Aerpio Pharmaceuticals(AADI) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements This section presents Aerpio Pharmaceuticals' unaudited condensed consolidated financial statements, showing a $47.3 million cash increase and $0.4 million net income for the nine-month period, driven by $15.0 million license revenue Condensed Consolidated Balance Sheets The balance sheet shows total assets increased to $49.8 million by September 30, 2020, primarily due to a rise in cash and cash equivalents to $47.3 million, alongside increased stockholders' equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $47,281,986 | $38,524,536 | | Total current assets | $49,583,292 | $39,570,475 | | Total assets | $49,830,378 | $39,936,786 | | Liabilities & Equity | | | | Total current liabilities | $2,511,959 | $3,334,005 | | Total liabilities | $2,511,959 | $3,401,443 | | Total stockholders' equity | $47,318,419 | $36,535,343 | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income The company reported $0.4 million net income for the nine months ended September 30, 2020, a significant turnaround from a $18.8 million net loss, driven by $15.0 million in license revenue Statement of Operations Highlights (Unaudited) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | License revenue | $15,000,000 | $0 | | Research and development | $9,363,602 | $10,695,109 | | General and administrative | $6,356,821 | $8,215,456 | | Total operating expenses | $15,720,423 | $19,786,849 | | Loss from operations | ($720,423) | ($19,786,849) | | Net and comprehensive (loss) income | $402,346 | ($18,824,371) | | Net (loss) income per share (basic) | $0.01 | ($0.46) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $47.3 million by September 30, 2020, primarily due to $9.3 million in net proceeds from common stock issuance and $0.4 million net income - Total stockholders' equity grew to $47,318,419 as of September 30, 2020, up from $36,535,343 at January 1, 2020[11] - In the third quarter of 2020, the company issued 6,523,655 shares of common stock, resulting in net proceeds of $9,340,842 after issuance costs[11] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly decreased to $0.6 million for the nine months ended September 30, 2020, with $9.3 million from financing, increasing cash and cash equivalents to $47.3 million Cash Flow Summary (Unaudited) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($564,367) | ($18,987,454) | | Net cash used in investing activities | ($19,025) | ($236,953) | | Net cash provided by financing activities | $9,340,842 | $0 | | Net increase (decrease) in cash | $8,757,450 | ($19,224,407) | | Cash and cash equivalents, end of period | $47,281,986 | $43,389,603 | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes detail the company's focus on Tie2 activation, clinical pipeline, $15.0 million Gossamer license revenue, $9.3 million equity raise, and projected cash sufficiency through Q4 2022 - The company is developing razuprotafib for Glaucoma (Phase 2) and COVID-19 associated ARDS (two Phase 2 trials)[17] - In May 2020, the company received a one-time payment of $15.0 million from an amendment to its license agreement with Gossamer, which was recognized as revenue[18][72] - During Q3 2020, the company sold 6,523,655 shares of common stock under its Sales Agreement, receiving net proceeds of $9.3 million[18] - Management believes existing cash of approximately $47.3 million at September 30, 2020, will be sufficient to fund its current operating plan through the fourth quarter of 2022[18] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, highlighting clinical program progress, $15.0 million license revenue driving improved results, and $47.3 million cash expected to fund operations through Q4 2022 Operating Overview Aerpio focuses on Tie2 activation for ocular diseases and ARDS, with lead candidate razuprotafib in Phase 2 trials for glaucoma and COVID-19 ARDS, alongside other pipeline programs - Initiated a Phase 2 clinical trial for razuprotafib in glaucoma in June 2020, with topline results expected in December 2020 or early January 2021[80] - Initiated two Phase 2 trials for razuprotafib in COVID-19 associated ARDS: the I-SPY COVID Trial and the RESCUE trial[83] - The RESCUE trial is supported by up to $5.1 million in reimbursement from the Medical Technology Enterprise Consortium (MTEC)[83] - Gossamer Bio plans to initiate a Phase 2 study of the licensed compound GB004 in patients with mild-to-moderate UC in the second half of 2020[86] Results of Operations For the nine months ended September 30, 2020, $15.0 million license revenue and reduced R&D and G&A expenses led to a net income, a significant improvement from the prior year's net loss Comparison of Operating Results (Unaudited) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | License Revenue | $15,000,000 | $0 | | R&D Expense | $9,363,602 | $10,695,109 | | G&A Expense | $6,356,821 | $8,215,456 | | Other Income | $897,378 | $0 | | Net Income (Loss) | $402,346 | ($18,824,371) | - R&D expenses for Q3 2020 increased by $1.1 million (40.1%) YoY due to spending on the Phase 2 glaucoma program and the I-SPY and RESCUE trials[101] - G&A expenses for the nine months ended Sep 30, 2020 decreased by $1.9 million (22.6%) YoY, primarily due to lower employee-related expenses, legal fees, and stock-based compensation[105] Liquidity and Capital Resources As of September 30, 2020, the company held $47.3 million in cash, with $9.3 million raised from equity, expected to fund operations through Q4 2022, while exploring strategic alternatives - The company had cash and cash equivalents of $47.3 million as of September 30, 2020[110] - Management believes existing cash will fund planned operations through the fourth quarter of 2022[110] - During Q3 2020, the company sold 6,523,655 shares of common stock under its Sales Agreement, receiving net proceeds of $9.3 million[113] - The company continues to explore a range of strategic alternatives, which may include acquisition, merger, asset sale, or other transactions, but there is no assurance a transaction will occur[113] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Aerpio Pharmaceuticals, Inc. is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide the information required by this Item[123] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[125] - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2020[126] PART II. OTHER INFORMATION Legal Proceedings As of the filing date, the company is not involved in any material legal proceedings, while acknowledging potential future claims in the ordinary course of business - The company is not currently involved in any material legal proceedings[128] Risk Factors This section outlines significant risks, including dependence on razuprotafib, COVID-19 impacts, clinical development uncertainties, intellectual property protection, reliance on third parties, financing needs, and market competition Risks Related to the COVID-19 Pandemic The COVID-19 pandemic poses substantial risks, potentially harming R&D, delaying clinical trials due to patient enrollment issues, site monitoring interruptions, and supply chain disruptions - The COVID-19 pandemic could seriously harm research, development, and commercialization efforts, increase costs, and adversely affect financial results[130] - The pandemic may delay clinical trials due to the diversion of healthcare resources, travel limitations interrupting site monitoring, and interruptions in global shipping of trial materials[132][133] Risks Related to Clinical Development The company's success depends heavily on razuprotafib, facing risks of unfavorable clinical results, regulatory approval challenges, patient enrollment difficulties, and the non-predictive nature of early trial outcomes - The business depends heavily on the success of its lead product candidate, razuprotafib, which may never be approved or commercialized[134] - Difficulties in enrolling patients in clinical trials could delay or prevent the development of product candidates[138] - Positive results from early-stage clinical trials are not necessarily predictive of results in future, larger clinical trials[141] Risks Related to Our Financial Position and Need for Additional Capital The company faces ongoing losses and requires substantial additional financing, with failure to secure capital potentially delaying or terminating programs, and strategic alternative exploration carrying inherent uncertainties and costs - The company has a limited operating history and has incurred significant losses since inception, anticipating continued losses for the foreseeable future[182][183] - Substantial additional financing is required, and a failure to obtain it could force the company to delay, limit, or terminate product development[189] - The exploration of strategic alternatives may not result in a transaction and the process could adversely impact the business and stock price[188] Risks Related to Commercialization Commercial success is uncertain, depending on market acceptance, facing intense competition, lacking internal sales infrastructure, and requiring adequate third-party payor coverage and reimbursement - Commercial success depends on attaining significant market acceptance from physicians, patients, and third-party payors[193] - The company faces substantial competition from larger, more established companies with greater financial and technical resources[195] - The company lacks a sales, marketing, and distribution infrastructure, and building one or partnering with third parties presents significant challenges[197] - Limited or unavailable coverage and reimbursement from payors could make it difficult to sell products profitably[202] Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications from key officers and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[249] - XBRL Instance Document and related taxonomy files are included as exhibits[249]