HOOKIPA PHARMA INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year endedDecember 31, 2020 included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission , or theSEC . As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q and the "Risk Factors" section of our Annual Report on Form 10-K for the year endDecember 31, 2020 , our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. Overview We are a clinical-stage biopharmaceutical company focused on developing novel immunotherapies based on our proprietary arenavirus platform that is designed to mobilize and amplify targeted T cells and the body's natural infection killers, to fight or prevent serious disease. Our replicating and non-replicating technologies are engineered to induce robust and durable antigen-specific CD8+ T cell responses and pathogen-neutralizing antibodies. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by inducing CD8+ T cell response levels previously not achieved by other immunotherapy approaches. Our oncology portfolio includes three disclosed programs, HB-200, HB-300, and HB-700, which all use our replicating technology. HB-200 is in clinical development for the treatment of Human Papillomavirus 16-positive cancers in an ongoing Phase 1/2 clinical trial. HB-300 is in development for the treatment of prostate cancer and expected to move into the clinic after the third quarter 2022 investigational new drug application filing. HB-700 is our newest asset in preclinical development for treatment of KRAS mutated cancers, including, lung, colorectal and pancreatic cancers. Our HB-200 program is comprised of HB-201 and HB-202. HB-201 is being evaluated as monotherapy and in an alternating combination with HB-202 in an ongoing Phase 1/2 study. InNovember 2021 , we announced updated interim data on our ongoing Phase 1 portion of the study, with additional data strengthening HB-200's tolerability, anti-tumor activity and pharmacodynamic T cell datasets, released earlier in the year at theAmerican Society of Clinical Oncology (ASCO) Annual Meeting inJune 2021 . The updates included data on an additional 24 patients who received HB-201 or HB-202/HB-201, 13 of whom were evaluable (had one or more scans). The interim data showed that HB-200 continues to demonstrate a favorable tolerability profile in heavily pre-treated patients with HPV16+ cancers, highlighting its potential in possible combination with checkpoint inhibitors and other agents. Treatment-related adverse events were reported in 66% of patients, with only 8% experiencing treatment-related adverse events rated grade 3 or higher. HB-200 demonstrated promising, early anti-tumor activity in patients with advanced head and neck cancers (a median of three prior lines of therapy), including a 75% disease control rate, tumor shrinkage in 53% of patients and an ongoing median progression-free survival of 3.45 months. The T cell data show that HB-200 rapidly induces high levels of activated, tumor-specific CD8+ T cells, with more than 90% of patients achieving an increase in tumor-specific CD8+ T cells within two weeks of the initial HB-200 dose and 50% of patients showing elevated tumor infiltrating lymphocytes in their tumors. Additionally, we have initiated the Phase 2 portion of the study, combining HB-200 and pembrolizumab as treatment for advanced/metastatic head and neck cancer patients. InSeptember 2021 , we entered into a clinical collaboration with Merck & Co., Inc. to evaluate the combination of HB-200 and Merck & Co., Inc's anti-PD-1 therapy, KEYTRUDA® (pembrolizumab) in a separate randomized Phase 2 study. HB-300, our therapeutic candidate for prostate cancer, is planned to move into the clinic after we file an investigational new drug application for this program, expected in the third quarter of 2022. InNovember 2021 we announced our preclinical asset for KRAS mutated cancers, HB-700 with an initial tumor type focus areas of colorectal, pancreatic and lung cancers. 23
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Our oncology product candidate pipeline consists of the following programs:
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Our non-replicating prophylactic Cytomegalovirus, or CMV, vaccine candidate,
HB-101, is a potential first in-class compound in a Phase 2 clinical trial for
patients awaiting kidney transplantation. In June 2021 , we completed enrollment
in the Phase 2 clinical study. In November 2021 , we reported additional safety,
immunogenicity and efficacy data to be largely consistent with the update in
November 2020 , whereby the three-dose schedule of HB-101 pre-transplantation
showed a trend of reducing incidence of CMV viremia and antiviral use. The trial
will continue to follow patients currently on-study with final top-line data
readout in the first half of 2023. We have decided to pursue HB-101 further only
if we are able to partner the program with a collaborator, thereby enabling
greater strategic focus on the immuno-oncology programs.
To expand our infectious disease portfolio, we entered into a collaboration and
licensing agreement with Gilead Sciences, Inc. to research arenavirus functional
cures for HIV and chronic Hepatitis B infections. The HBV program has
successfully passed Gilead's Request for Development milestone, and we expect
Gilead to file the necessary regulatory documents to initiate clinical trials in
2022. For the HIV program, following successful completion of all pre-clinical
activities in accordance with the Collaboration Agreement, we are in ongoing
discussions with Gilead to find alternative structures in order to continue the
advancement of the HIV program.
We have funded our operations to date primarily from private placements of our
redeemable convertible preferred stock, with aggregate gross proceeds of
approximately $142.5 million , grant funding and loans from an Austrian
government agency, and $22.2 million in upfront and milestone payments from
Gilead in connection with a research collaboration and license agreement. On
April 23, 2019 , we completed an initial public offering of our common stock, the
IPO, in which we issued 6.0 million shares of our common stock, at $14.00 per
share, for gross proceeds of $84.0 million , or net proceeds of $74.6 million . On
December 11, 2020 , we completed a follow-on public offering in which we issued
3.9 million shares of our common stock, at $11.75 per share, and 2,978 shares of
our Series A convertible preferred stock, at $11,750.00 per share, for net
proceeds of $75.0 million after deducting underwriting discounts and commissions
and offering expenses.
We do not expect to generate revenue from any product candidates that we develop
until we obtain regulatory approval for one or more of such product candidates,
if at all, and commercialize our products or enter into additional collaboration
agreements with third parties. Substantially all of our net losses have resulted
from costs incurred in connection with our research and development programs and
from general and administrative costs associated with our operations.
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All of our product candidates, including our most advanced product candidate, HB-101, will require substantial additional development time and resources before we would be able to apply for and receive regulatory approvals and begin generating revenue from product sales. Before launching our first products, if approved, we plan to establish our own manufacturing facility to reduce or eliminate our reliance on contract manufacturing organizations (CMOs) which will require substantial capital expenditures and cause additional operating expenses. We currently have no marketing and sales organization and have no experience in marketing products; accordingly, we will incur significant expenses to develop a marketing organization and sales force in advance of generating any commercial product sales. As a result, we will need substantial additional capital to support our operating activities. In addition, we expect to continue to incur legal, accounting and other expenses in operating our business, including the costs associated with operating as a public company. We currently anticipate that we will seek to fund our operations through equity or debt financings or other sources, such as government grants and additional collaboration agreements with third parties. Adequate funding may not be available to us on acceptable terms, or at all. If sufficient funds on acceptable terms are not available when needed, we will be required to significantly reduce our operating expenses and delay, reduce the scope of, or eliminate one or more of our development programs. We have incurred net losses each year since our inception in 2011, including net losses of$20.0 million and$54.4 million for the three and nine months endedSeptember 30, 2021 . As ofSeptember 30, 2021 , we had an accumulated deficit of$201.5 million and we do not expect positive cash flows from operations in the foreseeable future, if ever. We expect to continue to incur net operating losses for at least the next several years as we advance our product candidates through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization, continue our research and development efforts and invest to establish a commercial manufacturing facility.
Special Note About Coronavirus (COVID-19)
InMarch 2020 , we announced initial potential business impacts related to the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome 2), or coronavirus, which causes coronavirus disease, or COVID-19. As a result of the COVID-19 pandemic, we have experienced, and may further experience, disruptions that have and could further adversely impact our business operations as well as our preclinical studies and clinical trials. Specifically, nearly all of the Phase 2 trial sites we utilize for our HB-101 Phase 2 trial had temporarily suspended enrollment of patients, resumed patient enrollment, but suspended enrolment again during periods of increased confirmed infections inthe United States andEurope . As a result, the total number of patients in the trial at the conclusion of enrollment trial inJune 2021 was below the originally planned number of patients. In addition, certain aspects of our supply chain were temporarily impacted as certain of our third-party suppliers and manufacturers had paused their operations in response to the COVID-19 pandemic or had otherwise encountered delays in providing their services. The uncertainties resulting from the COVID-19 pandemic have led us to temporarily focus on our core programs, HB-101, HB-200 as well as research and development activities under our collaboration with Gilead in 2020 and 2021. Certain earlier stage programs, including HB-300, have been temporarily de-prioritized and were only allocated the resources that could be made available without impacting our core programs. While we have resumed activities for these earlier stage programs in 2021, we continue to evaluate the extent to which potential constraints of our third-party suppliers and manufacturers will impact our ability to manufacture our product candidates for our clinical trials and conduct other research and development operations and maintain applicable timelines. The ultimate impact of the coronavirus pandemic on our business operations as well as our preclinical studies and clinical trials remains uncertain and subject to change and will depend on future developments, which cannot be accurately predicted. We will continue to monitor the situation closely. Furthermore, in order to preserve resources and liquidity, all of our officers had waived at least 25% of their cash salaries for the three months endedJune 30, 2020 , and the vast majority of our employees agreed to a temporary salary reduction of 20% for the three months endedJune 30, 2020 . We compensated our officers and employees for the forgone cash salaries by issuing restricted stock units inJuly 2020 . Our directors have also accepted to receive equity instead of cash for their accrued board fees. We encourage our staff to work from home, and sinceOctober 2020 , we 25
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offer twice per week sentinel COVID-19 PCR-testing to all ourVienna employees in order to enhance health and safety, in particular for laboratory work that has to be performed on site. SinceOctober 2021 we have required our employees to be either fully vaccinated, cured from a COVID-19 infection or to have obtained a negative PCR-test to enter our offices.
Components of Our Results of Operations
Revenue from collaboration and licensing
To date, we have not generated any revenue from product sales and do not expect to do so in the near future, if at all. All of our revenue to date has been derived from a research collaboration and license agreement with Gilead.
OnJune 4, 2018 , we entered into a Research Collaboration and License Agreement, or the Collaboration Agreement, with Gilead to evaluate potential vaccine products using or incorporating our replicating technology and non-replicating technology for the treatment, cure, diagnosis or prevention of HBV and HIV. Under the Collaboration Agreement, we granted Gilead an exclusive, royalty-bearing license to our technology platform for researching, developing, manufacturing and commercializing products for HIV or HBV. We received a non-refundable$10.0 million upfront payment upon entering the Collaboration Agreement. Gilead is obligated to reimburse us for our costs, including all benefits, travel, overhead, and any other expenses, relating to performing research and development activities under the Collaboration Agreement. We are also eligible to receive up to$140.0 million in developmental milestone payments for each of the HBV and HIV programs and up to$50.0 million in commercialization milestone payments for each of the HBV and HIV programs. Additionally, Gilead is obligated to pay royalties of a high single-digit to low-teens percentage on the worldwide net sales of each HBV product, and royalties of a mid-single-digit to low-teens percentage of worldwide net sales of each HIV product. We determined that our performance obligations under the terms of the Collaboration Agreement included one combined performance obligation for each of the HBV and HIV research programs, comprised of the transfer of intellectual property rights and providing research and development services. Accordingly, we recognize these amounts as revenue over the performance period of the respective services on a percent of completion basis using total estimated research and development labor hours for each of the performance obligations. Since entering into the Collaboration Agreement, we have received from Gilead the non-refundable upfront payment of$10.0 million and$12.2 million in milestone payments for the achievement of pre-clinical research milestones. In addition, we have recognized$31.7 million of cost reimbursements for research and development services performed under the Collaboration Agreement.
Operating Expenses
Our operating expenses since inception have only consisted of research and development costs and general administrative costs.
Research and Development Expenses
Since our inception, we have focused significant resources on our research and development activities, including establishing our arenavirus platform, conducting preclinical studies, developing a manufacturing process, conducting a Phase 1 clinical trial and the ongoing Phase 2 clinical trial for HB-101 as well as initiating a Phase 1/2 trial for HB-201 and preparing an investigational new drug, or IND, application for HB-202. Research and development activities account for a significant portion of our operating expenses. Research and development costs are expensed as incurred. These costs include:
? salaries, benefits and other related costs, including stock-based compensation,
for personnel engaged in research and development functions;
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expenses incurred in connection with the preclinical development of our
? programs and clinical trials of our product candidates, including under
agreements with third parties, such as consultants, contractors, academic
institutions and contract research organizations, or CROs;
? the cost of manufacturing drug products for use in clinical trials, including
under agreements with third parties, such as CMOs, consultants and contractors;
? laboratory costs;
? leased facility costs, equipment depreciation and other expenses, which include
direct and allocated expenses; and
? intellectual property costs incurred in connection with filing and prosecuting
patent applications as well as third-party license fees.
The majority of our research and development costs are external costs, which we track on a program-by-program basis. We do not track our internal research and development expenses on a program-by-program basis as they primarily relate to shared costs deployed across multiple projects under development. We expect our research and development expenses to increase substantially in the future as we advance our existing and future product candidates into and through clinical trials and pursue regulatory approval. The process of conducting the necessary clinical studies to obtain regulatory approval is costly and time-consuming. Clinical trials generally become larger and more costly to conduct as they advance into later stages and, in the future, we will be required to make estimates for expense accruals related to clinical trial expenses. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any product candidates that we develop from our programs. We are also unable to predict when, if ever, material net cash inflows will commence from sales of product candidates we develop, if at all. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
? successful completion of preclinical studies and clinical trials;
? sufficiency of our financial and other resources to complete the necessary
preclinical studies and clinical trials;
? acceptance of INDs for our planned clinical trials or future clinical trials;
? successful enrollment and completion of clinical trials;
? successful data from our clinical program that support an acceptable
risk-benefit profile of our product candidates in the intended populations;
? receipt and maintenance of regulatory and marketing approvals from applicable
regulatory authorities;
? scale-up of our manufacturing processes and formulation of our product
candidates for later stages of development and commercialization;
establishing our own manufacturing capabilities or agreements with third-party
? manufacturers for clinical supply for our clinical trials and commercial
manufacturing, if our product candidate is approved;
? entry into collaborations to further the development of our product candidates;
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? obtaining and maintaining patent and trade secret protection or regulatory
exclusivity for our product candidates;
? successfully launching commercial sales of our product candidates, if and when
approved;
? acceptance of the product candidates benefits and uses, if and when approved,
by patients, the medical community and third-party payors;
? the prevalence and severity of adverse events experienced with our product
candidates;
? maintaining a continued acceptable safety profile of the product candidates
following approval;
? effectively competing with other therapies;
? obtaining and maintaining healthcare coverage and adequate reimbursement from
third-party payors; and
? qualifying for, maintaining, enforcing and defending intellectual property
rights and claims.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if theU.S. Food and Drug Administration or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs in our executive, finance and investor relations, business development and administrative functions. Other general and administrative expenses include consulting fees and professional service fees for auditing, tax and legal services, lease expenses related to our offices, premiums for directors and officers liability insurance, depreciation and other costs. We expect our general and administrative expenses to continue to increase in the future as we expand our operating activities and prepare for potential commercialization of our current and future product candidates, increase our headcount and investor relations activities and maintain compliance with requirements of the Nasdaq Global Select Market and theSecurities and Exchange Commission .
Grant Income
Since inception, we have received grants from theAustrian Research Promotions Agency , either under funding agreements or under research incentive programs. In addition, we have received loans under funding agreements that bear interest at below market interest rate. We account for the grants received as other income and for the imputed benefits arising from the difference between a market rate of interest and the rate of interest as additional grant income, and record interest expense for the loans at a market rate of interest. We participate in a research incentive program provided by the Austrian government under which we are entitled to reimbursement of a percentage of qualifying research and development expenses and capital expenditures incurred inAustria . Submissions for reimbursement under the program are submitted annually. Incentive amounts are generally paid out during the calendar year that follows the year of the expenses but remain subject to subsequent examinations by the responsible authority. 28 Table of Contents Interest Expense
Interest expense results primarily from loans under funding agreements with theAustrian Research Promotion Agency , recorded at a market rate of interest. The difference between interest payments payable pursuant to the loans, which rates are at below market interest rates, and the market interest rate, is accounted for as grant income. Income Taxes
Income tax expense results from foreign minimum income tax and profit on a legal entity basis. The losses that we have incurred since inception result primary from the losses of our Austrian subsidiary. We have considered that, at this point in time, it is uncertain whether we will ever be able to realize the benefits of the deferred tax asset, and accordingly, have established a full valuation allowance as ofSeptember 30, 2021 .
Results of Operations
Comparison of Three and Nine Months Ended
The following table summarizes our results of operations for the three and nine
months ended
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020Revenue from collaboration and licensing $ 3,874 $
4,040 $ 14,553 $ 14,421 Operating expenses: Research and development
(20,698) (16,009) (60,434) (39,099)
General and administrative (4,342) (4,437) (13,746) (13,413)
Total operating expenses (25,040) (20,446) (74,180) (52,512)
Loss from operations (21,166) (16,406) (59,627) (38,091)
Other income (expense):
Grant income 2,487 1,997 7,196 5,064
Interest income 7 20 21 391
Interest expense (234) (194) (671) (587)Other income and expenses, net (1,133) 994 (1,348) 1,615 Total other income (expense), net 1,127
2,817 5,198 6,483
Net loss before tax (20,039) (13,589) (54,429) (31,608)
Income tax expense (1) (0) (1) (0)
Net loss $ (20,040) $ (13,589) $ (54,430) $ (31,608) Revenue from Collaboration and Licensing
Revenue was
Revenues for the three months endedSeptember 30, 2021 did not materially change compared to the three months endedSeptember 30, 2020 though they included lower deferred revenues from upfront and milestone payments which were partially offset by higher cost reimbursements. For the three months endedSeptember 30, 2021 , revenue included$3.7 million from reimbursement of research and development expenses,$0.1 million from partial recognition of deferred revenue related to the upfront payment of$10.0 million that we received inJune 2018 and less than$0.1 million from partial recognition of the$4.0 million milestone payment that we received in 2020. In the three months endedSeptember 30, 2021 we completed the recognition of the deferred revenue related to the upfront payment of$10.0 million that we received inJune 2018 . For the three months endedSeptember 30, 2020 , revenue included$2.8 million from reimbursement of research and development expenses,$0.6 million from partial recognition of deferred revenue related to the upfront payment of 29 Table of Contents
The increase in revenue of$0.2 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily due to higher cost reimbursements of$3.1 million received under the Collaboration Agreement with Gilead, partially offset by the prior-year-effect of a$1.0 million milestone payment recognized in the nine months endedSeptember 30, 2020 and$1.9 million lower deferred revenues recognized related to the upfront and milestone payments compared to the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , revenue included$12.7 million from reimbursement of research and development expenses,$0.6 million from partial recognition of deferred revenue related to the upfront payment of$10.0 million that we received inJune 2018 and$1.3 million from partial recognition of the$4.0 million milestone payment that we received in 2020. In the nine months endedSeptember 30, 2021 we completed the recognition of the deferred revenue related to the upfront payment of$10.0 million that we received inJune 2018 . For the nine months endedSeptember 30, 2020 , revenue included$9.6 million from reimbursement of research and development expenses,$2.0 million from partial recognition of deferred revenue related to the upfront payment of$10.0 million that we received inJune 2018 and$1.8 million from partial recognition of the$4.0 million milestone payment that we received in 2020, as well as$1.0 million of revenue that was recognized upon the achievement of a research milestone inJune 2020 .
Research and Development Expenses
For the three and nine months ended
The increase of$4.7 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was due to an increase in direct research and development expenses of$3.1 million , and an increase in internal R&D expenses of$1.6 million . The primary drivers of the increase in direct research and development expenses for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 were an increase in manufacturing and quality control expenses of$2.1 million , along with a general increase in other direct research and development expenses and laboratory expenses of$1.6 million , partially offset by a decrease in expenses for clinical studies of$0.6 million . The increase in manufacturing and quality control expenses as well as other direct research and development expenses was mainly due to the progress in our HB-201 and HB-202 clinical trial, in particular for monitoring and testing activities, and manufacturing and quality control work in preparation of a further extension of the trial. Clinical study expenses decreased primarily due to the completion of patient enrollment of the Phase 2 study for our CMV vaccine candidate HB-101. The increase in internal research and development expenses for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was primarily due to an increase in personnel expenses and stock-based compensation by$0.7 million and an increase in other expenses by$0.9 million which were mainly related to our increased research and development headcount. The increase in research and development expenses of$21.3 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was due to an increase in direct research and development expenses of$14.5 million , and an increase in internal research and development expenses of$6.8 million . The primary drivers of the increase in direct research and development expenses for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 were an increase in manufacturing and quality control expenses of$8.4 million , an increase in clinical study expenses of$2.2 million , along with an increase in other direct expenses and laboratory expenses of$3.9 million . The increase was mainly due to the progress in our HB- 30 Table of Contents 201 and HB-202 clinical trial, particularly, the increased patient recruitment and related clinical trial monitoring and testing activities, as well as manufacturing and quality control work in preparation of a further extension of the trial. Manufacturing and quality control expenses were also driven by the progress towards clinical development in our Gilead partnered programs and other preclinical programs. The increase in internal research and development expenses for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily due to an increase in personnel expenses by$4.0 million , and an increase in facility related and other internal research and development expenses by$2.8 million . The increase in personnel-related research and development expenses resulted primarily from our increased research and development headcount and an increase in stock compensation expenses. Other internal research and development costs and facility related costs also increased as a result of our expansion of research and development activities and headcount.
The following table summarizes our research and development expenses by product candidate or program (in thousands):
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Direct research and development expenses
by program:
HB-101 $ 1,126 $ 2,494 $ 3,182 $ 4,744
HB-201/202 5,624 2,917 17,915 7,005
Gilead partnered programs(1) 2,832 2,674 9,031 6,171Other and earlier-stage programs 4,050 2,287 9,335 6,340 Sub-total direct expenses 13,632 10,372 39,463 24,260 Internal research and development expenses: Personnel related (including stock-based compensation) 4,561 3,896 14,504 10,474 Facility related 665 573 2,078 1,619 Other internal costs 1,840 1,168 4,389 2,746
Sub-total internal expenses 7,066 5,637 20,971 14,839
Total research and development expenses $ 20,698 $
16,009
(1) Expenses incurred by us in connection with Gilead partnered programs are reimbursed to us by Gilead and accounted for as revenue in the same period.
General and Administrative Expenses
General and administrative expenses for the three months endedSeptember 30, 2021 were$4.3 million , compared to$4.4 million for the three months endedSeptember 30, 2020 . The decrease of$0.1 million was primarily due to a decrease in personnel-related expenses of less than$0.1 million , and a decrease in professional and consulting fees of$0.1 million . The decrease in personnel-related expenses resulted from decreased stock compensation expenses, partially offset by a growth in headcount along with increased salaries in our general and administrative functions. General and administrative expenses for the nine months endedSeptember 30, 2021 were$13.7 million , compared to$13.4 million for the nine months endedSeptember 30, 2020 . The increase of$0.3 million was primarily due to an increase in personnel-related expenses of$0.4 million , partially offset by a decrease in professional and consulting fees of$0.1 million . The increase in personnel-related expenses resulted from a growth in headcount in our general and administrative functions and increased salaries, partially offset by a decrease in stock compensation expenses.
Grant Income
In the three months ended
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imputed benefits from below market interest rates on loans from governmental
agencies. The increase of $0.5 million was primarily due to higher income from
Austrian research and development incentives.
In the nine months ended
Interest Income and Expense
Interest income was less than$0.1 million for the three and nine months endedSeptember 30, 2021 , compared to interest income of less than$0.1 million and$0.4 million for the three and nine months endedSeptember 30, 2020 , respectively. The decrease in the three and nine month endedSeptember 30, 2021 , despite higher cash balances, was due to the drop in interest rates inthe United States andEurope . Interest income represents interest from cash and cash equivalents held in US dollars resulting from the proceeds from the issuance of common and preferred stock as well as payments received under our Collaboration Agreement with Gilead. During the three and nine months endedSeptember 30, 2021 our cash, cash equivalents and restricted cash were mainly held in dollars atU.S. investment grade financial institutions or in money market funds. In addition, smaller amounts were held in euros at our Austrian subsidiary that produced no material interest income due the low or zero interest rate policy in theEuropean Monetary Union . Interest expenses for loans from government agencies were$0.2 million for the three months endedSeptember 30, 2021 , compared to interest expenses of$0.2 million for the three months endedSeptember 30, 2020 . Interest expenses for loans from government agencies were$0.7 million for the nine months endedSeptember 30, 2021 , compared to$0.6 million for the nine months endedSeptember 30, 2020 . Interest expense was recorded at the market rate of interest, which exceeded the contractual interest.
Other Income and Expenses
Other expenses were$1.1 million for the three months endedSeptember 30, 2021 , compared to other income of$1.0 million for the three months endedSeptember 30, 2020 . The decrease in the three months endedSeptember 30, 2021 resulted primarily from exchange rate differences and foreign currency remeasurements. Other expenses were$1.3 million for the nine months endedSeptember 30, 2021 , compared to other income of$1.6 million for the nine months endedSeptember 30, 2020 . The decrease in the nine months endedSeptember 30, 2021 resulted primarily from exchange rate differences and foreign currency remeasurements. In addition, inApril 2020 , we applied for support under the Corona Short-term Work Program inAustria to mitigate the financial impact of the COVID-19 pandemic. In the nine months endedSeptember 30, 2020 , we recognized$0.2 million in other operating income from non-refundable subsidies under this support program which contributed to the decrease of other income and expenses in the nine months endedSeptember 30, 2021 .
Liquidity and Capital Resources
Since our inception in 2011, we have funded our operations primarily through private placements of our convertible preferred stock and proceeds from our IPO and follow-on public offering, from grants, research incentives and borrowings under various agreements with public funding agencies, and from an upfront payment, milestone payments and reimbursement of research and development expenses pursuant to the Collaboration Agreement with Gilead. We have raised gross proceeds of approximately$142.5 million from the issuance of our convertible preferred stock and$22.2 million from non-refundable upfront and milestone payments pursuant to the Collaboration Agreement with Gilead. InApril 2019 , we completed our IPO in which we issued and sold 6,000,000 shares of our common stock, at$14.00 per share, for gross proceeds of$84.0 million , or net proceeds of$74.6 million . OnDecember 11, 2020 , we completed a follow-on public offering in which we issued 3,910,000 shares of our common stock, at$11.75 per share, and 2,978 shares of our Series A convertible preferred stock, at$11,750.00 per share, for net proceeds of$75.0 million 32
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after deducting underwriting discounts and commissions and offering expenses. As
of
We entered into various funding agreements with theAustrian Research Promotion Agency , (Österreichische Forschungsförderungsgesellschaft, or FFG). The loans by FFG, or the FFG Loans, were made on a project-by-project basis and bear interest at rates ranging from 0.75% to 1.0% per annum. In the event that the underlying program research results in a scientific or technical failure, the principal then outstanding under any loan may be forgiven by FFG and converted to non-repayable grant funding on a project-by-project basis. The FFG Loans contain no financial covenants and are not secured by any of our assets. Because the FFG Loans bear interest at below market rates we account for the imputed benefit arising from the difference between an estimated market rate of interest and the contractual interest rate as grant funding from FFG, which is included in grant income. On the date that FFG Loan proceeds are received, we recognize the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan and as unearned income. As ofSeptember 30, 2021 , the unamortized debt discount related to FFG Loans was$1.3 million . We do not expect positive cash flows from operations in the foreseeable future, if at all. Historically, we have incurred operating losses as a result of ongoing efforts to develop our arenavirus technology platform and our product candidates, including conducting ongoing research and development, preclinical studies, clinical trials, providing general and administrative support for these operations and developing our intellectual property portfolio. We expect to continue to incur net operating losses for at least the next several years as we progress clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization of our most advanced product candidates HB-101, HB-201 and HB-202, continue our research and development efforts relating to our other and future product candidates, and invest in our manufacturing capabilities and our own manufacturing facility.
Future Funding Requirements
We have no products approved for commercial sale. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of our product candidates. As a result, we are not profitable and have incurred losses in each period since our inception in 2011. As ofSeptember 30, 2021 , we had an accumulated deficit of$201.5 million . We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:
? pursue the clinical and preclinical development of our current and future
product candidates;
? leverage our technologies to advance product candidates into preclinical and
clinical development;
? seek regulatory approvals for product candidates that successfully complete
clinical trials, if any;
? attract, hire and retain additional clinical, quality control and scientific
personnel;
establish our manufacturing capabilities through third parties or by ourselves
? and scale-up manufacturing to provide adequate supply for clinical trials and
commercialization;
expand our operational, financial and management systems and increase
? personnel, including personnel to support our clinical development,
manufacturing and commercialization efforts and our operations as a public
company;
? expand and protect our intellectual property portfolio;
establish a sales, marketing, medical affairs and distribution infrastructure
? to commercialize any products for which we may obtain marketing approval and
intend to commercialize on our own or jointly;
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? acquire or in-license other product candidates and technologies; and
incur additional legal, accounting and other expenses in operating our
? business, including ongoing costs associated with operating as a public
company.
Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.
We will require substantial additional financing and a failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.
Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities for our non-replicating and replicating technologies and our product candidates derived from these technologies. Preclinical studies and clinical trials and additional research and development activities will require substantial funds to complete. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the development of our current product candidates and programs as well as any future product candidates we may choose to pursue, as well as the gradual gaining of control over our required manufacturing capabilities and other corporate uses. These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current or future product candidates.
Our future capital requirements depend on many factors, including:
the scope, progress, results and costs of researching and developing our
? current and future product candidates and programs, and of conducting
preclinical studies and clinical trials;
the number and development requirements of other product candidates that we may
? pursue, and other indications for our current product candidates that we may
pursue;
the stability, scale and yields of our future manufacturing process as we
? scale-up production and formulation of our product candidates for later stages
of development and commercialization;
the timing of, and the costs involved in, obtaining regulatory and marketing
? approvals and developing our ability to establish sales and marketing
capabilities, if any, for our current and future product candidates we develop
if clinical trials are successful;
? the success of our collaboration with Gilead;
? our ability to establish and maintain collaborations, strategic licensing or
other arrangements and the financial terms of such agreements;
? the cost of commercialization activities for our current and future product
candidates that we may develop, whether alone or with a collaborator;
the costs involved in preparing, filing, prosecuting, maintaining, expanding,
? defending and enforcing patent claims, including litigation costs and the
outcome of such litigation;
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? the timing, receipt and amount of sales of, or royalties on, our future
products, if any; and
? the emergence of competing oncology and infectious disease therapies and other
adverse market developments.
A change in the outcome of any of these or other variables with respect to the
development of any of our current and future product candidates could
significantly change the costs and timing associated with the development of
that product candidate. Furthermore, our operating plans may change in the
future, and we will need additional funds to meet operational needs and capital
requirements associated with such operating plans.
We do not have any committed external source of funds or other support for our
development efforts. Until we can generate sufficient product and royalty
revenue to finance our cash requirements, which we may never do, we expect to
finance our future cash needs through a combination of public or private equity
offerings, debt financings, collaborations, strategic alliances, licensing
arrangements and other marketing or distribution arrangements as well as grant
funding. Based on our research and development plans, we expect that our
existing cash and cash equivalents, will enable us to fund our operating
expenses and capital expenditure requirements for at least the next 12 months.
These estimates are based on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect.
If we raise additional capital through marketing and distribution arrangements
or other collaborations, strategic alliances or licensing arrangements with
third parties, we may have to relinquish certain valuable rights to our product
candidates, technologies, future revenue streams or research programs or grant
licenses on terms that may not be favorable to us. If we raise additional
capital through public or private equity offerings, the terms of these
securities may include liquidation or other preferences that adversely affect
our stockholders' rights. Further, to the extent that we raise additional
capital through the sale of common stock or securities convertible or
exchangeable into common stock, the ownership interest of our shareholders will
be diluted. If we raise additional capital through debt financing, we would be
subject to fixed payment obligations and may be subject to covenants limiting or
restricting our ability to take specific actions, such as incurring additional
debt, making capital expenditures or declaring dividends. If we are unable to
obtain additional funding on favorable terms when needed, we may have to delay,
reduce the scope of or terminate one or more of our research and development
programs or clinical trials.
Cash Flows
The following table sets forth a summary of the primary sources and uses of cash
(in thousands):
Nine months ended September 30,
2021 2020
Net cash used in operating activities $ (52,773) $ (28,038)
Net cash used in investing activities (7,440) (1,866)
Net cash provided by (used in) financing activities 175 (1,656)
Net increase (decrease) in cash and cash equivalents (60,038) (31,560)
Cash Used in Operating Activities
During the nine months endedSeptember 30, 2021 , cash used in operating activities was$52.8 million , which consisted of a net loss of$54.4 million , adjusted by non-cash charges of$9.3 million and cash used due to changes in our operating assets and liabilities of$7.7 million . The non-cash charges consisted primarily of stock-based compensation of$5.9 million and depreciation and amortization expense of$3.4 million . The change in our operating assets and liabilities was primarily due to an increase in prepaid expenses and other current assets of$12.1 million , a decrease in deferred revenues of$2.0 million , a decrease in operating lease liabilities of$1.4 million , an increase in other non-current assets of$0.4 million , and a decrease in other non-current liabilities of$0.4 million , partially offset by an increase in accrued expenses and other liabilities of$5.3 million , a decrease in accounts receivable of$2.8 million , and an increase in accounts payable of$0.5 million . 35 Table of Contents During the nine months endedSeptember 30, 2020 , cash used in operating activities was$28.0 million , which consisted of a net loss of$31.6 million , adjusted by non-cash charges of$9.4 million and cash used due to changes in our operating assets and liabilities of$5.8 million . The non-cash charges consisted primarily of stock-based compensation of$6.4 million , depreciation and amortization expense of$1.5 million and operating lease expenses of$1.5 million . The change in our operating assets and liabilities was primarily due an increase in prepaid expenses and other current assets of$6.6 million , a decrease in operating lease liabilities of$1.4 million , an increase in accounts receivable of$1.2 million , an increase in other assets of$0.1 million and a decrease in other non-current liabilities of$0.1 million , partially offset by an increase in accounts payable of$2.0 million , an increase of accrued expenses and other current liabilities of$1.4 million and an increase in deferred revenues of$0.2 million .
Cash Used in Investing Activities
During the nine months endedSeptember 30, 2021 , cash used in investing activities was$7.4 million . The increase of$5.5 million compared to the nine months endedSeptember 30, 2020 resulted from capital expenditures in connection with our own GMP manufacturing facility project and was partially offset by lower expenditures for laboratory and office space extension and purchase of equipment. During the nine months endedSeptember 30, 2020 , cash used in investing activities was$1.9 million and resulted from capital expenditures in connection with an expansion of our laboratory and office space and purchase of property and equipment.
Cash Provided by (Used in) Financing Activities
During the nine months ended
During the nine months ended
Off-Balance Sheet Arrangements
We did not have during the periods presented and we do not currently have any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of
Payments Due by Calendar Year
Less Than 1 - 3 4 - 5 More than
Total 1 Year Years Years 5 Years
Lease commitments $ 4,592 $ 1,994 $ 2,598 $ - $ -
CMO commitments 10,448 7,165 3,252 31 -
Debt obligations 6,213 3,124 3,089 - -
Total $ 21,253 $ 12,283 $ 8,939 $ 31 $ -
The contractual obligations table does not include any potential contingent
payments upon the achievement by us of specified clinical, regulatory and
commercial events, as applicable, or patent prosecution or royalty payments we
may be required to make under license agreements we have entered into because
the timing and likelihood of these contingent payments are not known.
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We enter into contracts in the normal course of business with CROs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancellable obligations under these agreements are not material.
Critical Accounting Policies
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with the rules and regulations of theSEC , and generally accepted accounting principles inthe United States , or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and the methodologies and assumptions we apply under them have not materially changed, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 18, 2021 .
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing in this Form 10-Q.
Emerging Growth Company Status and Smaller Reporting Company
As an "emerging growth company," the Jumpstart Our Business Startups Act of 2012 allows us to delay adoption of new or revised accounting standards applicable to public companies until such standards are made applicable to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We are also a "smaller reporting company" meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. For so long as we remain a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not smaller reporting companies.
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