Hepion Pharmaceuticals Inc

Current report

The exchange ratio will not change or otherwise be adjusted based on the market price of our common stock as the exchange ratio depends on our net cash at the closing and not the market price of our common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

Current report

On July 19, 2024, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Pharma Two B Ltd., or Pharma Two B, pursuant to which an indirect wholly-owned subsidiary of Pharma Two B will merge with and into the Company, with the Company surviving as our indirect wholly-owned subsidiary, referred to hereinafter as the “Merger.” At the effective time described in the Merger Agreement, outstanding shares of the Company’s common stock will be converted into Pharma Two B ordinary shares. Based on Pharma Two B’s and the Company’s capitalization as of July 19, 2024, the exchange ratio is estimated to be equal to 85% to Pharma Two B and 15% to Hepion shareholders. After applying this estimated exchange ratio and giving effect to the consummation of the transactions set forth in the PIPE Agreements (the “PIPE Investment”), the Company stockholders as of immediately prior to the Merger are expected to own approximately 7.8% of the outstanding ordinary shares of the combined company on a fully-diluted basis, former Pharma Two B shareholders are expected to own approximately 44.5% of the outstanding ordinary shares of the combined company on a fully-diluted basis and the investors issued shares of Company Common Stock in the PIPE Investment are expected to own approximately 47.7% of the outstanding ordinary shares of the combined company on a fully-diluted basis, in each case, subject to certain assumptions, including but not limited to, that the sum of the Hepion Net Cash (as defined in the Merger Agreement) at Closing and the net proceeds from the PIPE Investment are at least $10.0 million. In the event such sum is below $10.0 million, the exchange ratio will be adjusted such that the Company’s stockholders will own a smaller percentage of the combined company following the Merger.

Current report

Failure to complete the merger with Pharma Two B Ltd. could harm our common stock price and future business and operations.

Current report

If the merger is not completed, we are subject to the following risks:

Current report

If the Merger Agreement is terminated and the board of directors of Pharma Two B determines to seek another business combination, there can be no assurance that we will be able to find another third party to transact a business combination with, yielding comparable or greater benefits.

Current report

Even if the merger is approved by the stockholders of Pharma Two B, specified conditions must be satisfied or, to the extent permitted by applicable law, waived to complete the merger. These conditions are set forth in the Merger Agreement. We cannot assure you that all of the conditions to the consummation of the merger will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or the closing may be delayed.

Current report

In general, either Pharma Two B or the Company can refuse to complete the Merger if there is a material adverse change affecting the other party between July 19, 2024, the date of the Merger Agreement, and the Closing. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a “material adverse effect” on Pharma Two B or the Company, including:

Current report

If adverse changes occur and Pharma Two B and the Company still complete the Merger, the combined company’s share price may suffer. This in turn may reduce the value of the Merger to the shareholders of Pharma Two B, the Company or both.

Current report

If Pharma Two B and the Company complete the Merger, the combined company will need to raise additional capital by issuing equity securities or additional debt or through licensing arrangements, which may cause significant dilution to the combined company’s shareholders or restrict the combined company’s operations.

Current report

On July 19, 2024, the Pharma Two B entered into the PIPE Agreements with certain investors, including existing investors of Pharma Two B, pursuant to which the investors agreed to purchase, in the aggregate, $11.5 million in shares of the combined company ordinary shares. The closing of the PIPE Investment is conditioned upon the closing of the Merger, as well as certain other conditions such that the ordinary shares of the combined company issued in the PIPE Investment will result in dilution to all securityholders of the combined company (i.e., both former Company securityholders and Pharma Two B securityholders).

Current report

Even if the PIPE Investment closes as expected, the combined company will need to raise additional capital in the future. Additional financing may not be available to the combined company when it is needed or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such financing will cause additional dilution to all securityholders holders of the combined company, including former Company securityholders, Pharma Two B securityholders and purchasers in the PIPE Investment. It is also possible that the terms of any new equity securities may have preferences over the combined company’s ordinary shares. Any debt financing into which the combined company enters may involve covenants that restrict operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to grant liens, pay dividends, redeem its shares or make investments. In addition, if the combined company raises additional funds through licensing arrangements, the terms of such arrangements may not be favorable to the combined company.

Current report

Some of our directors have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.

Current report

Some of our directors may have interests in the Merger that are different from, or in addition to, the interests of other of our stockholders generally. These interests with respect to our directors may include, among others, acceleration of stock option or restricted stock unit vesting, retention bonus payments, extension of exercisability periods of previously issued stock option grants, and rights to continued indemnification, expense advancement and insurance coverage. In connection with the Merger, each option to purchase shares of Company common stock held by the Company’s directors as of the effective time will vest in full upon the closing of the merger. Two members of the Company’s board of directors, Dr. Timothy Block and Michael Purcell, will continue as directors of the combined company after the effective time, and, following the closing of the Merger, will be eligible to be compensated as non-employee directors of the combined company.

Current report

In addition, certain current members of Pharma Two Bs’ board of directors will continue as directors of the combined company after the effective time, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of the combined company pursuant to our non-employee director compensation policy that is expected to remain in place following the effective time.

Current report

Our board of directors was aware of and considered those interests, among other matters, in reaching their decisions to approve and adopt the Merger Agreement, approve the merger, and recommend the approval of the Merger Agreement to our stockholders. These interests, among other factors, may have influenced the directors and executive officers of each company to support or approve the merger.

Current report

Our stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the Merger, including the conversion of Company common stock issued in the pre-closing financing.

Current report

The market price of our common stock is subject to significant fluctuations. Market prices for securities of pharmaceutical, biotechnology and other life science companies have historically been particularly volatile. In addition, the market price of our common stock will likely be volatile based on whether stockholders and other investors believe that we can complete the merger or otherwise raise additional capital to support our operations if the merger is not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of our common stock has been and may be exacerbated by low trading volume.

Current report

After the completion of the Merger, our current stockholders will generally own a smaller percentage of the combined company than their ownership of our company prior to the Merger. Immediately after the Merger, and immediately prior to the PIPE investment, our stockholders are expected to own approximately 15% of the outstanding shares of the combined company. After the PIPE investment, our stockholders are expected to own approximately 7.8% of the outstanding shares of the combined company on a fully-diluted basis, subject to certain assumptions. Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted up or down including depending on the amount of cash on our balance sheet at Closing.

Current report

During the pendency of the Merger, we may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.

Current report

Covenants in the Merger Agreement impede our ability to make acquisitions during the pendency of the Merger, subject to specified exceptions. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, seeking, initiating or knowingly encouraging, inducing or facilitating the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry or taking any action that could reasonably be expected to lead to certain transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions could be favorable to such party’s stockholders, but the parties may be unable to pursue them.

Previous report

Our strategic alternatives strategy may not be successful, may not yield the desired results and we may be unsuccessful in identifying and implementing any strategic transaction.

Previous report

On April 19, 2024, we announced the wind down of our ASCEND-NASH Trial. We continue to explore strategic alternatives, including, but not limited to, an acquisition, merger, reverse merger, sale of assets, strategic partnerships, capital raises or other transactions. There is no assurance that any of these potential opportunities will come to fruition.

Previous report

We expect to devote substantial time and resources to exploring strategic alternatives that our Board of Directors believes will maximize stockholder value. Despite devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We have not set a timetable for completion of this strategic review process, and our Board of Directors has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any additional cash distributions to our stockholders.

Previous report

In addition, potential counterparties in a strategic transaction involving the Company may place minimal or no value on our assets or our public listing. Further, should we resume the development of our product candidates, the development and any potential commercialization of our product candidates will require substantial additional cash to fund the costs associated with conducting the necessary preclinical and clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction involving the Company may choose not to spend additional resources and continue development of our product candidates and may attribute little or no value, in such a transaction, to those product candidates.

Previous report

Even if we successfully consummate a transaction from our strategic assessment, we may fail to realize all of the anticipated benefits of the transaction, those benefits may take longer to realize than expected, or we may encounter integration difficulties.

Previous report

Our ability to realize the anticipated benefits of any potential business combination or any other result from our strategic assessment is highly uncertain. Any anticipated benefits will depend on a number of factors, including our ability to integrate with any future business partner, the success of any future business we may engage in following the transaction and our ability to obtain value for our product candidates or technologies, if divested. The process may be disruptive to our business and the expected benefits may not be achieved within the anticipated timeframe, or at all. The failure to meet the challenges involved and to realize the anticipated benefits of any potential transaction could adversely affect our business and financial condition. Furthermore, our stockholders may experience substantial dilution as a result of the transaction without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent we are able to realize only part of the expected strategic and financial benefits currently anticipated from a transaction.

Previous report

•increased near-term and long-term expenditures;

Previous report

•unknown liabilities;

Previous report

•higher than expected acquisition or integration costs;

Previous report

•increased amortization expenses;

Previous report

•difficulty and cost in combining the operations and personnel of any counterparty business with our operations and personnel;

Previous report

•possibility of future litigation.

Previous report

Any of the foregoing risks could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Previous report

There can be no assurance that a strategic transaction will be completed. If a strategic transaction is not completed, our Board of Directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision and, with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations and exploration of strategic alternatives. In addition, if our Board of Directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our Board of Directors, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up.

Previous report

Our ability to consummate a strategic transaction depends on our ability to retain our remaining employees and consultants.

Previous report

Our ability to consummate a strategic transaction depends upon our ability to retain our remaining employees and consultants, the loss of whose services may adversely impact our ability to consummate such transaction. In connection with the evaluation of strategic alternatives and in order to extend our resources, on December 7, 2023, we implemented a strategic restructuring plan that included reducing our workforce. The reduction in force has impacted approximately __% of our workforce to date, including key members of our management team. Our cash conservation activities may yield unintended consequences, such as attrition beyond our planned reduction in workforce and reduced employee morale, which may cause remaining employees and consultants to seek alternative opportunities. If we are unable to successfully retain our remaining personnel, we are at risk of a disruption to our exploration and consummation of a strategic alternative as well as business operations.

Previous report

In the past, litigation, including securities class action litigation, has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events, such as negative results from clinical trials. These events may also result in investigations by the SEC or other governmental agencies. We may be exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic transaction or the ultimate value our stockholders receive in any such transaction.