HCW Biologics(HCWB) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited interim financial statements for June 30, 2023, show total assets decreased to $39.5 million, net loss widened to $9.4 million, and cash used in operations increased to $13.0 million Condensed Balance Sheet Summary (Unaudited) | Metric | Dec 31, 2022 | June 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $22,326,356 | $7,449,010 | | Total current assets | $34,070,919 | $19,799,166 | | Total assets | $46,809,155 | $39,483,244 | | Total current liabilities | $2,956,481 | $4,537,898 | | Total liabilities | $9,380,649 | $10,897,602 | | Total stockholders' equity | $37,428,506 | $28,585,642 | Condensed Statements of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $166,800 | $120,405 | $1,956,269 | $132,938 | | Research and development | $1,969,882 | $1,616,666 | $3,759,558 | $3,872,479 | | General and administrative | $1,707,995 | $3,014,260 | $3,588,597 | $6,131,550 | | Net loss | $(3,510,561) | $(4,304,420) | $(5,567,768) | $(9,375,106) | | Net loss per share | $(0.10) | $(0.12) | $(0.16) | $(0.26) | Condensed Statements of Cash Flows Summary (Unaudited) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,281,998) | $(13,030,059) | | Net cash provided by (used in) investing activities | $7,963,379 | $(1,856,900) | | Net cash provided by financing activities | $8,273 | $9,613 | | Net changes in cash and cash equivalents | $3,689,654 | $(14,877,346) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue decline to Wugen's clinical plan changes, with operating expenses rising due to 467% higher professional services from legal fees, while a $26.3 million credit line supports new headquarters - The company is a clinical-stage biopharmaceutical firm focused on immunotherapies for age-related diseases by targeting chronic inflammation ('inflammaging'), with lead candidates HCW9218 (Phase 1/1b trials for solid tumors) and HCW9302 (preclinical, for autoimmune diseases)[63][65][66] - Recent developments include dosing the first patient in the expansion phase of the HCW9218 UMN study, securing a $26.3 million line of credit for its new headquarters, and being granted a U.S. patent for HCW9218's methods of use in treating various cancers[67] Comparison of R&D Expenses (Three Months Ended June 30) | Category | 2022 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Manufacturing and materials | $304,329 | $100,387 | $(203,942) | (67)% | | Preclinical expenses | $599,520 | $323,695 | $(275,825) | (46)% | | Clinical trials | $83,939 | $197,936 | $113,997 | 136% | | Total R&D expenses | $1,969,882 | $1,616,666 | $(353,216) | (18)% | Comparison of G&A Expenses (Three Months Ended June 30) | Category | 2022 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Professional services | $287,199 | $1,628,214 | $1,341,015 | 467% | | Total G&A expenses | $1,707,995 | $3,014,260 | $1,306,265 | 76% | - The significant increase in professional services costs is primarily due to incurring $1.2 million in legal fees during Q2 2023 related to the Altor/NantCell legal matter[94] - The company's liquidity as of June 30, 2023, consisted of $7.4 million in cash, a $5.3 million interest reserve deposit, and $10.0 million in short-term U.S. government-backed securities, with a new $26.3 million credit line secured in April 2023 to fund its new headquarters[107][109] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate sensitivity on cash and investments, alongside marketability risk from its illiquid Wugen common stock investment - As of June 30, 2023, the company held $7.4 million in cash and cash equivalents, a $5.3 million interest reserve deposit, and $10.0 million in short-term U.S. government-backed securities[123] - Primary market risk exposures are interest rate sensitivity and the limited liquidity of its common stock investment in Wugen, which is not publicly traded[123] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[125] - No changes occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[126] PART II. OTHER INFORMATION Legal Proceedings The company is involved in an arbitration with Altor/NantCell regarding alleged trade secret misappropriation, with potential losses currently unestimable - Altor/NantCell initiated legal proceedings against the company and its CEO, Dr. Hing C. Wong, alleging claims including misappropriation of trade secrets and breach of contract[128] - The lawsuit against the company was dismissed from federal court and the matter is now proceeding in arbitration before JAMS, consolidated with the action against the CEO[128] - The company states it is not possible to reasonably estimate the potential loss or range of loss, and no accrual has been recorded[128] Risk Factors No material changes to risk factors were reported from the company's 2022 Annual Report on Form 10-K - The company reports no material changes to the risk factors disclosed in its 2022 Form 10-K filed on March 28, 2023[129] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, and the planned use of IPO proceeds remains materially unchanged - There were no unregistered sales of equity securities in the reported period[130] - The planned use of proceeds from the company's IPO has not materially changed from what was described in the final prospectus[132] Defaults Upon Senior Securities This section is not applicable - Not Applicable[133] Mine Safety Disclosures This section is not applicable - Not Applicable[134] Other Information No directors or officers adopted, amended, or terminated Rule 10b5-1 trading arrangements during the second quarter of 2023 - No directors or officers reported the adoption, amendment, or termination of a Rule 10b5-1 trading arrangement during the second quarter of 2023[135] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including the Development Line of Credit Agreement and CEO/CFO certifications - The exhibits filed with this report include the Development Line of Credit Agreement with Prime Capital Ventures, CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and Inline XBRL data[137]