Business Context and Reporting Period
The filing is Aerpio Pharmaceuticals, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, including unaudited fourth-quarter results. The request metadata identifies Whitehawk Therapeutics, Inc.; the supplied filing text clearly identifies the registrant as Aerpio Pharmaceuticals, Inc. (Nasdaq: ARPO).
Aerpio is a clinical-stage biopharmaceutical company focused on ocular and vascular disease. Its lead candidate, AKB-9778, is in Phase 2b development for non-proliferative diabetic retinopathy (NPDR). The TIME-2b trial enrolled 167 patients and evaluated once-daily, twice-daily, and placebo treatment over 48 weeks. Top-line results were expected in March 2019. ARP-1536 remained in preclinical development.
Key Financial Metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| License and other revenue | $20.2 million | $0 | New revenue in 2018 |
| Research and development expense | $17.9 million | $12.1 million | Up 47.0% |
| General and administrative expense | $13.5 million | $9.2 million | Up 45.9% |
| Total operating expenses | $31.3 million | $21.4 million | Up $9.9 million |
| Loss from operations | $11.2 million | $21.4 million | Improved due primarily to license revenue |
| Net loss | $10.4 million | $21.4 million | Improved by $11.0 million |
| Basic and diluted loss per share | $0.31 loss | $1.03 loss | Improved |
| Cash used in operating activities | $5.8 million | $18.9 million | Improved by $13.1 million |
| Cash and cash equivalents at year-end | $62.6 million | $20.3 million | Up $42.3 million |
| Total debt | None disclosed as outstanding | Convertible notes converted in 2017 | Debt-free balance sheet at year-end |
The $20.0 million upfront payment under the Gossamer license accounted for nearly all 2018 revenue; the filing states that the revenue is not expected to recur unless contractual milestones are achieved. The company reported no product sales.
Year-end total assets were $64.1 million, current liabilities were $5.5 million, and stockholders’ equity was $58.7 million. Stock-based compensation expense increased to $3.4 million from $0.6 million. The company had 40.6 million common shares outstanding at December 31, 2018 and 3.35 million outstanding stock options, plus 317,562 warrants exercisable at $5.00 per share through March 15, 2020.
Material Changes Versus the Prior Comparable Period
- The company recognized $20.2 million of license and transition-service revenue in 2018, compared with no such revenue in 2017.
- Research and development expense increased because TIME-2b incurred a full year of activity in 2018.
- General and administrative expense increased primarily because of higher stock-based compensation and personnel costs.
- The company raised approximately $48.1 million of net proceeds in a June-July 2018 public offering of 13.4 million shares.
- Cash increased to $62.6 million from $20.3 million, although the company continued to incur operating losses and negative operating cash flow.
- The company uplisted its common stock from OTCQB to the Nasdaq Capital Market in June 2018.
- Gossamer assumed responsibility for further development and commercialization of AKB-4924, renamed GB004, for inflammatory bowel disease.
- Fourth-quarter 2018 revenue was approximately $2,000 and net loss was $8.5 million, compared with third-quarter revenue of $18.8 million and net income of $11.5 million, reflecting the nonrecurring timing of the Gossamer upfront payment.
Guidance, Outlook, Commentary, Risks and Unusual Items
Management stated that existing cash and cash equivalents were expected to fund the current operating plan at least into the second quarter of 2020, absent changes in spending or additional financing. Management also stated that additional capital will be needed to advance clinical programs, conduct future trials, and support potential commercialization.
- Top-line TIME-2b results were expected in March 2019.
- A Phase 1b topical-eye-drop study of AKB-9778 for primary open-angle glaucoma was planned for the second quarter of 2019, with top-line results expected in the third quarter of 2019.
- A post-hoc analysis showed a 21% geometric-mean reduction in urine albumin-to-creatinine ratio in AKB-9778 treatment arms, but this was exploratory and not a definitive diabetic-kidney-disease result.
- The Gossamer agreement provides eligibility for up to $55 million of development milestones, $85 million of commercial milestones, $260 million of sales milestones, and tiered royalties ranging from high-single-digit to mid-teens percentages. All future milestone and royalty consideration was constrained at December 31, 2018 and had not been recognized as revenue.
- Key risks include failure to demonstrate efficacy or safety in later-stage trials, regulatory delays or non-approval, dependence on AKB-9778, need for additional financing, clinical-trial enrollment and execution risk, reliance on contract manufacturers and research organizations, competition from established therapies, reimbursement uncertainty, intellectual-property challenges, and potential termination or underperformance of the Gossamer collaboration.
- The company had no material legal proceedings disclosed. It carried $10 million of aggregate product-liability insurance for clinical trials.
- Adoption of the new lease standard in 2019 was expected to add approximately $550,000 to $600,000 of right-of-use assets and lease liabilities, with no material effect expected on accumulated deficit or the statement of operations.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018. The independent auditor issued an unqualified opinion but was not engaged to audit internal control effectiveness.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Aerpio Pharmaceuticals, Inc., not Whitehawk Therapeutics, Inc.
- Verify the subsequent TIME-2b clinical results and whether they supported advancement to Phase 3.
- Assess how much of the $62.6 million cash balance remained after the filing date and whether additional equity financing occurred.
- Distinguish recurring operating economics from the nonrecurring $20.0 million Gossamer upfront payment.
- Review the Gossamer agreement for milestone conditions, royalty reductions, termination rights, and the likelihood of future payments.
- Evaluate dilution from the 40.6 million shares outstanding, 3.35 million options, 317,562 warrants, and future capital raises.
- Confirm regulatory status, safety findings, and the development plans for AKB-9778, GB004, and ARP-1536.
- Review the company’s ability to fund operations beyond the stated second-quarter 2020 cash runway under updated trial and commercialization plans.