Case 1:21-cv-01123-UNA Document 1 Filed 08/02/21 Page 1 of 12 PageID #: 1
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`SAM CARLISLE,
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`Plaintiff,
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`v.
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`UNITED STATES DISTRICT COURT
`DISTRICT OF DELAWARE
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`Plaintiff Sam Carlisle (“Plaintiff”), by and through his undersigned counsel, for his
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`Case No. _____________
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`COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`
`JURY TRIAL DEMANDED
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`
`
`AERPIO PHARMACEUTICALS, INC.,
`CALEY CASTELEIN, CHERYL COHEN,
`ANUPAM DALAL, PRAVIN DUGEL,
`JOSEPH GARDNER, and STEVEN
`PRELACK,
`
`
`Defendants.
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`
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`complaint against defendants, alleges upon personal knowledge with respect to himself, and upon
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`information and belief based upon, inter alia, the investigation of counsel as to all other allegations
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`herein, as follows:
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`NATURE OF THE ACTION
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`1.
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`Plaintiff brings this action against Aerpio Pharmaceuticals, Inc. (“Aerpio” or the
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`“Company”) and the members of Aerpio’s Board of Directors (the “Board” or the “Individual
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`Defendants”) for their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of
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`1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities and Exchange
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`Commission (“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a-9. By the action, Plaintiff seeks to enjoin
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`the vote on a proposed transaction, pursuant to which Aerpio will merge with Aadi Bioscience,
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`Inc. (“Aadi”) through Aerpio’s subsidiary Aspen Merger Subsidiary, Inc. (“Merger Subsidiary”)
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`(the “Proposed Transaction”).1
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`1 Non-party Aadi is a clinical-stage biopharmaceutical company focused on precision therapies for
`genetically defined cancers with alterations in mTOR pathway genes. Aadi’s lead drug candidate,
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`

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`2.
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`On May 17, 2021, Aerpio and Aadi jointly announced their entry into an Agreement
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`and Plan of Merger dated May 16, 2021 (the “Merger Agreement”). Under the terms of the
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`Merger Agreement, each share of Aadi common stock will be converted into the right to receive
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`approximately 4.9152 shares of Aerpio’s common stock (the “Merger Consideration”).
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`3.
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`On July 8, 2021, Aerpio filed a Schedule 14A Definitive Proxy Statement (the
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`“Proxy Statement”) with the SEC. The Proxy Statement, which recommends that Aerpio
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`stockholders vote in favor of the Proposed Transaction, omits or misrepresents material
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`information necessary and essential to that decision. The failure to adequately disclose such
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`material information constitutes a violation of Sections 14(a) and 20(a) of the Exchange Act as
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`Aerpio stockholders need such information in order to make a fully informed decision whether to
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`vote in favor of the Proposed Transaction.
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`4.
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`It is imperative that the material information omitted from the Proxy Statement is
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`disclosed to the Company’s stockholders prior to the forthcoming stockholder vote so that they
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`can properly exercise their corporate suffrage rights.
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`5.
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`For these reasons and as set forth in detail herein, Plaintiff seeks to enjoin
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`Defendants from taking any steps to consummate the Proposed Transaction unless and until the
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`material information discussed below is disclosed to the Company’s stockholders or, in the event
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`the Proposed Transaction is consummated.
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`
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`ABI-009 (FYARROTM, nab-sirolimus), is a form of sirolimus bound to albumin. Sirolimus is a
`potent inhibitor of the mTOR biological pathway and inhibits downstream signaling from mTOR,
`that can promote tumor growth. Aadi is evaluating ABI-009 in cancers with known mTOR
`pathway activation, including tumor agnostic indications targeting specific genomic alterations
`that activate the mTOR pathway. Non-party Merger Sub is a Delaware corporation and wholly-
`owned subsidiary of Aerpio.
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`2
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`JURISDICTION AND VENUE
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`6.
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`This Court has jurisdiction over the claims asserted herein for violations of Sections
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`14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder pursuant to
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`Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331 (federal question
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`jurisdiction).
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`7.
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`This Court has jurisdiction over the defendants because each defendant is either a
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`corporation that conducts business in and maintains operations within this District or is an
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`individual with sufficient minimum contacts with this District so as to make the exercise of
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`jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.
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`8.
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`Venue is proper in this District pursuant to 28 U.S.C. § 1391 because defendants
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`are found or are inhabitants or transact business in this District.
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`THE PARTIES
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`9.
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`Plaintiff is, and has been at all times relevant hereto, a continuous stockholder of
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`Aerpio.
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`10.
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`Defendant Aerpio is a Delaware corporation, with its principal executive offices
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`located at 9987 Carver Road, Suite 420, Cincinnati, Ohio 45242. Aerpio is a biopharmaceutical
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`company focused on developing compounds that activate Tie2 for indications. Aerpio’s shares
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`trade on The Nasdaq Capital Market under the ticker symbol “ARPO.”
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`11.
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`Defendant Caley Castelein (“Castelein”) has been a director of the Company since
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`March 2017.
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`12.
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`Defendant Cheryl Cohen (“Cohen”) and has been a director of the Company since
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`June 2018.
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`3
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`13.
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`Defendant Anupam Dalal (“Dalal”) has been a director of the Company since
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`November 2011.
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`14.
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`Defendant Pravin Dugel (“Dugel”) has been a director of the Company since March
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`2017.
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`15.
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`Defendant Joseph Gardner (“Gardner”) is President and Principal Executive
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`Officer ofthe Company, and has been a director since 2011. Defendant Gardner previously served
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`as the Company’s Chief Executive Officer (“CEO”) fiom December 2011 until December 2017.
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`16.
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`Defendant Steven Prelack (“Prelack”) has been a director of the Company since
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`March 2017.
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`17.
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`Defendants identified in paragraphs 11-16 are referred to herein as the “Board” or
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`the “Individual Defendants
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`The Proposed Transaction
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`SUBSTANTIVE ALLEGATIONS
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`18.
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`On May 17, 2021 , Aerpio and Aadi jointly announced in relevant part:
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`CINCINNATI and PACIFIC PALISADES, Calif, May 17, 2021 (GLOBE
`NEWSWIRE -— Aerpio Pharmaceuticals, Inc. (“Aerpio”) (Nasdaq: ARPO), a
`biopharmaceutical company focused on developing compounds that activate Tie2,
`and Aadi Bioscience, Inc. (“Aadi”), a privately-held biopharmaceutical company
`focusing on precision therapies for genetically-defined cancers with alterations in
`mTOR pathway genes, announced their entry into a definitive merger agreement.
`Following the proposed merger, Aerpio will change its name to “Aadi Bioscience,
`Inc.” and the combined public company will focus on advancing Aadi’s lead
`product candidate, FYARROTM (sirolimus albumin—bound nanoparticles for
`injectable suspension; nab-sirolimus; ABI-009).
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`In support of the merger, Aerpio has entered into subscription agreements to raise
`$155 million in a Private Investment in Public Equity (PIPE) financing led by Acuta
`Capital Partners and KVP Capital and including Avoro Capital Advisors; Avoro
`Ventures; Venrock Healthcare Capital Partners; BVF Partners, LP; Vivo Capital;
`Alta Bioequities, L.P.; Rock Springs Capital; RTW Investments, LP; Acorn
`Bioventures; and Serrado Capital LLC as well as other undisclosed institutional
`investors.
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`

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`The PIPE financing is expected to be consummated concurrently with the closing
`of the merger. Proceeds from the PIPE financing are intended to be used for
`commercialization of FYARRO in advanced malignant PEComa and a planned
`tumor-agnostic registrational trial in solid tumors harboring inactivating alterations
`in the mTOR pathway genes TSC l and TSC2 expected to be initiated by the end of
`2021. Aadi’s first indication, advanced malignant PEComa,
`is an ultra-rare
`sarcoma enriched in TSCl and TSC2 alterations. Aadi has received Orphan
`designation, Fast Track designation and Breakthrough Therapy designation from
`the FDA for FYARRO for the treatment of patients with advanced malignant
`PEComa. Together with the cash expected from both companies at closing, the net
`proceeds of the PIPE financing are expected to fund the company into 2024,
`enabling potential approval and commercial
`launch in PEComa as well as
`completion of a registrational trial in tumors harboring TSC 1 or TSC2 inactivating
`alterations.
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`Caley Castelein, a board member of Aerpio and the proposed chairman of the
`combined company stated, “Aerpio’s board of directors diligently undertook a
`comprehensive strategic review and has concluded that the proposed transaction
`with Aadi is in the best interest of our shareholders. We believe Aadi’s late-stage
`development program may offer significant medical benefit to PEComa patients
`and important potential for patients with tumors harboring TSCl or TSC2
`inactivating alterations.”
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`Dr. Neil Desai, founder and chief executive officer of Aadi, added, “FYARRO met
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`its safety and efficacy endpoints in our study in patients with advanced malignant
`PEComa2 and this finding supports our approach of targeting mTOR pathway
`altered cancers with FYARRO. We are excited about the next chapter of growth
`for Aadi, thankful for the support of our investors, and are energized to continue to
`develop important new treatment options for our patients.”
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`Anupam Dalal, chief investment officer ofAcuta Capital Partners stated, “Together
`with a group of renowned institutional investors, we are excited to partner with
`Aadi as it advances FYARRO and strives to unlock the potential of mTOR as a
`therapeutic targe .”
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`Upon closing of the transaction, the combined company will be led by Aadi’s chief
`executive officer, Neil Desai, and headquartered in Los Angeles, California. Aadi’s
`board members Neil Desai and Richard Maroun; Aadi’s board observer Karin
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`Hehenberger; and current Aerpio board members Anupam Dalal and Caley
`Castelein will be members of the board of directors of the combined company. In
`addition, Behzad Aghazadeh, managing partner of Avoro Capital Advisors and
`Avoro Ventures, will also join the board of the combined company upon the closing
`of the transaction.
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`About the Proposed Transaction
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`

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`Case 1:21-cv-01123-UNA Document 1 Filed 08/02/21 Page 6 of 12 PageID #: 6
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`Under the terms of the merger agreement, shareholders of Aadi will receive shares
`of newly issued Aerpio common stock. On a pro forma basis, shareholders of Aadi
`will own approximately 66.8% and shareholders of Aerpio will own approximately
`33.2% of the combined company upon the closing of the merger, prior to the
`additional PIPE financing transaction. Following the closing of the concurrent
`PIPE financing, Aerpio shareholders will own approximately 14.7% of the
`combined company. The actual allocation is subject to adjustment based on
`Aerpio’s cash balance at the time of closing.
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`The terms of the merger agreement contemplate that a non-transferable contingent
`value right (a “CVR”) will be distributed to Aerpio shareholders as of immediately
`prior to the effective time of the merger, entitling CVR holders to receive net
`proceeds received by Aerpio, if any, associated with Aerpio’s legacy assets. The
`terms and conditions of the CVRs will be pursuant to a CVR Agreement Aerpio
`will enter into prior to the closing of the merger (the “CVR Agreement”).
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`The merger agreement has been approved by the boards of directors of both
`companies. The transaction is expected to close in the third quarter of 202 l , subject
`to approval by Aerpio’s shareholders, the completion of the PIPE financing, and
`customary closing conditions.
`The PIPE financing is expected to close
`concurrently with, and is conditioned upon, the closing of the merger.
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`Additional information about the transaction will be provided in a Current Report
`on Form 8-K that will be filed by Aerpio with the Securities and Exchange
`Commission (“SEC”) and will be available at www.sec.gov.
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`Ladenburg Thalmann & Co. Inc. is acting as financial advisor to Aerpio for the
`transaction and Goodwin Procter LLP is serving as its legal counsel. Perella
`Weinberg Partners LP and Ladenburg & Co. are acting as financial advisors to Aadi
`for the transaction and Wilson Sonsini Goodrich & Rosati, RC. is serving as legal
`counsel to Aadi. Jefferies LLC; Cowen and Company, LLC; and Ladenburg & Co.
`are acting as placement agents for the PIPE financing.
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`The Frog Statement Contains Material Misstatements and Omissions
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`19.
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`The defendants filed a materially incomplete and misleading Proxy Statement with
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`the SEC and disseminated it to Aerpio’s stockholders. The Proxy Statement misrepresents or omits
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`material information that is necessary for the Company’s stockholders to make an informed
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`decision whether to vote their shares in favor of the Proposed Transaction.
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`

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`20.
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`Specifically, as set forth below, the Proxy Statement fails to provide Company
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`stockholders with material information or provides them with materially misleading information
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`concerning: (a) certain financial projections, relied upon by the Company’s financial advisor
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`Ladenburg Thalmann & Co. Inc. (“Ladenburg”) in its financial analyses; (b) the data and inputs
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`underlying the financial valuation analyses that support the fairness opinion provided by
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`Ladenburg; and (c) information concerning a second, unidentified financial advisor that assisted
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`the Company in connection with the process leading to the Proposed Transaction.
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`Material Omissions Concerning the Company’s Financial Projections and Ladenburg’s
`Financial Analyses
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`21.
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`The Proxy Statement fails entirely disclose the Company’s financial projections.
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`In addition, the Proxy Statement fails to disclose the line items underlying the unlevered free cash
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`flows for Aadi, as well as the assumptions that went into deriving those forecasts.
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`22.
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`The Proxy Statement also describes Ladenburg’s fairness opinion and the various
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`valuation analyses performed in support of their opinions. However, the description of
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`Ladenburg’s fairness opinion and analysis fails to include key inputs and assumptions underlying
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`these analyses. Without this information, as described below, Aerpio’s public stockholders are
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`unable to fully understand these analyses and, thus, are unable to determine what weight, if any,
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`to place on Ladenburg’s fairness opinions in determining whether to vote in favor of the Proposed
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`Transaction. This omitted information, if disclosed, would significantly alter the total mix of
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`information available to Aerpio’s stockholders.
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`23.
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`The Proxy Statement fails
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`to disclosed material
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`information concerning
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`Ladenburg’s Discounted Cash Flow Analysis. Specifically, the Proxy fails to disclose: (a) the line
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`items used to calculate Aadi’s unlevered free cash flows; (b) the assumptions underlying the
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`adjustments made to the projections utilized in the analysis, (c) the inputs and assumptions
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`7
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`underlying the discount rates ranging from 12.9% to 16.9%; and (iv) the inputs and assumptions
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`used to conclude that Aadi had no terminal value for purposes of the analysis.
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`24.
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`The Proxy Statement fails to disclose material information concerning
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`Ladenburg’s Analysis of Selected Publicly Traded Companies. Specifically, the Proxy Statement
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`fails to disclose the individual multiples and metrics that Ladenburg observed for the companies utilized
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`in the analysis.
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`25.
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`The Proxy Statement fails to disclose material information concerning
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`Ladenburg’s Analysis of Selected Precedent M&A Transactions. Specifically, the Proxy
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`Statement fails to disclose: (a) the dates on which each of the selected transactions observed
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`closed; and (b) the inputs and assumptions used to determine the enterprise value for the
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`transactions observed.
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`26.
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`The Proxy Statement also references the fact that the Company retained a
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`“second financial advisor” in connection with the Proposed Transaction. The Proxy Statement
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`not only fails to disclose the identity of this advisor, but also the outcome of any financial analyses
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`performed thereby, and any remuneration paid thereto, as well as any past or current services
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`(and the amount of remuneration) this advisor is providing to any of the parties to the Proposed
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`Transaction.2
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`27.
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`The omission of this information renders the statements in the “Certain Aerpio
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`Management Unaudited Prospective Financial Information” and Opinion of Aerpio’s Financial
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`Advisor” sections of the Proxy Statement false and/or materially misleading in contravention of
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`2 Full disclosure of investment banker compensation and all potential conflicts is required due to
`the central role played by investment banks in the evaluation, exploration, selection, and
`implementation of strategic alternatives.
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`8
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`

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`the Exchange Act.
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`28.
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`The Individual Defendants were aware of their duty to disclose the above-
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`referenced omitted information and acted negligently (if not deliberately) in failing to include
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`this information in the Proxy Statement. Absent disclosure of the foregoing material information
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`prior to the stockholder vote on the Proposed Transaction, Plaintiff and the other stockholders of
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`Aerpio will be unable to make a sufficiently informed voting decision in connection with the
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`Proposed Transaction and are thus threatened with irreparable harm warranting the injunctive
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`relief sought herein.
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`CLAIMS FOR RELIEF
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`COUNT I
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`Claims Against All Defendants for Violations of Section 14(a) of the
`Exchange Act and Rule 14a-9 Promulgated Thereunder
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`Plaintiff repeats all previous allegations as if set forth in full.
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`During the relevant period, defendants disseminated the false and misleading Proxy
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`29.
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`30.
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`Statement specified above, which failed to disclose material facts necessary to make the
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`statements, in light of the circumstances under which they were made, not misleading in violation
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`of Section 14(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder.
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`31.
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`By virtue of their positions within the Company, the defendants were aware of this
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`information and of their duty to disclose this information in the Proxy Statement. The Proxy
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`Statement was prepared, reviewed, and/or disseminated by the defendants. It misrepresented
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`and/or omitted material facts, including material information about (a) certain financial
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`projections, (b) the inputs and assumptions underlying Ladenburg’s financial analyses; and (c)
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`critical information concerning the Company’s “second financial advisor.” The defendants were
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`9
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`Case 1:21-cv-01123-UNA Document 1 Filed 08/02/21 Page 10 of 12 PageID #: 10
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`at least negligent in filing the Proxy Statement with these materially false and misleading
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`statements.
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`32.
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`The omissions and false and misleading statements in the Proxy Statement are
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`material in that a reasonable stockholder would consider them important in deciding how to vote
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`on the Proposed Transaction.
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`33.
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`By reason of the foregoing, the defendants have violated Section 14(a) of the
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`Exchange Act and SEC Rule 14a-9(a) promulgated thereunder.
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`34.
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`Because of the false and misleading statements in the Proxy Statement, Plaintiff is
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`threatened with irreparable harm, rendering money damages inadequate. Therefore, injunctive
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`relief is appropriate to ensure defendants’ misconduct is corrected.
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`COUNT II
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`Claims Against the Individual Defendants for Violations
`of Section 20(a) of the Exchange Act
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`Plaintiff repeats all previous allegations as if set forth in full.
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`The Individual Defendants acted as controlling persons of Aerpio within the
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`35.
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`36.
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`meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as
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`officers and/or directors of Aerpio, and participation in and/or awareness of the Company’s
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`operations and/or intimate knowledge of the false statements contained in the Proxy Statement
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`filed with the SEC, they had the power to influence and control and did influence and control,
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`directly or indirectly, the decision-making of the Company, including the content and
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`dissemination of the various statements which Plaintiff contends are false and misleading.
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`37.
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`Each of the Individual Defendants was provided with or had unlimited access to
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`copies of the Proxy Statement and other statements alleged by Plaintiff to be misleading prior to
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`10
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`and/or shortly after these statements were issued and had the ability to prevent the issuance of the
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`statements or cause the statements to be corrected.
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`38.
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`In particular, each of the Individual Defendants had direct and supervisory
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`involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
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`the power to control or influence the particular transactions giving rise to the securities violations
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`as alleged herein, and exercised the same. The Proxy Statement at issue contains the unanimous
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`recommendation of each of the Individual Defendants to approve the Proposed Transaction. They
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`were, thus, directly involved in the making of the Proxy Statement.
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`39.
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`In addition, as the Proxy Statement sets forth at length, and as described herein, the
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`Individual Defendants were each involved in negotiating, reviewing, and approving the Proposed
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`Transaction. The Proxy Statement purports to describe the various issues and information that
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`they reviewed and considered—descriptions the Company directors had input into.
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`40.
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`By virtue of the foregoing, the Individual Defendants have violated Section 20(a)
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`of the Exchange Act.
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`41.
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`As set forth above, the Individual Defendants had the ability to exercise control
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`over and did control a person or persons who have each violated Section 14(a) and SEC Rule 14a-
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`9, promulgated thereunder, by their acts and omissions as alleged herein. By virtue of their
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`positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the
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`Exchange Act. As a direct and proximate result of defendants’ conduct, Aerpio stockholders will
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`be irreparably harmed.
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`PRAYER FOR RELIEF
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`WHEREFORE, Plaintiff demands judgment and preliminary and permanent relief,
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`including injunctive relief, in his favor on behalf of Aerpio, and against defendants, as follows:
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`11
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`A.
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`Preliminarily and permanently enjoining defendants and all persons acting in
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`concert with them from proceeding with, consummating, or closing the Proposed Transaction and
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`any vote on the Proposed Transaction, unless and until defendants disclose and disseminate the
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`material information identified above to Aerpio stockholders;
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`B.
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`In the event defendants consummate the Proposed Transaction, rescinding it and
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`setting it aside or awarding rescissory damages to Plaintiff;
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`C.
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`Declaring that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act,
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`as well as SEC Rule 14a-9 promulgated thereunder;
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`D.
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`Awarding Plaintiff the costs of this action, including reasonable allowance for
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`Plaintiff’s attorneys’ and experts’ fees; and
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`E.
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`Granting such other and further relief as this Court may deem just and proper.
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`
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`JURY DEMAND
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`Plaintiff demands a trial by jury.
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`Dated: August 2, 2021
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`
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`By:
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`LONG LAW, LLC
`
`/s/ Brian D. Long
`Brian D. Long (#4347)
`3828 Kennett Pike, Suite 208
`Wilmington, DE 19807
`Telephone: (302) 729-9100
`Email: BDLong@longlawde.com
`
`Attorneys for Plaintiff
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`12
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