hook_Current_Folio_10Q_Taxonomy2019

Table of Contents

 

 

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, 2020

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 May 14, 2020, the registrant had 21,824,990 shares of common stock and 3,819,732 shares of Class A common stock outstanding, each $0.0001 par value per share.

 

 

 

Table of Contents

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;

·

potential impacts due to the coronavirus pandemic such as delays, interruptions or other adverse effects to clinical trials, delays in regulatory review, manufacturing and supply chain interruptions, adverse effects on healthcare systems and disruption of the global economy, and the overall impact of the coronavirus pandemic on our business, financial condition and results of operations;

·

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;

 

Table of Contents

·

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

·

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.

 

Table of Contents

Table of Contents

 

 

 

Page

 

 

 

PART I. 

FINANCIAL INFORMATION

1

Item 1. 

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

2

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2020 and 2019

3

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2. 

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

22

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. 

Controls and Procedures

34

 

 

 

PART II. 

OTHER INFORMATION

36

Item 1. 

Legal Proceedings

36

Item 1A. 

Risk Factors

36

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3. 

Defaults Upon Senior Securities

38

Item 4. 

Mine Safety Disclosures

38

Item 5. 

Other Information

38

Item 6. 

Exhibits

39

Signatures 

40

 

 

 

 

Table of Contents

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, 

 

 

2020

 

2019

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

104,454

 

$

113,151

Accounts receivable

 

 

2,811

 

 

1,537

Receivable research incentives

 

 

9,296

 

 

8,190

Prepaid expenses and other current assets

 

 

4,155

 

 

5,139

Total current assets

 

 

120,716

 

 

128,017

Non-current assets:

 

 

  

 

 

  

Restricted cash

 

 

423

 

 

424

Property and equipment, net

 

 

5,429

 

 

5,126

Operating lease right of use assets

 

 

7,286

 

 

7,875

Finance lease right of use assets

 

 

1,471

 

 

1,602

Other non-current assets

 

 

642

 

 

701

Total non-current assets

 

 

15,251

 

 

15,728

 

 

 

 

 

 

 

Total assets

 

$

135,967

 

$

143,745

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

4,044

 

$

944

Deferred revenues

 

 

5,360

 

 

3,591

Operating lease liabilities, current

 

 

1,798

 

 

1,814

Accrued expenses and other current liabilities

 

 

4,183

 

 

8,406

Total current liabilities

 

 

15,385

 

 

14,755

Non-current liabilities

 

 

  

 

 

  

Loans payable, non-current

 

 

3,586

 

 

3,495

Operating lease liabilities, non-current

 

 

4,799

 

 

5,290

Deferred revenues, non-current

 

 

1,254

 

 

72

Other non-current liabilities

 

 

1,961

 

 

2,234

Total non-current liabilities

 

 

11,600

 

 

11,091

Total liabilities

 

 

26,985

 

 

25,846

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

  

 

 

  

Common stock, $0.0001 par value; 100,000,000 shares authorized at March 31, 2020 and December 31, 2019, respectively; 21,824,990 shares and 21,746,392 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

 3

 

 

 3

Class A common stock, $0.0001 par value; 3,900,000 shares authorized at March 31, 2020 and December 31, 2019, respectively; 3,819,732 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

 0

 

 

 0

Additional paid-in capital

 

 

227,670

 

 

225,568

Accumulated other comprehensive loss

 

 

(4,746)

 

 

(4,653)

Accumulated deficit

 

 

(113,945)

 

 

(103,019)

Total stockholders’ equity (deficit)

 

 

108,982

 

 

117,899

 

 

 

 

 

 

 

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

 

$

135,967

 

$

143,745

 

 

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

1

Table of Contents

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

    

Three months ended March 31, 

 

 

2020

    

2019

Revenue from collaboration and licensing

 

$

3,696

 

$

2,235

Operating expenses:

 

 

  

 

 

  

Research and development

 

 

(11,526)

 

 

(10,179)

General and administrative

 

 

(4,629)

 

 

(2,711)

Total operating expenses

 

 

(16,155)

 

 

(12,890)

Loss from operations

 

 

(12,459)

 

 

(10,655)

Other income (expense):

 

 

  

 

 

  

Grant income

 

$

1,472

 

$

1,192

Interest income

 

 

312

 

 

64

Interest expense

 

 

(227)

 

 

(213)

Other income and expenses, net

 

 

(24)

 

 

283

 

 

 

 

 

 

 

Total other income, net

 

 

1,533

 

 

1,326

 

 

 

 

 

 

 

Net loss before tax

 

 

(10,926)

 

 

(9,329)

 

 

 

 

 

 

 

Income tax expense

 

 

(0)

 

 

(0)

 

 

 

 

 

 

 

Net loss

 

 

(10,926)

 

 

(9,329)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

  

 

 

  

Foreign currency translation gain (loss), net of tax

 

 

(93)

 

 

(736)

Comprehensive loss

 

$

(11,019)

 

$

(10,065)

 

 

 

 

 

 

 

Net loss per share — basic and diluted

 

$

(0.43)

 

$

(9.27)

 

 

 

 

 

 

 

Weighted average common shares outstanding — basic and diluted

 

 

25,630,007

 

 

1,006,595

 

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

 

 

2

Table of Contents

HOOKIPA PHARMA INC.

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

Balances as of December 31, 2019

 

 —

 

 

 —

 

 

21,746,392

 

 

 3

 

3,819,732

 

 

 0

 

 

225,568

 

 

(4,653)

 

 

(103,019)

 

 

117,899

Issuance of common stock upon exercise of stock options

 

 —

 

 

 —

 

 

78,598

 

 

 0

 

 —

 

 

 —

 

 

 8

 

 

 —

 

 

 —

 

 

 8

Foreign currency translation adjustment, net of tax

 

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 —

 

 

(93)

 

 

 —

 

 

(93)

Stock-based compensation expense

 

 

 

 —

 

 

 

 

 —

 

 

 

 

 

2,094

 

 

 —

 

 

 —

 

 

2,094

Net loss

 

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 —

 

 

 —

 

 

(10,926)

 

 

(10,926)

Balances as of March 31, 2020

 

 —

 

 

 —

 

 

21,824,990

 

 

 3

 

3,819,732

 

 

 0

 

 

227,670

 

 

(4,746)

 

 

(113,945)

 

 

108,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2018

 

1,323,506

 

$

104,774

 

 

1,006,595

 

$

 0

 

 

$

 

$

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)

Balances as of March 31, 2019

 

1,580,506

 

$

142,048

 

 

1,006,595

 

$

 0

 

 —

 

$

 —

 

$

3,710

 

$

(4,456)

 

$

(69,311)

 

$

(70,057)

 

 

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

 

 

3

Table of Contents

HOOKIPA PHARMA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

 

 

 

 

 

 

Three months ended March 31, 

 

    

2020

    

2019

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(10,926)

 

$

(9,329)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,094

 

 

383

Depreciation expense

 

 

409

 

 

297

Non-cash operating lease expense

 

 

494

 

 

269

Other non-cash items

 

 

44

 

 

54

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,292)

 

 

3,509

Prepaid expenses and other current assets

 

 

(361)

 

 

(3,711)

Other non-current assets

 

 

45

 

 

(192)

Accounts payable

 

 

2,644

 

 

(958)

Deferred revenues

 

 

3,020

 

 

(935)

Operating lease liabilities

 

 

(428)

 

 

(1,227)

Accrued expenses and other liabilities

 

 

(2,871)

 

 

(216)

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(7,128)

 

 

(12,056)

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(199)

 

 

(400)

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(199)

 

 

(400)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Payments related to finance leases

 

 

(36)

 

 

(1,395)

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

 

 

 —

 

 

37,274

Proceeds from issuance of common stock, net of issuance costs

 

 

 8

 

 

 

Payments for deferred offering costs

 

 

 —

 

 

(722)

Repayments of borrowings

 

 

(1,256)

 

 

 —

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(1,284)

 

 

35,157

 

 

 

 

 

 

 

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

 

 

(8,611)

 

 

22,701

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

113,575

 

 

48,580

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

 

 

(87)

 

 

(773)

Cash, cash equivalents and restricted cash at end of period

 

$

104,877

 

$

70,508

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

(2)

 

$

 —

Cash paid for income taxes

 

$

(0)

 

$

(0)

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

Property and equipment additions in accounts payable and accrued expenses

 

$

(539)

 

 

(153)

 

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 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 sheet as of March 31, 2020, the condensed consolidated statements of operations, and comprehensive loss for the three months ended March 31, 2020 and 2019, the condensed consolidated statement of redeemable convertible preferred stock and stockholders’ deficit for the three months ended March 31, 2020 and 2019 and the condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 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, 2019 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission. The results for any interim period are not necessarily indicative of results for any future period. Certain previous year amounts have been reclassified to conform to the current year presentation.

5

Table of Contents

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, 2020, 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 $10.9 million for the three months ended March 31, 2020 and $43.0 million for the year ended December 31, 2019. As of March 31, 2020, the Company had an accumulated deficit of $113.9 million. The Company expects to continue to generate operating losses in the foreseeable future. As of May 14, 2020, 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 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 present value of lease right of use assets and corresponding liabilities, 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.

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 have been deposited in interest-bearing bank accounts with investment grade US financial institutions and have been partially invested in a money market fund as of March 31, 2020. 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, 2019 and March 31, 2020, the Company’s cash and cash equivalents included smaller amounts of cash balances held in

6

Table of Contents

HOOKIPA PHARMA INC.

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

accounts with European banks at the Company’s Austrian subsidiary, partially in euros. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

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

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 December 31, 2019 and March 31, 2020, cash equivalents consisted of money market funds.

Fair value measurements

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

·

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

·

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

·

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

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

Property and equipment

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

 

 

 

 

 

    

Estimated useful life

Leasehold improvements

 

5 years

Laboratory equipment

 

3 - 10 years

Furniture and fixtures

 

3 - 10 years

Computer equipment and software

 

3 - 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.

7

Table of Contents

HOOKIPA PHARMA INC.

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

Leases

The determination whether an arrangement qualifies as a lease is 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 consolidated balance sheets. In addition, certain of the Company’s arrangements contain lease and non-lease components. The Company generally separate lease payments from non-lease payments. Operating leases are reflected in operating lease assets, in accrued expenses and other current liabilities and in non-current operating lease liabilities in the consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The right-of-use asset is tested for impairment in accordance with ASC 360.

Revenue recognition from contracts with customers

The Company 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). The Company’s performance obligations under the terms of this 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 licenses do not represent distinct performance obligations, because they cannot be used without the research and development services. Payments to the Company under this agreement include a non-refundable up-front payment, payments for research and development activities, payments based upon the achievement of defined milestones, and if certain future conditions are met, payments for manufacturing services, commercial milestones and royalties on product sales.

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

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

Upfront payment

The non-refundable upfront-payment received by the Company under the Gilead agreement is 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

8

Table of Contents

HOOKIPA PHARMA INC.

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

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.

Reimbursement for services

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

Research and development milestones

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

Sales-based milestones and royalty payments

The Gilead Agreement also includes certain sales-based milestone and royalty payments upon successful commercialization of a licensed product. In accordance with ASC 606-10-55-65, 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 the collaboration and licensing agreement. These costs are recognized as research and development expenses over the period in which services are performed. Sublicense fees triggered by the receipt of payments are capitalized as an asset when the obligation to pay the fee arises. The capitalized asset is amortized over the period in which the revenue from the triggering payment is recognized.

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 480‑10‑S99‑3A, 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

9

Table of Contents

HOOKIPA PHARMA INC.

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

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 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 standard became effective for the Company beginning on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses which was clarified and amended by the issuances of ASUs 2018-19, 2019-04, 2019-05 and 2019-11 in November 2018, April 2019, May 2019 and November 2019, respectively. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis are measured using an expected-loss model, replacing the current incurred-loss model, and recorded through an allowance for credit losses. The guidance also establishes a new impairment model for available-for-sale debt securities. The Company adopted the new standard and the related amendments on January 1, 2020, on a modified retrospective basis, to the accounts receivable, contract asset balances and cash equivalents as of January 1, 2020. Under the current expected credit loss model, the Company adopted a provision matrix approach, utilizing historical loss rates based on the number of days past due, adjusted to reflect current economic conditions and forecasts of future economic conditions. The Company has never experienced a credit loss on its accounts receivable, contract assets or on the principal or interest receivable of its cash equivalents. Accordingly, the effect of the adoption on the financial statement line items of accounts receivable, contract assets and cash equivalents was not material as of January 1, 2020. As a result of the adoption, the cumulative-effect adjustment to reflect the incremental estimated lifetime expected credit losses on the accounts receivable balance as of January 1, 2020 is immaterial. Therefore, the Company recognized no cumulative-effect adjustment within retained earnings on its condensed consolidated balance sheet as of January 1, 2020. The Company has not presented the amortized cost basis within each credit quality indicator by year of origination as all of its accounts receivable are due within one year or less.

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 adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the

10

Table of Contents

HOOKIPA PHARMA INC.

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

FASB’s revenue standard, Topic 606. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which eliminates certain exceptions related to the general principles in ASC 740 and makes amendments to other areas with the intention of simplifying various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of these updates on its consolidated financial statements.

 

In March 2020, the FASB issued guidance which provides optional expedients and exceptions to address the impact of reference rate reform where contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate need to be discontinued. This guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

 

In August 2018, the FASB issued guidance which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. The guidance removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, however believes that the adoption of this guidance will not have a material impact on its consolidated financial statements.

 

 

3. Collaboration and Licensing Agreements

Gilead Collaboration and License Agreement

In June 2018, the Company entered into the Gilead Agreement whereby the Company and Gilead agreed to collaborate with respect to two preclinical research programs to evaluate potential vaccine products for the treatment, cure, diagnosis or prevention of HBV and HIV.

Under the Gilead Agreement, the Company granted Gilead an exclusive, royalty-bearing license to the Company’s technology platforms. Upon entering into the agreement, the Company received a non-refundable $10.0 million upfront payment from Gilead. 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.

The $10.0 million upfront payment received in 2018 and a $4.0 million milestone payment received in the three months ended March 31, 2020 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, 2020, $5.5 million of upfront and milestone payments were included as a liability in deferred revenues, current and non-current. Approximately 68% of deferred revenue as of March 31, 2020 is expected to be recognized as revenue in the remainder of 2020, 28% in 2021 and the remaining 4% in 2022.

In the three months ended March 31, 2020, the Company recognized $0.4 million of the upfront payment and $0.6 million of the $4.0 million milestone payment received in that period. In addition, the Company recognized $2.7 million revenue from cost reimbursements for research and development services in the three months ended

11

Table of Contents

HOOKIPA PHARMA INC.

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

March 31, 2020. For the three months ended March 31, 2019, revenue from reimbursement of research and development expenses was $1.3 million, and revenue from partial recognition of the upfront payment was $0.9 million.

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, 2020 and December 31, 2019, the contract asset and the liability relating to the sublicense payment was $0.3 million and $0.3 million, respectively.

 

4. Fair Value of Financial Assets

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at March 31, 2020 Using

 

    

Level 1

    

Level 2

    

Level 3

 

Total

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,243

 

$

 —

 

$

 —

 

$

35,243

Total

 

$

35,243

 

$

 —

 

$

 —

 

$

35,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at December 31, 2019 Using

 

    

Level 1

    

Level 2

    

Level 3

 

Total

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,132

 

$

 —

 

$

 —

 

$

35,132

Total

 

$

35,132

 

$

 —

 

$

 —

 

$

35,132

 

During the three months ended March 31, 2020, 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 ranging from one year to four 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 $0.4 million to secure letters of credit associated with real estate leases. This amount was classified as non-current restricted cash in the consolidated balance sheet as of March 31, 2020. 

12

Table of Contents

HOOKIPA PHARMA INC.

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

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 (in thousands):

 

 

 

 

 

 

 

 

    

 

    

March 31, 

 

 

Balance sheet location

 

2020

Assets

 

  

 

 

  

Operating lease assets, net

 

Operating lease right of use assets

 

$

7,286

Finance lease assets, net

 

Finance lease right of use assets

 

 

1,471

Total lease assets

 

  

 

 

8,757

Liabilities

 

  

 

 

  

Current operating lease liability

 

Operating lease liabilities, current

 

 

1,798

Current finance lease liability

 

Accrued expenses and other current liabilities

 

 

156

Total current lease liabilities

 

 

 

 

1,954

Non-current operating lease liability

 

Operating lease liabilities, non-current

 

 

4,799

Non-current finance lease liability

 

Other non-current liabilities

 

 

324

Total non-current lease liabilities

 

  

 

 

5,123

Total lease liabilities

 

  

 

$

7,077

 

No lease agreement was terminated in the three months ended March 31, 2020. In the three months ended March 31, 2019 the Company terminated a lease of office space and derecognized the relating right of use asset and the lease liability of $0.2 million.

 

The following table summarizes the effect of lease costs in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

    

Income statement location

    

March 31, 2020

Operating lease expenses

 

Research and development expenses

 

$

395

 

 

General and administrative expenses

 

 

99

Finance lease amortization expenses

 

Research and development expenses

 

 

96

 

 

General and administrative expenses

 

 

 4

Interest on finance lease liabilities

 

Interest expenses

 

 

 2

Sublease income

 

Other income (expense)

 

 

(38)

Net lease expense

 

  

 

$

558

 

The minimum lease payments for the next five years and thereafter are expected to be as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

    

Operating lease

    

Finance lease

    

Total

2020 (remaining nine months)

 

 

1,368

 

 

114

 

 

1,482

2021

 

 

1,801

 

 

135

 

 

1,936

2022

 

 

1,800

 

 

120

 

 

1,920

2023

 

 

1,788

 

 

117

 

 

1,905

2024

 

 

127

 

 

10

 

 

137

Thereafter

 

 

 —

 

 

 —

 

 

 —

Total lease payments

 

 

6,884

 

 

496

 

 

7,380

Less: interest

 

 

287

 

 

16

 

 

303

Present value of lease liabilities

 

$

6,597

 

$

480

 

$

7,077

 

13

Table of Contents

HOOKIPA PHARMA INC.

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

The weighted average remaining lease term and weighted average discount rate of operating leases are as follows:

 

 

 

 

 

 

    

March 31, 

 

 

 

2020

 

Weighted average remaining lease term in years

 

3.8

 

Weighted average discount rate (1)

 

2.3

%


(1) The majority of the contracts are concluded in euros. The discount rate was determined on a currency-equivalent basis.

The weighted average remaining lease term and weighted average discount rate of finance leases are as follows:

 

 

 

 

 

 

    

March 31, 

 

 

 

2020

 

Weighted average remaining lease term in years

 

3.7

 

Weighted average discount rate (1)

 

1.7

%


(1) The contracts are concluded in euros. The discount rate was determined on a currency-equivalent basis.

The Company subleases certain of its leased real estate that it does not currently utilize to a third party. The sublease has a remaining lease terms of 0.9 years without an option to renew and has been qualified as an operating lease. The Company recognizes sublease income in its condensed consolidated statements of operations and comprehensive loss. The Company continued to account for the head lease as it did before sublease commencement.

6. Accrued expenses and other current liabilities

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

 

 

 

 

 

 

 

 

 

 

March 31, 

    

December 31, 

 

    

2020

    

2019

Consulting fees

 

$

813

 

$

724

Salaries and bonuses

 

 

1,688

 

 

2,640

Social security contributions

 

 

156

 

 

177

Unearned grant income (current)

 

 

689

 

 

725

Loans

 

 

 —

 

 

1,224

Invoices not yet received

 

 

619

 

 

2,673

Finance lease liabilities

 

 

156

 

 

159

Other accruals and liabilities

 

 

62

 

 

84

 

 

$

4,183

 

$

8,406

 

 

 

14

Table of Contents

HOOKIPA PHARMA INC.

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

7. Loans payable

As of March 31, 2020 and December 31, 2019, loans payable consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 

    

December 31, 

 

    

2020

    

2019

Loans from FFG

 

$

5,912

 

$

7,305

Unamortized debt discount

 

 

(2,326)

 

 

(2,586)

Total Loans payable, net

 

$

3,586

 

$

4,719

Note: The short-term portion of the loans is included in other current liabilities.

In connection with the funding agreements with the Austrian Research Promotion Agency, (Österreichische Forschungsförderungsgesellschaft, or “FFG”), the Company has received various loans (“FFG Loans”). The FFG Loans were made on a project-by-project basis. Amounts due under the FFG Loans bear interest at rates ranging from 0.75% to 1.0% per annum and mature at various dates between June 2022 and March 2024. Interest on amounts due under the loans is payable semi-annually in arrears, with all principal and remaining accrued interest due upon maturity.

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

 

In November 2019, the Company agreed to an earlier repayment schedule for $3.3 million of the outstanding loans with FFG. As a result of the change, the Company reduced the deferred income attributable to the imputed benefit from below market interest by $0.3 million and increased the carrying value of the loans by the same amount.

 

A principal repayment of $1.3 million was made in the three months ended March 31, 2020. There were no principal payments due or paid under the FFG Loans during the three months ended March 31, 2019.

 

8. Redeemable convertible preferred stock

Redeemable convertible preferred stock

The Company previously issued Series A redeemable convertible preferred stock (the “Series A Preferred Stock”), Series B redeemable convertible preferred stock (the “Series B Preferred Stock”), Series C redeemable convertible preferred stock (the “Series C Preferred Stock”) and Series D redeemable convertible preferred stock (the “Series D Preferred Stock” and together with the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the “Preferred Stock”). Upon the closing of the Company’s IPO in April 2019, the Company’s outstanding redeemable convertible preferred stock automatically converted into shares of common stock or, if elected by the holder, into Class A common stock. Prior to conversion, the Preferred Stock had certain contingent redemption features based upon the occurrence of events that were not solely within the control of the Company and was therefore classified as mezzanine equity.

In February 2019, the Company issued and sold 257,000 shares of Series D Preferred Stock at an average price of $145.65 per share for gross proceeds of $37.4 million. The Company incurred issuance costs in connection with the Series D Preferred Stock of $0.2 million.

Upon issuance of each class of Preferred Stock, the Company assessed the embedded conversion and liquidation features of the shares and determined that such features did not require the Company to separately account

15

Table of Contents

HOOKIPA PHARMA INC.

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

for these features. The Company also concluded that no beneficial conversion feature existed on the issuance date of each class of Preferred Stock.

Upon the closing of the Company’s IPO all 1,580,506 then outstanding shares of Preferred Stock converted into 14,582,161 shares of common stock and 3,819,732 shares of Class A common stock. The related book value of $142.0 million was reclassified to common stock and additional paid-in capital.

As of March 31, 2020, the Company had no shares of Preferred Stock outstanding. The Company is authorized to issue 10,000,000 shares of undesignated preferred stock.

As of March 31, 2019, the shares of Preferred Stock consisted of the following (in thousands, except share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred

 

 

 

 

 

 

 

Preferred

 

shares

 

 

 

 

Common stock

 

 

shares

 

issued and

 

Carrying

 

issuable upon

 

    

authorized

    

outstanding

    

value

    

conversion

Series A Preferred Stock

 

137,814

 

137,814

 

$

0.014

 

1,604,574

Series B Preferred Stock

 

492,192

 

492,192

 

 

0.049

 

5,730,612

Series C Preferred Stock

 

693,500

 

693,500

 

 

0.069

 

8,074,447

Series D Preferred Stock

 

257,000

 

257,000

 

 

0.026

 

2,992,260

 

 

1,580,506

 

1,580,506

 

$

0.158

 

18,401,893

 

Prior to the conversion of the Preferred Stock upon the closing of the Company’s IPO, the rights, preferences, and privileges of the Preferred Stock were as follows:

 

Conversion

Each share of Preferred Stock was convertible, at the option of the holder, at any time, and without the payment of additional consideration, into 11.643 fully paid and non-assessable shares of common stock or non-voting Class A common stock as determined by dividing the original issue price paid for such Preferred Shares by the applicable conversion price in effect at the time of conversion.

 

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or certain deemed liquidation events, the holders of Preferred Shares had a right to receive, certain amounts in preference to any distribution to the holders of common stock.

 

 

9. Common stock and Class A common stock

In June 2018, the Company became the reporting entity in a transaction between entities under common control. In the accompanying condensed consolidated financial statements and notes, the common stock is retrospectively presented as if the Company had been the reporting entity for all periods during which the previous reporting entity was under common control.

On April 23, 2019, the Company closed its IPO of 6,000,000 shares of common stock, at an offering price to the public of $14.00 per share. The Company received net proceeds of $74.6 million, after deducting $9.4 million in underwriting discounts and commissions and offering expenses. Upon the closing of the Company’s IPO, all then

16

Table of Contents

HOOKIPA PHARMA INC.

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

outstanding shares of Preferred Stock converted into 14,582,161 shares of common stock and 3,819,732 shares of Class A common stock.

As of March 31, 2020, the Company was authorized to issue 100,000,000 shares of common stock and 3,900,000 shares of Class A common stock and had 21,824,990 shares of common stock and 3,819,732 shares of Class A common stock outstanding and issued.

 

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 are not entitled to vote, except as required by law. 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.

The holders of common stock and Class A common stock do not have any cumulative voting rights. Subject to any preferential dividend rights of any outstanding preferred stock, 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. 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 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, subject to the preferences that may be applicable to any outstanding shares of preferred stock.

 

10. Stock-based compensation

2018 Stock Option and Grant Plan

In connection with a transaction between entities under common control by which the Company became the reporting entity in June 2018, the Board of Directors approved the 2018 Stock Option and Grant Plan, by which options granted by the previous reporting entity under the 2016 Stock Option Plan and outstanding at the time of the effectiveness of the transaction were replaced at similar commercial terms. In the accompanying condensed consolidated financial statements and notes, options issued under previous stock option plans and respective compensation expenses are retrospectively presented as if such options had been issued and outstanding under the 2018 Stock Option and Grant Plan for all periods during which the previous reporting entity was under common control.

The exercise price for options granted as a replacement of the 2016 Stock Option Plan is the U.S. dollar equivalent of €0.09, except for 23,286 options granted to an US employee, for which the exercise price is $2.93 following a repricing of these options in December 2018. For any new options, the exercise price shall not be less than 100% of the fair market value of the common stock on the grant date.

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 of the grant date. As of March 31, 2020, 1,274,841 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.

17

Table of Contents

HOOKIPA PHARMA INC.

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

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 maximum number of shares of the Company’s common stock that may be issued under the Company’s 2019 Stock Option and Incentive Plan is 3,630,686, shares which shall be cumulatively increased each year by up to 4% of the then outstanding number of shares. Options granted under the 2019 Stock Option and Incentive Plan generally vest over four years, with 25% of the options vesting upon the first anniversary of the grant date and the remaining 75% of the options vesting in 12 equal quarterly installments following the first anniversary of the grant date, provided the option holder continues to have an employment or service relationship with the Company on each vesting date. Initial 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.

Stock option activity

 

The following table summarizes the Company’s stock option activity since January 1, 2020 (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, 2019

 

2,999,284

 

$

7.63

 

8.1

 

$

15,840

Granted

 

 —

 

 

 —

 

 

 

 

 

Exercised

 

(78,598)

 

 

0.10

 

 

 

 

 

Forfeited

 

(16,709)

 

 

7.41

 

 

 

 

 

Outstanding as of March 31, 2020