Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2022


☐	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: 001-38869

HOOKIPA PHARMA INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	81-5395687
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

350 Fifth Avenue, 72nd Floor, Suite 7240 New York, New York	10118
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: +43 1 890 63 60

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

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	HOOK	The Nasdaq Global Select 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, smaller reporting company, or an emerging growth 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	☒	Small 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 Act). Yes ☐ No ☒

As of August 3, 2022, the registrant had 51,654,530 shares of common stock and 3,049,998 shares of Class A common stock outstanding, each $0.0001 par value per share.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

●

the success, cost and timing of our product development activities and clinical trials;

●

the timing, scope or likelihood of regulatory filings and approvals, including timing of Investigational New Drug Application and Biological Licensing Application filings for our current and future product candidates, and final U.S. Food and Drug Administration, European Medicines Agency or other foreign regulatory authority approval of our current and future product candidates;

●

our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

●

our manufacturing, commercialization and marketing capabilities and strategy;

●

the potential benefits of and our ability to maintain our collaboration with Gilead Sciences, Inc., and establish or maintain future collaborations or strategic relationships or obtain additional funding;

●

the rate and degree of market acceptance and clinical utility of our current and future product candidates;

●

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our non-replicating and replicating technologies and the product candidates based on these technologies, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

●

future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;

●

regulatory developments in the United States and foreign countries;

●

the effects of the ongoing coronavirus pandemic on business and operations;

●

competitive companies, technologies and our industry and the success of competing therapies that are or may become available;

●

our ability to attract and retain key scientific or management personnel;

●

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

●

the accuracy of our estimates of our annual total addressable market, future revenue, expenses, capital requirements and needs for additional financing;

●

our expectations about market trends; and

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●

our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012, as amended.

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

Investors and others should note that we announce material financial information to our investors using our investor relations website (https://ir.hookipapharma.com/), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the U.S. social media channels listed on our investor relations website.

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		Page

PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021	2
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures			39

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share amounts)


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	117,918	$	65,921
Restricted cash		523		566
Accounts receivable		1,187		6,895
Receivable research incentives		16,453		14,271
Prepaid expenses and other current assets		12,996		14,482
Total current assets		149,077		102,135
Non-current assets:
Restricted cash		418		425
Property, plant and equipment, net		16,952		16,352
Operating lease right of use assets		4,670		5,673
Finance lease right of use assets		—		90
Other non-current assets		1,095		1,370
Total non-current assets		23,135		23,910

Total assets	$	172,212	$	126,045

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5,637	$	8,762
Deferred revenues		9,828		5,538
Operating lease liabilities, current		1,647		1,682
Accrued expenses and other current liabilities		8,689		8,880
Loans payable, current		1,423		2,792
Total current liabilities		27,224		27,654
Non-current liabilities
Loans payable, non-current		819		2,219
Operating lease liabilities, non-current		2,988		3,911
Deferred revenues, non-current		6,981		21
Other non-current liabilities		2,246		2,648
Total non-current liabilities		13,034		8,799
Total liabilities		40,258		36,453

Commitments and contingencies (Note 12)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; Series A convertible preferred stock, 2,978 shares designated, 1,697 shares outstanding at June 30, 2022 and December 31, 2021, respectively; Series A-1 convertible preferred stock, 15,800 shares and no shares designated, 15,800 shares and no shares outstanding at June 30, 2022 and December 31, 2021, respectively		0		0
Common stock, $0.0001 par value; 200,000,000 shares and 100,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; 50,884,796 shares and 27,383,483 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		5		3
Class A common stock, $0.0001 par value; 3,900,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; 3,819,732 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		0		0
Additional paid-in capital		395,307		317,135
Accumulated other comprehensive loss		(6,268)		(4,780)
Accumulated deficit		(257,090)		(222,766)
Total stockholders’ equity		131,954		89,592

Total liabilities and stockholders’ equity	$	172,212	$	126,045

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

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HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share amounts)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Revenue from collaboration and licensing	$	2,746	$	5,378	$	4,191	$	10,679
Operating expenses:
Research and development		(16,147)		(19,572)		(32,767)		(39,736)
General and administrative		(5,026)		(5,095)		(9,998)		(9,404)
Total operating expenses		(21,173)		(24,667)		(42,765)		(49,140)
Loss from operations		(18,427)		(19,289)		(38,574)		(38,461)
Other income (expense):
Grant income	$	1,958	$	2,505	$	3,845	$	4,709
Interest income		182		7		189		14
Interest expense		(231)		(218)		(474)		(437)
Other income and (expenses), net		163		(158)		691		(216)

Total other income, net		2,072		2,136		4,251		4,070

Net loss before tax		(16,355)		(17,153)		(34,323)		(34,391)

Income tax expense		(1)		(0)		(1)		(0)

Net loss		(16,356)		(17,153)		(34,324)		(34,391)


Other comprehensive loss:
Foreign currency translation gain (loss), net of tax		(1,001)		293		(1,488)		(183)
Comprehensive loss	$	(17,357)	$	(16,860)	$	(35,812)	$	(34,574)

Net loss per share — basic and diluted	$	(0.23)	$	(0.52)	$	(0.58)	$	(1.05)

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

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HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share amounts)


												Accumulated
	Convertible			Common Stock						Additional		Other				Total
	Preferred Stock			Common Stock			Class A Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balances as of December 31, 2021	1,697	$	0	27,383,483	$	3	3,819,732	$	0	$	317,135	$	(4,780)	$	(222,766)	$	89,592
Issuance of Series A-1 convertible preferred stock upon public offering at $2,000 per share for cash, net of issuance costs of $1,975	15,800		0	—		—	—		—		29,625		—		—		29,625
Issuance of common stock upon public offering at $2.00 per share for cash, net of issuance costs of $2,713	—		—	21,700,000		2	—		—		40,685		—		—		40,687
Issuance of common stock upon stock purchase agreement with Gilead at $3.00 per share for cash, no issuance costs	—		—	1,666,666		0	—		—		5,000		—		—		5,000
Issuance of common stock upon exercise of stock options	—		—	10,034		0	—		—		1		—		—		1
Vesting of equity grants	—		—	112,551		0	—		—		(0)		—		—		—
ATM costs	—		—	—		—	—		—		(142)		—		—		(142)
Foreign currency translation adjustment, net of tax	—		—	—		—	—		—		—		(487)		—		(487)
Stock-based compensation expense	—		—	—		—	—		—		1,621		—		—		1,621
Net loss	—		—	—		—	—		—		—		—		(17,968)		(17,968)
Balances as of March 31, 2022	17,497	$	0	50,872,734	$	5	3,819,732	$	0	$	393,925	$	(5,267)	$	(240,734)	$	147,929
Issuance of common stock upon exercise of stock options	—		—	12,062		0	—		—		1		—		—		1
Foreign currency translation adjustment, net of tax	—		—	—		—	—		—		—		(1,001)		—		(1,001)
Stock-based compensation expense	—		—	—		—	—		—		1,381		—		—		1,381
Net loss	—		—	—		—	—		—		—		—		(16,356)		(16,356)
Balances as of June 30, 2022	17,497	$	0	50,884,796	$	5	3,819,732	$	0	$	395,307	$	(6,268)	$	(257,090)	$	131,954

Balances as of December 31, 2020	2,978	$	0	25,948,712	$	3	3,819,732	$	0	$	309,288	$	(6,067)	$	(147,101)	$	156,123
Issuance of common stock upon exercise of stock options	—		—	33,806		0	—		—		125		—		—		125
Vesting of restricted stock	—		—	12,140		0	—		—		(0)		—		—		—
Foreign currency translation adjustment, net of tax	—		—	—		—	—		—		—		(476)		—		(476)
Stock-based compensation expense	—		—	—		—	—		—		1,521		—		—		1,521
Net loss	—		—	—		—	—		—		—		—		(17,238)		(17,238)
Balances as of March 31, 2021	2,978	$	0	25,994,658	$	3	3,819,732	$	0	$	310,934	$	(6,543)	$	(164,339)	$	140,055
Issuance of common stock upon exercise of stock options	—		—	45,681		0	—		—		112		—		—		112
Vesting of restricted stock	—		—	11,507		0	—		—		(0)		—		—		—
Foreign currency translation adjustment, net of tax	—		—	—		—	—		—		—		293		—		293
Stock-based compensation expense	—		—	—		—	—		—		2,627		—		—		2,627
Net loss	—		—	—		—	—		—		—		—		(17,153)		(17,153)
Balances as of June 30, 2021	2,978	$	0	26,051,846	$	3	3,819,732	$	0	$	313,673	$	(6,250)	$	(181,492)	$	125,934

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

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HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Six months ended June 30,
	2022		2021
Operating activities:
Net loss	$	(34,324)	$	(34,391)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		3,002		4,148
Depreciation and amortization expense		1,938		2,321
Other non-cash items		156		33
Changes in operating assets and liabilities:
Accounts receivable		5,267		444
Receivable research incentives		(3,399)		(1,357)
Prepaid expenses and other current assets		523		(12,323)
Other non-current assets		177		(923)
Accounts payable		(1,833)		457
Deferred revenues		12,193		(1,364)
Operating lease liabilities		(864)		(1,006)
Accrued expenses and other liabilities		299		11,008
Other non-current liabilities		239		(2,176)
Net cash provided by (used in) operating activities		(16,626)		(35,129)

Investing activities:
Purchases of property and equipment		(3,460)		(4,954)

Net cash used in investing activities		(3,460)		(4,954)

Financing activities:
Payments related to finance leases		(22)		(51)
Proceeds from issuance of convertible preferred stock, net of issuance costs		29,625		—
Proceeds from issuance of common stock, net of issuance costs		45,689		237
Repayments of borrowings		(2,952)		—

Net cash provided by financing activities		72,340		186

Net increase (decrease) in cash, cash equivalents and restricted cash		52,254		(39,897)

Cash, cash equivalents and restricted cash at beginning of period		66,912		143,177
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(307)		(327)
Cash, cash equivalents and restricted cash at end of period	$	118,859	$	102,953

Supplemental disclosure of cash flow information:
Cash paid for interest	$	(22)	$	(24)
Cash paid for income taxes	$	(1)	$	(0)

Supplemental disclosure of non-cash financing activities:
Property and equipment additions in accounts payable and accrued expenses	$	(145)	$	(3,426)
Lease assets obtained in exchange for new operating lease liabilities	$	234	$	—
Lease assets derecognized upon lease cancellation	$	—	$	16

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

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Nature of the business and organization

HOOKIPA Pharma Inc. (“HOOKIPA” or the “Company”) is a clinical-stage biopharmaceutical company developing a new class of immunotherapeutics based on its proprietary arenavirus platform that is designed to reprogram the body’s immune system.

The Company was incorporated under the name of Hookipa Biotech, Inc. under the laws of the State of Delaware in February 2017 as a fully-owned subsidiary of Hookipa Biotech AG. In June 2018, the Company changed its name from Hookipa Biotech, Inc. to HOOKIPA Pharma Inc. and in order to effectuate the change of the jurisdiction of incorporation, the Company acquired all of the shares of Hookipa Biotech AG, now Hookipa Biotech GmbH. HOOKIPA is headquartered in New York, with European research and preclinical development operations headquartered in Vienna, Austria. In April 2019, the Company closed its initial public offering (“IPO”) and its common stock started trading on the Nasdaq Global Select Market under the ticker symbol “HOOK”.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the ability to establish clinical- and commercial-scale manufacturing processes and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities and may not ultimately lead to a marketing approval and commercialization of a product. Even if the Company’s drug development efforts are successful, it is uncertain if and when the Company will realize significant revenue from product sales.

2. Summary of significant accounting policies

Basis of presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

The consolidated balance sheet as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations, and comprehensive loss for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statement of convertible preferred stock and stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement for interim reporting. Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission. The results for any interim period are not necessarily indicative of results for any future period. Certain previous year amounts have been reclassified to conform to the current year presentation.

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Going concern

Since inception, the Company’s activities have consisted primarily of performing research and development to advance its technologies. The Company is still in the development phase and has not been marketing its technologies to date. Through June 30, 2022, the Company has funded its operations with proceeds from sales of common stock, sales of convertible preferred stock, sales of redeemable convertible preferred stock, collaboration and licensing agreements, grants and borrowings under various agreements with foreign public funding agencies. Since inception, the Company has incurred recurring losses, including net losses of $34.3 million for the six months ended June 30, 2022 and $75.7 million for the year ended December 31, 2021. As of June 30, 2022, the Company had an accumulated deficit of $257.1 million. The Company expects to continue to generate operating losses in the foreseeable future. As of August 11, 2022, the filing date of this Quarterly Report on Form 10-Q, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments through at least 12 months from the issuance date of the condensed consolidated financial statements.

The Company will seek additional funding in order to reach its development and commercialization objectives. The Company may seek funds through further equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, income and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the recognition of revenue and income, the accrual of research and development expenses and general and administrative expenses, the present value of lease right of use assets and corresponding liabilities, the valuation of stock-based awards and the valuation of current and non-current loans payable. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience.

On March 11, 2020 the World Health Organization designated COVID-19 as a global pandemic. The Company believes the extent of the COVID-19 pandemic’s impact on the Company’s business, results of operations and financial condition has been, and will continue to be driven by many factors, most of which are beyond the Company’s control and ability to forecast. Because of these uncertainties, the Company cannot estimate how long or to what extent the pandemic will impact its operations. The Company’s accounting estimates and assumptions may change over time in response to COVID-19 and the change could be material in future periods. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions.

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Deferred offering costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of the additional paid-in capital on a pro-rata basis generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss.

Concentrations of credit risk and of significant suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term bank deposits held with banks in excess of publicly insured limits. For the three and six months ended June 30, 2022 and June 30, 2021 the net proceeds from the Company’s offerings have been deposited in bank accounts with investment grade U.S. financial institutions and have been partially invested in money market funds. The money market funds, held in U.S. dollars, are primarily invested in U.S. and foreign short-term debt obligations. As of June 30, 2022 and December 31, 2021, the Company’s cash and cash equivalents included smaller amounts of cash balances held in accounts with European banks at the Company’s Austrian subsidiary, partially in euros. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company relies, and expects to continue to rely, on a small number of vendors to manufacture supplies and raw materials for its development programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.

As of June 30, 2022 and December 31, 2021, Gilead Sciences, Inc. (“Gilead”) accounted for the majority of the accounts receivable balance. For the six months ended June 30, 2022 and June 30, 2021 Gilead accounted for the majority of the Company’s revenues. Other customers accounted for less than 10.0% of accounts receivable or net sales. The Company monitors the financial performance of its customers so that it can appropriately respond to changes in their credit worthiness. To date, the Company has not experienced any significant losses with respect to collection of its accounts receivable.

Cash equivalents

The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. As of June 30, 2022 and December 31, 2021, cash equivalents consisted of money market funds.

Fair value measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

●

Level 1 - Quoted prices in active markets for identical assets or liabilities.

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

●

Level 2 - Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

●

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above (see Note 4).

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:


		Estimated useful life
Leasehold improvements		shorter of useful life or term of lease
Laboratory equipment		2 - 10 years
Furniture and fixtures		2 - 10 years
Computer equipment and software		2 - 4 years

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. Expenditures for repairs and maintenance are charged to expense as incurred. When property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations.

Leases

The determination whether an arrangement qualifies as a lease is made at contract inception. A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases and are included in right of use (“ROU”) assets and lease liabilities in the consolidated balance sheets. For leases with an initial term of 12 months or less, the Company does not recognize a right of use asset or lease liability. These short-term leases are expensed on a straight-line basis over the lease term.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The Company uses the implicit rate when readily determinable and uses its incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments. The incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease. The lease payments used to determine ROU assets may include lease incentives, stated rent increases and escalation clauses linked to rates of

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

inflation when determinable and are recognized as a ROU asset on the consolidated balance sheet. In addition, certain of the Company’s arrangements contain lease and non-lease components. The Company generally separates lease payments from non-lease payments. Operating leases are reflected in operating lease assets, in current operating lease liabilities and non-current operating lease liabilities in the consolidated balance sheets. Finance leases are reflected in finance lease assets, in accrued expenses and other current liabilities and in other non-current operating lease liabilities in the consolidated balance sheets. The ROU asset is tested for impairment in accordance with Accounting Standards Codification (“ASC”) 360.

Capitalized Software Development Cost

The Company capitalizes certain implementation costs for internal-use software incurred in a cloud computing agreement that is a service contract. Eligible costs associated with cloud computing arrangements, such as software business applications used in the normal course of business, are capitalized in accordance with ASC 350. These costs are recognized on a straight-line basis in the same line item in the statement of operations and comprehensive loss as the expense for fees for the associated cloud computing arrangement, over the term of the arrangement, plus reasonably certain renewals.

Revenue recognition from contracts with customers

The Company entered into a collaboration and license agreement (as amended and restated, the “Gilead Agreement”) with Gilead whereby the parties agreed to collaborate with respect to two preclinical research programs to evaluate potential vaccine products for the treatment, cure, diagnosis or prevention of the hepatitis B virus (“HBV”) and the human immunodeficiency virus (“HIV”). In February 2022, the Company signed an amended and restated collaboration agreement (the “Restated Collaboration Agreement”), which revised the terms only for the HIV program, whereby the Company will take on development responsibilities for the HIV program candidate through a Phase 1b clinical trial. The Company’s performance obligations under the terms of the original agreement include one combined performance obligation for each research program (HBV and HIV) comprised of the transfer of intellectual property rights (licenses) and providing research and development services. 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. The licenses do not represent distinct performance obligations, because they cannot be used without the research and development services. Payments to the Company under this agreement include a non-refundable up-front payment, payments for research and development activities, payments based upon the achievement of defined milestones, and if certain future conditions are met, payments for manufacturing services, commercial milestones and royalties on product sales.

The Company evaluates its collaboration and licensing arrangements pursuant to ASC 606 Revenue from Contracts with Customers. To determine the recognition of revenue from arrangements that fall within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

Under ASC 606, the Company applies significant judgement to evaluate whether the obligations under the collaboration and licensing arrangement, represent separate or one or more combined performance obligations, the allocation of the transaction price to identified performance obligations, and the determination of when milestone payments are probable of being received.

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Upfront payment and program initiation payment

The non-refundable upfront-payment received by the Company upon signing of the Gilead Agreement, and milestone payments that were linked to future performance obligations, were initially recorded as deferred revenue and allocated between the two research program performance obligations. Such amounts are recognized as revenue over the performance period of the respective services on a percent of completion basis using total estimated research and development labor hours (input method) for each of the obligations. The percent of completion basis using labor hours was considered the best measure of progress in which control of the combined performance obligations transfers to the customer, due to the short time intervals in which research results are shared with the collaboration partner and the nature of the work being performed.

The non-refundable program initiation payment received by the Company upon signing of an amendment and restatement of the Gilead Agreement was also initially recorded as deferred revenue and is recognized on a percent of completion basis using total estimated research and development costs (input method) for the performance of the obligations. The percent of completion basis using research and development costs was considered the best measure of progress in which control of the performance obligations transfers to the customer, due to the immediate benefit that it adds to the value of the customer’s rights on the program, the short time intervals in which development results are shared and the nature of the work being performed.

Reimbursement for services

Under the Gilead Agreement, the Company incurs employee expenses as well as external costs for research and manufacturing activities presented as operating expenses or prepaid expenses. Based on the nature of the Company's responsibilities under the collaboration arrangement, reimbursement of those costs are presented as revenue and not deducted from expenses, as the Company controls the research activities. Amounts of consideration allocated to the performance of research or manufacturing services are recognized over the period in which services are performed. Reimbursements for external costs are recognized as revenues as progress is achieved. Unpaid reimbursement amounts are presented as Accounts receivable.

Research and development milestones

The Gilead Agreement includes contingent milestone payments related to specified preclinical and clinical development milestones. These milestone payments represent variable consideration that are not initially recognized within the transaction price as they are fully constrained under the guidance in ASC 606, due to the scientific uncertainties and the required commitment from Gilead. The Company will continue to assess the probability of significant reversals for any amounts that become likely to be realized prior to recognizing the variable consideration associated with these payments within the transaction price.

Sales-based milestones and royalty payments

The Gilead Agreement also includes certain sales-based milestone and royalty payments upon successful commercialization of a licensed product. In accordance with ASC 606-10-55-65 Sales-Based or Usage-Based Royalties, the Company recognizes revenues from sales-based milestone and royalty payments at the later of (i) the occurrence of the subsequent sale; or (ii) the performance obligation to which some or all of the sales-based milestone or royalty payments has been allocated has been satisfied. The Company anticipates recognizing these milestones and royalty payments if and when subsequent sales are generated from a licensed product by the collaboration partner.

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Cost to fulfill contracts

The Company incurs costs for personnel, supplies and other costs related to its laboratory operations as well as fees from third parties and license expenses in connection with its research and development obligations under the collaboration and licensing agreement. These costs are recognized as research and development expenses over the period in which services are performed. Sublicense fees triggered by the receipt of payments are capitalized as an asset when the obligation to pay the fee arises. The capitalized asset is amortized over the period in which the revenue from the triggering payment is recognized.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date.

Adopted as of current period

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they have received government assistance and when they use a grant or contribution accounting model by analogy to other accounting guidance (e.g., a grant model under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, or ASC 958-605, Not-For-Profit Entities — Revenue Recognition). Topic 832 requires the annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy of information about the nature of the transactions and the related accounting policy used to account for the transactions, the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, significant terms and conditions of the transactions, including commitments and contingencies. The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021. The Company has already provided all relevant disclosures regarding Government Assistance on its consolidated financial statements prior adoption of ASU 2021-10. Therefore, the early adoption of this standard as of January 1, 2022 on a prospective basis did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU provides guidance that simplified the accounting for certain financial instruments with characteristics of liabilities and equity. The new guidance reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments intended to improve the information provided to users. The guidance also amended the derivative guidance for the “own stock” scope exception, which exempts qualifying instruments from being accounted for as derivatives if certain criteria are met. Finally, the standard changed the way certain convertible instruments are treated when calculating earnings per share. This guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

3. Collaboration and Licensing Agreements

Gilead Collaboration and License Agreement

In June 2018, the Company entered into the Gilead Agreement whereby the Company and Gilead agreed to collaborate with respect to two preclinical research programs to evaluate potential vaccine products for the treatment,

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

cure, diagnosis or prevention of HBV and HIV. In February 2022, the Company signed an Amended and Restated Collaboration Agreement, which altered key aspects of the collaboration pertaining to the HIV therapeutic. Most importantly, the Amended and Restated Collaboration Agreement allocated additional research and development responsibility to the Company with respect to the Company’s HIV candidate and provided for additional funding by Gilead of such research and development activities as well as increased later stage development and commercial milestone payments.

Under the original Gilead Agreement, the Company granted Gilead an exclusive, royalty-bearing license to the Company’s technology platforms. Upon entering into the agreement in June 2018, the Company received a non-refundable $10.0 million upfront payment from Gilead and upon signing of the amended and restated agreement, the Company received a program initiation fee of $15.0 million. Gilead is also obligated to make additional payments to the Company upon the achievement of pre-clinical, development and commercial milestones. The development milestones amount to $140.0 million for the HBV program, and up to $172.5 million, inclusive of the $10.0 million option exercise payment, for the HIV program upon Gilead’s exercise of such option. The commercial milestones amount to a total of $50.0 million for the HBV program, and $65.0 million for the HIV program upon Gilead’s exercise of the option. Additionally, Gilead is obligated to pay royalties on net sales for each program. Payments from Gilead generally have a 60 days payment term.

The $10.0 million upfront payment, the $15.0 million initiation fee and $8.0 million in milestone payments were initially recorded as deferred revenue in the consolidated balance sheet and are recognized as revenue when revenue recognition criteria are met. As of June 30, 2022, $16.2 million of such payments were still recorded as a liability in deferred revenues, current and non-current. As of December 31, 2021, $4.3 million of upfront and milestone payments were included as a liability in deferred revenues, current. Approximately 42% of deferred revenue is expected to be recognized as revenue in the remainder of 2022, 31% in 2023, 18% in 2024 and the remaining 9% in 2025.

As of June 30, 2022, $0.6 million of cost reimbursements for research and development services were recorded as a liability in deferred revenues. As of December 31, 2021, $1.2 million of cost reimbursements for research and development services were recorded as a liability in deferred revenues. Reimbursements for external costs are recognized as revenues in the period in which the services are provided and external costs are recognized.

In the three months ended June 30, 2022, the Company recognized $1.0 million of the milestone and initiation payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $1.7 million revenue from cost reimbursements for research and development services, of which $0.5 million were initially recorded as deferred revenue in the consolidated balance sheet. In the three months ended June 30, 2021, the Company recognized $1.0 million of the upfront and milestone payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $4.4 million revenue from cost reimbursements for research and development services, of which $0.4 million were initially recorded as deferred revenue in the consolidated balance sheet.

In the six months ended June 30, 2022, the Company recognized $1.6 million of the milestone and initiation payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $2.5 million revenue from cost reimbursements for research and development services, of which $0.6 million were initially recorded as deferred revenue in the consolidated balance sheet. In the six months ended June 30, 2021, the Company recognized $1.7 million of the upfront and milestone payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $9.0 million revenue from cost reimbursements for research and development services, of which $0.7 million were initially recorded as deferred revenue in the consolidated balance sheet.

Sublicense fees payable to certain licensors of technologies upon the receipt of the deferred upfront and milestone payments, were capitalized as a contract asset and will be amortized over the period in which the revenue from the triggering payment is recognized. As of June 30, 2022 and December 31, 2021, the contract asset relating to the sublicense payment was $0.3 million and $0.3 million, respectively.

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. Fair Value of Financial Assets

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicating the level of the fair value hierarchy utilized to determine such fair values (in thousands):


	Fair Value Measurement at June 30, 2022 Using
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	80,094	$	—	$	—	$	80,094
Total	$	80,094	$	—	$	—	$	80,094


	Fair Value Measurement at December 31, 2021 Using
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	35,403	$	—	$	—	$	35,403
Total	$	35,403	$	—	$	—	$	35,403

During the six months ended June 30, 2022, there were no transfers between Level 1, Level 2 and Level 3.

5. Property, plant and equipment, net

Property, plant and equipment, net consisted of the following (in thousands):


	June 30,		December 31,
	2022		2021

Land	$	1,917	$	2,072
Leasehold improvements		3,096		3,348
Construction in progress		9,413		7,746
Laboratory equipment		6,850		7,025
Furniture and fixtures		608		651
Computer equipment and software		1,772		1,876
Property and equipment, gross		23,656		22,718
Less: Accumulated depreciation		(6,704)		(6,366)
Property and equipment, net	$	16,952	$	16,352

Construction-in-progress as of June 30, 2022 and December 31, 2021 mainly related to investments in connection with the Company’s GMP manufacturing facility project.

6. Receivable research incentive

The Company participates in a research incentive program provided by the Austrian government under which it is 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. Reimbursements received in excess of the recognized receivable research incentive for a certain period are recorded within other long term liabilities for potential repayment until such time that an audit has taken place, upon expiration of the potential reclaim period, or when it is no longer probable that a reclaim will happen. The years 2018 to present remain open to examination by the authorities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

As of June 30, 2022, the Company recognized receivables of $16.5 million from the research incentive program, which are reported in research incentive receivables in the Company’s condensed consolidated balance sheet. As of December 31, 2021, the receivables from the research incentive program were $14.3 million.

During the three months ended June 30, 2022 and 2021, the Company recorded $1.7 million and $2.3 million, respectively, of income related to the incentive program within the Company’s condensed consolidated statements of operations as part of the grant income.

During the six months ended June 30, 2022 and 2021, the Company recorded $3.4 million and $4.3 million, respectively, of income related to the incentive program within the Company’s condensed consolidated statements of operations as part of the grant income.

7. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2022		2021
Salaries and bonuses		3,667		4,754
Social security contributions		370		250
Unearned grant income (current)		411		693
Sublicense fees		—		304
Accrued external research and development expenses		2,954		2,165
Accrued external general and administration expenses		910		629
Accrued for property and equipment acquisitions		—		7
Finance lease liabilities		—		21
Other accruals and liabilities		377		57
	$	8,689	$	8,880

8. Loans payable

As of June 30, 2022 and December 31, 2021, loans payable consisted of the following (in thousands):


	June 30,		December 31,
	2022		2021
Loans from FFG	$	2,793	$	6,074
Unamortized debt discount		(551)		(1,063)
Total loans payable, net	$	2,242	$	5,011

In connection with the funding agreements with the Austrian Research Promotion Agency, (Österreichische Forschungsförderungsgesellschaft, or “FFG”), the Company has received various loans (“FFG Loans”). The FFG Loans were made on a project-by-project basis. Amounts due under the FFG Loans bear interest at a rate of 0.75% per annum and mature at various dates between March 2023 and March 2024. Interest on amounts due under the loans is payable semi-annually in arrears, with all principal and remaining accrued interest due upon maturity.

The FFG Loans bear interest at rates that are below market rates of interest. The Company accounts for the imputed benefit arising from the difference between an estimated market rate of interest and the rate of interest charged by FFG as grant income from FFG. On the date that FFG loan proceeds are received, the Company recognizes the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan and as unearned income, which is recognized as grant income over the term of the funding agreement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

A principal repayment of $3.0 million was made in the six months ended June 30, 2022. No principal repayment was made in the six months ended June 30, 2021.

As of June 30, 2022, the aggregate minimum future principal payments due in connection with the FFG Loans are summarized as follows (in thousands):


Payments Due by Calendar Year	Amount
2022 (remaining 6 months)		—
2023		1,684
2024		1,109
2025		—
2026		—
Thereafter		—
Total	$	2,793

9. Common stock, Class A common stock and convertible preferred stock

The Company’s capital structure consists of common stock, Class A common stock and preferred stock. As of June 30, 2022, the Company was authorized to issue 200,000,000 shares of common stock, 3,900,000 shares of Class A common stock and 10,000,000 shares of preferred stock. The Company has designated 2,978 of the 10,000,000 authorized shares of preferred stock as non-voting Series A convertible preferred stock and 15,800 of the 10,000,000 authorized shares of preferred stock as non-voting Series A-1 convertible preferred stock. As of June 30, 2022, the Company had 50,884,796 shares of common stock, 3,819,732 shares of Class A common stock, 1,697 shares of Series A convertible preferred stock and 15,800 shares of Series A-1 convertible preferred stock outstanding and issued.

On February 15, 2022, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Gilead, that requires Gilead, at the Company’s option, to purchase up to $35.0 million of the Company’s common stock. On February 15, 2022, Gilead purchased an initial amount of 1,666,666 shares of the Company’s common stock in exchange for $5.0 million in cash at a purchase price per share equal to $3.00. Pursuant to the terms of the Stock Purchase Agreement, the Company may require Gilead to purchase the balance of the $30.0 million of common stock, at the discretion of the Company, in one or two subsequent purchases at a price equal to the volume weighted average purchase price preceding such purchase, as defined in the Stock Purchase Agreement, plus, for the first subsequent purchase, which can be up to the full $30.0 million balance, a premium of 30%. The Company’s right to sell shares of its common stock to Gilead is subject to specified limitations, including a limitation that prevents the Company from requesting purchases of shares of common stock by Gilead that would result in a beneficial ownership of more than 19.9% of the total number of outstanding shares of common stock by Gilead. At June 30, 2022, this limitation would have prevented the Company from requesting that Gilead purchase the full $30.0 million balance of the investment commitment. The Company agreed to file a registration statement on Form S-3 to register for resale any additional shares of common stock issued to Gilead within four months from issuance.

On March 4, 2022, the Company closed a public offering of 21,700,000 shares of its common stock and of 15,800 shares of Series A-1 convertible preferred stock at a public offering price of $2.00 and $2,000.00 per share, respectively, for net proceeds of $70.2 million after deducting underwriting discounts and commissions and offering expenses including pro-rata ATM expenses.

The Company has two series of preferred stock authorized, issued and outstanding as of June 30, 2022: Series A convertible preferred stock and Series A-1 convertible preferred stock. Shares of Series A and Series A-1 convertible preferred stock may be independently converted into common stock. Holders of Series A and Series A-1 convertible preferred stock have equal rights, powers and privileges.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of Class A common stock and Series A and Series A-1 convertible preferred stock are not entitled to vote, except as required by law. The holders of common stock and Class A common stock do not have any cumulative voting rights.

Each holder of Class A common stock has the right to convert each share of Class A common stock into one share of common stock at such holder's election. Each holder of Series A and Series A-1 convertible preferred stock has the right to convert each share of Series A and Series A-1 convertible preferred stock into 1,000 shares of common stock at any time at the holder’s option, provided that the holder will be prohibited, subject to certain exceptions, from converting Series A and Series A-1 preferred stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding.

Holders of common stock and Class A common stock are entitled to receive ratably any dividends declared by the board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Holders of Series A and Series A-1 preferred stock will be entitled to receive dividends at a rate equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends actually paid on shares of the Company’s common stock. Holders of common stock and Class A common stock have no preemptive rights, conversion rights, or other subscription rights or redemption or sinking fund provisions.

In the event of a liquidation, dissolution, or winding up of the Company, holders of our Series A and Series A-1 preferred stock will receive a payment equal to $0.001 per share of Series A and Series A-1 preferred stock before any proceeds are distributed to the holders of common stock. Then, holders of common stock and Class A common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities.

10. Stock-based compensation

2018 Stock Option and Grant Plan

In June 2018, the Board of Directors approved the 2018 Stock Option and Grant Plan. Options granted under the 2018 Stock Option and Grant Plan generally vest over four years, with 25% of the options vesting upon the first anniversary of the grant date and the remaining 75% of the options vesting in 12 equal quarterly installments following the first anniversary of the grant date, provided the option holder continues to have an employment or service relationship with the Company on each vesting date. The options expire on the 10^th anniversary of the grant date. As of June 30, 2022, 927,115 options granted under the 2018 Stock Option and Grant Plan remained outstanding. Any authorization to issue new options under the 2018 Stock Option and Grant Plan was cancelled upon the effectiveness of the 2019 Stock Option and Incentive Plan and no further awards will be granted under the 2018 Plan.

2019 Stock Option and Incentive Plan

On April 1, 2019, the Company’s stockholders approved the 2019 Stock Option and Incentive Plan, which became effective as of the effective date of the registration statement in connection with the Company’s IPO. The plan provides for the grant of shares of restricted stock, long term incentive awards, stock options or other equity-based awards. The maximum number of shares of the Company’s common stock that may be issued under the Company’s 2019 Stock Option and Incentive Plan is 5,878,814 shares which shall be cumulatively increased each year by up to 4% of the then outstanding number of shares. Options granted under the 2019 Stock Option and Incentive Plan generally vest over four years, with 25% of the options vesting upon the first anniversary of the grant date and the remaining 75% of the options vesting in 12 equal quarterly installments following the first anniversary of the grant date, provided the option holder continues to have an employment or service relationship with the Company on each vesting date. Initial

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

options granted to non-executive directors upon their election generally vest over a three-year term with 33% of the options vesting upon the first anniversary of the grant date and the remaining 67% of the options vesting in eight equal quarterly installments following the first anniversary of the grant date. Option re-grants to non-executive directors generally vest on the first anniversary of the grant date. The options expire on the 10^th anniversary of the grant date. For each option, the beneficiary is entitled to receive one share of common stock upon the exercise of the option.

Stock option valuation

The Company estimates the option’s fair value on the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to expected term, volatility, the risk-free interest rate, the dividend and employee exercise behavior. Forfeitures are accounted for when they occur. Expected volatilities utilized in the Black-Scholes model are based on historical volatilities of a group of comparable companies. The group of representative companies have characteristics similar to the Company, including the stage of product development and focus on the life science industry. Management believes that this represents the most accurate basis for estimating expected future volatilities under the current conditions. The risk-free interest rate is derived from the yields for U.S. Treasuries with a remaining term approximating the expected life of the options. The expected term represents the period of time that the options granted are expected to be outstanding.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model for estimating the fair value of stock options granted during:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Risk-free interest rate	2.96	%	1.07	%	2.87	%	1.07	%
Expected term (in years)	6.1		6.1		6.0		6.1
Expected volatility	84.8	%	85.5	%	84.9	%	85.5	%
Expected dividends	—	%	—	%	—	%	—	%

For the 2022 and 2021 grants, the Company used the simplified method in developing an estimate of the expected term due to a lack of historical exercise data.

Stock option activity

The following table summarizes the Company’s stock option activity since January 1, 2022 (in thousands, except share and per share amounts):


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(in years)
Outstanding as of December 31, 2021	4,231,178	$	9.21	7.5	$	1,640
Granted	2,028,291		1.65
Exercised	(22,096)		0.10
Forfeited	(123,205)		8.78
Outstanding as of June 30, 2022	6,114,168	$	6.74	8.0	$	1,097

Options exercisable as of June 30, 2022	2,913,971	$	8.22	6.7	$	1,093
Options unvested as of June 30, 2022	3,200,197	$	5.38	9.1	$	4

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The aggregate intrinsic value of stock options was calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The fair value per common stock used for calculating the intrinsic values as of June 30, 2022 and December 31, 2021, was $1.63 and $2.33, respectively.

Cash received from stock option exercise under share-based payment arrangements for the six months ended June 30, 2022 was $2 thousand. Cash received from stock option exercise under share-based payment arrangements for the six months ended June 30, 2021 was $237 thousand.

Common Stock Awards

In the three months ended March 31, 2022 the Company issued unrestricted shares of common stock to its executive team. The Company’s executive team agreed to convert a portion of their base salaries, for the six months ending June 30, 2022, for shares of the Company’s fully vested common stock having a value equal to their foregone salary, determined based on a value of $3.00 per share, resulting in the issuance of 112,551 shares of common stock. The total fair value of common stock awards issued during the three months ended March 31, 2022 was $0.2 million. The grant date fair value per share of common stock was $1.50 and was measured at the closing price of the common stock on the date of grant. Expenses were recorded immediately and are included in stock based compensation in the three months ended March 31, 2022. No unrestricted shares of common stock were issued in the three months ended June 30, 2022.

Stock-based compensation

Stock-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Research and development expenses	$	522	$	1,145	$	1,140	$	1,769
General and administrative expenses		859		1,482		1,862		2,379
	$	1,381	$	2,627	$	3,002	$	4,148

11. Income taxes

Income tax expense during the six months ended June 30, 2022 and 2021 resulted from minimum tax obligations. During the three and six months ended June 30, 2022 and 2021, the Company recorded no income tax benefits for the net operating losses incurred, due to its uncertainty of realizing a benefit from those items. The Company’s losses before income taxes were generated in the United States and Austria. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets resulting from its net operating loss carryforwards. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of June 30, 2022 and December 31, 2021. Management reevaluates the positive and negative evidence at each reporting period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

12. Commitments and contingencies

Operating and Finance Leases

The Company leases real estate, including office and laboratory space and has entered into various other agreements with respect to assets used in conducting its business. The Company is required to maintain a cash balance of $0.4 million to secure letters of credit associated with real estate leases. This amount was classified as non-current restricted cash in the Company’s condensed consolidated balance sheet as of June 30, 2022.

As of June 30, 2022 and December 31, 2021, the Company’s operating lease right-of-use assets were $4.7 million and $5.7 million, respectively, which are reported in operating lease right-of-use assets in the Company’s condensed consolidated balance sheets. As of June 30, 2022 the Company had no finance lease right-of-use assets, as of December 31, 2021, the Company’s finance lease right-of-use assets were $0.1 million, which are reported in finance lease right-of-use assets in the Company’s condensed consolidated balance sheets. As of June 30, 2022, the Company had outstanding operating lease obligations of $4.6 million, of which $1.6 million is reported in operating lease liabilities, current portion and $3.0 million is reported in operating lease liabilities, non-current portion in the Company’s condensed consolidated balance sheets. As of June 30, 2022, the Company had no outstanding finance lease obligations. As of December 31, 2021, the Company had outstanding operating lease obligations of $5.6 million, of which $1.7 million is reported in operating lease liabilities, current portion and $3.9 million is reported in operating lease liabilities, non-current portion in the Company’s condensed consolidated balance sheets. As of December 31, 2021, the Company had outstanding finance lease obligations of less than $0.1 million, which is reported in accrued expenses and other current liabilities in the Company’s condensed consolidated balance sheets. The Company’s weighted average discount rate and weighted average lease term remaining on operating lease liabilities is approximately 1.4% and 3.3 years, respectively.

Contract manufacturing arrangements

The Company has entered into arrangements with contract manufacturing organizations (“CMOs”) for manufacturing of materials for research and development purposes, including manufacturing of clinical trial materials. These contracts generally provide for non-cancellable obligations or cancellation penalties depending on the time of cancellation. As of June 30, 2022, the Company’s total non-cancellable obligations under contracts with CMOs, excluding embedded lease liabilities, were $8.5 million, of which $4.5 million relate to 2022 (remaining six months) deliverables, $4.0 million relate to 2023, and less than $0.1 million relate to 2024 deliverables.

Intellectual property licenses

The Company has entered into certain license agreements under which it is obligated to make milestone payments upon the achievement of certain development and regulatory milestones, to pay royalties on net sales of licensed products, and to pay a percentage of the sublicense fees which the Company receives from its sublicensees.

In the three and six months ended June 30, 2022, the Company recorded $0.4 million and $0.7 million, respectively, in licensing fees related to intellectual property licenses as general and administrative expenses. These amounts are partly related to the upfront payment and milestone payments received by the Company under the Gilead Agreement. The amounts recognized as expenses have been agreed to by the licensors but calculation of sublicensing fees on future payments may be subject to interpretation and may change until agreed to by the receiving party.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its Board of Directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2022 or December 31, 2021.

Legal proceedings

At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is currently a party to a patent proceeding opposing European Patent No. 3218504, which was granted to the University of Geneva in July 2020 and is exclusively licensed to the Company. While it is not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims or proceedings may be disposed or decided unfavorably, the Company does not expect that the pending patent opposition, and any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on the Company. However, if, as a result of the current patent proceeding, the Company would lose all, or at least part, of the protection under the opposed patent, such loss could erode the Company’s competitive position and harm its business and ability to achieve profitability. The Company expenses the costs related to the pending and other such legal proceedings as incurred.

13. Net loss per share

The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, except for per share amounts):


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Numerator:
Net loss	$	(16,356)	$	(17,153)	$	(34,324)	$	(34,391)

Denominator:

Boards:

Quotes:

HOOK