Business Context and Reporting Period
This filing is a Form 10-K for the fiscal year ended December 31, 2019, filed March 16, 2020. The source identifies the registrant as Aerpio Pharmaceuticals, Inc. (Nasdaq: ARPO), not Whitehawk Therapeutics, Inc.; this company-name discrepancy should be verified.
Aerpio is a development-stage biopharmaceutical company focused on Tie2-activating therapies for ocular diseases and diabetic complications. Its lead candidate, AKB-9778, is being developed primarily for open-angle glaucoma and ocular hypertension. ARP-1536 and a VEGF/VE-PTP bispecific antibody remained in preclinical development.
Financial Metrics
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| License revenue and other | $0 | $20.2 million | Down $20.2 million |
| Research and development expense | $12.8 million | $17.9 million | Down 28.2% |
| General and administrative expense | $9.8 million | $13.5 million | Down 27.7% |
| Restructuring expense | $1.9 million | $0 | New in 2019 |
| Total operating expenses | $24.4 million | $31.3 million | Down 22.0% |
| Loss from operations | $24.4 million | $11.2 million | Loss increased |
| Net loss | $23.3 million | $10.4 million | Loss increased 124% |
| Basic and diluted loss per share | $0.57 | $0.31 | Loss per share increased |
| Net cash used in operating activities | $23.9 million | $5.8 million | Cash use increased |
| Cash and cash equivalents | $38.5 million | $62.6 million | Down $24.1 million |
| Stockholders’ equity | $36.5 million | $58.7 million | Down $22.1 million |
No product revenue was generated, and no products had been commercialized. The filing does not provide a meaningful operating or net margin because revenue was zero. No material debt is disclosed; liabilities consisted primarily of accounts payable, accrued expenses, and operating lease liabilities totaling $3.4 million at year-end.
Cash used in investing activities was $0.2 million, while financing activities provided no cash in 2019. The company reported no off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Revenue fell to zero in 2019 because the $20.0 million Gossamer upfront license payment and related transition-service revenue were recognized in 2018. No Gossamer milestones were achieved in 2019.
- Research and development spending declined because of lower clinical-trial spending and reduced research personnel costs.
- General and administrative spending declined primarily because of lower stock-based compensation, employee costs, and office expenses.
- The company recorded $1.9 million of restructuring expense following a workforce reduction of 11 employees, or approximately 41% of the workforce, and the October 2019 departures of the Chief Executive Officer and Chief Financial and Business Officer. Remaining severance liability was approximately $0.8 million at year-end.
- Cash declined by $24.1 million during 2019, with no equity financing completed during the year. Shares outstanding remained 40.6 million at December 31, 2019.
- In 2019, the company issued warrants for 600,000 shares at an exercise price of $0.486 per share in connection with a strategic-advisor arrangement. Total warrants outstanding at year-end were 917,562.
Guidance, Outlook, Risks, and Unusual Items
- Management expected existing cash and cash equivalents to fund its current operating plan at least through the second quarter of 2021, absent changes to the plan. Management also stated that additional financing would be needed to advance clinical programs and commercialization activities.
- The company planned to advance topical AKB-9778 into a Phase 2 glaucoma trial, with results expected in the first quarter of 2021. The Phase 1b study showed statistically significant IOP reductions when AKB-9778 was added to prostaglandin therapy, but the study was small and short-term.
- AKB-9778 failed to meet the primary endpoint in the Phase 2b TIME-2b trial for non-proliferative diabetic retinopathy. The company cited supportive reductions in intraocular pressure and UACR as rationale for pursuing other indications.
- The Gossamer license provides potential development, commercial, and sales milestones and tiered royalties, but all future milestones and royalties were constrained and no such revenue was recognized in 2019.
- In October 2019, the company engaged advisors to explore strategic alternatives, including a sale, merger, business combination, asset transaction, or licensing transaction. The filing states that no transaction was assured.
- The company identified substantial risks from continued losses, dependence on AKB-9778, need for additional capital, clinical and regulatory failure, reliance on contract manufacturers and research organizations, intellectual-property challenges, competition, and reimbursement uncertainty.
- The filing included COVID-19 as a potential risk to clinical-trial enrollment, site operations, supply chains, travel, and staffing, although the effects were not yet quantifiable as of the filing date.
- Nasdaq notified the company in July 2019 of noncompliance with the $1.00 minimum bid-price requirement. The company had an additional compliance period potentially extending to July 18, 2020, subject to applicable conditions.
Most Important Facts an Investor Should Verify
- Confirm that this filing belongs to Aerpio Pharmaceuticals, Inc. rather than Whitehawk Therapeutics, Inc.
- Verify the actual status, design, financing, enrollment, and timing of the planned Phase 2 AKB-9778 glaucoma trial.
- Assess whether $38.5 million of cash was sufficient under updated spending assumptions and whether subsequent financing or strategic transactions occurred.
- Review post-filing developments involving the Gossamer license, including GB004 clinical results, milestones, royalties, or termination rights.
- Confirm resolution of the Nasdaq minimum-bid-price deficiency and any resulting reverse split, delisting, or capital-raising activity.
- Evaluate dilution from the 5.3 million outstanding options and 917,562 warrants, as well as any later equity issuances.
- Review the clinical significance and durability of the reported IOP and UACR findings, particularly in light of the failed diabetic-retinopathy endpoint.