Hepion Pharmaceuticals(HEPA) - 2023 Q1 - Quarterly Report

FORM 10-Q 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] Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.0001 per share | HEPA | The Nasdaq Capital Market | - The registrant is a non-accelerated filer and a smaller reporting company. As of May 10, 2023, the number of shares of common stock outstanding was 3,811,482[3] NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that forward-looking statements are subject to risks, and actual results may differ materially, with no obligation to update - This report contains forward-looking statements, which are predictions of future results and plans, and actual results may differ materially due to various factors, including uncertainties in product development, clinical trials, regulatory approval, dependence on key personnel, and the need for additional financing[7] - The company does not assume any obligation to update forward-looking statements[7] PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and financial position Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :---------------------- | :------------- | :---------------- | | Cash | 42,993,359 | 51,189,088 | | Total current assets | 45,806,405 | 56,496,073 | | Total assets | 49,496,251 | 60,244,452 | | Total current liabilities | 9,799,945 | 7,885,722 | | Total liabilities | 12,343,759 | 10,388,515 | | Total stockholders' equity | 37,152,492 | 49,855,937 | Condensed Consolidated Statements of Operations This section details the company's financial performance over specific periods, showing revenues, expenses, and net loss | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenues | — | — | | Research and development | 9,797,659 | 4,311,134 | | General and administrative | 3,411,506 | 2,941,334 | | Total operating expenses | 13,209,165 | 7,252,468 | | Loss from operations | (13,209,165) | (7,252,468) | | Net loss | (13,259,921) | (6,929,685) | | Basic and diluted EPS | (3.48) | (1.82) | Condensed Consolidated Statements of Comprehensive Loss This section presents the total comprehensive loss, including net loss and other comprehensive income or loss components | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | (13,259,921) | (6,929,685) | | Foreign currency translation | 19,353 | 9,146 | | Comprehensive loss | (13,240,568) | (6,920,539) | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in stockholders' equity over time, reflecting net loss, stock-based compensation, and other adjustments | Metric | Balance at Dec 31, 2022 ($) | 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 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 This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Business Overview 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][113] - The lead drug candidate, rencofilstat (formerly CRV431), is a cyclophilin inhibitor targeting fibrosis, inflammation, and showing potential for HCC treatment[30][31][113] - Rencofilstat has received FDA Fast Track designation for NASH and Orphan Drug Designation for HCC, facilitating expedited review and development incentives[40][41] - 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][37][116] - 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][34] Note 2. Basis of Presentation 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] - 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] - The company has an accumulated deficit of $189.0 million and recurring losses, leading to substantial doubt about its ability to continue as a going concern without additional capital within one year[44][45][47] Note 3. Summary of Significant Accounting Policies This note details the company's key accounting policies, including cash, contingent consideration, IPR&D, and stock-based compensation - There have been no changes to the company's significant accounting policies since December 31, 2022[50] Cash Balances | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :----- | :------------- | :---------------- | | Cash | 43.0 million | 51.2 million | - Contingent consideration is measured at fair value (Level 3) at each reporting period[56] - 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][61] - 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][66] - Research and development costs are expensed as incurred, with prepaid R&D costs of $2.5 million at March 31, 2023[69][70] - Stock-based compensation awards are measured at fair value and certain grants are liability-classified due to insufficient shares available under the plan[73][93] Note 4. Stockholders' Equity and Derivative Liability — Warrants This note details outstanding preferred stock and warrant information, including conversions and share counts - As of March 31, 2023, there were 85,581 shares of Series A Convertible Preferred Stock outstanding, with no conversions during Q1 2023 or Q1 2022[80] - As of March 31, 2023, there were 1,800 shares of Series C Convertible Preferred Stock outstanding, with 1 share converted into common stock during Q1 2023[83] Note 5. Fair Value Measurements This note provides fair value measurements for contingent consideration, including valuation methodologies and key assumptions Contingent Consideration Fair Value | Description | Fair value (March 31, 2023) ($) | Fair value (December 31, 2022) ($) | | :------------------------ | :-------------------------- | :--------------------------- | | Contingent consideration | 2,508,434 | 2,460,000 | - Contingent consideration is a Level 3 fair value measurement, valued using a probability-weighted discounted cash flow model[85] Valuation Assumptions | Assumption | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Discount rate (%) | 8.5% | 8.5% | | Projected milestone achievement dates | Dec 2023 — Dec 2028 | Dec 2023 — Dec 2028 | | Probability of success of milestone achievements (%) | 13% — 40% | 13% — 40% | Note 6. Property and Equipment, net This note details the company's property and equipment, net of accumulated depreciation, and related expenses Property and Equipment, Net | Asset Category | March 31, 2023 ($) | 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 $22,730 for the same period in 2022[90] Note 7. Indefinite-lived Intangible Assets This note reports the value of indefinite-lived intangible assets, specifically rencofilstat, and any impairment assessments Indefinite-lived Intangible Assets | Asset | Balance at Dec 31, 2022 ($) | 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] Note 8. Accrued Liabilities 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 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] 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] - Unrecognized compensation cost related to non-vested stock options was $1.7 million, to be recognized over approximately 1.0 years[96] Note 10. Loss per Share This note presents the calculation of basic and diluted loss per share, including anti-dilutive securities Loss per Share Calculation | Metric | Three Months Ended March 31, 2023 ($) | 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 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] - No material adverse effect is expected from current legal proceedings or claims[103] - Rent expense for the three months ended March 31, 2023, and 2022, was $0.1 million for both periods[108] Note 12. Subsequent Events 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][115][116] - 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] - 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][122][123][125] FINANCIAL OPERATIONS OVERVIEW 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 $189.0 million and has not generated any revenue since its inception in May 2013[126] - The company expects to incur additional losses for several years due to ongoing research and development activities and does not anticipate having commercial biopharmaceutical products in the near future[126] - Product development efforts are in early stages with high completion risk due to uncertainties in clinical testing, regulatory approval, capital raising, and competing technologies[127] CRITICAL ACCOUNTING ESTIMATES This section confirms no significant changes to critical accounting estimates from the prior annual report - There were no significant changes to the company's critical accounting estimates during the three months ended March 31, 2023, compared to those described in the 2022 Annual Report on Form 10-K[129] RECENT ACCOUNTING PRONOUNCEMENTS This section states that recent accounting pronouncements are not expected to materially affect the financial statements - No recent accounting pronouncements are expected to have a material effect on the condensed consolidated financial statements for the three months ended March 31, 2023[79][130] RESULTS OF OPERATIONS This section compares the company's operating results for the periods, detailing changes in expenses and net loss - The company generated no revenues during the three months ended March 31, 2023, and 2022[131] Operating Results Comparison | Metric | Three Months Ended March 31, 2023 ($) | 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] - 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] Liquidity and Capital Resources 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] - 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][141] - As of March 31, 2023, the company had $43.0 million in cash and working capital of $36.0 million, a decrease of $12.6 million from December 31, 2022[142][143] Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2023 ($) | 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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 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] - Specific weaknesses include improper design and implementation of controls over formal review, approval, and evaluation of non-core, complex accounting transactions[151] - 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] Changes in Internal Control over Financial Reporting 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] Remediation of Material Weaknesses 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] - Remedial actions include utilizing external consultants for non-routine/technical accounting issues and expanding and improving the review process for complex accounting transactions[152] - 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] PART II—OTHER INFORMATION Item 1A. Risk Factors 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] Item 6. Exhibits 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] 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][163]