What changed in this filing

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Item 1. Financial Statements

2020-08-12 compared with 2020-05-07 · 157 added, 134 removed, 343 unchanged (46% of the section changed)

20 unchanged sentences

300,000,000 shares authorized and

40,588,004 shares issued and outstanding at March 31, 2020 and

40,588,004 shares issued and outstanding at June 30, 2020 and

December 31, 2019.

5 unchanged sentences

AERPIO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended March 31,

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended June 30,

Six Months Ended June 30,

License revenue

Operating expenses

1 unchanged sentence

General and administrative

Restructuring expense

Total operating expenses

Loss from operations

Income (loss) from operations

Interest income

Total other income

Net and comprehensive loss

Net and comprehensive loss per share

Net and comprehensive income (loss)

Net and comprehensive income (loss) per share

Basic and diluted

Weighted average number of common shares used

in computing net and comprehensive loss per share

in computing net and comprehensive income (loss)

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2020 (unaudited)

For the Three and Six Months Ended June 30, 2020 (unaudited)

Stockholders' Equity

Additional Paid-In

Balance at January 1, 2020

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Balance at March 31, 2020

For the Three Months Ended March 31, 2019 (unaudited)

Issuance of warrants

Stock-based compensation

Net and comprehensive

Balance at June 30, 2020

For the Three and Six Months Ended June 30, 2019 (unaudited)

Stockholders' Equity

Additional Paid-In

Balance at January 1, 2019

4 unchanged sentences

Balance at March 31, 2019

Stock-based compensation

Net and comprehensive loss

Balance at June 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

Net and comprehensive loss

Adjustments to reconcile net and comprehensive loss to net

cash used in operating activities:

Net and comprehensive income (loss)

Adjustments to reconcile net and comprehensive income (loss)

to net cash provided by (used in) operating activities:

Stock-based compensation

Consulting expenses related to warrants

Consulting expense related to warrants

Changes in operating assets and liabilities:

2 unchanged sentences

Accounts payable and other current liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities:

1 unchanged sentence

Net cash used in investing activities

Financing activities:

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents, three months ended

Cash and cash equivalents, six months ended

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Aerpio Pharmaceuticals, Inc.

(the “Company”) is a biopharmaceutical company focused on developing compounds that activate Tie2 to treat ocular diseases and diabetic complications.

(the “Company”) 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.

The Company was incorporated as Zeta Acquisition Corp.

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The Company’s pipeline includes the following programs:

Based on the preclinical proof of concept and the results of the Phase 1b trial showing a reduction in intraocular pressure (“IOP”) in patients with ocular hypertension (“OHT”) and open angle glaucoma (“OAG”), the Company is preparing to further advance the glaucoma program into a Phase 2 clinical trial and expects to initiate the trial in the third quarter of 2020 with results expected in the first quarter of 2021, subject to potential delays in subject enrollment and study completion due to the ongoing global outbreak of the novel coronavirus disease (“COVID-19”).

Based on the preclinical proof of concept and the results of the Phase 1b trial showing a reduction in intraocular pressure (“IOP”) in patients with ocular hypertension (“OHT”) and open angle glaucoma (“OAG”), the Company initiated a Phase 2 clinical trial in June 2020 designed to evaluate the safety and efficacy of a topical formulation of razuprotafib (AKB-9778) 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.

The Company expects 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.

Acute Respiratory Distress Syndrome (“ARDS”):

Based on results in preclinical studies and observations in patients in the TIME-2 and TIME-2b trials, the Company believes that a vascular endothelial receptor, Tie2, may play a pivotal role in the defense against microvascular breach in ARDS.

The Company hypothesizes that razuprotafib, the Company’s lead Tie2 activator, may have therapeutic potential for the treatment of COVID-19 associated ARDS.

In May 2020, the Company was selected by Quantum Leap Healthcare Collaborative to participate in the I-SPY COVID-19 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.

The Company expects 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.

Diabetic Kidney Disease:

In two consecutive trials, TIME-2 and TIME-2b, subcutaneous AKB-9778 showed reduction in Urine Albumin-Creatinine Ratio (“UACR”), a measure of progression of diabetic kidney disease.

The Company believes that systemic treatment with AKB-9778 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, the humanized monoclonal antibody directed at the same target as subcutaneous AKB-9778, is in preclinical development.

In two consecutive trials, TIME-2 and TIME-2b, subcutaneous razuprotafib (AKB-9778) showed reduction in Urine Albumin-Creatinine Ratio (“UACR”), a measure of progression of diabetic kidney disease.

The Company believes 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.

The humanized monoclonal antibody, ARP-1536, directed at the same target as subcutaneous razuprotafib (AKB-9778), is in preclinical development.

The Company is 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.

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The Company believes 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.

In June 2018, the Company licensed AKB-4924, a selective stabilizer of hypoxia-inducible factor-1 alpha (“HIF-1 alpha”) to a wholly-owned subsidiary of Gossamer Bio, Inc., GB004, Inc.

In June 2018, the Company licensed AKB-4924 (now GB004), a selective stabilizer of hypoxia-inducible factor-1 alpha (“HIF-1 alpha”) to a wholly-owned subsidiary of Gossamer Bio, Inc., GB004, Inc.

(collectively “Gossamer”), which 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 is expected to have results of the Phase 1b study in ulcerative colitis patients in the first half of 2020.

Gossamer completed the Phase 1b clinical study in ulcerative colitis patients and reported results during the second quarter of 2020.

Gossamer 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.

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 Agreement.

Gossamer is responsible for all remaining development and commercial activities for GB004.

The Company’s operations to date have been limited to organizing and staffing the Company, business planning, raising capital, acquiring and developing its technology, identifying potential product candidates and undertaking preclinical and clinical studies.

The Company’s revenue has been primarily limited to license revenue from Gossamer.

Future revenue is dependent on the terms of the license agreement with Gossamer as further described in Note 11.

The Company’s revenue has been primarily limited to license revenue from Gossamer described in Note 11.

The Company’s product candidates are subject to long development cycles and there is no assurance the Company will be able to successfully develop, obtain regulatory approval for, or market its product candidates.

The Company is subject to a number of risks similar to other life science companies in the current stage of its life cycle including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved, and protection of proprietary technology.

If the Company does not successfully commercialize any of its products or mitigate any of these other risks, it will be unable to generate revenue or achieve profitability.

The Company incurred losses from operations and had a negative cash flows from operating activities for the three months ended March 31, 2020 and 2019 (and since inception).

The Company is subject to a number of risks similar to other life science companies in the current stage of its life cycle including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testin g or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of any of the Company’s pipeline products that a re approved, and protection of proprietary technology.

If the Company does not successfully commercialize any of its pipeline products or mitigate any of these other risks, it will be unable to generate revenue or achieve profitability.

Excluding the one-time payments from Gossamer, the Company incurred losses from operations and had negative cash flows from operating activities for the six months ended June 30, 2020 and 2019 (and since inception).

The Company’s current operating plan indicates that it will continue to incur losses from operations and generate negative cash flows from operating activities given ongoing expenditures related to the completion of its ongoing clinical trials and the Company’s lack of product revenue generating activities.

However, the Company believes it has the ability to control its current operating plan and that existing cash and cash equivalents of approximately $34.6 million at March 31, 2020 will be sufficient to allow the Company to fund its current operating plan through at least the second quarter of 2021.

However, the Company believes it has the ability to control its current operating plan and that existing cash and cash equivalents of approximately $44.9 million at June 30, 2020 will be sufficient to allow the Company to fund its current operating plan through at least the fourth quarter of 2021.

There can be no assurance, however, that the current operating plan will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all.

The Company will need to raise additional funds in order to further advance its clinical research programs, commence additional clinical trials, and operate its business and meet its obligations as they come due.

The Company is pursuing financing alternatives, which include permanent equity financing, business development

arrangements, and licensing arrangements.

The Company is pursuing financing alternatives, which include permanent equity financing, business development arrangements, and licensing arrangements.

However, financing may not be available to the Company in the necessary time frame, in amounts that the Company requires, on terms that are acceptable to the Company, or at all.

If the Company raises addi tional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies or grant licenses on terms that are not favorable to the Company.

If the Co mpany is unable to raise the necessary funds when needed or reduce spending on currently planned activities, it may not be able to continue the development of its product candidates or the Company could be required to delay, scale back, or eliminate some o r all of its development programs and other operations and will materially harm its business, financial position and results of operations.

COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus and while the Company cannot predict their scope and severity, these developments and measures could materially and adversely affect its business, including its planned Phase 2 clinical trial for the glaucoma program, results of operations and financial condition.

In addition, in response to the spread of COVID-19, the Company has closed its executive offices with its employees continuing their work outside of the offices.

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and is taking steps to minimize the impact on its business.

However, the extent to which COVID-19 impacts the Company’s business, results of operations or financial condition will depend on future developments, which are 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 taken to contain the pandemic or treat its impact, among others.

Furthermore, if the Company or any of the third parties with whom it engages, however, were to experience shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on the Company’s business, results of operation and financial condition.

If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies or grant licenses on terms that are not favorable to the Company.

If the Company is unable to raise the necessary funds when needed or reduce spending on currently planned activities, it may not be able to continue the development of its product candidates or the Company could be required to delay, scale back, or eliminate some or all of its development programs and other operations and will materially harm its business, financial position and results of operations.

COVID-19 has resulted, and will likely continue to result, in significant governmental measures being implemented to control the spread of the virus through quarantines, travel restrictions, heightened border security and other measures.

While the Company cannot predict the scope and severity, these developments and measures could materially and adversely affect its business, including its planned Phase 2 clinical trials for the glaucoma and ARDS programs, results of operations and financial condition.

In addition, in response to the continuing spread of COVID-19, the Company has kept its executive offices closed with its employees continuing their work outside of the office.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business and is taking steps to minimize the impact on its business.

However, the extent to which COVID-19 ultimately impacts the Company’s business, results of operations or financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 and the effectiveness of actions taken to contain the pandemic or treat its impact, among others.

While states and jurisdictions have started to rollback stay-at-home and quarantine orders, it is difficult to predict what the lasting impact of the pandemic will be, and if the Company or any of the third parties with whom it engages were to experience additional shutdowns or other prolonged business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could have a material adverse impact on the Company’s business, results of operation and financial condition.

Summary of Significant Accounting Policies

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prepaid and accrued research and development expense, stock-based compensation expense, revenue recognition and income taxes.

The Company’s results can also be affected by economic conditions, global health concerns, such as the COVID-19 pandemic, and political, legislative, regulatory and legal actions.

The Company’s results can also be affected by economic conditions, global health concerns, such as COVID-19, and political, legislative, regulatory and legal actions.

Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, and changes in the prices of research studies, can have a significant effect on operations.

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Cash and cash equivalents consist of all cash on hand and $100,000 invested in short-term certificates of deposits with original maturities of three months or less at the time of purchase.

At March 31, 2020 and December 31, 2019, the Company’s cash equivalents are primarily in money market funds.

At June 30, 2020 and December 31, 2019, the Company’s cash equivalents are primarily in money market funds.

The Company maintains balances with its banks in excess of federally insured limits.

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Promised goods or services are considered to be separate performance obligations if they are distinct.

In order to determine the transaction price to be allocated to each performance obligation, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract.

In order to determine the transaction price to be allocated to each performance oblig ation, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the c ontract.

The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract.

When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue.

In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue.

When determining if variable conside ration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue.

In making these assessments, the Company considers the likelihood and magnitude of a potentia l reversal of revenue.

These estimates are re-assessed each reporting period as required.

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The Company does not include a financing component to its estimated transaction price at contract inception unless it estimates that certain performance obligations will not be satisfied within one year.

Upfront License Fees:

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement.

The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.

License Fees:

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront (or one-time) license fees based on the relative value prescribed to the license compared to the total value of the arrangement.

The revenue is recognized when the cash is received or when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.

For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.

If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, license fees.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

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The Company records a corresponding contract asset when this conclusion is reached.

Milestone payments tha t have not been included in the transaction price to date are fully constrained.

These milestones remain fully constrained until the Company concludes that achievement of the milestone is probable and recognition of revenue related to the milestone will no t result in a significant reversal in amounts recognized in future periods.

Milestone payments that have not been included in the transaction price to date are fully constrained.

These milestones remain fully constrained until the Company concludes that achievement of the milestone is probable and recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods.

The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period.

The Company adjusts its estimate of the ove rall transaction price, including the amount of collaborative revenue that it has recorded, if necessary.

The Company adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that it has recorded, if necessary.

Sales-based Milestone and Royalty Payments:

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Research and development expense consists 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 and consultants, (iii) the cost of acquiring, developing and manufacturing clinical study materials, and (iv) costs associated with clinical, preclinical and regulatory activities.

The Company enters into consulting, research and other agreements with commercial firms, researchers, universities and others for the provision of goods and services.

The Company enters into consulting, research and other agreements with commercial firms, researchers, universities and others for the provision of go ods and services.

Under such agreements, the Company may pay for services on a monthly, quarterly, project, or other basis.

Such arrangements are generally cancellable upon reasonable notice and payment of costs incurred.

Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors.

Costs are considered incurred base d on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors.

These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company.

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The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances.

As of March 31, 2020 and December 31, 2019, the Company does not have any uncertain tax positions.

As of June 30, 2020 and December 31, 2019, the Company does not have any uncertain tax positions.

The Company recognizes interest and penalties related to uncertain tax positions, if any exist, in income tax expense.

Net a nd Comprehensive Loss per Share Attributable to Common Stockholders

The Company’s basic net and comprehensive loss per share attributable to common stockholders is calculated by dividing the net and comprehensive loss by the weighted average number of shares of common stock outstanding for the period.

The diluted net and comprehensive loss per share attributable to common stockholders is computed by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method.

Net and Comprehensive Income (Loss) per Share Attributable to Common Stockholders

The Company’s basic net and comprehensive income (loss) per share attributable to common stockholders is calculated by dividing the net and comprehensive income (loss) by the weighted average number of shares of common stock outstanding for the period.

The diluted net and comprehensive income (loss) per share attributable to common stockholders is computed by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method.

Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”).

ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statements of operations and comprehensive loss based on their fair values.

All the Company’s stock-based awards are subject only to service-based vesting conditions.

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Level 3 – Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable

To the extent that a valuation is ba sed on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categ orized in Level 3.

To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

There were no transfers within the fair value hierarchy during the three months e nded March 31, 2020 or 2019 .

The assets of the Company measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 , are summarized below:

There were no transfers within the fair value hierarchy during the six months ended June 30, 2020 or 2019.

The assets of the Company measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, are summarized below:

Fair Value Measurements Using

March 31, 2020

June 30, 2020

Cash and cash equivalents

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Cash and cash equivalents are the only financial instruments that potentially subject the Company to concentrations of credit risk.

At March 31, 2020 and December 31, 2019, the Company maintains its cash and cash equivalents with high-quality, accredited financial institutions and, accordingly, such funds are subject to minimal credit risk.

At June 30, 2020 and December 31, 2019, the Company maintains its cash and cash equivalents with high-quality, accredited financial institutions and, accordingly, such funds are subject to minimal credit risk.

The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, if any.

Comprehensive loss equaled net loss for all periods presented.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, if any.

Comprehensive income (loss) equaled net income (loss) for all periods presented.

Furniture and Equipment

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The Company adopted ASU 2018-07 as of January 1, 2019 and recorded a one-time cumulative adjustment of $5,717 upon adoption.

No other new accounting pronounc ement recently issued or newly effective had or is expected to have a material impact on the Company’s condensed consolidated financial statements.

No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the Company’s condensed consolidated financial statements.

Accounts Payable and Accrued Expenses

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Accrued retention bonus

Restructuring accrual (see Note 12)

Accounts payable

Professional fees

Accrued project costs

Professional fees

Accrued bonus

Restructuring accrual (see Note 12)

Accrued vacation

Total accounts payable and accrued expenses

As of March 31, 2020 and December 31, 2019, the Company had 300,000,000 shares of authorized common stock with par value of $0.0001 per share.

As of June 30, 2020 and December 31, 2019, the Company had 300,000,000 shares of authorized common stock with par value of $0.0001 per share.

The common stock has the following characteristics:

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Warrants to Purchase Common Stock

At March 31, 2020 and December 31, 2019, the Company had warrants outstanding for the purchase of 600,000 and 917,562 shares, respectively, of the Company’s common stock.

At June 30, 2020 and December 31, 2019, the Company had warrants outstanding for the purchase of 600,000 and 917,562 shares, respectively, of the Company’s common stock.

In October 2019, the Company issued warrants for the purchase of 600,000 shares of the Company’s common stock at an exercise price of $0.486 per share in connection with the hiring of a strategic advisor consultant for a six-month period.

These warrants vested in equal monthly installments over a six-month period beginning October 14, 2019 and expire on October 24, 2024.

At the date of grant the fair value of these awards was determined using a Black-Scholes Merton pricing model.

At the date of grant the fair value of these awards were determined using a Black-Scholes Merton pricing model.

Included at December 31,2019, are warrants for the purchase of 317,562 shares of the Company’s common stock at an exercise price of $5.00 per share that were issued in connection with the 2017 Offering and have a three-year term.

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Preferred Stock

As of March 31, 2020 and December 31, 2019, the Company had 10,000,000 shares of preferred stock, par value $0.0001 per share, in authorized capital.

No preferred stock was issued and outstanding at March 31, 2020 and December 31, 2019.

As of June 30, 2020 and December 31, 2019, the Company had 10,000,000 shares of preferred stock, par value $0.0001 per share, in authorized capital.

No preferred stock was issued and outstanding at June 30, 2020 and December 31, 2019.

Stock-Based Compensation

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The fair value of the options at the date of grant is recognized as an expense over the requisite service period.

During the three months ended March 31, 2020 and 2019, option awards to purchase an aggregate of 702,000 and 1,820,828 shares of common stock were granted, respectively.

As of March 31, 2020 and December 31, 2019, 3,556,670 and 1,983,093 shares were reserved for issuance under the 2017 Plan, respectively.

The following table summarizes the stock option activity during the three months ended March 31, 2020:

During the three months ended June 30, 2020 and 2019, option awards to purchase an aggregate of 260,720 and 2,801,600 shares of common stock were granted, respectively, and option awards to purchase an aggregate of 962,720 and 4,622,428 shares of common stock were granted in the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, 3,570,705 and 1,983,093 shares were reserved for issuance under the 2017 Plan, respectively.

The following table summarizes the stock option activity during the six months ended June 30, 2020 :

Weighted Average

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Expired/cancelled

Outstanding, March 31, 2020

Expected to vest, March 31, 2020

Options exercisable, March 31, 2020

Outstanding, June 30, 2020

Expected to vest, June 30, 2020

Options exercisable, June 30, 2020

Aggregate intrinsic value represents the estimated fair value of the Company’s common stock at in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable.

As of March 31, 2020, there was $2,201,201 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.28 years.

As of June 30, 2020, there was $2,108,948 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.98 years.

Compensation Expense Summary

The Company recognized the following compensation cost related to employee and non-employee stock-based compensation activity for the periods presented:

Three Months Ended March 31,

The Company recognized the following compensation cost related to stock-based compensation activity for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

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Option pricing and models require the input of various assumptions, including the option’s expected life, expected dividend yield, price volatility and risk-free interest rate of the underlying stock.

Accordingly, the weighted-average fair value of the options granted during the three months ended March 31, 2020 was $ 0.3 1 per share .

Accordingly, the weighted-average fair value of the options granted during the three and six months ended June 30, 2020 was $0.76 and $0.43 per share, respectively.

The calculation was based on the following assumptions.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Expected term (years)

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Expected dividend yield

The Company did not record a current or deferred income tax expense or benefit for the three months ended March 31, 2020 and 2019, due to the Company’s net and comprehensive losses and increases in its deferred tax asset valuation allowance.

Net and Comprehensive Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the Company’s basic and diluted net and comprehensive loss per share attributable to common stockholders for the periods presented:

Three Months Ended March 31,

Net and comprehensive loss attributable to common

The Company did not record a current or deferred income tax expense or benefit for the three and six months ended June 30, 2020 and 2019, due to the Company’s net and comprehensive income (loss) and increases in its deferred tax asset valuation allowance.

Net and Comprehensive Income ( Loss ) per Share Attributable to Common Stockholders

The following table sets forth the computation of the Company’s basic and diluted net and comprehensive income (loss) per share (“EPS”) attributable to common stockholders for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Net and comprehensive income (loss) per share

Weighted average common shares used in

computing net and comprehensive loss per share

attributable to common stockholder, basic and diluted

Net and comprehensive loss per share attributable to

common stockholder, basic and diluted

computing EPS

Basic and diluted EPS

Holders of non-vested stock-based compensation awards do not have voting rights.

The following weighted average common stock equivalents were excluded from the calculation of basic and diluted net and comprehensive loss per share attributable to common stockholders for the periods presented because including them would have had an anti-dilutive effect:

Three Months Ended March 31,

The following weighted average common stock equivalents were excluded from the calculation of basic and diluted net and comprehensive income (loss) per share for the periods presented because including them would have had an anti-dilutive effect:

Six Months Ended June 30,

Options to purchase common stock

Warrants to purchase common stock

At March 31, 2020, the Company is a party to one property lease in Cincinnati, Ohio under an arrangement which provides the right to use the underlying asset and require lease payments for the lease term.

At June 30, 2020, the Company is a party to one property lease in Cincinnati, Ohio under an arrangement which provides the right to use the underlying asset and require lease payments for the lease term.

During the fourth quarter of 2019, the Company terminated its leases in Lexington, Massachusetts and Dexter, Michigan;

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The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is an operating lease at inception.

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet.

All other leases are recorded on the balance sheet with a corresponding operating lease asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease.

Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised.

The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement da te.

The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date.

Lease agreements with lease and non-lease components are generally accounted for as a single lease component.

The Company’s operating lease expense is recognized on a straight-line basis over the lease term and are recorded in general and administrativ e expenses on the condensed consolidated statements of operations and comprehensive loss.

The Company’s operating lease expense is recognized on a straight-line basis over the lease term and are recorded in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).

The following table presents the lease cost and information related to the right-of-use assets and operating lease liabilities:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Average rent expense

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The weighted average remaining lease term

and discount rate at March 31, 2020 and 2019

Weighted-average remaining lease term -

operating leases

Weighted-average discount rate - operating

As of March 31, 2020, future payments related to operating leases activities are presented in the table below:

and discount rate at June 30, 2020

Weighted-average remaining lease

term - operating leases

Weighted-average discount rate - operating leases

As of June 30, 2020, future payments related to operating leases activities are presented in the table below:

Operating leases

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In March 2020, the Company’s Board of Directors approved an increase of 350,000 shares to the ESPP, which increase was effective as of January 1, 2020.

No shares under the ESPP are outstanding at March 31, 2020 and December 31, 2019.

No shares under the ESPP are outstanding at June 30, 2020 and December 31, 2019.

License Agreement

On June 24, 2018, the Company entered into a license agreement (the “Gossamer License Agreement”) with a wholly-owned subsidiary of Gossamer Bio, Inc., GB004, Inc., (collectively, “Gossamer”), under which the Company granted Gossamer an exclusive, sublicensable license to develop and commercialize AKB-4924 and other structurally related products worldwide, with initial development expected in the indications of induction and maintenance in ulcerative colitis and Crohn’s Disease (collectively “initial indications”).

On June 24, 2018, the Company entered into a license agreement (the “Gossamer License Agreement”) with Gossamer, under which the Company granted Gossamer an exclusive, sublicensable license to develop and commercialize AKB-4924 and other structurally related products worldwide, with initial development expected in the indications of induction and maintenance in ulcerative colitis and Crohn’s Disease (collectively “initial indications”).

Prior to the execution of the Gossamer License Agreement, AKB-4924 was a pipeline program for the Company that completed a Phase 1a clinical trial in healthy volunteers.

On May 12, 2020, the Company entered into Amendment No.

1 to the Gossamer License Agreement (“Amendment 1”).

Pursuant to Amendment 1, Gossamer made a payment to the Company of $15.0 million on May 12, 2020.

For the three and six months ended June 30, 2020, the Company recognized revenue of $15.0 million based on the terms of Amendment 1.

Gossamer is responsible for the development and commercialization of the licensed products, and a joint development committee has been formed to oversee the development and manufacturing activities related to the licensed products.

Under the terms of the Gossamer License Agreement, Gossamer is obligated to use its commercially reasonable efforts to develop and commercialize licensed products in the United States, two major European countries and Japan for at least one of the initial indications.

Gossamer License Agreement includes an exclusivity provision that prohibits the Company from developing, manufacturing or commercializing, and prohibits Gossamer from clinically developing or commercializing certain HIF stabilizing co mpounds other than as permitted in the Gossamer License Agreement.

Pursuant to the terms of the Gossamer License Agreement, Gossamer made an upfront payment to the Company of $20.0 million on June 28, 2018.

The Company is also eligible to receive development, commercial and sales milestone payments, with such payments contingent on the achievement of specified milestones with respect to the first licensed product for each of the first two initial indications.

The Company is also eligible to receive tiered royalties on sales of licensed products at percentages ranging from a high-single-digit to mid-teens, subject to certain customary reductions.

In addition, under certain circumstances, in lieu of receiving the foregoing milestone payments and royalties, the Company may elect to receive a specified percentage of payments received by Gossamer and its stockholders (with some exclusions) in connection with Gossamer’s grant of a sublicense or other rights to the licensed products or if Gossamer undergoes a change of control and the value of the transaction exceeds a certain value (provided that Gossamer can prevent the Company from exercising this option if the parent company of Gossamer is the entity undergoing the change of control).

Conversely, the Company could be required to accept such a specified percentage of those payments if Gossamer agrees to pay the Company a certain minimum upon Gossamer and its stockholders being paid.

Such amount may be reduced if the subject transaction includes pharmaceutical candidates or products or other named asset categories in addition to the licensed products.

The Gossamer License Agreement expires on a licensed-product-by-licensed-product and country-by-country basis on the later of fifteen years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product in such country.

Either party may terminate the Gossamer License Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party.

Gossamer may terminate the Gossamer License Agreement in the event Gossamer determines there is a potential safety or efficacy issue with the licensed products.

The Company may terminate the Gossamer License Agreement if Gossamer institutes certain actions related to the licensed patents.

Under the terms of the Gossamer License Agreement and as amended by Amendment 1 (the “Gossamer Agreement”), Gossamer is obligated to use its commercially reasonable efforts to develop and commercialize licensed products in the United States, two major European countries and Japan for at least one of the initial indications.

The Gossamer Agreement includes an exclusivity provision that prohibits the Company from developing, manufacturing or commercializing, and prohibits Gossamer from clinically developing or commercializing certain HIF stabilizing compounds other than as permitted in the Gossamer Agreement.

U nder the terms of the Gossamer Agreement , t he Company is eligible to receive up to $40.0 million in approval milestone payments related to indications in ulcerative colitis and Crohn’s disease, and up to $50.0 million in sales milestone payments .

The Compa ny is also eligible to receive the tiered royalties on sales of licensed products from percentages ranging from a low-single-digit to mid-single-digit , subject to certain customary reductions.

In addition, under certain circumstances, in lieu of receiving the foregoing milestone payments and royalties, the Company may elect to receive 20% of payments received by Gossamer and its stockholders (with some exclusions) in connection with Gossamer’s grant of a sublicense or other rights to the licensed products or if Gossamer undergoes a change of control and the value of the transaction exceeds a certain value (provided that Gossamer can prevent the Company from exercising this option if the parent company of Gossamer is the entity undergoing the change of control, in which case each of the royalty rate percentages described above would automatically be increased by low single digits).

Conversely, the Company could be required to accept such 20% of those payments if Gossamer agrees to pay the Company a certain minimum upon Gossamer and its stockholders being paid.

Such amount may be reduced if the transaction includes pharmaceutical candidates or products or other named asset categories in addition to the licensed products.

The Gossamer Agreement expires on a licensed-product-by-licensed-product and country-by-country basis on the later of fifteen years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product in such country.

Either party may terminate the Gossamer Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party.

Gossamer may terminate the Gossamer Agreement in the event Gossamer determines there is a potential safety or efficacy issue with the licensed products.

The Company may terminate the Gossamer Agreement if Gossamer institutes certain actions related to the licensed patents.

Under certain termination circumstances, the Company would have worldwide rights to the terminated program.

As of March 31, 2020 and 2019, all development milestones, sales-based milestones and royalty payments within the Gossamer License Agreement are constrained to the point where no transaction price has been allocated to the future milestones or royalty payments.

As of June 30, 2020 and 2019, all development milestones, sales-based milestones and royalty payments within the Gossamer License Agreements are constrained to the point where no transaction price has been allocated to the future milestones or royalty payments.

Restructuring

In April 2019, the Company executed a realignment plan to reduce operating costs and better align its workforce with the needs of its ongoing business and in October 2019, the Company’s Chief Executive Officer and Chief Financial Officer departed from their positions.

As a result, the Company recorded employee severance expense of $1.9 million during the year ended December 31, 2019.

Total cash payments against the severance liability was approximately $0.3 million in the three months ended March 31, 2020.

The remaining liability as of March 31, 2020 was approximately $0.5 million and is included in accounts payable and accrued expenses in the condensed consolidated balance sheet.

As a result, the Company recorded employee severance expense of $0.9 million during the three and six months ended June 30, 2019 and an additional $1.0 million in the three months ended December 31, 2019.

The severance liability as of December 31, 2019 was approximately $0.8 million and was included in accounts payable and accrued expenses in the condensed consolidated balance sheet.

Total cash payments against the severance liability was approximately $0.3 million and $0.6 million in the three and six months ended June 30, 2020, respectively.

The remaining liability as of June 30, 2020, was approximately $0.3 million and is included in accounts payable and accrued expenses in the condensed consolidated balance sheet.

These amounts are expected to be substantially paid in cash by October 31, 2020.

Subsequent Event

In February 2018, the Company filed a shelf registration statement on Form S-3 with the SEC which was declared effective by the SEC on April 11, 2018 (the “Form S-3”).

On February 21, 2018, and pursuant to the Form S-3, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.

(“Cantor”), pursuant to which it may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $75.0 million through Cantor as the sales agent.

Cantor may sell the Company’s 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 the Company’s 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.

On August 5, 2020, 1,480,000 shares of the Company’s common stock were sold under the Sales Agreement, pursuant to the Form S-3, the related prospectus, and the prospectus supplement.

The net proceeds received from this transaction were $2.3 million, after deducting expenses of approximately $186,000 (including sales agent compensation of approximately $75,000) related to the sale of the Company’s common stock.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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developments relating to our competitors and our industry, including the impact of government regulation;

the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole;

the ultimate impact of the current coronavirus pandemic (“COVID-19”), or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole;

other risks and uncertainties, including those listed under the caption “Risk Factors.”

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements