Business Context and Reporting Period
The provided filing is Aerpio Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020, filed November 10, 2020. The request metadata identifies Whitehawk Therapeutics, Inc., but the filing names Aerpio Pharmaceuticals, Inc. as the registrant; this discrepancy should be verified.
Aerpio is a clinical-stage biopharmaceutical company developing Tie2-activating therapies, principally razuprotafib, for glaucoma, COVID-19-associated acute respiratory distress syndrome (ARDS), and diabetic complications. The company had no approved products and no product sales.
Key Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| License revenue | $0.0 million in 2020 and 2019 | $15.0 million in 2020; $0.0 million in 2019 |
| Research and development expense | $4.0 million vs. $2.8 million | $9.4 million vs. $10.7 million |
| General and administrative expense | $1.9 million vs. $2.2 million | $6.4 million vs. $8.2 million |
| Total operating expenses | $5.9 million vs. $5.0 million | $15.7 million vs. $19.8 million |
| Loss from operations | $(5.9) million vs. $(5.0) million | $(0.7) million vs. $(19.8) million |
| Net income (loss) | $(5.0) million vs. $(4.6) million | $0.4 million vs. $(18.8) million |
| Basic and diluted EPS | $(0.12) vs. $(0.11) | $0.01 vs. $(0.46) |
- Cash and cash equivalents were $47.3 million at September 30, 2020, compared with $38.5 million at December 31, 2019.
- Total assets were $49.8 million; total liabilities were $2.5 million; and stockholders’ equity was $47.3 million at September 30, 2020.
- The company reported no debt other than operating lease liabilities. The remaining operating lease liability was $94,787.
- Operating cash flow was $(0.6) million for the first nine months of 2020, compared with $(19.0) million in 2019.
- Investing cash flow was $(19,025), primarily for equipment purchases.
- Financing cash flow was $9.3 million from the issuance of common stock under the company’s at-the-market program.
- Cash increased by $8.8 million during the first nine months of 2020.
- Accumulated deficit was $141.8 million at September 30, 2020.
Material Changes Versus the Prior Comparable Period
- The nine-month net income was driven primarily by a one-time $15.0 million license payment from Gossamer under an amendment to the GB004 license agreement. The payment reduced future potential milestone payments and royalty rates.
- Third-quarter research and development expense increased 40.1% because of spending on the glaucoma Phase 2 program and the I-SPY COVID and RESCUE trials.
- Nine-month research and development expense declined 12.4% as the prior-year period included higher costs for the TIME-2b and glaucoma Phase 1b trials.
- Nine-month general and administrative expense declined 22.6%, primarily due to lower employee-related, legal, stock-based compensation and office expenses.
- The company sold 6,523,655 shares of common stock during the third quarter for net proceeds of $9.3 million, increasing shares outstanding to 47,111,659 at September 30, 2020 from 40,588,004 at December 31, 2019.
- Restructuring expense was zero in 2020, compared with a $0.9 million expense for the first nine months of 2019. The remaining restructuring liability of approximately $38,000 at September 30, 2020 was paid in October 2020.
Guidance, Outlook, Risks and Unusual Items
- Management expected existing cash and cash equivalents to fund the current operating plan through the fourth quarter of 2022, although it stated that additional financing will be required to advance programs and operate the business.
- The company continued exploring financing alternatives, including equity financing, business development, licensing arrangements and strategic transactions. No assurance was provided that financing or a strategic transaction would be completed on acceptable terms.
- A Phase 2 glaucoma trial of topical razuprotafib was initiated in June 2020, with topline results expected in December 2020 or early January 2021, subject to delays.
- The I-SPY COVID trial and RESCUE trial evaluated subcutaneous razuprotafib for COVID-19-related ARDS. Trial updates were anticipated in the first half of 2021. MTEC agreed to reimburse up to $5.1 million of qualified RESCUE expenses against anticipated total spending of $7.9 million.
- COVID-19 could delay patient enrollment, clinical-site operations, manufacturing, supply chains and regulatory activities, and could increase costs.
- The company’s lead product candidate remains dependent on successful clinical development and regulatory approval. Prior TIME-2b results did not meet the primary endpoint for diabetic retinopathy.
- Key risks include clinical-trial failure or delay, adverse events, regulatory rejection, reliance on contract research organizations and manufacturers, intellectual-property challenges, competition, market volatility, dilution from future financing and the absence of product revenue.
- The company continued exploring strategic alternatives initiated in 2019, but stated that no transaction was assured and that the process could disrupt operations or adversely affect the stock price.
- Management concluded that disclosure controls and procedures and internal control over financial reporting were effective as of September 30, 2020. No material legal proceedings were reported.
Investor Verification Items
- Verify the issuer identity: the supplied filing is for Aerpio Pharmaceuticals, Inc., not Whitehawk Therapeutics, Inc.
- Assess the sustainability of liquidity after excluding the one-time $15.0 million Gossamer payment and the $9.3 million equity financing.
- Confirm the timing, enrollment, costs and results of the glaucoma, I-SPY COVID and RESCUE trials, including the effect of pandemic-related delays.
- Review the terms of the amended Gossamer license agreement, including reduced future milestones and royalties, termination rights and remaining contingent payments.
- Evaluate potential dilution and financing risk given the company’s ongoing operating losses, lack of product revenue and stated need for additional capital.
- Monitor Nasdaq listing compliance, strategic-alternative activity, clinical safety data and regulatory feedback for razuprotafib.