Business Context and Reporting Period
The supplied filing is Aerpio Pharmaceuticals, Inc.’s Form 10-Q for the quarter ended March 31, 2020, filed May 7, 2020; it does not identify Whitehawk Therapeutics, Inc. Aerpio is a clinical-stage biopharmaceutical company developing Tie2-activating therapeutics for ocular diseases and diabetic complications. Its lead program, topical AKB-9778, was being advanced for open-angle glaucoma and ocular hypertension.
The condensed consolidated financial statements are unaudited and prepared under U.S. GAAP. Aerpio had no approved products or product sales and operated in one segment.
Key Financial Metrics
| Metric | Three months ended March 31, 2020 | Prior comparable period |
|---|---|---|
| Research and development expense | $1.83 million | $5.59 million |
| General and administrative expense | $2.29 million | $3.26 million |
| Total operating expenses | $4.11 million | $8.84 million |
| Grant income | $79,900 | $15,348 |
| Interest income | $116,370 | $333,120 |
| Net loss | $3.92 million | $8.49 million |
| Basic and diluted loss per share | $0.10 loss | $0.21 loss |
| Net cash used in operating activities | $3.94 million | $9.08 million |
- Cash and cash equivalents were $34.58 million at March 31, 2020, down from $38.52 million at December 31, 2019.
- Total assets were $35.70 million and total liabilities were $2.69 million at March 31, 2020.
- Stockholders’ equity was $33.01 million; accumulated deficit was $146.15 million.
- The filing reports no debt financing outstanding. Lease liabilities totaled $145,905, including $106,734 current.
- No financing cash flows occurred during the quarter, and there were no investing cash flows.
- Margins are not meaningful because the company had no product revenue and generated an operating loss. Grant and interest income totaled $196,270.
Material Changes Versus the Prior Comparable Period
- Research and development expense decreased 67.3%, or approximately $3.8 million, primarily because of reduced spending on AKB-9778, partly offset by the Phase 1b glaucoma trial.
- General and administrative expense decreased 29.8%, or approximately $1.0 million, due mainly to lower employee-related, legal, stock-based compensation and office expenses.
- Net loss declined by approximately $4.6 million, while operating cash burn declined by approximately $5.1 million.
- Interest income decreased because cash balances were lower than in the prior-year period.
- Accounts payable and accrued expenses declined to $2.55 million from $3.23 million at year-end 2019.
- Three-year warrants to purchase 317,562 shares expired unexercised in March 2020. Warrants outstanding at March 31, 2020 covered 600,000 shares.
- The company granted options to purchase 702,000 shares during the quarter and recorded $327,467 of stock-based compensation, compared with $621,685 in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
- Management expected to initiate a Phase 2 glaucoma trial in the third quarter of 2020 and expected results in the first quarter of 2021, subject to potential COVID-19-related delays.
- Management stated that existing cash was expected to fund the current operating plan through at least the second quarter of 2021, but additional financing would be required to advance clinical programs and continue operations beyond that period.
- Potential financing sources included equity offerings, business development or licensing arrangements, collaborations, debt and strategic transactions. No assurance was provided that financing would be available on acceptable terms or at all.
- COVID-19 could delay patient enrollment, site operations, manufacturing, clinical-trial materials, third-party services and the planned Phase 2 trial. The company closed its executive offices and had employees working remotely.
- The company continued exploring strategic alternatives, including an acquisition, sale, merger, asset transaction, in-license or out-license. No transaction was assured.
- A restructuring plan reduced the workforce by 11 employees, approximately 41% of the workforce. A remaining severance-related liability of approximately $0.5 million was expected to be substantially paid by October 31, 2020.
- The Gossamer license agreement generated a $20.0 million upfront payment in 2018. Future milestones and royalties were fully constrained and no transaction price had been allocated to them as of March 31, 2020.
- The company reported no material legal proceedings and no off-balance-sheet arrangements.
- Nasdaq had granted additional time to regain compliance with the $1.00 minimum bid-price requirement. Following a temporary tolling of the compliance period, the company stated it had until October 2, 2020 to regain compliance. A proposed 1-for-15 to 1-for-25 reverse stock split was submitted to stockholders.
- Management concluded that disclosure controls and procedures and internal control over financial reporting were effective as of March 31, 2020.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Aerpio Pharmaceuticals, Inc., not Whitehawk Therapeutics, Inc.
- Verify the cash runway assumption through at least the second quarter of 2021 and the timing and terms of any required financing.
- Track initiation, enrollment, COVID-19 impacts and results of the planned Phase 2 AKB-9778 glaucoma trial.
- Assess whether the Gossamer collaboration produces milestones, royalties or other payments, given that all future payments remained constrained.
- Verify resolution of the Nasdaq minimum bid-price deficiency and the outcome of the proposed reverse stock split.
- Review dilution from outstanding options and warrants and any future equity financing.
- Monitor restructuring obligations, strategic-alternative discussions and the risk that development programs may be delayed, reduced or discontinued.