The following discussion of the financial condition and results of operations of
Aerpio Pharmaceuticals, Inc. should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes to those statements
included in this Quarterly Report on Form 10-Q as of and for the period ended
June 30, 2020 and our audited consolidated financial statements and related
notes thereto for the year ended December 31, 2019 included in our Annual Report
on Form 10-K for the year ended December 31, 2019, which was filed with the SEC
on March 16, 2020. Some of the information contained in this discussion and
analysis including information with respect to our plans and strategy for our
business, includes forward-looking statements that involve risk, uncertainties
and assumptions. You should read the "Risk Factors" section of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, as updated by the risk
factors contained this Quarterly Report on Form 10-Q and our other filings with
the SEC, for a discussion of important factors that could cause actual results
to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
Operating Overview
Aerpio Pharmaceuticals, Inc. is a biopharmaceutical company focused on
developing compounds that activate Tie2 to treat ocular diseases and diabetic
complications, as well as other indications in which the Company believes that
activation of Tie2 may have therapeutic potential, including acute respiratory
distress syndrome ("ARDS") associated with COVID-19 infections.
In March 2019, we announced topline results from our Phase 2b ("TIME-2b")
clinical trial of AKB-9778 (also known as razuprotafib) for the treatment of
non-proliferative diabetic retinopathy. Although the results did not meet the
study's primary endpoint, the TIME-2b study further supported the reduction of
intraocular pressure ("IOP") seen with subcutaneous razuprotafib in the previous
TIME-2 study. Importantly, IOP is the only identifiable modifiable risk factor
for prevention of vision loss in patients with open angle glaucoma ("OAG") and
ocular hypertension ("OHT"). Moreover, recently published mouse and human
genetic data implicate the Angpt/Tie2 pathway in maintenance of Schlemm's canal,
a critical component of the conventional outflow tract. The conventional outflow
tract is the main conduit for the fluid drainage from the front of the eye and
the principle regulator of IOP. Based on these findings, we developed a topical
ocular formulation of razuprotafib, and observed in preclinical studies
activation of Tie2 in Schlemm's canal, IOP reduction via enhanced outflow
facility and favorable tolerability.
In June 2019, we initiated a double-masked, multiple-ascending dose Phase 1b
clinical trial for OAG. We enrolled four cohorts of 12 subjects each and
subjects received increasing daily doses of a topical ocular formulation of
razuprotafib or placebo for seven days. The primary endpoint of the trial was
ocular safety and tolerability, with IOP lowering as the key pharmacodynamic
endpoint. In October 2019, we announced interim results from our Phase 1b
clinical trial. The unmasked interim analysis, limited to the first three
cohorts, showed the topical ocular administration of razuprotafib was well
tolerated. Compared to placebo, there was a dose dependent increase in minimal
to mild conjunctival hyperemia with razuprotafib, which was transient and
generally considered non-adverse, and a time and dose dependent reduction in IOP
that, in the highest once daily ("QD") dose cohort peaked at 4 hours post-dose
and was sustained through eight hours on day 7, returning to baseline levels at
24 hours post-dose. Based on these data, a cohort of 43 patients with OHT/OAG
(hypertensive eyes) was added to the ongoing study to assess safety and pilot
efficacy in the target patient population.
In January 2020, we announced the results of the fifth cohort of subjects noting
subjects in cohort five randomized to the active arm exhibited statistically
significant decreases in IOP at all post- razuprotafib administration time
points on both days 1 and 7 compared with day -1 baseline values when they were
being treated with prostaglandin alone. When the change is placebo-corrected,
razuprotafib plus prostaglandin versus prostaglandin alone produced a
statistically significant decrease in IOP on Day 7 at 0, 4 and 8 hours post dose
as compared to placebo. We believe these results suggest a persistent
IOP-lowering activity from adding razuprotafib to standard-of-care prostaglandin
therapy. Topical ocular administration of razuprotafib was well tolerated over
seven days in cohort five. There were no reports of conjunctival hemorrhage or
pain on instillation during the seven days of dosing and no systemic/non-ocular
AEs were observed.
Based on the preclinical proof of concept and the results of the Phase 1b trial
showing a reduction in IOP in patients with OHT and OAG, we initiated a Phase 2
clinical trial in June 2020 designed to evaluate the safety and efficacy of a
topical formulation of razuprotafib in approximately 195 patients followed over
a 28-day period. Patients enrolled in the trial will be administered a baseline
of latanoprost ophthalmic solution 0.005%, and then randomized in a 1:1:1
fashion to receive adjunctive therapy consisting of placebo, 40 mg/ml
razuprotafib once-daily, or 40 mg/ml razuprotafib twice-daily. The primary
endpoint of the study is mean diurnal IOP at 28 days in the razuprotafib treated
groups compared to the latanoprost monotherapy group. We expect to have results
in the fourth quarter of 2020, subject to potential delays in subject enrollment
and study completion, including due to delays arising from the ongoing COVID-19
pandemic.
We believe that glaucoma, a serious condition of the eye affecting three million
patients in the U.S., is an attractive commercial opportunity. If we develop,
obtain marketing approval for and commercialize razuprotafib, our goal is to
capture a portion of annual sales for adjunctive glaucoma therapies. We
currently estimate that the dollar value of the U.S. glaucoma market is
approximately $4
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billion dollars per year, and adjunctive therapies represent approximately half
of this value. There were approximately 17 million prescriptions written for
adjunctive glaucoma therapies in the U.S. in 2019.
Acute Respiratory Distress Syndrome ("ARDS")
Based on results in preclinical studies and observations in patients in TIME-2
and TIME-2b trials, we believe that a vascular endothelial receptor, Tie2, may
play a pivotal role in the defense against microvascular breach in ARDS. We
hypothesize that razuprotafib, our lead Tie2 activator, may have therapeutic
potential for the treatment of COVID-19 associated ARDS. In May 2020, we were
selected by Quantum Leap Healthcare Collaborative to participate in the I-SPY
COVID Trial (Investigation of Serial studies to Predict Your COVID Therapeutic
Response with biomarker Integration and Adaptive Learning) to evaluate
razuprotafib for the treatment of COVID-19 related ARDS in adult patients with
critical COVID-19. We expect the trial to be initiated during the third quarter
of 2020 with trial updates anticipated in the first half of 2021, subject to
potential delays in subject enrollment and study completion, including due to
delays arising from the ongoing COVID-19 pandemic.
On August 4, 2020, we issued a press release announcing the receipt of funding
to evaluate subcutaneous razuprotafib in a new randomized, investigational trial
for the prevention and treatment of ARDS in adult patients with moderate to
severe COVID-19. The trial is part of the MTEC-20-09-COVID-19 Treatment Military
Infectious Disease Research Program ("MIDRP"). The Phase 2 clinical trial is
expected to be completed in the first quarter of 2021. The Medical Technology
Enterprise Consortium ("MTEC"), a non-profit organization primarily funded by
the U.S. Army Medical Research and Development Command, will provide up to $5.1
million in funding toward the clinical trial, while we will support the trial
with "in-kind" spending in the aggregate amount of $2.8 million.
Diabetic Kidney Disease
In two consecutive trials, TIME-2 and TIME-2b, subcutaneous razuprotafib showed
reduction in Urine Albumin-Creatinine Ratio ("UACR"), a measure of progression
of diabetic kidney disease. In a post-hoc analysis of the earlier TIME-2
clinical trial, there was a 21% reduction (geometric mean) in UACR from baseline
in the razuprotafib treatment arms, but an overall increase in UACR in the
placebo arm. The prospective UACR analyses from the recently completed TIME-2b
trial largely replicated the results from the previous trial and reinforced the
potential beneficial effects of Tie2 activation in diabetic kidney disease. We
believe that systemic treatment with razuprotafib could have the potential to
change the treatment paradigm for diabetics in the future and potentially
address a major societal problem by lowering the cost of care associated
generally with diabetes.
ARP-1536
ARP-1536, our humanized monoclonal antibody directed at the same target as
subcutaneous razuprotafib, is in preclinical development. We are evaluating
development options for ARP-1536, including subcutaneous injection for the
treatment of diabetic vascular complications, e.g., diabetic nephropathy and
intravitreal injection as an adjunctive therapy for diabetic macular edema. We
are also developing a bispecific antibody that binds both VEGF and VE-PTP which
is designed to inhibit VEGF activation and activate Tie2. We believe this
bispecific antibody has the potential to be an improved treatment for wet AMD
and diabetic macular edema via intravitreal injection.
Gossamer License Agreement
In June 2018, we licensed AKB-4924, a selective stabilizer of hypoxia-inducible
factor-1 alpha ("HIF-1 alpha") to Gossamer Bio, Inc. ("Gossamer") AKB-4924, (now
called GB004), is being developed for the treatment of inflammatory bowel
disease ("IBD"). HIF-1 alpha is involved in mucosal wound healing and the
reduction of inflammation in the gastrointestinal tract. Gossamer has completed
the Phase 1 multiple ascending dose ("MAD") clinical study and is currently
running a Phase 1b clinical study in ulcerative colitis patients. Gossamer has
progressed GB004 during 2019 by completing the Phase 1 study in healthy
volunteers and initiating a Phase 1b study in ulcerative colitis patients of
28-day duration. Gossamer reported topline results from the Phase 1b study in
the second quarter of 2020 and has reported that it is planning for the
commencement of its Phase 2 program for GB004 in the first half of 2021, subject
to potential delays in subject enrollment and study completion, including due to
delays arising from the ongoing COVID-19 pandemic. Gossamer is responsible for
all remaining development and commercial activities for GB004.
In April 2019, we adopted a realignment plan to reduce operating costs and
better align our workforce with the needs of our ongoing business and in October
2019, our Chief Executive Officer and Chief Financial and Business Officer
departed from their positions. As a result, we recorded severance expense of
$0.9 million during the three and six months ended June 30, 2019 and $1.0
million in the year ended December 31, 2019 for employee related costs,
including severance benefits and payment of healthcare insurance premiums.
Additionally, we recorded a one-time stock-based compensation cumulative
reversal of $1.1 million during the year ended December 31, 2019 for the
forfeitures of outstanding equity awards. The total remaining liability under
these severance-related actions was $0.3 million as of June 30, 2020 and we
anticipate that such employee related costs will be paid by the end of the
fourth quarter of 2020.
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Our primary source of liquidity to date has been through public and private
sales of our common stock, redeemable convertible preferred stock, convertible
debt and the proceeds from the License Agreement entered into with Gossamer
("Gossamer License Agreement"). For the three and six months ended June 30,
2020, we generated $15.0 million in revenue pursuant to Amendment No. 1 to the
Gossamer License Agreement.
We will need to raise additional funds to further advance our clinical research
programs, commence additional clinical trials and commercialize our products, if
approved. While we continue to pursue financing alternatives, which may include
equity financing, business development arrangements, licensing arrangements and
business combination transactions, financing may not be available to us in the
necessary time frame, in the amounts that we need, on terms that are acceptable
to us or at all. If we are unable to raise the necessary funds when needed or
reduce spending on currently planned activities, we may not be able to continue
the development of our product candidates or we could be required to delay,
scale back or eliminate some or all of our development programs and other
operations and will materially harm our business and consolidated financial
position.
We expect to continue to incur significant expenses and operating losses for the
foreseeable future as a result of our ongoing activities. We are subject to a
number of risks similar to other life science companies in the current stage of
our life cycle, including, but not limited to, the need to obtain adequate
additional funding, possible failure of preclinical testing or clinical trials,
competitors developing new technological innovations, and protection of
proprietary technology. If we do not successfully mitigate any of these risks,
we will be unable to generate revenue or achieve profitability.
Except for the Gossamer License Agreement that we entered into with Gossamer in
June 2018 and amended in May 2020, our operations to date have been limited to
organizing and staffing our Company, business planning, raising capital,
acquiring and developing our technology, identifying potential product
candidates and undertaking preclinical and clinical studies. There can be no
assurance of future revenues either from future payments related to the Gossamer
License Agreement, transition services or from our product candidates. Our
product candidates are subject to long development cycles, and there is no
assurance we will be able to successfully develop, obtain regulatory approval
for, or market our product candidates. As of June 30, 2020, we had an
accumulated deficit of $136.9 million and anticipate incurring additional losses
for the next several years.
The Company's inability to obtain required funding in the near future could have
a material adverse effect on its operations and strategic development plan for
future growth. If the Company cannot successfully raise additional capital and
implement its strategic development plan, its liquidity, financial condition and
business prospects will be materially and adversely affected, and the Company
may have to cease operations. Based on the Company's current cash reserves of
$44.9 million at June 30, 2020 and financial condition as of this Quarterly
Report on Form 10-Q, we believe our existing cash and cash equivalent will be
sufficient to fund currently planned operations through at least the fourth
quarter of 2021.
On March 11, 2020, the World Health Organization declared the outbreak of a
novel strain of coronavirus, ("COVID-19"), as a global pandemic, which continues
to spread throughout the United States and around the world. The COVID-19
pandemic is evolving, and to date has led to the implementation of various
responses, including government-imposed quarantines, stay-at-home orders, travel
restrictions, mandated business closures and other public health safety
measures. In addition, in response to the spread of COVID-19, we have continued
to keep our executive offices closed with our employees continue to work outside
of our offices. We are closely monitoring the impact of COVID-19 on all aspects
of our business, including how it may impact our planned Phase 2 clinical trial
for our glaucoma program, expected timelines and costs on an ongoing basis. We
do not yet know the full extent of potential delays or the impact on our
business, our planned clinical trial, our research programs, healthcare systems
or the global economy and we cannot presently predict the scope and severity of
any potential business shutdowns or disruptions. The extent to which COVID-19
ultimately impacts our business, results of operations and financial condition
will depend on future developments, which remain highly uncertain and cannot be
predicted with confidence, such as the duration of the outbreak, new information
that may emerge concerning the severity of COVID-19 or the effectiveness of
actions to contain COVID-19 or treat its impact, among others. Although some
states are starting to relax stay-at-home orders, quarantines and similar
restrictions, the regulations vary on a state by state basis and the impact of
loosening of those restrictions is not yet known. If we or any of the third
parties with whom we engage were to experience additional shutdowns or other
prolonged business disruptions, our ability to conduct our business in the
manner and on the timelines presently planned could have a material adverse
impact on our business, results of operation and financial condition.
Basis of Presentation
The following discussion highlights the Company's results of operations and the
principal factors that have affected our financial condition as well as our
liquidity and capital resources for the periods described and provides
information that management believes is relevant for an assessment and
understanding of the condensed consolidated balance sheets and the condensed
consolidated statements of operation and comprehensive income (loss) presented
herein. The following discussion and analysis are based on the Company's
condensed consolidated financial statements contained in this Quarterly Report
on Form 10-Q, which we have prepared in accordance with U.S. generally accepted
accounting principles ("U.S. GAAP" or "GAAP"). You should read the discussion
and analysis together with such condensed consolidated financial statements and
the related notes thereto.
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Components of Statements of Operations and Comprehensive Income (Loss)
License Revenue
License revenue relates to payments received pursuant to the license agreement
with Gossamer.
Operating Expenses
Research and Development
Research and development expenses are expensed as incurred. Research and
development expenses consist primarily of (i) employee-related expenses,
including salaries, benefits, travel, and stock-based compensation expense, (ii)
external research and development expenses incurred under arrangements with
third parties, such as contract research organizations ("CRO's") and
consultants, (iii) the cost of acquiring, developing, and manufacturing clinical
study materials, and (iv) costs associated with preclinical, clinical and
regulatory activities.
Costs for certain development activities are recognized based on an evaluation
of the progress to completion of specific tasks using information and data
provided to us by our vendors and clinical sites.
As we continue to invest in basic research and clinical development of our
product candidates, we expect research and development expenses to increase in
absolute dollars.
General and Administrative
General and administrative expenses consist primarily of compensation and
related costs for our finance, human resources and other administrative
personnel, including stock-based compensation, employee benefits and travel. In
addition, general and administrative expenses include third-party consulting,
legal, patent, audit, accounting services and facilities costs. We expect to
continue to incur general and administrative expenses due to additional legal,
accounting, insurance, investor relations and other costs associated with being
a public company, as well as other costs associated with growing our business.
Interest Income
Interest income consists primarily of interest income received on cash and cash
equivalents.
Restructuring Expense
Restructuring expense consists primarily of severance related expenses of
employees terminated as a result of the Company's restructuring efforts.
Expenses include continued payroll, benefits and outplacement services
(collectively "severance") as defined and agreed upon by the respective
employees' severance agreement. Total severance was recognized as Restructuring
expense on April 2, 2019, the date when employees were notified of the
restructuring event. A corresponding restructuring accrual was also recorded and
will be reduced as payments are made to the employees.
Grant Income
Grant income is recognized as earned based on contract work performed.
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Results of Operations
The following table presents the results of operations for the periods
presented:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
License revenue $ 15,000,000 $ - $ 15,000,000 $ -
Operating expenses:
Research and development 3,548,572 2,264,255 5,377,614 7,850,506
General and
administrative 2,195,515 2,799,570 4,481,406 6,054,612
Restructuring expense - 915,094 - 915,094
Total operating expenses 5,744,087 5,978,919 9,859,020 14,820,212
Income (loss) from
operations 9,255,913 (5,978,919 ) 5,140,980 (14,820,212 )
Grant income - 4,924 79,900 20,272
Interest income 20,119 290,379 136,489 623,499
Total other income 20,119 295,303 216,389 643,771
Net and comprehensive
income (loss) $ 9,276,032 $ (5,683,616 ) $ 5,357,369 $ (14,176,441 )Comparison of the Three and Six Months Ended June 30, 2020 and 2019
License Revenue
License revenue for the three and six months ended June 30, 2020 reflects the
$15.0 million payment received as consideration pursuant to the amendment to the
Gossamer License Agreement. This revenue was recognized when cash was received
on May 12, 2020.
No such license agreement amendment was executed in 2019, nor were any
milestones of the Gossamer license agreement achieved in 2019.
Operating Expenses
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Research and development $ 3,548,572 $ 2,264,255 $ 5,377,614 $ 7,850,506
General and administrative 2,195,515 2,799,570 4,481,406 6,054,612
Restructuring expense - 915,094 - 915,094
Total operating expenses $ 5,744,087 $ 5,978,919 $ 9,859,020 $ 14,820,212
Research and Development
Research and development expenses for the three months ended June 30, 2020,
increased by approximately $1.3 million or 56.7%, compared to the three months
ended June 30, 2019. This was the result of increased spending on clinical
trials during the three months ended June 30, 2020, specifically planning for
the Phase 2 program for glaucoma and the I-SPY program for ARDS, compared to
spending related to the glaucoma Phase 1b clinical trial during the same period
in 2019.
Research and development expenses for the six months ended June 30, 2020,
decreased approximately $2.5 million or 31.5%, compared to the six months ended
June 30, 2019. This was the result of decreased spending on clinical trials
during the first half of 2020 compared to the two trials in process during the
first half of 2019, completion of razuprotafib TIME-2b and glaucoma Phase 1b
clinical trials.
General and Administrative
General and administrative expenses for the three months ended June 30, 2020,
decreased by approximately $0.6 million, or 21.6%, compared to the three months
ended June 30, 2019. This decrease was primarily attributable to a decrease in
employee related expenses of $0.2 million and stock-based compensation of $0.4
million.
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General and administrative expenses for the six months ended June 30, 2020,
decreased by approximately $1.6 million, or 26.0%, compared to the six months
ended June 30, 2019. This decrease was primarily attributable to a decrease in
employee related expenses of $0.5 million, legal expenses of $0.3 million,
stock-based compensation of $0.6 million and general office expenses of $0.2
million.
Restructuring Expense
Restructuring expense for the three and six months ended June 30, 2019 of $0.9
million is the result of a reduction of headcount during the second quarter of
2019. No such actions were taken in 2020.
Other Income
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Grant income $ - $ 4,924 $ 79,900 $ 20,272
Interest income 20,119 290,379 136,489 623,499
Total other income $ 20,119 $ 295,303 $ 216,389 $ 643,771
Grant Income
Grant income is recognized as earned based on contract work performed. Grant
income amounts can vary greatly from period to period depending on the funding
and needs of the party for whom we perform the requested services.
Interest Income
Interest income in the three and six months ended June 30, 2020, reflects
interest earned on short term money market instruments. The net proceeds from
our underwritten public offering in June 2018 and payments received in
conjunction with the execution of the Gossamer Agreement in June 2018 and
Amendment No. 1 to the Gossamer License Agreement in May 2020, less cash used in
operations, were available for investment. The decrease in interest income was
due to lower interest rates compared to the prior year.
Liquidity and Capital Resources
Since inception, we have incurred significant net and comprehensive losses and
negative cash flows from operations. For the six months ended June 30, 2020 and
2019, we had net and comprehensive income (loss) of $5.4 million and ($14.2)
million, respectively. At June 30, 2020 and December 31, 2019, we had an
accumulated deficit of $136.9 million and $142.2 million, respectively.
At June 30, 2020, we had cash and cash equivalents of $44.9 million. To date, we
have financed our operations principally through private and public offerings of
our equity securities, private placements of our redeemable convertible
preferred stock, common stock, issuances of secured convertible promissory notes
and proceeds from the Gossamer License Agreement and Amendment No. 1 thereto.
Based on our current plans, we expect that our existing cash and cash
equivalents, will enable us to conduct our planned operations through at least
the fourth quarter of 2021.
In February 2018, we filed a shelf registration statement on Form S-3 with the
SEC which was declared effective by the Securities and Exchange Commission on
April 11, 2018 (the "Form S-3"). The shelf registration statement allows us to
sell from time-to-time up to $150.0 million of common stock, preferred stock,
debt securities, warrants, or units comprised of any combination of these
securities, for our own account in one or more offerings. The shelf registration
statement is intended to provide us flexibility to conduct registered sales of
our securities, subject to market conditions and our future capital needs. The
terms of any offering under the shelf registration statement will be established
at the time of such offering and will be described in a prospectus supplement
filed with the SEC prior to the completion of any such offering.
Additionally, on February 21, 2018, and pursuant to the Form S-3, we entered
into a Controlled Equity Offering Sales Agreement (the "Sales Agreement") with
Cantor Fitzgerald & Co. ("Cantor"), pursuant to which we may issue and sell,
from time to time, shares of our common stock having an aggregate offering price
of up to $75.0 million through Cantor as our sales agent. Cantor may sell our
common stock by any method permitted by law deemed to be an "at the market
offering" as defined in Rule 415(a)(4) of the Securities Act, including sales
made directly on or through the Nasdaq Capital Market or any other existing
trade market for our common stock, in negotiated transactions at market prices
prevailing at the time of sale or at prices related to prevailing market prices,
or any other method permitted by law. The shares of our common stock to be sold
under the Sales Agreement will be sold and issued pursuant to the Form S-3 and
the related prospectus and one or more prospectus supplements. We will pay
Cantor 3.0% of the aggregate gross proceeds from each sale of shares of common
stock under the Sales Agreement.
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As of June 30, 2020, no shares of common stock had been sold under this Sales
Agreement. On August 5, 2020, we sold 1,480,000 shares of common stock under
this Sales Agreement and received net proceeds of $2.3 million, after deducting
expenses of approximately $186,000 (including sales agent compensation of
approximately $75,000).
In October 2019, we announced the engagement of Evercore, Ladenburg Thalmann &
Co. Inc. and Duane Nash, M.D., J.D., M.B.A. to explore a range of strategic
alternatives focused on maximizing stockholder value from our clinical assets
and cash resources. Such alternatives may include the potential for an
acquisition, company sale, merger, business combination, asset sale, in-license,
out-license or other strategic transaction. The Company continues to explore
strategic alternatives; however, there can be no assurance that the exploration
of strategic alternatives will result in any transaction or other alternative.
We could potentially use our available financial resources sooner than we
currently expect, and we may incur additional indebtedness to meet future
operation liquidity. We continuously evaluate our needs for additional capital
and consider opportunities on an ongoing basis, including capital from many
different sources including equity capital, strategic alliances, business
development debt, collaborations and business combinations. Adequate additional
funding may not be available to us on acceptable terms or at all. Market
volatility resulting from COVID-19 or other factors could also adversely impact
our ability to access capital as and when needed. In addition, although we
anticipate being able to obtain additional financing through non-dilutive means,
we may be unable to do so. Our failure to raise capital as and when needed could
have significant negative consequences for our business, financial condition and
results of operations.
The following table summarizes our cash flows for the periods presented:
Six Months Ended June 30,
2020 2019
Net cash provided by (used in) operating activities $ 6,351,946 $ (14,224,328 )
Net cash used in investing activities
(12,198 ) (232,672 )
Net cash provided by financing activities - -
Net increase (decrease) in cash and cash equivalents $ 6,339,748 $ (14,457,000 )
Operating Activities
We have historically experienced negative cash outflows as we developed
razuprotafib and our pipeline programs. Our net cash generated by and used in
operating activities primarily results from our net income (loss) adjusted for
non-cash expenses, changes in working capital components, amounts due to
contract research organizations to conduct our clinical programs and
employee-related expenditures for research and development and general and
administrative activities. Our cash flows from operating activities will
continue to be affected by spending to advance and support our product
candidates in the clinic and other operating and general administrative
activities.
For the six months ended June 30, 2020, operating activities generated
$6.4 million in cash as result of net income of $5.4 million, non-cash expenses
of $0.7 million related to stock-based compensation and depreciation expense and
an increase in working capital of $0.3 million. For the six months ended
June 30, 2019, operating activities used $14.2 million in cash as a result of a
net loss of $14.2 million and a decrease of $1.3 million in working capital,
offset by $1.3 million in non-cash expenses related to stock-based compensation
expense and depreciation expense.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2020 and
2019, was related to capital expenditures to support operations.
Financing Activities
There were no financing cash flows during the six months ended June 30, 2020 and
2019.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business
during the period covered by this Quarterly Report on Form 10-Q from the
contractual obligations and commitments as of December 31, 2019 as described in
our Annual Report on Form 10-K filed with the SEC on March 16, 2020.
Off-Balance Sheet Arrangements
As of June 30, 2020 and December 31, 2019, we did not have any off-balance sheet
arrangements as defined by applicable SEC regulations.
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with
GAAP. The preparation of these condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, expenses and related disclosures. We evaluate
our estimates and assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Our actual results could differ from these
estimates.
We believe that the assumptions and estimates have the greatest potential impact
on our condensed consolidated financial statements. Therefore, we consider these
to be our critical accounting policies and estimates.
For further information on all our significant accounting policies, see the
notes to our condensed consolidated financial statements appearing elsewhere in
this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with
the SEC on March 16, 2020.
JOBS Act Accounting Election
We are an "emerging growth company" within the meaning of the Jumpstart Our
Business Startups Act of 2012 ("JOBS Act"). Section 107 of the JOBS Act provides
that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with
new or revised accounting standards. Thus, an emerging growth company can delay
the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have irrevocably elected not to avail
ourselves of this extended transition period and, as a result, we will adopt new
or revised accounting standards on the relevant dates on which adoption of such
standards is required for other public companies that are not emerging growth
companies.
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