Good morning, ladies and gentlemen. Thank you for standing by and welcome to Aerpio Pharmaceuticals’ Fourth Quarter and Full Year 2018 Financial Results and Business Update Conference Call. It is now my pleasure to turn the call over to Michael Rogers, Aerpio's Chief Financial Officer. Please go ahead, sir..

Okay, Demetrius. Thank you. Good morning and thank you for joining us for Aerpio's Fourth Quarter and Full Year 2018 Earnings Call. Joining me on the call today is -- from Aerpio is Steve Hoffman, Chief Executive Officer; Joseph Gardner, President and Founder; Steve Pakola, our Chief Medical Officer and Kevin Peters, our Chief Scientific Officer.

This morning, Aerpio released financial results for the fourth quarter and full year ended December 31, 2018. If you have not received the news release or if you would like to be added to the company's distribution list, you can do so on our Investor Relations page of our website at aerpio.com.

I'd also like to remind you that the remarks made on the call today include forward-looking statements about Aerpio.

And such statements may include, but are not limited to, those related to Aerpio and its business and its product candidates, including their planned clinical development and therapeutic potential as well as the announcement of top line results from Aerpio’s TIME-2b clinical trial.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in Aerpio's periodic reports filed from time to time with the SEC.

Aerpio does not undertake any obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. With that, I will now turn the call over to our CEO, Steve Hoffman.

Steve?.

Thanks, Mike and good morning, everyone. Thank you for joining us today. 2018 was a very productive year for Aerpio pharmaceuticals, as we continued to advance our pipeline of first in class products that activate Tie2 to treat ocular diseases and diabetic complications.

We remain on track to announce top line Phase 2b results from our TIME-2b study, evaluating our lead candidate AKB-9778 for patients with moderate to severe NPDR later this month.

The TIME-2b study was designed as a double mass placebo controlled multi-center trial where 157 patients were randomized to receive 48 weeks of treatment with either AKB-9778 50 milligrams once daily, twice daily or placebo.

The primary endpoint of the TIME-2b study is the percentage of patients who improved by two steps or greater in their diabetic retinopathy severity score in the study high. We have several secondary endpoints in the trial that are also very important.

The first is assessment of DRSS or the diabetic retinopathy severity score, improvement in the fellow eye and patients that have bilateral disease.

One distinct advantage of AKB-9778 is its systemic administration, which we believe is not only more convenient and less invasive for treating patients with NPDR and intravitreal administration of anti-VEGF agents, but also allows for the treatment of both eyes in a patient population where 65 to 75 – 65% to 70% of patients have bilateral disease.

The next key endpoint is to determine whether AKB-9778 can delay the progression of patients with NPDR to sight threatening complications such as proliferative diabetic retinopathy or PDR or diabetic macular edema or DME.

Preventing vision loss and blindness caused by these complications is the most important outcome to KOLs, practicing physicians and patients. Finally, we are hoping to reproduce the improvement and renal function as measured by reduction in the urinary albumin to creatinin ratio or UACR that we previously observed in our TIME-2 study.

At the American Society of Nephrology Kidney Week 2018 back in October, we were very pleased to present a post-hoc analysis of renal function data from our earlier phase 2 TIME-2 clinical trial of AKB-9778 in diabetic retinopathy patients.

This post hoc analysis was very encouraging and showed an improvement in UACR in patients receiving AKB-9778 compared to a worsening in patients receiving placebo after only three months of treatment.

If prospectively confirmed in the upcoming TIME-2b top line results, this would demonstrate the potential of our systemically administered Tie2 activator to provide patients with diabetes, a significant treatment option spanning multiple diabetic complications.

We look forward to sharing initial results from the TIME-2b study in the coming weeks and will also provide an update, pending the outcome of this study, regarding our next steps from a clinical development perspective.

In addition to our program for diabetic retinopathy, we're currently advancing a topical ocular formulation of AKB-9778 in open angle glaucoma. We expect to initiate a phase 1b trial in the second quarter of this year and will announce top line results from that trial by the end of 2019.

Beyond our pipeline programs, we announced an exclusive global license agreement with Gossamer Bio in June 2018, and under the terms of this partnership, we granted Gossamer the exclusive worldwide license to develop and commercialize AKB-4924, now known as GB004 for the treatment of inflammatory bowel disease.

We're very excited about this partnership and believe that Gossamer is the ideal company to develop this drug, given their expertise and prior experience in inflammation, immunology and IVD development and [indiscernible].

The license Agreement also provided us with an upfront payment of $20 million potential development, regulatory and sales milestones of up to $400 million and tiered royalty rates up in the mid teens.

We have a joint steering committee with Gossamer on the development of GB004 and we're very excited for them, as they've recently completed a very successful IPO where GB004 contributes meaningfully to their $1.5 billion evaluation. Looking back on 2018, we can confidently say that we executed on all of our milestones and timelines.

As we move forward to the rest of 2019, we plan on continuing our execution and advancing our lead candidate, AKB-9778 for patients with non-proliferated diabetic retinopathy. We also look forward to advancing our earlier stage pipeline programs such as our topical formulation of AKB-9778 for open angle glaucoma.

I'll now turn the call back over to Mike for -- to review the financials for the quarter..

Okay. Thanks, Steve. The earnings release details our financial results for the fourth quarter and full year 2018. So I won't repeat for you what's written in the release.

For those interested, you can find additional details on our operating results and financial condition beyond what's in our press release in our 10-K, which will be filed later this week. However, I'll take this time to quickly point out a couple of items.

Starting on the income statement, for the three months ended December 31, 2018, our net loss attributable to common shareholders was 8.5 million, up from 6.2 million in the same period in 2017 and operating expenses for the fourth quarter of 2018 were 8.9 million compared to 6.3 million for the same period in 2017.

For the full year ended December 31, 2018, net loss attributable to common stockholders was 10.4 million compared to 22.3 million for the full year ended December 31, 2017 and operating expenses for the full year ended December 31, 2018 were 31.3 million compared to 21.4 million in 2017.

So despite the approximate $10 million increase in operating expenses year-over-year, we had an $11.8 million reduction in net loss in 2018 versus 2017 and this was attributable to the $20 million upfront payment we received and recorded as revenue as part of our license agreement with Gossamer for AKB-4924, which as Steve mentioned is now known as GB004.

Research and development expenses for the year ended December 31, 2018 increased by approximately 5.7 million or 47% to 17.9 million from 12.1 million in 2017.

This was a result of increased spending on our lead candidate AKB-9778, primarily for the TIME-2b trial, partially offset by a decrease in spending on our pipeline candidate GB004, as a consequence of our license deal with Gossamer.

General and administrative expenses for the full year ended December 31, 2018 increased by approximately 4.2 million or 46% to 13.5 million from 9.2 million in 2017 and this increase was primarily attributable to personnel and related expenses during the period. One quick note on the balance sheet, our cash position at December 31 was 62.6 million.

And as many of you on the call know, we have no debt. So that concludes the financial summary for the quarter. We’ll now open the call for questions.

Demetrius, are you there?.

[Operator Instructions] And our first question comes from Eliana Merle with Cantor Fitzgerald..

So in terms of the upcoming TIME-2b study, you mentioned the secondary analysis, looking at the leg progression [ph] to PDR, I guess, what is the baseline rate that you would expect more progression to PDR in the placebo? And I guess what difference in progression to PDR from the treated group would be viewed as clinically meaningful?.

I’m going to ask Dr. Pakola to handle that one..

Sure. Great. Good morning, Ellie. Thanks for the great question. So this, not surprisingly, depends on the baseline stage of diabetic retinopathy severity that patients have.

So recall that in this study, we're looking at moderate to severe NPDR at baseline and the vision threatening complications you mentioned PDR, we also care about DME, diabetic macular edema and we do have various studies and natural history studies where we can gauge roughly what we might anticipate in this study, looking at the mix of moderate to severe patients that we have and please take this with a grain of salt of course, because each study is different.

But we anticipate roughly 15% to 20%, developing DME and 15% to 20% developing PDR over a one year time span in a mix of patients that have moderate to severe NPDR. If, for example, you would look at just a very severe end of the NPDR spectrum, actually over 50% of patients develop PDR within that timeframe.

So that's why you have to really take into account the baseline characteristics. If you combine those, which is the endpoint of looking at vision threatening complications at one year, we'd expect anywhere from 30% to 35%, roughly speaking, and that's what we think of when we kind of back at the envelope think of what might occur in this trial.

To the second half of your question, what reduction would be clinically meaningful? When we speak to retina specialists who treat these patients and at this stage of disease, moderate to severe NPDR, keep in mind that currently it's really watchful waiting.

There is the option to treat with anti-VEGF, repeated injection to the eye, but generally patients are not being treated at the stage of disease.

So it's really a key issue for these doctors and their patients is that they know a high proportion of these patients are going to progress over time, even within one year to these potentially blinding conditions.

So when we ask them that very question you just asked Ellie of what reduction would be clinically meaningful, they say any reduction frankly..

That's helpful. Thanks. And then I guess on the glaucoma program, you mentioned that you'll have data before the end of the year. Can you just sort of walk us through what data exactly we will be getting? And I guess what you're hoping to see in that data. Thanks..

Steve, go ahead and take that one too, please..

Sure. So keep in mind, this is a first-in-human phase 1 study with the topical ocular formulation.

However, since it is in an indication where we have an objective non-invasive pharmacodynamic measure, intraocular pressure, IOP measurement, already at the phase 1 first in human phase of testing, we have the opportunity to look for a pharmacodynamic effect on that clinically relevant endpoint. So we are going to take advantage of that.

These are generally healthy volunteer volunteers that we would be including in this first study, but we do plan to somewhat enrich the population by selecting “healthy volunteers” who also happen to have above normal IOP, but not yet a traditional ocular hypertensive or glaucoma patient population system. It is a first in human study.

So that will give us a greater likelihood or a greater sensitivity to see a potential IOP lowering effect at the different doses and dose regimens that we would look at in this phase 1 study.

So it's really those IOP measures and changes from baseline, we will take advantage of looking at a traditional diurnal IOP measurement at baseline pre-treatment and also at the end of the multi-day dosing treatment period so that we can at least have that kind of traditional assessment on a diurnal basis of chain from baseline on IOP..

And our next question comes from Jonathan Aschoff with National Securities..

So I'm looking forward to the TIME-2b data for sure. But I was thinking about your topical 9778 formulation for OAG and I was wondering if you could possibly develop that formulation for NPDR, if and only if phase 2b showed no systemic benefits..

Well, we've – historically, we've tested a topical formulation of 9778 in animal models of retinal angiogenesis and the topical formulation just doesn't get sufficient levels of drug to the back of the eye to treat those kinds of conditions we don't believe.

But it gets a lot of drugs for the front of the eye, which is where Schlemm's Canal and the primary outflow track are.

So we're much more confident of getting sufficient drug levels to the side of action in glaucoma that based on animal data we were not successful in getting high enough drug levels to the back of the eye, the retina, the vasculature with popular administration to use in most indications..

And our next question comes from Adnan Butt with Guggenheim Securities..

Good morning and thanks for the questions. My first is on the upcoming 2b release.

I assume, of course, the primary endpoint will be in the -- how much of the -- how many of the secondary endpoints will you be able to put out at the top line? I mean, will UACR, VTCs be a part of that release?.

Well, right now, we’re planning to release the top line data around changing DRSS for the study eye and the fellow eye, the percentage of patients that progress to ZME and PDR and UACR changes from baseline.

There might be some additional data that we would include, but those are primary, the primary and secondary endpoints that we will be talking about..

Okay.

And Steve, at this time, is there a placeholder at any medical meeting or where do you expect to present the data assuming it's positive?.

Again, Steve Pakola, can you answer that one?.

Yeah. Good morning, Adnan. Thanks for the questions. We're in active discussions with our advisors on that. There are the usual meetings throughout the year in both the ophthalmology forum and specifically the retina forum.

So we're keeping a close eye on that, but we feel confident we will be able to present at the key meetings, we will be able to say more about that at our next update on the program..

One more on the release contents for the top line, will you be able to report on multiple time points. And I'm wondering if, so far, there has been any time series data, so that the result continues to improve over time..

Steve?.

Yeah. So, we'll definitely look at that if that's one of the related aspects of not only what point estimate do we see at the end of treatment, but what that time course is over the 48 weeks of treatment.

You can look at the press release and what Stephen just reviewed as far as what we'd be looking at to disclose in terms of the top line results at sometime this month. Of course, as you know, the top line is just a component of the overall picture and in the weeks after that, we'd be doing a lot more cuts of the data..

Okay, Steve. And there's been a few questions on the topical formulation.

I wanted to ask if it's feasible to develop a long acting form of 9778 or if the company has done any work around that?.

Well, we’ve recognized that a more convenient formulation for the drug is going to be one that patients have to administer as less frequently as possible. So we are working on sustained release formulations of 9778 that we think can get down at, at least once a day as opposed to twice a day, if we need to twice a day.

So we're working on a pen formulation to get 9778 once per day. And then we'll also be working on longer sustained release formulations. Again, hopefully getting to a once a week. But the physical chemistry components of 9778 make some of these quite challenging.

And we always like to talk about one of our pipeline products that we don't put much emphasis on when we speak with investors, and that's our monoclonal antibody 1536, which is a humanized monoclonal that appears to block the vascular endothelial cell Protein Tyrosine Phosphatase, but binding to the extra-cellular domain.

And in early animal pharmacology, it seems to have the same effect on Tie2 activation that 9778 does by inhibiting the intra-cellular domain of the phosphatase. So, one of our lifecycle management programs with positive data would be to accelerate development of 1536 into these indications.

And that could be a once every three to four weeks subcutaneous administration of an antibody to hopefully achieve the same kind of benefits we would with 9778. So we recognize that convenience for the patient is important. We're working hard to get to a once-a-day formulation. We think it’s possible to get to a once-a-week formulation.

But we think that the antibody might be the best long term solution for patient convenience. Admittedly, that’s going to be several years down the road..

Just one last one on the numbers, did you say how long the current cash will last to you?.

We have said that cash will go into 2020. And that's what we've set up till now. We believe cash will last at least through the first quarter of 2020 and into the second quarter..

And our next question comes from Chad Messer with Needham & Company..

Hello. This is John for Chad.

Just a question about the UACR data, if the data reads out positive, what kind of clinical study would you think of moving forward with -- in that population, would it be in patients with kidney disease who are diabetic, don't have any ocular symptoms?.

So right now, we are doing a lot of planning around that scenario and we think right now, the best course of action would be to do a Phase 2 trial in diabetic patients with chronic kidney disease, irrespective of their retina disease.

And whether we do that in CKD class 2 or class 3 or class 4, we still need to refine, but the objective there would be to look exclusively at diabetic nephropathy and over the course of 6 to 12 months, can we affect not only UACR, but possibly GFR and we need to refine that study design, but that would be our next planned study in the nephropathy area, something like that.

But again right now, we don't have a clear design or timeline for that trial..

Just a bit of a clarification, so I know that in the PANORAMA study for [indiscernible] they were looking at events and you talked about a time to progression, are these similar endpoints?.

Dr.

Pakola?.

Great question on the terminology, so, in fact, they are. So when they refer to, when in the PANORAMA releases, they refer to vision threatening complications. And that's basically the same as considering progression to these events or progression to vision threatening complications of DME or PDR.

When I discuss the importance of baseline characteristics, you'll recall from those releases, the PANORAMA study is looking at a more severe end of the spectrum, moderately severe to severe. We're looking at moderate to severe.

And in their studies, they saw 40% of patients progress to either DME or PDR, in other words, vision threatening complications..

Great. I very much appreciate the clarifications and we're all looking forward to the TIME-2b data..

And our next question comes from Yi Chen with H.C. Wainwright..

My first question is assuming the TIME-2b data are positive, would you pursue the Phase 3 program by yourself or with a potential partner?.

Well, thanks for that question. Right now, we're planning to progress TIME-2 interface 3 on our own. We believe that the prescribing population for 9778 and the NPDR patient population will primarily be retinal specialists and ophthalmologists. And that's a call point that we think as a small company that we can tackle on our own.

So we're primarily going to be focused on that. Of course, there are a lot of other parties involved in identifying and referring these patients from primary care physicians, diabetologists, endocrinologist, nephrologists, optometrists.

So at some point in the future, we may want to have a commercial partner with a broader reach, but for the initial launch and focusing on the NPDR populations in the ophthalmology setting, we think that we can tackle that on our own..

My second question is, do you happen to have any update on the timeline of development for GB004 and whether you expect to receive any development milestone from this program in 2019 and 2020?.

Well, the development of GB004 is in the hands of Gossamer. They’re now a public company, so we really can't comment on what they're going to be doing and when they're going to be announcing data. What we can say is that they have continued multiple sending dose studies that we had initiated in the spring, it seems to be going well.

They're working very hard on the formulation development to go into a phase 1b study in IPD patients and we're hopeful that we'll have some news we can share on that this year. But I can't say, because that's really in their control. Our first milestone payment will probably not come from them until early 2020. We don't expect it to happen this year.

But it should happen in the first half of next year..

Thank you. Ladies and gentlemen, this now concludes our Q&A portion of today’s conference. I would now like to turn the call back over to Dr. Stephen Hoffman for any closing remarks..

Thank you very much and thanks again for participating in this morning's call. We look forward to sharing top line results from the TIME-2b study with all of you later this month. Thanks again and have a great day..

Ladies and gentlemen, thank you for attending today’s conferences. This does conclude the program and you may all disconnect. Everyone, have a great day..