Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________ FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2023 Or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-36856 HEPION PHARMACEUTICALS, INC. (Exact name of registrant as specified in its ch ...

[PART I—FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents Hepion Pharmaceuticals' unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, for the periods ended June 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2023 | December 31, 2022 | | :----------------- | :------------ | :---------------- | | Cash | $30,521,733 | $51,189,088 | | Total current assets | $32,762,456 | $56,496,073 | | Total assets | $36,502,110 | $60,244,452 | | Total liabilities | $10,129,041 | $10,388,515 | | Total stockholders' equity | $26,373,069 | $49,855,937 | - Cash decreased by **$20.67 million** from December 31, 2022, to June 30, 2023[11](index=11&type=chunk) - Total stockholders' equity decreased by **$23.48 million** from December 31, 2022, to June 30, 2023[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenues, expenses, and net loss for the three and six months ended June 30, 2023, and 2022 Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $0 | $0 | $0 | $0 | | Research and development | $11,880,669 | $15,701,955 | $21,678,328 | $20,013,089 | | General and administrative | $2,284,961 | $2,425,242 | $5,696,467 | $5,366,576 | | Goodwill impairment loss | $0 | $1,870,924 | $0 | $1,870,924 | | Total operating expenses | $14,165,630 | $19,998,121 | $27,374,795 | $27,250,589 | | Net loss | $(14,079,547) | $(19,911,299) | $(27,339,468) | $(26,840,984) | | Net loss per common share | $(3.68) | $(5.22) | $(7.16) | $(7.04) | - Net loss for the three months ended June 30, 2023, decreased by **$5.83 million** compared to the same period in 2022, primarily due to lower R&D expenses and the absence of goodwill impairment[13](index=13&type=chunk)[117](index=117&type=chunk) - Net loss for the six months ended June 30, 2023, increased by **$0.50 million** compared to the same period in 2022[13](index=13&type=chunk)[121](index=121&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details the company's comprehensive loss, including net loss and other comprehensive income/loss components, for the three and six months ended June 30, 2023, and 2022 Condensed Consolidated Statements of Comprehensive Loss Highlights | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(14,079,547) | $(19,911,299) | $(27,339,468) | $(26,840,984) | | Foreign currency translation | $(16,836) | $(39,113) | $2,517 | $(29,967) | | Comprehensive loss | $(14,096,383) | $(19,950,412) | $(27,336,951) | $(26,870,951) | - Comprehensive loss for the three months ended June 30, 2023, was **$(14.10) million**, a decrease from **$(19.95) million** in the prior year[16](index=16&type=chunk) - Comprehensive loss for the six months ended June 30, 2023, was **$(27.34) million**, a slight increase from **$(26.87) million** in the prior year[16](index=16&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section presents changes in the company's stockholders' equity, including accumulated deficit and stock-based compensation, for the periods ended December 31, 2022, and June 30, 2023 Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights | Metric | December 31, 2022 | June 30, 2023 | | :------------------------- | :---------------- | :------------ | | Total Stockholders' Equity | $49,855,937 | $26,373,069 | | Accumulated Deficit | $(175,701,344) | $(203,040,812) | - Total stockholders' equity decreased by **$23.48 million** from December 31, 2022, to June 30, 2023[19](index=19&type=chunk) - Accumulated deficit increased by **$27.34 million** during the six months ended June 30, 2023[19](index=19&type=chunk) - Stock-based compensation expense contributed **$871,077** to additional paid-in capital for the six months ended June 30, 2023[19](index=19&type=chunk)[26](index=26&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022 Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Activity | 2023 | 2022 | | :------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(20,650,862) | $(17,629,313) | | Net cash (used in) provided by investing activities | $(16,538) | $2,266 | | Net cash used in financing activities | $0 | $(2,000,000) | | Net decrease in cash | $(20,667,355) | $(19,641,462) | | Cash at end of period | $30,521,733 | $71,707,505 | - Net cash used in operating activities increased by **$3.02 million** for the six months ended June 30, 2023, compared to the same period in 2022[26](index=26&type=chunk) - No cash was used in financing activities for the six months ended June 30, 2023, compared to **$2.0 million** used in 2022 for a contingent consideration milestone payment[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes accompanying the condensed consolidated financial statements, offering further context and breakdown of reported figures [1. Business Overview](index=11&type=section&id=1.%20Business%20Overview) Hepion Pharmaceuticals is a biopharmaceutical company developing rencofilstat for chronic liver diseases, with positive Phase 2a results and ongoing Phase 2b clinical trials cleared by the DSMB - Hepion Pharmaceuticals is a biopharmaceutical company headquartered in Edison, New Jersey, focused on developing drug therapy for chronic liver diseases[28](index=28&type=chunk) - Rencofilstat (formerly CRV431), a cyclophilin inhibitor, is the lead molecule being developed to address fibrosis, inflammation, and potential treatment for hepatocellular carcinoma (HCC) associated with NASH, viral hepatitis, and other liver diseases[28](index=28&type=chunk)[29](index=29&type=chunk) - The Phase 2a ALTITUDE-NASH study met its primary endpoint in May 2023, demonstrating improved liver function and good tolerability in NASH subjects with stage 3 or greater fibrosis[30](index=30&type=chunk) - The Data and Safety Monitoring Board (DSMB) cleared the ongoing 12-month Phase 2b ASCEND-NASH clinical trial to proceed without modification in June 2023[31](index=31&type=chunk) [2. Basis of Presentation](index=11&type=section&id=2.%20Basis%20of%20Presentation) Unaudited condensed consolidated financial statements adhere to SEC and U.S. GAAP, reflecting a 1-for-20 reverse stock split and substantial doubt about the company's ability to continue as a going concern - The financial statements are prepared in accordance with SEC requirements and U.S. GAAP for interim reporting, consolidating Hepion Pharmaceuticals, Inc. and its subsidiaries, Contravir Research Inc. and Hepion Research Corp[32](index=32&type=chunk)[33](index=33&type=chunk) - A 1-for-20 reverse stock split was effective May 11, 2023, to satisfy Nasdaq listing requirements, with all applicable share and per share information retrospectively adjusted[34](index=34&type=chunk) - As of June 30, 2023, the company had **$30.5 million** in cash, an accumulated deficit of **$203.0 million**, and working capital of **$25.1 million**, with **$20.7 million** cash used in operating activities for the six months ended June 30, 2023[35](index=35&type=chunk) - Management concluded there is substantial doubt about the company's ability to continue as a going concern within one year without additional capital[38](index=38&type=chunk) [3. Summary of Significant Accounting Policies](index=12&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) Significant accounting policies remain consistent with the 2022 Form 10-K, involving estimates for fair value measurements, expensing R&D costs, and maintaining a full valuation allowance for deferred tax assets - There have been no changes to the company's significant accounting policies since December 31, 2022[41](index=41&type=chunk) - Cash balances were **$30.5 million** at June 30, 2023, and **$51.2 million** at December 31, 2022, held in U.S. and Canadian commercial banks[42](index=42&type=chunk) - Research and development costs are expensed as incurred because the company has no history of successful commercialization of product candidates[59](index=59&type=chunk) - The company maintains a full valuation allowance for its U.S. and foreign net deferred tax assets[53](index=53&type=chunk) [4. Stockholders' Equity](index=16&type=section&id=4.%20Stockholders'%20Equity) As of June 30, 2023, the company had 85,581 Series A and 1,800 Series C Convertible Preferred Stock shares outstanding, with one Series C share converted to common stock Convertible Preferred Stock Outstanding | Stock Type | Shares Outstanding (June 30, 2023) | Shares Outstanding (December 31, 2022) | | :--------- | :--------------------------------- | :------------------------------------- | | Series A | 85,581 | 85,581 | | Series C | 1,800 | 1,801 | - During the six months ended June 30, 2023, **1 share** of Series C preferred stock was converted into **1 share** of common stock[67](index=67&type=chunk) [5. Fair Value Measurements](index=16&type=section&id=5.%20Fair%20Value%20Measurements) Contingent consideration, measured at fair value using Level 3 inputs, decreased by **$40,000** to **$2.42 million** as of June 30, 2023, due to adjusted milestone achievement dates Contingent Consideration Fair Value | Date | Fair Value | | :--------------- | :------------- | | June 30, 2023 | $2,420,000 | | December 31, 2022| $2,460,000 | - The fair value of contingent consideration decreased by **$40,000** for the six months ended June 30, 2023, recorded as a change in fair value in earnings[73](index=73&type=chunk) - Key assumptions for fair value calculation include an **8.5% discount rate** and **13%-40% probability of success** for milestone achievements, with milestone achievement dates adjusted for the six months ended June 30, 2023[70](index=70&type=chunk)[72](index=72&type=chunk) [6. Property and Equipment, net](index=17&type=section&id=6.%20Property%20and%20Equipment,%20net) Property and equipment, net, decreased from **$81,620** to **$60,770** due to **$36,366** in depreciation expense for the six months ended June 30, 2023 Property and Equipment, Net | Date | Amount | | :--------------- | :--------- | | June 30, 2023 | $60,770 | | December 31, 2022| $81,620 | - Depreciation expense for the six months ended June 30, 2023, was **$36,366**, compared to **$41,258** for the same period in 2022[74](index=74&type=chunk) [7. Indefinite-lived Intangible Assets](index=17&type=section&id=7.%20Indefinite-lived%20Intangible%20Assets) The In-Process Research and Development (IPR&D) asset remained unchanged at **$3.19 million** as of June 30, 2023, with no impairment losses recorded Indefinite-lived Intangible Asset (Rencofilstat) | Date | Balance | | :--------------- | :----------- | | June 30, 2023 | $3,190,000 | | December 31, 2022| $3,190,000 | - No impairment losses were recorded on IPR&D during the six months ended June 30, 2023, or 2022[75](index=75&type=chunk) [8. Accrued Liabilities](index=17&type=section&id=8.%20Accrued%20Liabilities) Total accrued expenses decreased from **$4.8 million** to **$3.1 million**, primarily due to a significant reduction in stock-based compensation accruals Accrued Liabilities | Category | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Payroll and related costs | $724,100 | $838,683 | | Stock-based compensation | $0 | $1,906,401 | | Research and development | $2,009,215 | $1,716,035 | | Professional fees | $237,399 | $246,664 | | Other | $138,080 | $92,200 | | **Total accrued expenses**| **$3,108,794**| **$4,799,983** | - The significant decrease in total accrued expenses is primarily due to the reclassification of stock-based liability awards to additional paid-in capital, reducing stock-based compensation accruals to zero[76](index=76&type=chunk)[79](index=79&type=chunk) [9. Accounting for Share-Based Payments](index=18&type=section&id=9.%20Accounting%20for%20Share-Based%20Payments) The company adopted the 2023 Omnibus Equity Incentive Plan, reclassified **$2.98 million** in stock options from liability to equity, and reported **$1.95 million** in stock-based compensation expense for the six months ended June 30, 2023 - The 2023 Omnibus Equity Incentive Plan was approved in June 2023, authorizing the grant of up to **500,000 awards**[78](index=78&type=chunk) - Stock options previously classified as liability awards under the 2013 Plan were reclassified to equity with the approval of the 2023 Plan, resulting in a cumulative liability of **$2,983,006** recorded to additional paid-in capital[79](index=79&type=chunk) Total Stock-Based Compensation Expense | Period | 2023 | 2022 | | :------------------------- | :----------- | :----------- | | Three Months Ended June 30 | $16,928 | $162,508 | | Six Months Ended June 30 | $1,947,681 | $1,703,958 | - As of June 30, 2023, the unrecognized compensation cost related to non-vested stock options was **$0.8 million**, to be recognized over approximately **0.8 years**[81](index=81&type=chunk) [10. Loss per Share](index=19&type=section&id=10.%20Loss%20per%20Share) Basic and diluted net loss per common share was **$(3.68)** for the three months and **$(7.16)** for the six months ended June 30, 2023, with certain anti-dilutive securities excluded Net Loss Per Common Share (Basic and Diluted) | Period | 2023 | 2022 | | :------------------------- | :---- | :---- | | Three Months Ended June 30 | $(3.68)| $(5.22)| | Six Months Ended June 30 | $(7.16)| $(7.04)| Anti-Dilutive Securities Excluded from EPS Calculation (Six Months Ended June 30) | Security Type | 2023 | 2022 | | :------------------------------------------------ | :------ | :------ | | Common shares issuable upon conversion of Series A| 159 | 159 | | Common shares issuable upon conversion of Series C| 829 | 830 | | Stock options | 444,546 | 444,749 | | Warrants – equity classified | 215,559 | 215,559 | | **Total** | **661,093** | **661,297** | - The equity classified warrants were excluded from the computation of basic and diluted earnings per share because their exercise price exceeded the average market price of common stock[90](index=90&type=chunk) [11. Commitments and Contingencies](index=20&type=section&id=11.%20Commitments%20and%20Contingencies) Corporate office and research laboratory leases are on a month-to-month basis pending new agreements, and ongoing legal proceedings are not expected to materially affect financial condition - The lease for corporate office space in Edison, New Jersey, expired on March 31, 2023, and is currently on a month-to-month basis, with new lease negotiations underway[91](index=91&type=chunk) - The lease for office and research laboratory space in Edmonton, Canada, expired on September 30, 2022, and is also on a month-to-month basis, with new lease negotiations underway[91](index=91&type=chunk) - The company does not believe the outcome of current legal proceedings or claims will have a material adverse effect on its consolidated financial condition or results of operations[92](index=92&type=chunk) [12. Subsequent Events](index=20&type=section&id=12.%20Subsequent%20Events) No subsequent events were reported requiring disclosure - No subsequent events were reported[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operational results, focusing on rencofilstat development, AI-POWR™ platform, financial performance for the three and six months ended June 30, 2023, and liquidity challenges [Business Overview](index=21&type=section&id=Business%20Overview) Hepion Pharmaceuticals develops rencofilstat for chronic liver diseases like NASH and HCC, with positive Phase 2a results and ongoing Phase 2b trials, addressing significant unmet medical needs - Hepion Pharmaceuticals is focused on developing rencofilstat for the treatment of chronic liver diseases, including NASH and HCC[100](index=100&type=chunk) - The Phase 2a ALTITUDE-NASH study met its primary endpoint in May 2023, demonstrating improved liver function and good tolerability in NASH subjects with stage 3 or greater fibrosis[102](index=102&type=chunk) - The Data and Safety Monitoring Board (DSMB) cleared the ASCEND-NASH Phase 2b study to proceed without modification in June 2023[103](index=103&type=chunk) - NASH is a major global health concern with no currently approved specific treatments, and HCC is a leading cause of cancer-related deaths worldwide[105](index=105&type=chunk)[106](index=106&type=chunk) [Artificial Intelligence (AI)](index=22&type=section&id=Artificial%20Intelligence%20(AI)) The company developed "AI-POWR™" to optimize clinical programs, identify novel indications for Rencofilstat, and discover new drug targets using multi-omics and machine learning - Hepion has created a proprietary AI tool, "AI-POWR™," to optimize clinical program outcomes and identify novel indications for Rencofilstat, as well as new drug targets and molecules[108](index=108&type=chunk) - AI-POWR™ utilizes a multi-omics approach (genomics, proteomics, metabolomics, transcriptomics, and lipidomics) and machine learning algorithms to select novel drug targets, biomarkers, and appropriate patient populations[109](index=109&type=chunk) - The company believes AI-POWR™ will help identify responders, reduce the need for large sample sizes, shorten development timelines, and increase the delta between placebo and treatment groups in trials like the Phase 2b Ascend-NASH program[110](index=110&type=chunk)[111](index=111&type=chunk) [Financial Operations Overview](index=22&type=section&id=FINANCIAL%20OPERATIONS%20OVERVIEW) Since inception, the company has generated no revenue, accumulated a **$203.0 million** deficit, and anticipates continued losses due to ongoing R&D and clinical trials, facing high drug development risks - As of June 30, 2023, the company has an accumulated deficit of **$203.0 million** and has not generated any revenue from operations since its inception in May 2013[112](index=112&type=chunk) - The company expects to incur additional losses for the next several years as it expands research, development, and clinical trials of rencofilstat[112](index=112&type=chunk) - Product development efforts are in early stages, with high risks and uncertainties related to clinical testing, regulatory approval, capital raising, and competing technologies[113](index=113&type=chunk) [Critical Accounting Estimates](index=22&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) No significant changes were made to critical accounting estimates during the six months ended June 30, 2023, compared to those in the 2022 Annual Report on Form 10-K - No significant changes to critical accounting estimates were made during the six months ended June 30, 2023, compared to those described in the Annual Report on Form 10-K for the year ended December 31, 2022[115](index=115&type=chunk) [Recent Accounting Pronouncements](index=23&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) No recent accounting pronouncements are expected to materially affect the condensed consolidated financial statements for the six months ended June 30, 2023 - There are no recent accounting pronouncements that will have a material effect on the condensed consolidated financial statements for the six months ended June 30, 2023[116](index=116&type=chunk) [Results of Operations](index=23&type=section&id=RESULTS%20OF%20OPERATIONS) The company reported no revenues, with net loss decreasing by **$5.8 million** for the three months and increasing by **$0.5 million** for the six months ended June 30, 2023, influenced by R&D and G&A expenses [Comparison of the three months ended June 30, 2023 and 2022](index=23&type=section&id=Comparison%20of%20the%20three%20months%20ended%20June%2030,%202023%20and%202022) This section compares the company's financial performance for the three months ended June 30, 2023, against the same period in 2022, detailing changes in expenses and net loss Financial Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | | :-------------------------- | :------------- | :------------- | :------------- | | Revenues | $0 | $0 | $0 | | Research and development | $11,880,669 | $15,701,955 | $(3,821,286) | | General and administrative | $2,284,961 | $2,425,242 | $(140,281) | | Goodwill impairment loss | $0 | $1,870,924 | $(1,870,924) | | Loss from operations | $(14,165,630) | $(19,998,121) | $5,832,491 | | Net loss | $(14,079,547) | $(19,911,299) | $5,831,752 | - The **$3.8 million** decrease in R&D expenses was primarily due to an **$8.8 million** decrease in drug development costs, partially offset by a **$4.8 million** increase in clinical trial costs for the Phase 2b study[118](index=118&type=chunk) - General and administrative expenses decreased by **$0.1 million**, mainly due to lower stock-based compensation and consulting costs, offset by increased professional fees and compensation[119](index=119&type=chunk) [Comparison of the six months ended June 30, 2023 and 2022](index=24&type=section&id=Comparison%20of%20the%20six%20months%20ended%20June%2030,%202023%20and%202022) This section compares the company's financial performance for the six months ended June 30, 2023, against the same period in 2022, detailing changes in expenses and net loss Financial Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | | :-------------------------- | :------------- | :------------- | :------------- | | Revenues | $0 | $0 | $0 | | Research and development | $21,678,328 | $20,013,089 | $1,665,239 | | General and administrative | $5,696,467 | $5,366,576 | $329,891 | | Goodwill impairment loss | $0 | $1,870,924 | $(1,870,924) | | Loss from operations | $(27,374,795) | $(27,250,589) | $(124,206) | | Net loss | $(27,339,468) | $(26,840,984) | $(498,484) | - The **$1.7 million** increase in R&D expenses was primarily due to a **$10.0 million** increase in clinical trial costs for the Phase 2b study and a **$0.4 million** increase in compensation costs, partially offset by an **$8.7 million** decrease in drug development costs[122](index=122&type=chunk) - General and administrative expenses increased by **$0.3 million**, mainly due to higher compensation costs, professional fees, and travel costs, offset by a decrease in consulting costs[123](index=123&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The company, with **$30.5 million** cash and **$25.1 million** working capital, requires substantial additional financing for product development and operations, risking significant stockholder dilution or program delays if funding is not secured [Sources of Liquidity](index=24&type=section&id=Sources%20of%20Liquidity) This section details the company's historical funding sources, primarily through the issuance of equity and convertible debt securities - The company has funded operations primarily through the issuance of convertible preferred stock, convertible debt, and common stock via at-the-market offerings[124](index=124&type=chunk) [Future Funding Requirements](index=24&type=section&id=Future%20Funding%20Requirements) This section outlines the company's anticipated need for substantial additional financing to support ongoing development, regulatory approvals, and operational expansion, highlighting potential risks of dilution or program termination - The company expects to incur significant losses and requires substantial additional financing to pursue clinical and preclinical development, seek regulatory approvals, establish manufacturing capabilities, and expand operational systems[125](index=125&type=chunk)[126](index=126&type=chunk)[129](index=129&type=chunk) - Failure to obtain necessary capital could force the company to delay, limit, reduce, or terminate product development programs and commercialization efforts[129](index=129&type=chunk)[135](index=135&type=chunk) - Raising additional funds by issuing equity securities may result in significant dilution for stockholders[135](index=135&type=chunk) - The company's ability to continue as a going concern is in substantial doubt without additional capital becoming available[132](index=132&type=chunk)[134](index=134&type=chunk) [Cash Flows](index=26&type=section&id=Cash%20Flows) This section summarizes the company's cash flows from operating, investing, and financing activities, and changes in working capital for the six months ended June 30, 2023, and 2022 Summary of Cash Flows (Six Months Ended June 30) | Activity | 2023 | 2022 | | :----------------- | :------------- | :------------- | | Operating activities | $(20,650,862) | $(17,629,313) | | Investing activities | $(16,538) | $2,266 | | Financing activities | $0 | $(2,000,000) | - Working capital decreased by **$23.5 million** from **$48.6 million** as of December 31, 2022, to **$25.1 million** as of June 30, 2023, primarily due to cash expenditures[136](index=136&type=chunk) - Net cash used in operating activities increased by **$3.02 million** for the six months ended June 30, 2023, compared to the same period in 2022, driven by net loss[137](index=137&type=chunk)[138](index=138&type=chunk) - There was no cash provided by or used in financing activities for the six months ended June 30, 2023, compared to **$2.0 million** used in 2022 for a contingent consideration milestone payment[140](index=140&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable, indicating no material market risk disclosures are required for the reporting period - This section is marked as 'Not applicable,' indicating no material quantitative or qualitative disclosures about market risk[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed ineffective as of June 30, 2023, due to material weaknesses in the control environment and financial close process, with remediation efforts underway [Evaluation of Disclosure Controls and Procedures](index=26&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section details the conclusion that disclosure controls and procedures were ineffective as of June 30, 2023, due to identified material weaknesses in the control environment and financial reporting process - As of June 30, 2023, the Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were not effective due to material weaknesses[142](index=142&type=chunk) - Material weaknesses were identified in the control environment and period-end financial close and reporting process, specifically regarding the proper design and implementation of controls over non-core, complex accounting transactions and income tax provision[142](index=142&type=chunk)[146](index=146&type=chunk) [Remediation of Material Weaknesses](index=27&type=section&id=Remediation%20of%20Material%20Weaknesses) This section outlines the company's planned remedial actions to address identified material weaknesses, including utilizing external consultants and enhancing review processes for complex accounting and tax provisions - The company plans to implement several remedial actions, including utilizing external consultants for technical accounting issues, expanding and improving the review process for complex accounting transactions, and enhancing processes and controls around tax provision and disclosures[144](index=144&type=chunk)[146](index=146&type=chunk) - The company cannot assure that it will be successful in remediating the material weaknesses in a timely manner[144](index=144&type=chunk) [Changes in Internal Control over Financial Reporting](index=27&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms that, apart from the noted material weaknesses, no other changes in internal controls over financial reporting materially affected or are reasonably likely to materially affect them during the three months ended June 30, 2023 - Except for the material weaknesses noted, there have been no other changes in internal controls over financial reporting during the three months ended June 30, 2023, that materially affected or are reasonably likely to materially affect them[145](index=145&type=chunk) [PART II—OTHER INFORMATION](index=28&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section covers other required information, including risk factors and exhibits [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended December 31, 2022 - No material changes from the risk factors disclosed in the Form 10-K for the year ended December 31, 2022[148](index=148&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Controlled Equity Offering Sales Agreement, CEO and CFO certifications, and XBRL interactive data files - Exhibits include the Controlled Equity Offering Sales Agreement dated July 21, 2023, CEO and CFO certifications required under the Exchange Act and Sarbanes-Oxley Act, and XBRL interactive data files[149](index=149&type=chunk)[150](index=150&type=chunk) [SIGNATURES](index=29&type=section&id=SIGNATURES) This section contains the official signatures of the company's executive officers, certifying the accuracy of the report [Signatures](index=29&type=section&id=SIGNATURES) The report is duly signed by Robert Foster, CEO, and John Cavan, CFO, on behalf of Hepion Pharmaceuticals, Inc. on August 14, 2023 - The report was signed by Robert Foster, Chief Executive Officer, and John Cavan, Chief Financial Officer, on August 14, 2023[154](index=154&type=chunk)

[FORM 10-Q](index=1&type=section&id=FORM%2010-Q%20Header) This document is a Quarterly Report on Form 10-Q for Hepion Pharmaceuticals, Inc. for the period ended March 31, 2023 - This document is a Quarterly Report on Form 10-Q for Hepion Pharmaceuticals, Inc. for the period ended March 31, 2023[2](index=2&type=chunk) Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.0001 per share | HEPA | The Nasdaq Capital Market | - The registrant is a non-accelerated filer and a smaller reporting company. As of May 10, 2023, the number of shares of common stock outstanding was **3,811,482**[3](index=3&type=chunk) [NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section highlights that forward-looking statements are subject to risks, and actual results may differ materially, with no obligation to update - This report contains forward-looking statements, which are predictions of future results and plans, and actual results may differ materially due to various factors, including uncertainties in product development, clinical trials, regulatory approval, dependence on key personnel, and the need for additional financing[7](index=7&type=chunk) - The company does not assume any obligation to update forward-looking statements[7](index=7&type=chunk) [PART I—FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and financial position [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :---------------------- | :------------- | :---------------- | | Cash | 42,993,359 | 51,189,088 | | Total current assets | 45,806,405 | 56,496,073 | | Total assets | 49,496,251 | 60,244,452 | | Total current liabilities | 9,799,945 | 7,885,722 | | Total liabilities | 12,343,759 | 10,388,515 | | Total stockholders' equity | 37,152,492 | 49,855,937 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, showing revenues, expenses, and net loss | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenues | — | — | | Research and development | 9,797,659 | 4,311,134 | | General and administrative | 3,411,506 | 2,941,334 | | Total operating expenses | 13,209,165 | 7,252,468 | | Loss from operations | (13,209,165) | (7,252,468) | | Net loss | (13,259,921) | (6,929,685) | | Basic and diluted EPS | (3.48) | (1.82) | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section presents the total comprehensive loss, including net loss and other comprehensive income or loss components | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | (13,259,921) | (6,929,685) | | Foreign currency translation | 19,353 | 9,146 | | Comprehensive loss | (13,240,568) | (6,920,539) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section outlines changes in stockholders' equity over time, reflecting net loss, stock-based compensation, and other adjustments | Metric | Balance at Dec 31, 2022 ($) | Net Loss ($) | Other Comprehensive Income (Loss) ($) | Stock-based Compensation Expense ($) | Conversion of Series C to Common ($) | Balance at Mar 31, 2023 ($) | | :---------------------- | :---------------------- | :------- | :-------------------------------- | :------------------------------- | :------------------------------- | :---------------------- | | Total Stockholders' Equity | 49,855,937 | (13,259,921) | 19,353 | 537,123 | 0 | 37,152,492 | | Metric | Balance at Dec 31, 2021 ($) | Net Loss ($) | Other Comprehensive Income (Loss) ($) | Stock-based Compensation Expense ($) | Conversion of Series C to Common ($) | Issuance of Common Stock, net ($) | Balance at Mar 31, 2022 ($) | | :---------------------- | :---------------------- | :------- | :-------------------------------- | :------------------------------- | :------------------------------- | :---------------------------- | :---------------------- | | Total Stockholders' Equity | 92,995,003 | (6,929,685) | 9,146 | 556,610 | 0 | 5,008 | 86,636,082 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | (8,214,513) | (10,129,310) | | Net cash used in investing activities | — | — | | Net cash used in financing activities | — | (2,000,000) | | Net decrease in cash | (8,195,729) | (12,126,141) | | Cash at end of period | 42,993,359 | 79,222,826 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Business Overview](index=11&type=section&id=Note%201.%20Business%20Overview) This note describes the company's biopharmaceutical focus on chronic liver diseases and its lead drug candidate, rencofilstat - Hepion Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing drug therapies for chronic liver diseases, including non-alcoholic steatohepatitis (NASH), hepatocellular carcinoma (HCC), and viral hepatitis[30](index=30&type=chunk)[113](index=113&type=chunk) - The lead drug candidate, **rencofilstat** (formerly CRV431), is a cyclophilin inhibitor targeting fibrosis, inflammation, and showing potential for HCC treatment[30](index=30&type=chunk)[31](index=31&type=chunk)[113](index=113&type=chunk) - Rencofilstat has received FDA **Fast Track designation for NASH** and **Orphan Drug Designation for HCC**, facilitating expedited review and development incentives[40](index=40&type=chunk)[41](index=41&type=chunk) - The company has achieved positive Phase 1 clinical data for rencofilstat and positive topline results from its Phase 2a 'Ambition' NASH clinical trial, meeting primary endpoints and elucidating drug dose range[32](index=32&type=chunk)[37](index=37&type=chunk)[116](index=116&type=chunk) - Future contingent milestone payments related to the Ciclofilin acquisition are tied to Phase II positive data, Phase III trial initiation, and FDA new drug application acceptance and approval, with amendments made in January 2022[33](index=33&type=chunk)[34](index=34&type=chunk) [Note 2. Basis of Presentation](index=12&type=section&id=Note%202.%20Basis%20of%20Presentation) This note outlines the preparation basis for financial statements, including consolidation and going concern considerations - The unaudited condensed consolidated financial statements are prepared in accordance with SEC requirements and U.S. GAAP for interim reporting, including normal recurring adjustments[42](index=42&type=chunk) - The consolidated financial statements include Hepion Pharmaceuticals, Inc. and its subsidiaries, Contravir Research Inc. and Hepion Research Corp., with all intercompany balances and transactions eliminated[43](index=43&type=chunk) - The company has an accumulated deficit of **$189.0 million** and recurring losses, leading to substantial doubt about its ability to continue as a going concern without additional capital within one year[44](index=44&type=chunk)[45](index=45&type=chunk)[47](index=47&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=13&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's key accounting policies, including cash, contingent consideration, IPR&D, and stock-based compensation - There have been no changes to the company's significant accounting policies since December 31, 2022[50](index=50&type=chunk) Cash Balances | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :----- | :------------- | :---------------- | | Cash | 43.0 million | 51.2 million | - Contingent consideration is measured at fair value (Level 3) at each reporting period[56](index=56&type=chunk) - Acquired In-Process Research and Development (IPR&D) is an indefinite-lived asset, tested for impairment annually, with no impairment recorded for Q1 2023 or fiscal year 2022[58](index=58&type=chunk)[61](index=61&type=chunk) - The company maintains a full valuation allowance for its U.S. and foreign net deferred tax assets, and net operating loss (NOL) carryforwards are subject to Section 382 limitations[65](index=65&type=chunk)[66](index=66&type=chunk) - Research and development costs are expensed as incurred, with prepaid R&D costs of **$2.5 million** at March 31, 2023[69](index=69&type=chunk)[70](index=70&type=chunk) - Stock-based compensation awards are measured at fair value and certain grants are liability-classified due to insufficient shares available under the plan[73](index=73&type=chunk)[93](index=93&type=chunk) [Note 4. Stockholders' Equity and Derivative Liability — Warrants](index=17&type=section&id=Note%204.%20Stockholders'%20Equity%20and%20Derivative%20Liability%20%E2%80%94%20Warrants) This note details outstanding preferred stock and warrant information, including conversions and share counts - As of March 31, 2023, there were **85,581 shares of Series A Convertible Preferred Stock** outstanding, with no conversions during Q1 2023 or Q1 2022[80](index=80&type=chunk) - As of March 31, 2023, there were **1,800 shares of Series C Convertible Preferred Stock** outstanding, with **1 share converted** into common stock during Q1 2023[83](index=83&type=chunk) [Note 5. Fair Value Measurements](index=18&type=section&id=Note%205.%20Fair%20Value%20Measurements) This note provides fair value measurements for contingent consideration, including valuation methodologies and key assumptions Contingent Consideration Fair Value | Description | Fair value (March 31, 2023) ($) | Fair value (December 31, 2022) ($) | | :------------------------ | :-------------------------- | :--------------------------- | | Contingent consideration | 2,508,434 | 2,460,000 | - Contingent consideration is a Level 3 fair value measurement, valued using a probability-weighted discounted cash flow model[85](index=85&type=chunk) Valuation Assumptions | Assumption | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Discount rate (%) | 8.5% | 8.5% | | Projected milestone achievement dates | Dec 2023 — Dec 2028 | Dec 2023 — Dec 2028 | | Probability of success of milestone achievements (%) | 13% — 40% | 13% — 40% | [Note 6. Property and Equipment, net](index=19&type=section&id=Note%206.%20Property%20and%20Equipment,%20net) This note details the company's property and equipment, net of accumulated depreciation, and related expenses Property and Equipment, Net | Asset Category | March 31, 2023 ($) | December 31, 2022 ($) | | :--------------- | :------------- | :---------------- | | Equipment | 326,815 | 326,382 | | Furniture and fixtures | 62,183 | 62,183 | | Less: Accumulated depreciation | (325,249) | (306,945) | | Total | 63,749 | 81,620 | - Depreciation expense for the three months ended March 31, 2023, was **$18,037**, compared to **$22,730** for the same period in 2022[90](index=90&type=chunk) [Note 7. Indefinite-lived Intangible Assets](index=19&type=section&id=Note%207.%20Indefinite-lived%20Intangible%20Assets) This note reports the value of indefinite-lived intangible assets, specifically rencofilstat, and any impairment assessments Indefinite-lived Intangible Assets | Asset | Balance at Dec 31, 2022 ($) | Change during Q1 2023 ($) | Balance at Mar 31, 2023 ($) | | :---------- | :---------------------- | :-------------------- | :---------------------- | | Rencofilstat | 3,190,000 | — | 3,190,000 | - No impairment losses were recorded on IPR&D during the three months ended March 31, 2023, or 2022[91](index=91&type=chunk) [Note 8. Accrued Liabilities](index=19&type=section&id=Note%208.%20Accrued%20Liabilities) This note provides a breakdown of accrued liabilities, including payroll, stock-based compensation, and R&D costs Accrued Liabilities | Accrued Liability | March 31, 2023 ($) | December 31, 2022 ($) | | :------------------------ | :------------- | :---------------- | | Payroll and related costs | 360,613 | 838,683 | | Stock-based compensation | 3,300,031 | 1,906,401 | | Research and development | 2,389,560 | 1,716,035 | | Professional fees | 153,774 | 246,664 | | Other | 54,313 | 92,200 | | Total accrued expenses | 6,258,291 | 4,799,983 | [Note 9. Accounting for Share-Based Payments](index=19&type=section&id=Note%209.%20Accounting%20for%20Share-Based%20Payments) This note explains the accounting for stock-based compensation, including liability-classified awards and related expenses - Stock options granted under the 2013 Equity Incentive Plan are accounted for as liability-classified awards due to insufficient shares available for grant, requiring fair value measurement each reporting period[93](index=93&type=chunk) Stock-Based Compensation Expense | Expense Category | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------ | :-------------------------------- | :-------------------------------- | | General and administrative | 1,193,460 | 1,083,101 | | Research and development | 737,293 | 458,349 | | Total stock-based compensation expense | 1,930,753 | 1,541,450 | - As of March 31, 2023, the liability related to these awards was **$3.3 million**, included in accrued expenses[93](index=93&type=chunk) - Unrecognized compensation cost related to non-vested stock options was **$1.7 million**, to be recognized over approximately **1.0 years**[96](index=96&type=chunk) [Note 10. Loss per Share](index=20&type=section&id=Note%2010.%20Loss%20per%20Share) This note presents the calculation of basic and diluted loss per share, including anti-dilutive securities Loss per Share Calculation | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | (13,259,921) | (6,929,685) | | Weighted average common shares outstanding | 3,811,482 | 3,811,445 | | Net loss per share of common stock—basic and diluted | (3.48) | (1.82) | Anti-dilutive Securities | Anti-dilutive Securities | March 31, 2023 (shares) | March 31, 2022 (shares) | | :---------------------------------------- | :------------- | :------------- | | Common shares issuable upon conversion of Series A preferred stock | 159 | 159 | | Common shares issuable upon conversion of Series C preferred stock | 829 | 830 | | Stock options | 444,637 | 438,749 | | Warrants – liability classified | — | 536 | | Warrants – equity classified | 215,559 | 215,559 | | Total | 661,185 | 655,833 | [Note 11. Commitments and Contingencies](index=21&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) This note discloses the company's lease commitments, legal proceedings, and rent expenses - The company's corporate office and research laboratory leases expired on March 31, 2023, and September 30, 2022, respectively, and are currently on a month-to-month basis while new agreements are negotiated[102](index=102&type=chunk) - No material adverse effect is expected from current legal proceedings or claims[103](index=103&type=chunk) - Rent expense for the three months ended March 31, 2023, and 2022, was **$0.1 million** for both periods[108](index=108&type=chunk) [Note 12. Subsequent Events](index=22&type=section&id=Note%2012.%20Subsequent%20Events) This note details significant events occurring after the reporting period, such as the reverse stock split - A **1-for-20 reverse stock split** of common stock was declared on May 3, 2023, and became effective on May 11, 2023, to satisfy Nasdaq listing requirements. All applicable share and per share information in the financial statements have been retrospectively adjusted[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, including a business overview, financial performance comparison, and a detailed discussion of liquidity and capital resources, highlighting the need for future funding [Business Overview](index=23&type=section&id=Business%20Overview) This section outlines the company's biopharmaceutical focus, lead drug candidate progress, ongoing clinical trials, and AI tool utilization - Hepion Pharmaceuticals is a biopharmaceutical company focused on chronic fibrosis-related diseases, including NASH, HCC, and viral hepatitis, with **rencofilstat** as its lead cyclophilin inhibitor[113](index=113&type=chunk) - Rencofilstat has completed Phase 1 studies demonstrating safety and tolerability, and Phase 2a 'Ambition' NASH trial showed positive topline results, meeting primary endpoints and indicating early efficacy[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Two Phase 2b clinical trials for NASH are ongoing: 'Ascend' (up to **336 subjects**, primary endpoint liver biopsy changes after one year) and a study for advanced F3 NASH (**70 subjects**, primary endpoint HepQuant Shunt procedure)[117](index=117&type=chunk) - The company utilizes a proprietary AI tool, **'AI-POWR™'**, to optimize clinical outcomes, identify novel indications and targets, and enhance patient, biomarker, and drug target selection, aiming to shorten development timelines[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk) [FINANCIAL OPERATIONS OVERVIEW](index=25&type=section&id=FINANCIAL%20OPERATIONS%20OVERVIEW) This section summarizes the company's accumulated deficit, lack of revenue, and expected future losses due to R&D activities - As of March 31, 2023, the company had an accumulated deficit of **$189.0 million** and has not generated any revenue since its inception in May 2013[126](index=126&type=chunk) - The company expects to incur additional losses for several years due to ongoing research and development activities and does not anticipate having commercial biopharmaceutical products in the near future[126](index=126&type=chunk) - Product development efforts are in early stages with high completion risk due to uncertainties in clinical testing, regulatory approval, capital raising, and competing technologies[127](index=127&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=25&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section confirms no significant changes to critical accounting estimates from the prior annual report - There were no significant changes to the company's critical accounting estimates during the three months ended March 31, 2023, compared to those described in the 2022 Annual Report on Form 10-K[129](index=129&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=25&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section states that recent accounting pronouncements are not expected to materially affect the financial statements - No recent accounting pronouncements are expected to have a material effect on the condensed consolidated financial statements for the three months ended March 31, 2023[79](index=79&type=chunk)[130](index=130&type=chunk) [RESULTS OF OPERATIONS](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) This section compares the company's operating results for the periods, detailing changes in expenses and net loss - The company generated no revenues during the three months ended March 31, 2023, and 2022[131](index=131&type=chunk) Operating Results Comparison | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | Change ($) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Research and development | 9,797,659 | 4,311,134 | 5,486,525 | | General and administrative | 3,411,506 | 2,941,334 | 470,172 | | Net loss | (13,259,921) | (6,929,685) | (6,330,236) | - The increase in research and development expenses was primarily due to a **$5.2 million increase in clinical trial costs** and a **$0.2 million increase in employee compensation**[132](index=132&type=chunk) - The increase in general and administrative expenses was mainly due to a **$0.2 million increase in employee compensation** and a **$0.1 million increase in travel costs**[133](index=133&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's funding sources, cash position, working capital, and the need for additional financing - The company has funded operations primarily through the issuance of convertible preferred stock, convertible debt, and common stock[134](index=134&type=chunk) - Substantial additional financing is required to continue product development and commercialization; failure to obtain this capital could lead to delays, scaling back, or termination of programs[137](index=137&type=chunk)[141](index=141&type=chunk) - As of March 31, 2023, the company had **$43.0 million in cash** and working capital of **$36.0 million**, a decrease of **$12.6 million** from December 31, 2022[142](index=142&type=chunk)[143](index=143&type=chunk) Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | (8,214,513) | (10,129,310) | | Net cash used in investing activities | — | — | | Net cash used in financing activities | — | (2,000,000) | - The company had no off-balance sheet arrangements as of March 31, 2023[147](index=147&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that the company has no material market risk exposures requiring quantitative or qualitative disclosure - This item is not applicable to the company[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports material weaknesses in the company's disclosure controls and internal control over financial reporting, specifically concerning complex accounting transactions and income tax provision, and outlines the planned remediation efforts [Evaluation of Disclosure Controls and Procedures](index=28&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section identifies material weaknesses in the control environment and period-end financial close processes - Material weaknesses were identified in the control environment and period-end financial close and reporting process as of March 31, 2023[149](index=149&type=chunk) - Specific weaknesses include improper design and implementation of controls over formal review, approval, and evaluation of non-core, complex accounting transactions[151](index=151&type=chunk) - Another material weakness relates to the proper design and implementation of controls over income tax provision and management's review, particularly regarding completeness and accuracy of the tax provision and disclosures[151](index=151&type=chunk) [Changes in Internal Control over Financial Reporting](index=28&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms no material changes in internal controls over financial reporting during the quarter - There have been no changes in internal controls over financial reporting during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[150](index=150&type=chunk) [Remediation of Material Weaknesses](index=28&type=section&id=Remediation%20of%20Material%20Weaknesses) This section outlines the company's planned actions to remediate identified material weaknesses in internal controls - The company is committed to remediating the identified material weaknesses and plans to implement several actions[151](index=151&type=chunk) - Remedial actions include utilizing external consultants for non-routine/technical accounting issues and expanding and improving the review process for complex accounting transactions[152](index=152&type=chunk) - Further improvements involve evaluating tax provision processes with third-party assistance, implementing enhanced controls for income tax provision and disclosures, and developing a detailed timeline for tax provision calculation[156](index=156&type=chunk) [PART II—OTHER INFORMATION](index=30&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) This section confirms that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the company's Form 10-K for the year ended December 31, 2022[158](index=158&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate documents, certifications, and XBRL data files - The exhibits include a Certificate of Amendment to Certificate of Incorporation, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C Section 1350), and various XBRL taxonomy extension files[159](index=159&type=chunk) [SIGNATURES](index=31&type=section&id=SIGNATURES) This section contains the official signatures of the registrant's Chief Executive Officer and Chief Financial Officer, certifying the accuracy and completeness of the report - The report was duly signed on behalf of Hepion Pharmaceuticals, Inc. by Robert Foster (Chief Executive Officer) and John Cavan (Chief Financial Officer) on May 12, 2023[162](index=162&type=chunk)[163](index=163&type=chunk)

Preliminary Information [Filing Details](index=1&type=section&id=Filing%20Details) The company filed its Form 10-K Annual Report for the fiscal year ended December 31, 2022 - Filing Type: **Annual Report on Form 10-K** for the year ended December 31, 2022[2](index=2&type=chunk) - Registrant Name: **HEPION PHARMACEUTICALS, INC.**[2](index=2&type=chunk) - Filer Status: **Non-accelerated filer** and **Smaller reporting company**[3](index=3&type=chunk) Securities Registered | Title of each class | Trading Symbol | Name of each exchange on which registered | | :--- | :--- | :--- | | Common Stock, par value $0.0001 per share | HEPA | The Nasdaq Capital Market | [Market Value and Shares Outstanding](index=1&type=section&id=Market%20Value%20and%20Shares%20Outstanding) The aggregate market value of voting stock held by non-affiliates was approximately $43.4 million as of June 30, 2022 - Aggregate market value of voting stock held by non-affiliates (as of June 30, 2022): Approximately **$43.4 million**[3](index=3&type=chunk) - Common Stock outstanding (as of March 23, 2023): **76,229,626 shares**[4](index=4&type=chunk) [Documents Incorporated by Reference](index=2&type=section&id=Documents%20Incorporated%20by%20Reference) Portions of the 2023 Proxy Statement will be incorporated by reference into Part III of this report - Proxy Statement for 2023 Annual Meeting of Stockholders to be incorporated by reference into Part III[6](index=6&type=chunk) - Proxy Statement filing deadline: Within 120 days of fiscal year ended December 31, 2022[6](index=6&type=chunk) Cautionary Note Regarding Forward-Looking Statements [Forward-Looking Statements Disclaimer](index=4&type=section&id=Forward-Looking%20Statements%20Disclaimer) The report contains forward-looking statements involving substantial risks and uncertainties that are not guarantees of future performance - Forward-looking statements are not guarantees of performance and involve known and unknown risks, uncertainties, and assumptions[17](index=17&type=chunk) - The company does not assume any obligation to update forward-looking statements as circumstances change[17](index=17&type=chunk) [Key Risk Factors for Forward-Looking Statements](index=4&type=section&id=Key%20Risk%20Factors%20for%20Forward-Looking%20Statements) Key risk factors include market conditions, capital position, competition, and regulatory approvals - Market conditions[18](index=18&type=chunk) - Capital position[18](index=18&type=chunk) - Ability to compete with larger pharmaceutical companies[18](index=18&type=chunk) - Uncertainty of developing marketable products[18](index=18&type=chunk) - Ability to obtain regulatory approvals[18](index=18&type=chunk) - Ability to maintain and protect intellectual property rights[18](index=18&type=chunk) - Inability to raise additional future financing and lack of financial and other resources[18](index=18&type=chunk) - Ability to control product development costs[18](index=18&type=chunk) - Inability to attract and retain key employees[18](index=18&type=chunk) - Changes in government regulation affecting product candidates[18](index=18&type=chunk) - Involvement in patent and other intellectual property litigation[18](index=18&type=chunk) - No market acceptance for products[18](index=18&type=chunk) - Changes in third-party reimbursement policies[18](index=18&type=chunk) Risk Factor Summary [General Business Risks](index=5&type=section&id=General%20Business%20Risks) The company faces significant risks including a history of losses, early-stage product development, and the need for additional funding - Incurred losses since inception and anticipates continued losses, raising concerns about future operations[21](index=21&type=chunk) - Rencofilstat is in early development, with commercial viability dependent on successful preclinical studies, clinical trials, and regulatory approvals[22](index=22&type=chunk) - Limited capacity for recruiting and managing clinical trials could impair timing and harm business[24](index=24&type=chunk) - Requires substantial additional funding, which may not be available on acceptable terms, potentially hindering product development and commercialization[25](index=25&type=chunk) - The COVID-19 pandemic and future outbreaks could adversely impact business, financial condition, and clinical trials[27](index=27&type=chunk) - The AI-POWR™ discovery and development approach is novel and unproven, with no guarantee of developing commercially valuable products[28](index=28&type=chunk) [Commercialization Risks](index=5&type=section&id=Commercialization%20Risks) Commercialization risks include potential development termination, reliance on third-party collaborations, and inadequate reimbursement from payers - Development of a product candidate may be delayed or terminated if the perceived market or commercial opportunity does not justify further investment[29](index=29&type=chunk) - Failure to enter into collaborations or license agreements with third parties means the company bears the full risk of developmental failure[29](index=29&type=chunk) - Inadequate reimbursement or coverage from government and third-party payers could harm revenues and profitability[30](index=30&type=chunk) [Intellectual Property Risks](index=6&type=section&id=Intellectual%20Property%20Risks) The company faces risks related to protecting its intellectual property, potential infringement claims, and failure to expand its product pipeline - Inability to adequately protect or expand intellectual property related to current or future product candidates could harm business prospects[31](index=31&type=chunk) - Third-party claims of intellectual property infringement could lead to significant expenses or prevent further development/commercialization[31](index=31&type=chunk) - Failure to successfully discover, acquire, develop, and market additional product candidates or approved products would impair growth[32](index=32&type=chunk) [Government Regulation Risks](index=6&type=section&id=Government%20Regulation%20Risks) Regulatory risks include post-approval difficulties, challenges in obtaining international approval, and adverse effects from healthcare reform - Even with regulatory approval, products may face future development and regulatory difficulties[33](index=33&type=chunk) - Approval to commercialize products outside the United States is not guaranteed, even if U.S. approval is received[33](index=33&type=chunk) - Healthcare reform measures and other recent legislative initiatives could adversely affect the business[33](index=33&type=chunk) [Common Stock Risks](index=6&type=section&id=Common%20Stock%20Risks) Common stock risks include potential Nasdaq delisting, stock price decline from ineffective accounting controls, and no plans for cash dividends - Failure to comply with Sarbanes-Oxley Act rules on accounting controls and procedures, or discovery of additional material weaknesses, could significantly decline stock price and make capital raising difficult. Management determined disclosure controls and internal controls were **ineffective as of December 31, 2022**[34](index=34&type=chunk) - The company does not currently intend to pay cash dividends on its common stock[35](index=35&type=chunk) PART I [Business Overview](index=7&type=section&id=Item%201.%20Business) The company develops therapies for chronic fibrosis-related diseases, with its lead candidate, rencofilstat, in Phase 2 NASH trials - Hepion Pharmaceuticals is a biopharmaceutical company focused on developing drug therapy for chronic fibrosis-related diseases, including **NASH, HCC, and viral hepatitis**[38](index=38&type=chunk) - **Rencofilstat** (formerly CRV431), a pan cyclophilin inhibitor, is the lead therapeutic candidate, targeting multiple pathologic pathways in advanced fibrotic diseases[38](index=38&type=chunk) - Completed a Phase 1 program in healthy subjects, demonstrating safety, tolerability, and pharmacokinetics (PK) with **no serious adverse events (SAEs)**[39](index=39&type=chunk)[40](index=40&type=chunk) - Completed a Phase 2a study in NASH F2/F3 subjects, meeting primary objectives (safety, tolerability, PK) and showing early efficacy evidence through biomarker improvements (e.g., **ALT, PRO-C3**)[41](index=41&type=chunk) - Initiated two separate Phase 2 NASH trials in 2022: a **Phase 2b** randomized, double-blind, placebo-controlled study (up to 336 subjects) and a **Phase 2** open-label study (70 subjects) evaluating hepatic function[42](index=42&type=chunk) - FDA granted **Fast Track designation** for rencofilstat for NASH (Nov 2021) and **Orphan Drug Designation** for HCC (June 2022)[57](index=57&type=chunk)[58](index=58&type=chunk) - Developed **AI-POWR™** to optimize clinical programs, identify novel indications, and potentially discover new targets and drug molecules, aiming to save time, resources, and money in drug development[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) - Relies on contract manufacturers for all preclinical and clinical trial materials under cGMP and anticipates partnering or collaborating with larger pharmaceutical companies for late-stage clinical development and commercialization[71](index=71&type=chunk)[72](index=72&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces high risk, including significant operating losses and substantial doubt about its ability to continue as a going concern - The company has incurred losses since inception, with an accumulated deficit of **$175.7 million** as of December 31, 2022, and anticipates continued losses, raising **substantial doubt about its ability to continue as a going concern** without additional capital[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - Product candidate rencofilstat is in early development, and its commercial viability is subject to successful preclinical studies, clinical trials, and regulatory approvals, which are expensive, lengthy, and have uncertain outcomes[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - The company relies heavily on third-party vendors for preclinical studies, clinical trials, and manufacturing, exposing it to risks of delays, failures, and non-compliance with regulations[127](index=127&type=chunk)[166](index=166&type=chunk)[178](index=178&type=chunk) - The biopharmaceutical industry is highly competitive, with larger companies possessing greater resources and experience, potentially limiting demand for rencofilstat if competitors develop superior or more cost-effective therapies[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk) - Protecting intellectual property is crucial but uncertain, with risks of patent challenges, infringement claims, and the difficulty of maintaining trade secrets[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) - Regulatory approval processes are lengthy, unpredictable, and subject to changes in policies, potentially delaying or preventing commercialization, and foreign approvals add further complexity[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - Market acceptance and sales of approved products depend on factors like safety, efficacy, pricing, and reimbursement policies, which are subject to increasing pressure from government and third-party payers[175](index=175&type=chunk)[176](index=176&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - The company's common stock faces risks including potential delisting from Nasdaq, volatility due to various factors (e.g., clinical trial outcomes, economic conditions), and **material weaknesses in internal control over financial reporting** as of December 31, 2022[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk) [Unresolved Staff Comments](index=44&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[257](index=257&type=chunk) [Properties](index=44&type=section&id=Item%202.%20Properties) The company leases corporate headquarters in New Jersey and a research laboratory in Canada - Corporate headquarters: Approximately **6,400 sq ft** of leased space in Edison, New Jersey[258](index=258&type=chunk) - Research laboratory: Approximately **3,500 sq ft** of leased office and lab space in Edmonton, Canada[258](index=258&type=chunk) [Legal Proceedings](index=44&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal actions not expected to have a material adverse effect - The company is subject to various legal actions and claims in the ordinary course of business[259](index=259&type=chunk) - Currently, the company does not believe the outcome of such proceedings will have a material adverse effect on its consolidated financial condition or results of operations[259](index=259&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company - Not applicable[260](index=260&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=45&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'HEPA', and no cash dividends are anticipated - Common stock trades on the Nasdaq Capital Market under the ticker symbol **'HEPA'**[262](index=262&type=chunk) - As of March 23, 2023, there were **212 holders of record** of common stock[263](index=263&type=chunk) - The company has **never paid cash dividends** and does not anticipate paying any in the foreseeable future, intending to retain funds for business development and expansion[264](index=264&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Number of Shares of Common Stock to be Issued upon Exercise of Outstanding Options (a) | Weighted-Average Exercise Price of Outstanding Options | Number of Options Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Stockholders | 8,894,973 | $2.31 | 0 | [[Reserved]](index=45&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses financial results, highlighting continued losses, reliance on external funding, and critical accounting estimates - The company is a biopharmaceutical company focused on developing drug therapy for chronic fibrosis-related diseases, with rencofilstat as its lead cyclophilin inhibitor[268](index=268&type=chunk) - The COVID-19 pandemic has not had a material impact on consolidated financial statements for 2022, but its future impact remains uncertain[281](index=281&type=chunk) - The company has an accumulated deficit of **$175.7 million** as of December 31, 2022, and has not generated any revenue from operations since inception, expecting to incur additional losses for the foreseeable future[282](index=282&type=chunk) - The company's ability to continue as a going concern is in **substantial doubt** without additional capital, as it will require substantial additional financing to fund product development and commercialization[293](index=293&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk) [Overview](index=45&type=section&id=Overview_MD%26A) The company is developing rencofilstat for chronic liver diseases and utilizes its AI-POWR™ platform for drug discovery - Lead molecule: **Rencofilstat**, a cyclophilin inhibitor, targeting fibrosis, inflammation, and showing potential for NASH, HCC, and viral hepatitis[268](index=268&type=chunk) - Clinical Development Progress:[269](index=269&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - Completed Phase 1 program in healthy subjects (SAD, MAD, DDI, Food Effect studies), demonstrating safety, tolerability, and PK - Completed Phase 2a study in NASH F2/F3 subjects, meeting primary objectives (safety, tolerability, PK) and showing early efficacy signals (reduced ALT, improved PRO-C3) - Initiated two Phase 2 NASH trials in 2022: a Phase 2b (up to 336 subjects) for histologic changes and a Phase 2 (70 subjects) for hepatic function (expected completion Q2 2023) - **AI-POWR™**: Proprietary AI tool used to optimize clinical programs, identify novel indications, and discover new drug molecules, aiming for improved patient selection, biomarker selection, and drug target selection[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk) [Impact of COVID-19](index=47&type=section&id=Impact%20of%20COVID-19_MD%26A) The COVID-19 pandemic has not materially impacted 2022 financial statements, but future effects remain uncertain - **No material impact** on consolidated financial statements for the year ended December 31, 2022, from COVID-19[281](index=281&type=chunk) - Future operational and financial impact of COVID-19 remains **uncertain and unpredictable**[281](index=281&type=chunk) [Financial Operations Overview](index=47&type=section&id=Financial%20Operations%20Overview_MD%26A) The company has an accumulated deficit of $175.7 million, has generated no revenue, and expects to incur further losses - Accumulated deficit as of December 31, 2022: **$175.7 million**[282](index=282&type=chunk) - **No revenue generated** from operations since inception; no commercial biopharmaceutical products expected for several years, if at all[282](index=282&type=chunk) - Product development is in early stages, with high risks and uncertainties regarding costs, timelines, clinical testing, regulatory approval, and capital raising[283](index=283&type=chunk) [Recent Accounting Pronouncements](index=47&type=section&id=Recent%20Accounting%20Pronouncements_MD%26A) The adoption of ASU No. 2021-04 on January 1, 2022, did not have a material effect on financial statements - Adopted ASU No. 2021-04 (Earnings Per Share, Debt Modifications, Stock Compensation, Derivatives and Hedging) on January 1, 2022[284](index=284&type=chunk)[413](index=413&type=chunk) - The adoption did not have a material effect on the consolidated financial statements[413](index=413&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) The net loss increased to $42.2 million in 2022 from $32.7 million in 2021, driven by higher R&D expenses Comparison of Financial Results (Years Ended December 31) | Metric | 2022 (USD) | 2021 (USD) | Change (USD) | | :--- | :--- | :--- | :--- | | Revenues | — | — | — | | Research and development | 33,269,337 | 20,395,136 | 12,874,201 | | General and administrative | 10,348,465 | 10,008,173 | 340,292 | | Goodwill impairment loss | 1,870,924 | — | 1,870,924 | | Loss from operations | (45,488,726) | (30,403,309) | (15,085,417) | | Interest expense | (10,164) | (8,859) | (1,305) | | Change in fair value of contingent consideration | 414,992 | (2,310,000) | 2,724,992 | | Loss before income taxes | (45,083,898) | (32,722,168) | (12,361,730) | | Income tax benefit | 2,883,849 | — | 2,883,849 | | Net loss | (42,200,049) | (32,722,168) | (9,477,881) | - **Research and development expenses increased by $12.9 million (63.1%)** in 2022, primarily due to a $5.2 million increase in clinical trial costs and an $8.7 million increase in Chemistry, Manufacturing, and Controls (CMC) costs[286](index=286&type=chunk) - **General and administrative expenses increased by $0.3 million (3.4%)** in 2022, mainly due to a $0.7 million increase in compensation costs and $1.1 million in consulting fees, offset by a $1.6 million decrease in stock compensation[287](index=287&type=chunk) - A **goodwill impairment loss of $1.9 million** was recorded in 2022[288](index=288&type=chunk) - An **income tax benefit of $2.9 million** was recognized in 2022, related to the sale of state NOLs and R&D credits[288](index=288&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased to $51.2 million in 2022, and the company requires substantial future funding for its operations - Primary funding sources: Issuance of convertible preferred stock, common stock, and at-the-market offerings[289](index=289&type=chunk) - Future capital requirements are substantial and depend on R&D progress, regulatory approvals, manufacturing scale-up, intellectual property costs, and commercialization efforts[295](index=295&type=chunk) - Raising additional funds through equity securities may result in **significant dilution** for stockholders[298](index=298&type=chunk) Cash and Working Capital (as of December 31) | Metric | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Cash | 51,189,088 | 91,348,967 | | Working Capital | 48,600,000 | 89,200,000 | | Decrease in Working Capital (YoY) | (40,600,000) | N/A | - **Net cash used in operating activities**: $35.0 million in 2022 (vs. $31.2 million in 2021), primarily due to net loss and increased non-cash charges[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) - **Net cash used in investing activities**: De minimis in 2022 (vs. $0.1 million in 2021)[302](index=302&type=chunk) - **Net cash used in financing activities**: $5.1 million in 2022, primarily due to redemption of Series F and G Preferred Stock and a milestone payment, contrasting with $82.0 million provided in 2021 from common stock issuance[303](index=303&type=chunk)[304](index=304&type=chunk) [Critical Accounting Estimates](index=50&type=section&id=Critical%20Accounting%20Estimates) Financial statements rely on significant estimates for financial instruments, income taxes, R&D expenses, and impairment testing - Significant estimates include fair value of financial instruments, income taxes, contingencies, research and development, in-process research and development, and share-based payments[307](index=307&type=chunk) - **Contingent consideration** (related to Ciclofilin acquisition) is recorded at fair value using a probability-weighted discounted cash flow model, with key assumptions including discount rate, projected milestone dates, and probability of success[309](index=309&type=chunk)[384](index=384&type=chunk)[428](index=428&type=chunk)[429](index=429&type=chunk) - **Research and development costs** are expensed as incurred due to no history of successful commercialization, and non-refundable advance payments are deferred and capitalized[314](index=314&type=chunk)[315](index=315&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk) - **Goodwill and acquired IPR&D** are indefinite-lived assets tested for impairment annually or more frequently if indicators arise. A goodwill impairment charge of **$1.9 million** was recognized in 2022 due to macroeconomic factors[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[438](index=438&type=chunk) - **Share-based payments** are measured at fair value using the Black-Scholes model, with expense recognized over the vesting period. A liability-classified award of **$1.9 million** was recorded as of December 31, 2022, due to insufficient available options under the plan[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[440](index=440&type=chunk) - A **full valuation allowance** is maintained for U.S. and foreign net deferred tax assets due to a history of operating losses, and the valuation allowance increased by **$12.1 million** in 2022[311](index=311&type=chunk)[397](index=397&type=chunk)[454](index=454&type=chunk)[455](index=455&type=chunk) [Off-Balance Sheet Arrangements](index=53&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of December 31, 2022 - No off-balance sheet arrangements as of December 31, 2022[325](index=325&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the company - Not applicable[326](index=326&type=chunk) [Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for the years ended December 31, 2022, and 2021 - The consolidated financial statements for the years ended December 31, 2022 and 2021, have been audited by BDO USA, LLP, who issued an opinion stating fair presentation in all material respects[329](index=329&type=chunk) - The auditor's report highlights **substantial doubt about the company's ability to continue as a going concern** due to recurring losses and accumulated deficit[330](index=330&type=chunk) - Critical audit matters identified include the valuation of In-Process Research & Development (IPR&D) intangible assets, valuation of contingent consideration liability, and accounting for Convertible Redeemable Preferred Stock, due to their subjectivity and complex judgments[334](index=334&type=chunk)[335](index=335&type=chunk)[337](index=337&type=chunk)[340](index=340&type=chunk) - The Notes to Consolidated Financial Statements provide detailed information on business overview, basis of presentation (including going concern uncertainty), significant accounting policies, stockholders' equity (including Series F and G Convertible Redeemable Preferred Stock redemption), fair value measurements, property and equipment, indefinite-lived intangible assets and goodwill, accrued liabilities, share-based payments, income taxes, loss per share, and commitments and contingencies[358](index=358&type=chunk)[370](index=370&type=chunk)[378](index=378&type=chunk)[414](index=414&type=chunk)[427](index=427&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[439](index=439&type=chunk)[440](index=440&type=chunk)[451](index=451&type=chunk)[463](index=463&type=chunk)[464](index=464&type=chunk) Consolidated Balance Sheet Highlights (as of December 31) | Metric | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Cash | 51,189,088 | 91,348,967 | | Total current assets | 56,496,073 | 97,451,768 | | In-process research and development | 3,190,000 | 3,190,000 | | Goodwill | — | 1,870,924 | | Total assets | 60,244,452 | 103,552,479 | | Total current liabilities | 7,885,722 | 8,206,396 | | Contingent consideration, non-current | 2,093,771 | 1,891,716 | | Total liabilities | 10,388,515 | 10,557,476 | | Total stockholders' equity | 49,855,937 | 92,995,003 | | Accumulated deficit | (175,701,344) | (133,501,295) | Consolidated Statements of Operations Highlights (Years Ended December 31) | Metric | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Revenues | — | — | | Research and development | 33,269,337 | 20,395,136 | | General and administrative | 10,348,465 | 10,008,173 | | Goodwill impairment loss | 1,870,924 | — | | Net loss | (42,200,049) | (32,722,168) | | Net loss attributable to common shareholders | (45,337,549) | (32,722,168) | | Basic and diluted net loss per common share | (0.59) | (0.47) | Consolidated Statements of Cash Flows Highlights (Years Ended December 31) | Metric | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | (34,961,171) | (31,224,481) | | Net cash used in investing activities | (14,070) | (130,405) | | Net cash (used in) provided by financing activities | (5,137,500) | 81,977,015 | | Cash at end of period | 51,189,088 | 91,348,967 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=79&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There are no changes in or disagreements with accountants to report - Not applicable[474](index=474&type=chunk) [Controls and Procedures](index=79&type=section&id=Item%209A.%20Controls%20and%20Procedures) Disclosure controls and internal control over financial reporting were deemed ineffective as of December 31, 2022 - As of December 31, 2022, disclosure controls and procedures were **not effective** due to material weaknesses in internal control over financial reporting[474](index=474&type=chunk)[477](index=477&type=chunk) - Identified material weaknesses:[479](index=479&type=chunk) - Improper design and implementation of control over formal review, approval, and evaluation of non-core, complex accounting transactions - Improper design and implementation of certain controls over income tax provision and management's review of the income tax provision, specifically regarding completeness and accuracy of tax provision and disclosures - Remediation plans include utilizing external consultants for technical accounting, expanding and improving review processes for complex transactions, and enhancing controls and processes around tax provision calculations and disclosures[479](index=479&type=chunk)[485](index=485&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended December 31, 2022[482](index=482&type=chunk) [Other Information](index=80&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - None[483](index=483&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=80&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) There are no disclosures regarding foreign jurisdictions that prevent inspections - None[484](index=484&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=81&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information will be included in the company's 2023 Proxy Statement and is incorporated by reference - Information incorporated by reference from the 2023 Proxy Statement[487](index=487&type=chunk) [Executive Compensation](index=81&type=section&id=Item%2011.%20Executive%20Compensation) Information will be included in the company's 2023 Proxy Statement and is incorporated by reference - Information incorporated by reference from the 2023 Proxy Statement[488](index=488&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=81&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information will be included in the company's 2023 Proxy Statement and is incorporated by reference - Information incorporated by reference from the 2023 Proxy Statement[489](index=489&type=chunk) [Certain Relationships, Related Person Transactions and Director Independence](index=81&type=section&id=Item%2013.%20Certain%20Relationships%2C%20Related%20Person%20Transactions%20and%20Director%20Independence) Information will be included in the company's 2023 Proxy Statement and is incorporated by reference - Information incorporated by reference from the 2023 Proxy Statement[490](index=490&type=chunk) [Principal Accountant Fees and Services](index=81&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information will be included in the company's 2023 Proxy Statement and is incorporated by reference - Information incorporated by reference from the 2023 Proxy Statement[491](index=491&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=82&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the report - Financial statements are referenced to page 51 of the report[494](index=494&type=chunk) - Financial statement schedules are omitted because conditions for their requirement are absent or information is included in consolidated financial statements/notes[495](index=495&type=chunk) - A comprehensive list of exhibits is provided, including corporate governance documents, warrant agreements, and certifications[496](index=496&type=chunk)[497](index=497&type=chunk) [Form 10-K Summary](index=83&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - None[498](index=498&type=chunk) [Signatures](index=84&type=section&id=SIGNATURES) The report was signed on April 10, 2023, by the CEO, CFO, and Board of Directors - Report signed on **April 10, 2023**[501](index=501&type=chunk) - Signatories include Chief Executive Officer Robert Foster, Chief Financial Officer John Cavan, and members of the Board of Directors[501](index=501&type=chunk)[503](index=503&type=chunk)

[PART I—FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reported period [Item 1. Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, financial instruments, and other relevant disclosures for the periods ended June 30, 2021 and December 31, 2020 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a significant increase in cash and total assets as of June 30, 2021, primarily driven by a recent common stock offering, with total stockholders' equity also seeing a substantial rise while total liabilities experienced a modest increase | Metric | June 30, 2021 ($) | December 31, 2020 ($) | | :----------------------- | :-------------- | :------------------ | | Cash | $110,091,003 | $40,726,838 | | Total current assets | $113,673,189 | $42,634,299 | | Total assets | $119,753,280 | $48,645,253 | | Total current liabilities | $7,101,550 | $4,661,827 | | Total liabilities | $9,031,933 | $8,124,862 | | Total stockholders' equity | $110,721,347 | $40,520,391 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported no revenues for both periods, with net loss and comprehensive loss increasing significantly for the three and six months ended June 30, 2021, primarily due to higher research and development and general and administrative expenses, as well as a substantial increase in the change in fair value of derivative instruments and contingent consideration | Metric | 3 Months Ended June 30, 2021 ($) | 3 Months Ended June 30, 2020 ($) | 6 Months Ended June 30, 2021 ($) | 6 Months Ended June 30, 2020 ($) | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $— | $— | $— | $— | | Research and development | $4,185,942 | $2,950,340 | $7,684,597 | $5,587,671 | | General and administrative | $2,668,657 | $1,825,074 | $5,201,465 | $3,374,680 | | Total operating expenses | $6,854,599 | $4,775,414 | $12,886,062 | $8,962,351 | | Loss from operations | $(6,854,599) | $(4,775,414) | $(12,886,062) | $(8,962,351) | | Change in fair value of derivative instruments-warrants and contingent consideration | $(808,070) | $(69,095) | $(831,859) | $(108,775) | | Net loss and comprehensive loss | $(7,665,161) | $(4,940,080) | $(13,722,467) | $(9,166,697) | | Net loss per common share (Basic and Diluted) | $(0.10) | $(0.58) | $(0.21) | $(1.43) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity significantly increased from December 31, 2020, to June 30, 2021, primarily due to the issuance of common stock, net of **$82.1 million**, and stock-based compensation expense, despite a net loss | Metric | December 31, 2020 ($) | June 30, 2021 ($) | | :-------------------------------- | :------------------ | :-------------- | | Total Stockholders' Equity | $40,520,391 | $110,721,347 | | Net loss (6 months ended June 30, 2021) | N/A | $(13,722,467) | | Stock-based compensation expense (6 months ended June 30, 2021) | N/A | $2,352,770 | | Issuance of common stock, net (6 months ended June 30, 2021) | N/A | $82,153,600 | | Accumulated Deficit | $(104,105,463) | $(117,827,930) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2021, the company experienced a substantial net increase in cash, primarily driven by significant cash provided by financing activities, which offset cash used in operating and investing activities | Cash Flow Activity | 6 Months Ended June 30, 2021 ($) | 6 Months Ended June 30, 2020 ($) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(12,518,930) | $(7,789,316) | | Net cash used in investing activities | $(93,920) | $(9,242) | | Net cash provided by financing activities | $81,977,015 | $11,437,399 | | Net increase in cash | $69,364,165 | $3,638,841 | | Cash at end of period | $110,091,003 | $17,561,813 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's operations, financial position, and accounting practices, covering business overview, basis of presentation, significant accounting policies, recent accounting pronouncements, stockholders' equity, fair value measurements, intangible assets, accrued liabilities, share-based payments, loss per share, and commitments and contingencies [1. Business Overview](index=10&type=section&id=1.%20Business%20Overview) Hepion Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing drug therapies for chronic liver diseases, including NASH and viral hepatitis, with its lead cyclophilin inhibitor, CRV431, having achieved positive topline results from its Phase 2a NASH clinical trial and exploring CRV431 for COVID-19 - Hepion Pharmaceuticals, Inc. is a biopharmaceutical company developing drug therapy for chronic liver diseases, including fibrosis and hepatocellular carcinoma (HCC) associated with NASH, viral hepatitis, and other liver diseases[25](index=25&type=chunk) - The lead molecule, CRV431, is a cyclophilin inhibitor targeting multiple pathologic pathways in liver disease progression, showing reductions in liver fibrosis, inflammation, and cancerous tumors in preclinical NASH models, and in vitro antiviral activity against hepatitis B, C, and D viruses[25](index=25&type=chunk)[26](index=26&type=chunk) - The company announced positive topline results from its Phase 2a "Ambition" NASH clinical trial on July 13, 2021, meeting all primary endpoints and confirming CRV431 tolerability and dose range for future trials[30](index=30&type=chunk) - INDs for CRV431 have been approved for HBV (June 2018), NASH (July 2019), and COVID-19 (December 2020), with Phase 1 HBV data positive and Phase 2a NASH trial completed[27](index=27&type=chunk)[29](index=29&type=chunk)[32](index=32&type=chunk) [2. Basis of Presentation](index=11&type=section&id=2.%20Basis%20of%20Presentation) The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim reporting and include all necessary adjustments, with the company maintaining a strong cash position but having an accumulated deficit and expecting continued losses, necessitating future capital raises, while the COVID-19 pandemic has not materially impacted financial statements for the reported period, and a PPP loan was repaid in June 2021 - The unaudited condensed consolidated financial statements are prepared following SEC requirements and U.S. GAAP for interim reporting, including normal recurring adjustments[33](index=33&type=chunk) - As of June 30, 2021, the company had **$110.1 million** in cash, an accumulated deficit of **$117.8 million**, and working capital of **$106.6 million**, with cash used in operating activities of **$12.5 million** and a net loss of **$13.7 million** for the six months ended June 30, 2021[35](index=35&type=chunk) - The company expects to incur losses for several years and will require additional capital in the future to fund development and commercialization, with current cash balances believed to be sufficient for more than one year[35](index=35&type=chunk)[36](index=36&type=chunk) - The COVID-19 pandemic has not had a material impact on the condensed financial statements for the three and six months ended June 30, 2021, and a PPP loan of **$176,585** was repaid in full in June 2021[37](index=37&type=chunk)[40](index=40&type=chunk) [3. Summary of Significant Accounting Policies](index=12&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's key accounting policies, including the use of estimates, cash management, fair value measurements (with Level 3 inputs for derivatives and contingent consideration), property and equipment depreciation, goodwill and in-process R&D impairment testing (no impairment found), income taxes (with a full valuation allowance for U.S. deferred tax assets), contingencies, expensing of R&D costs, share-based payments valuation, foreign exchange translation, and segment reporting (single segment) - The company's significant accounting policies, including the use of estimates, cash, fair value of financial instruments, derivative financial instruments, property and equipment, goodwill and IPR&D, income taxes, contingencies, research and development, share-based payments, foreign exchange, and segment information, remain unchanged from the December 31, 2020 Annual Report on Form 10-K[42](index=42&type=chunk) - Derivative instruments (warrants) and contingent consideration are recorded at fair value, with valuations primarily using **Level 3 inputs** (unobservable inputs) such as stock price volatility and projected milestone achievement dates[46](index=46&type=chunk)[51](index=51&type=chunk)[96](index=96&type=chunk) - Goodwill (**$1.87 million**) and In-Process Research and Development (IPR&D) (**$3.19 million**) are indefinite-lived assets tested annually for impairment, with no impairment recorded for the six months ended June 30, 2021 and 2020[99](index=99&type=chunk)[100](index=100&type=chunk) - Research and development costs are expensed as incurred, and the company maintains a full valuation allowance for its U.S. net deferred tax assets[63](index=63&type=chunk)[69](index=69&type=chunk) [4. Recent Accounting Pronouncements](index=18&type=section&id=4.%20Recent%20Accounting%20Pronouncements) The company adopted ASU No. 2020-06, which simplifies accounting for convertible instruments, on January 1, 2021, with an immaterial impact on its condensed consolidated financial statements - The company adopted ASU No. 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity," on January 1, 2021, which simplifies accounting for certain financial instruments[78](index=78&type=chunk) - The impact of adopting ASU 2020-06 on the condensed consolidated financial statements was immaterial[78](index=78&type=chunk) [5. Stockholders' Equity and Derivative Liability — Warrants](index=18&type=section&id=5.%20Stockholders%27%20Equity%20and%20Derivative%20Liability%20%E2%80%94%20Warrants) This section details the company's preferred stock, common stock, and warrant activities, highlighting the conversion of Series C preferred stock, the expiration of certain warrants, and the accounting for liability-classified warrants using the Black-Scholes model, with a significant common stock offering in February 2021 generating **$82.1 million** in net proceeds - As of June 30, 2021, there were **85,581 shares** of Series A Convertible Preferred Stock and **1,807 shares** of Series C Convertible Preferred Stock outstanding, with **10 Series C shares** converted into **92 common shares** during the six months ended June 30, 2021[79](index=79&type=chunk)[80](index=80&type=chunk) - Warrants issued in connection with equity financings are deemed derivative instruments due to contingent put features and are recorded as a derivative liability, adjusted to fair value quarterly using the Black-Scholes option pricing model with **Level 3 inputs**[48](index=48&type=chunk)[51](index=51&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[88](index=88&type=chunk) | Metric | December 31, 2020 ($) | June 30, 2021 ($) | | :--------------------------------------- | :------------------ | :-------------- | | Balance of derivative financial instruments liability | $11,673 | $3,532 | | Number of Warrants Outstanding | 102,642 | 98,328 | | Change in fair value of warrants (6 months ended June 30, 2021) | N/A | $(8,141) | - On February 16, 2021, the company completed an underwritten public offering of **44,200,000 shares** of common stock at **$2.00 per share**, generating net proceeds of **$82.1 million**, intended for research and development and general corporate purposes[92](index=92&type=chunk) [6. Fair Value Measurements](index=20&type=section&id=6.%20Fair%20Value%20Measurements) The company's contingent consideration and derivative liabilities related to warrants are measured at fair value using **Level 3 inputs**, with the fair value of contingent consideration increasing from **$2.57 million** to **$3.41 million** due to updated assumptions, including a reduced discount rate and increased probability of success for certain milestones | Description | Fair value (June 30, 2021) ($) | Fair value (December 31, 2020) ($) | | :-------------------------------- | :------------------------- | :--------------------------- | | Contingent consideration | $3,410,000 | $2,570,000 | | Derivative liabilities related to warrants | $3,532 | $11,673 | - Contingent consideration and derivative liabilities are classified as **Level 3 fair value measurements**, relying on significant unobservable inputs[94](index=94&type=chunk) - The fair value of contingent consideration increased by **$840,000** for the six months ended June 30, 2021, due to management's review and adjustment of assumptions, including a reduced discount rate (**7.0%** from **8.0%**), increased probability of success for milestone 2, and extended projected achievement dates for milestones 3 and 4[96](index=96&type=chunk)[98](index=98&type=chunk) [7. Indefinite-lived Intangible Assets and Goodwill](index=21&type=section&id=7.%20Indefinite-lived%20Intangible%20Assets%20and%20Goodwill) The company's indefinite-lived intangible assets consist of IPR&D valued at **$3.19 million** and goodwill at **$1.87 million**, with no impairment losses recorded for either asset during the six months ended June 30, 2021 and 2020 | Asset | Balance at December 31, 2020 ($) | Balance at June 30, 2021 ($) | | :-------------------------------- | :--------------------------- | :----------------------- | | CRV431 (IPR&D) | $3,190,000 | $3,190,000 | | Goodwill | $1,870,924 | $1,870,924 | - No impairment losses were recorded on IPR&D or goodwill during the six months ended June 30, 2021 and 2020[99](index=99&type=chunk)[100](index=100&type=chunk) [8. Accrued Liabilities](index=22&type=section&id=8.%20Accrued%20Liabilities) Accrued expenses significantly increased to **$1.67 million** as of June 30, 2021, from **$0.66 million** at December 31, 2020, primarily driven by increases in payroll and related costs, and stock-based compensation | Accrued Expense Category | June 30, 2021 ($) | December 31, 2020 ($) | | :------------------------ | :-------------- | :------------------ | | Payroll and related costs | $558,235 | $150,702 | | Stock-based compensation | $582,947 | $— | | Research and development | $361,964 | $438,856 | | Legal fees | $63,607 | $— | | Accrued taxes | $29,179 | $37,160 | | Professional fees | $52,200 | $— | | Other | $21,669 | $32,854 | | Total accrued expenses | $1,669,801 | $659,572 | [9. Accounting for Share-Based Payments](index=22&type=section&id=9.%20Accounting%20for%20Share-Based%20Payments) The company recorded **$2.35 million** in stock-based compensation expense for the six months ended June 30, 2021, a substantial increase from the prior year, and due to insufficient shares available under the 2013 Equity Incentive Plan, certain option grants were classified as liability awards, requiring fair value remeasurement each period, with unrecognized compensation cost for non-vested options at **$14.3 million** | Expense Category | 3 Months Ended June 30, 2021 ($) | 3 Months Ended June 30, 2020 ($) | 6 Months Ended June 30, 2021 ($) | 6 Months Ended June 30, 2020 ($) | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative | $994,022 | $310,718 | $1,705,613 | $316,628 | | Research and development | $400,877 | $83,893 | $647,157 | $86,229 | | Total stock-based compensation expense | $1,394,899 | $394,611 | $2,352,770 | $402,857 | - Due to insufficient shares available under the 2013 Equity Incentive Plan, certain stock option grants were accounted for as liability-classified awards, requiring fair value measurement each reporting period[103](index=103&type=chunk) - As of June 30, 2021, the unrecognized compensation cost related to non-vested stock options was **$14.3 million**, to be recognized over a weighted-average remaining vesting period of approximately **2.3 years**[107](index=107&type=chunk) [10. Loss per Share](index=23&type=section&id=10.%20Loss%20per%20Share) Basic and diluted net loss per common share increased for both the three and six months ended June 30, 2021, compared to the prior year, reflecting higher net losses and an increase in weighted-average common shares outstanding | Metric | 3 Months Ended June 30, 2021 ($) | 3 Months Ended June 30, 2020 ($) | 6 Months Ended June 30, 2021 ($) | 6 Months Ended June 30, 2020 ($) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss attributable to common stockholders | $(7,665,161) | $(4,940,080) | $(13,727,754) | $(9,166,697) | | Weighted average common shares outstanding | 76,225,245 | 8,494,518 | 64,259,470 | 6,420,109 | | Net loss per share of common stock—basic and diluted | $(0.10) | $(0.58) | $(0.21) | $(1.43) | - Several outstanding securities, including preferred stock, stock options, and warrants, were excluded from the diluted EPS calculation as they were anti-dilutive[115](index=115&type=chunk) [11. Commitments and Contingencies](index=24&type=section&id=11.%20Commitments%20and%20Contingencies) The company has various contractual obligations, including leases for office and lab space, and is involved in legal proceedings, though no material adverse effect is currently expected, with operating lease liabilities and right-of-use assets recognized, and the company having employment agreements and a related party transaction for a laboratory study - The company has noncancelable operating leases for corporate office and research laboratory space, with future minimum rental payments totaling **$475,664** as of June 30, 2021[116](index=116&type=chunk)[123](index=123&type=chunk) - As of June 30, 2021, Right-Of-Use (ROU) assets were **$0.4 million**, current lease liabilities were **$0.3 million**, and non-current lease liabilities were **$0.2 million**, with a weighted average remaining lease term of **1.64 years**[122](index=122&type=chunk) - The company is involved in legal proceedings but does not expect a material adverse effect on its financial condition or results of operations[117](index=117&type=chunk) - In May 2021, the company entered into a **$60,000** agreement with the Baruch S. Blumberg Institute (BSBI) for a laboratory study, supervised by a company director, believed to be on favorable terms[125](index=125&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting its biopharmaceutical focus on liver diseases, the development of CRV431, and the use of its AI-POWR™ platform, detailing the financial performance, liquidity, and capital resources, emphasizing increased R&D and G&A expenses, a significant net loss, and the impact of a recent common stock offering on cash and working capital [Business Overview](index=26&type=section&id=Business%20Overview) Hepion Pharmaceuticals is a biopharmaceutical company developing CRV431 for chronic liver diseases like NASH, which is a growing global health concern with no approved treatments, and the company utilizes its proprietary AI-POWR™ platform to optimize clinical programs, identify novel indications, and improve patient and biomarker selection, aiming to accelerate drug development and mitigate risks - Hepion Pharmaceuticals is a biopharmaceutical company focused on developing drug therapy for chronic liver diseases, including fibrosis and hepatocellular carcinoma (HCC) associated with NASH, viral hepatitis, and other liver diseases, with CRV431 as its lead cyclophilin inhibitor[129](index=129&type=chunk) - NASH is a rapidly increasing global disease, estimated to affect **4-5%** of the population, and is the leading reason for liver transplants in the USA, with no simple diagnostic tests or approved drugs[130](index=130&type=chunk) - The company has developed a proprietary AI tool, "AI-POWR™," to optimize clinical program outcomes, identify novel indications for CRV431, and potentially discover new targets and drug molecules, by using multi-omics data and machine learning to enhance patient and biomarker selection[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) [Impact of COVID-19](index=27&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic has not materially impacted the company's financial statements for the three and six months ended June 30, 2021, although a prolonged outbreak could have future adverse effects, and a Paycheck Protection Program (PPP) loan received in April 2020 was fully repaid in June 2021 - The COVID-19 outbreak has not had a material impact on the company's condensed financial statements for the three and six months ended June 30, 2021, but a prolonged outbreak could have a material adverse impact on future financial results and business operations[135](index=135&type=chunk) - A **$176,585** loan received under the Paycheck Protection Program (PPP) in April 2020 was repaid in full, including interest, in June 2021[136](index=136&type=chunk) [FINANCIAL OPERATIONS OVERVIEW](index=27&type=section&id=FINANCIAL%20OPERATIONS%20OVERVIEW) Since inception through June 30, 2021, the company has accumulated a deficit of **$117.8 million** and has not generated revenue, expecting continued losses as product development is in early stages, with a February 2021 public offering raising **$82.1 million** in net proceeds to fund research and development and general corporate purposes - From inception through June 30, 2021, the company has an accumulated deficit of **$117.8 million** and has not generated any revenue from operations, expecting to incur additional losses for several years[137](index=137&type=chunk) - A public offering on February 16, 2021, of **44,200,000 common shares** at **$2.00 per share**, resulted in net proceeds of **$82.1 million**, intended to fund research and development activities and general corporate purposes[138](index=138&type=chunk) - Product development efforts are in early stages with high completion risk due to uncertainties in clinical testing, regulatory approval, capital raising, and competition[139](index=139&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=27&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) There were no significant changes to the company's critical accounting policies and estimates during the six months ended June 30, 2021, as previously described in its Annual Report on Form 10-K for the year ended December 31, 2020 - No significant changes occurred to the company's critical accounting policies and estimates during the six months ended June 30, 2021[141](index=141&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=28&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) The company had no off-balance sheet arrangements as of June 30, 2021 - The company had no off-balance sheet arrangements as of June 30, 2021[142](index=142&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=28&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) Information regarding recent accounting pronouncements is detailed in Note 4 of the Notes to Condensed Consolidated Financial Statements - Recent accounting pronouncements are discussed in Note 4 of the Notes to Condensed Consolidated Financial Statements[143](index=143&type=chunk) [JOBS Act](index=28&type=section&id=JOBS%20Act) The company's status as an emerging growth company ended on December 31, 2020, but it expects to qualify as a "smaller reporting company" for the foreseeable future, retaining certain exemptions from reporting requirements - The company's status as an emerging growth company ended on December 31, 2020[144](index=144&type=chunk) - The company expects to qualify as a "smaller reporting company" for the foreseeable future, which allows for certain exemptions from reporting requirements[144](index=144&type=chunk)[145](index=145&type=chunk) [RESULTS OF OPERATIONS](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) The company reported no revenues for both periods, with operating expenses, particularly research and development and general and administrative, significantly increasing for both the three and six months ended June 30, 2021, leading to a larger net loss compared to the prior year [Comparison of the three months ended June 30, 2021 and 2020](index=28&type=section&id=Comparison%20of%20the%20three%20months%20ended%20June%2030%2C%202021%20and%202020) For the three months ended June 30, 2021, the company reported no revenues and an increased net loss of **$7.67 million**, up from **$4.94 million** in the prior year, driven by a **$1.2 million** increase in R&D expenses and a **$0.9 million** increase in G&A expenses, primarily due to higher clinical trial costs, consulting, employee compensation, and stock-based compensation | Metric | 3 Months Ended June 30, 2021 ($) | 3 Months Ended June 30, 2020 ($) | Change ($) | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :------- | | Revenues | $— | $— | $— | | Research and development | $4,185,942 | $2,950,340 | $1,235,602 | | General and administrative | $2,668,657 | $1,825,074 | $843,583 | | Loss from operations | $(6,854,599) | $(4,775,414) | $(2,079,185) | | Change in fair value of derivative instruments-warrants and contingent consideration | $(808,070) | $(69,095) | $(738,975) | | Net loss | $(7,665,161) | $(4,940,080) | $(2,725,081) | - Research and development expenses increased by **$1.2 million**, primarily due to higher costs for ongoing studies and clinical trials (**$0.6 million**), consulting (**$0.3 million**), employee compensation (**$0.2 million**), and stock-based compensation (**$0.3 million**), partially offset by a decrease in CMC-related costs (**$0.3 million**)[147](index=147&type=chunk) - General and administrative expenses increased by **$0.9 million**, mainly due to higher stock-based compensation (**$0.7 million**), insurance (**$0.1 million**), consulting (**$0.2 million**), and miscellaneous costs (**$0.2 million**), partially offset by a decrease in foreign taxes (**$0.2 million**)[148](index=148&type=chunk) [Comparison of the six months ended June 30, 2021 and 2020](index=29&type=section&id=Comparison%20of%20the%20six%20months%20ended%20June%2030%2C%202021%20and%202020) For the six months ended June 30, 2021, the company reported no revenues and a net loss of **$13.72 million**, an increase from **$9.17 million** in the prior year, primarily driven by a **$2.1 million** increase in R&D expenses and a **$1.8 million** increase in G&A expenses, largely due to increased clinical trial activities, consulting, employee compensation, and stock-based compensation | Metric | 6 Months Ended June 30, 2021 ($) | 6 Months Ended June 30, 2020 ($) | Change ($) | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :------- | | Revenues | $— | $— | $— | | Research and development | $7,684,597 | $5,587,671 | $2,096,926 | | General and administrative | $5,201,465 | $3,374,680 | $1,826,785 | | Loss from operations | $(12,886,062) | $(8,962,351) | $(3,923,711) | | Change in fair value of derivative instruments – warrants and contingent consideration | $(831,859) | $(108,775) | $(723,084) | | Net loss | $(13,722,467) | $(9,166,697) | $(4,555,770) | - Research and development expenses increased by **$2.1 million**, primarily due to higher costs for ongoing studies and clinical trials (**$0.6 million**), consulting (**$0.5 million**), employee compensation (**$0.4 million**), and stock-based compensation (**$0.6 million**)[151](index=151&type=chunk) - General and administrative expenses increased by **$1.8 million**, mainly due to higher stock-based compensation (**$1.4 million**), insurance (**$0.2 million**), consulting (**$0.3 million**), and miscellaneous costs (**$0.4 million**), partially offset by decreases in professional fees (**$0.1 million**) and foreign taxes (**$0.2 million**)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital significantly increased to **$106.6 million** as of June 30, 2021, primarily due to an **$82.1 million** net proceeds from a February 2021 common stock offering, and despite substantial cash used in operating activities, the financing activities led to a net increase in cash, bringing the total cash balance to **$110.1 million**, though the company expects continued operating losses and will require additional capital in the future - Working capital increased by **$68.6 million** to **$106.6 million** as of June 30, 2021, compared to **$38.0 million** as of June 30, 2020, primarily due to the February 2021 common stock offering[153](index=153&type=chunk) | Cash Flow Activity | 6 Months Ended June 30, 2021 ($) | 6 Months Ended June 30, 2020 ($) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(12,518,930) | $(7,789,316) | | Net cash provided by financing activities | $81,977,015 | $11,437,399 | | Net increase in cash | $69,364,165 | $3,638,841 | | Cash at end of period | $110,091,003 | $17,561,813 | - The February 2021 common stock offering generated net proceeds of **$82.1 million**, which the company intends to use for research and development activities and general corporate purposes[158](index=158&type=chunk) - The company had an accumulated deficit of **$117.8 million** as of June 30, 2021, expects significant operating losses for several years, and will require additional capital in the future, although current cash is sufficient for more than one year[159](index=159&type=chunk)[160](index=160&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company for the reported period - Item 3, Quantitative and Qualitative Disclosures About Market Risk, is not applicable[162](index=162&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2021, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting, with no changes in internal control over financial reporting occurring during the quarter, and the company is actively remediating these weaknesses by utilizing external consultants, hiring additional accounting staff, implementing software solutions, and engaging third-party consultants for process review - As of June 30, 2021, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[163](index=163&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended June 30, 2021[164](index=164&type=chunk) - Remediation efforts include utilizing external consultants to review the internal control environment, hiring a Director of Financial Reporting and two staff accountants, implementing software for stock-based compensation and public company reporting, using external consultants for non-routine accounting and tax issues, and engaging a third-party consultant for business process internal controls[166](index=166&type=chunk)[169](index=169&type=chunk) [PART II—OTHER INFORMATION](index=32&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section provides other information, including risk factors, exhibits, and signatures for the quarterly report [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended December 31, 2020 - No material changes from the risk factors disclosed in the company's Form 10-K for the year ended December 31, 2020[171](index=171&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Exhibits include certifications from the Chief Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2), XBRL Instance Document (101.INS), XBRL Taxonomy Extension Schema (101.SCH), Calculation Linkbase (101.CAL), Definition Linkbase (101.DEF), Label Linkbase (101.LAB), Presentation Linkbase (101.PRE), and Cover Page Interactive Data File (104)[176](index=176&type=chunk) [SIGNATURES](index=32&type=section&id=SIGNATURES) The report is duly signed on behalf of Hepion Pharmaceuticals, Inc. by its Chief Executive Officer, Robert Foster, and Chief Financial Officer, John Cavan, on August 16, 2021 - The report is signed by Robert Foster, Chief Executive Officer, and John Cavan, Chief Financial Officer, on August 16, 2021[176](index=176&type=chunk)

PART I—FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets Summary | Metric ($ in millions) | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash | $115.4 | $40.7 | | Total Current Assets | $117.7 | $42.6 | | Total Assets | $123.8 | $48.6 | | Total Current Liabilities | $2.9 | $4.7 | | Total Liabilities | $6.2 | $8.1 | | Total Stockholders' Equity | $117.6 | $40.5 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric ($ in millions, except per share data) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenues | $— | $— | | Research and development | $3.5 | $2.6 | | General and administrative | $2.5 | $1.5 | | Total operating expenses | $6.0 | $4.2 | | Loss from operations | $(6.0) | $(4.2) | | Net loss and comprehensive loss | $(6.1) | $(4.2) | | Net loss per common share (Basic and diluted) | $(0.12) | $(0.97) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Condensed Consolidated Statements of Changes in Stockholders' Equity (Three Months Ended March 31, 2021) | Item ($ in millions) | Amount | | :--- | :--- | | Balance at December 31, 2020 | $40.5 | | Net loss | $(6.1) | | Stock-based compensation expense | $1.0 | | Issuance of common stock, net | $82.2 | | Balance at March 31, 2021 | $117.6 | Condensed Consolidated Statements of Changes in Stockholders' Equity (Three Months Ended March 31, 2020) | Item ($ in millions) | Amount | | :--- | :--- | | Balance at December 31, 2019 | $15.6 | | Net loss | $(4.2) | | Stock-based compensation expense | $0.01 | | Issuance of common stock, net | $6.8 | | Balance at March 31, 2020 | $18.2 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows | Activity ($ in millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7.3) | $(4.7) | | Net cash (used in) provided by investing activities | $(0.1) | $0.0 | | Net cash provided by financing activities | $82.2 | $6.8 | | Net increase (decrease) in cash | $74.7 | $2.1 | | Cash at end of period | $115.4 | $16.0 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business, accounting policies, financial instruments, equity, and commitments [Note 1. Business Overview](index=10&type=section&id=Note%201.%20Business%20Overview) The company develops drug therapies for chronic liver diseases, with its lead molecule, CRV431, in clinical trials - Hepion Pharmaceuticals is a biopharmaceutical company focused on drug therapy for chronic liver diseases, with its lead molecule being **CRV431**, a cyclophilin inhibitor[27](index=27&type=chunk)[28](index=28&type=chunk) - Preclinical studies with CRV431 in NASH models demonstrated **consistent reductions in liver fibrosis**, inflammation, and cancerous tumors[27](index=27&type=chunk)[28](index=28&type=chunk) - The company completed **Phase 1 clinical activities for CRV431 in HBV** and **multiple ascending dose ("MAD") clinical trials for NASH**[29](index=29&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - Future milestone payments related to the Ciclofilin acquisition could total up to **$16 million plus shares**, contingent on clinical trial progress[30](index=30&type=chunk) [Note 2. Basis of Presentation](index=11&type=section&id=Note%202.%20Basis%20of%20Presentation) The company faces liquidity challenges from ongoing losses but has sufficient cash for over one year of operations - The unaudited condensed consolidated financial statements are prepared following SEC requirements and U.S. GAAP[34](index=34&type=chunk)[35](index=35&type=chunk) - The company has not generated revenue and incurred substantial losses, with an **accumulated deficit of $110.2 million** as of March 31, 2021[36](index=36&type=chunk) - Management anticipates current cash is sufficient to fund operations for **more than one year**, but additional capital will be required in the future[36](index=36&type=chunk)[37](index=37&type=chunk) [Liquidity](index=11&type=section&id=Liquidity) The company holds significant cash and working capital but faces an accumulated deficit and ongoing losses, necessitating future capital raises Liquidity Snapshot (March 31, 2021) | Metric | Amount | | :--- | :--- | | Cash | $115.4 million | | Accumulated Deficit | $110.2 million | | Working Capital | $114.9 million | | Net Loss (3 months ended Mar 31, 2021) | $6.1 million | | Cash Used in Operating Activities (3 months ended Mar 31, 2021) | $7.3 million | - The company has historically funded operations through issuances of convertible debt, common stock, and preferred stock[36](index=36&type=chunk) - Raising additional funds through equity may lead to **significant stockholder dilution**, while debt financing could involve restrictive covenants[37](index=37&type=chunk) [COVID-19 Pandemic](index=11&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic's impact remains uncertain, potentially delaying clinical trials and increasing costs - The full impact of the COVID-19 outbreak remains uncertain, with potential for **delays in clinical testing, regulatory reviews, and patient enrollment**[39](index=39&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Any delays in completing clinical trials will **increase costs, slow product development, and delay revenue generation**[42](index=42&type=chunk) - The company received a **$176,585 PPP loan** in April 2020, which it plans to repay in 2021[44](index=44&type=chunk)[45](index=45&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=12&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) The company's financial statements rely on U.S. GAAP and management estimates, with no significant policy changes - The preparation of financial statements requires management to make estimates and assumptions, with **no significant changes to accounting policies** since December 31, 2020[46](index=46&type=chunk)[47](index=47&type=chunk) - Cash balances were **$115.4 million** as of March 31, 2021, and **$40.7 million** as of December 31, 2020[48](index=48&type=chunk) - Derivative financial instruments and contingent consideration are measured at fair value using **Level 3 inputs** (Black-Scholes option pricing model)[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - Goodwill and acquired In-Process Research & Development (IPR&D) are tested annually for impairment, with **no impairment recorded** for the three months ended March 31, 2021[60](index=60&type=chunk)[63](index=63&type=chunk)[66](index=66&type=chunk) - Research and development costs are **expensed as incurred**, with prepaid R&D costs of **$1.9 million** as of March 31, 2021[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - Share-based compensation expense is measured using the Black-Scholes model, with an unrecognized cost of **$5.2 million** as of March 31, 2021[76](index=76&type=chunk)[77](index=77&type=chunk)[117](index=117&type=chunk) [Note 4. Recent Accounting Pronouncements](index=17&type=section&id=Note%204.%20Recent%20Accounting%20Pronouncements) The company adopted ASU No. 2020-06 on January 1, 2021, with an immaterial impact on its financial statements - The company adopted ASU No. 2020-06, which simplifies the accounting for certain financial instruments, on January 1, 2021[84](index=84&type=chunk) - The impact of this adoption on the condensed consolidated financial statements was **immaterial**[84](index=84&type=chunk) [Note 5. Stockholders' Equity and Derivative Liability — Warrants](index=17&type=section&id=Note%205.%20Stockholders'%20Equity%20and%20Derivative%20Liability%20%E2%80%94%20Warrants) This note details changes in stockholders' equity and the accounting for derivative liabilities related to warrants - As of March 31, 2021, there were **85,581 shares of Series A Convertible Preferred Stock** and **1,807 shares of Series C Convertible Preferred Stock** outstanding[85](index=85&type=chunk)[87](index=87&type=chunk) - Certain warrants are classified as derivative liabilities and their fair value is determined using the **Black-Scholes option pricing model** with Level 3 inputs[90](index=90&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - A public offering in February 2021 resulted in net proceeds of approximately **$82.1 million** to fund research and development[102](index=102&type=chunk) Components of Changes in Derivative Financial Instruments Liability (Three Months Ended March 31, 2021) | Description | Amount ($) | | :--- | :--- | | Balance at December 31, 2020 | $11,673 | | Change in fair value of warrants | $(6,211) | | Balance at March 31, 2021 | $5,462 | [Note 6. Fair Value Measurements](index=20&type=section&id=Note%206.%20Fair%20Value%20Measurements) Contingent consideration and derivative liabilities are measured at fair value on a recurring basis using Level 3 inputs - Contingent consideration from the Ciclofilin acquisition is estimated based on a **probability-weighted discounted cash flow model**[105](index=105&type=chunk)[106](index=106&type=chunk) - The contingent consideration balance increased by $30,000 to **$2,600,000** for the three months ended March 31, 2021, and is classified as a non-current liability[108](index=108&type=chunk)[106](index=106&type=chunk) Fair Value Measurement at March 31, 2021 | Description | Fair Value ($) | Level 3 ($) | | :--- | :--- | :--- | | Contingent consideration | $2,600,000 | $2,600,000 | | Derivative liabilities related to warrants | $5,462 | $5,462 | Fair Value Measurement at December 31, 2020 | Description | Fair Value ($) | Level 3 ($) | | :--- | :--- | :--- | | Contingent consideration | $2,570,000 | $2,570,000 | | Derivative liabilities related to warrants | $11,673 | $11,673 | [Note 7. Indefinite-lived Intangible Assets and Goodwill](index=21&type=section&id=Note%207.%20Indefinite-lived%20Intangible%20Assets%20and%20Goodwill) IPR&D and Goodwill balances remained unchanged, with no impairment losses recorded during the period - **No impairment losses** were recorded on IPR&D or goodwill during the three months ended March 31, 2021, and 2020[109](index=109&type=chunk)[110](index=110&type=chunk) Indefinite-lived Intangible Asset (IPR&D) Balance | Description | Amount ($) | | :--- | :--- | | CRV431 balance at December 31, 2020 | $3,190,000 | | Change during the three months ended March 31, 2021 | — | | CRV431 balance at March 31, 2021 | $3,190,000 | Goodwill Balance | Description | Amount ($) | | :--- | :--- | | Goodwill balance at December 31, 2020 | $1,870,924 | | Change during the three months ended March 31, 2021 | — | | Goodwill balance at March 31, 2021 | $1,870,924 | [Note 8. Accrued Liabilities](index=22&type=section&id=Note%208.%20Accrued%20Liabilities) Total accrued expenses increased, driven primarily by higher payroll and related costs and legal fees Accrued Expenses | Category ($) | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Payroll and related costs | $306,487 | $150,702 | | Research and development | $420,817 | $438,856 | | Legal fees | $52,875 | $— | | Accrued taxes | $— | $37,160 | | Professional fees | $15,900 | $— | | Other | $21,201 | $32,854 | | **Total accrued expenses** | **$817,280** | **$659,572** | [Note 9. Accounting for Share-Based Payments](index=22&type=section&id=Note%209.%20Accounting%20for%20Share-Based%20Payments) Stock-based compensation expense increased significantly, with $5.2 million in unrecognized costs remaining - As of March 31, 2021, the company had **35,229 shares available for grant** under its 2013 Equity Incentive Plan[113](index=113&type=chunk) - As of March 31, 2021, the unrecognized compensation cost related to non-vested stock options was **$5.2 million**, to be recognized over approximately 2.0 years[117](index=117&type=chunk) - The fair value of stock option grants is estimated using the **Black-Scholes option-pricing model**[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) Stock-Based Compensation Expense | Category ($) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | General and administrative | $711,591 | $5,910 | | Research and development | $246,280 | $2,336 | | **Total stock-based compensation expense** | **$957,871** | **$8,246** | [Note 10. Loss per Share](index=23&type=section&id=Note%2010.%20Loss%20per%20Share) Basic and diluted net loss per common share was $(0.12), with several outstanding securities excluded as anti-dilutive - Outstanding securities, including preferred stock, stock options, and warrants, totaling **6,806,725 shares**, were excluded from diluted EPS computation as they were anti-dilutive[125](index=125&type=chunk) Net Loss Per Common Share | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net loss attributable to common stockholders ($) | $(6,062,593) | $(4,226,617) | | Weighted average common shares outstanding | 52,160,742 | 4,345,699 | | **Net loss per share of common stock—basic and diluted** | **$(0.12)** | **$(0.97)** | [Note 11. Commitments and Contingencies](index=24&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) The company has various contractual obligations, including leases with future minimum payments totaling $541,436 - The company has noncancelable operating leases for office and lab space with a weighted average remaining term of **1.89 years**[126](index=126&type=chunk)[133](index=133&type=chunk) - The company is involved in legal proceedings but does not believe the outcome will have a **material adverse effect** on its financial condition[127](index=127&type=chunk) - Employment agreements require specific payments upon events such as a **change in control or termination without cause**[134](index=134&type=chunk) Future Minimum Rental Payments Under Noncancelable Operating Leases (as of March 31, 2021) | Period | Amount ($) | | :--- | :--- | | Remainder of 2021 | $215,649 | | 2022 | $271,885 | | 2023 | $53,902 | | **Total** | **$541,436** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, and strategic focus on developing CRV431 [Business Overview](index=26&type=section&id=Business%20Overview) Hepion Pharmaceuticals develops CRV431 for chronic liver diseases like NASH, a growing global health issue - Hepion Pharmaceuticals is a biopharmaceutical company focused on developing its cyclophilin inhibitor, **CRV431**, for chronic liver diseases[138](index=138&type=chunk) - Preclinical studies with CRV431 demonstrated **reductions in liver fibrosis, inflammation, and cancerous tumors**[138](index=138&type=chunk) - NASH is a rapidly increasing global liver disease, estimated to affect **4–5% of the global population**, with no approved specific treatments[139](index=139&type=chunk) [Artificial Intelligence (AI)](index=26&type=section&id=Artificial%20Intelligence%20(AI)) The company uses its proprietary AI-POWR™ platform to optimize clinical programs and identify new drug targets - The company created a proprietary AI tool called **"AI-POWR™"** to optimize clinical programs and identify novel indications for CRV431[140](index=140&type=chunk)[141](index=141&type=chunk) - AI-POWR™ utilizes a multi-omics approach with machine learning to **improve patient selection, biomarker selection, and drug target selection**[141](index=141&type=chunk) - The platform is intended to **mitigate risks, save time, and reduce costs** in drug development[142](index=142&type=chunk)[143](index=143&type=chunk) [Impact of COVID-19](index=27&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic's full impact remains uncertain, posing risks of delays to clinical trials and operations - The full impact of the COVID-19 outbreak remains uncertain, with potential for **delays in clinical testing, regulatory reviews, and patient enrollment**[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - The company received a **$176,585 PPP loan** in April 2020, which is planned for repayment in 2021[148](index=148&type=chunk)[149](index=149&type=chunk) [FINANCIAL OPERATIONS OVERVIEW](index=28&type=section&id=FINANCIAL%20OPERATIONS%20OVERVIEW) The company has an accumulated deficit of $110.2 million and recently raised $82.1 million to fund R&D - From inception through March 31, 2021, the company had an **accumulated deficit of $110.2 million** and has not generated any revenue[150](index=150&type=chunk) - A public offering in February 2021 resulted in net proceeds of approximately **$82.1 million** to fund research and development[151](index=151&type=chunk) - Product development efforts are in early stages with **high completion risk** due to clinical, regulatory, and financial uncertainties[152](index=152&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=28&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) There were no significant changes to critical accounting policies and estimates during the first quarter of 2021 - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and assumptions[153](index=153&type=chunk) - There were **no significant changes** to critical accounting policies and estimates during the three months ended March 31, 2021[154](index=154&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=28&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) As of March 31, 2021, the company had no off-balance sheet arrangements - The company had **no off-balance sheet arrangements** as of March 31, 2021[155](index=155&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=28&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) Information on recent accounting pronouncements is available in Note 4 of the financial statements - Refer to **Note 4** of Notes to Condensed Consolidated Financial Statements for information on recent accounting pronouncements[156](index=156&type=chunk) [JOBS Act](index=28&type=section&id=JOBS%20Act) The company's emerging growth company status ended, but it now qualifies as a smaller reporting company - The company's status as an emerging growth company **ended on December 31, 2020**[157](index=157&type=chunk) - The company expects to qualify as a **"smaller reporting company,"** retaining certain disclosure exemptions[157](index=157&type=chunk)[158](index=158&type=chunk) [RESULTS OF OPERATIONS](index=29&type=section&id=RESULTS%20OF%20OPERATIONS) The company reported no revenues and an increased net loss of $6.1 million, driven by higher R&D and G&A expenses - Research and development expenses increased by **$0.9 million**, primarily due to drug supply and employee compensation costs[161](index=161&type=chunk) - General and administrative expenses increased by **$1.0 million**, mainly due to higher stock-based compensation and insurance costs[162](index=162&type=chunk) Results of Operations (Three Months Ended March 31) | Metric ($ in millions) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $— | $— | $— | | Research and development | $3.5 | $2.6 | +$0.9 | | General and administrative | $2.5 | $1.5 | +$1.0 | | Loss from operations | $(6.0) | $(4.2) | $(1.8) | | Net loss | $(6.1) | $(4.2) | $(1.9) | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased significantly to $114.9 million due to an $82.1 million public offering - Net cash provided by financing activities was **$82.2 million** for the quarter, primarily from the issuance of common stock[167](index=167&type=chunk) - The company expects to incur significant operating losses and will require **additional capital in the future**, although current cash is sufficient for over one year[169](index=169&type=chunk)[170](index=170&type=chunk) - Raising additional funds may lead to **significant stockholder dilution** or restrictive debt covenants[170](index=170&type=chunk) Working Capital | Metric ($ in millions) | March 31, 2021 | March 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Working Capital | $114.9 | $38.0 | +$76.9 | Cash Flows Summary (Three Months Ended March 31) | Activity ($ in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $(7.3) | $(4.7) | | Investing activities | $(0.1) | $0.0 | | Financing activities | $82.2 | $6.8 | | Net increase (decrease) in cash | $74.7 | $2.1 | [Common Stock Offerings during 2021](index=30&type=section&id=Common%20Stock%20Offerings%20during%202021) A February 2021 public offering generated approximately $82.1 million in net proceeds for R&D and general purposes - On February 16, 2021, the company completed an underwritten public offering of **44,200,000 shares** of common stock at $2.00 per share, raising **$82.1 million** in net proceeds[168](index=168&type=chunk) - The net proceeds are intended to fund **research and development activities** and general corporate purposes[168](index=168&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) A detailed description of contractual obligations is available in Note 11 of the financial statements - Refer to **Note 11** of Notes to Condensed Consolidated Financial Statements for a description of the company's contractual obligations and commitments[171](index=171&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company has no material market risk disclosures for the reporting period - The company states that quantitative and qualitative disclosures about market risk are **not applicable**[172](index=172&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were not effective due to material weaknesses, and the company is actively pursuing remediation - As of September 30, 2020, the company's disclosure controls and procedures were **not effective** due to material weaknesses in internal control over financial reporting[173](index=173&type=chunk) - There have been **no material changes** in internal controls over financial reporting during the three months ended March 31, 2021[174](index=174&type=chunk) - Remediation efforts include **hiring experienced accounting personnel**, implementing software solutions, and utilizing external consultants[175](index=175&type=chunk)[177](index=177&type=chunk) PART II—OTHER INFORMATION [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's annual report - There have been **no material changes** from the risk factors disclosed in the company's Form 10-K for the year ended December 31, 2020[180](index=180&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL documents - Exhibits include **certifications of the CEO and CFO** and various XBRL taxonomy documents[185](index=185&type=chunk) SIGNATURES [Signatures](index=32&type=section&id=Signatures) The report was duly signed by the CEO and CFO on behalf of Hepion Pharmaceuticals, Inc. on May 14, 2021 - The report was signed by **Robert Foster, Chief Executive Officer**, and **John Cavan, Chief Financial Officer**, on May 14, 2021[185](index=185&type=chunk)

Company Highlights - Hepion Pharmaceuticals has a clinical phase 2a NASH program underway[7] - The company utilizes an Artificial Intelligence and Smart Algorithms Platform (AIPOWR ™) to identify and optimize responder outcomes[7] - As of June 30, 2020, the company had $17.6 million in cash[7] - As of June 30, 2020, the company had 9.0 million shares outstanding and 13.1 million fully diluted shares[7] - The company has robust IP protection in major markets with exclusivity until 2039, potentially extending to 2044[7] Pipeline Development - CRV431 is being developed for NASH, with a projected NDA filing in 2025[19] - Preclinical studies identified CRV431 as a lead molecule after screening approximately 200 molecules[19] - Preclinical efficacy models for CRV431 included 5 in vivo, 5 in vitro fibroblast, and 2 human explants (liver and lung) studies[19] - Phase 1 trials for CRV431 have been completed, showing drug exposure in the range where efficacy was demonstrated in preclinical models[19, 28] AI-POWR™ Platform - The AI-POWR™ platform analyzes multi-omic data to improve drug development efficiency and reduce costs[10, 11] - Novartis reported a 10-15% reduction in patient enrolment times in pilot trials using AI to predict and monitor trial costs[16] - AI-POWR™ identified key NASH-related genes altered by CRV431, such as TM6SF2 (+4.2 fold change, p=0.0007) and ApoB (+10.9 fold change, p=0.0001)[30]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-36856 HEPION PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19 ...

1 Nasdaq: HEPA theplon PHARMACEUTICALS CORPORATE PRESENTATION • 2019 Nasdaq: HEPA Forward-Looking Statements This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are characterized by future or conditional verbs such as "may," "will," "expect," "intend," "anticipate," believe," "estimate" and "continue" or similar words. You should read statements that co ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 2019 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36856 HEPION PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Incorporation or Organization) Delaware ...