HOOKIPA PHARMA INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

0


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 ended December 31, 2021 included in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission, or the
SEC. 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 end
December 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 disease. 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, which
all use our replicating technology. HB-200 is in clinical development for the
treatment of Human Papillomavirus 16-positive cancers, or HPV16+, 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 our planned third quarter 2022
filing of an 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 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. In November 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.
Data demonstrated responses and stable disease in 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 single-vector immunotherapy
in oncology.

In September 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 trial. In
January 2022, we dosed the first patient with a combination of HB-201 and
pembrolizumab for the treatment of first line advanced/metastatic HPV16+ HNSCC
in the Phase 2 expansion portion of the ongoing Phase 1/2 trial.

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 November 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.

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


                                       22

Table of Contents

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. On March 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 including pro-rata ATM expenses. In
addition, in February 2022, Gilead purchased 1.7 million unregistered shares of
our common stock for $5.0 million. As of March 31, 2022, the principal amount
outstanding under loans from government agencies was $6.0 million and we had
cash, cash equivalents and restricted cash of $141.8 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.

We have incurred net losses each year since our inception in 2011, including net
losses of $18.0 million for the three months ended March 31, 2022. As of
March 31, 2022, we had an accumulated deficit of $240.7 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)

In March 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 ongoing 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 enrollment again during periods of increased confirmed
infections in the United States and Europe. As a result, the total number of
patients in the trial at the conclusion of enrollment in June 2021 was below the
originally planned number of patients. While we have since commenced enrollment
in this trial, we continue to evaluate the impact of the ongoing COVID-19
pandemic on our trials.


                                       23

  Table of Contents

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 led us to temporarily focus on our core program, HB-200, as
well as research and development activities under our collaboration with Gilead.
Certain earlier stage programs, including HB-300 were temporarily de-prioritized
and 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 during the pandemic,
all of our officers had waived at least 25% of their cash salaries for the three
months ended June 30, 2020, and the vast majority of our employees agreed to a
temporary salary reduction of 20% for the three months ended June 30, 2020. We
compensated our officers and employees for the forgone cash salaries by issuing
restricted stock units in July 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, and we encourage our
Vienna employees to make use of the readily-available PCR testing in order to
enhance health and safety, in particular for laboratory work that has to be
performed on site.

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.

On June 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. In February 2022, we signed an amended and restated 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 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 Collaboration Agreement, we are eligible
for up to $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
Collaboration Agreement with respect to the HBV program, and if the Option is
exercised, any manufacturing costs related to the HIV program. Through to
March 31, 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 Collaboration Agreement to fund our future
performance of development activities under the Restated Collaboration
Agreement. In addition, we have recognized $36.4 million of cost reimbursements
for research and development services performed under the Collaboration
Agreement.


                                       24

  Table of Contents

We determined that our performance obligations under the terms of the original
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 Collaboration Agreement added an additional
performance obligation to perform research and development work for the HIV
program to the Company. We recognize the amounts of revenue allocated to the
performance obligation resulting from the Restated 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;

? leased facility costs, equipment depreciation and other expenses, which include

direct and allocated expenses; and

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


                                       25

Table of Contents

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

? 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 the U.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):

                                       26

  Table of Contents

                                                               Three months ended March 31,
                                                                  2022                2021
HB-200 program                                               $        7,413$        9,754
HB-300 program                                                        2,767               1,250
Gilead partnered programs(1)                                          1,733               4,820
Other and earlier-stage programs                                      4,089               3,643
Other unallocated research and development expenses                     618                 697
Total research and development expenses                      $       16,620$       20,164

(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 the
Securities and Exchange Commission.

Grant Income

Since inception, we have received grants from the Austrian 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
in Austria. 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.

Interest Expense

Interest expense results primarily from loans under funding agreements with the
Austrian 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 of March 31, 2022.

                                       27

  Table of Contents

Results of Operations

Comparison of Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months
ended March 31, 2022 and 2021 (in thousands):


                                               Three months ended March 31,
                                                 2022                2021
Revenue from collaboration and licensing    $         1,445     $         5,301
Operating expenses:
Research and development                           (16,620)            (20,164)
General and administrative                          (4,972)             (4,309)
Total operating expenses                           (21,592)            (24,473)
Loss from operations                               (20,147)            (19,172)
Other income (expense):
Grant income                                          1,887               2,204
Interest income                                           7                   7
Interest expense                                      (243)               (219)
Other income and expenses, net                          528                (58)
Total other income (expense), net                     2,179               1,934
Net loss before tax                                (17,968)            (17,238)
Income tax expense                                      (0)                 (0)
Net loss                                    $      (17,968)$      (17,238)

Revenue from Collaboration and Licensing

Revenue was $1.4 million for the three months ended March 31, 2022 and
$5.3 million for the three months ended March 31, 2021.

The decrease of $3.9 million for the three months ended March 31, 2022 compared
to the three months ended March 31, 2021 was primarily due to lower cost
reimbursements received under the Collaboration Agreement with Gilead and the
fact that the $4.0 million milestone payment and the $15.0 million initiation
fee received in the three months ended March 31, 2022 were mostly recorded as
deferred revenue to be recognized in future accounting periods.

For the three months ended March 31, 2022, revenue included $0.8 million from
reimbursement of research and development expenses, and $0.6 million from
partial recognition of the milestone and initiation payments that were initially
recorded as deferred revenue.

For the three months ended March 31, 2021, revenue included $4.6 million from
reimbursement of research and development expenses and $0.7 million from partial
recognition of the upfront and milestone payments that were initially recorded
as deferred revenue.

Research and Development Expenses

For the three months ended March 31, 2022, our research and development expenses
were $16.6 million, compared to $20.2 million for the three months ended
March 31, 2021.

The decrease of $3.6 million for the three months ended March 31, 2022 compared
to the three months ended March 31, 2021 was attributable to a decrease in
direct research and development expenses of $3.6 million, partially offset by an
increase in indirect research and development expenses of less than
$0.1 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


                                       28

Table of Contents

our HB-101 program. Indirect research and development expenses increased mainly
because of an increase in professional and consulting fees, partially offset by
a decrease in personnel related costs.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2022
were $5.0 million, compared to $4.3 million for the three months ended
March 31, 2021. The increase of $0.7 million was primarily due to an increase in
professional and consulting fees of $0.7 million, an increase in
personnel-related expenses of $0.2 million, partially offset by a decrease in
other expenses of $0.2 million. The increase in personnel-related expenses
resulted from increased stock compensation expenses, a growth in headcount along
with increased salaries in our general and administrative functions. The
increase in professional and consulting fees was primarily attributable to
$0.6 million of intellectual property costs incurred in connection with filing
and prosecuting patent applications as well as third-party license fees.

Grant Income

In the three months ended March 31, 2022 we recorded grant income of
$1.9 million, compared to $2.2 million in the three months ended March 31, 2021.
Income from grants mainly included research incentives and imputed benefits from
below market interest rates on loans from governmental agencies. The decrease of
$0.3 million was primarily due to lower income from Austrian research and
development incentives.

Interest Income and Expense

Interest income was less than $0.1 million for the three months ended
March 31, 2022 and for the three months ended March 31, 2021 as a result of the
low or zero interest rates in the United States and Europe. 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 months ended March 31, 2022 our cash, cash equivalents and restricted cash
were mainly held in dollars at U.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 the European Monetary Union.

Interest expenses for loans from government agencies were $0.2 million for the
three months ended March 31, 2022 and for the three months ended March 31, 2021,
respectively. Interest expense was recorded at the market rate of interest,
which exceeded the contractual interest.

Other Income and Expenses

Other income was $0.5 million for the three months ended March 31, 2022,
compared to other expenses of $0.1 million for the three months ended
March 31, 2021. The change in the three months ended March 31, 2022 resulted
primarily from exchange rate differences and foreign currency remeasurements.

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. In April 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. On December 11, 2020, we completed a follow-on public offering
in which we issued 3,910,000 shares of


                                       29

Table of Contents

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. On March 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 including pro-rate ATM costs. We also
received $41.2 million from non-refundable upfront, milestone and initiation
payments pursuant to the Restated Collaboration Agreement with Gilead. In
addition, in February 2022, Gilead purchased 1,666,666 unregistered shares of
our common stock for $5.0 million. As of March 31, 2022, we had cash, cash
equivalents and restricted cash of $141.8 million.

We entered into various funding agreements with the Austrian 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
$6.0 million, principal repayments are due as follows: $3.0 million are due in
the remaining nine months of 2022, $1.8 million are due in 2023, and the
remaining $1.2 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 of
March 31, 2022, the unamortized debt discount related to FFG Loans was
$0.8 million.

We entered into arrangements with contract manufacturing organizations. As of
March 31, 2022, we had total non-cancellable obligations under such contracts of
$8.1 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 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 of
March 31, 2022, we had an accumulated deficit of $240.7 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;


                                       30

  Table of Contents

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;

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;


                                       31

  Table of Contents

? 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;

? 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):


                                                                Three months ended March 31,
                                                                  2022                 2021

Net cash provided by (used in) operating activities $ 1,733$ (14,397)
Net cash used in investing activities

                               (1,828)                 (330)
Net cash provided by financing activities                            75,293                   101
Net increase (decrease) in cash and cash equivalents                 75,198              (14,626)


                                       32

  Table of Contents

Cash Provided by (Used in) Operating Activities

During the three months ended March 31, 2022, cash provided by operating
activities was $1.7 million, which consisted of a net loss of $18.0 million,
adjusted by non-cash charges of $2.8 million and cash provided due to changes in
our operating assets and liabilities of $16.9 million. The non-cash charges
consisted primarily of stock-based compensation of $1.6 million and depreciation
and amortization expense of $1.1 million. The change in our operating assets and
liabilities was primarily due an increase in deferred revenues of $14.1 million,
resulting from the receipt of the $15.0 million program initiation payment, a
decrease in accounts receivable of $6.1 million, resulting from the collection
of pass through costs from Gilead, a decrease in prepaid expenses and other
current assets of $0.8 million, and an increase in other non-current liabilities
of $0.1 million, partially offset by an increase in receivable research
incentives of $1.7 million, resulting from research incentive eligible research
and development activities, a decrease in accounts payable of $1.6 million, an
increase in other non-current assets of $0.5 million, and a decrease in
operating lease liabilities of $0.4 million.

During the three months ended March 31, 2021, cash used in operating activities
was $14.4 million, which consisted of a net loss of $17.2 million, adjusted by
non-cash charges of $2.6 million and cash provided from changes in our operating
assets and liabilities of $0.2 million. The non-cash charges consisted primarily
of stock-based compensation of $1.5 million and depreciation and amortization
expense of $1.1 million. The change in our operating assets and liabilities was
primarily due to a decrease in accounts receivable of $1.1 million, a decrease
in receivable research incentives of $0.9 million, an increase in other
non-current liabilities of $0.6 million, an increase in accounts payable of
$0.4 million, and a decrease in prepaid expenses and other current assets of
$0.1 million, partially offset by an increase in other non-current assets of
$1.3 million, a decrease in deferred revenues of $0.9 million, a decrease in
operating lease liabilities of $0.5 million, and a decrease in accrued expenses
and other current liabilities of $0.2 million.

Cash Used in Investing Activities

During the three months ended March 31, 2022, cash used in investing activities
was $1.8 million. The increase of $1.5 million compared to the three months
ended March 31, 2021 resulted from capital expenditures in connection with our
own GMP manufacturing facility project and was partially offset by lower
expenditures for improvements in our laboratory and office space, which were
performed in 2021, and lower expenditures for purchase of equipment.

During the three months ended March 31, 2021, cash used in investing activities
was $0.3 million and resulted from capital expenditures in connection with
improvements of our laboratory and office space and purchase of property and
equipment.

Cash Provided by Financing Activities

During the three months ended March 31, 2022, cash provided by financing
activities was $75.3 million and consisted mainly of net proceeds of
$70.2 million from our follow-on public offering in March 2022 and of net
proceeds of $5.0 million from Gilead’s purchase of 1,666,666 unregistered shares
of our common stock in February 2022.

During the three months ended March 31, 2021, cash provided by financing
activities was $0.1 million and resulted primarily from the payment of exercise
prices of stock options.

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 the SEC, and
generally accepted accounting principles in the 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


                                       33

Table of Contents

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 ended December 31, 2021 filed with the SEC on March 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.

© Edgar Online, source Glimpses



Source link

Leave A Reply

Your email address will not be published.