Hoth Therapeutics(HOTH) - 2022 Q4 - Annual Report

Part I Business Hoth Therapeutics is a clinical-stage biopharmaceutical company developing therapies for unmet medical needs, leveraging the 505(b)(2) pathway and external manufacturing - The company's primary development focus is on four key programs: HT-001 (cancer drug side effects), HT-KIT (mast-cell cancers), HT-TBI (traumatic brain injury), and HT-ALZ (Alzheimer's disease)[27] Product Development Pipeline Summary | Product Candidate | Indication | Development Stage | | :--- | :--- | :--- | | HT-001 | Dermatological side effects from EGFR inhibitors | Phase 2a (IND approved Dec 2022) | | HT-KIT | Mastocytosis / Mast Cell Neoplasms | Preclinical (Orphan Drug Designation received) | | HT-ALZ | Alzheimer's Disease | Preclinical | | HT-TBI | Traumatic Brain Injury / Ischemic Stroke | Preclinical | | BioLexa Platform | Atopic Dermatitis (Eczema) | Phase 1b (Completed Sep 2022) | | HT-003 | Acne / Inflammatory Bowel Diseases | Preclinical | | HT-004 | Asthma / Allergies | Preclinical | | HT-002 | SARS-CoV-2 Transmission | Preclinical (Proof-of-Concept completed) | | Direct Detect | Virus Detection Device | Prototype Development | - Hoth strategically utilizes the Section 505(b)(2) regulatory pathway for several of its candidates, including HT-001, HT-ALZ, and the BioLexa Platform, to leverage existing FDA-approved drug data, potentially reducing development time and cost[29][35][40] - The company operates without its own manufacturing capabilities and intends to rely on contract manufacturing organizations (CMOs) for production and engage third-party pharmaceutical companies for commercialization upon regulatory approval[54][55] Risk Factors The company faces significant financial, product development, intellectual property, and stock-related risks, including a history of losses and need for capital Risks Related to Our Financial Position and Need for Capital Financial Performance Summary | Metric | 2022 (in dollars) | 2021 (in dollars) | | :--- | :--- | :--- | | Net Loss | $11,371,953 | $14,313,705 | | Accumulated Deficit | $45,099,116 | $33,727,163 | - The company has generated no revenue from commercial sales and expects to operate at a net loss for the next several years, requiring substantial additional capital to fund its development and commercialization efforts[91][92] - Failure to raise adequate funds could force the company to delay, scale back, or eliminate research and development activities and may require relinquishing rights to technologies or products[94] Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization - The company's business is entirely dependent on the successful development, regulatory approval, and commercialization of its product candidates, which is a high-risk process with a low probability of success[97] - The FDA's marketing approval process is lengthy, expensive, and unpredictable. There is no guarantee that any product candidates will ever receive approval to be marketed[103][106] - Hoth relies on third-party Contract Research Organizations (CROs) and Contract Manufacturing Organizations (CMOs) for clinical trials and manufacturing. Poor performance by these third parties could delay or terminate product development[136][166] - The company faces intense competition from large pharmaceutical companies and other institutions with significantly greater financial resources and experience in product development and marketing[157] Risks Related to Our Intellectual Property Rights - The company relies on intellectual property licensed from third parties and has limited control over how these licensors defend the patents, which could harm the business if not protected vigorously[182] - Patent positions in the biopharmaceutical industry are highly uncertain and involve complex legal questions. There is no guarantee that pending applications will issue or that issued patents will provide competitive advantages or withstand challenges[185] Risks Related to the Company - Future business expansion through acquisitions of new drug candidates could disrupt operations, harm financial conditions, and dilute shareholder ownership[192] - The business could be adversely affected by health epidemics like the COVID-19 pandemic, which can disrupt clinical trials, supply chains, and access to capital[198][199] Risks Related to Our Common Stock - The company's common stock price may fluctuate substantially due to factors such as clinical trial results, regulatory decisions, financing efforts, and general market conditions[203] - Future sales of equity securities to raise capital are expected, which could result in substantial dilution to existing shareholders[209] - The company does not intend to pay cash dividends, so any investment return will be limited to potential appreciation in the stock's value[210] Unresolved Staff Comments Not applicable Properties The company leases its executive office in New York, NY for $2,500 per month, with the lease ending January 2025, and deems facilities adequate - The company leases its executive office at 1 Rockefeller Plaza, New York, NY for approximately $2,500 per month, with the lease terminating on January 1, 2025[226] Legal Proceedings The company is not aware of any material legal proceedings or claims that would adversely affect its business or financial condition Mine Safety Disclosures Not applicable Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Hoth common stock trades on Nasdaq under "HOTH" with 98 shareholders as of March 2023, and the company does not plan to pay dividends - The company's common stock began trading on The Nasdaq Capital Market under the symbol "HOTH" on February 15, 2019[231] - As of March 17, 2023, there were 98 shareholders of record[232] - The company has never paid cash dividends and does not plan to in the foreseeable future, retaining funds for business expansion[233] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, the company reported an $11.4 million net loss, driven by reduced R&D, and requires significant future funding despite current liquidity Results of Operations Comparison of Operating Expenses (2022 vs. 2021) | Expense Category | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Research and Development | $4.9 | $7.5 | | General and Administrative | $6.1 | $6.6 | | Total Operating Expenses | $11.1 | $14.1 | - Research and development expenses decreased to $4.9 million in 2022 from $7.5 million in 2021. The largest R&D cost in 2022 was approximately $2.9 million for HT-001 manufacturing and clinical activities[238][239] - General and Administrative expenses slightly decreased to $6.1 million in 2022 from $6.6 million in 2021, primarily consisting of payroll, stock-based compensation, and professional fees[240][241] Liquidity and Capital Resources Key Financial Position Data (as of Dec 31, 2022) | Metric | Amount (in millions) | | :--- | :--- | | Cash | $6.4 | | Working Capital | $5.3 | | Accumulated Deficit | $45.0 | - The company believes its existing cash as of December 31, 2022, will fund operations for at least the next 12 months[247] - The company faces potential future milestone payments of up to approximately $15.6 million if all development and commercialization events in current agreements are achieved, necessitating additional funding[248] Cash Flows Consolidated Cash Flow Summary | Cash Flow Activity | Year Ended Dec 31, 2022 (in millions) | Year Ended Dec 31, 2021 (in millions) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($9.3 million) | ($12.1 million) | | Net Cash Provided by (Used in) Investing Activities | $1.2 million | ($0.2 million) | | Net Cash Provided by Financing Activities | $6.0 million | $18.2 million | Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Hoth Therapeutics is exempt from providing market risk disclosures Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2022 and 2021, showing a 2022 net loss of $11.4 million Consolidated Balance Sheet Highlights | Account | Dec 31, 2022 (in dollars) | Dec 31, 2021 (in dollars) | | :--- | :--- | :--- | | Total Current Assets | $6,726,381 | $10,575,079 | | Total Assets | $6,759,381 | $10,985,079 | | Total Current Liabilities | $1,387,731 | $867,787 | | Total Liabilities | $1,637,731 | $1,102,787 | | Total Stockholders' Equity | $5,121,650 | $9,882,292 | Consolidated Statement of Operations Highlights | Account | Year Ended Dec 31, 2022 (in dollars) | Year Ended Dec 31, 2021 (in dollars) | | :--- | :--- | :--- | | Research and Development | $4,844,578 | $7,354,708 | | Total Operating Expenses | $11,065,554 | $14,101,440 | | Loss from Operations | ($11,065,554) | ($14,101,440) | | Net Loss | ($11,371,953) | ($14,313,705) | | Net Loss Per Share | ($9.50) | ($16.02) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None Controls and Procedures Management identified a material weakness in internal controls due to insufficient segregation of duties, implementing a new closing process for remediation - Management concluded that internal control over financial reporting was not effective as of December 31, 2022, due to a material weakness[371] - The identified material weakness was a lack of sufficient resources to provide adequate segregation of duties in the preparation and review of financial information, including cutoff related to accruals and prepaids[372] - To remediate the weakness, the company has implemented a new closing process for each quarter and year-end to properly account for and book expenses[375] Other Information The company signed a new three-year employment agreement with CEO Robb Knie, detailing salary, bonus, equity, and severance terms - On March 28, 2023, the company entered into a new employment agreement with CEO Robb Knie for a three-year term with a base salary of $450,000 and a potential annual bonus of up to $350,000[379] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable Part III Directors, Executive Officers and Corporate Governance This section details executive officers, board members, and the independent composition and responsibilities of the Audit, Compensation, and Nominating committees Executive Officers and Directors (as of March 17, 2023) | Name | Age | Position | | :--- | :--- | :--- | | Robb Knie | 54 | President, Chief Executive Officer and Director | | David Briones | 46 | Chief Financial Officer | | Wayne Linsley | 66 | Director | | David B. Sarnoff | 55 | Director | | Graig Springer | 43 | Director | | Jeff Pavell | 56 | Director | - The Board of Directors maintains three standing committees: Audit, Compensation, and Nominating and Governance. All members of these committees are considered independent under Nasdaq rules[399][400] Executive Compensation This section details 2022 executive compensation, including CEO Robb Knie's $1.06 million total, and non-employee director compensation of $50,000 annually Summary Compensation Table (2022) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Robb Knie, CEO & President | 2022 | 450,000 | 300,000 | 216,361 | 94,009 | 1,060,370 | | Stefanie Johns, Former CSO | 2022 | 382,443 | 20,000 | 108,181 | 185,263 | 695,886 | - Non-employee directors receive $50,000 in cash compensation annually for their service on the board[439] - On December 9, 2022, the employment of Chief Scientific Officer Stefanie Johns ceased. She entered into a separation agreement providing for six months of base salary and continued health benefits[423] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 2023, directors and NEOs owned 3.29% of common stock, with Armistice Capital holding 9.99%, and equity plans having available shares Beneficial Ownership as of March 17, 2023 | Beneficial Owner | Percentage Owned | | :--- | :--- | | All Named Executive Officers and Directors as a Group | 3.29% | | Armistice Capital, LLC | 9.99% | Certain Relationships and Related Transactions, and Director Independence The company disclosed a $10 million securities purchase with Armistice Capital and maintains a policy for related party transactions, with a majority of independent directors - On December 29, 2022, the company entered into a securities purchase agreement with Armistice Capital Master Fund Ltd., a greater than 5% shareholder, for gross proceeds of approximately $10 million[447] - The Board of Directors has determined that Wayne Linsley, David Sarnoff, Graig Springer, and Jeff Pavell are independent directors[452] Principal Accountant Fees and Services The company paid WithumSmith+Brown, PC $156,441 in 2022 for audit and tax services, all pre-approved by the audit committee Accountant Fees | Fee Type | 2022 (in dollars) | 2021 (in dollars) | | :--- | :--- | :--- | | Audit Fees | $149,791 | $98,365 | | Tax Fees | $6,650 | $3,605 | | Total | $156,441 | $101,970 | Part IV Exhibit and Financial Statement Schedules This section lists financial statements and exhibits filed with the Form 10-K, with schedules omitted as not applicable or included elsewhere Form 10-K Summary Not applicable