HEPION PHARMACEUTICALS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

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. 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. All amounts in this report
are in U.S. dollars, unless otherwise noted.

Company overview

We are a biopharmaceutical company headquartered in Edison, New Jersey, focused
primarily on the development of drug therapy for treatment of chronic liver
diseases. This therapeutic approach targets fibrosis, inflammation, and shows
potential for the treatment of hepatocellular carcinoma ("HCC") associated with
non-alcoholic steatohepatitis ("NASH"), viral hepatitis, and other liver
diseases. Our cyclophilin inhibitor, Rencofilstat (formerly CRV431), is being
developed to offer benefits to address multiple complex pathologies relate to
advanced liver disease. Rencofilstat is a pan cyclophilin inhibitor that targets
multiple pathologic pathways involved in the progression of liver disease.
Preclinical studies with Rencofilstat in NASH models demonstrated consistent
reductions in liver fibrosis and additional reductions in inflammation and
cancerous tumors in some studies. Rencofilstat additionally showed in vitro
antiviral activity towards hepatitis B, C, and D viruses which also trigger
liver disease. Preclinical studies also have shown potentially therapeutic
activities of Rencofilstat in experimental models of acute lung injury, platelet
activation, and SARS-CoV-2 replication.

NASH is the form of liver disease that is triggered by what has come to be known
as the "Western diet", characterized especially by high-fat, high-sugar, and
processed foods. Among the effects of a prolonged Western diet is fat
accumulation in liver cells (steatosis) which is described as NAFLD and can
predispose cells to injury. NAFLD may evolve into NASH when the fatty liver
begins to progress through stages of cell injury, inflammation, fibrosis, and
carcinogenesis. People who develop NASH often have additional predisposing
conditions such as diabetes and hypertension, but the exact biochemical events
that trigger and maintain the progression are not well known. Many people in the
early stages of disease do not have significant

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clinical symptoms and therefore do not know that they have it. NASH becomes
evident and a major concern when the liver becomes fibrotic and puts the
individual at increased risk of developing cirrhosis and other complications.
Individuals with advanced liver fibrosis have significantly higher risk of
developing liver cancer, although cancer may also arise in some patients before
significant hepatitis or fibrosis. NASH is increasing worldwide at an alarming
rate due to the spread of the Western diet, obesity, and other related
conditions. Approximately 4-5% of the global population is estimated to have
NASH, including the USA. NASH is the leading reason for individuals requiring a
liver transplant in the USA. Considering the serious outcomes linked to
advancing NASH, the economic and social burden of the disease is enormous. There
are no simple blood tests to diagnose or track the progression of NASH, and no
drugs are approved to specifically treat the disease.

Artificial Intelligence (AI)

We have created a proprietary AI tool called, "AI-POWR™ to optimize the outcomes
of our current clinical programs and to potentially identify novel indications
for Rencofilstat and possibly identify new targets and new drug molecules to
broaden our pipeline.

AI-POWR™ is our acronym for Artificial Intelligence - Precision Medicine; Omics
that include genomics, proteomics, metabolomics, transcriptomics, and
lipidomics; World database access; and Response and clinical outcomes. AI-POWR™
allows for the selection of novel drug targets, biomarkers, and appropriate
patient populations. AI-POWR™ is used to identify responders from big data
sources using our multi-omics approach, while modelling inputs and scenarios to
increase response rates. The components of AI-POWR™ include access to publicly
available databases, and in-house genomic and multi-omic big data, processed via
machine learning algorithms. We believe AI outputs will allow for improved
response outcomes through enhanced patient selection, biomarker selection and
drug target selection. We believe AI outputs will help identify responders a
priori and reduce the need for large sample sizes through study design
enrichment.

We intend to use AI-POWR™ to help identify which NASH patients will best respond
to Rencofilstat. It is anticipated that applying this proprietary platform to
our drug development program will ultimately save time, resources, and money. In
so doing, we believe that AI-POWR™ is a risk-mitigation strategy that should
reap benefits all the way through from clinical trials to commercialization. The
AI-POWR™ platform is continually updated with in-house and published data to
further refine the accuracy of the neural network.

We believe that NASH is a heterogenous disease and we need to have a better
understanding of interactions among proteins, genes, lipids, metabolites, and
other disease variables to help predict disease progression, regression, and
responses to Rencofilstat. All of this is further complicated by variable drug
concentrations, patient traits and temporal factors. AI-POWR™ is designed to
address many of the typical challenges in drug development, as we believe we can
use our proprietary platform to shorten development timelines and increase the
delta between placebo and treatment groups. AI-POWR™ will be used to drive our
ongoing Phase 2a NASH program and identify additional potential indications for
Rencofilstat to expand our footprint in the cyclophilin inhibition therapeutic
space.

Impact of COVID-19

The COVID-19 outbreak in the United States has caused significant business
disruption. The extent of the impact of COVID-19 on our future operational and
financial performance will depend on certain developments, including the
duration and spread of the outbreak, and impact on our clinical trials,
employees and vendors, all of which are uncertain and cannot be predicted. At
this point, the extent to which COVID-19 may impact our future financial
condition or results of operations is uncertain. While there has not been a
material impact on our consolidated financial statements for the year ended
December 31, 2021, a prolonged outbreak could have a material adverse impact on
our financial results and business operations, including the timing and our
ability to complete certain clinical trials and other efforts required to
advance the development of our product candidate and raise additional capital.

OVERVIEW OF FINANCIAL OPERATIONS

From inception through December 31, 2021, we have an accumulated deficit of
$133.5 million and we have not generated any revenue from operations. We expect
to incur additional losses to perform further research and development
activities and do not currently have any commercial biopharmaceutical products.
We do not expect to have such for several years, if at all.

On February 16, 2021, we entered into an underwriting agreement (the
"Underwriting Agreement") with ThinkEquity, a division of Fordham Financial
Management, Inc., as the representative (the "Representative") of the
underwriters listed therein (collectively, the "Underwriters"), with respect to
an underwritten public offering (the "Offering") of 44,200,000 shares of our
common stock, par value $0.0001 (the "Shares"), at a public offering price of
$2.00 per share, which resulted in net proceeds to us of $82.1 million, after
deducting underwriting discounts and commissions and offering expenses payable
by us. We intend to use the net proceeds of this Offering to fund our research
and development activities and general corporate purposes, including working
capital, operating expenses and capital expenditures. The Offering closed on
February 18, 2021.

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Our product development efforts are in their early stages and we cannot make
estimates of the costs or the time they will take to complete. The risk of
completion of any program is high because of the many uncertainties involved in
bringing new drugs to market including the long duration of clinical testing,
the specific performance of proposed products under stringent clinical trial
protocols, the extended regulatory approval and review cycles, our ability to
raise additional capital, the nature and timing of research and development
expenses and competing technologies being developed by organizations with
significantly greater resources.

RECENT ACCOUNTING PRONOUNCEMENTS

For detailed information regarding recently issued accounting pronouncements and
the expected impact on our consolidated financial statements, see Note 4,
"Recent Accounting Pronouncements" in the accompanying Notes to Consolidated
Financial Statements.

RESULTS OF OPERATIONS

Comparison of years ended December 31, 2021 and 2020:

                                                                        Year Ended
                                                                       December 31,
                                                                2021                   2020                  Change
Revenues                                                  $           -                      -          $           -
Costs and Expenses:
Research and development                                     20,395,136             11,997,272              8,397,864
General and administrative                                   10,008,173              8,148,803              1,859,370
Loss from operations                                        (30,403,309)           (20,146,075)           (10,257,234)

Other income (expense):
Interest expense                                                 (8,859)               (31,229)                22,370

Change in fair value of derivatives-warrants and contingent consideration

                                 (2,310,000)              (146,050)            (2,163,950)
Loss before income taxes                                    (32,722,168)           (20,323,354)           (12,398,814)
Income tax (expense) benefit                                          -                (30,584)                30,584
Net loss                                                  $ (32,722,168)         $ (20,353,938)         $ (12,368,230)

We have had no income in the years ended December 31, 2021 and 2020, respectively, as we do not have commercial biopharmaceuticals and we do not expect to have such products for several years, if at all.

Research and development expenses for the years ended December 31, 2021 and 2020
were $20.4 million and $12.0 million, respectively. The increase of $8.4 million
was primarily due to an increase in stock compensation of $0.8 million related
to options granted in 2021, a $0.8 million increase in compensation cost due to
an increase in headcount, a $5.0 million increase clinical trial costs related
to the start of the phase 2b trial, and a $2.4 million increase in Chemistry,
Manufacturing, and Controls, or CMC, costs primarily for an increase in drug
costs to support our clinical trials. This was offset by a decrease in
consulting services of $0.6 million.

General and administrative expenses for the years ended December 31, 2021 and
2020 amounted to $10.0 million and $8.1 million, respectively. The increase of
$1.9 million is primarily due to an increase in stock compensation of $1.5
million related to options granted in 2021, a $0.3 million increase in
compensation cost due to an increase in headcount, a $0.4 million increase in
insurance, and a $0.3 million increase in miscellaneous expenses. This was
offset by a decrease in taxes of $0.3 million and a $0.3 million decrease for
consulting and outside services.

During the year ended December 31, 2021 and 2020, we recorded income tax expense
of $0 and an income tax benefit of $30,584, respectively, resulting from an
adjustment to a deferred tax liability. Refer to Note 10 in the consolidated
financial statements included in this Annual Report on Form 10-K.

Cash and capital resources

Sources of liquidity

We have funded our operations through December 31, 2021 primarily through the
issuance of convertible preferred stock, the issuance and sale of shares of our
common stock in our IPO, and subsequent issuances of shares of our common stock
through at-the market offerings.

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Future funding needs

We have no products approved for commercial sale. To date, we have devoted
substantially all of our resources to organizing and staffing our company,
business planning, raising capital, undertaking preclinical studies and clinical
trials of our product candidate. As a result, we are not profitable and have
incurred losses in each period since our inception in 2013. As of December 31,
2021, we had an accumulated deficit of $133.5 million. We expect to continue to
incur significant losses for the foreseeable future. We anticipate that our
expenses will increase substantially as we:

•pursue the clinical and preclinical development of our current product candidate;

•use our technologies to advance product candidates towards preclinical and clinical development;

•seek regulatory approvals for our product candidate that successfully completes clinical trials, if applicable;

•attract, hire and retain additional clinical, quality control and scientific staff;

•establish our manufacturing capabilities through third parties and increase manufacturing to provide adequate supply for clinical trials and commercialization;

•expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

•expand and protect our intellectual property portfolio;

•establish a sales, marketing, medical affairs and distribution infrastructure
to commercialize any products for which we may obtain marketing approval and
intend to commercialize on our own or jointly;

•acquire or license other product candidates and technologies; and

•incur additional legal, accounting and other expenses in the course of operating our business, including ongoing costs associated with operating as a public company.

Even if we succeed in commercializing our product candidate, we will continue to
incur substantial research and development and other expenditures to potentially
develop and market additional product candidates. We may encounter unforeseen
expenses, difficulties, complications, delays and other unknown factors that may
adversely affect our business. The size of our future net losses will depend, in
part, on the rate of future growth of our expenses and our ability to generate
revenue. Our prior losses and expected future losses have had and will continue
to have an adverse effect on our stockholders' equity and working capital.

We will require substantial additional financing, and failure to obtain such necessary capital may require us to delay, limit, reduce or terminate our product development programs, marketing efforts or other operations.

Since our inception, we have invested a significant portion of our efforts and
financial resources in research and development activities for our
non-replicating and replicating technologies and our product candidates derived
from these technologies. Preclinical studies and clinical trials and additional
research and development activities will require substantial funds to complete.
We believe that we will continue to expend substantial resources for the
foreseeable future in connection with the development of our current product
candidates and programs as well as any future product candidates we may choose
to pursue, as well as the gradual gaining of control over our required
manufacturing capabilities and other corporate uses. These expenditures will
include costs associated with conducting preclinical studies and clinical
trials, obtaining regulatory approvals, and manufacturing and supply, as well as
marketing and selling any products approved for sale. In addition, other
unanticipated costs may arise. Because the outcome of any preclinical study or
clinical trial is highly uncertain, we cannot reasonably estimate the actual
amounts necessary to successfully complete the development and commercialization
of our current or future product candidates.

Our future capital requirements depend on many factors, including:

•the scope, progress, results and costs of research and development of our current and future product candidates and programs, and of conducting preclinical studies and clinical trials;

• the number and development requirements of other product candidates that we may pursue, and other indications for our current product candidate that we may pursue;

•stability, scale and yields during the manufacturing process as we scale up production and formulation of our product candidate for later stages of development and commercialization;

•the timing of, and the costs involved in, obtaining regulatory and marketing
approvals and developing our ability to establish sales and marketing
capabilities, if any, for our current and future product candidates we develop
if clinical trials are successful;

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• our ability to establish and maintain collaborations, strategic licenses or other agreements and the financial terms of such agreements;

•the cost of commercialization activities for our current and future product candidates that we may develop, whether alone or with a collaborator;

•the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

• the timing, receipt and amount of sales or royalties on our future products, if any; and

A change in the outcome of any of these or other variables with respect to the
development of any of our current and future product candidates could
significantly change the costs and timing associated with the development of
that product candidate. Furthermore, our operating plans may change in the
future, and we will need additional funds to meet operational needs and capital
requirements associated with such operating plans.

We believe we have enough cash on hand to fund our operations for the next
twelve months. We will be required to raise additional capital to continue the
development and commercialization of our current product candidate and to
continue to fund operations at the current cash expenditure levels. We cannot be
certain that additional funding will be available on acceptable terms, or at
all. To the extent that we raise additional funds by issuing equity securities,
our stockholders may experience significant dilution. Any debt financing, if
available, may involve restrictive covenants that impact our ability to conduct,
delay, scale back or discontinue the development and/or commercialization of one
or more product candidates; (ii) seek collaborators for product candidates at an
earlier stage than otherwise would be desirable and on terms that are less
favorable than might otherwise be available; or (iii) relinquish or otherwise
dispose of rights to technologies, product candidates or products that we would
otherwise seek to develop or commercialize on unfavorable terms.

Cash flow

The following table summarizes our cash flows for the following periods:

                                                Year Ended
                                               December 31,
                                         2021               2020
Net cash provided by (used in):
Operating activities                $ (31,224,481)     $ (16,165,202)
Investing activities                     (130,405)           (85,789)
Financing activities                   81,977,015         43,054,857
Net increase in cash                $  50,622,129      $  26,803,866


As of December 31, 2021, we had working capital of $89.2 million compared to
working capital of $38.0 million as of December 31, 2020. The increase of $51.2
million in working capital is primarily related to an increase in cash and cash
equivalents from our equity offerings during 2021 offset by an increase of $3.0
million to short-term contingent consideration.

Operational activities :

As of December 31, 2021, we had $91.3 million in cash. Net cash used in
operating activities was $31.2 million for the year ended December 31, 2021
consisting primarily of our net loss of $32.7 million, adjusted for non-cash
charges of $4.7 million primarily for stock-based compensation and an increase
in the fair value of contingent consideration of $2.3 million. Changes in
working capital accounts had a negative impact of $5.6 million on cash primarily
due to an increase in prepaid research costs.

Net cash used in operating activities was $16.2 million for the year ended
December 31, 2020 composed primarily of our net loss of $20.4 millionadjusted for non-cash charges of $2.6 million primarily for stock-based compensation. Changes in working capital accounts had a positive impact of $1.6 million cash.

Investing Activities:

Net cash used in investing activities during the year ended December 31, 2021
been $0.1 million and was related to the purchase of equipment for research and development.

Net cash used in investing activities during the year ended December 31, 2020
been $0.1 million and was related to the purchase of equipment for research and development.

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Fundraising activities:

Net cash provided by financing activities was $82.0 million for the year ended
December 31, 2021 due primarily to the issuance of common stock, net of issuance
costs for our equity offering of $82.2 million in February 2021.

Net cash provided by financing activities was $43.1 million for the year ended
December 31, 2020 due primarily to the issuance of common stock, net of issuance
costs for our equity offerings $42.9 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This 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 generally accepted accounting principles ("GAAP") in
the United States of America. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reported period. In
accordance with GAAP, we base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

We believe that the assumptions and estimates associated with fair value of
financial instruments, derivative financial instruments, income taxes,
contingencies, research and development, goodwill and in-process research and
development, and share-based payments have the greatest potential impact on our
consolidated financial statements. We evaluate these estimates on an ongoing
basis. Actual results could differ from those estimates under different
assumptions or conditions, and any differences could be material. For further
information on all of our significant accounting policies, see Note 3 of the
Notes to the Consolidated Financial Statements under Item 8 of this Annual
Report on Form 10-K.

Fair value of financial instruments

Financial instruments consist of cash, accounts payable, contingent
consideration and derivative instruments. These financial instruments are stated
at their respective historical carrying amounts, which approximate fair value
due to their short-term nature, except for contingent consideration and
derivative instruments. We record our contingent consideration and derivative
instruments at fair value at the end of each reporting period.

Contingent consideration was related to the acquisition of Ciclofilin and
recorded on June 10, 2016. The contingent consideration represented the
acquisition date fair value of potential future payments, to be paid in cash and
our common stock, upon the achievement of certain milestones and in 2016 was
estimated based on a probability-weighted discounted cash flow model utilizing a
discount rate of 6.5% and a stock price of $19.60. We completed the first
segment of our Phase 1 clinical activities for Rencofilstat in October 2018
wherein we reached a major clinical milestone of positive data from a Phase I
trial of Rencofilstat in humans. This achievement triggered the first milestone
payment, as stated in the Merger Agreement for the acquisition of Ciclofilin
Pharmaceuticals, Inc. (Ciclofilin,) and we paid a related milestone payment of
$1,000,000 and issued 1,439 shares of our common stock with a fair value of
$55,398, representing 2.5% of our issued and outstanding common stock as of
June 2016, to the Ciclofilin shareholders. The Merger Agreement for the
acquisition of Ciclofilin was amended on January 14, 2022 (see Note 13 to the
consolidated financial statements) and a payment of $2.0 million was made in
January 2022.

Income Taxes

We account for income taxes under the asset and liability method. We recognize
deferred tax assets and liabilities for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, as well as for operating
loss and tax credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable income in the
years in which we expect to recover or settle those temporary differences. We
recognize the effect of a change in tax rates on deferred tax assets and
liabilities in the results of operations in the period that includes the
enactment date. We reduce the measurement of a deferred tax asset, if necessary,
by a valuation allowance if it is more likely than not that we will not realize
some or all of the deferred tax asset. We account for uncertain tax positions by
recognizing the financial statement effects of a tax position only when, based
upon technical merits, it is "more-likely-than-not" that the position will be
sustained upon examination. Potential interest and penalties associated with
unrecognized tax positions are recognized in income tax expense.

We continue to maintain a full valuation allowance for our U.S and foreign net
deferred tax assets. Income tax expense for the years ended December 31, 2021
and 2020 are related to our foreign operations.

Under the provisions of the Internal Revenue Code, the NOL and tax credit
carryforwards are subject to review and possible adjustment by the Internal
Revenue Service and state tax authorities. NOL and tax credit carryforwards may
become subject to an annual limitation in the event of certain cumulative
changes in the ownership interest of significant shareholders over a three-year
period in excess of 50%, as defined under Sections 382 and 383 of the Internal
Revenue Code of 1986, respectively, as well as similar state tax provisions.
This could limit the amount of tax attributes that we can utilize annually to

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offset future taxable income or tax liabilities. The amount of the annual
limitation, if any, will be determined based on our value immediately prior to
the ownership change. Subsequent ownership changes may further affect the
limitation in future years. The utilization of these NOLs is subject to
limitations based on past and future changes in our ownership pursuant to
Section 382 We completed a Section 382 study of transactions in our stock
through December 31, 2021 and concluded that we have experienced ownership
changes since inception that we believe under Section 382 and 383 of the Code
will result in limitations on our ability to use certain pre-ownership change
NOLs and credits (see Note 2 to the consolidated financial statements). In
addition, we may experience subsequent ownership changes as a result of future
equity offerings or other changes in the ownership of our stock, some of which
are beyond our control. As a result, the amount of the NOLs and tax credit
carryforwards presented in our consolidated financial statements could be
limited. Similar provisions of state tax law may also apply to limit the use of
accumulated state tax attributes (see Note 10 to the consolidated financial
statements).

Contingencies

In the normal course of business, we are subject to loss contingencies, such as
legal proceedings and claims arising out of our business that cover a wide range
of matters, including, among others, government investigations, shareholder
lawsuits, product and environmental liability, and tax matters. In accordance
with ASC Topic 450, Accounting for Contingencies, ("ASC 450"), we record
accruals for such loss contingencies when it is probable that a liability will
be incurred, and the amount of loss can be reasonably estimated. We, in
accordance with this guidance, does not recognize gain contingencies until
realized.

Research and development

Research and development costs, which include expenditures in connection with an
in-house research and development laboratory, salaries and staff costs,
application and filing for regulatory approval of proposed products, purchased
in-process research and development, license costs, regulatory and scientific
consulting fees, as well as contract research, insurance and FDA consultants,
are accounted for in accordance with ASC Topic 730, Research and Development
("ASC 730"). Also, as prescribed by this guidance, patent filing and maintenance
expenses are considered legal in nature and therefore classified as general and
administrative expense, if any.

We do not currently have any commercial biopharmaceutical products and do not
expect to have such for several years, if at all. Accordingly, our research and
development costs are expensed as incurred. While certain of our research and
development costs may have future benefits, our policy of expensing all research
and development expenditures is predicated on the fact that we have no history
of successful commercialization of product candidates to base any estimate of
the number of future periods that would be benefited.

Also as prescribed by ASC 730, non-refundable advance payments for goods or
services that will be used or rendered for future research and development
activities should be deferred and capitalized. As the related goods are
delivered or the services are performed, or when the goods or services are no
longer expected to be provided, the deferred amounts would be recognized as an
expense. At December 31, 2021 and 2020, we had prepaid research and development
costs of $5.9 million and $1.8 million, respectively.

Good will and Ongoing research and development

In accordance with ASC Topic 350, Intangibles - Goodwill and Other ("ASC Topic
350"), goodwill and acquired IPR&D are determined to have indefinite lives and,
therefore, are not amortized. Instead, they are tested for impairment annually,
in our fourth quarter, and between annual tests if we become aware of an event
or a change in circumstances that would indicate the carrying value may be
impaired.

The annual, or interim (if events or changes in circumstances indicate that it
is more likely than not that the asset is impaired), goodwill impairment test is
performed by comparing the fair value of a reporting unit with its carrying
amount. An impairment charge should be recognized for the amount by which the
carrying amount exceeds the reporting unit's fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that
reporting unit. In addition, income tax effects from any tax-deductible goodwill
on the carrying amount of the reporting unit should be considered when measuring
the goodwill impairment loss, if applicable. As part of the impairment test, we
may elect to perform an assessment of qualitative factors. If this qualitative
assessment indicates that it is more likely than not that the fair value of a
reporting unit, including goodwill, is less than its carrying amount, or if we
elect to bypass the qualitative assessment, we would then proceed with the
quantitative impairment test. The impairment test involves comparing the fair
values of the reporting units to their carrying amounts. If the carrying amount
of a reporting unit exceeds its fair value, we recognize a goodwill loss in an
amount equal to any excess.

Goodwill relates to amounts that arose in connection with the acquisition of
Ciclofilin. Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired when accounted for using the acquisition method
of accounting for business combinations. We performed a quantitative assessment
of goodwill for fiscal year 2021 and determined that the fair value of our
reporting unit was in excess of its carrying value. We performed a qualitative
assessment of goodwill

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for fiscal year 2020 and determined that it was not more likely than not that
goodwill was impaired. There was no impairment of goodwill for the years ended
December 31, 2021 and 2020.

In-Process Research and Development ("IPR&D") acquired in a business combination
is capitalized as indefinite-lived assets on our consolidated balance sheets at
the acquisition-date fair value. Once the project is completed, the carrying
value of the IPR&D is reclassified to other intangible assets, net and is
amortized over the estimated useful life of the asset. Post-acquisition research
and development expenses related to the IPR&D projects are expensed as incurred.
The projected discounted cash flow models used to estimate the fair values of
our IPR&D assets, acquired in connection with the Ciclofilin acquisition,
reflect significant assumptions regarding the estimates a market participant
would make in order to evaluate a drug development asset, including: (i)
probability of successfully completing clinical trials and obtaining regulatory
approval; (ii) market size, market growth projections, and market share; (iii)
estimates regarding the timing of and the expected costs to advance clinical
programs to commercialization; (iv) estimates of future cash flows from
potential product sales; and (v) a discount rate. These assumptions are based on
significant inputs not observable in the market and thus represent Level 3
measurements within the fair value hierarchy. The use of different inputs and
assumptions could increase or decrease our estimated discounted future cash
flows, the resulting estimated fair values and the amounts of related
impairments, if any.

The annual, or interim if events or changes in circumstances indicate that it is
more likely than not that the asset is impaired), IPR&D impairment test is
performed by comparing the fair value of the asset to the asset's carrying
amount. When testing indefinite-lived intangibles for impairment, we may assess
qualitative factors for its indefinite-lived intangibles to determine whether it
is more likely than not that the asset is impaired. Alternatively, we may bypass
this qualitative assessment for our indefinite-lived intangible asset and
perform the quantitative impairment test that compares the fair value of the
indefinite-lived intangible asset with the asset's carrying amount. If IPR&D
becomes impaired or is abandoned, the carrying value of the IPR&D is written
down to the revised fair value with the related impairment charge recognized in
the period in which the impairment occurs. If the carrying value of the asset
becomes impaired as the result of unfavorable data from any ongoing or future
clinical trial, changes in assumptions that negatively impact projected cash
flows, or because of any other information regarding the prospects of
successfully developing or commercializing our programs, we could incur
significant charges in the period in which the impairment occurs.

We performed a quantitative assessment of IPR&D for fiscal year 2021 and
determined that the asset was not impaired. We performed a qualitative
assessment of IPR&D for fiscal year 2020 and determined that it was not more
likely than not that IPR&D was impaired. There was no impairment of IPR&D for
the year ended December 31, 2021 and 2020.

Share-based payments

ASC Topic 718, Compensation-Stock Compensation ("ASC 718"), requires companies
to measure the cost of employee and non-employee services received in exchange
for the award of equity instruments based on the estimated fair value of the
award at the date of grant. The expense is to be recognized over the period
during which an employee is required to provide services in exchange for the
award. Generally, we issue stock options with only service-based vesting
conditions and record the expense for awards using the straight-line method (see
Note 9 to the consolidated financial statements). We account for awards granted
to employees that are in excess of what is available to grant as a liability and
is recorded at fair value each reporting period in the consolidated financial
statements.

The fair value of each stock option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The estimated expected stock
volatility is based on the historical volatility of our common stock. The
expected term of stock options has been determined utilizing the "simplified"
method for awards that qualify as "plain-vanilla" options. The expected term of
stock options granted to non-employees is equal to the contractual term of the
option award. The risk-free interest rate is determined by reference to the U.S.
Treasury yield curve in effect at the time of grant of the award for time
periods approximately equal to the expected term of the award. Expected dividend
yield is based on the fact that we have never paid cash dividends and do not
expect to pay any cash dividends in the foreseeable future.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements December 31, 2021.

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