Hepion Pharmaceuticals Inc

There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, 2023 except for the following:

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.

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.

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

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

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.

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.

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:

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.