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, 2021 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 our Annual Report on Form 10-K for the year endDecember 31, 2021 , 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 developing a new class of immunotherapeutics based on our proprietary arenavirus platform that is designed to target and amplify T cell immune responses to fight diseases. 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. We are building a proprietary immuno-oncology pipeline by targeting oncoviral cancer antigens, self-antigens and next-generation antigens. Our oncology portfolio includes three disclosed programs, HB-200, HB-300, and HB-700, all of which use our replicating technology. HB-200 is in clinical development for the treatment of Human Papillomavirus 16-positive cancers, or HPV16+, with 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 in the first quarter of 2023. 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 single vector therapy and HB-201/HB-202 two vector therapy. Both therapies are being evaluated in an ongoing HB-200 Phase 1/2 clinical trial. InNovember 2021 , we announced interim data from our ongoing Phase 1 portion of the study, showing promising anti-tumor activity against advanced/metastatic HPV16+ cancers and favorable tolerability for HB-200, both as a single and alternating 2-vector product candidate. In the second quarter of 2022, data presented at scientific conferences showed that HB-201/HB-202 alternating 2-vector candidate induced immune and clinical responses, as well as stable disease in HPV16+ advanced metastatic/recurrent head and neck cancer patients who failed prior standard of care therapy. We believe that these early-stage data establish proof of concept for our replicating viral vector immunotherapy candidate in oncology. Based on safety, anti-tumor activity and T cell response data observed to date, we are evaluating HB-202/HB-201 in combination with pembrolizumab in 1st line and 2nd line patients with advanced/metastatic head and neck cancer at the recommended phase 2 dose, or RP2D. To achieve this aim, we are initially assessing single-vector HB-201 in combination with pembrolizumab in a small cohort as a safety lead-in. Subsequently, we are evaluating pembrolizumab in combination with the alternating 2-vector HB-202/HB-201 approach at a dose below the RP2D. Finally, we began the alternating 2-vector therapy at RP2D. To date, more than 20 patients have been dosed, including those in the safety run-in, though only a small number of patients have received the RP2D of HB-200 with pembrolizumab. We believe that we will require more time and additional imaging assessments to mature the dataset and inform the next phase of development. We plan to provide a data update in the first half of 2023. In addition, we are evaluating HB-200 in a small number of patients at the RP2D as a stand alone therapy, in patients who have progressed on standard of care.
In
InOctober 2022 , we entered into a Research Collaboration and License Agreement (the "Roche Collaboration Agreement"), withF. Hoffmann-La Roche Ltd. andHoffmann-La Roche Inc. , collectively referred to as Roche, to (i) grant Roche an exclusive license to research, develop, manufacture and commercialize our pre-clinical HB-700 cancer program, an arenaviral immunotherapeutic for KRAS-mutated cancers, and (ii) grant Roche an exclusive option right to 26
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exclusively license for research, development manufacturing and commercialization, a second, novel arenaviral immunotherapeutic program targeting undisclosed cancer antigens. Pursuant to the Roche Collaboration Agreement, we will receive a non-refundable upfront payment of$25 million and are eligible to receive in upfront payments as well as potential future success-based milestone payments up to approximately$930 million in potential future success-based milestone paymentsfor both programs, plus tiered royalties. 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. InNovember 2021 , we reported safety, immunogenicity and efficacy data, 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. We have funded our operations to date primarily from public offerings of common stock and convertible preferred stock, including our initial public offering, as well as private placements of our redeemable convertible preferred stock, grant funding and loans from an Austrian government agency, and upfront, milestone and initiation payments from Gilead in connection with a research collaboration and license agreement. OnApril 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 . OnDecember 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. In addition, inFebruary 2022 , Gilead purchased 1.7 million shares of our common stock for$5.0 million . OnMarch 4, 2022 , we completed a follow-on public offering in which we issued 21.7 million shares of our common stock, at$2.00 per share, and 15,800 shares of our Series A-1 convertible preferred stock, at$2,000.00 per share, for net proceeds of$70.2 million after deducting underwriting discounts and commissions and offering expenses. As ofSeptember 30, 2022 , the principal amount outstanding under loans from government agencies was$2.6 million and we had cash, cash equivalents and restricted cash of$100.7 million . 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. All of our product candidates, including our most advanced oncology product candidate, HB-200, 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, or 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. 27
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We have incurred net losses each year since our inception in 2011, including net losses of$18.3 million and$52.6 million for the three and nine months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , we had an accumulated deficit of$275.4 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 further commercial manufacturing capacity.
Special Note About Coronavirus (COVID-19)
The COVID-19 pandemic continues to affect economies and business around the world. The extent and duration of such effects remain uncertain and difficult to predict, particularly as virus variants continue to spread. We are actively monitoring and managing our response and assessing actual and potential impacts to our operating results and financial condition, as well as developments in our business, which could further impact the developments, trends and expectations described below. See the risk factor titled, "A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19 may materially and adversely affect our business and our financial results." described in "Risk Factors" in Part II, Item 1A, found elsewhere in this Quarterly Report on Form 10-Q. Furthermore, in order to preserve resources and liquidity during the pandemic, 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 . During 2020, our directors also elected to receive equity instead of cash for their accrued board fees. Staff may work from home in accordance with our "working from home" policy.
Effects of Inflation
We do not believe that inflation has had a material impact on our business or operating results during the periods presented. However, inflation, has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to conduct clinical trials and other operational costs. Inflationary costs could adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, any potential additional funding.
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 (the "Gilead 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 Gilead 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 Gilead Collaboration Agreement. InFebruary 2022 , we signed an amended and restated collaboration agreement (the "Restated Gilead Collaboration Agreement") which revised the terms only for the HIV program, whereby we will take on development responsibilities for the HIV program candidate through a Phase 1b clinical trial. Pursuant to the Restated Gilead Collaboration Agreement, Gilead will retain an exclusive right, the Option, to take back the development responsibilities, thus keeping the rights for the HIV program, including further development and commercialization in return for an option exercise payment of$10.0 million . Pursuant to the Restated Gilead Collaboration Agreement, we
are
eligible for up to
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$140.0 million in developmental milestone payments for the HBV program and$50.0 million in commercialization milestone payments. If Gilead exercises the Option, we are eligible for up to$172.5 million in developmental milestone payments for the HIV program, inclusive of the$10.0 million Option exercise payment, and$65.0 million in commercialization milestone payments for the HIV program. Upon the commercialization of a product, we are eligible to receive tiered royalties of a high single-digit to mid-teens percentage on the worldwide net sales of each HBV product, and royalties of a mid-single-digit to 10% of worldwide net sales of each HIV product. 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 Restated Gilead Collaboration Agreement with respect to the HBV program and, if the Option is exercised, any manufacturing costs related to the HIV program. ThroughSeptember 30, 2022 , we have received from Gilead the non-refundable upfront payment of$10.0 million ,$16.2 million in milestone payments for the achievement of pre-clinical research milestones, and the initiation payment of$15.0 million upon execution of the Restated Gilead Collaboration Agreement to fund our future performance of development activities under the Restated Gilead Collaboration Agreement. In addition, we have recognized$39.1 million of cost reimbursements for research and development services performed under the Gilead Collaboration Agreement. We determined that our performance obligations under the terms of the original Gilead 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 recognized 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. The terms of the Restated Gilead Collaboration Agreement added an additional performance obligation to the Company to perform research and development work for the HIV program. We recognize the amounts of revenue allocated to the performance obligation resulting from the Restated Gilead Collaboration Agreement on a percent of completion basis over the performance period, using total estimated research and development costs as the measure
of progress. 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 the ongoing HB-200 Phase 1/2 study, and preparing an investigational new drug, or IND, application for HB-300. 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;
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, 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; and
? leased facility costs, equipment depreciation and other expenses, which include
direct and allocated expenses.
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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;
? 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
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? 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.
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,
2022 2021 2022 2021
HB-200 program $ 7,305 $ 8,939 $ 20,761 $ 26,317
HB-300 program 2,873 1,562 7,553 3,860
Gilead partnered programs(1) 3,793 4,160 9,159 13,619Other and earlier-stage programs 3,809 5,357 11,885 14,078 Other unallocated research and development expenses 506 680 1,695 2,560 Total research and development expenses $ 18,286 $
20,698
(1) Expenses incurred in connection with Gilead partnered programs were fully reimbursed by Gilead in 2021 and partially reimbursed in 2022, and such reimbursements were accounted for as revenue.
Other unallocated research and development expenses include stock-based compensation expense, certain lease expenses and other operating expenses that we do not track on a program-by-program basis, since our research and development employees and infrastructure ressources are utilized across our programs.
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, intellectual property costs incurred in connection with filing and prosecuting patent applications as well as third-party license fees, 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. 31 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, 2022 .
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,
2022 2021 2022 2021
Revenue from collaboration and licensing $ 2,230 $ 3,874 $ 6,421 $ 14,553 Operating expenses: Research and development (18,286) (20,698) (51,053) (60,434) General and administrative (4,937) (4,342) (14,935) (13,746) Total operating expenses (23,223) (25,040) (65,988) (74,180) Loss from operations (20,993) (21,166) (59,567) (59,627) Other income (expense): Grant income 2,081 2,487 5,926 7,196 Interest income 535 7 724 21 Interest expense (105) (234) (579) (671)
Other income and expenses, net 202 (1,133) 893 (1,348) Total other income (expense), net 2,713 1,127 6,964 5,198 Net loss before tax (18,280) (20,039) (52,603) (54,429) Income tax expense (0)
(1) (1) (1)
Net loss $ (18,280) $ (20,040) $ (52,604) $ (54,430) Revenue from Collaboration and Licensing
Revenue was$2.2 million and$6.4 million for the three and nine months endedSeptember 30, 2022 , respectively, and$3.9 million and$14.6 million for the three and nine months endedSeptember 30, 2021 , respectively. During the three and nine months endedSeptember 30, 2022 revenue decreased by$1.7 million and$8.2 million , respectively, compared to the three and nine months endedSeptember 30, 2021 . This decrease was primarily due to lower cost reimbursements received under the Gilead Collaboration Agreement.
Furthermore, the main parts of the
For the three months ended
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respectively, from partial recognition of milestone and initiation payments that were initially recorded as deferred revenue.
For the nine months endedSeptember 30, 2022 and 2021, revenue included$3.5 million and$12.7 million , respectively, from reimbursement of research and development expenses, and$2.9 million and$1.9 million , respectively, from partial recognition of milestone and initiation payments that were initially recorded as deferred revenue.
Research and Development Expenses
For the three and nine months ended
The decrease of$2.4 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 was attributable to a decrease in direct research and development expenses of$1.7 million , and a decrease in indirect research and development expenses of$0.7 million . The decrease in direct research and development expenses was primarily driven by lower manufacturing expenses for our HB-200 and Gilead partnered programs, partially offset by increased clinical trial expense for our HB-200 program. Indirect research and development expenses decreased mainly because of a decrease in laboratory consumables, a decrease in personnel related expenses including stock based compensation, partially offset by an increase in training and recruitment expenses. The decrease of$9.3 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 was attributable to a decrease in direct research and development expenses of$8.2 million , and a decrease in indirect research and development expenses of$1.1 million . The decrease in direct research and development expenses was primarily driven by lower manufacturing expenses for our HB-200 and Gilead partnered programs and lower clinical study expenses due to the completion of patient enrollment of the Phase 2 trial for our HB-101 program, partially offset by higher clinical study expenses for our HB-200 program. Indirect research and development expenses decreased mainly because of a decrease in personnel related expenses including stock based compensation, and a decrease in laboratory consumables, partially offset by an increase in professional and consulting fees and an increase in training and recruitment expenses.
General and Administrative Expenses
General and administrative expenses for the three months endedSeptember 30, 2022 were$4.9 million , compared to$4.3 million for the three months endedSeptember 30, 2021 . The increase of$0.6 million was primarily due to an increase in professional and consulting fees of$1.1 million and an increase in training and recruitment expenses of$0.2 million , partially offset by a decrease in personnel-related expenses of$0.4 million and a decrease in other expenses of$0.3 million . The increase in professional and consulting fees was primarily attributable to the purchase of third-party services and to$0.8 million of intellectual property costs incurred in connection with filing and prosecuting patent applications. 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, 2022 were$14.9 million , compared to$13.7 million for the nine months endedSeptember 30, 2021 . The increase of$1.2 million was primarily due to an increase in professional and consulting fees of$2.7 million and an increase in training and recruitment expenses of$0.3 million , partially offset by a decrease in personnel-related expenses of$1.2 million and a decrease in other expenses of$0.4 million . The increase in professional and consulting fees was primarily attributable to the purchase of third-party services and to$1.9 million of intellectual property costs incurred in connection with filing and prosecuting patent applications. The decrease in personnel-related expenses resulted from decreased stock compensation expenses, the conversion of a portion of the base salaries of the Company's executive team for the six months endedJune 30, 2022 in common stock, partially offset by a growth in headcount along with increased salaries in our general and administrative functions. 33 Table of Contents Grant Income In the three months endedSeptember 30, 2022 we recorded grant income of$2.1 million , compared to$2.5 million in the three months endedSeptember 30, 2021 . Income from grants mainly included research incentives and imputed benefits from below market interest rates on loans from governmental agencies. The decrease of$0.4 million was primarily due to lower income from Austrian research and development incentives as a result of lower eligible research and development expenses. In the nine months endedSeptember 30, 2022 we recorded grant income of$5.9 million , compared to$7.2 million in the nine months endedSeptember 30, 2021 . Income from grants mainly included research incentives and imputed benefits from below market interest rates on loans from governmental agencies. The decrease of$1.3 million was primarily due to lower income from Austrian research and development incentives as a result of lower eligible research and development expenses.
Interest Income and Expense
Interest income was$0.5 million and$0.7 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to interest income of less than$0.1 million for the three and nine months endedSeptember 30, 2021 . The increase in interest income for the three and nine months endedSeptember 30, 2022 was a result of the risingU.S. dollar and euro interest rates. Interest income represents interest from cash and cash equivalents held inU.S. dollars and euros resulting from the proceeds from the issuance of common and preferred stock as well as payments received under our Gilead Collaboration Agreement. During the three and nine months endedSeptember 30, 2022 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. Interest expenses for loans from government agencies were$0.1 million for the three months endedSeptember 30, 2022 and$0.2 million for the three months endedSeptember 30, 2021 . Interest expenses for loans from government agencies were$0.6 million for the nine months endedSeptember 30, 2022 and$0.7 million for the nine months endedSeptember 30, 2021 . Interest expense was recorded at the market rate of interest, which exceeded the contractual interest.
Other Income and Expenses
Other income was$0.2 million for the three months endedSeptember 30, 2022 , compared to other expenses of$1.1 million for the three months endedSeptember 30, 2021 . The change resulted primarily from exchange rate differences and foreign currency remeasurements.
Other income was
Liquidity and Capital Resources
Since our inception in 2011, we have funded our operations primarily from public offerings and private placements of common stock and convertible preferred stock, including our initial public offering, as well as private placements of our redeemable convertible preferred stock, grant funding and loans from an Austrian government agency, and upfront, milestone and initiation payments from Gilead in connection with a research collaboration and license agreement. Prior to our IPO, we raised gross proceeds of approximately$142.5 million from the issuance of our redeemable convertible preferred stock. 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 34
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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. In addition, inFebruary 2022 , Gilead purchased 1,666,666 shares of our common stock for$5.0 million . OnMarch 4, 2022 , we completed a follow-on public offering in which we issued 21,700,000 shares of our common stock, at$2.00 per share, and 15,800 shares of our Series A-1 convertible preferred stock, at$2,000.00 per share, for net proceeds of$70.2 million after deducting underwriting discounts and commissions and offering expenses. We also received$41.2 million from non-refundable upfront, milestone and initiation payments pursuant to the Restated Gilead Collaboration Agreement. As ofSeptember 30, 2022 , we had cash, cash equivalents and restricted cash of$100.7 million . OnJuly 12, 2022 , we filed a registration statement on Form S-3, or the Registration Statement, with theSEC , which was declared effective onJuly 21, 2022 . The Registration Statement registers the offering, issuance and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into a Sales Agreement withSVB Securities LLC , as sales agent, to provide for the issuance and sale by us of up to$50.0 million of common stock from time to time in "at-the-market" offerings under the Registration Statement and related prospectus filed with the Registration Statement, or the ATM Program. As ofSeptember 30, 2022 , no sales had been made pursuant to the ATM Program. 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 a rate of 0.75% 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. The debt obligation is$2.6 million , principal repayments are due as follows:$1.6 million are due in 2023, and the remaining$1.0 million are due upon final maturity in 2024. 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, 2022 , the unamortized debt discount related to FFG Loans was$0.4 million .
We entered into arrangements with contract manufacturing organizations. As of
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 oncology product candidate HB-200, 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, 2022 , we had an accumulated deficit of$275.4 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; 35 Table of Contents
? 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;
? 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;
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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 collaborations with Gilead and Roche;
? 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;
? 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.
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Cash Flows
The following table sets forth a summary of the primary sources and uses of cash
(in thousands):
Nine months ended September 30,
2022 2021
Net cash used in operating activities $ (33,134) $ (52,773)
Net cash used in investing activities (4,418) (7,440)
Net cash provided by financing activities 72,467 175
Net increase (decrease) in cash and cash equivalents 34,915 (60,038)
Cash Used in Operating Activities
During the nine months endedSeptember 30, 2022 , cash used in operating activities was$33.1 million , which consisted of a net loss of$52.6 million , adjusted by non-cash charges of$6.7 million and cash provided due to changes in our operating assets and liabilities of$12.7 million . The non-cash charges consisted primarily of stock-based compensation of$4.0 million and depreciation and amortization expense of$2.7 million . The change in our operating assets and liabilities was primarily due an increase in deferred revenues of$10.3 million , resulting from the receipt of the$15.0 million program initiation payment, a decrease in accounts receivable of$5.4 million , primarily resulting from the collection of cost reimbursements from Gilead, a decrease in prepaid expenses and other current assets of$1.7 million , an increase in accounts payable of$1.6 million , an increase in other non-current liabilities of$0.3 million , and a decrease in other non-current assets of$0.3 million , partially offset by an increase in receivable research incentives of$5.4 million , a decrease in operating lease liabilities of$1.2 million , and a decrease in other current liabilities of$0.3 million . 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$8.4 million , an increase in receivable research incentives of$3.7 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 .
Cash Used in Investing Activities
During the nine months endedSeptember 30, 2022 , cash used in investing activities was$4.4 million . The decrease of$3.0 million compared to the nine months endedSeptember 30, 2021 resulted from lower capital expenditures in connection with our GMP manufacturing facility project and lower expenditures for purchase of equipment. During the nine months endedSeptember 30, 2021 , cash used in investing activities was$7.4 million and resulted primarily from capital expenditures in connection with our GMP manufacturing facility project as well as expenditures for laboratory and office space extension and purchase of equipment.
Cash Provided by Financing Activities
During the nine months ended
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During the nine months ended
Critical Accounting Policies and Estimates
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, 2021 filed with theSEC onMarch 24, 2022 .
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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