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 September 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 November 7, 2022, the registrant had 52,317,138 shares of common stock and 2,399,517 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., F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche 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;

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●

our expectations about market trends; and

●

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 September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II.	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures			43

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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)


	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	99,776	$	65,921
Restricted cash		490		566
Accounts receivable		743		6,895
Receivable research incentives		17,300		14,271
Prepaid expenses and other current assets		11,302		14,482
Total current assets		129,611		102,135
Non-current assets:
Restricted cash		410		425
Property, plant and equipment, net		16,516		16,352
Operating lease right of use assets		4,037		5,673
Finance lease right of use assets		—		90
Other non-current assets		952		1,370
Total non-current assets		21,915		23,910

Total assets	$	151,526	$	126,045

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	7,824	$	8,762
Deferred revenues		7,520		5,538
Operating lease liabilities, current		1,558		1,682
Accrued expenses and other current liabilities		7,757		8,880
Loans payable, current		1,393		2,792
Total current liabilities		26,052		27,654
Non-current liabilities
Loans payable, non-current		800		2,219
Operating lease liabilities, non-current		2,462		3,911
Deferred revenues, non-current		6,807		21
Other non-current liabilities		2,057		2,648
Total non-current liabilities		12,126		8,799
Total liabilities		38,178		36,453

Commitments and contingencies (Note 12)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; Series A convertible preferred stock, 2,978 shares designated, 1,697 shares outstanding at September 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 September 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 September 30, 2022 and December 31, 2021, respectively; 52,317,138 shares and 27,383,483 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		5		3
Class A common stock, $0.0001 par value; 3,900,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 2,399,517 shares and 3,819,732 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		0		0
Additional paid-in capital		396,348		317,135
Accumulated other comprehensive loss		(7,635)		(4,780)
Accumulated deficit		(275,370)		(222,766)
Total stockholders’ equity		113,348		89,592

Total liabilities and stockholders’ equity	$	151,526	$	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 September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenue from collaboration and licensing	$	2,230	$	3,874	$	6,421	$	14,553
Operating expenses:
Research and development		(18,286)		(20,698)		(51,053)		(60,434)
General and administrative		(4,937)		(4,342)		(14,935)		(13,746)
Total operating expenses		(23,223)		(25,040)		(65,988)		(74,180)
Loss from operations		(20,993)		(21,166)		(59,567)		(59,627)
Other income (expense):
Grant income	$	2,081	$	2,487	$	5,926	$	7,196
Interest income		535		7		724		21
Interest expense		(105)		(234)		(579)		(671)
Other income and (expenses), net		202		(1,133)		893		(1,348)

Total other income, net		2,713		1,127		6,964		5,198

Net loss before tax		(18,280)		(20,039)		(52,603)		(54,429)

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

Net loss		(18,280)		(20,040)		(52,604)		(54,430)


Other comprehensive loss:
Foreign currency translation gain (loss), net of tax		(1,367)		471		(2,855)		288
Comprehensive loss	$	(19,647)	$	(19,569)	$	(55,459)	$	(54,142)

Net loss per share — basic and diluted	$	(0.25)	$	(0.61)	$	(0.83)	$	(1.66)

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)

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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
Conversion of Class A common stock to common stock	—		—	1,420,215		0	(1,420,215)		(0)		—		—		—		—
Issuance of common stock upon exercise of stock options	—		—	12,127		0	—		—		1		—		—		1
Foreign currency translation adjustment, net of tax	—		—	—		—	—		—		—		(1,367)		—		(1,367)
Stock-based compensation expense	—		—	—		—	—		—		1,040		—		—		1,040
Net loss	—		—	—		—	—		—		—		—		(18,280)		(18,280)
Balances as of September 30, 2022	17,497	$	0	52,317,138	$	5	2,399,517	$	0	$	396,348	$	(7,635)	$	(275,370)	$	113,348

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												Accumulated
				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		Income (Loss)		Deficit		Equity
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
Issuance of common stock upon exercise of stock options	—		—	21,912		0	—		—		2		—		—		2
Vesting of restricted stock	—		—	10,307		0	—		—		(0)		—		—		—
Foreign currency translation adjustment, net of tax	—		—	—		—	—		—		—		471		—		471
Stock-based compensation expense	—		—	—		—	—		—		1,719		—		—		1,719
Net loss	—		—	—		—	—		—		—		—		(20,040)		(20,040)
Balances as of September 30, 2021	2,978	$	0	26,084,065	$	3	3,819,732	$	0	$	315,394	$	(5,779)	$	(201,532)	$	108,086

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)


	Nine months ended September 30,
	2022		2021
Operating activities:
Net loss	$	(52,604)	$	(54,430)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		4,042		5,867
Depreciation and amortization expense		2,698		3,412
Other non-cash items		(12)		34
Changes in operating assets and liabilities:
Accounts receivable		5,405		2,754
Receivable research incentives		(5,383)		(3,687)
Prepaid expenses and other current assets		1,743		(8,371)
Other non-current assets		251		(437)
Accounts payable		1,588		528
Deferred revenues		10,323		(1,952)
Operating lease liabilities		(1,223)		(1,392)
Accrued expenses and other liabilities		(254)		5,298
Other non-current liabilities		292		(397)
Net cash provided by (used in) operating activities		(33,134)		(52,773)

Investing activities:
Purchases of property and equipment		(4,418)		(7,440)

Net cash used in investing activities		(4,418)		(7,440)

Financing activities:
Payments related to finance leases		(24)		(64)
Proceeds from issuance of convertible preferred stock, net of issuance costs		29,625		239
Proceeds from issuance of common stock, net of issuance costs		45,691		—
Repayments of borrowings		(2,825)		—

Net cash provided by financing activities		72,467		175

Net increase (decrease) in cash, cash equivalents and restricted cash		34,915		(60,038)

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		(1,151)		(442)
Cash, cash equivalents and restricted cash at end of period	$	100,676	$	82,697

Supplemental disclosure of cash flow information:
Cash paid for interest	$	(21)	$	(24)
Cash paid for income taxes	$	(1)	$	(1)

Supplemental disclosure of non-cash financing activities:
Property and equipment additions in accounts payable and accrued expenses	$	(239)	$	(3,950)
Lease assets obtained in exchange for new operating lease liabilities	$	227	$	—
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 September 30, 2022, the condensed consolidated statements of operations, and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statement of convertible preferred stock and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the nine months ended September 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 September 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 $52.6 million for the nine months ended September 30, 2022 and $75.7 million for the year ended December 31, 2021. As of September 30, 2022, the Company had an accumulated deficit of $275.4 million. The Company expects to continue to generate operating losses in the foreseeable future. As of November 14, 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.

The COVID-19 pandemic continues to affect economies and business around the world. The extent and duration of such effects remain uncertain and difficult to predict, particularly as virus variants continue to spread. The Company is actively monitoring and managing its response and assessing actual and potential impacts to its operating results and financial condition, as well as developments in its business, which could further impact the developments, trends and expectations described below. 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 nine months ended September 30, 2022 and September 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 September 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 September 30, 2022 and December 31, 2021, Gilead Sciences, Inc. (“Gilead”) accounted for the majority of the accounts receivable balance. For the nine months ended September 30, 2022 and September 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 September 30, 2022 and December 31, 2021, cash equivalents consisted of money market funds and short-term deposits.

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 Collaboration 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 Gilead 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 Gilead 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 Collaboration 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 Collaboration 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 Collaboration 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 Collaboration 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 Collaboration 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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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 Collaboration Agreement whereby the Company and Gilead agreed to collaborate with respect to two preclinical research programs to evaluate potential vaccine products for the

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treatment, 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 Collaboration 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 September 30, 2022, $13.9 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 6% of deferred revenue is expected to be recognized as revenue in the remainder of 2022, 59% in 2023, 23% in 2024 and the remaining 12% in 2025.

As of September 30, 2022, $0.4 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 September 30, 2022, the Company recognized $1.3 million of the milestone and initiation payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $0.9 million revenue from cost reimbursements for research and development services, of which $0.1 million were initially recorded as deferred revenue in the consolidated balance sheet. In the three months ended September 30, 2021, the Company recognized $0.2 million of the upfront and milestone payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $3.7 million revenue from cost reimbursements for research and development services, of which $1.0 million were initially recorded as deferred revenue in the consolidated balance sheet.

In the nine months ended September 30, 2022, the Company recognized $2.9 million of the milestone and initiation payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $3.5 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. In the nine months ended September 30, 2021, the Company recognized $1.9 million of the upfront and milestone payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $12.7 million revenue from cost reimbursements for research and development services, of which $1.6 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

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the triggering payment is recognized. As of September 30, 2022 and December 31, 2021, the contract asset relating to the sublicense payment was $0.2 million and $0.3 million, respectively.

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 September 30, 2022 Using
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	93,506	$	—	$	—	$	93,506
Total	$	93,506	$	—	$	—	$	93,506


	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 nine months ended September 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):


	September 30,		December 31,
	2022		2021

Land	$	1,791	$	2,072
Leasehold improvements		2,894		3,348
Construction in progress		9,603		7,746
Laboratory equipment		6,476		7,025
Furniture and fixtures		568		651
Computer equipment and software		1,838		1,876
Property and equipment, gross		23,170		22,718
Less: Accumulated depreciation		(6,654)		(6,366)
Property and equipment, net	$	16,516	$	16,352

Construction-in-progress as of September 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

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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.

As of September 30, 2022, the Company recognized receivables of $17.3 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 September 30, 2022 and 2021, the Company recorded $2.0 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 nine months ended September 30, 2022 and 2021, the Company recorded $5.4 million and $6.6 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):


	September 30,		December 31,
	2022		2021
Salaries and bonuses		4,490		4,754
Social security contributions		229		250
Unearned grant income (current)		329		693
Sublicense fees		—		304
Accrued external research and development expenses		1,878		2,165
Accrued external general and administration expenses		531		629
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