UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ______________________________________ FORM 10-Q ______________________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number: 001-38560 _______________ ...

Financial Performance - For the fiscal year ended December 31, 2022, the company recorded net revenue from product sales of $15.2 million and a net loss of $60.5 million[224]. - The company reported a comprehensive loss of $60,628,000 for 2022, compared to $110,090,000 in 2021[291]. - The net loss for the year ended December 31, 2022, was $60,513,000, compared to a net loss of $110,090,000 in 2021, reflecting an improvement[288]. - The company incurred net losses of $60.5 million and $110.1 million for the years ended December 31, 2022 and 2021, respectively, with an accumulated deficit of $203.2 million as of December 31, 2022[258]. - The accumulated deficit as of December 31, 2022, was $203.2 million, reflecting ongoing losses since inception[235]. - Total revenue for the year ended December 31, 2022, was $15,216,000, a significant increase from $1,120,000 in 2021[288]. - The company recorded royalties of $1.1 million under the BMS License Agreement for the year ended December 31, 2022[227]. - The company recognized an impairment of $74.2 million for the contract intangible asset acquired in connection with the Merger, reducing its value to $3.9 million[346]. Product Development and Launch - The company launched FYARRO in the United States for the treatment of advanced malignant PEComa on February 22, 2022[224]. - The company initiated a registration-directed tumor-agnostic Phase 2 study ("PRECISION 1") of FYARRO in patients with TSC1 & TSC2 alterations, with preliminary data expected in Q2 2023[224]. - FYARRO generated net product sales of $15.2 million for the year ended December 31, 2022, following its launch on February 22, 2022[234]. - The company launched sales of FYARRO in February 2022, following FDA approval in November 2021, marking a significant product introduction[332]. Expenses and Cost Management - Selling, general and administrative expenses increased to $40.2 million in 2022 from $18.5 million in 2021, reflecting the costs associated with being a public company[247]. - Research and development expenses rose to $32.7 million in 2022, up from $19.7 million in 2021, driven by costs related to the PRECISION 1 trial[247]. - The total operating expenses for 2022 were $77.9 million, a decrease from $112.3 million in 2021, primarily due to a significant impairment charge in 2021[247]. - Cash used in operating activities for the year ended December 31, 2022, was $49.6 million, compared to $22.4 million for the year ended December 31, 2021[262]. - The impairment charge of $3.7 million in 2022 was related to the termination of the Gossamer License Agreement[243]. - Research and development expenses for the year ended December 31, 2022, amounted to $3.310 million, up from $657,000 in 2021, indicating an increase of about 404%[273]. Financing and Capital Structure - The company completed a private placement (2022 PIPE Financing) on September 26, 2022, raising approximately $72.2 million after deducting offering expenses[226]. - Cash provided by financing activities for the year ended December 31, 2022, was $72.6 million, a decrease from $141.8 million for the year ended December 31, 2021[264]. - The Company raised $155.0 million through the 2021 PIPE Financing by selling 11,852,862 shares of common stock, resulting in net proceeds of $145.4 million after expenses[305]. - The estimated fair value of total consideration given in the merger was $110.4 million, based on 3,208,718 shares of common stock at $33.00 per share[301]. Assets and Liabilities - As of December 31, 2022, the company had $172.6 million in cash, cash equivalents, and short-term investments, expected to fund operations into 2025[235]. - Total current assets increased to $180,029,000 in 2022 from $151,272,000 in 2021, showing growth in asset base[286]. - Total liabilities rose to $25,859,000 in 2022 from $21,504,000 in 2021, indicating an increase in financial obligations[286]. - The company’s accumulated deficit increased to $203,198,000 in 2022 from $142,685,000 in 2021, highlighting ongoing financial challenges[286]. Shareholder Equity and Stock Options - The weighted average number of common shares outstanding used in computing net loss per share was 22,511,237 for 2022, compared to 8,923,369 for 2021, reflecting dilution[288]. - As of December 31, 2022, the company had 300,000,000 shares of authorized common stock, with 24,435,007 shares outstanding, an increase from 20,894,695 shares in 2021[372]. - The company recognized total share-based compensation costs of $9.6 million in 2022, significantly up from $2.1 million in 2021[383]. - The company had 29,167 warrants outstanding as of December 31, 2022, down from 36,666 in 2021, with 7,500 warrants exercised during 2022[386]. Management and Governance - The company underwent a leadership transition with the appointment of Scott Giacobello as Interim Chief Executive Officer effective March 15, 2023[224]. - Management concluded that internal control over financial reporting was effective as of December 31, 2022[402]. - The company has adopted a code of business conduct and ethics applicable to all employees, officers, and directors[405].

Aadi Bioscience, Inc. (NASDAQ:AADI) Q4 2022 Earnings Conference Call March 28, 2023 8:30 AM ET Company Participants Marcy Graham - Senior Vice President of Investor Relations and Corporate Communications Neil Desai - Founder and Executive Chairman Scott Giacobello - Interim Chief Executive Officer, President, and Chief Financial Officer Loretta Itri - Chief Medical Officer Conference Call Participants Roger Song - Jefferies LLC Ahu Demir - Ladenburg Thalmann & Company Operator Good day and thank you for sta ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ______________________________________ FORM 10-Q ______________________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number: 001 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ______________________________________ FORM 10-Q ______________________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number: 001-3856 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 AADI BIOSCIENCE, INC. (Exact Name of Registrant as Specified in its Charter) ☒ ☒ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number: 001-38560 Delaware 61- ...

Financial Performance - For the fiscal year ended December 31, 2021, Aadi Bioscience recorded revenue of $1.1 million and a net loss of $110.1 million[283]. - Total revenue for the year ended December 31, 2021, was $1.1 million, a decrease of 92.3% compared to $14.6 million in 2020[305]. - The net loss for the year ended December 31, 2021, was $110.1 million, compared to a net loss of $3.5 million in 2020[313]. - Cash used in operating activities for the year ended December 31, 2021, was $22.4 million, an increase from $12.7 million in 2020[314]. - The net and comprehensive loss for 2021 was $110,090,000, compared to a loss of $3,478,000 in 2020, reflecting an increase in loss of approximately 3061.5%[347]. - The net loss per share attributable to common stockholders for 2021 was $(12.41), a significant increase from $(1.76) in 2020[347]. Revenue Sources - The company recognized $14.0 million in revenue from the EOC License Agreement in December 2020, with potential additional payments of up to $257.0 million upon achieving certain milestones[296]. - License revenue for the year ended December 31, 2021, was $1.0 million, a significant decrease from $14.0 million in 2020, attributed to the timing of FDA approval milestones[306]. - The company recognized $1.0 million in license revenue from EOC for achieving the FDA approval milestone on November 22, 2021[363]. - The company is eligible for an additional $257.0 million in milestone and royalty payments upon achieving specific development, regulatory, and sales milestones[421]. Expenses and Liabilities - Research and development expenses increased to $19.7 million in 2021, up 31.3% from $15.0 million in 2020, primarily due to increased clinical drug manufacturing costs and external clinical development expenses[309]. - General and administrative expenses rose significantly to $18.5 million in 2021, an increase of 777.4% compared to $2.1 million in 2020, driven by increased headcount and costs associated with being a public company[309]. - Total operating expenses for 2021 were $112.34 million, up from $17.13 million in 2020, primarily due to a $74.16 million impairment of acquired contract intangible assets[347]. - Total liabilities decreased from $31.3 million in 2020 to $21.5 million in 2021, with current liabilities dropping from $30.1 million to $15.3 million[344]. Cash and Liquidity - As of December 31, 2021, Aadi Bioscience had cash and cash equivalents of $149.0 million, which are expected to support operations into 2024[292]. - Cash and cash equivalents at the end of 2021 were $148,989,000, up from $4,455,000 at the end of 2020, marking an increase of approximately 3341.5%[353]. - The company raised $155 million from PIPE investors, resulting in net proceeds of $145.4 million after deducting expenses[356]. - Cash acquired in connection with the merger was $29,700,000, contributing positively to the cash flow[353]. Merger and Corporate Structure - The merger with Aerpio Pharmaceuticals was completed on August 26, 2021, with a reverse stock split of 15:1 occurring prior to the merger[356]. - The company accounted for the merger as a reverse asset acquisition, resulting in no goodwill recognized on the balance sheet[322]. - A total of 5,776,660 shares of common stock were issued to holders of Private Aadi common stock at the closing of the merger[356]. - The Company entered into a Contingent Value Rights Agreement, allowing CVR Holders to receive rights to certain net proceeds from a license agreement with Gossamer Bio, Inc.[356]. Impairments and Valuation - Aadi Bioscience incurred a non-cash impairment charge of $74.2 million in 2021 to adjust the carrying amount of a contract intangible asset to its estimated fair value of $3.9 million[291]. - The company recognized an impairment of $74.2 million on the acquired contract intangible asset, adjusting its carrying amount to an estimated fair value of $3.9 million[322]. - The estimated fair value of total consideration given in the Merger was $110.4 million, based on 3,208,718 shares of common stock at a fair value of $33.00 per share[408]. Research and Development Focus - Aadi's lead drug product, FYARRO, is focused on precision therapies for diseases driven by the mTOR pathway activation[355]. - The company expects research and development costs to increase in 2022 due to anticipated expenses related to the PRECISION 1 trial[291]. - Research and development expenses for the year ended December 31, 2021, amounted to $657,000, while general and administrative expenses were $1.449 million, totaling $2.106 million[330]. Stock and Equity - The company issued and sold 11,852,862 shares of common stock to PIPE Investors for total gross proceeds of $155 million during the merger[286]. - The weighted average number of common shares outstanding increased to 8,923,369 in 2021 from 2,542,358 in 2020, reflecting the impact of stock issuances[347]. - The Company has a total operating lease liability of $605,000 as of December 31, 2021, up from $125,000 in 2020[417]. Tax and Regulatory Matters - The company did not record a current or deferred income tax expense for the years ended December 31, 2021, and 2020, due to net and comprehensive losses[444]. - The Company has accrued expenses of $4.8 million and $3.3 million for clinical and contract manufacturing vendors as of December 31, 2021 and 2020, respectively[452]. - The balance of gross unrecognized tax benefits increased from $2.4 million in 2020 to $2.7 million in 2021[448].

Product Development - The company is developing ABI-009, a precision therapy for genetically defined cancers with mTOR pathway gene alterations [153]. - ABI-009's NDA for treating advanced malignant PEComa was accepted by the FDA with a PDUFA target action date of November 26, 2021 [154]. - The company plans to initiate the PRECISION 1 trial for ABI-009 in tumor-agnostic TSC1 & TSC2 alterations by early 2022 [156]. Financial Performance - Total revenue for the three months ended September 30, 2021, was $0, compared to $0.231 million in 2020, and for the nine months ended September 30, 2021, it was $0.120 million compared to $0.431 million in 2020, indicating a decrease in grant revenue [181]. - Net loss for the three months ended September 30, 2021, was $87.088 million, compared to a net loss of $2.892 million in 2020, and for the nine months ended September 30, 2021, it was $94.100 million compared to $11.498 million in 2020 [191]. - As of September 30, 2021, the company had an accumulated deficit of $126.7 million and expects to continue incurring significant expenses and operating losses due to ongoing research and development activities [191]. Expenses - Research and development expenses for the three months ended September 30, 2021, were $5.754 million, an increase of 142% from $2.395 million in 2020, driven by increased clinical drug manufacturing costs [183]. - General and administrative expenses for the three months ended September 30, 2021, were $7.401 million, a significant increase from $0.499 million in 2020, primarily due to compensation related to the Merger and increased headcount [185]. - Research and development expenses are expected to increase substantially as the company advances its product candidates through clinical trials [175]. - General and administrative expenses are anticipated to rise due to expansion of operating activities and costs associated with being a public company [177]. Cash Flow - Cash and cash equivalents as of September 30, 2021, totaled $161.4 million, which is expected to support operations into 2024 [192]. - Net cash used in operating activities for the nine months ended September 30, 2021, was $9.995 million, compared to $9.426 million in 2020, primarily due to net losses and changes in working capital [193]. - Cash provided by financing activities for the nine months ended September 30, 2021, was $141.716 million, significantly higher than $1.194 million in 2020, driven by PIPE Financing [199]. Mergers and Acquisitions - The company completed a merger with Aadi Subsidiary, Inc. on August 26, 2021, and changed its name to Aadi Bioscience, Inc. [158]. - The merger was accounted for as a reverse asset acquisition, resulting in no goodwill recognized on the balance sheet [209]. - The excess purchase price over the fair value of acquired assets and liabilities was $78.1 million, leading to an impairment of $74.2 million on the contract intangible asset, adjusting its value to $3.9 million [210]. Impairments and Taxation - An impairment of $74.2 million was recognized for an acquired contract intangible asset, reducing its fair value to $3.9 million [178]. - The company has not recorded any U.S. federal or state income tax benefits for net losses incurred since its formation in 2011 [180]. - Deferred tax assets have been fully offset by a valuation allowance, primarily comprised of federal and state tax net operating losses (NOLs) [224]. - The company has not recorded any U.S. federal or state income tax benefits for net losses incurred since its formation in 2011, due to uncertainty in realizing a benefit [224]. Stock-Based Compensation - For the three months ended September 30, 2021, total stock-based compensation expense was $648,000, compared to $34,000 in the same period of 2020 [221]. - As of September 30, 2021, total unamortized stock-based compensation was $13.9 million, expected to be recognized over a weighted average period of 3.15 years [221]. Research and Development Contracts - The company has entered into contracts with various organizations for research and development activities, which can be modified or canceled upon written notice, incurring liabilities for costs incurred to date [202]. - The license agreement with Gossamer Bio includes potential payments based on development milestones and sales-based royalties, with fair value determined using a risk-adjusted discounted cash flow model [211]. - Research and development costs are estimated based on patient enrollment and services provided, with significant estimates made for accrued liabilities and prepaid expenses [213]. Reporting and Compliance - The company is classified as a smaller reporting company and is not required to provide additional market risk information [225].

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Aerpio Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Aerpio Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2021, and December 31, 2020, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's nature, significant accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets decreased from $44.9 million at December 31, 2020, to $37.4 million at June 30, 2021, primarily due to a reduction in cash and cash equivalents | Metric | June 30, 2021 (Unaudited) ($) | December 31, 2020 ($) | | :----------------------------------- | :-------------------------- | :------------------ | | Cash and cash equivalents | $36,816,128 | $42,604,935 | | Total current assets | $37,394,589 | $44,719,025 | | Total assets | $37,424,041 | $44,924,674 | | Total current liabilities | $2,208,095 | $1,866,809 | | Total stockholders' equity | $35,215,946 | $43,057,865 | [Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) Aerpio reported a net and comprehensive loss of $4.4 million for the three months ended June 30, 2021, and $8.8 million for the six months ended June 30, 2021, a significant shift from net income in the prior year periods due to the absence of license revenue and increased general and administrative expenses | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | License revenue | $— | $15,000,000 | $— | $15,000,000 | | Research and development | $719,637 | $3,548,572 | $2,947,639 | $5,377,614 | | General and administrative | $4,051,724 | $2,195,515 | $6,188,314 | $4,481,406 | | Restructuring expense | $— | $— | $1,238,270 | $— | | Net and comprehensive (loss) income | $(4,407,935) | $9,276,032 | $(8,849,674) | $5,357,369 | | Basic and diluted EPS | $(0.09) | $0.23 | $(0.19) | $0.13 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from $43.1 million at January 1, 2021, to $35.2 million at June 30, 2021, primarily due to net comprehensive losses, partially offset by stock-based compensation expense and common stock issuances | Metric | January 1, 2021 ($) | June 30, 2021 ($) | | :------------------------------------ | :---------------- | :-------------- | | Common Shares | 47,251,319 | 47,477,084 | | Additional Paid-In Capital | $189,603,985 | $190,611,718 | | Accumulated Deficit | $(146,550,845) | $(155,400,519) | | Total Stockholders' Equity | $43,057,865 | $35,215,946 | - Net and comprehensive loss for the six months ended June 30, 2021, was **$(8,849,674)**, contributing to the decrease in total stockholders' equity[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities for the six months ended June 30, 2021, was $5.9 million, a significant change from $6.4 million provided by operating activities in the prior year, primarily due to the absence of the one-time license payment from Gossamer | Metric | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(5,893,575) | $6,351,946 | | Net cash used in investing activities | $— | $(12,198) | | Net cash provided by financing activities | $104,768 | $— | | Net (decrease) increase in cash and cash equivalents | $(5,788,807) | $6,339,748 | | Cash and cash equivalents at beginning of year | $42,604,935 | $38,524,536 | | Cash and cash equivalents, six months ended | $36,816,128 | $44,864,284 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed explanations of the company's financial position, operations, and significant accounting policies, including information on the proposed merger with Aadi Bioscience, clinical development programs, restructuring efforts, and legal proceedings [1. Nature of Organization and Operations](index=9&type=section&id=1.%20Nature%20of%20Organization%20and%20Operations) Aerpio Pharmaceuticals, Inc. is a biopharmaceutical company focused on Tie2 activation. Following disappointing Phase 2 results for razuprotafib in glaucoma, the company is exploring strategic alternatives, including a proposed merger with Aadi Bioscience, Inc. and a $155.0 million PIPE financing. A workforce realignment in January 2021 reduced staff by 58%, incurring $1.2 million in severance costs. The company continues to explore partnerships for its other clinical programs (ARDS, Diabetic Kidney Disease, ARP-1536, Bi-Specific Antibody) and has a license agreement with Gossamer Bio for GB004 - Aerpio Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing compounds that activate Tie2[20](index=20&type=chunk) - The Phase 2 clinical trial of razuprotafib for elevated intraocular pressure met its primary efficacy endpoint but the IOP decrease was not sufficient for Phase 3 development, leading to an exploration of strategic alternatives[20](index=20&type=chunk) - On May 16, 2021, the Company entered into a Merger Agreement with Aadi Bioscience, Inc., with Aadi surviving as a wholly-owned subsidiary of Aerpio, contingent on shareholder approval and a **$155.0 million PIPE financing**[20](index=20&type=chunk) - A realignment plan in January 2021 reduced the workforce by **58%** (seven employees), resulting in approximately **$1.2 million** in one-time employee severance expenses[22](index=22&type=chunk) - The company's cash and cash equivalents were approximately **$36.8 million** as of June 30, 2021, believed to be sufficient to fund operations through Q4 2022[23](index=23&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and estimates used in preparing the condensed consolidated financial statements, including the basis of presentation, revenue recognition, stock-based compensation, and fair value measurements. The company operates as a single segment and uses estimates in areas like stock-based compensation and revenue recognition - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC regulations, including all necessary adjustments for fair presentation[24](index=24&type=chunk) - The Company operates and manages its business as one operating segment, focused on developing and commercializing proprietary therapeutics[25](index=25&type=chunk) - Significant estimates are used in areas such as stock-based compensation expense, revenue recognition, and income taxes, which can be affected by economic conditions and global health concerns like COVID-19[27](index=27&type=chunk)[28](index=28&type=chunk) - Revenue from collaboration agreements, including nonrefundable upfront license fees and milestone payments, is recognized based on a five-step model, allocating transaction price to performance obligations based on estimated standalone selling prices[30](index=30&type=chunk)[32](index=32&type=chunk) - Cash and cash equivalents are primarily held in money market funds and are subject to minimal credit risk[29](index=29&type=chunk)[43](index=43&type=chunk) [3. Accounts Payable and Accrued Expenses](index=17&type=section&id=3.%20Accounts%20Payable%20and%20Accrued%20Expenses) Accounts payable and accrued expenses increased to $2.2 million at June 30, 2021, from $1.8 million at December 31, 2020, primarily due to the restructuring accrual and higher accounts payable | Category | June 30, 2021 ($) | December 31, 2020 ($) | | :------------------------------------ | :------------ | :---------------- | | Restructuring accrual | $677,891 | $— | | Accounts payable | $746,880 | $523,037 | | Professional fees | $504,903 | $444,534 | | Accrued project costs | $— | $328,463 | | Accrued retention bonus | $225,960 | $— | | Accrued vacation | $31,701 | $48,107 | | Accrued bonus | $— | $428,683 | | Other | $10,805 | $26,547 | | Total accounts payable and accrued expenses | $2,198,140 | $1,799,371 | [4. Common Stock](index=17&type=section&id=4.%20Common%20Stock) As of June 30, 2021, Aerpio had 47,477,084 shares of common stock outstanding, with 300,000,000 shares authorized. Holders are entitled to one vote per share and share ratably in liquidation, but no dividends have been declared since inception. Warrants for 550,000 shares were outstanding at June 30, 2021, with 50,000 exercised during the period - **300,000,000 shares** of common stock authorized, **$0.0001** par value per share[50](index=50&type=chunk) - **47,477,084 shares** issued and outstanding at June 30, 2021, compared to **47,251,319** at December 31, 2020[8](index=8&type=chunk) - Holders of common stock have one vote per share and share ratably in liquidation; no dividends have been declared or paid since inception[50](index=50&type=chunk)[51](index=51&type=chunk) - Warrants for **550,000 shares** of common stock were outstanding at June 30, 2021, down from **600,000** at December 31, 2020, with **50,000** exercised during the three and six months ended June 30, 2021[52](index=52&type=chunk) [5. Preferred Stock](index=18&type=section&id=5.%20Preferred%20Stock) As of June 30, 2021, and December 31, 2020, Aerpio had 10,000,000 shares of preferred stock authorized but none issued or outstanding - **10,000,000 shares** of preferred stock authorized, **$0.0001** par value per share[55](index=55&type=chunk) - No preferred stock was issued and outstanding at June 30, 2021, and December 31, 2020[55](index=55&type=chunk) [6. Stock-Based Compensation](index=18&type=section&id=6.%20Stock-Based%20Compensation) Aerpio recognized $902,979 in total stock-based compensation expense for the six months ended June 30, 2021, an increase from $635,808 in the prior year. This includes expenses from stock options and awards, with a weighted-average fair value of options granted at $0.90 per share in 2021 | Category | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2021 ($) | | :----------------------------- | :------------------------------- | :----------------------------- | | Research and development | $105,157 | $213,172 | | General and administrative | $452,066 | $689,807 | | Total Compensation Cost | $557,223 | $902,979 | - The 2017 Stock Option and Incentive Plan was increased by **1,890,052 shares** in January 2021, bringing total reserved shares to **5,324,959** as of June 30, 2021[56](index=56&type=chunk)[57](index=57&type=chunk) - Weighted-average fair value of options granted was **$0.90 per share** for the six months ended June 30, 2021, compared to **$0.43** in 2020[62](index=62&type=chunk) - Unrecognized compensation cost related to stock options was **$804,852** as of June 30, 2021, to be recognized over a weighted average period of **1.50 years**[57](index=57&type=chunk) [7. Income Taxes](index=19&type=section&id=7.%20Income%20Taxes) Aerpio did not record any current or deferred income tax expense or benefit for the three and six months ended June 30, 2021, or 2020, due to net comprehensive losses and increases in its deferred tax asset valuation allowance. The company has no uncertain tax positions - No income tax expense or benefit recorded for the three and six months ended June 30, 2021 and 2020[64](index=64&type=chunk) - This is due to net comprehensive losses and increases in deferred tax asset valuation allowance[64](index=64&type=chunk) - The Company does not have any uncertain tax positions as of June 30, 2021, and December 31, 2020[37](index=37&type=chunk) [8. Net and Comprehensive (Loss) Income per Share Attributable to Common Stockholders](index=19&type=section&id=8.%20Net%20and%20Comprehensive%20(Loss)%20Income%20per%20Share%20Attributable%20to%20Common%20Stockholders) Aerpio reported basic and diluted net comprehensive loss per share of $(0.09) for the three months and $(0.19) for the six months ended June 30, 2021, compared to income per share in the prior year, reflecting the overall net loss | Metric | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2021 ($) | | :-------------------------------------------------------------------- | :------------------------------- | :----------------------------- | | Net and comprehensive (loss) income attributable to common stockholders | $(4,407,935) | $(8,849,674) | | Basic and diluted EPS | $(0.09) | $(0.19) | | Weighted average common shares used in computing EPS (Basic) | 47,372,581 | 47,327,701 | | Weighted average common shares used in computing EPS (Diluted) | 47,372,581 | 47,327,701 | - Common stock equivalents (options and warrants) were excluded from diluted EPS calculation due to their anti-dilutive effect, totaling **1,594,647** for the three months and **1,611,297** for the six months ended June 30, 2021[67](index=67&type=chunk)[68](index=68&type=chunk) [9. Employee Stock Purchase Plan](index=20&type=section&id=9.%20Employee%20Stock%20Purchase%20Plan) The Employee Stock Purchase Plan (ESPP) was amended and restated in 2018, reserving 300,000 shares initially, with annual increases. In January 2021, an additional 350,000 shares were approved. No shares were outstanding under the ESPP as of June 30, 2021, or December 31, 2020 - The ESPP was approved in April 2017 and amended in June 2018, reserving **300,000 shares** initially[69](index=69&type=chunk) - Annual increases to the ESPP are based on the least of **1%** of outstanding common stock, **350,000 shares**, or a lesser amount determined by the Board[69](index=69&type=chunk) - In January 2021, the Board approved an increase of **350,000 shares** to the ESPP[69](index=69&type=chunk) - No shares under the ESPP were outstanding at June 30, 2021, and December 31, 2020[69](index=69&type=chunk) [10. License Agreement](index=20&type=section&id=10.%20License%20Agreement) Aerpio's license agreement with Gossamer Bio for AKB-4924 (GB004) provides for potential milestone payments and tiered royalties. A $15.0 million payment was received in May 2020, but no further milestones or royalties have been recognized as of June 30, 2021, as future payments are constrained - Aerpio granted Gossamer Bio an exclusive license to develop and commercialize AKB-4924 (GB004) in June 2018[70](index=70&type=chunk) - A one-time payment of **$15.0 million** was received in May 2020, recognized as revenue in 2020[70](index=70&type=chunk) - Aerpio is eligible for up to **$40.0 million** in approval milestones and **$50.0 million** in sales milestones, plus tiered royalties, but these are currently constrained[70](index=70&type=chunk)[71](index=71&type=chunk) - Gossamer is responsible for all development and commercialization activities for GB004[70](index=70&type=chunk) [11. Restructuring](index=21&type=section&id=11.%20Restructuring) In January 2021, Aerpio implemented a realignment plan, reducing its workforce by 58% (seven employees), resulting in a $1.2 million severance expense recorded in the first six months of 2021. Approximately $0.7 million of this liability remained as of June 30, 2021, expected to be paid by year-end - A realignment plan in January 2021 reduced the workforce by seven employees, representing approximately **58%** of the Company's workforce[72](index=72&type=chunk) - Employee severance expense of **$1.2 million** was recorded during the six months ended June 30, 2021[72](index=72&type=chunk) - The remaining severance liability as of June 30, 2021, was approximately **$0.7 million**, expected to be substantially paid in cash by December 31, 2021[72](index=72&type=chunk) [12. Commitments and Contingencies](index=21&type=section&id=12.%20Commitments%20and%20Contingencies) Aerpio is involved in several securities class action lawsuits filed by purported stockholders related to the proposed merger with Aadi Bioscience, Inc. These complaints allege inadequate merger consideration and material misstatements/omissions in the proxy statement. The company believes these claims are without merit and intends to vigorously defend against them - Multiple stockholder complaints (Komurke, Whitfield, Odach, Miah, Weir, Carlisle) were filed in federal courts alleging inadequate merger consideration and material misstatements/omissions in the preliminary proxy statement related to the Aadi merger[74](index=74&type=chunk)[75](index=75&type=chunk) - The complaints seek equitable relief, including enjoining the merger, rescission, damages, and dissemination of a revised proxy statement[74](index=74&type=chunk)[75](index=75&type=chunk) - Aerpio believes the stockholder complaints are without merit and intends to vigorously defend against them[75](index=75&type=chunk) - A demand letter for books and records concerning the merger was also received from a purported stockholder[75](index=75&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Aerpio's financial condition and results of operations, highlighting the proposed merger with Aadi Bioscience, the impact of COVID-19, and detailed analysis of revenue, operating expenses, and liquidity. The company incurred significant losses in H1 2021 due to the absence of prior-year license revenue and increased merger-related costs [Operating Overview](index=24&type=section&id=Operating%20Overview) Aerpio is a biopharmaceutical company focused on Tie2 activation. Following insufficient Phase 2 results for razuprotafib in glaucoma, the company is pursuing a merger with Aadi Bioscience, Inc., which includes a $155.0 million PIPE financing. A January 2021 realignment reduced the workforce by 58%. The company continues to explore strategic options for its other clinical programs (ARDS, Diabetic Kidney Disease, ARP-1536, Bi-Specific Antibody) and manages a license agreement with Gossamer Bio for GB004 - Aerpio is a biopharmaceutical company focused on developing compounds that activate Tie2[81](index=81&type=chunk) - Phase 2 results for razuprotafib in glaucoma did not show sufficient IOP decrease for Phase 3 development, leading to an exploration of strategic alternatives[81](index=81&type=chunk) - A merger agreement with Aadi Bioscience, Inc. was entered into on May 16, 2021, with Aadi becoming a wholly-owned subsidiary, contingent on shareholder approval and a **$155.0 million PIPE financing**[81](index=81&type=chunk) - A January 2021 realignment plan reduced the workforce by **58%** (seven employees), incurring approximately **$1.2 million** in severance expenses[83](index=83&type=chunk) - The company's other clinical programs include Acute Respiratory Distress Syndrome (RESCUE trial completed, I-SPY trial discontinued), Diabetic Kidney Disease, ARP-1536, and a Bi-Specific Antibody[83](index=83&type=chunk) - Aerpio has a license agreement with Gossamer Bio for AKB-4924 (GB004), which generated **$15.0 million** in revenue in 2020 but no revenue in H1 2021[83](index=83&type=chunk)[85](index=85&type=chunk) [COVID-19 Considerations](index=26&type=section&id=COVID-19%20Considerations) The COVID-19 pandemic continues to pose significant risks, potentially impacting clinical trial timelines, research programs, and overall business operations due to ongoing disruptions, travel restrictions, and healthcare resource diversion. The company is monitoring developments but cannot fully estimate the future financial impact - The COVID-19 pandemic continues to spread globally, leading to government-imposed quarantines, travel restrictions, and business closures[86](index=86&type=chunk) - The company's executive offices remain closed, with employees working remotely[86](index=86&type=chunk) - Potential impacts include delays in clinical trials, disruptions to research programs, and adverse effects on third-party manufacturers[86](index=86&type=chunk) - The full extent of the impact on business, results of operations, or financial condition remains highly uncertain and cannot be predicted with confidence[86](index=86&type=chunk) [Basis of Presentation](index=26&type=section&id=Basis%20of%20Presentation) This section confirms that the financial discussion and analysis are based on the company's condensed consolidated financial statements, prepared in accordance with U.S. GAAP, and should be read in conjunction with previous annual reports and risk factors - The discussion and analysis are based on the company's condensed consolidated financial statements prepared in accordance with U.S. GAAP[87](index=87&type=chunk) - Readers should review the 'Risk Factors' section from the Annual Report on Form 10-K and this Quarterly Report for important factors affecting results[80](index=80&type=chunk) [Components of Statements of Operations and Comprehensive (Loss) Income](index=27&type=section&id=Components%20of%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) This section defines the key components of Aerpio's statements of operations, including operating expenses (research and development, general and administrative, restructuring), other income (MTEC arrangement reimbursements), grant income, and interest income, providing context for the financial results - Research and development expenses are expensed as incurred, covering employee costs, external R&D, clinical study materials, and regulatory activities[89](index=89&type=chunk) - General and administrative expenses include compensation for finance, HR, and administrative personnel, as well as consulting, legal, patent, audit, and facilities costs, expected to increase due to public company and merger-related expenses[90](index=90&type=chunk) - Restructuring expense primarily consists of severance costs from workforce reductions[91](index=91&type=chunk) - Other income represents reimbursed qualified expenses from the U.S. Government (MTEC arrangement) for the ARDS RESCUE clinical trial[92](index=92&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Aerpio experienced a significant shift from net income in H1 2020 to net losses in H1 2021. This was driven by the absence of the $15.0 million license revenue from Gossamer, a substantial decrease in R&D expenses, and an increase in general and administrative expenses due to merger-related costs and restructuring expenses | Metric | Three Months Ended June 30, 2021 ($) | Three Months Ended June 30, 2020 ($) | Six Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2020 ($) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | License revenue, and other | $— | $15,000,000 | $— | $15,000,000 | | Research and development | $719,637 | $3,548,572 | $2,947,639 | $5,377,614 | | General and administrative | $4,051,724 | $2,195,515 | $6,188,314 | $4,481,406 | | Restructuring expense | $— | $— | $1,238,270 | $— | | Net and comprehensive (loss) income | $(4,407,935) | $9,276,032 | $(8,849,674) | $5,357,369 | - License revenue decreased by **$15.0 million** for both the three and six months ended June 30, 2021, compared to 2020, due to the one-time payment from Gossamer in May 2020[97](index=97&type=chunk) - Research and development expenses decreased by approximately **$2.8 million (79.7%)** for the three months and **$2.4 million (45.2%)** for the six months ended June 30, 2021, primarily due to decreased clinical trial activity[99](index=99&type=chunk) - General and administrative expenses increased by approximately **$1.9 million (84.5%)** for the three months and **$1.7 million (38.1%)** for the six months ended June 30, 2021, mainly due to increased transaction costs related to the potential merger with Aadi[100](index=100&type=chunk) - Restructuring expense of **$1.2 million** was incurred for the six months ended June 30, 2021, due to headcount reduction[101](index=101&type=chunk) - Other income of **$0.4 million** and **$1.5 million** was recognized for the three and six months ended June 30, 2021, respectively, from the MTEC arrangement for the ARDS RESCUE clinical trial[102](index=102&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Aerpio reported cash and cash equivalents of $36.8 million at June 30, 2021, and an accumulated deficit of $155.4 million. The company expects existing cash to fund operations through Q4 2022, but future operations are highly dependent on the success of the Aadi merger and potential additional financing. Operating activities used $5.9 million in cash in H1 2021, a reversal from cash generation in H1 2020 - Cash and cash equivalents were **$36.8 million** at June 30, 2021, with an accumulated deficit of **$155.4 million**[106](index=106&type=chunk) - Existing cash and cash equivalents are expected to fund operations through at least the **fourth quarter of 2022**[106](index=106&type=chunk) - Net cash used in operating activities was **$5.9 million** for the six months ended June 30, 2021, compared to **$6.4 million** provided in the prior year, primarily due to the absence of the Gossamer payment[111](index=111&type=chunk) - Net cash provided by financing activities was **$0.1 million** in H1 2021 from stock option and warrant exercises, with no investing activities[113](index=113&type=chunk) - Future operations are highly dependent on the success of the merger with Aadi, and additional funding may be required[107](index=107&type=chunk)[109](index=109&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) There have been no material changes to Aerpio's contractual obligations and commitments since December 31, 2020, other than those related to the merger agreement with Aadi Bioscience, Inc - No material changes to contractual obligations and commitments since December 31, 2020, except for those related to the Merger Agreement with Aadi[114](index=114&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2021, and December 31, 2020, Aerpio Pharmaceuticals, Inc. did not have any off-balance sheet arrangements as defined by SEC regulations - The company did not have any off-balance sheet arrangements as of June 30, 2021, and December 31, 2020[115](index=115&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Aerpio's financial statements rely on estimates and assumptions, particularly in areas like stock-based compensation, revenue recognition, and income taxes. These critical accounting policies require significant management judgment and can be influenced by external factors - Preparation of financial statements requires estimates and assumptions affecting reported amounts of assets, liabilities, revenue, and expenses[116](index=116&type=chunk) - Critical accounting policies and estimates include stock-based compensation expense, revenue recognition, and income taxes[27](index=27&type=chunk)[118](index=118&type=chunk) - Management applies significant judgment, considering factors like business changes, volatility, and historical trends[27](index=27&type=chunk) [JOBS Act Accounting Election](index=31&type=section&id=JOBS%20Act%20Accounting%20Election) Aerpio is an 'emerging growth company' under the JOBS Act but has irrevocably elected not to use the extended transition period for new accounting standards, meaning it will adopt new standards at the same time as other public companies - Aerpio is an 'emerging growth company' as defined in the JOBS Act[119](index=119&type=chunk) - The company has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards[119](index=119&type=chunk) - As a result, Aerpio will adopt new or revised accounting standards on the same dates as other public companies that are not emerging growth companies[119](index=119&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Aerpio Pharmaceuticals, Inc. is not required to provide quantitative and qualitative disclosures about market risk - Aerpio is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[120](index=120&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of Aerpio's disclosure controls and procedures as of June 30, 2021, concluding they were effective. There were no material changes in internal control over financial reporting during the quarter [Management's Evaluation of our Disclosure Controls and Procedures](index=31&type=section&id=Management's%20Evaluation%20of%20our%20Disclosure%20Controls%20and%20Procedures) Aerpio's management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely - Management evaluated the effectiveness of disclosure controls and procedures as of June 30, 2021[121](index=121&type=chunk) - Disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized, and reported timely[121](index=121&type=chunk) - Based on the evaluation, management concluded that internal control over financial reporting was effective as of June 30, 2021[121](index=121&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no changes in Aerpio's internal control over financial reporting during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2021[122](index=122&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides legal proceedings, risk factors, and other disclosures relevant to Aerpio Pharmaceuticals, Inc.'s operations [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Aerpio is currently involved in multiple securities class action lawsuits filed by purported stockholders in federal courts, alleging inadequate merger consideration and material misstatements/omissions in the proxy statement related to the proposed merger with Aadi Bioscience, Inc. The company believes these claims lack merit and intends to vigorously defend against them - Multiple stockholder complaints (Komurke, Whitfield, Odach, Miah, Weir, Carlisle) were filed in federal courts against Aerpio and its Board of Directors[124](index=124&type=chunk)[125](index=125&type=chunk) - Allegations include inadequate merger consideration and material misstatements/omissions in the preliminary proxy statement for the Aadi merger[124](index=124&type=chunk)[125](index=125&type=chunk) - The lawsuits seek injunctive relief to prevent the merger, rescissory damages, and dissemination of a revised proxy statement[124](index=124&type=chunk)[125](index=125&type=chunk) - Aerpio believes the complaints are without merit and intends to vigorously defend against them[125](index=125&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks and uncertainties facing Aerpio, including those related to the proposed merger with Aadi Bioscience, the clinical development and regulatory approval of its product candidates, intellectual property protection, reliance on third parties, financial position, commercialization, healthcare regulation, and ownership of its common stock [Risks Related to Our Business and the Clinical Development, Regulatory Review and Approval of Product Candidates](index=33&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20the%20Clinical%20Development,%20Regulatory%20Review%20and%20Approval%20of%20Product%20Candidates) This sub-section outlines risks associated with Aerpio's core business, including the potential failure or delays in completing the Aadi merger, uncertainties in strategic alternatives for legacy assets, the adverse impact of the COVID-19 pandemic on R&D, and the inherent challenges and uncertainties in clinical development, regulatory approval, and commercialization of product candidates [Risks Related to our Merger with Aadi Bioscience, Inc. ("Aadi").](index=33&type=section&id=Risks%20Related%20to%20our%20Merger%20with%20Aadi%20Bioscience,%20Inc.%20(%22Aadi%22).) The proposed merger with Aadi Bioscience faces risks including failure to satisfy closing conditions, potential termination fees ($2.0 million to Aadi), diversion of management attention, and ongoing securities class action litigation. The fixed exchange ratio exposes Aerpio to stock price changes, and stockholders may not receive value from contingent value rights (CVRs). The company is also highly dependent on its remaining five employees to facilitate the merger - Failure to complete the merger with Aadi could materially and adversely affect Aerpio's operations, business, financial results, and stock price[128](index=128&type=chunk) - Aerpio may be required to pay a termination fee of **$2.0 million** and/or up to **$750,000** in out-of-pocket expenses to Aadi under specified circumstances if the merger is not completed[128](index=128&type=chunk)[129](index=129&type=chunk) - The merger agreement's fixed exchange ratio means the consideration for Aadi shareholders may differ from Aerpio's stock price at the time of agreement[131](index=131&type=chunk) - Aerpio is involved in securities class action litigation related to the merger, which could divert management attention and incur costs[131](index=131&type=chunk) - The company is substantially dependent on its remaining **five full-time employees** to facilitate the merger, and their loss could harm the process[134](index=134&type=chunk) - Stockholders may not receive any payment on the contingent value rights (CVRs), which are not transferable and not registered with the SEC[133](index=133&type=chunk) [Risks Related to Our Evaluation of Strategic Alternatives for our Legacy Assets](index=37&type=section&id=Risks%20Related%20to%20Our%20Evaluation%20of%20Strategic%20Alternatives%20for%20our%20Legacy%20Assets) Aerpio's ongoing exploration of strategic alternatives for its legacy assets may not result in a successful transaction, incurring substantial expenses and diverting management attention. If the Aadi merger fails, the Board may consider dissolution and liquidation, with uncertain cash distributions to stockholders due to commitments and contingent liabilities - There is no assurance that the exploration of strategic alternatives for legacy assets will result in a transaction or yield additional value for shareholders[137](index=137&type=chunk) - The process of exploring alternatives is time-consuming, disruptive, and incurs substantial expenses, potentially impacting employee retention and stock price[137](index=137&type=chunk) - If the Aadi merger is not completed, the Board may pursue dissolution and liquidation, where cash available for distribution to stockholders would depend on timing and reserves for obligations[136](index=136&type=chunk) [Risks Related to the COVID-19 Pandemic](index=37&type=section&id=Risks%20Related%20to%20the%20COVID-19%20Pandemic) The COVID-19 pandemic continues to pose significant risks to Aerpio's research, development, and commercialization efforts. Potential impacts include disruptions to clinical trials (patient enrollment, site monitoring), delays in manufacturing, and increased operating expenses. The full scope and severity of these effects remain uncertain - The COVID-19 pandemic could seriously harm research, development, and future commercialization efforts, increasing costs and adversely affecting business and financial condition[138](index=138&type=chunk) - Potential impacts include delays in clinical trial enrollment, interruptions in key trial activities (e.g., site monitoring), and disruptions in the supply of product candidates from third-party manufacturers[139](index=139&type=chunk)[140](index=140&type=chunk) - The extent of the pandemic's impact is highly uncertain and depends on factors like duration, severity, new strains, and vaccination efforts[139](index=139&type=chunk) [Risks Related to Development of our Product Candidates](index=38&type=section&id=Risks%20Related%20to%20Development%20of%20our%20Product%20Candidates) Aerpio's business heavily relies on the successful clinical development and regulatory approval of its product candidates, which is a lengthy, expensive, and uncertain process. Setbacks have occurred, such as razuprotafib's Phase 2 glaucoma trial not being sufficient for Phase 3, and discontinuation of ARDS trials due to monitoring complexities. Positive early-stage results are not predictive of later success, and interim data are subject to change, posing risks to regulatory approval and commercialization - Aerpio's business depends almost entirely on the successful clinical development, regulatory approval, and commercialization of its product candidates, which may never occur[141](index=141&type=chunk) - The Phase 2 trial of razuprotafib for elevated IOP met its primary efficacy endpoint but was not sufficient to move to Phase 3 development[141](index=141&type=chunk) - Clinical trials for razuprotafib in ARDS (I-SPY and RESCUE) were discontinued or stopped recruiting due to monitoring complexities and recruitment challenges, respectively[142](index=142&type=chunk) - Clinical drug development is lengthy, expensive, and uncertain; positive results from preclinical or early-stage trials are not necessarily predictive of future clinical trial outcomes[147](index=147&type=chunk) - Interim, 'topline,' and preliminary data are subject to change and audit, and may differ from final data, potentially harming business prospects[147](index=147&type=chunk) - Delays in clinical trials can occur due to difficulties in patient enrollment, regulatory approvals, site agreements, and patient safety concerns, increasing costs and jeopardizing approval[145](index=145&type=chunk)[149](index=149&type=chunk) [Risks Related to Regulatory Review and Approval of Product Candidates](index=42&type=section&id=Risks%20Related%20to%20Regulatory%20Review%20and%20Approval%20of%20Product%20Candidates) Even if Aerpio's product candidates receive regulatory approval, they will be subject to ongoing review, potentially leading to significant additional expenses, labeling restrictions, or withdrawal. The company may face challenges in complying with foreign regulatory requirements and could be impacted by inadequate funding or disruptions at regulatory agencies like the FDA - Regulatory approvals may be limited in scope, require costly post-marketing studies, or be subject to withdrawal if problems are discovered[150](index=150&type=chunk) - Failure to comply with regulatory requirements can result in restrictions, fines, clinical holds, or revocation of approvals[150](index=150&type=chunk)[152](index=152&type=chunk) - Conducting trials and seeking approval in foreign jurisdictions presents unique risks, including differing standards, regulatory requirements, and potential delays[153](index=153&type=chunk) - Inadequate funding or disruptions at government agencies (e.g., FDA, SEC) could hinder product review and approval, adversely affecting the business[154](index=154&type=chunk)[155](index=155&type=chunk) [Risks Related to Our Intellectual Property](index=44&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) This sub-section addresses the risks associated with protecting Aerpio's intellectual property, including the challenges of obtaining and enforcing patents, the potential for third-party infringement claims, and the difficulties in safeguarding trade secrets when collaborating with external parties. The company's reliance on a non-exclusive license also introduces risks related to licensor control and enforcement [Risks Related to Protecting Our Intellectual Property](index=44&type=section&id=Risks%20Related%20to%20Protecting%20Our%20Intellectual%20Property) Aerpio relies on patents, trade secrets, and confidentiality agreements to protect its intellectual property, but these efforts may be inadequate. The patenting process is expensive and uncertain, with risks of patents being challenged, narrowed, or invalidated. Trade secrets are vulnerable to disclosure or misappropriation, especially when shared with third parties. Non-compliance with patent agency requirements can lead to loss of patent rights, and global protection is challenging due to varying laws and costs - Aerpio relies on patents, trade secret protection, and confidentiality agreements, but these may not adequately protect proprietary technologies[156](index=156&type=chunk)[157](index=157&type=chunk) - The patenting process is expensive, time-consuming, and uncertain; existing and future patents may be challenged, narrowed, or found invalid/unenforceable[157](index=157&type=chunk) - Trade secrets are difficult to protect, and sharing them with third parties increases the risk of discovery, misappropriation, or unauthorized disclosure[158](index=158&type=chunk) - Non-compliance with governmental patent agency requirements (e.g., fees, procedural rules) can lead to abandonment or lapse of patent rights[163](index=163&type=chunk) - Protecting intellectual property globally is challenging due to prohibitive costs and varying intellectual property laws in different countries[164](index=164&type=chunk) [Risks Related to Intellectual Property Litigation](index=47&type=section&id=Risks%20Related%20to%20Intellectual%20Property%20Litigation) Aerpio faces substantial risks from third-party claims of intellectual property infringement, which can be costly, time-consuming, and delay drug development. Such litigation may result in injunctions, substantial damages, or the need to obtain licenses on unfavorable terms. Enforcing Aerpio's own intellectual property rights is also expensive and may not always be successful, potentially leading to counterclaims or loss of patent scope - Aerpio faces an inherent risk of intellectual property infringement claims from third parties, which can be costly and time-consuming[165](index=165&type=chunk) - Successful infringement claims against Aerpio could lead to injunctions, substantial damages, or the need to obtain licenses, potentially on unfavorable terms or not at all[166](index=166&type=chunk) - Defending against infringement claims, or enforcing Aerpio's own patents, diverts significant resources and may not always be successful, potentially leading to invalidation of patents or narrow claim construction[166](index=166&type=chunk) - Collaborations with academic institutions or third parties may lead to ownership disputes or conflicts of interest, potentially impacting intellectual property rights[166](index=166&type=chunk) [Risks Related to Our Business and Industry](index=49&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) This sub-section highlights risks related to Aerpio's operational aspects, including the critical need to attract and retain senior management and key scientific personnel, the potential for employee misconduct, and the substantial liabilities arising from product liability lawsuits. Additionally, the company must comply with environmental, health, and safety laws, with non-compliance potentially leading to fines and operational disruptions [Risks Related to Our Employee Matters](index=49&type=section&id=Risks%20Related%20to%20Our%20Employee%20Matters) Aerpio is highly dependent on its senior management and key scientific personnel, and their loss could impede objectives. The company faces intense competition for talent and may struggle to retain employees, especially after a 58% workforce reduction in January 2021. There's also a risk of employee misconduct, including noncompliance with regulations and insider trading, which could lead to significant penalties and reputational harm - Aerpio is highly dependent on senior management and key scientific personnel; their loss could impede objectives and harm business strategy[169](index=169&type=chunk) - The company faces intense competition for qualified personnel and may struggle to attract and retain them, especially after a **58% workforce reduction** in January 2021[169](index=169&type=chunk) - Risk of misconduct by employees, contractors, and vendors, including noncompliance with FDA regulations, healthcare fraud laws, and data reporting, could lead to significant penalties and reputational harm[169](index=169&type=chunk) - Claims of wrongful use or disclosure of third-party confidential information by employees or consultants could result in litigation, loss of intellectual property rights, and substantial costs[169](index=169&type=chunk) [Risks Related to Our Business Operations and Growth](index=50&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations%20and%20Growth) Aerpio faces inherent product liability risks from clinical testing and potential commercialization, which could lead to substantial liabilities, limit commercialization, and harm its reputation. The company also must comply with numerous environmental, health, and safety laws, with non-compliance potentially resulting in fines, penalties, and operational disruptions - Product liability lawsuits from clinical testing or commercialization could result in substantial liabilities, limit commercialization, and harm reputation[169](index=169&type=chunk) - Current product liability insurance coverage is **$10 million** in aggregate, which may be insufficient for potential claims[169](index=169&type=chunk) - Failure to comply with environmental, health, and safety laws could lead to fines, penalties, and significant costs, potentially impairing R&D efforts[170](index=170&type=chunk) [Risks Related to Our Reliance on Third Parties](index=51&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) Aerpio's ability to develop and commercialize product candidates is highly dependent on establishing and maintaining strategic collaborations. Competition for partners, unfavorable terms, and potential termination of agreements (like the Gossamer License Agreement) pose significant risks. Failure to secure collaborations would force Aerpio to bear all development costs and risks, potentially requiring additional financing and expertise - Aerpio's ability to develop and commercialize product candidates depends on establishing and maintaining strategic collaborations, which is competitive and time-consuming[171](index=171&type=chunk) - Terms of collaborations may not be favorable, and agreements can be terminated, as seen with the Gossamer License Agreement, which has no assurance of future payments[171](index=171&type=chunk) - Failure to establish collaborations means Aerpio bears all development and commercialization risks and costs, potentially requiring additional financing and expertise[171](index=171&type=chunk) [Risks Related to Our Financial Position and Need for Additional Capital](index=51&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) This sub-section addresses Aerpio's financial vulnerabilities, including its limited operating history, significant accumulated losses, and the ongoing need for substantial additional financing. The company's corporate restructuring may not yield anticipated savings, and failure to secure capital could force suspension of operations, leading to dilution for existing stockholders [Risks Related to Past Financial Condition](index=51&type=section&id=Risks%20Related%20to%20Past%20Financial%20Condition) Aerpio's limited operating history since 2011 makes it difficult to assess future viability, as biopharmaceutical development is highly speculative. The company has incurred significant net losses, with an accumulated deficit of $155.4 million as of June 30, 2021, and does not expect product revenues soon. A corporate restructuring in January 2021, including a 58% headcount reduction, may not achieve anticipated savings and could disrupt business operations - Aerpio's limited operating history since **2011** makes it difficult to evaluate future viability, as biopharmaceutical development is highly speculative[172](index=172&type=chunk) - The company has incurred significant net losses since inception, with an accumulated deficit of **$155.4 million** as of June 30, 2021, and does not expect product revenues in the foreseeable future[174](index=174&type=chunk) - A corporate restructuring in January 2021, involving a **58% workforce reduction**, may not result in anticipated savings and could lead to unforeseen costs or business disruptions[174](index=174&type=chunk) [Risks Related to Future Financial Condition](index=53&type=section&id=Risks%20Related%20to%20Future%20Financial%20Condition) Aerpio lacks committed sources of outside capital and, despite $36.8 million in cash at June 30, 2021, may need additional funds sooner than expected. Failure to obtain necessary capital through equity offerings, debt financings, or collaborations could force the suspension of operations, dilute existing stockholders, or require relinquishing rights to product candidates on unfavorable terms - Aerpio has no committed sources of outside capital and may need additional funds sooner than expected, despite **$36.8 million** in cash at June 30, 2021[176](index=176&type=chunk) - Failure to obtain necessary capital could force the suspension of operations[176](index=176&type=chunk) - Raising additional capital through equity or convertible debt will dilute existing stockholders and may involve restrictive covenants or relinquishing rights to product candidates[176](index=176&type=chunk) [Risks Related to Commercialization](index=53&type=section&id=Risks%20Related%20to%20Commercialization) This sub-section details the commercialization challenges Aerpio faces, including the critical need for significant market acceptance of its product candidates among physicians, patients, and payors. The company operates in a highly competitive industry with larger, more experienced competitors. Establishing sales, marketing, and distribution capabilities is crucial but expensive and risky, and product candidates may cause undesirable side effects that delay approval or limit commercial potential [Risks Related to Sales, Marketing and Competition](index=53&type=section&id=Risks%20Related%20to%20Sales,%20Marketing%20and%20Competition) Aerpio's commercial success depends on significant market acceptance of its product candidates, if approved, among physicians, patients, and third-party payors, influenced by efficacy, safety, cost, and reimbursement. The company faces substantial competition from larger pharmaceutical companies with greater resources and experience. Establishing its own sales and marketing infrastructure is expensive and risky, and failure to do so or to secure third-party agreements could hinder commercialization and profitability - Future commercial success depends on attaining significant market acceptance of product candidates among physicians, patients, and third-party payors[177](index=177&type=chunk) - Market acceptance is influenced by efficacy, safety, cost, reimbursement, and the effectiveness of sales and marketing efforts[177](index=177&type=chunk) - Aerpio faces substantial competition from larger pharmaceutical companies with significantly greater financial, manufacturing, marketing, and R&D resources[179](index=179&type=chunk) - Establishing sales, marketing, and distribution capabilities is expensive, time-consuming, and risky; failure to do so or to secure third-party agreements could prevent successful commercialization[180](index=180&type=chunk) [Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.](index=55&type=section&id=Our%20product%20candidates%20may%20cause%20undesirable%20side%20effects%20or%20have%20other%20properties%20that%20delay%20or%20prevent%20their%20regulatory%20approval%20or%20limit%20their%20commercial%20potential.) Undesirable side effects from Aerpio's product candidates, or even competing products with similar mechanisms, could halt clinical trials, delay or deny regulatory approval, and lead to product liability claims. Common adverse events for razuprotafib have included dizziness and decreased blood pressure, and mild conjunctival hyperemia for topical ocular razuprotafib. These events, especially in critical patient populations like ARDS, could significantly impact development and commercialization costs - Undesirable side effects from product candidates could interrupt clinical trials, delay/deny regulatory approval, and lead to product liability claims[181](index=181&type=chunk) - Common adverse events for subcutaneous razuprotafib include dizziness and asymptomatic decreases in blood pressure; for topical ocular razuprotafib, mild conjunctival hyperemia[181](index=181&type=chunk) - Such events could lead to marketing restrictions, product recalls, fines, and reputational damage, increasing commercialization costs[152](index=152&type=chunk)[181](index=181&type=chunk) [Risks Related to Healthcare Regulation](index=55&type=section&id=Risks%20Related%20to%20Healthcare%20Regulation) Aerpio faces significant risks from healthcare regulation, including limitations on coverage and reimbursement for approved products, which could hinder profitability. Price controls, evolving healthcare reform (like the ACA), and various federal and state fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA) could impact sales, marketing, and business arrangements, leading to substantial penalties and operational restructuring if non-compliance occurs - Future revenues and profitability depend on adequate coverage and reimbursement from governmental and private third-party payors; insufficient coverage could limit product sales[182](index=182&type=chunk)[183](index=183&type=chunk) - Price controls, especially in the EU, and healthcare reform measures in the US (e.g., ACA, MMA) could reduce product prices and reimbursement levels, adversely affecting profitability[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk) - Aerpio is subject to federal and state fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, Physician Payments Sunshine Act) that regulate sales, marketing, and business arrangements[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - Non-compliance with healthcare laws could result in significant penalties, including civil/criminal fines, exclusion from government programs, and reputational harm[196](index=196&type=chunk) [Risks Related to Ownership of Our Common Stock](index=60&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) This sub-section addresses risks pertinent to Aerpio's common stock, including high market price volatility influenced by clinical trial results, regulatory actions, and market speculation. The company's status as an 'emerging growth company' may reduce investor attractiveness due to reduced disclosure. Maintaining Nasdaq Capital Market listing standards is crucial, as delisting could severely impact liquidity and resale. Significant ownership by principal stockholders and management allows them to exert substantial influence, and the resale of registered shares could dilute investment and depress market price [Risks Related to Investments in Our Securities](index=60&type=section&id=Risks%20Related%20to%20Investments%20in%20Our%20Securities) Aerpio's common stock market price is highly volatile, influenced by clinical trial results, regulatory actions, and market speculation. As an 'emerging growth company,' reduced disclosure requirements might make it less attractive to investors. Maintaining Nasdaq Capital Market listing standards, including a $1.00 minimum bid price, is critical; delisting could severely restrict share resale. Significant ownership by principal stockholders and management allows them to exert substantial influence. The resale of shares covered by registration statements could adversely affect the market price and future capital raising ability - The market price of Aerpio's common stock is highly volatile, influenced by clinical trial results, regulatory actions, and market speculation[197](index=197&type=chunk)[198](index=198&type=chunk) - As an 'emerging growth company,' reduced disclosure requirements may make the common stock less attractive to investors[199](index=199&type=chunk) - Failure to maintain Nasdaq Capital Market listing standards (e.g., **$1.00 minimum bid price**) could lead to delisting, reduced liquidity, and significant restrictions on share resale[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) - Principal stockholders and management own approximately **43.62%** of common stock, allowing them to exert significant influence over corporate matters[205](index=205&type=chunk) - The resale of shares covered by registration statements could adversely affect the market price and impair the ability to raise additional equity capital[207](index=207&type=chunk) - Issuance of new stock to fund operations will dilute existing stockholders' equity interest[208](index=208&type=chunk) [Risks Related to Our Charter and Bylaws](index=65&type=section&id=Risks%20Related%20to%20Our%20Charter%20and%20Bylaws) Provisions in Aerpio's charter documents and Delaware law may have anti-takeover effects, discouraging acquisitions even if beneficial to stockholders, and making it difficult to replace current management. These include authorized 'blank check' preferred stock, a classified Board, restrictions on special meetings and stockholder actions, and supermajority voting requirements for certain corporate changes. Exclusive forum provisions may also limit stockholders' ability to bring claims in preferred judicial forums - Provisions in Aerpio's charter documents and Delaware law may discourage, delay, or prevent a change in control or management[211](index=211&type=chunk) - These provisions include authorized 'blank check' preferred stock, a classified Board, restrictions on calling special meetings, and supermajority voting requirements for certain corporate actions[211](index=211&type=chunk) - Exclusive forum provisions in the charter and bylaws may limit stockholders' ability to bring claims in a judicial forum they find favorable, potentially discouraging lawsuits[212](index=212&type=chunk) [Risks Related to Tax](index=66&type=section&id=Risks%20Related%20to%20Tax) Aerpio's ability to use net operating losses (NOLs) to offset future taxable income may be limited by ownership changes under Section 382 of the Code, and future changes could further impair NOL utilization. Changes in tax law could also adversely affect the company or its investors, potentially increasing tax liability or requiring operational adjustments - Aerpio's ability to use net operating losses (NOLs) to offset future taxable income may be subject to limitations due to ownership changes under Section 382 of the Code[213](index=213&type=chunk) - Future changes in stock ownership could result in further ownership changes, impairing NOLs under state law as well[213](index=213&type=chunk) - Changes in U.S. federal, state, and local tax laws could adversely affect Aerpio or its investors, potentially increasing tax liability[214](index=214&type=chunk) [General Risk Factors](index=66&type=section&id=General%20Risk%20Factors) Aerpio faces general risks including cyber-attacks and data security incidents that could lead to security breaches, system disruptions, and significant liabilities. The company's business and operations may also be negatively impacted by the United Kingdom's withdrawal from the European Union (Brexit), leading to legal uncertainty, new regulatory costs, and potential trade barriers - Cyber-attacks, security breaches, or data security incidents could compromise sensitive information, cause system disruptions, and lead to significant liability and reputational harm[214](index=214&type=chunk)[215](index=215&type=chunk) - The United Kingdom's withdrawal from the European Union (Brexit) may negatively impact Aerpio's business and operations due to legal uncertainty, new regulatory costs, and potential trade barriers[216](index=216&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Aerpio Pharmaceuticals, Inc. reported no unregistered sales of equity securities or use of proceeds during the period covered by this report - No unregistered sales of equity securities or use of proceeds were reported[217](index=217&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Aerpio Pharmaceuticals, Inc. reported no defaults upon senior securities during the period covered by this report - No defaults upon senior securities were reported[217](index=217&type=chunk) [Item 4. Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Aerpio Pharmaceuticals, Inc - Mine Safety Disclosures are not applicable to the company[217](index=217&type=chunk) [Item 5. Other Information](index=67&type=section&id=Item%205.%20Other%20Information) Aerpio Pharmaceuticals, Inc. reported no other information for this period - No other information was reported for this period[217](index=217&type=chunk) [Item 6. Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including the Merger Agreement, amendments to bylaws, subscription agreements, and certifications - Exhibits include the Agreement and Plan of Merger, Amendment to Amended and Restated By-laws, Amendment to Transitional Services Agreement, Consulting Services Agreement, Subscription Agreement, and various certifications[221](index=221&type=chunk)