hook_Current_Folio_10Q_Taxonomy2019

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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, 2019

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 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 12, 2019, the registrant had 21,588,756 shares of common stock and 3,819,732 shares of Class A common stock outstanding, each $0.0001 par value per share.

 

 

 

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FORWARD-LOOKING STATEMENTS

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

·

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

·

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

·

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

·

our manufacturing, commercialization and marketing capabilities and strategy;

·

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

·

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

·

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our VaxWave and TheraT 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, technologies and our industry and the success of competing therapies that are or may become available;

·

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

·

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

·

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

·

our expectations about market trends; and

 

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·

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

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

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

 

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Page

 

 

 

PART I. 

FINANCIAL INFORMATION

1

Item 1. 

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

2

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2019 and 2018

3

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2. 

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

23

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4. 

Controls and Procedures

35

 

 

 

PART II. 

OTHER INFORMATION

37

Item 1. 

Legal Proceedings

37

Item 1A. 

Risk Factors

37

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3. 

Defaults Upon Senior Securities

37

Item 4. 

Mine Safety Disclosures

37

Item 5. 

Other Information

37

Item 6. 

Exhibits

38

Signatures 

39

 

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1.      Financial Statements.

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

 

 

 

 

 

 

 

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

123,690

 

$

48,580

Accounts receivable

 

 

1,266

 

 

4,919

Prepaid expenses and other current assets

 

 

11,430

 

 

8,812

Total current assets

 

 

136,386

 

 

62,311

Non-current assets:

 

 

  

 

 

  

Restricted cash

 

 

320

 

 

 —

Property and equipment, net

 

 

4,607

 

 

4,337

Operating lease assets

 

 

8,127

 

 

 —

Other non-current assets

 

 

2,597

 

 

1,603

Total non-current assets

 

 

15,651

 

 

5,940

 

 

 

 

 

 

 

Total assets

 

$

152,037

 

$

68,251

 

 

 

 

 

 

 

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

3,488

 

$

3,656

Deferred revenues

 

 

4,239

 

 

6,619

Accrued expenses and other current liabilities

 

 

5,227

 

 

4,420

Total current liabilities

 

 

12,954

 

 

14,695

Non-current liabilities

 

 

  

 

 

  

Loans payable, non-current

 

 

4,766

 

 

4,392

Operating lease liabilities, non-current

 

 

5,558

 

 

 —

Deferred revenues, non-current

 

 

377

 

 

1,663

Other non-current liabilities

 

 

2,625

 

 

3,102

Total non-current liabilities

 

 

13,326

 

 

9,157

Total liabilities

 

 

26,280

 

 

23,852

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

  

 

 

  

Redeemable convertible preferred stock (series A, B, C and D), $0.0001 par value; 0 and 1,323,506 shares authorized, issued and outstanding at September 30, 2019 and December 31, 2018, respectively; aggregate liquidation preference of $0.0 million and $99.7 million at September 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

104,774

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

  

 

 

  

Common stock, $0.0001 par value; 100,000,000 and 18,454,860 shares authorized at September 30, 2019 and December 31, 2018, respectively; 21,588,756 shares and 1,006,595 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

 3

 

 

 0

Class A common stock, $0.0001 par value; 3,900,000 and 0 shares authorized at September 30, 2019 and December 31, 2018, respectively; 3,819,732 and 0 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

 0

 

 

 —

Undesignated preferred stock, $0.0001 par value; 10,000,000 shares and 0 shares authorized at September 30, 2019 and December 31, 2018, respectively; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Additional paid-in capital

 

 

223,448

 

 

3,327

Accumulated other comprehensive loss

 

 

(4,919)

 

 

(3,720)

Accumulated deficit

 

 

(92,775)

 

 

(59,982)

Total stockholders’ equity (deficit)

 

 

125,757

 

 

(60,375)

 

 

 

 

 

 

 

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

152,037

 

$

68,251

 

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, 

 

 

2019

    

2018

 

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from collaboration and licensing

 

$

2,038

 

$

1,900

 

$

8,324

 

$

2,549

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Research and development

 

 

(11,025)

 

 

(6,170)

 

 

(35,133)

 

 

(17,350)

General and administrative

 

 

(4,589)

 

 

(1,282)

 

 

(11,051)

 

 

(4,175)

Total operating expenses

 

 

(15,614)

 

 

(7,452)

 

 

(46,184)

 

 

(21,525)

Loss from operations

 

 

(13,576)

 

 

(5,552)

 

 

(37,860)

 

 

(18,976)

Other income (expense):

 

 

  

 

 

  

 

 

  

 

 

  

Grant income

 

$

1,258

 

$

1,762

 

$

3,994

 

$

5,217

Interest income

 

 

565

 

 

 —

 

 

1,140

 

 

 0

Interest expense

 

 

(227)

 

 

(194)

 

 

(650)

 

 

(578)

Other income and expenses, net

 

 

604

 

 

33

 

 

692

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income, net

 

 

2,200

 

 

1,601

 

 

5,176

 

 

4,658

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss before tax

 

 

(11,376)

 

 

(3,951)

 

 

(32,684)

 

 

(14,318)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(9)

 

 

(2)

 

 

(109)

 

 

(27)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(11,385)

 

 

(3,953)

 

 

(32,793)

 

 

(14,345)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

  

 

 

  

 

 

  

 

 

  

Foreign currency translation loss, net of tax

 

 

(763)

 

 

(243)

 

 

(1,198)

 

 

(1,722)

Comprehensive loss

 

$

(12,148)

 

$

(4,196)

 

$

(33,991)

 

$

(16,067)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share — basic and diluted

 

$

(0.45)

 

$

(4.34)

 

$

(2.14)

 

$

(15.73)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — basic and diluted

 

 

25,408,488

 

 

911,777

 

 

15,308,071

 

 

911,777

 

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 REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (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

  

Income (Loss)

  

Deficit

  

Equity (Deficit)

Balance as of December 31, 2018

 

1,323,506

 

$

104,774

 

 

1,006,595

 

$

 —

 

 

$

 

$

3,327

 

$

(3,720)

 

$

(59,982)

 

$

(60,375)

Issuance of Series D preferred stock, net of issuance costs of $158

 

257,000

 

 

37,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(736)

 

 

 

 

(736)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

383

 

 

 

 

 

 

383

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,329)

 

 

(9,329)

Balance as of March 31, 2019

 

1,580,506

 

$

142,048

 

 

1,006,595

 

$

 —

 

 —

 

$

 —

 

$

3,710

 

$

(4,456)

 

$

(69,311)

 

$

(70,057)

Issuance of common stock upon initial public offering at $14.00 per share for cash, net of issuance costs of $9,386

 

 

 

 

 

6,000,000

 

 

 1

 

 

 

 

 

74,614

 

 

 

 

 

 

74,615

Conversion of Series A, B, C and D preferred stock into common stock upon initial public offering

 

(1,580,506)

 

 

(142,048)

 

 

14,582,161

 

 

 2

 

3,819,732

 

 

 —

 

 

142,046

 

 

 

 

 

 

142,048

Foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300

 

 

 

 

300

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

1,206

 

 

 

 

 

 

1,206

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,079)

 

 

(12,079)

Balance as of June 30, 2019

 

 —

 

$

 —

 

 

21,588,756

 

$

 3

 

3,819,732

 

$

 —

 

$

221,576

 

$

(4,156)

 

$

(81,390)

 

$

136,033

Foreign currency translation adjustment, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(763)

 

 

 —

 

 

(763)

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,872

 

 

 —

 

 

 —

 

 

1,872

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,385)

 

 

(11,385)

Balance as of September 30, 2019

 

 —

 

$

 —

 

 

21,588,756

 

$

 3

 

3,819,732

 

$

 —

 

$

223,448

 

$

(4,919)

 

$

(92,775)

 

$

125,757

 

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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

  

Income (Loss)

  

Deficit

  

Equity (Deficit)

Balances as of December 31, 2017

 

1,323,506

 

$

104,774

 

 

911,777

 

$

 —

 

 

$

 

$

2,451

 

$

(1,362)

 

$

(43,745)

 

$

(42,656)

Foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,539

 

 

 

 

1,539

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

206

 

 

 

 

 

 

206

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,573)

 

 

(4,573)

Balance as of March 31, 2018

 

1,323,506

 

$

104,774

 

 

911,777

 

$

 —

 

 —

 

$

 —

 

$

2,657

 

$

177

 

$

(48,318)

 

$

(45,484)

Foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,018)

 

 

 

 

(3,018)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

206

 

 

 

 

 

 

206

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,819)

 

 

(5,819)

Balance as of June 30, 2018

 

1,323,506

 

$

104,774

 

 

911,777

 

$

 —

 

 —

 

$

 —

 

$

2,863

 

$

(2,841)

 

$

(54,137)

 

$

(54,115)

Foreign currency translation adjustment, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(243)

 

 

 —

 

 

(243)

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

205

 

 

 —

 

 

 —

 

 

205

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,953)

 

 

(3,953)

Balance as of September 30, 2018

 

1,323,506

 

$

104,774

 

 

911,777

 

$

 —

 

 —

 

$

 —

 

$

3,068

 

$

(3,084)

 

$

(58,090)

 

$

(58,106)

 

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, 

 

    

2019

    

2018

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(32,793)

 

$

(14,345)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

3,461

 

 

617

Depreciation expense

 

 

2,171

 

 

462

Other non-cash items

 

 

51

 

 

(1)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

1,499

 

 

(613)

Prepaid expenses and other current assets

 

 

(4,439)

 

 

(3,584)

Other non-current assets

 

 

582

 

 

(15)

Accounts payable

 

 

1,645

 

 

(447)

Deferred revenues

 

 

(3,365)

 

 

8,638

Accrued expenses and other liabilities

 

 

(1,750)

 

 

666

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(32,938)

 

 

(8,622)

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(953)

 

 

(1,900)

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(953)

 

 

(1,900)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Payments related to finance leases

 

 

(1,383)

 

 

 —

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

 

 

37,274

 

 

6,439

Proceeds from issuance of common stock, net of issuance costs

 

 

74,743

 

 

 —

Proceeds from borrowings

 

 

 —

 

 

428

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

110,634

 

 

6,867

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

76,743

 

 

(3,655)

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

48,580

 

 

61,362

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

 

 

(1,313)

 

 

(1,915)

Cash, cash equivalents and restricted cash at end of period

 

$

124,010

 

$

55,792

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

(32)

 

$

(39)

Cash paid for income taxes

 

$

(109)

 

$

(26)

 

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

 

 

5

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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 targeting infectious diseases and cancers 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 accompanying condensed consolidated balance sheets as of September 30, 2019, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and 2018, the condensed consolidated statement of redeemable convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2019 and 2018 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 are unaudited.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements, except for the accounting of lease agreements that have been reported in accordance with ASC 842 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 consolidated financial statements as of and for the year ended December 31, 2018, which are included in the Company’s prospectus related to the Company’s IPO, filed April 19, 2019 (File No. 333-230451) with the Securities and Exchange Commission (“SEC”), pursuant to Rule 424 (b) under the Securities Act of 1933, as amended. 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)

Stock split

On April 5, 2019, the Company effected a 11.643‑for-one stock split of its issued and outstanding shares of common stock. The par value of the common stock was not adjusted as a result of the split. All issued and outstanding share and per share amounts of common stock and options included in the accompanying condensed consolidated financial statements have been adjusted to reflect this stock split for all periods presented. The conversion ratios for each series of the Company’s redeemable convertible preferred stock (see Note 8) have been adjusted proportionally.

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, 2019, the Company has funded its operations with proceeds from sales of common stock in the IPO, 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 $32.8 million and $14.3 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, the Company had an accumulated deficit of $92.8 million. The Company expects to continue to generate operating losses in the foreseeable future. As of November 12, 2019, the filing date of this Quarterly Report on Form 10‑Q, the Company expected that its cash and cash equivalents would 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 will 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, the valuation of common and preferred stock, the valuation of stock-based awards and the valuation of liabilities. 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. Actual results may differ from those estimates or assumptions.

7

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HOOKIPA PHARMA INC.

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

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. The net proceeds from the Company’s offerings in the nine months ended September 30, 2019 have been deposited in interest-bearing bank accounts with investment grade US financial institutions and have been partially invested in a money market fund.  The money market fund, held in U.S. dollar, is primarily invested in U.S. and foreign short-term debt obligations. As of December 31, 2018 and September 30, 2019, the Company’s cash and cash equivalents included smaller amounts of cash balances held in accounts with European banks at our 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.

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, 2019 cash equivalents consisted of money market funds. As of December 31, 2018, the Company had no cash equivalents.

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 in prepaid expenses and other current assets 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 generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations and comprehensive loss. Total offering costs of $9.4 million recorded in stockholders’ equity in the nine month ended September 30, 2019 included $1.4 million of cost incurred in previous periods, which were initially recorded as deferred offering costs as of December 31, 2018.

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 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 (1)

 

5 years

Laboratory equipment

 

3 - 10 years

Furniture and fixtures

 

3 - 10 years

Computer equipment and software

 

3 - 4 years


(1)

In the course of the application of ASC 842, the economic useful lives of the leasehold improvements were adjusted to the lease terms.

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.

Redeemable convertible preferred stock

Upon the closing of the Company’s IPO on April 23, 2019, the Company’s outstanding redeemable convertible preferred stock automatically converted into shares of common stock or Class A common stock. Prior to the conversion, the Company has applied the guidance in ASC 48010S993A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities and had therefore classified the Series A, Series B, Series C and Series D redeemable convertible preferred stock as mezzanine equity. The redeemable convertible preferred stock was recorded outside of stockholders’ equity because, in the event of certain deemed liquidation events considered not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially all of the Company’s assets, the convertible preferred stock would have become redeemable at the option of the holders. In the event of a change of control of the Company, proceeds received from the sale of such shares would have been distributed in accordance with the liquidation preferences set forth in the Company’s Preferred Stock agreements. The Company has determined not to adjust the carrying values of the redeemable convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such an event would occur.

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 February 2016, the FASB issued ASU No. 2016‑02, Leases (Topic 842) ("ASU 2016‑02"), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

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HOOKIPA PHARMA INC.

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

This classification will determine whether cost of the lease is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

The FASB subsequently issued the following amendments to ASU 2016‑02 that have the same effective date and transition date: ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, ASU No. 2018‑10, Codification Improvements to Topic 842, Leases, ASU No. 2018‑11, Leases (Topic 842): Targeted Improvements, ASU No. 2018‑20, Narrow-Scope Improvement for Lessors, and ASU No. 2019‑01, Leases (Topic 842): Codification Improvements. The Company adopted these amendments with ASU 2016‑02 (collectively, the new leasing standards) effective January 1, 2019. The new leasing standards were adopted using the modified retrospective transition approach, as of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings. Upon adoption, the Company elected the package of transition practical expedients, which allowed the Company to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. The Company also elected the practical expedient to not reassess certain land easements, elected to use hindsight in determining the lease term and made an accounting policy election to not recognize leases with an initial term of 12 months or less within the condensed consolidated balance sheets and to recognize those lease payments on a straight-line basis in the condensed consolidated statements of operations over the lease term. Upon adoption of the new leasing standards an operating lease asset of $3.3 million and a corresponding operating lease liability of $3.3 million were recorded in the condensed consolidated balance sheets. The adoption of the new leasing standards did not have an impact on the Company’s condensed consolidated statements of operations.

The determination whether an arrangement was qualified as a lease was made at contract inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and 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 operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized as operating lease assets on the condensed consolidated balance sheets. In addition, certain of the Company’s arrangements contain lease and non-lease components. The Company elected to generally separate lease payments from non-lease payments but applied an accounting choice to not separate lease payments from certain non-lease payments for its office and laboratory space leases and its car leases. Operating leases are reflected in operating lease assets, in accrued expenses and other current liabilities and in non-current operating lease liabilities in the condensed consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

In July 2017, the FASB issued ASU No. 2017‑11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception ("ASU 2018‑11"). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. For public entities, this guidance is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2017‑11 as of

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HOOKIPA PHARMA INC.

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

January 1, 2019. The adoption of this ASU did not have a material impact on its consolidated loss from operations or cash flows.

Recently Issued Accounting Pronouncements

In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements

In August 2018, the FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018‑13”). The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2018‑13 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018‑15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact that the adoption of ASU 2018‑15 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard modifies the impairment model for most financial assets, including trade accounts receivables and loans, and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The effective date of the standard is for fiscal years beginning after December 15, 2019 with early adoption permitted. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses, to allow entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. The new effective dates and transition align with those of ASU 2016-13. The Company is currently evaluating the potential impact of the adoption of these updates on its consolidated financial statements.

 

 

 

3. Collaboration and Licensing Agreements

Gilead Collaboration and License Agreement

In June 2018, the Company has entered into a collaboration and license agreement (the “Gilead Agreement”) with Gilead Sciences, Inc. (“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).

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HOOKIPA PHARMA INC.

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

Under the Gilead Agreement, the Company granted Gilead an exclusive, royalty-bearing license to the Company’s technology platforms. In June 2018, the Company has received a non-refundable $10.0 million upfront payment from Gilead of which $1.1 million and $3.4 million, respectively was recorded as revenue from collaboration and licensing in the three months and nine months ended September 30, 2019 and $3.6 million was included as a liability in deferred revenues, current and non-current, as of September 30, 2019. Approximately 66% of the upfront payment included in deferred revenue as of September 30, 2019 is expected to be recognized in the remainder of 2019, 32% in 2020 and the remaining 2% in 2021. 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 a total of $280 million. The commercial milestones amount to a total of $100 million. Additionally, Gilead is obligated to pay royalties on net sales for each program. All payments from Gilead have a 60 days payment term. In addition to the $1.1 million recognition of the upfront payment, the Company recognized $0.9 million revenue from cost reimbursements for research and development services in the three months ended September 30, 2019. In the nine months ended September 30, 2019, the Company recognized $2.9 million revenue from cost reimbursements for research and development services and $2.0 million in milestone payments. For the three and nine months ended September 30, 2018, revenue from reimbursement of research and development expenses was $0.7 and $0.9 million, respectively, and revenue from partial recognition of the upfront payment was $1.2 million and $1.6 million, respectively.

Sublicense fees payable to certain licensors of technologies upon the receipt of the non-refundable upfront payment, 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 September 30, 2019 and December 31, 2018, the contract asset relating to the sublicense payment was $0.4 million.

 

 

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, 2019 Using

 

    

Level 1

    

Level 2

    

Level 3

 

Total

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,000

 

$

 —

 

$

 —

 

$

35,000

Total

 

$

35,000

 

$

 —

 

$

 —

 

$

35,000

 

The Company did not have any money market funds as of December 31, 2018.

During the nine months ended September 30, 2019, there were no transfers between Level 1, Level 2 and Level 3.

 

5. 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’s leases have remaining lease terms

12

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HOOKIPA PHARMA INC.

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

ranging from 2 years to 5 years. Some of the lease agreements contain rent holidays and rent escalation clauses that were included in the calculation of the right of use assets and lease liabilities. The Company is required to maintain a cash balance of $0.3 million to secure a letter of credit associated with a real estate lease. This amount was classified as non-current restricted cash in the consolidated balance sheet as of September 30, 2019. 

Certain of the Company’s leases qualify as operating leases, and certain of its leases qualify as finance leases. The following table summarizes the presentation in the condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

    

 

    

September 30, 

 

 

Balance sheet location

 

2019

Assets

 

  

 

 

  

Operating lease assets

 

Operating lease assets

 

$

8,127

Finance lease assets

 

Other non-current assets

 

 

1,631

Total lease assets

 

  

 

 

9,758

Liabilities

 

  

 

 

  

Current operating lease liability

 

Accrued expenses and other current liabilities

 

 

1,744

Current finance lease liability

 

Accrued expenses and other current liabilities

 

 

141

Total current lease liabilities

 

 

 

 

1,885

Non-current operating lease liability

 

Operating lease liabilities, non-current

 

 

5,558

Non-current finance lease liability

 

Other non-current liabilities

 

 

382

Total non-current lease liabilities

 

  

 

 

5,940

Total lease liabilities