What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-17 compared with 2020-11-10 · 207 added, 235 removed, 292 unchanged (60% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

10 unchanged sentences

Total current liabilities

Operating lease liability, net of current portion

Total liabilities

Commitments and contingencies (Note 9)

Commitments and contingencies

Stockholders’ equity:

Common stock, $0.0001 par value per share;

300,000,000 shares authorized and 47,111,659 and 40,588,004 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively.

300,000,000 shares

authorized and 47,371,482 and 47,251,319 shares issued and

outstanding at March 31, 2021 and December 31, 2020, respectively.

Additional paid-in capital

4 unchanged sentences

AERPIO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

Three Months Ended September 30,

Nine Months Ended September 30,

License revenue

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended March 31,

Operating expenses

1 unchanged sentence

General and administrative

Restructuring (benefit) expense

Restructuring expense

Total operating expenses

2 unchanged sentences

Total other income

Net and comprehensive (loss) income

Net and comprehensive (loss) income per share

Net and comprehensive loss

Net and comprehensive loss per share

Basic and diluted

Weighted average number of common shares used

in computing net and comprehensive (loss) income

per share basic and diluted

Weighted average number of common shares used in

computing net loss per share attributable to common

stockholders, basic and diluted

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 and Nine Months Ended September 30, 2020 (unaudited)

For the Three Months Ended March 31, 2021 (unaudited)

Stockholders' Equity

Additional Paid-In

Balance at January 1, 2021

Issuance of warrants

Stock-based compensation expense

Issuance of common stock upon

exercise of stock options

Issuance of common stock

Stock-based compensation

Net and comprehensive loss

Balance at March 31, 2021

Issuance of warrants

Stock-based compensation expense

Net and comprehensive income

Balance at June 30, 2020

Issuance of common stock, net of issuance costs

Stock-based compensation expense

Net and comprehensive loss

Balance at September 30, 2020

For the Three and Nine Months Ended September 30, 2019 (unaudited)

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

Stockholders' Equity

Additional Paid-In

Balance at January 1, 2020

Cumulative effect of change in accounting principle

Stock-based compensation expense

Issuance of warrants

Stock-based compensation

Net and comprehensive loss

Balance at March 31, 2020

Stock-based compensation expense

Net and comprehensive loss

Balance at June 30, 2019

Stock-based compensation expense

Net and comprehensive loss

Balance at September 30, 2019

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

Net and comprehensive income (loss)

Adjustments to reconcile net and comprehensive income (loss)

to net cash used in operating activities:

Net and comprehensive loss

Adjustments to reconcile net and comprehensive loss to net

cash used in operating activities:

Stock-based compensation

Consulting expense related to warrants

Consulting expenses related to warrants

Changes in operating assets and liabilities:

1 unchanged sentence

Other current assets

Accounts payable and other current liabilities

Accounts payable and accrued expenses

Net cash used in operating activities

Investing activities:

Purchase of furniture and equipment

Net cash used in investing activities

Financing activities:

Proceeds from issuance of common stock

Cash paid in connection with the sale of common stock

Proceeds from issuance of common stock upon exercise of stock options

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents, nine months ended

Cash and cash equivalents, three months ended

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

2 unchanged sentences

Aerpio Pharmaceuticals, Inc.

(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 a novel strain of coronavirus (“COVID-19”) infections.

(the “Company”) is a biopharmaceutical company focused on developing compounds that activate Tie2 as well as other indications in which the Company believes that activation of Tie2 may have therapeutic potential.

The Company was incorporated as Zeta Acquisition Corp.

1 unchanged sentence

Zeta was a “shell company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended).

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 initiated a Phase 2 clinical trial in June 2020 designed to evaluate the safety and efficacy of a topical formulation of razuprotafib (also known as 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 report topline results from this study in December or possibly in early January 2021 to coincide with seasonal healthcare industry conferences, subject to potential delays in study completion, including due to delays arising from the ongoing COVID-19 pandemic.

In December 2020, the Company announced the topline results from the Phase 2 clinical trial of razuprotafib (formerly known as AKB-9778), a small molecule v ascular 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, the Company 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, the Company is 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.

and Duane Nash, M.D., J.D., M.B.A, have been retained with respect to the strategic review process.

There can be no assurance that this exploration of strategic alternatives will result in the Company entering or completing any transaction.

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 the Company’s workforce by seven employees, representing approximately 58% of its workforce.

As a result of this realignment plan, the Company incurred a one-time employee related severance expenses of approximately $1.2 million in the first quarter of 2021 and anticipates 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, the Company 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.

In addition to glaucoma, the Company has the following clinical programs:

Acute Respiratory Distress Syndrome:

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 and initiated two Phase 2 trials during 2020.

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 subcutaneous razuprotafib for the treatment of COVID-19 related ARDS in adult patients with critical COVID-19.

Trial updates are 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.

In August 2020, the Company initiated a second Phase 2 clinical trial (“RESCUE”) for the treatment of COVID-19 with the U.S.

Government operating through Medical Technology Enterprise Consortium (“MTEC”).

This RESCUE trial will evaluate subcutaneous razuprotafib for the prevention and treatment of ARDS in adult patients with moderate to severe COVID-19 as part of MTEC-20-09-COVID-19 Treatment Military Infectious Disease Research Program (“MIDRP”) “Development of Treatments for COVID-19”.

MTEC will provide up to $5.1 million of reimbursement related to qualified internal and external spending of the Company, as it relates to the clinical trial.

Total anticipated spend of the RESCUE clinical trial is $7.9 million.

Aerpio will support the trial with “in kind” spending in the amount of $2.8 million .

The Company expects to conduct the trial at approximately 10 clinical sites and expects the trial to be completed 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.

Based on results in preclinical studies and observations in patients in TIME-2 and TIME-2b trials, the Company 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, the Company 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, t he 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.

There were no apparent safety signals associated with dosing COVID-19 patients in either trial and the Company plans to further analyze the data to assess trends in efficacy and biomarkers.

The Company expects to report topline data from the RESCUE trial during the second quarter of 2021.

All clinical activity related to the RESCUE trial will be completed during the second quarter of 2021.

Diabetic Kidney Disease:

1 unchanged sentence

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, is in preclinical development.

ARP-1536 and Bi-Specific Antibody:

ARP-1536, the humanized monoclonal antibody directed at the same target as subcutaneous razuprotafib, 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.

The Company is also developing a bispecific antibody that binds both v ascular endothelial growth factor (“VEGF”) and v ascular endothelial protein tyrosine phosphatase (“VE-PTP”) which is designed to inhibit VEGF activation and activate Tie2.

The Company is also developing a bispecific antibody that binds both v ascular endothelial growth factor (“VEGF”) and VE-PTP which is designed to inhibit VEGF activation and activate Tie2.

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.

3 unchanged sentences

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 plans to initiate a 12-week Phase 2 study of GB004 in patients with mild-to-moderate UC in 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 p ayments and tiered royalty rates over the life of the license a greement .

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.

In February 2018, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“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.

During the three months ended September 30, 2020, 6,523,655 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 $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 the Company’s common stock.

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 described in Note 11.

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 10.

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 pipeline products that are 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 nine months ended September 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 $47.3 million at September 30, 2020, will be sufficient to allow the Company to fund its current operating plan through the fourth quarter of 2022.

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.

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 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.

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, 2021 and 2020 (and since inception).

As of March 31, 2021, the Company’s cash and cash equivalents were approximately $39.0 million.

The Company expects the RESCUE trial to be completed during the second quarter of 2021.

Based on its current operating plan, and absent any future financings or strategic partnerships, the Company believes its existing cash and cash equivalents will be sufficient to fund its current operating plan through the fourth quarter of 2022 .

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.

While the Company cannot predict the scope and severity, these developments and measures could materially and adversely affect its business and its 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 COVID-19 pandemic, new information that may emerge concerning the severity of COVID-19 and the effectiveness of actions taken to contain the COVID-19 pandemic or treat its impact, among others.

While some states and jurisdictions have started to rollback stay-at-home and quarantine orders and reopened in phases, it is difficult

to predict what the lasting impact of the COVID-19 pandemic will be, and if the Company or any of the third parties with whom it engage s 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.

In addition, a recurrence of COVID-19 cases could cause ot her widespread or more severe impacts depending on where infection rates are highest.

The Company will continue to monitor developments as it deal s with the disruptions and uncertainties relating to the COVID-19 pandemic.

Although states have quarantines and similar restrictions in place, the regulations vary on a state by state basis and the effectiveness of these restrictions and mass vaccination campaigns on slowing the spread of COVID-19 varies, making it difficult to predict what the lasting impact of the COVID-19 pandemic will be.

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.

In addition, a recurrence of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest.

The Company will continue to monitor developments as it deals with the disruptions and uncertainties relating to the COVID-19 pandemic.

Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with SEC regulations and include all of the information and disclosures required by U.S.

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

Securities and Exchange Commission (“SEC”) regulations and include all of the information and disclosures required by U.S.

generally accepted accounting principles (“U.S.

16 unchanged sentences

Management must apply significant judgment in this process.

In addition, other factors may affect estimates, including:

expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends.

In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends.

The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates.

1 unchanged sentence

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 COVID-19, and political, legislative, regulatory and legal actions.

The Company’s results can also be affected by economic conditions, global health concerns, such as the 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.

1 unchanged sentence

Cash and Cash Equivalents

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

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

At March 31, 2021 and December 31, 2020, the Company’s cash equivalents are primarily held in money market funds.

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

2 unchanged sentences

The Company recognizes revenue when its customer obtains control of promised goods or services in a contract for an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.

For contracts with customers, the Company applies the following five-step

model in order to determine this amount:

For contracts with customers, the Company applies the following five-step model in order to determine this amount:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the tra nsaction price, including the constraint on variable consideration;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company only app lies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

As part of the accounting for contracts with customers, the Compa ny must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract.

The Company then allocates the total transaction price to each performance obligation based on the estima ted standalone selling prices of each performance obligation.

The Company recognizes the amount of the transaction price as revenue that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfie d.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

As part of the accounting for contracts with customers, the Company must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract.

The Company then allocates the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation.

The Company recognizes the amount of the transaction price as revenue that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied.

The Company enters into collaboration arrangements, under which it licenses certain rights to its intellectual property to third parties.

2 unchanged sentences

development, sale and commercial milestone payments and royalties on net sales of licensed products.

Each of these types of payments are classified as license revenue except for revenue from royalties on net sales of licensed products, which are classified as royalty revenue.

Each of these types of payments are classified as license revenue except for revenue from royalties on net sales of licensed products, which are classified as royalty revenue, if received.

For each collaboration agreement that results in revenues, the Company identifies all material promised goods and services, which may include a license to intellectual property, research and development activities and/or transition activities.

2 unchanged sentences

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.

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.

9 unchanged sentences

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.

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.

Upfront License and Amendment 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 and amendment 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.

13 unchanged sentences

The Company’s collaborators may be required to pay the Company sales-based milestone payments or royalties on future sales of commercial products.

The Company recognizes revenues related to sales-based milestone and royalty payments upon the later to occu r of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to the Company’s intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

The Company recognizes revenues related to sales-based milestone and royalty payments upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the license to the Company’s intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

Other income represents reimbursed internal and external qualified expenses, 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 first quarter of 2021, $1.2 million was recorded as other income during the three months ended March 31, 2021.

Other income is recorded, and costs are generally reimbursed, in the period the internal or external qualified clinical trial expenses are incurred, and paid, by the Company.

Grant income is recognized as earned based on contract work performed.

Other income represents reimbursed internal and external qualified expenses, per the terms of the MTEC arrangement, related to the ARDS clinical trial.

Other income is recorded, and generally received, in the period the internal or external qualified clinical trial expenses are incurred, and paid, by the Company.

Research and Development

Research and development costs are expensed as incurred.

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.

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.

5 unchanged sentences

Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (“ASC 740”) which provides for deferred taxes using an asset and liability approach.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns.

Deferred tax assets and liabilities are determined based on the difference between the condensed consolidated financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the year in which the differences are expected to reverse.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.

Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the year in which the differences are expected to reverse.

Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized .

2 unchanged sentences

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

As of March 31, 2021 and December 31, 2020, 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 and Comprehensive (Loss) Income per Share Attributable to Common Stockholders

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

The diluted net and comprehensive (loss) income 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 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.

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) income based on their fair values.

ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the 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.

The Company estimates the fair value of its stock-based awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends.

Due to the historical lack of public market for trading of the Company’s common stock and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

Due to the historical lack of a public market for the trading of the Company’s common stock and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus.

18 unchanged sentences

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 nine months ended September 30, 2020 or 2019 .

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

There were no transfers within the fair value hierarchy during the three months ended March 31, 2021 or 2020.

The assets of the Company measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, are summarized below:

Fair Value Measurements Using

September 30, 2020

March 31, 2021

Cash and cash equivalents

3 unchanged sentences

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

At September 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 off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Comprehensive (Loss) Income

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

At March 31, 2021 and December 31, 2020, 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.

Furniture and Equipment

13 unchanged sentences

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date.

Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) .

ASU 2018-07 improves financial reporting for share-based payments issued to nonemployees under ASC 718 by expanding the scope of the employee share-based payments guidance to include share-based payments issued to nonemployees.

The amendments in ASU 2018-07 are effec tive for public companies for fiscal years beginning after December 31, 2018, including interim periods within that fiscal yea r.

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 pronouncement recently issued or newly effective had or is expected to have a material impact on the Company’s condensed consolidated financial statements.

No new accounting pronouncement have been recently issued or newly effective which would have or be expected to have a material impact on the Company’s condensed consolidated financial statements.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses are as follows:

September 30,

Accrued project costs

Restructuring accrual (see Note 11)

Accounts payable

Accrued bonus

Professional fees

Accrued vacation

Restructuring accrual (see Note 12)

Accrued project costs

Accrued retention bonus

Accrued vacation

Accrued bonus

Total accounts payable and accrued expenses

As of September 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.

As of March 31, 2021 and December 31, 2020, 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:

4 unchanged sentences

Warrants to Purchase Common Stock

At September 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.

The Company had warrants outstanding for the purchase of 600,000 shares of the Company’s common stock at March 31, 2021 and December 31, 2020.

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 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.

The 317,562 warrants expired on March 15, 2020, and none were exercised or settled as the fair value of the Company’s common stock was below the exercise price.

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

The number of shares and the exercise price shall be adjusted for standard ant i -dilution events such as stock splits, combinations, reorganizations, or issue shares as part of a stock dividend.

Upon a change of control, the warrant holder will have the right to receive securities, cash or other properties it would have b een entitled to receive had the warrant been exercised.

The warrants are equity classified instruments and do not contain contingent exercise provisions, or other features, that would preclude the Company from concluding that the warrants are indexed solel y to the Company’s common stock.

Upon a change of control, the warrant holder will have the right to receive securities, cash or other properties it would have been entitled to receive had the warrant been exercised.

Preferred Stock

As of September 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 September 30, 2020 and December 31, 2019.

As of March 31, 2021 and December 31, 2020, 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, 2021 and December 31, 2020.

Stock-Based Compensation

2 unchanged sentences

The 2017 Plan also provides that the number of shares reserved for issuance thereunder will be increased annually on the first day of each year beginning in 2018 by four percent (4%) of the shares of our common stock outstanding on the last day of the immediately preceding year or such smaller increase as determined by our Board of Directors.

In March 2020, the Company’s Board of Directors approved a 4% increase adding 1,623,520 shares to the 2017 Plan, which was effective as of January 1, 2020.

In January 2021, the Company’s Board of Directors approved a 4% increase adding 1,890,052 shares to the 2017 Plan, which was effective as of January 1, 2021.

Stock Options

4 unchanged sentences

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

No option awards to purchase common stock were granted during the three months ended September 30, 2020 and 2019.

Option awards to purchase an aggregate of 962,720 and 4,622,428 shares of common stock were granted in the nine months ended September 30, 2020 and 2019, respectively.

As of September 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 nine months ended September 30, 2020:

During the three months ended March 31, 2021 and 2020, option awards to purchase an aggregate of 71,428 and 702,000 shares of common stock were granted, respectively.

As of March 31, 2021 and December 31, 2020, 5,530,530 and 3,634,905 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, 2021:

Weighted Average

3 unchanged sentences

Expired/cancelled

Outstanding, September 30, 2020

Expected to vest, September 30, 2020

Options exercisable, September 30, 2020

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

As of September 30, 2020, there was $1,776,807 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.80 years.

Outstanding, March 31, 2021

Expected to vest, March 31, 2021

Options exercisable, March 31, 2021

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, 2021, there was $1,126,603 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.51 years.

On March 31, 2021 the Company’s non-employee directors were awarded 41,394 shares of the Company’s common stock at the fair market value of $1.29.

The awards were in the form of Unrestricted Stock Awards (as defined in the 2017 Plan) equal to the quarterly cash retainer payable to such directors under the Company’s non-employee director compensation policy currently in effect divided by the average closing price of the Company’s common stock on the Nasdaq Capital Market during the quarter ending March 31, 2021.

Compensation Expense Summary

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

Three Months Ended September 30,

Nine Months Ended September 30,

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,

Research and development

General and administrative

The total R&D expense of $108,014 was related to stock options.

The total G&A expense of $237,742 consisted of $53,398 from stock awards and $184,344 from stock options.

The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock-based awards.

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 and nine months ended September 30, 2020 and 2019 was $0.43 and $1.11 per share, respectively.

No options were granted during the three months ended September 30, 2020 and September 30, 2019.

Accordingly, the weighted-average fair value of the options granted during the three months ended March 31, 2021 and 2020 was $0.89 and $0.31 per share, respectively.

The calculation was based on the following assumptions.

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term (years)

2 unchanged sentences

Expected dividend yield

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Net and comprehensive (loss) income per share

Weighted average common shares used in

computing EPS

Basic and diluted EPS

The Company did not record a current or deferred income tax expense or benefit for the three months ended March 31, 2021 and 2020, 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

Weighted average common shares used in computing

net loss per share attributable to common stockholders,

basic and diluted

Net and comprehensive loss per share attributable to

common stockholder, basic and diluted

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 for the three months ended September 30, 2020 and 2019 because including them would have had an anti-dilutive effect.

The following weighted average common stock equivalents were excluded from the calculation of diluted net and comprehensive income per share for the nine months ended September 30, 2020 and basic and diluted net and comprehensive loss per share for the nine months ended September 30, 2020 and 2019 because including them would have had an anti-dilutive effect:

Three Months Ended September 30,

Nine Months Ended September 30,

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,

Options to purchase common stock

Warrants to purchase common stock

At September 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;

no penalties were incurred related to these terminations.

The Cincinnati, Ohio lease agreement obligates the Company to pay real estate taxes, insurance and certain maintenance costs (hereinafter referred to as non-lease components).

The Company’s lease arrangement contains a renewal provision of 5 years, exercisable at the Company’s option.

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

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 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 administrative expenses on the condensed consolidated statements of operations and comprehensive (loss) income.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Average rent expense

Other information

Cash paid for amounts included in the

measurement of operating lease liabilities

The weighted average remaining lease term and discount rate at September 30, 2020

Weighted-average remaining lease

term – operating leases

Weighted-average discount rate – operating leases

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

Operating leases

Less interest

Present value of lease liabilities

Employee Stock Purchase Plan

In March 2017, the Board of Directors adopted and the stockholders approved the Employee Stock Purchase Plan that became effective in April 2017.

On June 20, 2018, the Company’s shareholders approved the Amended and Restated 2017 Employee Stock Purchase Plan (“ESPP”) at the Annual Meeting of Shareholders.

On June 20, 2018, the Company’s stockholders approved the Amended and Restated 2017 Employee Stock Purchase Plan (the “ESPP”) at the 2018 annual meeting of stockholders.

Pursuant to the terms of the ESPP, the Company will reserve for issuance 300,000 shares of the Company’s common stock in the aggregate, plus, on January 1, 2019 and each January 1 thereafter through January 1, 2028, the number of shares of the Company’s common stock reserved and available for issuance under the ESPP will be cumulatively increased by the least of (i) one percent of the number of shares of the Company’s common stock issued and outstanding on the immediately preceding December 31;

1 unchanged sentence

or (iii) such lesser number of shares of the Company’s common stock as determined by the Board of Directors, in each case subject to adjustment in accordance with the terms of the ESPP.

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 September 30, 2020 and December 31, 2019.

In January 2021, the Company’s Board of Directors approved an increase of 350,000 shares to the ESPP, which increase was effective as of January 1, 2021.

No shares under the ESPP are outstanding at March 31, 2021 and December 31, 2020.

License Agreement

5 unchanged sentences

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

For the nine months ended September 30, 2020, the Company recognized revenue of $15.0 million based on the terms of Amendment No.

1, and no such revenue was recognized during the three months ended September 30, 2020.

For the year ended December 31, 2020, the Company recognized revenue of $15.0 million based on the terms of Amendment No.

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.

4 unchanged sentences

The Company 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).

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 changes 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.

5 unchanged sentences

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

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

As of March 31, 2021, all development milestones, sales-based milestones and royalty payments within the Amended Gossamer License Agreement 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 (benefit) expense of ($38,810) and $0.9 million during the three and nine months ended September 30, 2019, respectively, 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 $0.2 million and $0.8 million in the three and nine months ended September 30, 2020, respectively.

The remaining liability as of September 30, 2020, was approximately $38,000 and is included in accounts payable and accrued expenses in the condensed consolidated balance sheet.

These amounts were paid in cash in October 2020.

In January 2021, the Company executed a realignment plan to reduce operating costs and better align its workforce with the needs of its ongoing business.

The realignment plan reduced the Company’s workforce by seven employees, representing approximately 58% of the Company’s workforce.

As a result, the Company recorded employee severance expense of $1.2 million during the three months ended March 31, 2021.

These amounts are included within restructuring expense in the condensed consolidated statements of operations and comprehensive loss.

Total cash payments against the severance liability was approximately $0.1 million in the three months ended March 31, 2021.

The remaining liability as of March 31, 2021 was approximately $1.1 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 December 31, 2021.

Subsequent Events

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”) 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.

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.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

2 unchanged sentences

Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the initiation, timing, progress and results of our research and development programs and future preclinical and clinical studies;

our ability to advance any product candidates into, and successfully complete, clinical studies and obtain regulatory approval for them;

the timing or likelihood of regulatory filings and approvals;

the commercialization, marketing and manufacturing of our product candidates, if approved;

the pricing and reimbursement of our product candidates, if approved;

the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;

the implementation of our strategic plans for our business, product candidates and technology;

our exploration of strategic alternatives;

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

our expectations related to the use of our cash reserves, and estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

our ability to maintain and establish collaborations, including with Gossamer, as well as the expected benefits from such collaboration;

our financial performance;

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

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 material risks and uncertainties, including those listed under the caption “Risk Factors” in this Quarterly Report on Form 10-Q.

the ability to satisfy the conditions to the merger transaction with Aadi Bioscience, Inc.

(“Aadi”), including the ability to obtain shareholder approval, on the proposed terms and timeframe, and the proposed private placement transaction;

the intended benefits to our stockholders of the contingent value rights arrangements entered into in connection with the merger;

the ability to realize the anticipated benefits of transactions related to the merger transaction with Aadi and other restructuring activities, including in connection with the merger transaction, or other initiatives in a timely manner or at all;

the risk of unanticipated costs, liabilities or delays relating to the merger transaction with Aadi, including the outcome of any legal proceedings relating to the merger transaction;

the occurrence of any change, effect, event, development, matter, state of facts, series of events or circumstances that could give rise to the termination of the agreement with Aadi related to the merger transaction;

the accuracy of our estimates regarding expense, future revenues, uses of cash, capital requirements and the need for additional financing;

the continued development of GB004 and maintaining and deriving the intended benefits of the Company’s collaboration with Gossamer Bio;

ability to continue to develop razuprotafib or other product candidates, including in indications related to COVID-19;

our continued review and evaluation of strategic plans for legacy assets;

our ability to obtain and maintain intellectual property protections for our product candidates;

our ability to attract and retain key personnel;

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

In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.

5 unchanged sentences

You should read this Quarterly Report on Form 10-Q and the documents that we reference in Quarterly Report on Form 10-Q and have filed with or furnished to the U.S.

Securities and Exchange Commission (“SEC”) completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

Securities and Exchange Commission (the “SEC”) completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report.

2 unchanged sentences

You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report.

Unless the context requires otherwise, references to this Quarterly Report on Form 10-Q to “Aerpio,” the “Company,” “we,” “us,” and “our” refer to Aerpio Pharmaceuticals, Inc.

and its subsidiaries, on a consolidated basis.

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