Hepion Pharmaceuticals(HEPA) - 2021 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period Condensed Consolidated Balance Sheets 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 | $40.5 | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric ($ 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) | $(0.97) | Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (Three Months Ended March 31, 2021) | Item ($ 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 | $18.2 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows | Activity ($ 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 The notes detail the company's business, accounting policies, financial instruments, equity, and commitments Note 1. Business Overview 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][28] - Preclinical studies with CRV431 in NASH models demonstrated consistent reductions in liver fibrosis, inflammation, and cancerous tumors[27][28] - The company completed Phase 1 clinical activities for CRV431 in HBV and multiple ascending dose ("MAD") clinical trials for NASH[29][31][32] - Future milestone payments related to the Ciclofilin acquisition could total up to $16 million plus shares, contingent on clinical trial progress[30] Note 2. Basis of Presentation 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][35] - The company has not generated revenue and incurred substantial losses, with an accumulated deficit of $110.2 million as of March 31, 2021[36] - Management anticipates current cash is sufficient to fund operations for more than one year, but additional capital will be required in the future[36][37] 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] - Raising additional funds through equity may lead to significant stockholder dilution, while debt financing could involve restrictive covenants[37] COVID-19 Pandemic 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][40][42][43] - Any delays in completing clinical trials will increase costs, slow product development, and delay revenue generation[42] - The company received a $176,585 PPP loan in April 2020, which it plans to repay in 2021[44][45] Note 3. Summary of Significant Accounting Policies 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][47] - Cash balances were $115.4 million as of March 31, 2021, and $40.7 million as of December 31, 2020[48] - Derivative financial instruments and contingent consideration are measured at fair value using Level 3 inputs (Black-Scholes option pricing model)[52][53][54][55][56] - 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][63][66] - Research and development costs are expensed as incurred, with prepaid R&D costs of $1.9 million as of March 31, 2021[73][74][75] - 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][77][117] Note 4. Recent Accounting Pronouncements 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] - The impact of this adoption on the condensed consolidated financial statements was immaterial[84] Note 5. Stockholders' Equity and Derivative Liability — Warrants 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][87] - 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][94][96][97] - A public offering in February 2021 resulted in net proceeds of approximately $82.1 million to fund research and development[102] Components of Changes in Derivative Financial Instruments Liability (Three Months Ended March 31, 2021) | Description | Amount ($) | | :--- | :--- | | 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 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][106] - The contingent consideration balance increased by $30,000 to $2,600,000 for the three months ended March 31, 2021, and is classified as a non-current liability[108][106] Fair Value Measurement at March 31, 2021 | Description | Fair Value ($) | 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 | $11,673 | Note 7. Indefinite-lived Intangible Assets and Goodwill IPR&D and Goodwill balances remained unchanged, with no impairment losses recorded during the period - No impairment losses were recorded on IPR&D or goodwill during the three months ended March 31, 2021, and 2020[109][110] Indefinite-lived Intangible Asset (IPR&D) Balance | Description | Amount ($) | | :--- | :--- | | 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 | $1,870,924 | Note 8. Accrued Liabilities Total accrued expenses increased, driven primarily by higher payroll and related costs and legal fees Accrued Expenses | Category ($) | 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 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] - As of March 31, 2021, the unrecognized compensation cost related to non-vested stock options was $5.2 million, to be recognized over approximately 2.0 years[117] - The fair value of stock option grants is estimated using the Black-Scholes option-pricing model[118][119][120] Stock-Based Compensation Expense | Category ($) | 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 Basic and diluted net loss per common share was $(0.12), with several outstanding securities excluded as anti-dilutive - Outstanding securities, including preferred stock, stock options, and warrants, totaling 6,806,725 shares, were excluded from diluted EPS computation as they were anti-dilutive[125] Net Loss Per Common Share | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net loss attributable to common stockholders ($) | $(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 The company has various contractual obligations, including leases with future minimum payments totaling $541,436 - The company has noncancelable operating leases for office and lab space with a weighted average remaining term of 1.89 years[126][133] - The company is involved in legal proceedings but does not believe the outcome will have a material adverse effect on its financial condition[127] - Employment agreements require specific payments upon events such as a change in control or termination without cause[134] Future Minimum Rental Payments Under Noncancelable Operating Leases (as of March 31, 2021) | Period | Amount ($) | | :--- | :--- | | 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 Management discusses the company's financial condition, operational results, and strategic focus on developing CRV431 Business Overview 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] - Preclinical studies with CRV431 demonstrated reductions in liver fibrosis, inflammation, and cancerous tumors[138] - NASH is a rapidly increasing global liver disease, estimated to affect 4–5% of the global population, with no approved specific treatments[139] Artificial Intelligence (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][141] - AI-POWR™ utilizes a multi-omics approach with machine learning to improve patient selection, biomarker selection, and drug target selection[141] - The platform is intended to mitigate risks, save time, and reduce costs in drug development[142][143] Impact of COVID-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][146][147] - The company received a $176,585 PPP loan in April 2020, which is planned for repayment in 2021[148][149] FINANCIAL OPERATIONS OVERVIEW 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] - A public offering in February 2021 resulted in net proceeds of approximately $82.1 million to fund research and development[151] - Product development efforts are in early stages with high completion risk due to clinical, regulatory, and financial uncertainties[152] CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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] - There were no significant changes to critical accounting policies and estimates during the three months ended March 31, 2021[154] OFF-BALANCE SHEET ARRANGEMENTS 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] RECENT ACCOUNTING PRONOUNCEMENTS 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] JOBS Act 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] - The company expects to qualify as a "smaller reporting company," retaining certain disclosure exemptions[157][158] RESULTS OF OPERATIONS 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] - General and administrative expenses increased by $1.0 million, mainly due to higher stock-based compensation and insurance costs[162] Results of Operations (Three Months Ended March 31) | Metric ($ 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 Working capital increased significantly to $114.9 million due to an $82.1 million public offering - Net cash provided by financing activities was $82.2 million for the quarter, primarily from the issuance of common stock[167] - The company expects to incur significant operating losses and will require additional capital in the future, although current cash is sufficient for over one year[169][170] - Raising additional funds may lead to significant stockholder dilution or restrictive debt covenants[170] Working Capital | Metric ($ 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 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] - The net proceeds are intended to fund research and development activities and general corporate purposes[168] Contractual Obligations and Commitments 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - There have been no material changes in internal controls over financial reporting during the three months ended March 31, 2021[174] - Remediation efforts include hiring experienced accounting personnel, implementing software solutions, and utilizing external consultants[175][177] PART II—OTHER INFORMATION Item 1A. Risk Factors 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] Item 6. Exhibits 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] SIGNATURES 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]