Business Context and Reporting Period
The submitted filing is Aerpio Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018; it does not identify Whitehawk Therapeutics, Inc. as the registrant. This company-name discrepancy should be verified. Aerpio is a clinical-stage biopharmaceutical company developing therapies primarily for ocular disease. Its lead candidate, AKB-9778, was being evaluated in the Phase 2b TIME-2b trial for diabetic retinopathy. AKB-4924 was in clinical development for inflammatory bowel disease, and ARP-1536 was in preclinical development for ocular disease.
Financial Performance and Position
| Metric | Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4.0 million | $2.3 million |
| General and administrative expense | $3.4 million | $2.5 million |
| Total operating expenses | $7.5 million | $4.8 million |
| Net loss | $7.4 million | $5.0 million |
| Net loss per share | $0.27 | $1.06 |
| Net cash used in operating activities | $6.5 million | $3.9 million |
Because the company had no revenue, gross margin and operating margin are not meaningful. Cash and cash equivalents were $13.8 million at March 31, 2018, down from $20.3 million at December 31, 2017. Total assets were $14.7 million and stockholders’ equity was $11.1 million. Current liabilities were $3.6 million, consisting primarily of accounts payable and accrued expenses.
Accumulated deficit increased to $116.0 million from $108.6 million at December 31, 2017. The company had no outstanding preferred stock. Convertible notes had previously been converted into common stock in connection with the 2017 merger and offering; the filing reports no current debt balance.
Financing activities provided only $22,000 during the quarter from stock-option exercises. Capital expenditures were $8,000. Stock-based compensation expense was $1.1 million, compared with $155,000 in the prior-year quarter.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased approximately 79%, primarily because of increased spending on the ongoing Phase 2b AKB-9778 trial.
- General and administrative expense increased approximately 38%, driven primarily by higher stock-based compensation and personnel-related costs.
- Net loss increased approximately 49% to $7.4 million, although per-share loss decreased because the weighted-average share count increased substantially following the 2017 merger and financing.
- Operating cash usage increased approximately 66% to $6.5 million.
- Prior-year financing cash flow included approximately $37.2 million of net proceeds from the March 2017 common-stock offering and approximately $0.3 million from convertible notes; no comparable financing occurred in the current quarter.
- Grant income of $36,000 and net interest expense of $272,000 in the prior-year quarter were replaced by $51,000 of net interest income in 2018.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected existing cash and cash equivalents to fund planned operations into the fourth quarter of fiscal 2018. The filing nevertheless states that substantial doubt existed about the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow, ongoing clinical-trial spending, and the need for additional financing.
The company filed a shelf registration statement on Form S-3 in February 2018 permitting potential sales of up to $150 million of securities, subject to market conditions and future capital needs. Management was also evaluating equity financing, licensing, collaborations, strategic transactions, and other funding alternatives. Failure to obtain funding could require delaying, reducing, or eliminating development programs and could materially impair operations.
Management reported that TIME-2b had enrolled 167 patients as of the filing date. It planned a multiple-ascending-dose study of AKB-4924 in the second quarter of 2018, a subsequent Phase 1b ulcerative-colitis study in the second half of 2018 if results were favorable, and a Phase 1b topical-eye-drop study of AKB-9778 for glaucoma in the second quarter of 2019.
Other notable items include a March 2018 lease amendment extending the Cincinnati facility lease through July 2021, with remaining non-cancelable operating-lease payments of approximately $397,000. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2018.
Important Facts for Investors to Verify
- Confirm whether this Aerpio Pharmaceuticals filing is the intended filing for Whitehawk Therapeutics, Inc.
- Verify the timing, enrollment, endpoints, and subsequent results of the TIME-2b Phase 2b trial.
- Assess the company’s funding requirements and whether subsequent financing was completed before the projected fourth-quarter 2018 cash runway.
- Review the going-concern disclosure and determine whether additional capital, licensing, collaboration, or strategic transactions mitigated the liquidity risk.
- Confirm the absence of current debt and understand dilution exposure from the 1.9 million outstanding stock options and 317,562 warrants.
- Review subsequent clinical, regulatory, financing, and corporate events because the filing’s plans and outlook are subject to substantial execution and funding risks.