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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 March 31, 2024

OR

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 Capital Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

  

Smaller reporting company

Emerging growth Company

 

 

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

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

As of May 6, 2024, the registrant had 96,550,590 shares of common stock and 2,399,517 shares of Class A common stock outstanding, each $0.0001 par value per share.

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;
competitive companies and technologies in 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;
our ability to comply with Nasdaq listing rules; 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/), Securities and Exchange Commission 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.

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

1

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023

2

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

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 5.

Other Information

41

Item 6.

Exhibits

42

Signatures

44

PART I—FINANCIAL INFORMATION

Item 1.      Financial Statements.

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share amounts)

March 31, 

    

December 31, 

2024

2023

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

92,751

$

117,096

Accounts receivable

 

10,212

 

511

Receivable research incentives

20,557

18,760

Prepaid expenses and other current assets

 

9,190

 

10,749

Total current assets

 

132,710

 

147,116

Non-current assets:

 

  

 

  

Restricted cash

204

425

Property, plant and equipment, net

 

7,332

 

7,742

Operating lease right of use assets

 

4,965

 

5,473

Other non-current assets

 

660

 

581

Total non-current assets

 

13,161

 

14,221

Total assets

$

145,871

$

161,337

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

11,201

$

12,498

Deferred revenues

 

4,649

 

14,631

Operating lease liabilities, current

1,584

1,638

Accrued expenses and other current liabilities

 

10,930

 

12,101

Loans payable, current

1,144

1,120

Total current liabilities

 

29,508

 

41,988

Non-current liabilities

 

  

 

  

Operating lease liabilities, non-current

 

3,354

 

3,801

Deferred revenues, non-current

 

2,617

 

19,674

Other non-current liabilities

 

5,870

 

6,017

Total non-current liabilities

 

11,841

 

29,492

Total liabilities

 

41,349

 

71,480

Commitments and contingencies (Note 13)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.0001 par value; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively; Series A convertible preferred stock, 2,978 shares designated, 370 shares outstanding at March 31, 2024 and December 31, 2023, respectively; Series A-1 convertible preferred stock, 15,800 shares designated, 10,800 shares outstanding at March 31, 2024 and December 31, 2023, respectively; Series A-2 convertible preferred stock, 15,268 shares designated, and 15,268 shares outstanding at March 31, 2024 and December 31, 2023, respectively

0

0

Common stock, $0.0001 par value; 200,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively; 96,550,590 shares and 96,550,590 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

10

 

10

Class A common stock, $0.0001 par value; 3,900,000 shares authorized at March 31, 2024 and December 31, 2023, respectively; 2,399,517 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

0

 

0

Additional paid-in capital

 

466,792

 

467,041

Accumulated other comprehensive loss

 

(7,402)

 

(7,933)

Accumulated deficit

 

(354,878)

 

(369,261)

Total stockholders’ equity

 

104,522

 

89,857

Total liabilities and stockholders’ equity

$

145,871

$

161,337

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

1

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands, except share and per share amounts)

    

Three months ended March 31, 

2024

    

2023

Revenue from collaboration and licensing

$

36,599

$

3,176

Operating expenses:

 

 

Research and development

 

(20,168)

(20,931)

General and administrative

 

(4,056)

(4,902)

Restructuring

(1,269)

Total operating expenses

 

(25,493)

 

(25,833)

Income (loss) from operations

 

11,106

 

(22,657)

Other income (expense):

 

  

 

  

Grant income

$

2,233

$

2,353

Interest income

 

1,331

 

1,171

Interest expense

 

(2)

 

(122)

Other income and (expenses), net

 

(285)

 

(220)

Total other income, net

 

3,277

 

3,182

Net income (loss) before tax

 

14,383

 

(19,475)

Income tax expense

 

(0)

(205)

Net income (loss)

 

14,383

 

(19,680)

Other comprehensive (loss) income:

 

  

 

  

Foreign currency translation gain (loss), net of tax

 

531

(17)

Comprehensive income (loss)

$

14,914

$

(19,697)

Net income (loss) per share — basic

$

0.11

$

(0.27)

Net income (loss) per share — diluted

$

0.11

$

(0.27)

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

2

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, 2023

26,438

0

96,550,590

10

2,399,517

0

467,041

(7,933)

(369,261)

89,857

Foreign currency translation adjustment, net of tax

531

531

Stock-based compensation income

(249)

(249)

Net income

14,383

14,383

Balances as of March 31, 2024

26,438

$

0

96,550,590

$

10

 

2,399,517

$

0

$

466,792

$

(7,402)

$

(354,878)

$

104,522

Balances as of December 31, 2022

17,497

0

52,317,138

5

2,399,517

0

397,349

(7,156)

(287,681)

102,517

Issuance of common stock upon exercise of stock options

5,684

0

1

1

Foreign currency translation adjustment, net of tax

(17)

(17)

Stock-based compensation expense

658

658

Net loss

(19,680)

(19,680)

Balances as of March 31, 2023

17,497

$

0

52,322,822

$

5

 

2,399,517

$

0

$

398,008

$

(7,173)

$

(307,361)

$

83,479

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

3

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

Three months ended March 31, 

    

2024

    

2023

Operating activities:

Net income (loss)

$

14,383

$

(19,680)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation (income) expense

 

(249)

 

658

Depreciation and amortization expense

 

640

 

921

Other non-cash items

 

 

4

Changes in operating assets and liabilities:

Accounts receivable

 

(9,442)

 

6,139

Receivable research incentives

(2,233)

(2,202)

Prepaid expenses and other current assets

 

992

 

407

Other non-current assets

 

(93)

 

(214)

Accounts payable

 

(669)

 

1,557

Deferred revenues

 

(26,300)

 

7,213

Operating lease liabilities

(330)

(377)

Accrued expenses and other liabilities

(855)

2,933

Other non-current liabilities

 

 

(207)

Net cash used in operating activities

 

(24,156)

 

(2,848)

Investing activities:

Purchases of property and equipment

 

(116)

 

(274)

Net cash used in investing activities

 

(116)

 

(274)

Financing activities:

Proceeds from issuance of common stock, net of issuance costs

 

1

Payments for deferred offering costs

(135)

(139)

Repayments of borrowings

(597)

Net cash used in financing activities

 

(135)

 

(735)

Net decrease in cash, cash equivalents and restricted cash

 

(24,407)

 

(3,857)

Cash, cash equivalents and restricted cash at beginning of period

 

117,521

 

113,444

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(159)

 

434

Cash, cash equivalents and restricted cash at end of period

$

92,955

$

110,021

Supplemental disclosure of cash flow information:

Cash paid for interest

$

$

(1)

Cash paid for income taxes

$

(0)

$

(0)

Supplemental disclosure of non-cash financing activities:

Property and equipment additions in accounts payable and accrued expenses

$

41

$

22

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

4

Table of Contents

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 is currently traded on the Nasdaq Capital 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, 2023 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations, and comprehensive income (loss) for the three months ended March 31, 2024 and 2023, the condensed consolidated statement of convertible preferred stock and stockholders’ equity for the three months ended March 31, 2024 and 2023 and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 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, 2023 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). The results for any interim period are not necessarily indicative of results for any future period.

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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 March 31, 2024, 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 a net loss of $81.6 million for the year ended December 31, 2023. As of March 31, 2024, the Company had an accumulated deficit of $354.9 million. While the Company had net income of $14.4 million for the three months ended March 31, 2024, the Company expects to continue to generate operating losses in the foreseeable future. As of 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, the valuation of current loans payable and the impairment of long-lived assets. 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.

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.

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

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HOOKIPA PHARMA INC.

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

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 condensed 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 months ended March 31, 2024 and March 31, 2023 the net proceeds from the Company’s offerings have been deposited in interest-bearing bank accounts with two of the largest 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 March 31, 2024 and December 31, 2023, the Company’s cash and cash equivalents included smaller amounts of cash balances held in accounts with regional 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 March 31, 2024 F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. (together “Roche”) accounted for the majority of the accounts receivable balance as a result of a $10.0 million milestone achieved in March 2024. As of December 31, 2023, Gilead Sciences, Inc. (“Gilead”) and Roche accounted for the majority of the accounts receivable balance. For the three months ended March 31, 2024 Roche accounted for the majority of the Company’s revenues as a result of a contract modifaction and the recognition of upfront and milestone payments previously recorded as deferred revenues. For the three months ended March 31, 2023 Gilead and Roche accounted for the majority of the Company’s revenues. Other customers accounted for less than 10.0% of accounts receivable or net revenues. 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 March 31, 2024 and December 31, 2023, 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.
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.

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HOOKIPA PHARMA INC.

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

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 5).

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 inflation when determinable and are recognized as 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

8

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HOOKIPA PHARMA INC.

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

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.

Restructuring

Costs and liabilities associated with restructuring activities are recognized when the actions are probable and estimable, which is when management approves the associated actions. Employee-related severance charges are recognized at the time of communication to employees.

Revenue recognition from collaboration and licensing

The Company recognized revenue from collaboration and license agreements with Gilead and Roche.

Under the collaboration and license agreement with Gilead (as amended and restated, the “Gilead Collaboration Agreement”), 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 parties signed an amended and restated collaboration agreement (the “Restated Gilead Collaboration Agreement”), which revised the terms only for the HIV program, whereby the Company took 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. The licenses do not represent distinct performance obligations, because they cannot be used without the research and development services. Payments to the Company under the Restated Gilead Collaboration 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.

Under the research collaboration and license agreement with Roche (the “Roche Collaboration Agreement”), the Company agreed to conduct research and early clinical development through Phase 1b for HB-700, a novel investigational arenaviral immunotherapy for the treatment of KRAS-mutated cancers. The Roche Collaboration Agreement also includes an obligation of the Company to deliver a specified package of preclinical data and results with respect to a second program, targeting undisclosed cancer antigens (collectively “UCAs”) and an option for Roche to license the UCA program. The Company’s performance obligations under the terms of the Roche Collaboration Agreement include one combined performance obligation for the transfer of intellectual property rights (licenses) and providing research and development services for the HB-700 program, and a second, separate performance obligation to perform research and development services with respect to the UCA program. The UCA Option provides a right to license the program at the standalone selling price and therefore does not constitute a separate performance obligation. Payments to the Company under the Roche Collaboration Agreement include a non-refundable up-front payment,

9

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HOOKIPA PHARMA INC.

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

payments based upon the achievement of defined milestones, an additional payment if the option for the UCA program is exercised and royalties on product sales. In January 2024, Roche provided written notice of the termination of the collaboration and licensing agreement to the Company resulting in early recognition of revenue previously recorded as deferred revenue. The termination was made according to Roche’s right to terminate without cause, acknowledging that, the Company had met all go-forward criteria under the agreement. Upon the termination effective date of April 25, 2024, the Company regained full control of the associated intellectual property portfolio and has full collaboration and licensing rights for this program.

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 promises under the collaboration and licensing arrangements represent separate or one or more combined performance obligations, the allocation of the transaction price to identified performance obligations, the timing of revenue recognition, whether the UCA Option constitutes a material right, and the determination of when milestone payments are probable of being received.

Upfront payment and program initiation fee

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 from Gilead upon signing of the Restated 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.

The non-refundable upfront-payment received by the Company upon signing of the Roche Collaboration Agreement was initially recorded as deferred revenue and allocated between the HB-700 program and the UCA program. 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 costs (input method) for each of the obligations during the initial term of the contract. 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.

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HOOKIPA PHARMA INC.

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

Reimbursement for services

Under the Gilead Collaboration Agreement and the Roche Collaboration Agreement, the Company incurs employee expenses as well as external costs for research, manufacturing and clinical trial activities presented as operating expenses or prepaid expenses. Based on the nature of the Company's responsibilities under the collaboration arrangements, 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 and the Roche Collaboration Agreement include 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 and Roche. While no further milestone payments are expected under the terminated Roche Collaboration Agreement, the Company will continue to assess the probability of significant reversals for any amounts that become likely to be realized under the Gilead Collaboration Agreement prior to including the variable consideration associated with these payments within the transaction price.

Sales-based milestones and royalty payments

The Gilead Collaboration Agreement and the Roche Collaboration Agreement also include 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.

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 collaboration and licensing agreements. 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.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued final guidance in ASU No. 2023-09, Income Taxes (ASC 740): Improvements to Income Tax Disclosures requiring entities to provide additional information in the rate reconciliation and disclosures about income taxes paid. For public business entities, the guidance is effective for annual periods

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HOOKIPA PHARMA INC.

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

beginning after December 15, 2024. The Company does not expect this ASU to have a material impact on the consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires public entities to disclose significant segment expenses regularly provided to the chief operating decision-maker. Public entities with a single reporting segment have to provide all disclosures required by ASC 280, including the significant segment expense disclosures. For public business entities, the guidance is effective for annual periods beginning after December 15, 2024. The Company does not expect this ASU to have a material impact on the 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 treatment, cure, diagnosis or prevention of HBV and HIV. In February 2022, the Company signed the 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 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 Restated Gilead Collaboration Agreement in February 2022, 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 for the HIV program, inclusive of a $10.0 million program completion fee, payable upon Gilead’s exercise of the option to pursue further development activities post Phase 1b. The commercial milestones amount to a total of $50.0 million for the HBV program, and $65.0 million for the HIV program. Additionally, Gilead is obligated to pay royalties on net sales for each program. Payments from Gilead generally have a 60-day 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 March 31, 2024, $6.5 million of such payments were still recorded as a liability in deferred revenues, current and non-current. As of December 31, 2023, $7.5 million of upfront and milestone payments were included as a liability in deferred revenues, current and non-current. Approximately 50% of deferred revenue is expected to be recognized as revenue in the remainder of 2024, 41% in 2025 and the remaining 9% in 2026.

In the three months ended March 31, 2024, the Company recognized $0.8 million of the milestone and initiation payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $0.1 million revenue from cost reimbursements for research and development services. In the three months ended March 31, 2023, the Company recognized $1.2 million of the upfront and milestone payments that were originally recorded as deferred revenue. Furthermore, the Company recognized $0.5 million revenue from cost reimbursements for research and development services.

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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HOOKIPA PHARMA INC.

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

the triggering payment is recognized. As of March 31, 2024 and December 31, 2023, the contract asset relating to the sublicense payment was $0.1 million and $0.1 million, respectively, and there was no liability relating to sublicense payment.

Roche Collaboration and License Agreement

In October 2022, the Company entered into the Roche Collaboration Agreement whereby the Company and Roche agreed to collaborate with respect to the development of novel arenaviral immunotherapies for KRAS-mutated cancers and, potentially, a second, novel arenaviral immunotherapeutic program targeting specific undisclosed cancer antigens. In January 2024, Roche provided written notice of the termination of the Roche Collaboration Agreement to the Company. The termination was made according to Roche’s right to terminate without cause, acknowledging that the Company had met all go-forward criteria under the agreement. Pursuant to the terms of the Roche Collaboration Agreement, following the termination notice, the Roche Collaboration Agreement terminated on April 25, 2024.

Under the terms of the terminated Roche Collaboration Agreement, the Company granted Roche an exclusive, royalty-bearing license to the Company’s technology platforms for KRAS-mutated cancers, and an option right to exclusively license a second, novel arenaviral immunotherapeutic program targeting undisclosed cancer antigens. Upon the termination effective date of April 25, 2024, the Company regained full control of the associated intellectual property portfolio and had full collaboration and licensing rights for this program.

Upon signing the Roche Collaboration Agreement in October 2022, the Company received a non-refundable upfront payment of $25.0 million. This upfront payment, a $10.0 million milestone payment received in the three months ended March 31, 2023, and a $10.0 million milestone achieved in March 2024 were considered as part of the transaction price and are recognized as revenue when revenue recognition criteria are met over the period in which services are performed. The $10.0 million milestone achieved in March 2024 was associated with an IND submission for the HB-700 program and the payment was received in April 2024. As of March 31, 2024, $0.7 million of such payments were included as a liability in deferred revenues, current. As of December 31, 2023, $26.8 million of such payments were included as a liability in deferred revenues, current and non-current. The deferred revenues related to the upfront payment and the two milestone payments are subject to foreign currency exchange rate fluctuations in the second quarter of 2024.

The Company considered the termination by Roche as a contract modification of the combined performance obligations and the transaction price. The modification was accounted for on a cumulative catch-up basis, applying the revised percent of completion to the revised transaction price, resulting in an immediate increase of revenue in the period of the modification. The transaction price is recognized as revenue over the remaining performance period using updated total estimated research and development costs. The remaining liability included in deferred revenues will be recognized in the period through to the effective date of the termination on April 25, 2024.

In the three months ended March 31, 2024, the Company recognized revenues of $35.6 million. Revenue recognized includes $25.7 million of the upfront and milestone payments that were originally recorded as deferred revenue and $9.9 million of a $10.0 million milestone achieved in March 2024 and received in April 2024. Following the termination of the Roche Collaboration Agreement the remaining performance obligations will be completed and the remaining deferred revenues of $0.7 million will be recognized in the second quarter of 2024. Furthermore, the Company recognized $0.1 million revenue from cost reimbursements for activities related to the preparation of a first in human trial of HB-700. In the three months ended March 31, 2023, the Company recognized $1.5 million of the upfront and milestone payments that were originally recorded as deferred revenue.

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 March 31, 2024 the contract asset and the liability relating to the sublicense

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payment were $0.1 million and $0.7 million, respectively. As of December 31, 2023 the contract asset was $2.0 million and there was no liability relating to sublicense payment.

4. Restructuring

On January 29, 2024, the Company announced and began implementing its decision to prioritize the clinical development of its HB-200 program for the treatment of HPV16+ head and neck cancers and its two Gilead-partnered infectious disease programs and to pause development activities related to HB-300 and most of its preclinical research activities. In connection with this strategic refocus, the Company’s board of directors approved a restructuring plan to rebalance the Company’s cost structure, which includes a reduction of the Company’s workforce by approximately 30% and the discontinuation of the Company’s GMP manufacturing facility project. The Company substantially completed the restructuring plan in the three months ended March 31, 2024.

As a result of the restructuring plan, the Company incurred the following charges which were included within Restructuring in the condensed consolidated statements of operations and comprehensive income (loss).

The following table summarizes the effect of the restructuring charges (in thousands):

Three months ended March 31, 

    

2024

    

2023

Severance and other personnel expenses

1,223

Professional fees and other related charges

46

Total

$

1,269

$

The following table summarizes a roll-forward of cash restructuring-related liabilities, which are included within Accrued expenses and other current liabilities in the Consolidated Balance Sheets (in thousands):

Severance and other personnel costs

Professional fees and other related charges

Total

Balance as of December 31, 2023

$

$

$

Severance and other personnel costs, professional fees and other related charges

1,223

46

1,269

Total cash charges

(644)

(35)

(679)

Balance as of March 31, 2024

$

579

$

11

$

590

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5. 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 March 31, 2024

    

Level 1

    

Level 2

    

Level 3

Total

Cash equivalents:

Money market funds

$

86,673

 

$

 

$

$

86,673

Total

$

86,673

 

$

 

$

$

86,673

Fair Value Measurement at December 31, 2023

    

Level 1

    

Level 2

    

Level 3

Total

Cash equivalents:

Money market funds

$

91,084

 

$

 

$

$

91,084

Total

$

91,084

 

$

 

$

$

91,084

During the three months ended March 31, 2024, there were no transfers between Level 1, Level 2 and Level 3.

6. Property, plant and equipment, net

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

March 31, 

    

December 31, 

    

2024

    

2023

Land

$

1,976

$

2,025

Leasehold improvements

3,219

3,300

Construction in progress

48

212

Laboratory equipment

 

8,596

 

8,722

Furniture and fixtures

 

638

 

654

Computer equipment and software

 

2,691

 

2,652

Property and equipment, gross

 

17,168

 

17,565

Less: Accumulated depreciation

 

(9,836)

 

(9,823)

Property and equipment, net

$

7,332

$

7,742

7. 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.

Furthermore, the Company participated in the life sciences research and development program provided by the New York State government under which it was entitled to reimbursement of a percentage of qualifying research and development expenses in New York State up to $0.5 million per year for the years 2019 to 2021. The Company also participates in the New York City biotechnology tax credit program, according to which certain expenses for business in

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the biotechnology field in New York City limited to $0.25 million per year for three consecutive years from January 1, 2023 to December 31, 2025 are incentivized.

As of March 31, 2024, the Company recognized receivables of $20.6 million from the research incentive programs, which are reported in receivable research incentive in the Company’s condensed consolidated balance sheet. $19.1 million relate to the Austrian research incentive program, $1.4 million relate to the New York State life sciences research and development program and $0.1 million relate to the New York City biotechnology tax credit program. As of December 31, 2023, the receivables from the research incentive programs were $18.8 million. $17.3 million relate to the Austrian research incentive program, $1.4 million relate to the New York State life sciences research and development program and $0.1 million relate to the New York City biotechnology tax credit program

During each of the three months ended March 31, 2024 and 2023, the Company recorded $2.2 million, of income related to the incentive program within the Company’s condensed consolidated statements of operations and comprehensive loss as part of the grant income related to the Austrian incentive program. Research incentives depend on the eligible research and development expenses of the respective period.

8. Accrued expenses and other current liabilities

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

March 31, 

    

December 31, 

    

2024

    

2023

Salaries and bonuses

 

3,384

 

5,665

Social security contributions

 

785

 

340

Unearned grant income (current)

 

 

52

Sublicense fees

667

Accrued external research and development expenses

3,909

4,594

Accrued external general and administration expenses

444

292

Accrued for property and equipment acquisitions

14

Accrued for restructuring expenses

590

Income taxes

367

367

Other accruals and liabilities

 

784

 

777

$

10,930

$

12,101

9. Loans payable

As of March 31, 2024 and December 31, 2023, loans payable consisted of the following (in thousands):

March 31, 

    

December 31, 

    

2024

    

2023

Loans from FFG

$

1,144

$

1,172

Unamortized debt discount

 

 

(52)

Total loans payable, net

$

1,144

$

1,120

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.

The FFG Loans bear interest at rates that are below market rates of interest. The Company accounted for the imputed benefit arising from the difference between an estimated market rate of interest and the rate of interest charged

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by FFG as grant income from FFG. On the date that FFG loan proceeds are received, the Company recognized 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 was recognized as grant income over the term of the funding agreement.

No principal repayment was made in the three months ended March 31, 2024. A principal repayment of $0.6 million was made in the three months ended March 31, 2023.

As of March 31, 2024, 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

2024 (remaining 9 months)

1,144

2025

2026

2027

2028

Thereafter

Total

$

1,144

The final maturity of the FFG Loans was as of March 31, 2024. The principal repayments are made through direct debit order. The final principal repayment was transferred on April 2, 2024.

10. 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 March 31, 2024, 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, 15,800 of the 10,000,000 authorized shares of preferred stock as non-voting Series A-1 convertible preferred stock and 15,268 of the 10,000,000 authorized shares of preferred stock as non-voting Series A-2 convertible preferred stock. As of March 31, 2024, the Company had 96,550,590 shares of common stock, 2,399,517 shares of Class A common stock, 370 shares of Series A convertible preferred stock, 10,800 shares of Series A-1 convertible preferred stock and 15,268 shares of Series A-2 convertible preferred stock outstanding and issued.

On June 5, 2023, the Company closed a public offering of 22,900,768 shares of its common stock and 15,268 shares of Series A-2 convertible preferred stock at a public offering price of $1.31 and $1,310.00 per share, respectively, for net proceeds of $46.2 million after deducting underwriting discounts and commissions and offering expenses.

On February 15, 2022, the Company entered into a stock purchase agreement with Gilead (“Stock Purchase Agreement”), 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. On December 20, 2023, the parties amended and restated the Stock Purchase Agreement (the “Amended Stock Purchase Agreement”) and Gilead purchased 15,000,000 shares of the Company’s common stock in exchange for approximately $21.3 million in cash at a purchase price per share equal to $1.4167. Pursuant to the terms of the Amended Stock Purchase Agreement, the Company may require Gilead to purchase the balance of the $8.75 million of common stock as pro-rata participation in potential future equity raises. 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

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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.

The Company has three series of preferred stock authorized, issued and outstanding as of March 31, 2024: Series A convertible preferred stock, Series A-1 convertible preferred stock and Series A-2 convertible preferred stock. Shares of Series A, Series A-1 and Series A-2 convertible preferred stock may be independently converted into common stock. Holders of Series A, Series A-1 and Series A-2 convertible preferred stock have equal rights, powers and privileges.

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, Series A-1 and Series A-2 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, Series A-1 and Series A-2 convertible preferred stock has the right to convert each share of Series A, Series A-1 and Series A-2 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, Series A-1 and Series A-2 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, Series A-1 and Series A-2 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, Series A-1 and Series A-2 preferred stock will receive a payment equal to $0.001 per share of Series A, Series A-1 and Series A-2 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.

There were 370 shares of Series A convertible preferred stock, 10,800 shares of Series A-1 convertible preferred stock and 15,268 shares of Series A-2 convertible preferred stock outstanding as of March 31, 2024 and December 31, 2023, respectively. In May 2023 certain of the Company’s stockholders elected to convert an aggregate of 1,327 shares of Series A convertible preferred stock and an aggregate of 5,000 shares of Series A-1 convertible preferred stock owned by such holders into an aggregate of 6,327,000 shares of the Company’s common stock.

11. Stock-based compensation

2018 Stock Option and Grant Plan

In June 2018, the Company’s 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 10th anniversary

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of the grant date. As of March 31, 2024, 782,176 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. As of March 31, 2024, 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 was 12,025,484 shares which shall be cumulatively increased on January 1 of each year by up to 4.0% of the then outstanding number of shares of common stock and Class A common stock. 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 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 10th 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.

On August 7, 2023, the Company’s board of directors approved a one-time offer to eligible non-executive, non-director employees to exchange certain outstanding stock options for new stock options with modified terms. Under the stock option exchange program (the “Offer”), the Company offered to exchange certain out-of-the-money stock options for new stock options at an exchange ratio of between 1.75 and 2.50 surrendered options for one new option exercisable for shares of common stock with a lower exercise price and extended vesting terms. Pursuant to the Offer, a total of 82 eligible participants tendered, and the Company accepted for cancellation, stock options to purchase an aggregate of 543,228 shares of the Company’s common stock with exercise prices between $6.90 and $14.00. The eligible options that were accepted for cancellation represented approximately 86.6% of the total shares of common stock underlying all of the eligible options. In accordance with the terms and conditions of the Offer, on September 12, 2023, the Company issued new options to purchase an aggregate of 274,485 shares of common stock in exchange for the cancellation of the tendered eligible options. The exercise price per share of each new option granted in the Offer is $1.00. New options issued for previously vested stock options vest on the first anniversary of the grant date and new options issued for previously unvested stock options vest over a three-year term in twelve equal quarterly installments. The stock option exchange offer resulted in incremental stock-based compensation expense of $0.1 million, which will be recognized using the graded-vesting method over the remaining requisite service period of the new stock options.

2023 Inducement Plan

On April 7, 2023, the Company’s board of directors adopted the Company’s 2023 Inducement Plan (the “2023 Inducement Plan”) pursuant to which the Company reserved 500,000 shares of common stock for issuance under the 2023 Inducement Plan. The 2023 Inducement Plan provides for the grant of non-statutory stock options to eligible individuals. In accordance with Nasdaq Marketplace Rule 5635(c)(4), awards under the 2023 Inducement Plan may only be made to individuals not previously employees or directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company. Awards granted under the 2023 Inducement Plan must be approved by either a majority of the Company’s independent directors or the compensation committee of the Company’s board of directors. As of March 31, 2024, the Company had 300,000 shares of its common stock available for future issuance under the 2023 Inducement Plan.

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The following table presents a summary of awards outstanding:

As of March 31, 2024

    

2018 Plan

    

2019 Plan

    

Inducement Awards

    

Total

Granted and outstanding awards:

Stock options

 

782,176

 

6,375,896

200,000

 

7,358,072

Total

 

782,176

 

6,375,896

200,000

 

7,358,072

Stock option activity

The following table summarizes the Company’s stock option activity since January 1, 2024 (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, 2023

 

8,111,575

$

4.28

 

7.4

$

486

Granted

 

 

 

 

Exercised

 

 

 

 

Forfeited

 

(753,503)

 

1.50

 

 

Outstanding as of March 31, 2024

 

7,358,072

$

4.56

 

7.0

$

419

Options exercisable as of March 31, 2024

 

4,650,138

$

6.26

 

6.2

$

419

Options unvested as of March 31, 2024

 

2,707,934

$

1.64

 

8.5

$

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 March 31, 2024 and December 31, 2023, was $0.71 and $0.81, respectively.

No cash was received from stock option exercise under share-based payment arrangements for the three months ended March 31, 2024. Cash received from stock option exercises under share-based payment arrangements for the three months ended March 31, 2023 was $1 thousand.

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 March 31, 

    

2024

    

2023

Research and development expenses(1)

$

(153)

$

240

General and administrative expenses(1)

 

(96)

 

418

$

(249)

$

658

(1) The negative stock-based compensation expense for the three months ended March 31, 2024 for Research and development expenses as well as General and administrative expenses was due to forfeitures.

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12. Income taxes

Income tax expense during the three months ended March 31, 2024 and March 31, 2023 resulted from minimum tax obligations in Austria, and U.S. federal and state income tax as well as minimum tax obligations in Austria, respectively. During the three months ended March 31, 2024, the Company recorded no income taxes for the net operating income incurred due to the Company’s history of losses. During the three months ended March 31, 2023, 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 March 31, 2024 and December 31, 2023. Management reevaluates the positive and negative evidence at each reporting period.

13. 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 $0.2 million to secure letters