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 three and six
months ended June 30, 2021 and our audited consolidated financial statements and
related notes thereto for the year ended December 31, 2020 included in our
Annual Report on Form 10-K for the year ended December 31, 2020, which was filed
with the Securities and Exchange Commission (the "SEC") on March 11, 2021. 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, 2020, 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. (the "Company") is a biopharmaceutical company
focused on developing compounds that activate Tie2 as well as other indications
in which we believe that activation of Tie2 may have therapeutic potential. We
were incorporated as Zeta Acquisition Corp. II ("Zeta") in the State of Delaware
on November 16, 2007. Zeta was a "shell company" (as defined in Rule 12b-2 of
the Exchange Act).
In December 2020, the Company announced the topline results from our Phase 2
clinical trial of razuprotafib (formerly known as AKB-9778), a small molecule
vascular endothelial protein tyrosine phosphatase ("VE-PTP") inhibitor. The
double-blind, placebo controlled Phase 2 study, in patients with elevated
intraocular pressure ("IOP") associated with open angle glaucoma or ocular
hypertension, met its primary efficacy endpoint with its twice-daily dosing
group; however, the IOP decrease was not at a level deemed sufficient to move to
Phase 3 development. As a result, we initiated a process to explore a range of
strategic alternatives focused on maximizing stockholder value from our clinical
assets and cash resources. As part of this process, we are exploring strategic
options for partnering our programs, as well as the potential for an
acquisition, company sale, merger, business combination, asset sale, in-license,
out-license or other strategic transaction. Ladenburg Thalmann & Co. Inc. and
Duane Nash, M.D., J.D., M.B.A, were retained with respect to the strategic
review process.
On May 16, 2021, the Company entered into an agreement and plan of merger
("Merger Agreement" or "Merger") with Aadi Bioscience, Inc. ("Aadi"), a Delaware
corporation, and Aspen Merger Subsidiary, Inc. ("Merger Sub"), a Delaware
corporation and a direct, wholly-owned subsidiary of the Company, pursuant to
which, subject to the satisfaction or waiver of the conditions set forth in the
Merger Agreement, Merger Sub will merge with and into Aadi, with Aadi surviving
as a wholly-owned subsidiary of the Company (the "Merger"). If the Merger is
completed, the business of Aadi will continue as the business of the combined
company.
The Merger Agreement was approved by the members of the board of directors of
the Company (the "Board" or the "Board of Directors") and the Board resolved to
recommend approval of the Merger Agreement to the Company's shareholders.
In connection with the Merger Agreement, the Company has entered into
subscription agreements to raise an aggregate amount of $155.0 million in a
Private Investment in Public Equity ("PIPE") financing in shares of common stock
and pre-funded warrants to purchase Aerpio common stock. The PIPE financing is
expected to be consummated concurrently with the closing of the Merger, subject
to customary closing conditions, and is contingent on the closing of the Merger.
The Merger is expected to close in the second half of 2021. The closing of the
Merger is subject to approval of the Company's shareholders and the satisfaction
of certain closing conditions, including, among others, obtaining the requisite
approval of the stockholders of Aerpio, Aerpio's cash and cash equivalents
maintaining a balance equal to or greater than $10.0 million and the completion
of the PIPE financing. The Merger is intended to qualify as a tax-free
reorganization for U.S. federal income tax purposes.
If the Company is unable to satisfy the closing conditions in Aadi's favor or if
other applicable closing conditions are not satisfied, Aadi will not be
obligated to complete the Merger. The Merger Agreement provides Aerpio and Aadi
with specified termination rights, and further provides that, upon termination
of the Merger Agreement under specified circumstances, Aerpio may be required to
pay the Aadi a termination fee of $2.0 million. In addition, in connection with
certain terminations of the Merger Agreement, Aerpio may be required to pay
Aadi's out-of-pocket fees and expenses up to $750,000.
If the Merger is consummated, on a pro forma basis, current shareholders of Aadi
will own approximately 66.8% and current shareholders of the Company will own
approximately 33.2% of the combined company upon the closing of the Merger,
without giving effect to the proposed PIPE. Following the closing of the
anticipated PIPE financing, the former Aadi shareholders are expected to own
approximately 29.6% of the outstanding shares of Aerpio common stock, on a
fully-diluted basis, the shareholders of Aerpio (as of immediately prior to the
closing of the Merger) are expected to own approximately 14.7% of the
outstanding shares of Aerpio common stock, on a fully-diluted basis, and the
PIPE investors are expected to own approximately 55.7% of the outstanding shares
of Aerpio common stock, on a fully-diluted basis.
20
--------------------------------------------------------------------------------
The Merger Agreement contemplates that, at or prior to the effective time of the
Merger (the "Effective Time"), Aerpio, the Holder Representative (as defined
therein) and the Rights Agent (as defined therein) will execute and deliver a
contingent value rights agreement (the "CVR Agreement"), pursuant to which each
holder of Aerpio common stock as of immediately prior to the Effective Time
shall be entitled to one contractual contingent value right issued by Aerpio,
subject to and in accordance with the terms and conditions of the CVR Agreement,
for each share of Aerpio common stock held by such holder. Each contingent value
right shall entitle the holder thereof to receive a defined percentage of the
net proceeds, if any, received by the newly combined company, subsequent to the
closing of the Merger, pursuant to the Amended Gossamer License Agreement (as
defined in Note 10) and any other agreements, with respect to certain other
Aerpio assets, entered into prior to the closing of the Merger. The contingent
value rights are not transferable, except in certain limited circumstances as
will be provided in the CVR Agreement, will not be certificated or evidenced by
any instrument and will not be registered with the SEC or listed for trading on
any exchange.
In January 2021, the Company executed a realignment plan to reduce operating
costs and better align our workforce with the needs of its ongoing business. The
realignment plan reduced our workforce by seven employees, representing
approximately 58% of our workforce. As a result of this realignment plan, we
incurred one-time employee related severance expenses of approximately $1.2
million in the first quarter of 2021 and anticipate the majority of the one-time
employee severance liability to be paid during 2021. The final payment of the
severance liability in connection with the realignment plan is subject to a
number of assumptions, actual results may differ from the original estimate.
Additionally, we may also incur additional costs not currently contemplated due
to events that may occur as a result of, or that are associated with, the
realignment plan.
Our other clinical programs include the following for which we are actively
exploring partnerships, collaborations and other strategic options:
Acute Respiratory Distress Syndrome: Based on results in preclinical studies and
observations in patients in TIME-2 and TIME-2b trials, we believed that a
vascular endothelial receptor, Tie2, may play a pivotal role in the defense
against microvascular breach in Acute Respiratory Distress Syndrome ("ARDS") and
have therapeutic potential for the treatment of COVID-19 associated ARDS. During
2020, we initiated two Phase 2 trials to evaluate subcutaneous razuprotafib for
the prevention and treatment of ARDS in adult patients with moderate to severe
COVID-19 ("RESCUE") and critical COVID-19 ("I-SPY"). In January 2021, the Data
Monitoring Committee recommended discontinuation of razuprotafib in the I-SPY
trial after 21 patients due to the complexity of monitoring patients in the
setting of a surge in ICU patients. For the RESCUE trial, the Company decided to
stop recruiting in February 2021 after the first 31 patients were enrolled based
on challenges recruiting and monitoring patients in the current pandemic
environment. Based on topline data for the RESCUE trial, there was a
mechanism-based, dose-dependent reduction of blood pressure which was not
associated with other adverse events. There was an apparent dose-dependent
decrease in Angiopoietin 2 ("Ang2") that would be consistent with the Tie2
activation mechanism. The efficacy of razuprotafib could not be fully assessed
due to the limited number of patients treated in the drug and standard of care
arms. At the 28 day study endpoint, there were an equal number of deaths in each
group (one per group). Further analysis of the full data set is ongoing. There
were no apparent safety signals associated with dosing COVID-19 patients in
either trial and we plan to further analyze the data to assess trends in
efficacy and biomarkers. As of June 30, 2021, clinical work for the RESCUE trial
is completed.
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. 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 and Bi-Specific Antibody: ARP-1536, the 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 vascular endothelial growth factor ("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
aged-related macular degeneration ("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 completed the Phase 1b clinical trial in ulcerative colitis
("UC") patients and reported results during the second quarter of 2020. Gossamer
has announced that, subject to developments in the ongoing COVID-19 pandemic, it
initiated a 12-week Phase 2 study of GB004 in patients with mild-to-moderate UC
during the second half of 2020.
In May 2020, the Company received a one-time payment of $15.0 million pursuant
to an amendment to its license agreement with Gossamer resulting in a reduction
in future potential milestone payments and tiered royalty rates over the life of
the license agreement. Gossamer is responsible for all remaining development and
commercial activities for GB004.
21
--------------------------------------------------------------------------------
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 (the
"Gossamer License Agreement"), as amended by that certain Amendment No. 1 to the
Gossamer License Agreement ("Amendment No. 1" and together with the Gossamer
License Agreement, as amended by Amendment No. 1, the "Amended Gossamer License
Agreement"). We generated $15.0 million of revenue during 2020; however, no
revenue was generated during the three and six months ended June 30, 2021
pursuant to Amendment No. 1. 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, 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, 2021, we had an accumulated deficit of $155.4 million and anticipate
incurring additional losses for the next several years.
Based on the Company's current cash reserves of $36.8 million at June 30, 2021
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 2022.
COVID-19 Considerations:
On March 11, 2020, the World Health Organization declared the outbreak of
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 despite progress in vaccination efforts, remain highly
uncertain and cannot be predicted with confidence, such as the duration of the
COVID-19 pandemic, new strains of the virus which may impact rates of infection
and vaccination efforts, developments or perceptions regarding the safety of
vaccines, new information that may emerge, and any additional preventive and
protective actions that governments, or we, may direct, which may result in
extending ongoing business disruptions and reduced operations. While certain
measures have been relaxed in certain parts of the world as increasing numbers
of people have received COVID-19 vaccines, others have remained in place with
some areas continuing to experience renewed outbreaks and surge in infection
rates. The extent to which such measures are removed or new measures are put in
place will depend upon how the pandemic evolves, as well as the distribution of
available vaccines, the rates at which they are administered and the emergence
of new variants of the virus. 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. In addition, a
recurrence or "additional waves" of COVID-19 cases could cause other widespread
or more severe impacts depending on where infection rates are highest. We will
continue to monitor the latest developments as we deal with the disruptions and
uncertainties relating to the COVID-19 pandemic, including the pace of
vaccinations and the emergence of new and more contagious strains of the virus,
and any resulting impact on our business, financial condition, results of
operations and prospects. Any resulting financial impact cannot be reasonably
estimated at this time and may have a material adverse impact on our business,
financial condition and results of operations.
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 (loss) income 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.
22
--------------------------------------------------------------------------------
Components of Statements of Operations and Comprehensive (Loss) Income
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.
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 and employee benefits. 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. In addition, we expect our general and administrative expenses
to increase for the foreseeable future due to transaction costs and expenses
related to our potential merger with Aadi.
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. Severance is recognized as restructuring expense
when employees are notified of the restructuring event with a corresponding
restructuring accrual which is reduced as payments are made to the employees.
Other Income
Other income represents reimbursed internal and external qualified expense, per
the terms of the U.S. Government operating through Medical Technology Enterprise
Consortium ("MTEC") arrangement. The reimbursable qualified expenses were
incurred in conjunction with the RESCUE trial and the potential
of subcutaneous razuprotafib for the prevention and treatment of ARDS in adult
patients with moderate to severe COVID-19. During the three and six months ended
June 30, 2021, $0.4 million and $1.5 million was recorded as other income. Other
income is recorded, and costs are generally reimbursed, in the period the
internal or external qualified clinical trial as we incur and pay expenses.
Grant Income
Grant income is recognized as earned based on contract work performed.
Interest Income
Interest income consists primarily of interest income received on cash and cash
equivalents.
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,
2021 2020 2021 2020
License revenue, and
other $ - $ 15,000,000 $ - $ 15,000,000
Operating expenses:
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 -
Total operating expenses 4,771,361 5,744,087 10,374,223 9,859,020
(Loss) income from
operations (4,771,361 ) 9,255,913 (10,374,223 ) 5,140,980
Other income 360,754 - 1,518,842 -
Grant income - - - 79,900
Interest income 2,672 20,119 5,707 136,489
Total other income 363,426 20,119 1,524,549 216,389
Net and comprehensive
(loss) income $ (4,407,935 ) $ 9,276,032 $ (8,849,674 ) $ 5,357,369
23
--------------------------------------------------------------------------------
Comparison of the Three and Six Months Ended June 30, 2021 and 2020
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 2021, nor
were any milestones of the Gossamer license agreement achieved in 2021.
Operating Expenses
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
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 -
Total operating expenses $ 4,771,361 $ 5,744,087 $ 10,374,223 $ 9,859,020
Research and Development
Research and development expenses for the three months ended June 30, 2021
decreased approximately $2.8 million or 79.7%, compared to the three months
ended June 30, 2020. This was the result of decreased spending on clinical trial
activity the three months ended June 30, 2020 compared to the same period in
2020. Expenses incurred during the three months ended June 30, 2021 primarily
relate to wrapping up the MTEC clinical program
Research and development expenses for the six months ended June 30, 2021
decreased approximately $2.4 million or 45.2%, compared to the six months ended
June 30, 2020. This was the result of decreased spending on clinical trial
activity year to date 2021 compared to the same period in 2020.
General and Administrative
General and administrative expenses for the three months ended June 30, 2021
increased approximately $1.9 million, or 84.5%, compared to the three months
ended June 30, 2020. This was primarily the result of increased transaction
costs and expenses related to our potential merger with Aadi.
General and administrative expenses for the six months ended June 30, 2021
increased approximately $1.7 million or 38.1%, compared to the six months ended
June 30, 2020. This was primarily the result of increased transaction costs and
expenses related to our potential merger with Aadi.
Restructuring Expense
Restructuring expense for the six months ended June 30, 2021 increased by $1.2
million as a result of the reduction of headcount during the first quarter of
2021. No such actions were taken during the three months ended June 30, 2021, or
during the same periods in 2020.
Other Income
Other Income
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Other income $ 360,754 $ - $ 1,518,842 $ -
Grant income - - - 79,900
Interest income 2,672 20,119 5,707 136,489
Total other income $ 363,426 $ 20,119 $ 1,524,549 $ 216,389Other income for the three and six months ended June 30, 2021 of $0.4 million
and $1.5 million, respectively, represents reimbursed internal and external
qualified expenses related to the ARDS RESCUE clinical trial, per the terms of
the MTEC arrangement. The arrangement with the Company started in the third
quarter of 2020. The RESCUE clinical trial was substantially complete at June
30, 2021.
24
--------------------------------------------------------------------------------
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. No grants
were received during the three and six months ended June 30, 2021. Grant income
of $79,900 was recognized during the six months ended June 30, 2020, as the
corresponding requested work was completed.
Interest Income
Interest income in the three and six months ended June 30, 2021, reflects
interest earned on short term money market instruments. The net proceeds from
our underwritten public offering in June 2018, sale of Company stock and
payments received in conjunction with the execution of the Gossamer License
Agreement in June 2018 and Amendment No. 1 in May 2020, less cash used in
operations, were available for investment. The decrease in interest income is
due to lower interest rates during the three and six months ended June 30, 2021,
compared to the prior year.
Liquidity and Capital Resources
Since inception, we have incurred significant net losses and negative cash flows
from operations. For the three and six months ended June 30, 2021, we had net
losses of $4.4 million and $8.8 million, respectively, compared to net income of
$9.3 million and $5.4 million for the three and six months ended June 30, 2020,
respectively, which was the result of the $15.0 million payment from Gossamer
for Amendment No. 1 during the second quarter of 2020. At June 30, 2021 and
December 31, 2020, we had an accumulated deficit of $155.4 million and $146.6
million, respectively.
At June 30, 2021, we had cash and cash equivalents of $36.8 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 Amended Gossamer License Agreement and Amendment No. 1.
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 2022.
In April 2021, we filed a shelf registration statement on Form S-3 with the SEC
which was declared effective by the SEC on April 15, 2021 (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.
In February 2018, we entered into a Controlled Equity Offering Sales Agreement
(the "Sales Agreement") with Cantor Fitzgerald & Co. ("Cantor"), pursuant to
which we were able to 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 that we sold under the Sales Agreement were conducted
pursuant to an earlier registration statement on Form S-3 that we filed with the
SEC in February 2018.
During the year ended December 31, 2020, 6,523,655 shares of common stock had
been sold under this Sales Agreement and received net proceeds of $9.3 million,
after deducting expenses of approximately $403,000 (including sales agent
compensation of approximately $292,000) that were direct and incremental to the
sale of our common stock. During the three and six months ended June 30, 2021,
no shares of common stock were sold under this Sales Agreement. Because the
earlier registration statement on Form S-3 expired on its three-year anniversary
of its effectiveness, we may not make future sales under the Sales Agreement.
On May 16, 2021, we entered into a Merger Agreement with Aadi and Merger Sub
pursuant to which, subject to the satisfaction or waiver of the conditions
therein, Aadi will merge with and into Merger Sub, with Aadi continuing as the
surviving company and a wholly-owned subsidiary of our Company. The Merger
Agreement was unanimously approved by the members of the Company's Board, and
the Board resolved to recommend approval of the Merger Agreement to the
Company's shareholders. Our future operations are highly dependent on the
success of the merger with Aadi.
25
--------------------------------------------------------------------------------
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 pandemic 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,
2021 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
Operating Activities
We have historically experienced negative cash outflows. Our net cash used in
operating activities primarily results from our net 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, 2021, operating activities used $5.9 million
in cash as result a net loss of approximately $8.8 million offset by $1.9
million in working capital and $1.0 million in non-cash expenses related to
stock-based compensation, loss on disposal of fixed assets and depreciation
expense. 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, due to the
one-time $15.0 million payment from Gossamer for Amendment No. 1, non-cash
expenses of $0.7 million related to stock-based compensation and depreciation
expense and working capital of $0.3 million.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2020 was
related to capital expenditures to support operations. There were no investing
activities during the six months ended June 30, 2021.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2021
includes $0.1 million net proceeds from issuance of common stock upon exercise
of stock options and warrants. There were no financing activities during the six
months ended June 30, 2020.
Contractual Obligations and Commitments
Other than as described herein with respect to the Merger Agreement with Aadi
and the related transactions, 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,
2020 as described in our Annual Report on Form 10-K filed with the SEC on March
11, 2021.
Off-Balance Sheet Arrangements
As of June 30, 2021 and December 31, 2020, we did not have any off-balance sheet
arrangements as defined by applicable SEC regulations.
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.
26
--------------------------------------------------------------------------------
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 11, 2021.
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.
© Edgar Online, source Glimpses
AERPIO PHARMACEUTICALS 