hepa-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36856

HEPION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)			46-2783806 (I.R.S. Employer Identification Number)

399 Thornall Street, First Floor

Edison, New Jersey 08837

(Address of Principal Executive Offices)

(732) 902-4000

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

HEPA

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock outstanding as of August 11, 2021 was 76,225,245.

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for Hepion Pharmaceuticals, Inc. may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are characterized by future or conditional verbs such as “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Factors that may cause such differences include, but are not limited to, those discussed under Item 1A. Risk Factors and elsewhere in the audited condensed consolidated financial statements as of and for the year ended December 31, 2020 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2021. These factors include the uncertainties associated with product development, the risk that products that appeared promising in early clinical trials do not demonstrate safety and efficacy in larger-scale clinical trials, the risk that we will not obtain approval to market our products, the risks associated with dependence upon key personnel and the need for additional financing. We do not assume any obligation to update forward-looking statements as circumstances change and thus you should not unduly rely on these statements. Cautionary Note Regarding Forward-Looking Statements.

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HEPION PHARMACEUTICALS, INC.

FORM 10-Q

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		Page
PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II—OTHER INFORMATION

Item 1A.	Risk Factors	28
Item 6.	Exhibits	28
SIGNATURES		28

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2021		December 31, 2020
			(Note 2)
Assets
Current assets:
Cash	$	110,091,003	$	40,726,838
Prepaid expenses	3,582,186		1,907,461
Total current assets	113,673,189		42,634,299
Property and equipment, net	162,808		108,440
Right-of-use assets	436,340		556,492
In-process research and development	3,190,000		3,190,000
Goodwill	1,870,924		1,870,924
Other assets	420,019		285,098
Total assets	$	119,753,280	$	48,645,253

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,086,707	$	3,722,429
Accrued expenses	1,669,801		659,572
Operating lease liabilities, current	286,017		279,826

Short-term portion of contingent consideration	2,059,025		—
Total current liabilities	7,101,550		4,661,827
Contingent consideration	1,350,975		2,570,000
Long-term debt	—		176,585
Deferred tax liability	409,022		409,022
Operating lease liabilities, non-current	166,854		295,755
Derivative financial instruments, at estimated fair value—warrants	3,532		11,673
Total liabilities	9,031,933		8,124,862
Commitments and contingencies (Note 11)
Stockholders’ equity:
Series A convertible preferred stock, stated value $10 per share, 85,581 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	855,808		855,808
Series C convertible preferred stock, stated value $1,000 per share, 1,807 and 1,817 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	851,607		856,320
Common stock—$0.0001 par value per share; 120,000,000 shares authorized, 76,225,245 and 32,025,153 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	7,623		3,203
Additional paid in capital	226,834,239		142,910,523
Accumulated deficit	(117,827,930)		(104,105,463)
Total stockholders’ equity	110,721,347		40,520,391
Total liabilities and stockholders’ equity	$	119,753,280	$	48,645,253

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues	$	—	$	—	$	—	$	—
Costs and expenses:
Research and development	4,185,942		2,950,340		7,684,597		5,587,671
General and administrative	2,668,657		1,825,074		5,201,465		3,374,680
Total operating expenses	6,854,599		4,775,414		12,886,062		8,962,351
Loss from operations	(6,854,599)		(4,775,414)		(12,886,062)		(8,962,351)

Other income (expense):
Interest expense	(2,492)		—		(4,546)		—
Change in fair value of derivative instruments-warrants and contingent consideration	(808,070)		(69,095)		(831,859)		(108,775)
Loss before income taxes	(7,665,161)		(4,844,509)		(13,722,467)		(9,071,126)
Income tax benefit (expense)	—		(95,571)		—		(95,571)
Net loss and comprehensive loss	(7,665,161)		(4,940,080)		(13,722,467)		(9,166,697)
Preferred stock deemed dividend (see Note 5)	—		—		(5,287)		—
Net loss attributable to common shareholders	$	(7,665,161)	$	(4,940,080)	$	(13,727,754)	$	(9,166,697)

Weighted average common shares outstanding:
Basic and diluted	76,225,245		8,494,518		64,259,470		6,420,109

Net loss per common share: (see Note 10)
Basic and diluted	$	(0.10)	$	(0.58)	$	(0.21)	$	(1.43)

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Preferred Stock			Preferred Stock						Additional Paid in Capital		Accumulated Deficit		Total Stockholders' Equity
	Series A			Series C			Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2020	85,581	$	855,808	1,817	$	856,320	32,025,153	$	3,203	$	142,910,523	$	(104,105,463)	$	40,520,391
Net loss	—	—		—	—		—	—		—		(6,057,306)		(6,057,306)
Stock-based compensation expense	—	—		—	—		—	—		957,871		—		957,871
Conversion of preferred stock to common	—	—		(10)	(10,000)		92	—		10,000		—		—
Accretion of discount	—	—		—	5,287		—	—		(5,287)		—		—
Issuance of common stock, net	—	—		—	—		44,200,000	4,420		82,149,180		—		82,153,600
Balance at March 31, 2021	85,581	855,808		1,807	851,607		76,225,245	7,623		226,022,287		(110,162,769)		117,574,556
Net loss	—	—		—	—		—	—		—		(7,665,161)		(7,665,161)
Stock-based compensation expense	—	—		—	—		—	—		811,952		—		811,952

Balance at June 30, 2021	85,581	$	855,808	1,807	$	851,607	76,225,245	$	7,623	$	226,834,239	$	(117,827,930)	$	110,721,347

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Preferred Stock			Preferred Stock						Additional Paid in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Series A			Series C			Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2019	85,581	$	855,808	1,827	$	861,033	3,760,255	$	375	$	97,651,006	$	(83,751,525)	$	15,616,697
Net loss	—	—		—	—		—	—		—		(4,226,617)		(4,226,617)
Stock-based compensation expense	—	—		—	—		—	—		8,246		—		8,246
Issuance of common stock, net	—	—		—	—		2,311,867	231		6,788,234		—		6,788,465
Warrant exercises	—	—		—	—		2,000	—		12,000		—		12,000
Balance at March 31, 2020	85,581	855,808		1,827	861,033		6,074,122	606		104,459,486		(87,978,142)		18,198,791
Net loss	—	—		—	—		—	—		—		(4,940,080)		(4,940,080)
Stock-based compensation expense	—	—		—	—		—	—		4,123		—		4,123
Issuance of common stock, net	—	—		—	—		2,950,939	295		4,460,054		—		4,460,349
Balance at June 30, 2020	85,581	$	855,808	1,827	$	861,033	9,025,061	$	901	$	108,923,663	$	(92,918,222)	$	17,723,183

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(13,722,467)	$	(9,166,697)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	2,352,770		402,857
Depreciation and amortization	39,552		13,729
Change in fair value of derivative instrument-warrants	(8,141)		28,775
Change in fair value of contingent consideration	840,000		80,000
Change in deferred tax liability	—		30,425
Changes in operating assets and liabilities:
Accounts payable and accrued expenses	(208,440)		952,851
Prepaid expenses and other assets	(1,812,204)		(131,256)
Net cash used in operating activities	(12,518,930)		(7,789,316)

Cash flows from investing activities:
Purchase of property and equipment	(93,920)		(11,436)
Proceeds from disposal of property and equipment	—		2,194
Net cash used in investing activities	(93,920)		(9,242)

Cash flows from financing activities:
Proceeds from the issuance of common stock, net of issuance costs	82,153,600		11,248,814
Proceeds from debt financing	—		176,585
Repayment of debt financing	(176,585)		—
Proceeds from the exercise of warrants	—		12,000
Net cash provided by financing activities	81,977,015		11,437,399
Net increase in cash	69,364,165		3,638,841
Cash at beginning of period	40,726,838		13,922,972
Cash at end of period	$	110,091,003	$	17,561,813

Supplementary disclosure of cash flow information:
Cash paid for interest	$	2,024	$	—
Supplementary disclosure of non-cash financing activities:
Conversion of Series C convertible preferred stock (part of Series C deemed dividend)	$	10,000	$	—
Accretion of Series C preferred stock discount upon conversion	$	5,287	$	—
Warrants issued to placement agent	$	2,013,055	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Business Overview

Hepion Pharmaceuticals, Inc. (we, our, or us) is a biopharmaceutical company headquartered in Edison, New Jersey, focused on the development of drug therapy for treatment of chronic liver diseases. This therapeutic approach targets fibrosis and hepatocellular carcinoma (“HCC”) associated with non-alcoholic steatohepatitis (“NASH”), viral hepatitis, and other liver diseases. Our cyclophilin inhibitor, CRV431, is being developed to offer benefits to address these multiple complex pathologies. CRV431 is a cyclophilin inhibitor that targets multiple pathologic pathways involved in the progression of liver disease. Preclinical studies with CRV431 in NASH models demonstrated consistent reductions in liver fibrosis and additional reductions in inflammation and cancerous tumors in some studies. CRV431 additionally showed in vitro antiviral activity towards hepatitis B, C, and D viruses which also trigger liver disease. Preclinical studies also have shown potentially therapeutic activities of CRV431 in experimental models of acute lung injury, platelet activation, and SARS-CoV-2 coronavirus replication.

We are developing CRV431 as our lead molecule. CRV431 is a compound that binds and inhibits the function of a specific class of isomerase enzymes called cyclophilins that regulate protein folding. Many closely related isoforms of cyclophilins exist in humans. Cyclophilins A, B, and D are the best characterized cyclophilin isoforms. Inhibition of cyclophilins has been shown in the scientific literature to have therapeutic effects in a variety of experimental models, including liver disease models. In preclinical in vitro and/or in vivo experiments to date CRV431 decreased liver fibrosis, liver inflammation, liver tumors, and titers of HBV, HCV, HDV, and HIV-1. Importantly, reduction in liver fibrosis by CRV431 was observed in vivo in several experimental models and studies of NASH and liver fibrosis. Findings to date suggest that CRV431 might treat certain inciting agents of liver disease such as hepatitis viruses and also the ensuing disease processes resulting from those agents such as fibrosis.

On May 10, 2018, we submitted an Investigational New Drug Application (“IND”) to the U.S. Food and Drug Administration (“FDA”) to support initiation of our CRV431 HBV clinical development program in the United States and received approval in June 2018. We completed the first segment of our Phase 1 clinical activities for CRV431 in October 2018 wherein we reached a major clinical milestone of positive data from a Phase I trial of CRV431 in humans. This achievement triggered the first milestone payment, as stated in the Merger Agreement for the acquisition of Ciclofilin Pharmaceuticals, Inc. (“Ciclofilin”) and we paid a related milestone payment of approximately $346,000 to Aurinia Pharmaceuticals, Inc. ("Aurinia") and $654,000 to the former Ciclofilin shareholders along with the issuance of 1,439 shares of our common stock with a fair value of $55,398, representing 2.5% of our issued and outstanding common stock as of June, 2016, to the former Ciclofilin shareholders. Our CEO is a former Ciclofilin shareholder and received approximately $274,000 and 603 shares of common stock and Petrus Wijngaard, a director of our company, received $2,805 and 6 shares of common stock.

Additional milestone payments could potentially be payable to the former Ciclofilin shareholders pursuant to the Ciclofilin Merger Agreement as follows: (i) upon receipt of Phase II positive data from a proof-of-concept clinical trial of CRV431 in humans - 4,317 shares of common stock and $3,000,000, (ii) upon initiation of a Phase III trial of CRV431 - $5,000,000, and (iii) upon acceptance by the FDA of a new drug application for CRV431 – $8,000,000. In addition, on February 14, 2014, Ciclofilin had entered into a Purchase and Sale Agreement to acquire Aurinia’s entire interest in CRV431. This agreement contains future milestone payments payable by us based on clinical and marketing milestones of up to CAD $2.45 million. The milestone payments payable to the former Ciclofilin shareholders will be subject to offset by certain of the clinical and marketing milestone payments payable to Aurinia as follows: (a) the payments to the former Ciclofilin shareholders pursuant to (ii) above would be offset by payment to Aurinia of CAD $450,000, and (b) the payments to the former Ciclofilin shareholders pursuant to (iii) above would be subject to offset by payment to Aurinia of up to CAD $2,000,000. In addition to the above clinical and milestone payments, the Aurinia Agreement provides for the following additional contingent payment obligations: (x) a royalty of 2.5% on net sales of CRV431 which is uncapped, (y) a royalty of 5% on license revenue from CRV431 and (z) a payment equal to 30% of the proceeds from a Liquidity Event (as defined in the Purchase and Sale Agreement) with respect to Ciclofilin, of which approximately $150,000 plus interest will be owed. The maximum obligation under both (y) and (z) is CAD $5,000,000.

On June 17, 2019, we submitted an IND to the FDA to support initiation of our CRV431 NASH clinical development program in the United States and received approval in July 2019. We completed dosing of CRV431 in our multiple ascending dose (“MAD’) clinical trial in September 2020.

On July 13, 2021, we announced positive topline results from our Phase 2a "Ambition" NASH clinical trial. All primary endpoints of the trial were met. This Phase 2a study confirmed CRV431 tolerability and successfully elucidated drug dose range for the upcoming Phase 2b trial.

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HEPION PHARMACEUTICALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On November 20, 2020, we submitted an IND to the FDA to support initiation of a CRV431 clinical development program in the United States for COVID-19. We received approval on December 17, 2020, to conduct a COVID-19 clinical trial and are investigating potential sources of collaboration and/or funding for the trial. To date, we have not sourced funding yet.

SEC Form 10-Q filed by Hepion Pharmaceuticals, Inc.