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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, 2021

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 2, 2021, the registrant had 26,139,143 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 non-replicating and replicating technologies and the product candidates based on these technologies, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;
future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;
regulatory developments in the United States and foreign countries;
the effects of the ongoing coronavirus pandemic on business and operations;
competitive companies, technologies and our industry and the success of competing therapies that are or may become available;
our ability to attract and retain key scientific or management personnel;
our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;
the accuracy of our estimates of our annual total addressable market, future revenue, expenses, capital requirements and needs for additional financing;
our expectations about market trends; and

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

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

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

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Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020

2

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020

3

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

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

37

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

Signatures

41

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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, 

2021

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

82,269

$

142,743

Accounts receivable

 

2,520

 

5,542

Receivable research incentives

17,879

15,115

Prepaid expenses and other current assets

 

15,909

 

8,104

Total current assets

 

118,577

 

171,504

Non-current assets:

 

  

 

  

Restricted cash

428

434

Property and equipment, net

 

15,350

 

6,219

Operating lease right of use assets

 

4,665

 

6,452

Finance lease right of use assets

 

920

 

1,298

Other non-current assets

 

2,232

 

1,910

Total non-current assets

 

23,595

 

16,313

Total assets

$

142,172

$

187,817

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities

 

  

 

  

Loans payable, current

$

2,735

$

Accounts payable

10,100

8,009

Deferred revenues

 

2,372

 

3,750

Operating lease liabilities, current

1,924

1,998

Accrued expenses and other current liabilities

 

9,507

 

7,386

Total current liabilities

 

26,638

 

21,143

Non-current liabilities

 

  

 

  

Loans payable, non-current

 

2,174

 

4,537

Operating lease liabilities, non-current

 

2,264

 

3,819

Deferred revenues, non-current

 

29

 

784

Other non-current liabilities

 

2,981

 

1,411

Total non-current liabilities

 

7,448

 

10,551

Total liabilities

 

34,086

 

31,694

Commitments and contingencies (Note 12)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.0001 par value; 10,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; Series A convertible preferred stock, 2,978 shares designated, 2,978 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

0

0

Common stock, $0.0001 par value; 100,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 26,084,065 shares and 25,948,712 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

3

 

3

Class A common stock, $0.0001 par value; 3,900,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 3,819,732 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

0

 

0

Additional paid-in capital

 

315,394

 

309,288

Accumulated other comprehensive loss

 

(5,779)

 

(6,067)

Accumulated deficit

 

(201,532)

 

(147,101)

Total stockholders’ equity

 

108,086

 

156,123

Total liabilities and stockholders’ equity

$

142,172

$

187,817

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

1

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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, 

2021

    

2020

2021

    

2020

Revenue from collaboration and licensing

$

3,874

$

4,040

$

14,553

$

14,421

Operating expenses:

 

 

 

 

Research and development

 

(20,698)

 

(16,009)

 

(60,434)

 

(39,099)

General and administrative

 

(4,342)

 

(4,437)

 

(13,746)

 

(13,413)

Total operating expenses

 

(25,040)

 

(20,446)

 

(74,180)

 

(52,512)

Loss from operations

 

(21,166)

 

(16,406)

 

(59,627)

 

(38,091)

Other income (expense):

 

  

 

  

 

  

 

  

Grant income

$

2,487

$

1,997

$

7,196

$

5,064

Interest income

 

7

 

20

 

21

 

391

Interest expense

 

(234)

 

(194)

 

(671)

 

(587)

Other income and expenses, net

 

(1,133)

 

994

 

(1,348)

 

1,615

Total other income, net

 

1,127

 

2,817

 

5,198

 

6,483

Net loss before tax

 

(20,039)

 

(13,589)

 

(54,429)

 

(31,608)

Income tax expense

 

(1)

 

(0)

 

(1)

 

(0)

Net loss

 

(20,040)

 

(13,589)

 

(54,430)

 

(31,608)

Other comprehensive loss:

 

  

 

  

 

  

 

  

Foreign currency translation gain (loss), net of tax

 

471

 

(309)

 

288

 

(535)

Comprehensive loss

$

(19,569)

$

(13,898)

$

(54,142)

$

(32,143)

Net loss per share — basic and diluted

$

(0.61)

$

(0.53)

$

(1.66)

$

(1.23)

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

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HOOKIPA PHARMA INC.

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

(In thousands, except share amounts)

Accumulated

Convertible

Common Stock

Additional

Other

Total

Preferred Stock

Common Stock

Class A Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

Shares

    

Amount

  

Shares

  

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances as of December 31, 2020

2,978

$

0

25,948,712

$

3

3,819,732

$

0

$

309,288

$

(6,067)

$

(147,101)

$

156,123

Issuance of common stock upon exercise of stock options

33,806

0

125

125

Vesting of restricted stock

12,140

0

(0)

Foreign currency translation adjustment, net of tax

(476)

(476)

Stock-based compensation expense

1,521

1,521

Net loss

(17,238)

(17,238)

Balances as of March 31, 2021

2,978

$

0

25,994,658

$

3

 

3,819,732

$

0

$

310,934

$

(6,543)

$

(164,339)

$

140,055

Issuance of common stock upon exercise of stock options

45,681

0

112

112

Vesting of restricted stock

11,507

0

(0)

Foreign currency translation adjustment, net of tax

293

293

Stock-based compensation expense

2,627

2,627

Net loss

(17,153)

(17,153)

Balances as of June 30, 2021

2,978

$

0

26,051,846

$

3

 

3,819,732

$

0

$

313,673

$

(6,250)

$

(181,492)

$

125,934

Issuance of common stock upon exercise of stock options

21,912

0

2

2

Vesting of restricted stock

10,307

0

(0)

Foreign currency translation adjustment, net of tax

 

471

471

Stock-based compensation expense

 

1,719

1,719

Net loss

 

(20,040)

(20,040)

Balances as of September 30, 2021

 

2,978

$

0

26,084,065

$

3

 

3,819,732

$

0

$

315,394

$

(5,779)

$

(201,532)

$

108,086

3

Table of Contents

Accumulated

Common Stock

Additional

Other

Total

Preferred Stock

Common Stock

Class A Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

Shares

    

Amount

  

Shares

  

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances as of December 31, 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

Issuance of common stock upon exercise of stock options

9,702

0

7

7

Foreign currency translation adjustment, net of tax

 

(133)

(133)

Stock-based compensation expense

 

2,151

2,151

Net loss

 

(7,092)

(7,092)

Balances as of June 30, 2020

 

$

21,834,692

$

3

 

3,819,732

$

0

$

229,828

$

(4,879)

$

(121,037)

$

103,915

Issuance of common stock upon exercise of stock options

 

7,044

0

16

16

Foreign currency translation adjustment, net of tax

 

(309)

(309)

Stock-based compensation expense

2,147

2,147

Net loss

 

(13,589)

(13,589)

Balances as of September 30, 2020

 

$

21,841,736

$

3

 

3,819,732

$

0

$

231,991

$

(5,188)

$

(134,626)

$

92,180

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, 

    

2021

    

2020

Operating activities:

Net loss

$

(54,430)

$

(31,608)

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

Stock-based compensation expense

 

5,867

 

6,392

Depreciation and amortization expense

 

3,412

 

3,037

Other non-cash items

 

34

 

(27)

Changes in operating assets and liabilities:

Accounts receivable

 

2,754

 

(1,243)

Prepaid expenses and other current assets

 

(12,058)

 

(6,612)

Other non-current assets

 

(437)

 

(89)

Accounts payable

 

528

 

1,961

Deferred revenues

 

(1,952)

 

259

Operating lease liabilities

(1,392)

(1,387)

Accrued expenses and other liabilities

5,298

1,385

Other non-current liabilities

 

(397)

 

(106)

Net cash used in operating activities

 

(52,773)

 

(28,038)

Investing activities:

Purchases of property and equipment

 

(7,440)

 

(1,866)

Net cash used in investing activities

 

(7,440)

 

(1,866)

Financing activities:

Payments related to finance leases

(64)

(89)

Proceeds from issuance of common stock, net of issuance costs

 

239

 

31

Payments for deferred offering costs

(307)

Repayments of borrowings

(1,291)

Net cash provided by (used in) financing activities

 

175

 

(1,656)

Net decrease in cash, cash equivalents and restricted cash

 

(60,038)

 

(31,560)

Cash, cash equivalents and restricted cash at beginning of period

 

143,177

 

113,575

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

 

(442)

 

244

Cash, cash equivalents and restricted cash at end of period

$

82,697

$

82,259

Supplemental disclosure of cash flow information:

Cash paid for interest

$

(24)

$

(49)

Cash paid for income taxes

$

(1)

$

(0)

Supplemental disclosure of non-cash investing activities:

Property and equipment additions in accounts payable and accrued expenses

$

(3,950)

$

(152)

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

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HOOKIPA PHARMA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Nature of the business and organization

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

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

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

2. Summary of significant accounting policies

Basis of presentation

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

The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations, and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statement of convertible preferred stock and stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 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, 2020 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission. The results for any interim period are not necessarily indicative of results for any future period. Certain previous year amounts have been reclassified to conform to the current year presentation.

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HOOKIPA PHARMA INC.

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

Going concern

Since inception, the Company’s activities have consisted primarily of performing research and development to advance its technologies. The Company is still in the development phase and has not been marketing its technologies to date. Through September 30, 2021, the Company has funded its operations with proceeds from sales of common stock, sales of convertible preferred stock, sales of redeemable convertible preferred stock, collaboration and licensing agreements, grants and borrowings under various agreements with foreign public funding agencies. Since inception, the Company has incurred recurring losses, including net losses of $54.4 million for the nine months ended September 30, 2021 and $44.1 million for the year ended December 31, 2020. As of September 30, 2021, the Company had an accumulated deficit of $201.5 million. The Company expects to continue to generate operating losses in the foreseeable future. As of November 10, 2021, 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 current and non-current loans payable. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company’s accounting estimates and assumptions may change over time in response to COVID-19 and the change could be material in future periods. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates,

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HOOKIPA PHARMA INC.

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

judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions.

Deferred offering costs

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

Concentrations of credit risk and of significant suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term bank deposits held with banks in excess of publicly insured limits. The net proceeds from the Company’s offerings have been deposited in interest-bearing bank accounts with investment grade U.S. financial institutions and have been partially invested in a money market fund as of September 30, 2021. 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, 2020 and September 30, 2021, the Company’s cash and cash equivalents included smaller amounts of cash balances held in accounts with European banks at the Company’s Austrian subsidiary, partially in euros. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

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

As of September 30, 2021 and December 31, 2020, respectively, Gilead Sciences, Inc. accounted for the majority of the accounts receivable balance. For the nine months ended September 30, 2021 and September 30, 2020 Gilead Sciences, Inc accounted for the majority of the Company’s revenues. No other customers accounted for more than 10.0% of accounts receivable or net sales. The Company monitors the financial performance of its customers so that it can appropriately respond to changes in their credit worthiness. To date, the Company has not experienced any significant losses with respect to collection of its accounts receivable.

Cash equivalents

The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. As of September 30, 2021 and December 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:

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HOOKIPA PHARMA INC.

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

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

 

2 - 5 years

Laboratory equipment

 

2 - 10 years

Furniture and fixtures

 

2 - 10 years

Computer equipment and software

 

2 - 4 years

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. Expenditures for repairs and maintenance are charged to expense as incurred.

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 separates 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 Accounting Standards Codification (“ASC”) 360.

Capitalized Software Development Cost

The Company capitalizes certain implementation costs for internal-use software incurred in a cloud computing agreement that is a service contract. Eligible costs associated with cloud computing arrangements, such as software business applications used in the normal course of business, are capitalized in accordance with ASC 350. These costs are

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HOOKIPA PHARMA INC.

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

recognized on a straight-line basis in the same line item in the statement of operations and comprehensive loss as the expense for fees for the associated cloud computing arrangement, over the term of the arrangement, plus reasonably certain renewals.

Revenue recognition from contracts with customers

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

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

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 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.

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HOOKIPA PHARMA INC.

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

Research and development milestones

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

Sales-based milestones and royalty payments

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

Cost to fulfill contracts

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

Recent accounting pronouncements

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

Recently Issued Accounting Pronouncements

In July 2021, the FASB issued ASU 2021-05, which requires a lessor to classify a lease with variable lease payments (that do not depend on an index or rate) as an operating lease if the lease would have been classified as a sales-type or direct financing lease, and the lessor would have recognized a selling loss at lease commencement. These changes are intended to avoid recognizing a day-one loss for a lease with variable payments even though the lessor expects the arrangement will be profitable overall. The amendments are effective for all entities for fiscal years beginning after December 15, 2021. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, however since the Company does not act as a lessor the Company believes that the adoption of this guidance will not have a material impact on its consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, which provides a principles-based framework for issuers to account for a modification or exchange of freestanding equity-classified written call options. The new guidance clarifies that to the extent applicable, issuers should first reference other GAAP to account for the effect of a modification. If other GAAP is not applicable, the guidance clarifies whether to account for the modification or exchange as an adjustment to equity, with the related EPS implications, or an expense, and if so, the manner and pattern of recognition. The accounting depends on the substance of the transaction, such as whether the modification or exchange is the result of raising equity, a financing transaction, or some other event. The new guidance is effective for annual periods

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HOOKIPA PHARMA INC.

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

beginning after December 15, 2021, including interim periods within those fiscal years with early adoption permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, which amends the scope of the recent reference rate reform guidance (ASC 848). New optional expedients allow derivative instruments impacted by changes in the interest rate used for margining, discounting, or contract price alignment (i.e., discount transition) to qualify for certain optional relief. The new optional expedients for contract modifications and hedge accounting are expected to benefit companies, including those with certain centrally cleared derivatives affected by a discount rate transition in 2020. The guidance is effective immediately and can be applied retrospectively to any interim period beginning January 1, 2020 or prospectively to any new modifications in any period including or subsequent to the issuance date. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, 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 is effective as of March 12, 2020 through December 31, 2022. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements. However, since the Company currently does not have contracts, hedging relationships, or other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform, the Company believes that 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. Payments from Gilead generally have a 60 days payment term.

The $10.0 million upfront payment received in 2018 and a $4.0 million milestone payment received in 2020 were initially recorded as deferred revenue in the consolidated balance sheet and are recognized as revenue when

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HOOKIPA PHARMA INC.

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

revenue recognition criteria are met. As of September 30, 2021, $0.6 million of upfront and milestone payments were included as a liability in deferred revenues, current and non-current. Approximately 52% of deferred revenue is expected to be recognized as revenue in the remainder of 2021 and the remaining 48% in 2022.

As of September 30, 2021, $1.8 million of cost reimbursements for research and development services were included as a liability in deferred revenues. Reimbursements for external costs are recognized as revenues in the period in which the services are provided and external costs are recognized.

In the three months ended September 30, 2021, the Company recognized $0.1 million of the upfront payment received in 2018 and less than $0.1 million of the $4.0 million milestone payment received in 2020 as revenue. Furthermore, the Company recognized $3.7 million revenue from cost reimbursements for research and development services, of which $1.0 million were initially recorded as deferred revenue in the consolidated balance sheet. For the three months ended September 30, 2020, revenue from reimbursement of research and development expenses was $2.8 million, and the Company recognized $0.6 million of the upfront payment received in 2018 and $0.6 million of the $4.0 million milestone payment received in 2020 as revenue.

In the nine months ended September 30, 2021, the Company recognized $0.6 million of the upfront payment received in 2018 and $1.3 million of the $4.0 million milestone payment received in 2020 as revenue. Furthermore, the Company recognized $12.7 million revenue from cost reimbursements for research and development services, of which $1.6 million were initially recorded as deferred revenue in the consolidated balance sheet. For the nine months ended September 30, 2020, revenue from reimbursement of research and development expenses was $9.6 million, and the Company recognized $2.0 million of the upfront payment received in 2018 and $1.8 million of the $4.0 million milestone payment received in 2020 as revenue. In addition, the Company fully recognized revenue for a $1.0 million milestone payment for a milestone achieved in the nine months ended September 30, 2020.

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 September 30, 2021 and December 31, 2020, the contract asset and the liability relating to the sublicense payment was less than $0.1 million and $0.1 million, respectively.

4. Fair Value of Financial Assets

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

Fair Value Measurement at September 30, 2021 Using

    

Level 1

    

Level 2

    

Level 3

Total

Cash equivalents:

Money market funds

$

35,400

 

$

 

$

$

35,400

Total

$

35,400

 

$

 

$

$

35,400

Fair Value Measurement at December 31, 2020 Using

    

Level 1

    

Level 2

    

Level 3

Total

Cash equivalents:

Money market funds

$

35,397

 

$

 

$

$

35,397

Total

$

35,397

 

$

 

$

$

35,397

During the nine months ended September 30, 2021, there were no transfers between Level 1, Level 2 and Level 3.

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

5. Property and equipment, net

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

September 30, 

    

December 31, 

    

2021

    

2020