Filing Overview
Filing and period: Unaudited Form 10-Q for the quarter and six months ended June 30, 2019, filed August 8, 2019. The supplied filing identifies the registrant as Aerpio Pharmaceuticals, Inc., not Whitehawk Therapeutics, Inc.; this entity discrepancy should be verified.
Aerpio is a clinical-stage biopharmaceutical company developing Tie2-activating therapies for ocular diseases and diabetic complications. Its primary programs were AKB-9778 and preclinical ARP-1536. The company had no commercial products or product sales.
Financial Performance and Position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2019; $1.3 million in 2018 | $0 in 2019; $1.3 million in 2018 |
| Operating expenses | $6.0 million in 2019; $7.4 million in 2018 | $14.8 million in 2019; $14.8 million in 2018 |
| Operating loss | $6.0 million in 2019; $6.0 million in 2018 | $14.8 million in 2019; $13.5 million in 2018 |
| Net loss | $5.7 million in 2019; $6.0 million in 2018 | $14.2 million in 2019; $13.4 million in 2018 |
| Loss per share | $0.14 in 2019; $0.22 in 2018 | $0.35 in 2019; $0.49 in 2018 |
| Cash flow from operations | Not separately presented | $(14.2) million in 2019; $6.6 million in 2018 |
Revenue in 2018 consisted of amortization of the $20.0 million upfront Gossamer license payment; no license revenue or milestone revenue was recognized in 2019. With no revenue, operating and net margins were not meaningful and losses were funded by cash reserves.
- Cash and equivalents: $48.2 million at June 30, 2019, down from $62.6 million at December 31, 2018.
- Total assets: $49.6 million; total liabilities: $3.9 million; stockholders’ equity: $45.7 million.
- Accumulated deficit: $133.1 million at June 30, 2019, compared with $119.0 million at year-end 2018.
- Debt: The filing does not report outstanding borrowings or senior debt. Lease liabilities totaled $481,339, including current and noncurrent portions.
- Financing: No financing cash inflows occurred in the first six months of 2019. The company had an effective shelf registration permitting offerings of up to $150.0 million and an at-the-market agreement for up to $75.0 million; no shares had been sold under the latter as of June 30, 2019.
Material Changes Versus Prior Comparable Period
- Quarterly research and development expense decreased 46.5% to $2.3 million, primarily because spending on AKB-9778 declined after the Phase 2 program concluded, partly offset by glaucoma trial start-up costs and ARP-1536 spending.
- Six-month research and development expense decreased 4.9% to $7.9 million.
- General and administrative expense declined 10.9% in the quarter and 8.1% for the six-month period, primarily due to lower stock-based compensation.
- A $915,094 restructuring charge was recorded in the quarter and six-month period following a workforce reduction of 11 employees, approximately 41% of the workforce. Remaining severance liability was $0.6 million at June 30, 2019.
- Cash from operations shifted from $6.6 million provided in the first half of 2018 to $14.2 million used in the first half of 2019. The 2018 inflow was substantially supported by deferred revenue related to the Gossamer license.
- Interest income increased to $623,499 for the first half of 2019 from $97,580, reflecting the larger cash balance following 2018 financing and the Gossamer payment.
- Shares outstanding and weighted-average shares were 40.6 million in 2019 versus approximately 27.2 million to 27.3 million in the comparable 2018 periods, reflecting prior equity issuance and resulting dilution.
- The company adopted the new lease standard in 2019, recording operating lease right-of-use assets and lease liabilities. It also recorded a $5,717 cumulative adjustment upon adoption of nonemployee share-based payment guidance.
Clinical, Outlook, and Risks
- The Phase 2b TIME-2b trial of subcutaneous AKB-9778 for non-proliferative diabetic retinopathy did not meet its primary endpoint. Management reported encouraging secondary data involving urine albumin-creatinine ratio and intraocular pressure.
- A Phase 1b trial of topical AKB-9778 for primary open-angle glaucoma and ocular hypertension began in June 2019, with topline results anticipated by year-end 2019. ARP-1536 remained in preclinical development.
- AKB-4924, now GB004, was licensed to Gossamer for inflammatory bowel disease. Future development milestones and royalties were fully constrained at June 30, 2019, so no related transaction price had been recognized.
- Management stated that existing cash was expected to fund currently planned operations at least through the second quarter of 2021. This expectation depends on the current operating plan and may change with clinical spending, trial outcomes, financing availability, or strategic transactions.
- The company expected continuing operating losses and stated that additional financing would be required to further advance clinical programs and commercialize products. Potential funding sources included equity, debt, collaborations, licensing arrangements, and business combinations.
- Key risks include failure of clinical trials or regulatory approval, dependence on AKB-9778, patient enrollment and third-party CRO and manufacturing performance, intellectual-property challenges, inability to obtain additional capital, dilution from future financing, and lack of product revenue.
- The filing disclosed a Nasdaq minimum bid-price deficiency notification received July 24, 2019. The company had until January 20, 2020, subject to possible extension, to regain compliance with the $1.00 minimum bid requirement.
- Management reported effective disclosure controls and internal control over financial reporting as of June 30, 2019, with no material changes during the quarter. No material legal proceedings or off-balance-sheet arrangements were reported.
Investor Verification Points
- Verify that the filing belongs to Aerpio Pharmaceuticals, Inc. rather than Whitehawk Therapeutics, Inc.
- Confirm the outcome and subsequent development of the topical AKB-9778 Phase 1b glaucoma trial, including safety, intraocular-pressure results, and any effect on development plans.
- Assess the company’s cash runway against actual quarterly burn and determine whether additional financing was required before the stated second-quarter 2021 runway.
- Review the Gossamer collaboration for milestone eligibility, royalty terms, development progress, and termination rights, since no future milestone or royalty value was recognized.
- Monitor the Nasdaq listing deficiency, any reverse split or other compliance action, and the effect on liquidity and financing capacity.
- Evaluate dilution risk from the 6.8 million outstanding options, 317,562 warrants, the shelf registration, and potential future equity offerings.