Full Press Release Details
FINANCIAL STATEMENTS
Aerpio Therapeutics, Inc.
Years Ended December 31, 2016 and 2015
With Report of Independent Registered Public Accounting Firm
Aerpio Therapeutics, Inc.
Financial Statements
December 31, 2016 and 2015
| Report of Independent Registered Public Accounting Firm | 1 | |||
| Financial Statements | ||||
| Balance Sheets | 2 | |||
| Statements of Operations and Comprehensive Loss | 3 | |||
| Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit | 4 | |||
| Statements of Cash Flows | 5 | |||
| Notes to Financial Statements | 6 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Aerpio Therapeutics,
We have audited the accompanying balance sheets of Aerpio Therapeutics, Inc. as of December 31, 2016 and 2015, and the related
statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders deficit and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aerpio Therapeutics, Inc. at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the two years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses and negative cash flows from operations and has net capital and working capital deficiencies at December 31, 2016 that raise substantial
doubt about its ability to continue as a going concern. Management s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this
/s/ Ernst & Young LLP
Aerpio Therapeutics, Inc.
| December 31 | ||||||||
| 2016 | 2015 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,609,694 | $ | 5,144,211 | ||||
| Short-term investments | 50,000 | 50,000 | ||||||
| Accounts receivable | 4,157 | 118,516 | ||||||
| Prepaid research and development contracts | 353,434 | 266,327 | ||||||
| Other current assets | 209,038 | 386,549 | ||||||
| Total current assets | 2,226,323 | 5,965,603 | ||||||
| Furniture and equipment, net | 149,595 | 105,971 | ||||||
| Deposits | 20,960 | 20,960 | ||||||
| Total assets | $ | 2,396,878 | $ | 6,092,534 | ||||
| Liabilities, redeemable convertible preferred stock, and stockholders deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 2,470,970 | $ | 2,159,874 | ||||
| Convertible notes | 12,386,647 | |||||||
| Total current liabilities | 14,857,617 | 2,159,874 | ||||||
| Commitments and contingencies (Note 12) | ||||||||
| Series A redeemable convertible preferred stock; 3,094,774 shares authorized; 2,892,193 and 3,094,774 shares issued and outstanding at December 31, 2016 and 2015 | 7,016,515 | 7,119,204 | ||||||
| Series A1 redeemable convertible preferred stock; 19,528,622 shares authorized; 19,345,272 and 19,528,622 shares issued and outstanding at December 31, 2016 and 2015 | 40,897,311 | 39,016,008 | ||||||
| Series A2 redeemable convertible preferred stock; 10,876,182 and 10,476,182 shares authorized; 10,468,842 and 10,476,182 shares issued and outstanding at December 31, 2016 and 2015 | 25,844,064 | 24,352,203 | ||||||
| Total redeemable convertible preferred stock | 73,757,890 | 70,487,415 | ||||||
| Stockholders deficit: | ||||||||
| Common stock; $.00001 par value; 40,700,000 and 40,000,000 shares authorized; 2,895,994 and 2,700,719 shares issued and outstanding at December 31, 2016 and 2015, respectively | 29 | 27 | ||||||
| Accumulated deficit | (86,218,658 | ) | (66,554,782 | ) | ||||
| Total stockholders deficit | (86,218,629 | ) | (66,554,755 | ) | ||||
| Total liabilities, redeemable convertible preferred stock, and stockholders deficit | $ | 2,396,878 | $ | 6,092,534 |
See accompanying notes.
Aerpio Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
| Year Ended December 31 | ||||||||
| 2016 | 2015 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 11,367,590 | $ | 11,625,404 | ||||
| General and administrative | 5,265,995 | 5,861,151 | ||||||
| Total operating expenses | 16,633,585 | 17,486,555 | ||||||
| Operating loss | (16,633,585 | ) | (17,486,555 | ) | ||||
| Other: | ||||||||
| Grant income | 131,281 | 369,688 | ||||||
| Interest (expense) income, net | (482,204 | ) | 19,622 | |||||
| Reimbursements from Akebia | 997 | 27,022 | ||||||
| Total other | (349,926 | ) | 416,332 | |||||
| Net loss and comprehensive loss | $ | (16,983,511 | ) | $ | (17,070,223 | ) | ||
| Reconciliation to net loss attributable to common stockholders: | ||||||||
| Net loss and comprehensive loss | $ | (16,983,511 | ) | $ | (17,070,223 | ) | ||
| Extinguishment of preferred stock | 224,224 | |||||||
| Accretion of preferred stock to redemption value | (4,152,801 | ) | (348,436 | ) | ||||
| Net loss attributable to common stockholders | $ | (20,912,088 | ) | $ | (17,418,659 | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (10.51 | ) | $ | (13.52 | ) | ||
| Weighted average common shares used in computing net loss per share attributable to common stockholders, basic and diluted | 1,989,863 | 1,288,631 |
See accompanying notes.
Aerpio Therapeutics, Inc.
Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit
| Stockholders Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Convertible Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series A1 | Series A2 | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Total | Shares | Par Value | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2015 | 3,094,774 | $ | 6,754,096 | 19,528,622 | $ | 40,180,140 | 10,476,182 | $ | 23,204,743 | $ | 70,138,979 | 2,691,344 | $ | 26 | $ | $ | (49,608,968 | ) | $ | (49,608,942 | ) | |||||||||||||||||||||||||||
| Adjustment of redeemable convertible preferred stock to redemption value | 365,108 | (1,164,132 | ) | 1,147,460 | 348,436 | (472,845 | ) | 124,409 | (348,436 | ) | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 9,375 | 1 | 2,999 | 3,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 469,846 | 469,846 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (17,070,223 | ) | (17,070,223 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2015 | 3,094,774 | 7,119,204 | 19,528,622 | 39,016,008 | 10,476,182 | 24,352,203 | 70,487,415 | 2,700,719 | 27 | (66,554,782 | ) | (66,554,755 | ) | |||||||||||||||||||||||||||||||||||
| Adjustment of redeemable convertible preferred stock to redemption value | 379,777 | 2,263,804 | 1,509,220 | 4,152,801 | (1,273,638 | ) | (2,879,163 | ) | (4,152,801 | ) | ||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (135,066 | ) | (324,774 | ) | (159,135 | ) | (333,328 | ) | (658,102 | ) | 144,233 | 1 | 658,101 | 658,102 | ||||||||||||||||||||||||||||||||||
| Extinguishment of preferred stock | (67,515 | ) | (157,692 | ) | (24,215 | ) | (49,173 | ) | (7,340 | ) | (17,359 | ) | (224,224 | ) | 25,426 | 198,798 | 224,224 | |||||||||||||||||||||||||||||||
| Conversion of Convertible Notes | 82,818 | 82,818 | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 51,042 | 1 | 18,967 | 18,968 | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 488,326 | 488,326 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (16,983,511 | ) | (16,983,511 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2016 | 2,892,193 | $ | 7,016,515 | 19,345,272 | $ | 40,897,311 | 10,468,842 | $ | 25,844,064 | $ | 73,757,890 | 2,895,994 | $ | 29 | $ | $ | (86,218,658 | ) | $ | (86,218,629 | ) |
See accompanying notes.
Aerpio Therapeutics, Inc.
Statements of Cash Flows
| Year Ended December 31 | ||||||||
| 2016 | 2015 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (16,983,511 | ) | $ | (17,070,223 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 69,673 | 57,977 | ||||||
| Compensation recognized under equity incentive plan | 488,326 | 469,846 | ||||||
| Amortization of debt issuance costs | 188,686 | |||||||
| Interest expense related to convertible note conversion | 2,823 | |||||||
| Accounts receivable | 114,359 | (60,566 | ) | |||||
| Prepaid expenses and other current assets | 90,404 | (210,106 | ) | |||||
| Accounts payable and accrued expenses | 311,096 | (1,071,610 | ) | |||||
| Net cash used in operating activities | (15,718,144 | ) | (17,884,682 | ) | ||||
| Investing activities | ||||||||
| Purchase of furniture and equipment | (113,297 | ) | (41,037 | ) | ||||
| Net cash used in investing activities | (113,297 | ) | (41,037 | ) | ||||
| Financing activities | ||||||||
| Proceeds from exercise of stock options | 18,968 | 3,000 | ||||||
| Proceeds from issuances of convertible notes | 12,542,203 | |||||||
| Cash paid for debt issuance costs | (264,247 | ) | ||||||
| Net cash provided by financing activities | 12,296,924 | 3,000 | ||||||
| Net decrease in cash and cash equivalents | (3,534,517 | ) | (17,922,719 | ) | ||||
| Cash and cash equivalents, beginning of year | 5,144,211 | 23,066,930 | ||||||
| Cash and cash equivalents, end of year | $ | 1,609,694 | $ | 5,144,211 | ||||
| Non-cash financing activities | ||||||||
| Accretion of preferred stock to redemption value | $ | 4,152,801 | $ | 348,436 | ||||
| Extinguishment of preferred stock | $ | (224,224 | ) | $ |
See accompanying notes.
Aerpio Therapeutics, Inc.
Notes to Financial Statements
December 31, 2016 and 2015
Organization and Operations
Aerpio Therapeutics, Inc. (Aerpio or the Company) is a biopharmaceutical company focused on advanced
treatment for ocular disease. The Company s lead product, AKB-9778, a small molecule activator of the Tie-2 pathway, is being developed for diabetic retinopathy. In addition to AKB-9778, the Company is advancing a humanized monoclonal antibody directed at the same target as AKB-9778, ARP-1536 in vascular
disorders of the eye. ARP-1536, currently at the preclinical development stage, is designed to address the same pathway as AKB-9778. Aerpio is also completing clinical
studies with AKB-4924, a selective stabilizer of hypoxia-inducible factor-1 alpha, or HIF-1 alpha, that is being developed for
the treatment of inflammatory bowel disease. The Company was incorporated on November 17, 2011, under the laws of the State of Delaware and was capitalized in December 2011 in a spinout transaction from Akebia Therapeutics, Inc. (Akebia)
to enable more rapid development of its compounds.
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 has not generated any revenues to date, nor is there any
assurance of any future revenues. 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
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.
Aerpio Therapeutics, Inc.
Notes to Financial Statements (continued)
1. Nature of Organization and Operations (continued)
Going Concern Considerations
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the
realization of assets and payments of liabilities in the ordinary course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of
and classification of liabilities that may result should the Company be unable to continue as a going concern.
At December 31, 2016,
the Company has a working capital deficiency. The Company incurred losses from operations and had negative cash flows from operating activities for the year ended December 31, 2016 and 2015 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 revenue generating activities. In addition, the Company s senior secured convertible notes become due on March 31, 2017. Failure to pay these notes is an event of default. These events and conditions raise substantial doubt about the
Company s ability to continue as a going concern.
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, licensing arrangements and business combination transactions. 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 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.
Aerpio Therapeutics, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
Basis of Presentation
financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and stated in U.S. dollars.
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the
chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of developing and
commercializing proprietary therapeutics in vascular disorders of the eye. All of the assets and operations of the Company s sole operating segment are located in the United States of America.
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls
and in developing the estimates and assumptions that are used in the preparation of these financial statements. 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. 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. Estimates are used in the following areas, among others: fair value of the Company s
Common Stock and other equity instruments, accrued expenses, and income taxes.
Aerpio Therapeutics, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company utilizes significant estimates and assumptions in determining the fair value of its Common Stock and other equity instruments. The
Company granted stock options at exercise prices not less than the fair value of its Common Stock, as determined by the Board of Directors contemporaneously at the date such grants were made. The Board of Directors has determined the estimated fair
value of the Company s Common Stock based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector and the prices at which the Company sold shares of preferred stock, the
superior rights and preferences of securities senior to the Company s Common Stock at the time, and the likelihood of achieving a liquidity event, such as a public offering or sale of the Company.
The Company utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public
Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its Common Stock. Each valuation methodology includes estimates and assumptions that require the
Company s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, the prices at which the Company sold shares of redeemable convertible preferred stock, the superior