $3.764 $0.707 $0.384 $0.509 $0.400 $2.000 $4.000 $4.200

Other Expenses $0 $0 $0 $0 $0 $0 $0 $0

Operating Income ($6.067) ($1.030) ($0.707) ($0.888) ($0.750) ($3.4) ($6.2) ($6.7)

Operating Margin - - - - - - - -

Non-Operating Expenses (Net) $0.2 $0.5 $0.2 ($0.3) ($0.0) $0.4 ($0.1) ($0.1)

Pre-Tax Income ($5.9) ($0.5) ($0.5) ($1.2) ($0.8) ($3.0) ($6.3) ($6.8)

Income Taxes Paid $0 $0 $0 $0 $0 $0 $0 $0

Tax Rate 0% 0% 0% 0% 0% 0% 0% 0%

Net Income ($5.9) ($0.5) ($0.5) ($1.2) ($0.8) ($3.0) ($6.3) ($6.8)

Net Margin - - - - - - - -

Reported EPS ($4.99) ($0.36) ($0.35) ($0.88) ($0.54) ($2.13) ($2.09) ($1.13)

YOY Growth - - - - - - - -

Basic Shares Outstanding 1.179 1.392 1.392 1.392 1.400 1.394 3.000 6.000

Source: Zacks Investment Research, Inc. David Bautz, PhD

© Copyright 2017, Zacks Investment Research. All Rights Reserved.

HISTORICAL STOCK PRICE

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