UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2024

OR

For the transition period from to

Commission File Number: 001-40591

HCW Biologics Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (954) 842–2024

Securities registered pursuant to Section 12(b) of the Act:

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, a 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.

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 Exchange Act). Yes ☐ No ☒

As of May 13, 2024, the registrant had 37,823,394 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HCW Biologics Inc.

Condensed Balance Sheets

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Condensed Statements of Operations

(Unaudited)

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Condensed Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2023 and 2024

(Unaudited)

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Notes to Condensed Interim Financial Statements

(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2023 included in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 15, 2024 (the “Annual Report”). Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “HCW Biologics,” “HCWB”, “we,” “us” and “our” refer to HCW Biologics Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success of our clinical trials, plans and objectives of management for future operations, adequacy of our cash resources and working capital, future economic conditions or performance, and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A -“Risk Factors,” in this Quarterly Report on Form 10-Q and in other filings we make with the SEC from time to time. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. These forward-looking statements speak only as of the date hereof. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Overview

HCW Biologics Inc. is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases. We believe age-related, chronic, low-grade inflammation, or “inflammaging,” is a significant contributing factor to several diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The induction and retention of low-grade inflammation in an aging human body is mainly the result of the accumulation of non-proliferative but metabolically active senescent cells, which can also be caused by persistent activation of protein complexes, known as inflammasomes, in innate immune cells. These two elements share common mechanisms in promoting secretion of proinflammatory proteins and in many cases interact to drive senescence, and thus, inflammaging. Our novel approach is to reduce senescent cells and eliminate the proinflammatory factors they secrete systemically through multiple pathways. We believe our approach has the potential to fundamentally change the treatment of age-related diseases.

Accumulation of senescent cells with a senescence-associated proinflammatory factors has been implicated as a major source of chronic sterile inflammation leading to many aging-related pathologies. The key to the HCWB immunotherapeutic approach is elimination of senescent cells and the proinflammatory factors they secrete. Our lead product candidates address the two primary processes that promote chronic inflammation, as explained below:

HCW9218. Subcutaneous administration of our clinical-stage, lead drug candidate, HCW9218, activates NK cells, innate lymphoid group-1, and CD8+T cells, and neutralizes TGF-β. This bifunctionality gives HCW9218 the ability to reduce senescent cells

as well as eliminate senescence-associated proinflammatory factors, and function as a senomorphic agent. HCW9218 is the basis for our cancer program.

HCW9302. Subcutaneous administration of our preclinical-stage, lead drug candidate, HCW9302, is designed to activate and expand Treg cells to reduce senescence by suppressing the activity of inflammasome-bearing cells and the inflammatory factors which they secrete. HCW9302 is the basis for our autoimmune program.

Business Highlights

Financing

Clinical Development

Trends and Uncertainties

Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment

Our operations have been affected by many headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war between Russia and Ukraine, the war in the Middle East, China-Taiwan relations, financial market volatility and currency movements. These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities. In addition, we have been impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs. Further, rising interest rates have also increased borrowing costs. The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines. However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.

For discussion of risks related to potential impacts of supply chain, inflation, geopolitical and macroeconomic challenges on our operations, business results and financial condition, see Part II, Item 1A. - “Risk Factors” in the Company’s Annual Report.

Components of our Results of Operation

Revenues

We have no products approved for commercial sale and have not generated any revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases. The principal source of our revenues to date have been generated from our Wugen License and Master Services Agreement (the “MSA”) with Wugen. See Note 1 to our condensed interim financial statements included elsewhere in this Quarterly Report for these definitions and more information.

We derive revenue from a license agreement granting rights to Wugen to further develop and commercialize products based on two of our internally-developed molecules. Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales of approved products. Additionally, HCW Biologics retained manufacturing rights and has agreed to provide Wugen with clinical and research grade materials for clinical development and commercialization of licensed products under separate agreements. We assessed which activities in the Wugen License should be considered distinct performance obligations that should be accounted for separately. We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the Wugen License.

Performance obligations relating to the granting a license and delivery of licensed product and R&D know-how were satisfied when transferred upon the execution of the Wugen License on December 24, 2020. The Company recognized revenue for the related consideration at a point in time. The revenue recognized from a transaction to supply clinical and research grade materials entered into under the MSA and covered by a Statement of Work (“SOW”), represents one performance obligation that is satisfied over time. The Company recognizes revenue generated for supply of material for clinical development using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company’s progress toward completion.

Operating Expenses

Our operating expenses are reported as research and development expenses and general and administrative expenses.

Research and Development

Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

We expense research and development costs as they are incurred. Costs for contract manufacturing are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the agreement, and the pattern of payments for goods and services will change depending on the material. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

We expect research and development expenses to increase substantially for the foreseeable future as we continue the development of our product candidates. We cannot reasonably determine the nature, timing, and costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. See “Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates,” in our Annual Report for a discussion of some of the risks and uncertainties associated with the development and commercialization of our product candidates. Any changes in the outcome of any of these risks and uncertainties with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, related benefits, and stock-based compensation expense for employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as insurance costs, fees for professional services, such as legal, auditing and tax services, facilities administrative costs, and other expenses.

During the period ended December 31, 2022, Altor/NantCell, a former employer of Dr. Hing C. Wong, our Founder and Chief Executive Officer, initiated legal proceedings against Dr. Wong and the Company. On April 26, 2023, the parties stipulated that Altor/NantCell’s action against the Company would be consolidated with the Altor/NantCell arbitration demand against Dr. Wong. On April 27, 2023, the U.S. District Court for the Southern District of Florida (the “Court”) with jurisdiction over lawsuit against the Company approved the parties’ stipulation and ordered the parties to arbitration. On May 1, 2023, Altor/NantCell filed a demand against the Company before JAMS. On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case. Altor/NantCell’s proceeding against the Company is now proceeding in arbitration before JAMS and is consolidated with the arbitration Altor/NantCell initiated against Dr. Wong. The arbitration hearing is scheduled to begin on May 20, 2024. In connection with claims brought against Dr. Wong, Altor/NantCell has advancement obligations to him for claims brought against him and is currently advancing half of Dr. Wong’s legal fees while the Company advances the other half of Dr. Wong’s legal fees; however, Altor/NantCell is seeking reimbursement of all the legal fees and expenses it has advanced to Dr. Wong. The Company also has incurred legal expenses on its own behalf in the period ended March 31, 2024, and we expect to continue to incur material costs and expenses in connection with defending the Company in the foregoing legal matters through the third quarter of 2024.

We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, to continue to increase for the foreseeable future as we scale our operations.

Interest Expense

Interest expense includes interest paid on debt.

Other Income, Net

Other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S. government-backed securities, and other income and expenses related to non-operating activities.

Results of Operations

Comparison of the Three Months ended March 31, 2023 and March 31, 2024

Revenues

The Company recognized revenues of $41,883 and $1.1 million for the three months ended March 31, 2023 and 2024, respectively. Revenues were derived exclusively from the sale of licensed molecules to Wugen. The increase in revenues is primarily attributable to Wugen limiting its purchases in 2023, due mainly to changes in its clinical development program and delays in ramping up its manufacturing process. Under the terms of the supply agreement between Wugen and the Company, the Company earns an industry-standard gross margin. Occasionally, Wugen acquires product which is part of inventory we made for our own use. In these instances, we do not apply the standard costs since the cost of manufacturing these materials would have already been expensed in a prior period.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2023 and March 31, 2024:

Research and development expenses decreased by $132,529, or 6%, from $2.3 million for the three months ended March 31, 2023 to $2.1 million for the three months ended March 31, 2024. The decrease was primarily due to a decline in preclinical expenses, partially offset by an increase in manufacturing and materials expenses.

Salaries, benefits, and related expenses increased by $35,282, or 5%, from $744,465 for the three months ended March 31, 2023 to $779,747 for the three months ended March 31, 2024. This increase was primarily attributable to a $27,234 increase in salaries and a $6,711 increase in benefits.

Manufacturing and materials expense increased by $291,396, or 102%, from $284,905 for the three months ended March 31, 2023 to $576,301 for the three months ended March 31, 2024. In the three months ended March 31, 2023, costs were primarily costs associated with a 200L cGMP run of HCW9302. In the three months ended March 31, 2024, costs were primarily attributable to the costs of production and materials related to manufacturing the high producing cell-line of HCW9101.

Expenses associated with preclinical activities decreased by $452,595, or 61%, from $737,686 for the three months ended March 31, 2023 to $285,091 for the three months ended March 31, 2024. For the three months ended March 31, 2023, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for Phase 1b/2 clinical trial to evaluate HCW9302 in an autoimmune indication. In the three months ended March 31, 2024, toxicology and other IND-enabling studies were winding down, as we prepare to submit the IND application in the third quarter of 2024.

Expenses associated with clinical activities increased by $20,282, or 8%, from $246,358 for the three months ended March 31, 2023 to $266,640 for the three months ended March 31, 2024. The increase in costs was primarily attributable a $100,248 increase in the expenses associated with correlative studies and R&D collaborations, partially offset by a $79,966 decrease in patient fees and other clinical costs.

Subject to our ability to successfully execute our plans to obtain bridge financing, we anticipate expenses related to clinical activities will increase substantially in the future, as we enter Phase 2 clinical trials to evaluate HCW9218 in ovarian and pancreatic cancer, as well as other indications. The first Phase 2 clinical trial to open is at UPMC, who will sponsor a randomized study in which one arm will evaluate HCW9218 in patients with metastatic advanced stage ovarian cancer in combination with neoadjuvant chemotherapy. Designed as a randomized trial, the primary objectives of this study are to evaluate the safety and tolerability of HCW9218 with chemotherapy and the efficacy of the combined regimens in terms of complete pathologic response rate. If we are unable to complete planned business development and capital-raising transactions, we may have to curtail or cease operations.

Other expenses, which include overhead allocations, decreased by $26,894, or 11%, from $242,399 for the three months ended March 31, 2023 to $215,505 for the three months ended March 31, 2024. This decrease is primarily attributable to a $30,527 decrease allocation of depreciation, a $4,336 decrease in travel and travel-related expenses and a $8,503 decrease in expenses for equipment and supplies, partially offset by a $14,489 increase in repairs and maintenance.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2023 and March 31, 2024:

General and administrative expenses increased by $2.9 million, or 92%, from $3.1 million for the three months ended March 31, 2023 to $6.0 million for the three months ended March 31, 2024. The increase was primarily due to an increase in professional fees, which includes legal fees associated with the proceedings brought against the Company by Altor/NantCell, partially offset by a decrease in salaries, benefits and related expenses.

Salaries, benefits and related expenses decreased by $298,168, or 36%, from $819,778 for the three months ended March 31, 2023 to $521,610 for the three months ended March 31, 2024. The decrease was primarily attributable to a $299,174 decline in performance-related bonus compensation.

Professional services increased by $3.1 million, or 180%, from $1.7 million for the three months ended March 31, 2023 to $4.8 million for the three months ended March 31, 2024. Professional services include corporate legal services, expenses related to legal actions brought by Altor/NantCell, and other professional services, such as auditing and tax advisory fees. For the three months ended March 31, 2023, the Company incurred $1.1 million for legal fees in connection with the Altor/NantCell matter, $359,754 for legal fees in connection to procuring patents, and $233,007 in fees associated with other professional services. For the three months ended March 31, 2024, the Company incurred $4.1 million for legal fees in connection with the Altor/NantCell matter, $168,344 for legal fees in connection to procuring patents, and $185,462 in fees associated with other professional services. We expect to continue to incur material costs and expenses in connection with defending the Company in the Altor/NantCell matter through the third quarter of 2024.

Facilities and office expenses increased by $81,378, or 67%, from $122,221 for the three months ended March 31, 2023 to $203,599 for the three months ended March 31, ,2024, primarily due to a $67,518 increase in software and other licensing fees and a $16,960 increase in facilities expenses such as electricity and waste.

Other expenses increased by $20,949, or 6%, from $356,331 for the three months ended March 31, 2023 to $377,280 for the three months ended March 31, 2024. The increase is primarily attributable to an increase of $147,525 in financing expenses, partially offset by a $57,337 decrease in insurance-related costs and a $74,093 decrease in Delaware franchise taxes.

Interest Expense

On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property we acquired on that same date. We borrowed $6.5 million under this agreement. Amounts outstanding on the loan accrue interest at a rate per annum equal to 5.75%. We were obligated to make interest-only payments on this loan from September 2022 through August 2023 and principal and interest payments in 47 equal monthly installments, based on a 25-year maturity schedule, commencing September 15, 2023. We paid $93,438 and $93,789 in cash for interest for the three months ended March 31, 2023 and 2024, respectively. For the three months ended March 31, 2023, interest was expense. For the three months ended March 31, 2024, interest was capitalized.

Other Income, Net

Other income, net decreased from $383,322 for the three months ended March 31, 2023, to $25,602 for the three months ended March 31, 2024. The decrease is primarily attributable to a decrease interest earned for money market deposits and unrealized gains for investments in U.S. government-backed securities. In addition, for the three months ended March 31, 2023, Other income included rental income. On August 15, 2022, the Company entered into a short-term, market-rate lease with the former owner of the building we purchased on the same date, which terminated in the year ended December 31, 2023. We received rental income of $59,453 for the three months ended March 31, 2023.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2024, our principal source of liquidity was $4.1 million in cash and cash equivalents, and there was substantial doubt over whether the Company had sufficient capital to operate for the next twelve months from the issuance date of this Quarterly Report based on this liquidity. We considered elements of our financing plan that were probable and likely to be implemented within the next year, and we concluded such financing plans were not sufficient to mitigate the substantial doubt in our going concern analysis.

On August 15, 2022, we purchased a 36,000 square foot building located in Miramar, Florida for approximately $10.1 million, including transaction costs. A portion of the acquisition cost was funded with a $6.5 million five-year loan, secured by the building. The remainder of the purchase price was funded with cash. Amounts borrowed under the term facility have a fixed interest rate of 5.75%, with interest only payments required for the first year and 25-year amortization thereafter. There is no prepayment penalty. As of March 31, 2024, a balance of [$6.4] million remains due for this obligation, [$6.3] million of which is classified as a noncurrent liability included in Debt, net in the balance sheet included in the interim financial statements included in this Quarterly Report. As of March 31, 2024, we were in compliance with all covenants under the loan agreement and related documents.

Since the year end, we raised $6.1 million in financings. On February 20, 2024, we completed a $2.5 million private placement of common stock in which we sold an aggregate of 1,785,718 shares to certain of our officers and directors, at a purchase price of $1.40 per share. As of March 31, 2024, we received $2.0 million from the issuance of Secured Notes, which were issued to

certain of our officers and a member of the Board of Directors, as well as other investors. On May 13, 2024, the Company’s Founder and Chief Executive Officer purchased an additional $1.6 million of Secured Notes.

In a Current Report on Form 8-K filed with the SEC on May 1, 2024, we reported that we were the victim of a criminal scheme that resulted in a loss of $1.3 million and a default on a legally binding commitment to purchase $8.0 million of Secured Notes. Management is currently in discussions with the Audit Committee of the Company’s Board of Directors to assess the effect of this incident and will work with management to establish a remediation plan. See Item 4. - “Controls and Procedures.” The loss did not have any impact on the Company’s financial position, results of operations or cash flows as of and for the three month period ended March 31, 2024.

Management has made some reductions in costs, but in order to continue the clinical development for our lead product candidates, we must maintain a core group of scientists. We continue to pursue our plan to obtain bridge financing through the issuance of up to $10.0 million in Secured Notes, $3.6 million of which have been issued to date in 2024. We anticipate this bridge financing, if fully subscribed, will allow us to reach such time as we can execute plans for business development transactions such as licenses for non-core assets and capital-raising transactions, although we cannot assure you of this outcome for many reasons, including uncertainties regarding the Company’s ongoing arbitration proceedings with Altor/NantCell, as described in Part II., Item 1. - “Legal Proceedings.” In addition to the bridge financing in the form of the sale of additional Secured Notes, other potential near-term financing plans may include cooperative agreements for clinical trials and third-party collaboration funding. If the Company is not successful in raising additional capital, management has the intent and ability to revise its business plan and reduce costs. If such revisions are insufficient, the Company may have to curtail or cease operations.

Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities. Our funding requirements will depend on many factors, including, but not limited to:

A change in the outcome of any of these or other factors with respect to the clinical development and commercialization of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.

Comparison of the Cash Flows for the Three Months Ended March 31, 2023 and March 31, 2024

The following table summarizes our cash flows for the three months ended March 31, 2023 and March 31, 2024: