Business Context and Reporting Period
Aerpio Pharmaceuticals, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2019. The request metadata identifies Whitehawk Therapeutics, Inc., but the filing’s registrant is Aerpio Pharmaceuticals, Inc. (Nasdaq: ARPO). Aerpio is a clinical-stage biopharmaceutical company developing Tie2-activating compounds for ocular diseases and diabetic complications.
The company’s principal programs were AKB-9778, including a planned topical formulation for glaucoma and ocular hypertension, and ARP-1536, which remained in preclinical development. The company had no commercial product revenue.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | No material product revenue reported | No material product revenue reported | Not meaningful |
| Research and development expense | $5.6 million | $4.0 million | Up 38.7% |
| General and administrative expense | $3.3 million | $3.4 million | Down 5.6% |
| Total operating expenses | $8.8 million | $7.5 million | Up 18.2% |
| Operating loss | $8.8 million | $7.5 million | Loss increased |
| Other income | $0.35 million | $0.05 million | Increased, primarily from interest income |
| Net loss | $8.5 million | $7.4 million | Loss increased 14.4% |
| Net loss per share | $0.21 | $0.27 | Improved due partly to higher share count |
| Cash used in operating activities | $9.1 million | $6.5 million | Use increased 39.4% |
| Cash and cash equivalents at period end | $53.4 million | $13.8 million | Prior-year comparison affected by 2018 financing and license proceeds |
No meaningful operating or net margin was reported because the company generated no material operating revenue and remained loss-making. Interest income was $333,120 and grant income was $15,348. The filing does not report funded debt; liabilities primarily consisted of accounts payable, accrued expenses and operating lease liabilities.
At March 31, 2019, total assets were $55.1 million, total liabilities were $4.3 million, and stockholders’ equity was $50.8 million. Operating lease liabilities totaled $527,248 on a present-value basis. The company had 40,588,004 common shares outstanding and 317,562 warrants outstanding with a $5.00 exercise price expiring March 15, 2020.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased by $1.6 million, primarily because of increased AKB-9778 spending, partially offset by lower AKB-4924-related costs.
- Research and development costs were principally associated with the AKB-9778 Phase 2b trial, which concluded during the first quarter of 2019.
- General and administrative expense declined by approximately $0.2 million, primarily because of lower stock-based compensation, partly offset by higher patent legal expenses.
- Cash used in operations increased by approximately $2.6 million, reflecting the higher operating loss and working-capital changes.
- Interest income increased substantially because cash from the June 2018 public offering and the Gossamer license payment was available for investment.
- Cash declined from $62.6 million at December 31, 2018 to $53.4 million at March 31, 2019, primarily because of operating cash use and capital expenditures.
- The company adopted the new lease standard on January 1, 2019, recording operating lease right-of-use assets and lease liabilities. It also recorded a $5,717 cumulative adjustment upon adopting revised nonemployee stock-compensation guidance.
Guidance, Outlook, Risks and Unusual Items
In March 2019, Aerpio announced that the subcutaneous AKB-9778 Phase 2b TIME-2b trial did not meet its primary endpoint for improvement in diabetic retinopathy severity score. Management cited encouraging prespecified secondary data involving urine albumin-creatinine ratio and intraocular pressure. The company planned to advance a topical AKB-9778 formulation into a Phase 1b trial for open-angle glaucoma and ocular hypertension during the second quarter of 2019, with results expected by year-end 2019.
Management stated that existing cash and cash equivalents were expected to fund currently planned operations at least through the second quarter of fiscal 2021. This expectation is subject to clinical results, spending changes, financing availability and other operating risks. The company continued to evaluate equity financing, debt, licensing, collaborations and business combinations; its $150.0 million shelf registration and $75.0 million at-the-market facility were available, but no shares had been sold under the at-the-market agreement as of March 31, 2019.
The company expects continuing significant operating losses and stated that additional capital will be required to advance clinical programs and potentially commercialize products. Failure to obtain financing could require delaying, reducing or terminating development activities.
On April 1, 2019, after the reporting period, the board approved a workforce realignment affecting 11 employees, or approximately 41% of the workforce. The company estimated one-time employee-related costs of approximately $0.9 million.
Other principal risks include clinical-trial failure or delay, regulatory uncertainty, dependence on AKB-9778, reliance on contract research and manufacturing organizations, intellectual-property challenges, competition, product-liability exposure, potential dilution from future financing, Nasdaq listing compliance and uncertainty regarding future payments under the Gossamer license. All future Gossamer milestones and royalties were constrained and no transaction price had been allocated to them as of March 31, 2019.
Management reported that disclosure controls and procedures and internal control over financial reporting were effective as of March 31, 2019. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Confirm that the applicable registrant is Aerpio Pharmaceuticals, Inc., not Whitehawk Therapeutics, Inc., and reconcile any subsequent corporate transactions or name changes.
- Review the complete TIME-2b clinical results, including the failed primary endpoint, secondary endpoints, statistical significance and implications for AKB-9778’s revised glaucoma strategy.
- Verify whether the planned Phase 1b topical AKB-9778 trial was initiated on schedule and review its results and safety profile.
- Assess the company’s cash-burn trajectory against the stated cash runway through the second quarter of fiscal 2021, including the effect of the workforce reduction.
- Monitor future financing activity, potential dilution and the remaining availability of the shelf registration and at-the-market facility.
- Evaluate the likelihood and timing of Gossamer development milestones, royalties and other contingent payments, which were not recognized as of the reporting date.
- Review ongoing Nasdaq listing compliance, particularly the minimum bid-price and stockholders’ equity requirements.