Form 10-Q Summary — Quarter Ended September 30, 2017
Filing identity: The supplied filing is for Aerpio Pharmaceuticals, Inc., not Whitehawk Therapeutics, Inc. Investors should verify the issuer and filing metadata before relying on this summary. The company was a small reporting company and emerging growth company, and its common stock began trading on the OTCQB under the symbol ARPO on August 8, 2017.
Business Context and Reporting Period
Aerpio is a clinical-stage biopharmaceutical company focused on ocular disease. Its lead candidate, AKB-9778, is a Tie2 pathway activator being developed for diabetic retinopathy. The company initiated the 12-month, double-blind Phase 2b TIME-2b trial in June 2017, targeting 150 patients. Pipeline programs include AKB-4924 for inflammatory bowel disease and ARP-1536 for ocular disease; further development of these programs is subject to additional funding or partnerships.
The March 15, 2017 merger with Aerpio Therapeutics was accounted for as a reverse acquisition and recapitalization. Historical comparative periods are those of Aerpio Therapeutics. The company has generated no product revenue to date.
Financial Results and Position
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 | Change vs. Prior Period |
|---|---|---|---|
| Research and development expense | $2.9 million | $8.4 million | Q3: down 15%; nine months: down 11% |
| General and administrative expense | $1.8 million | $6.7 million | Q3: up 44%; nine months: up 70% |
| Total operating expenses | $4.8 million | $15.1 million | Q3: essentially flat; nine months: up 13% |
| Net loss | $4.6 million | $15.2 million | Q3 loss improved from $4.9 million; nine-month loss increased from $13.5 million |
| Net loss per share | $0.17 | $0.81 | Prior periods: $6.69 and $20.01, respectively, reflecting substantially higher share counts and prior preferred-stock accretion |
| Cash used in operating activities | Not separately provided | $14.3 million | Prior-year nine-month use was $12.7 million |
| Cash and cash equivalents | $24.8 million at September 30, 2017 | Up from $1.6 million at December 31, 2016 |
Grant income was $93,720 for the first nine months, and net interest expense was $159,612. The company reported an accumulated deficit of $102.3 million. No income tax expense or benefit was recorded because of net losses and a full valuation allowance on deferred tax assets.
Financing activities provided $37.5 million during the first nine months, principally from the March 2017 private placement of 8,049,555 common shares at $5.00 per share. Gross proceeds were $40.2 million and net proceeds were approximately $37.2 million after offering costs. The company also received approximately $0.3 million from convertible notes before those notes and accrued interest converted into common stock in connection with the merger.
Material Changes Versus the Prior Comparable Period
- Research and development spending declined as the company reduced spending on AKB-4924 and ARP-1536, partially offset by higher AKB-9778 trial costs.
- General and administrative expense increased substantially because of merger-related costs, public-company compliance, personnel, legal, accounting, insurance and other professional services.
- Operating cash use increased from $12.7 million to $14.3 million for the first nine months.
- The March 2017 financing materially strengthened liquidity and increased common shares outstanding from 1.2 million at December 31, 2016 to 27.1 million at September 30, 2017.
- All redeemable convertible preferred stock and convertible notes were converted into common stock. Accordingly, preferred stock and convertible notes were zero at September 30, 2017, compared with $73.8 million of preferred stock and $12.4 million of convertible notes at December 31, 2016.
- The company had 317,562 warrants outstanding with a $5.00 exercise price and a March 15, 2020 expiration date.
Guidance, Outlook, Risks and Unusual Items
Management expects significant expenses and increasing operating losses for the foreseeable future, primarily from the TIME-2b trial, additional personnel and public-company costs. Based on current plans, management believes cash and short-term investments will fund planned operations into the first quarter of fiscal 2019, but states that additional financing will be required to advance clinical programs and potentially commercialize products.
Key risks include dependence on AKB-9778, uncertain clinical and regulatory outcomes, patient enrollment and trial execution, third-party manufacturing and contract research organizations, intellectual-property protection, competition from established anti-VEGF therapies and laser treatment, and the need for additional capital or strategic partnerships. The company has no approved products or product revenue.
Management concluded that disclosure controls and procedures were not effective as of September 30, 2017 because of a continuing material weakness involving review and approval controls over financial information and insufficient segregation of duties. Remediation efforts were underway.
The company had no material legal proceedings, no off-balance-sheet arrangements and no material changes to contractual obligations outside the ordinary course. The Cincinnati facility lease expires in June 2018, with remaining minimum payments of $79,357 as of September 30, 2017.
Important Facts for Investors to Verify
- Confirm that the filing belongs to Aerpio Pharmaceuticals rather than Whitehawk Therapeutics.
- Verify the sufficiency of the reported $24.8 million liquidity balance relative to the company’s projected cash runway and ongoing clinical-trial spending.
- Review the status, enrollment and future data milestones for the TIME-2b Phase 2b trial of AKB-9778.
- Assess the likelihood, timing and potential dilution of future equity, debt, licensing or partnership financings.
- Evaluate the continuing material weakness in internal control over financial reporting and the company’s remediation progress.
- Consider dilution from 27.1 million outstanding shares, 898,962 options, 129,835 restricted shares and 317,562 warrants.
- Review clinical, regulatory, manufacturing, intellectual-property and market-acceptance risks before assigning value to the pipeline.