Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On February 15, 2019, our common stock began
trading on The Nasdaq Capital Market under the symbol “HOTH.” Prior to that time, there was no public market for our
common stock.
Shareholders
As of March 11, 2021, there were 157 shareholders
of record of our common stock. The actual number of holders of our common stock is greater than this number of record holders,
and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees.
This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.
Dividend Policy
We have never paid or declared any cash dividends
on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend
to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination
to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results
of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other
factors that our board of directors deems relevant.
Recent Sales of Unregistered Securities
On July 21, 2020, the Board of Directors issued
officers and directors options to purchase up to 200,000 shares of the Company’s common stock pursuant to the Company’s
2018 equity incentive plan at an exercise price of $3.05 per share for services rendered.
From October to December 2020, the
Company issued an aggregate of 2,082 shares of the Company’s common stock, which shares were subject to a vesting
schedule, to members of the Company’s Board of Directors for services rendered.
The foregoing offers, sales and issuances were
exempt from registration under Section 4(a)(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not
required to provide the information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
You should read the following discussion
and analysis of our financial condition and results of operations together with and our consolidated financial statements and the
related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially
from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified
below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
All amounts in this report are in U.S. dollars, unless otherwise noted.
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Overview
We are a clinical-stage biopharmaceutical company
and were formed in May 2017 to initially focus on developing new generation therapies for dermatological disorders. We believe
that our pipeline has the potential to improve the quality of life for patients suffering from indications including atopic dermatitis
(also known as eczema), chronic wounds, psoriasis, asthma and acne. Since our formation, we have expanded our business to
also focus on developing (i) a topical formulation for treating side effects from drugs used for the treatment of cancer; (ii)
a treatment for asthma and allergies using inhalational administration; (iii) a topical treatment for patients with lupus; (iv)
a treatment for mast-cell derived cancers and anaphylaxis; and (v) a treatment for lung diseases resulting from bacterial infections.
We are also focused on potentially developing a COVID-19 treatment as well as a diagnostic device for the detection of SARS-CoV-2
via a mobile device.
Dermatological Disorders
The BioLexa Platform
We have obtained an
exclusive license from the University of Cincinnati to make, use, have made, import, offer for sale, and sell products based upon
or involving the use of BioLexa Platform which is a proprietary, patented, drug compound platform for the treatment of eczema.
It combines an FDA-approved zinc chelator with one or more approved antibiotics in a topical dosage form to address unchecked eczema
flare-ups by preventing the formation of infectious biofilms and the resulting clogging of sweat ducts. We intend to initially
use the BioLexa Platform to develop two different topical cream products: (i) a product to treat eczema and (ii) a product that
reduces post-procedure infections, accelerates healing and improves clinical outcomes for patients undergoing aesthetic dermatology
procedures. We intend to develop the BioLexa Platform for use in patients following the Section 505(b)(2) regulatory pathway of
the FDA rules which permits us rely upon publicly available data with respect to gentamicin and zinc chelator in our NDA submission
to the FDA for marketing approval. Based on our meetings with the FDA, we plan to conduct our first clinical trial for BioLexa
in Australia in order to enroll both adult and adolescents to support future clinical development before conducting trials on pediatric
patients.
HT-001
On February 1, 2020, we entered into a patent
license agreement with GW pursuant to which GW granted us a license to certain patent rights to, among other things, make, use,
offer and sell certain licensed products throughout the world with respect to HT-001 which we intend to potentially use for treating
dermatological side effects from EGFR inhibitors, and potentially other drugs used for the treatment of cancer.
HT-003
On July 30, 2020, we entered into the Isoprene
Sublicense Agreement with Isoprene pursuant to which Isoprene granted us an exclusive sublicense to certain intellectual property
(i) to make, have made, use, sell, offer to sell and import certain licensed products, (ii) in connection therewith, to use certain
inventions and licensed materials and (iii) to practice certain patent rights for the treatment of dermatological conditions or
diseases, referred to as HT-003.
In December 2019, we entered into a research
collaboration agreement with Weill Cornell Medicine for the completion of pre-clinical studies investigating the mechanism of action
of HT-003 that was renewed in January 2021 as a result of positive preclinical results, and on December 22, 2020, we entered into
an option agreement to expand the therapeutic indication of the sublicensed RAMBAs from Isoprene. The option agreement includes
the investigation of RAMBAs for treatment of inflammatory bowel diseases, including Crohn’s disease and ulcerative colitis.
HT-005 Z-Pods™
On August 19, 2019, we entered into a sublicense
agreement with Zylö pursuant to which Zylö granted us an exclusive sublicense to certain licensed patent rights
and certain licensed technology to, among other things, develop, make and sell certain licensed products and to practice certain
licensed technology in the United States and Canada initially with respect to therapeutic uses related to lupus in humans.
Genetic Marker for Food Allergies
On May 18, 2018, we entered into an exclusive
license agreement with the University of Cincinnati for a patented, novel genetic marker for food allergies. The genetic marker
licensed may be used to (i) identify at risk infants in predicting food allergies, including peanut and milk allergies, (ii) identify
a person’s predisposition to an allergic reaction and (iii) determine an individual’s propensity to develop atopic
dermatitis, such as eczema. We intend to utilize the genetic marker in the future for purposes of determining an individual’s
propensity to develop eczema as well as to identify and treat allergies in at-risk infants.
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Respiratory Products
HT-004
On November 20, 2019, we entered into a license
agreement with NC State pursuant to which NC State granted us an exclusive license to, among other things, develop, make, use,
offer and sell certain licensed products throughout the world with respect to HT-004 for treating allergic diseases. HT-004 is
currently under investigation for the treatment of asthma and allergies using inhalational administration.
HT-006
On December 22, 2020, we entered into a non-exclusive
commercial evaluation license agreement with USAMRDC, as amended, pursuant to which USAMRDC granted us a non-exclusive commercial
evaluation license to HT-006 for the treatment of lung diseases resulting from bacterial infections. We will initially target treatment
of serious bacterial infections of the lung, such as HAP and VAP. Given the indication, we intend to develop HT-006 for inhalational
administration.
Cancer Treatments
HT-KIT
We have obtained from NC State an exclusive,
worldwide, royalty bearing license to certain intellectual property to, among other things, discover, develop, make, have made,
use and sell certain licensed products and sell, use and practice certain licensed services with respect to cancer and anaphylaxis;
this is being developed as HT-KIT. We intend to initially target mast cell neoplasms for development of HT-KIT, which is a rare,
aggressive cancer with poor prognosis. In addition, we intend pursue the anaphylaxis indication for HT-KIT in parallel to cancer
treatment.
COVID-19 Products
HT-002
On May 18, 2020, we entered into an Exclusive
License Agreement with the VCU pursuant to which VCU granted us an exclusive, royalty bearing license to HT-002, a novel peptide
developed by researchers at VCU that may be used to slow the transmission of SARS-CoV-2 and a non-exclusive royalty bearing,
worldwide license with respect to certain licensed technical information patents to make, have made, use, offer to sell, sell and
import certain licensed products and perform certain licensed services. On June 29, 2020, we entered into a Sponsored Project Agreement
with VCU for the development of a potential COVID-19 treatment using the VCU Peptide.
VaxCelerate SARS-CoV-2 Vaccine
On March 23, 2020, we entered into the Voltron
Agreement with Voltron pursuant to which we formed a joint venture entity named HaloVax to jointly develop potential product candidates
for the prevention of COVID-19 based upon certain technology that had been exclusively licensed by Voltron from Mass Gen. The SARS-CoV-2
vaccine is being developed using VaxCelerate, a self-assembling vaccine platform licensed from Mass Gen by HaloVax. VaxCelerate
offers two unique elements to combat SARS-CoV-2: a fixed immune adjuvant and variable immune targeting, the combination which is
designed to illicit a robust, protective immune response.
On-the-Go Sars-Cov-2 Testing Device
On August 7, 2020, we entered into the GW Patent
License Agreement with GW pursuant to which GW granted us an exclusive, worldwide, royalty bearing license to certain intellectual
property that can be used to develop a device designed to detect the presence of SARS-CoV-2. Specifically, the GW Patent License
Agreement permits us to make, have made, use, import, offer for sale and sell certain licensed products in the field of virus sensing
and detection. On September 17, 2020, we entered into a sponsored research agreement with GW relating to the development of a diagnostic
device for the detection of SARS-CoV-2 via a mobile device as an aid in the diagnosis of the COVID-19 infection.
Results of Operations
Comparison of Our Results of Operations for the Years Ended December
31, 2020 and 2019
Operating
Costs and Expenses
Research and Development Expenses
For the year ended December 31, 2020, research
and development expenses were approximately $2.9 million, of which approximately $0.6 million was related to licenses acquired
and approximately $2.3 million was related to other research and development expenses.
For the year ended December 31, 2019, research
and development expenses were approximately $2.1 million which primarily consisted of $50,000 related to the Zylö Sublicense
Agreement, $10,000 related to a license acquired from UMB and Isoprene, $25,000 related to a license acquired from the NC State,
and approximately $2.0 million related to other research and development expenses.
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We expect our research and development activities
to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing
costs associated with the following:
●
employee-related expenses, which include salaries and benefits, and rent expenses;
●
fees related to in-licensed products and technology;
●
expenses incurred under agreements with CROs, investigative sites and consultants that conduct our clinical trials and a substantial portion of our pre-clinical activities;
●
the cost of acquiring and manufacturing clinical trial materials; and
●
costs associated with non-clinical activities and regulatory approvals.
Compensation, Professional Fees, Rent and Other (“General
and Administrative Expenses”)
For the year ended December 31, 2020, General
and Administrative Expenses were approximately $4.4 million, which primarily consisted of approximately $1.5 million related to
payroll expenses and stock-based compensation, approximately $2.5 million for professional fees and approximately $0.5 million
for other expenses.
For the year ended December 31, 2019, General
and Administrative Expenses were approximately $5.6 million, which primarily consisted of approximately $2.9 million related to
payroll expenses and stock-based compensation, approximately $2.1 million for professional fees and $0.6 million for other expenses.
We anticipate that our general and administrative
expenses will increase in future periods, reflecting continued and increasing costs associated with:
●
support of our research and development activities;
●
stock compensation granted to key employees and non-employees;
●
support of business development activities; and
●
increased professional fees and other costs associated with the regulatory requirements.
Liquidity and Capital Resources
We have incurred substantial operating losses
since inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable.
As of December 31, 2020, we had approximately $2.6 million in cash, marketable securities of $2.1 million, current liabilities
of $0.3 million and an accumulated deficit of approximately $19.4 million.
We have entered into certain license,
sublicense, sponsored research and option agreements with third parties. Pursuant to such agreements, we may be required make
certain: (i) license maintenance fee payments; (ii) out-of-pocket expense payments, including, but not limited to, payments related
to intellectual property and research related expenses; (iii) development and commercialization expense payments; (iv) annual
and quarterly minimum payments; (v) diligence expense payments; and (vi) revenue interest payments. In addition, subject to the
achievement of certain development and/or commercialization events, we may also be required to make certain: (i) minimum royalty
payments, ranging from middle to high five figures, (ii) sales-based royalties and running royalties, ranging from low single
digits to low double digits; and (iii) milestone payments, of up to approximately $21 million (if all milestones in all of our
current agreements are achieved). See Note 3 to the consolidated financial statements for discussion of our agreements with third
parties.
Cash Flows from Operating Activities
For the year ended December 31, 2020, net cash
used in operations was approximately $6.1 million, which primarily resulted from a net loss of approximately $7.2 million and changes
in operating assets and liabilities of approximately $0.1 million, partially offset by approximately $0.5 million research and
development expense related to license acquisitions and $0.7 million of stock-based compensation.
For the year ended December 31, 2019, net cash
used in operations was approximately $4.9 million, which primarily resulted from a net loss of approximately $7.7 million, partially
offset by approximately $2.5 million of stock-based compensation and changes in operating assets and liabilities of approximately
$0.2 million.
Cash Flows from Investing Activities
For the year ended December 31, 2020, net cash
used in investing activities was approximately $1.8 million, which was primarily related to the purchase of marketable securities
of approximately $2.3 million and purchase of investments in HaloVax, LLC and Zylö of approximately $0.4 million, partially
offset by the sale of marketable securities of approximately $1.1 million.
For the year ended December 31, 2019, net cash
used in investing activities was approximately $0.9 million, which was related to the purchase of marketable securities of $0.8
million and the purchase of research and development licenses of $0.1 million.
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Cash Flows from Financing Activities
For the year ended December 31, 2020, net cash
provided by financing activities was approximately $8.7 million. The cash provided by financing activities primarily resulted from
approximately $8.7 million in net proceeds from the issuance of common stock and warrants.
For the year ended December 31, 2019, net cash
provided by financing activities was approximately $7.5 million, including approximately $0.2 million restricted cash. The cash
provided by financing activities primarily resulted from approximately $5.8 million in net proceeds from our initial public offering
(the “IPO”) and approximately $1.6 million in net proceeds from a private offering of an aggregate of 407,474 units
with each unit consisting of one share of our common stock and a warrant to purchase one-half share of our common stock. On February
20, 2019, we closed the IPO pursuant to which we issued 1,250,000 shares of our common stock for net proceeds of approximately
$5.8 million, after deducting underwriting discounts and commissions and offering expenses. The $0.2 million restricted cash had
been deposited into a third-party escrow account in order to provide a source of funding for certain indemnification obligations
we had pursuant to our Qualified Independent Underwriter Engagement Agreement.
Our ultimate success is dependent on our ability
to obtain additional financing and generate sufficient cash flow to meet our obligations on a timely basis. We will require significant
amounts of capital to sustain operations, and we will need to make the investments we need to execute our longer-term business
plan to support new technologies and help advance innovation. Absent generation of sufficient revenue from the execution of our
long-term business plan, we will need to obtain debt or equity financing, especially if we experience downturns in our business
that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being
a publicly-traded company or from operations. Such additional debt or equity financing may not be available to us on favorable
terms, if at all.
We plan to pursue our plans with respect to
the research and development of our pre-clinical products which will require resources beyond those that we currently have, ultimately
requiring additional capital from third party sources. We currently do not expect to generate any revenue.
Off-Balance
Sheet Arrangements
As of December 31, 2020 and 2019, we did not
have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K or any commitments or contractual obligations.
Critical Accounting
Policies and Significant Judgments and Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared
in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial
statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of expenses during
the reporting period. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. The most significant
estimates relate to the valuation of stock options and the valuation allowance of deferred tax assets resulting from net operating
losses. We base our estimates and assumptions on current facts, our limited historical experience and various other factors that
we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
We define our critical accounting policies
as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and
are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which
we apply those principles. While our significant accounting policies are more fully described in Note 2 to our consolidated financial
statements appearing elsewhere in Annual Report on Form 10-K, we believe the following are the critical accounting policies used
in the preparation of our consolidated financial statements that require significant estimates and judgments:
Stock-based
compensation
We expense stock-based compensation to employees
and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards
with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting
portion of the award. We record the expense for stock-based compensation awards subject to performance-based milestone vesting
over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates
when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions
at each reporting date. All stock-based compensation costs are recorded in general and administrative or research and development
costs in the statements of operations based upon the underlying employees’ or non-employees’ roles.
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Income taxes
Income taxes are recorded in accordance with
Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”) which provides for deferred taxes
using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in our consolidated financial statements or tax returns. Deferred tax assets and liabilities
are determined based on the difference between our financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon
the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We account for uncertain tax positions in accordance
with the provisions of ASC 740. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent
that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether
the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration
of the available facts and circumstances.
Significant Accounting Policies
See Note 2 to
the consolidated financial statements for a discussion of recent accounting policies.
JOBS Act
On April 5, 2012, the JOBS Act was enacted.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words,
an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies.
We have chosen to take advantage of the extended
transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards
until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our consolidated financial
statements may not be comparable to those of companies that comply with public company effective dates for complying with new or
revised accounting standards.
Subject to certain conditions set forth in
the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without
limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act of 2002 and (ii) complying with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional
information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging
growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of
$1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the IPO; (iii) the date
on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which
we are deemed to be a large accelerated filer under the rules of the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
As a smaller reporting company, we are not
required to provide the information required by this item.
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