Business Context and Reporting Period
The provided filing is Aerpio Pharmaceuticals, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, not a filing for Whitehawk Therapeutics, Inc. Aerpio is a clinical-stage biopharmaceutical company developing treatments for ocular and vascular disease. Its lead candidate, AKB-9778, is a Tie2-pathway activator in Phase 2b development for diabetic retinopathy. The company also has AKB-4924 in early clinical development for inflammatory bowel disease and ARP-1536 in preclinical development.
On March 15, 2017, Aerpio completed a reverse merger with Zeta Acquisition Corp. II, became a public reporting company, and began trading on the OTCQB under the symbol ARPO on August 8, 2017. The financial statements reflect reverse-acquisition accounting, with prior-period financial information representing Aerpio’s historical operations.
Financial Results and Liquidity
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue from product sales | None | None | No commercial revenue |
| Research and development expense | $12.1 million | $11.4 million | Up 7% |
| General and administrative expense | $9.2 million | $5.3 million | Up 75% |
| Total operating expenses | $21.4 million | $16.6 million | Up 29% |
| Net loss | $21.4 million | $17.0 million | Loss increased 26% |
| Net loss attributable to common stockholders | $22.3 million | $20.9 million | Not directly comparable due to preferred-stock adjustments |
| Basic and diluted loss per share | $1.03 loss | $24.52 loss | Share count increased substantially after the merger |
| Cash used in operating activities | $18.9 million | $15.7 million | Use increased |
| Cash and cash equivalents at year-end | $20.3 million | $1.6 million | Increased $18.7 million |
| Accumulated deficit | $108.6 million | $86.2 million | Increased $22.3 million |
Grant income was $93,719 in 2017, down from $131,281 in 2016. Net interest expense declined to $105,782 from $482,204 because the secured convertible notes and accrued interest converted into common stock in connection with the merger. The company reported no product revenue and does not expect product revenue in the foreseeable future.
Financing activities provided $37.5 million in 2017, including approximately $37.2 million of net proceeds from a March 2017 private placement and $0.3 million from convertible notes. At December 31, 2017, the company had $3.6 million of current liabilities, no convertible notes outstanding, and $17.4 million of stockholders’ equity.
Material Changes Versus the Prior Comparable Period
- R&D spending increased primarily because of higher AKB-9778 clinical-trial and drug-product costs, partially offset by reduced spending on AKB-4924 and ARP-1536.
- G&A expense increased substantially due to personnel additions and legal, accounting, insurance, investor-relations, and other public-company costs.
- The March 2017 reverse merger converted all outstanding preferred stock and convertible notes into common stock and materially increased the share count.
- The company raised approximately $40.2 million of gross proceeds, or $37.2 million net, through a common-stock offering at $5.00 per share.
- Management reported that a material weakness in disclosure controls and procedures identified in 2016 and continuing through the first three quarters of 2017 was remediated in the fourth quarter following the hiring of a full-time CFO and engagement of an internal-control consultant. Management concluded that disclosure controls and internal control over financial reporting were effective at December 31, 2017.
- The 2017 Tax Act produced a provisional $11.3 million increase in deferred tax expense, fully offset by a valuation allowance; the effective tax rate remained 0%.
Guidance, Outlook, Risks and Unusual Items
- TIME-2b, a 48-week Phase 2b trial of AKB-9778 in diabetic retinopathy, enrolled 167 patients across three treatment groups. Top-line results were expected in the second quarter of 2019.
- The company planned to begin a Phase 1b study of topical AKB-9778 for primary open-angle glaucoma in the first half of 2019, with potential Phase 2 development dependent on results.
- For AKB-4924, management planned a multiple-ascending-dose study in the second quarter of 2018 and a potential Phase 1b ulcerative-colitis study in the second half of 2018.
- Based on its operating plan, management expected existing cash to fund operations into the fourth quarter of 2018, absent additional financing or strategic partnerships. The filing and auditors’ report state that substantial doubt exists regarding the company’s ability to continue as a going concern.
- Future funding may require equity or debt financing, licensing transactions, collaborations, or business combinations. Additional financing may dilute existing stockholders or require the company to relinquish rights to product candidates.
- Key risks include failure or delay of clinical trials, uncertain regulatory approval, adverse events, patient-enrollment challenges, reliance on contract research organizations and manufacturers, competition from established therapies, reimbursement uncertainty, intellectual-property disputes, and limited OTCQB liquidity.
- The company had no material legal proceedings and no off-balance-sheet arrangements. It relied on third-party manufacturers and did not own manufacturing facilities.
Most Important Facts for an Investor to Verify
- Confirm the issuer identity: the supplied document names Aerpio Pharmaceuticals, Inc., whereas the request identifies Whitehawk Therapeutics, Inc.
- Verify the going-concern disclosure, including the cash runway into the fourth quarter of 2018 and the need for additional capital.
- Review the complete audited financial statements and notes for cash, accrued liabilities, stock-based compensation, tax attributes, and financing terms.
- Assess the design, enrollment, endpoint, statistical plan, and subsequent results of the TIME-2b trial.
- Evaluate dilution from 27.1 million shares outstanding at December 31, 2017, 317,562 warrants, 1.9 million options, and potential future equity financings.
- Review the remediation of the prior material weakness and the company’s ongoing internal-control disclosures.
- Confirm the status and expiry of patents, third-party manufacturing arrangements, and any collaboration or licensing transactions.