10-Q: Hepion Pivots to Diagnostics Amid Nasdaq Delisting

Hepion Pharmaceuticals shifts focus to medical diagnostics after winding down its liver disease drug program, reporting reduced net losses and improved cash position despite Nasdaq delisting.

Summary

• Shifted focus from chronic liver disease drug development (rencofilstat) to medical diagnostics.
• Wind-down of ASCEND-NASH clinical trial completed in August 2024 due to insufficient funding.
• Merger agreement with Pharma Two B Ltd. terminated in December 2024.
• In-licensed diagnostic tests for celiac disease, respiratory multiplex, H. pylori, and HCC from New Day Diagnostics LLC on May 9, 2025, for $525,000 cash and $270,629 in common stock.
• Recorded a $402,746 asset impairment loss on the New Day diagnostic assets due to delayed market timing and insufficient projected cash flow in the initial two years.
• Sold all rencofilstat patent assets and related data to Panetta Partners Limited for a nominal amount, with stockholders receiving contingent value rights (CVRs) up to $4.5 million based on future milestones.
• Completed a public offering on January 23, 2025, raising approximately $9.0 million in gross proceeds, used to repay $2.9 million in notes payable and for general corporate purposes.
• Effected a one-for-fifty reverse stock split on March 17, 2025.
• Delisted from Nasdaq on May 13, 2025, and subsequently transitioned to the OTCQB Venture Market on June 25, 2025.
• Reported a net loss of $(7.6) million for the nine months ended September 30, 2025, a significant improvement from $(11.6) million in the prior year period.
• Cash balance increased to $2.3 million as of September 30, 2025, from $0.4 million at December 31, 2024.
• Working capital improved from a deficit of $(1.5) million at December 31, 2024, to a positive $3.4 million at September 30, 2025.
• Accumulated deficit grew to $(245.4) million as of September 30, 2025.
• Identified material weaknesses in internal control over financial reporting, including an ineffective control environment, insufficient personnel, and issues with complex accounting transactions and income tax provision.

Sentiment

Score: 3

Explanation: While the company improved its cash position and reduced net losses, these positives are overshadowed by the Nasdaq delisting, the impairment of newly acquired assets, the failure of a previous merger, and persistent 'going concern' doubts. The strategic pivot to diagnostics is a high-risk move with immediate challenges, and significant internal control weaknesses further dampen sentiment.

Positives

• Net loss significantly reduced to $(7.6) million for the nine months ended September 30, 2025, compared to $(11.6) million for the same period in 2024.
• Cash balance increased to $2.3 million as of September 30, 2025, from $0.4 million at December 31, 2024.
• Working capital improved from a deficit of $(1.5) million at December 31, 2024, to a positive $3.4 million at September 30, 2025.
• Cash used in operating activities significantly decreased to $(2.9) million for the nine months ended September 30, 2025, from $(17.1) million in the prior year.
• Successful public offering raised $9.0 million in gross proceeds, strengthening liquidity and allowing debt repayment.
• Transitioned to the OTCQB Venture Market, maintaining public trading status after Nasdaq delisting.
• Strategic pivot to medical diagnostics with in-licensed CE-marked tests offers a new potential revenue stream.
• Sale of rencofilstat assets includes contingent value rights (CVRs) for stockholders, offering potential future payments up to $4.5 million.

Negatives

• Incurred a $402,746 asset impairment loss on the newly acquired New Day diagnostic assets due to delayed market timing and insufficient projected cash flow in the initial two years.
• Nasdaq delisted the company's shares on May 13, 2025, due to failure to meet listing standards (bid price below $0.10 and deemed a public shell).
• The ASCEND-NASH clinical trial for rencofilstat was wound down due to insufficient funding, indicating a failure in the previous core drug development strategy.
• The merger agreement with Pharma Two B Ltd. was terminated, failing to achieve a planned strategic transaction.
• Continued to incur substantial losses, with an accumulated deficit of $(245.4) million as of September 30, 2025.
• Identified material weaknesses in internal control over financial reporting, including an ineffective control environment, insufficient personnel, and issues with complex accounting transactions and income tax provision.
• No revenue generated to date, and future revenue from new diagnostic products is not guaranteed.
• Significant dilution experienced by stockholders due to warrant exercises and equity issuances, and the reverse stock split.

Risks

• Ability to raise substantial additional capital to continue as a going concern and fund planned operations.
• Uncertainties regarding estimates for expenses, cash usage, timing of future cash needs, and anticipated capital requirements.
• Success in retaining, or changes required in, officers, key employees, or directors.
• Public securities potential liquidity and trading, especially after delisting from Nasdaq and moving to OTCQB.
• Ability to obtain and maintain regulatory approval of product candidates, and any related restrictions, limitations, or warnings.
• Plans to pursue research and development of other future product candidates.
• Potential advantages and market acceptance of product candidates.
• Success of collaborations and partnerships with third parties.
• Estimates regarding the potential market opportunity for product candidates.
• Sales, marketing, and distribution capabilities and strategy.
• Ability to establish and maintain arrangements for manufacture of product candidates.
• Ability to compete with companies currently marketing or developing treatments for target indications.
• Intellectual property position, including strength and enforceability of rights.
• Substantial doubt about the ability to continue as a going concern within one year without additional capital.
• Risk of significant dilution if additional funds are raised by issuing equity securities.
• Debt financing, if available, may involve restrictive covenants.
• Inability to raise additional capital may force the company to seek less favorable collaborations or dispose of rights to technologies.
• Material weaknesses in internal control over financial reporting could adversely affect the ability to record, process, summarize, and report financial information.
• Utilization of Net Operating Losses (NOLs) and tax credit carryforwards may be limited due to ownership changes (Section 382).

Future Outlook

The company expects to continue incurring significant losses for the foreseeable future and will require additional financing to fund operations. Future capital requirements depend on the scope and costs of developing acquired assets, regulatory approvals, market acceptance, collaborations, manufacturing, commercialization, intellectual property, and sales. The company cannot guarantee when or how much revenue will be generated from the newly licensed diagnostic products, which currently have CE marks but are not eligible for sale in the United States.

Management Comments

• We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control.
• Our ability to continue operations after our current cash resources are exhausted depends on future events outside of our control, including our ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given.
• If adequate additional funds are not available when required, management may need to curtail planned operations to conserve cash until sufficient additional capital can be raised.
• We are committed to the remediation of the material weaknesses described above, as well as the continued improvement of our internal control over financial reporting.
• We need to raise additional capital in order to add additional personnel and implement additional internal control procedures.

Industry Context

Hepion Pharmaceuticals has undergone a significant strategic pivot, moving away from the high-risk, high-reward chronic liver disease drug development (NASH) which is a competitive and capital-intensive area, towards medical diagnostics. The acquisition of CE-marked diagnostic tests for celiac disease, respiratory multiplex, H. pylori, and HCC positions the company in a different segment of the healthcare industry. While diagnostics can offer more predictable revenue streams, the impairment loss on these new assets highlights immediate challenges in market timing and cash flow generation, suggesting a difficult entry into this new market. The delisting from Nasdaq and move to OTCQB reflects a common challenge for small-cap biotech/diagnostic companies struggling with funding and meeting exchange listing requirements, often signaling reduced investor confidence and liquidity.

Corporate Governance

Legal Proceedings

• We are involved in various legal proceedings. Significant judgment is required to determine both the likelihood and the estimated amount of a loss related to such matters. We have no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on our consolidated financial condition or results of operations.

Stakeholder Impact

• Shareholders: Experienced significant dilution from warrant exercises and equity issuances, and a reverse stock split. Potential for future dilution if more capital is raised. Potential for contingent value rights (CVRs) from Rencofilstat sale. Delisting from Nasdaq to OTCQB may reduce liquidity and investor confidence.
• Employees: Reduced headcounts mentioned as a reason for decreased R&D and G&A expenses.
• Customers (future): Potential new diagnostic products for celiac disease, respiratory multiplex, H. pylori, and HCC in EU and other CE-mark accepting markets.
• Creditors: Notes payable of $2.9 million were repaid using proceeds from a public offering.

Next Steps

• Raise additional capital to fund operations and address going concern issues.
• Add additional personnel to improve internal controls and segregation of duties.
• Implement additional internal control procedures, including expanding and improving the review process for complex accounting transactions.
• Enhance access to accounting literature and identify third-party professionals for complex accounting applications.
• Perform an evaluation of tax provision processes and recommend enhancements.
• Develop a detailed timeline for tax provision calculation.
• Pursue the development and commercialization of in-licensed diagnostic tests, aiming for revenue generation in the EU and other eligible markets.
• Monitor and potentially receive contingent payments from Panetta Partners Limited based on Rencofilstat milestones.

Key Dates

Recommendation

Despite a temporary improvement in cash and a reduction in net loss, the company faces severe fundamental challenges. The Nasdaq delisting, the impairment of newly acquired diagnostic assets, and the persistent 'going concern' doubt signal significant operational and financial instability. The strategic pivot is unproven, and material weaknesses in internal controls indicate systemic issues. The high risk, low liquidity environment of the OTCQB, coupled with the need for further capital raises and potential dilution, makes this a highly speculative investment with substantial downside risk.

Keywords

Hepion Pharmaceuticals, HEPA, 10-Q, Quarterly Report, Medical Diagnostics, Celiac Disease Test, Respiratory Multiplex Test, H. pylori Test, Hepatocellular Carcinoma Test, Rencofilstat, NASH, Clinical Trial Wind-down, Nasdaq Delisting, OTCQB, Going Concern, Capital Raise, Warrants, Reverse Stock Split, Financial Results, SEC Filing, Biotechnology, Pharmaceuticals, Asset Impairment, Internal Controls