Hepion Pharmaceuticals(HEPA) - 2023 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION 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) 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 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] - Total stockholders' equity decreased by $23.48 million from December 31, 2022, to June 30, 2023[11] Condensed Consolidated Statements of Operations 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][117] - Net loss for the six months ended June 30, 2023, increased by $0.50 million compared to the same period in 2022[13][121] Condensed Consolidated Statements of Comprehensive Loss 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] - 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] Condensed Consolidated Statements of Changes in Stockholders' Equity 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] - Accumulated deficit increased by $27.34 million during the six months ended June 30, 2023[19] - Stock-based compensation expense contributed $871,077 to additional paid-in capital for the six months ended June 30, 2023[19][26] Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes accompanying the condensed consolidated financial statements, offering further context and breakdown of reported figures 1. Business Overview 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] - 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][29] - 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] - 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] 2. Basis of Presentation 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][33] - 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] - 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] - Management concluded there is substantial doubt about the company's ability to continue as a going concern within one year without additional capital[38] 3. Summary of Significant Accounting Policies 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] - 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] - Research and development costs are expensed as incurred because the company has no history of successful commercialization of product candidates[59] - The company maintains a full valuation allowance for its U.S. and foreign net deferred tax assets[53] 4. Stockholders' Equity 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] 5. Fair Value Measurements 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] - 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][72] 6. Property and Equipment, net 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] 7. Indefinite-lived Intangible Assets 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] 8. Accrued Liabilities 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][79] 9. Accounting for Share-Based Payments 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] - 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] 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] 10. Loss per Share 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] 11. Commitments and Contingencies 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] - 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] - 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] 12. Subsequent Events No subsequent events were reported requiring disclosure - No subsequent events were reported[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - The Data and Safety Monitoring Board (DSMB) cleared the ASCEND-NASH Phase 2b study to proceed without modification in June 2023[103] - 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][106] Artificial Intelligence (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] - 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] - 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][111] Financial Operations Overview 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] - The company expects to incur additional losses for the next several years as it expands research, development, and clinical trials of rencofilstat[112] - Product development efforts are in early stages, with high risks and uncertainties related to clinical testing, regulatory approval, capital raising, and competing technologies[113] Critical Accounting Estimates 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] Recent Accounting Pronouncements 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] Results of Operations 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 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] - 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] Comparison of the six months ended June 30, 2023 and 2022 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] - 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] Liquidity and Capital Resources 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 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] Future Funding Requirements 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][126][129] - Failure to obtain necessary capital could force the company to delay, limit, reduce, or terminate product development programs and commercialization efforts[129][135] - Raising additional funds by issuing equity securities may result in significant dilution for stockholders[135] - The company's ability to continue as a going concern is in substantial doubt without additional capital becoming available[132][134] Cash Flows 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] - 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][138] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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 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] - 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][146] Remediation of Material Weaknesses 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][146] - The company cannot assure that it will be successful in remediating the material weaknesses in a timely manner[144] Changes in Internal Control over Financial Reporting 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] PART II—OTHER INFORMATION This section covers other required information, including risk factors and exhibits Item 1A. Risk Factors 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] Item 6. Exhibits 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][150] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the accuracy of the report 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]