Filing Overview
The submitted filing is Aerpio Pharmaceuticals, Inc.’s Form 10-Q for the quarter and nine months ended September 30, 2019, not a filing under the stated company name Whitehawk Therapeutics, Inc. Aerpio is a clinical-stage biopharmaceutical company developing Tie2-activating therapies for ocular diseases and diabetic complications. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Position and Results
| Metric | Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 |
|---|---|---|---|---|
| License revenue and other | $0 | $18.8 million | $0 | $20.2 million |
| Research and development expense | $2.8 million | $4.3 million | $10.7 million | $12.6 million |
| General and administrative expense | $2.2 million | $3.3 million | $8.2 million | $9.9 million |
| Total operating expenses | $5.0 million | $7.6 million | $19.8 million | $22.5 million |
| Net income (loss) | $(4.6) million | $11.5 million | $(18.8) million | $(1.9) million |
| Basic and diluted EPS | $(0.11) | $0.28 | $(0.46) | $(0.06) |
| Operating cash flow | Not separately presented for the quarter | $(19.0) million | $0.4 million |
- Cash and cash equivalents were $43.4 million at September 30, 2019, down from $62.6 million at December 31, 2018.
- Total assets were $45.6 million and stockholders’ equity was $41.7 million at September 30, 2019.
- Total liabilities were $3.8 million, consisting primarily of accounts payable, accrued expenses and operating lease liabilities. The filing reports no debt outstanding.
- Accumulated deficit increased to $137.8 million from $119.0 million at December 31, 2018.
- Nine-month investing cash use was $0.2 million, primarily for furniture and equipment. No financing cash flows occurred in 2019; 2018 included approximately $48.2 million of net financing proceeds.
- Because 2019 revenue was zero, conventional revenue-based margins are not meaningful. The nine-month operating loss was approximately 100% of reported revenue, which was zero.
Material Changes Versus the Prior Comparable Period
- Revenue fell to zero in 2019 from $18.8 million in the third quarter and $20.2 million for the first nine months of 2018. The prior-period revenue primarily reflected the $20.0 million upfront payment under the Gossamer license agreement and related transition services; no 2019 milestones were achieved.
- The third-quarter net result shifted from $11.5 million of income to a $4.6 million loss. The nine-month loss increased from $1.9 million to $18.8 million.
- Research and development expense decreased 34.6% in the third quarter and 15.1% for the nine-month period, primarily because the AKB-9778 Phase 2 program concluded, partly offset by glaucoma development costs.
- General and administrative expense decreased 34.1% in the third quarter and 16.7% for the nine-month period.
- The company recorded $0.9 million of restructuring expense for a workforce reduction of 11 employees, approximately 41% of its workforce. Approximately $0.1 million remained accrued at September 30, 2019.
- The company adopted the new lease accounting standard on January 1, 2019, recording operating lease right-of-use assets and liabilities. It also recorded a $5,717 cumulative adjustment upon adoption of the nonemployee share-based payment standard.
Outlook, Commentary, Risks and Unusual Items
- TIME-2b, a Phase 2b trial of subcutaneous AKB-9778 in non-proliferative diabetic retinopathy, did not meet its primary endpoint. Management cited encouraging secondary data relating to kidney function and intraocular pressure.
- A topical AKB-9778 formulation entered a Phase 1b glaucoma and ocular-hypertension trial in June 2019. Interim results announced in October 2019 indicated tolerability, transient mild conjunctival hyperemia and dose- and time-dependent intraocular-pressure reduction. Full results were expected in the first quarter of 2020.
- ARP-1536, a Tie2-related monoclonal antibody, remained in preclinical development. The company was evaluating development options.
- Gossamer was developing GB004, formerly AKB-4924, for inflammatory bowel disease. Future milestones and royalties were fully constrained and no transaction price was allocated to them as of September 30, 2019.
- Management stated that existing cash and cash equivalents were expected to fund currently planned operations at least through the second quarter of 2021. The company nevertheless expects continuing losses and will require additional capital to expand development activities.
- In October 2019, the company engaged Evercore, Ladenburg Thalmann & Co. and Duane Nash to explore strategic alternatives, including a potential acquisition, sale, merger, business combination, asset sale or licensing transaction. No transaction was assured.
- On October 15, 2019, the Chief Executive Officer and Chief Financial and Business Officer departed; the CEO also resigned as a director. The company estimated approximately $1.0 million of related one-time employee costs and anticipated additional stock-based compensation adjustments.
- Nasdaq notified the company on July 24, 2019 that its stock price did not meet the $1.00 minimum bid-price requirement. The initial compliance deadline was January 20, 2020, subject to possible additional remedies.
- Key risks include clinical failure, regulatory delays, dependence on AKB-9778, reliance on third-party manufacturers and clinical research organizations, inability to raise capital, intellectual-property challenges, possible failure of the Gossamer collaboration, strategic-alternative execution risk and potential Nasdaq delisting.
- Management reported that disclosure controls and internal control over financial reporting were effective as of September 30, 2019, with no material changes during the quarter. No material legal proceedings were reported.
Important Facts for Investors to Verify
- Confirm the issuer identity: the source filing is for Aerpio Pharmaceuticals, Inc., whereas the request identifies Whitehawk Therapeutics, Inc.
- Verify cash runway assumptions against actual clinical spending, restructuring costs, executive-departure costs and any strategic transaction expenses.
- Track Phase 1b AKB-9778 glaucoma results and determine whether subsequent data support advancement into later-stage trials.
- Assess the implications of the failed TIME-2b primary endpoint and whether secondary findings provide a viable development path.
- Monitor Gossamer’s GB004 development, the status of constrained milestones and royalties, and any termination or amendment of the license agreement.
- Monitor Nasdaq bid-price compliance and any reverse split, financing or delisting actions.
- Evaluate potential dilution from the $150.0 million shelf registration, the $75.0 million at-the-market facility, outstanding options and 317,562 warrants expiring March 15, 2020.
- Confirm the outcome of the strategic-alternatives process and the effect of executive turnover on operations and governance.