10-Q
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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission File No. 001-35890

 

Tempest Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-1472564

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

2000 Sierra Point Parkway, Suite 400

 

Brisbane, California

94005

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (415) 798-8589

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

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

Title of each class

Trading

Name of each exchange

 

 

Symbol(s)

on which registered

 

Common Stock, $0.001 par value

 

TPST

 

The Nasdaq Stock Market LLC

 

Series A Junior Participating Preferred Purchase Rights

 

N/A

 

The Nasdaq Stock Market LLC

 

 

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

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 Act). Yes ☐ No

The number of shares of Registrant’s Common Stock, $0.001 par value per share, outstanding as of May 6, 2024 was 22,217,265.

 


Table of Contents

 

INDEX TO FORM 10-Q

 

 

 

Page

Special Note Regarding Forward-Looking Statements

3

 

PART I — FINANCIAL INFORMATION

5

Item 1.

Financial Statements (unaudited):

5

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

5

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023

6

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

7

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

 

 

PART II — OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

Signatures

 

 

 

2


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements (including within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)) about us and our industry that involve substantial risks and uncertainties. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of our management, as well as assumptions made by, and information currently available to, our management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “could,” “expect,” “anticipate,” “plan,” “likely,” “believe,” “estimate,” “intend,” and other similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: our strategies, prospects, plans, expectations or objectives for future operations; the progress, scope or timing of the development of our product candidates; the benefits that may be derived from any future products or the commercial or market opportunity with respect to any of our future products; our ability to protect our intellectual property rights; our anticipated operations, financial position, ability to raise capital to fund operations, revenues, costs or expenses; statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item 1A, “Risk Factors.” Other sections of this Quarterly Report on Form 10-Q, as well as our other disclosures and filings, include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our expected future growth and our ability to manage such growth;
our ability to develop, obtain regulatory approval for and commercialize TPST-1495 and TPST-1120 and any future product candidates;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
the development, regulatory approval, efficacy and commercialization of competing products;
our ability to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates;
our ability to retain regulatory approval for our product candidates or future product candidates in the United States and in any foreign countries in which we make seek to do business;
our ability to retain and hire our board of directors, senior management, or operational personnel;
our ability to develop and maintain our corporate infrastructure, including our ability to design and maintain an effective system of internal controls;
our ability to remain in compliance with our obligations under our term loan with Oxford Finance LLC, or to obtain a waiver from Oxford for any failure to comply with the covenants contained in such term loan agreement;
general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad, including as a result of bank failures, public health crises or geopolitical tensions;

3


Table of Contents

 

our expectation regarding the period during which we will qualify as a smaller reporting company under the federal securities laws; and
our expectations regarding our ability to obtain, maintain and enforce intellectual property protection for our products and technology, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.

You should read this Quarterly Report on Form 10-Q as well as the documents that we reference in, and have filed as exhibits to, this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Tempest,” “the Company,” “we,” “us,” and “our” refer to Tempest Therapeutics, Inc. and, where appropriate, its subsidiaries.

4


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2024
(Unaudited)

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,326

 

 

$

39,230

 

Prepaid expenses and other current assets

 

 

1,171

 

 

 

1,133

 

Total current assets

 

 

33,497

 

 

 

40,363

 

Property and equipment — net

 

 

920

 

 

 

840

 

Operating lease right-of-use assets

 

 

9,513

 

 

 

9,952

 

Other noncurrent assets

 

 

448

 

 

 

448

 

Total assets

 

$

44,378

 

 

$

51,603

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,051

 

 

$

845

 

Accrued expenses

 

 

1,524

 

 

 

1,673

 

Current loan payable (net of discount and issuance costs of $139 and $112, respectively)

 

 

6,458

 

 

 

4,285

 

Current operating lease liabilities

 

 

858

 

 

 

952

 

Accrued compensation

 

 

690

 

 

 

1,543

 

Interest payable

 

 

110

 

 

 

113

 

Total current liabilities

 

 

10,691

 

 

 

9,411

 

Loan payable (net of discount and issuance costs of $89 and $164, respectively)

 

 

4,140

 

 

 

6,264

 

Operating lease liabilities, less current portion

 

 

8,915

 

 

 

9,160

 

Total liabilities

 

 

23,746

 

 

 

24,835

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 22,217,265 and 22,045,255 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

22

 

 

 

22

 

Additional paid-in capital

 

 

193,777

 

 

 

192,009

 

Accumulated deficit

 

 

(173,167

)

 

 

(165,263

)

Total stockholders’ equity

 

 

20,632

 

 

 

26,768

 

Total liabilities and stockholders’ equity

 

$

44,378

 

 

$

51,603

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

5


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

4,340

 

 

$

4,678

 

General and administrative

 

 

3,634

 

 

 

2,903

 

Loss from operations

 

 

(7,974

)

 

 

(7,581

)

Other income (expense), net:

 

 

 

 

 

 

Interest expense

 

 

(368

)

 

 

(344

)

Interest income and other income (expense), net

 

 

438

 

 

 

289

 

Total other income (expense), net

 

 

70

 

 

 

(55

)

Provision for income taxes

 

 

 

 

 

 

Net loss

 

$

(7,904

)

 

$

(7,636

)

Net loss per share of common stock, RSUs and pre-funded warrants basic and diluted

 

$

(0.36

)

 

$

(0.55

)

Weighted-average shares of common stock, RSUs and pre-funded warrants outstanding,
   basic and diluted

 

 

22,234,225

 

 

 

13,763,173

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

6


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

Three Months Ended March 31, 2024

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

BALANCE — December 31, 2023

 

 

22,045,255

 

 

$

22

 

 

$

192,009

 

 

$

(165,263

)

 

$

26,768

 

Issuance of common stock in connection with at-the-market offering (net of issuance costs of $8)

 

 

56,288

 

 

 

 

 

 

253

 

 

 

 

 

 

253

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,318

 

 

 

 

 

 

1,318

 

Issuance of common stock under equity plan awards

 

 

115,722

 

 

 

 

 

 

197

 

 

 

 

 

 

197

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,904

)

 

 

(7,904

)

BALANCE — March 31, 2024

 

 

22,217,265

 

 

$

22

 

 

$

193,777

 

 

$

(173,167

)

 

$

20,632

 

 

 

Three Months Ended March 31, 2023

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

BALANCE — December 31, 2022

 

 

10,518,539

 

 

$

11

 

 

$

153,872

 

 

$

(135,772

)

 

$

18,111

 

Issuance of common stock for cash

 

 

43,161

 

 

 

 

 

 

44

 

 

 

 

 

 

44

 

Stock-based compensation

 

 

 

 

 

 

 

 

446

 

 

 

 

 

 

446

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,636

)

 

 

(7,636

)

BALANCE — March 31, 2023

 

 

10,561,700

 

 

$

11

 

 

$

154,362

 

 

$

(143,408

)

 

$

10,965

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

7


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(7,904

)

 

$

(7,636

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

88

 

 

 

125

 

Stock-based compensation expense

 

 

1,318

 

 

 

446

 

Non-cash lease expense

 

 

439

 

 

 

432

 

Non-cash interest and other expense, net

 

 

48

 

 

 

53

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(38

)

 

 

(28

)

Accounts payable

 

 

206

 

 

 

12

 

Accrued expenses and other liabilities

 

 

(1,001

)

 

 

(1,214

)

Interest payable

 

 

(3

)

 

 

7

 

Operating lease liabilities

 

 

(339

)

 

 

(500

)

Cash used in operating activities

 

 

(7,186

)

 

 

(8,303

)

Investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(168

)

 

 

(46

)

Cash used in investing activities

 

 

(168

)

 

 

(46

)

Financing activities:

 

 

 

 

 

 

Proceeds from the issuance of common stock in connection with at-the-market offering, net of issuance costs

 

 

253

 

 

 

44

 

Proceeds from the issuance of common stock under equity plan awards

 

 

197

 

 

 

 

Cash provided by financing activities

 

 

450

 

 

 

44

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(6,904

)

 

 

(8,305

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

39,673

 

 

 

31,598

 

Cash, cash equivalents and restricted cash at end of period

 

$

32,769

 

 

$

23,293

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

326

 

 

$

292

 

Cash paid for business taxes

 

$

 

 

$

24

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

8


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(Amounts are in thousands, except share and per share data)

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Description of Business

 

Tempest Therapeutics, Inc. (“Tempest” or the “Company”) is a clinical-stage oncology company advancing small molecules that combine both tumor-targeted and immune-mediated mechanisms with the potential to treat a wide range of tumors. The Company’s two novel clinical programs are TPST-1120 and TPST-1495, antagonists of PPARα and EP2/EP4, respectively. Both programs are advancing through clinical trials designed to study the agents as monotherapies and in combination with other approved agents. Tempest is also developing other product candidates currently in its Discovery Research portfolio. Tempest is headquartered in Brisbane, California.

 

Liquidity and Management Plans

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred operating losses since inception. As of March 31, 2024, the Company had cash and cash equivalents of $32.3 million. The Company has not yet generated product sales and as a result has experienced operating losses since inception. The Company expects to incur additional losses in the future to conduct research and development and will need to raise additional capital to continue operations. We intend to raise such capital through the issuance of additional debt or equity including in connection with potential merger opportunities, or through business development activities. The Company’s ability to continue as a going concern is dependent upon its ability to control its variable spend over the next 12 months, while we plan to secure sources of financing and ultimately attain profitable operations. If the Company are unable to obtain adequate capital, it could be forced to cease operations. Management believes that its existing cash and cash equivalents will be sufficient to fund the Company’s cash requirements for at least 12 months following the issuance of these financial statements.

ATM Program

On July 23, 2021, the Company entered into a sales agreement with Jefferies LLC, pursuant to which the Company may sell, from time to time at its sole discretion through Jefferies, as its sales agent, shares of its common stock having, up to an aggregate sales price of $100.0 million of its common stock through Jefferies (the “ATM Program”). Any shares of its common stock sold will be issued pursuant to the Company's shelf registration statement on Form S-3 (File No. 333-257990). The Company will pay Jefferies a commission up to 3.0% of the gross sales proceeds of any shares of its common stock sold through Jefferies under the ATM Program and also has provided Jefferies with indemnification and contribution rights. As of March 31, 2024, the Company has sold an aggregate of 9,017,110 shares of its common stock for net proceeds of approximately $41.5 million, after deducting commissions and offering expenses pursuant to the ATM Program. During the three months ended March 31, 2024, we sold an aggregate of 56,288 shares of its common stock for net proceeds of approximately $0.3 million, after deducting commissions and expenses. As of March 31, 2024, approximately $57.3 million remained available for sale under the ATM Program.

PIPE Financing

On April 29, 2022, the Company completed a private investment in public equity (“PIPE”) financing from the sale of 3,149,912 shares of its common stock at a price per share of $2.36 and, and in lieu of shares of common stock, pre-funded warrants to purchase up to 3,206,020 shares of its common stock at a price per pre-funded warrant of $2.359 to EcoR1 Capital, LLC and Versant Venture Capital (the “PIPE Investors”). Net proceeds from the PIPE financings totaled approximately $14.5 million, after deducting offering expenses. The Company entered into a registration rights agreement with the PIPE Investors pursuant

9


to which the Company filed a registration statement with the SEC registering the resale of the 3,149,912 shares common stock and the 3,206,020 shares of common stock underlying the pre-funded warrants issued in the PIPE financing. As of March 31, 2024, all pre-funded warrants had been exercised.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies—The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 19, 2024. There have been no material changes to the significant accounting policies during the period ended March 31, 2024.

Basis of Presentation—The unaudited interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been omitted. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The Company has prepared the accompanying Condensed Consolidated Financial Statements on the same basis as the audited financial statements, and the unaudited interim financial statements include, in the Company’s opinion, all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of its financial position and results of operations for these periods.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development accruals, recoverability of long-lived assets, right-of-use assets, lease obligations, stock-based compensation and income taxes uncertainties and valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

3. FAIR VALUE MEASUREMENTS

The following tables present the Company’s fair value hierarchy for assets measured at fair value on a recurring basis:

 

 

 

As of March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

32,326

 

 

$

 

 

$

 

 

$

32,326

 

Total

 

$

32,326

 

 

$

 

 

$

 

 

$

32,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

39,230

 

 

$

 

 

$

 

 

$

39,230

 

Total

 

$

39,230

 

 

$

 

 

$

 

 

$

39,230

 

 

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4. BALANCE SHEET COMPONENTS

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Prepaid expenses

 

$

585

 

 

$

700

 

Prepaid research and development costs

 

 

117

 

 

 

337

 

Other current assets

 

 

469

 

 

 

96

 

Total

 

$

1,171

 

 

$

1,133

 

 

Property and equipment, net, consists of the following:

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Computer equipment and software

 

$

173

 

 

$

169

 

Furniture and fixtures

 

 

328

 

 

 

328

 

Lab equipment

 

 

1,297

 

 

 

1,133

 

Leasehold improvements

 

 

235

 

 

 

235

 

Property and equipment

 

 

2,033

 

 

 

1,865

 

Less accumulated depreciation

 

 

(1,113

)

 

 

(1,025

)

Property and equipment—net

 

$

920

 

 

$

840

 

 

Depreciation expense for the three months ended March 31, 2024 and 2023 were $88 and $125, respectively.

Accrued liabilities consist of the following:

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued other liabilities

 

$

873

 

 

$

626

 

Accrued clinical trial liability

 

 

651

 

 

 

1,047

 

Total

 

$

1,524

 

 

$

1,673

 

 

5. COMMITMENTS AND CONTINGENCIES

Facilities Lease Agreements

In January 2022, the Company entered into a new 8-year office lease agreement for a 20,116 square feet facility in Brisbane, California (“Brisbane Lease”). The lease commenced in December 2022.

As of March 31, 2024 and December 31, 2023, the balance of the operating lease right of use assets were $9,513 and $9,952, respectively, and the related operating lease liability were $9,773 and $10,112, respectively, as shown in the accompanying consolidated balance sheets.

 

Rent expense was $685 and $710 for the three months ended March 31, 2024 and 2023, respectively.

11


As of March 31, 2024, future minimum lease payments under the Company's operating lease liabilities were as follows:

 

 

 

 

 

Year Ending

 

Total Commitment

 

2024 (excluding three months ended March 31, 2024)

 

$

1,446

 

2025

 

 

1,861

 

2026

 

 

1,926

 

2027

 

 

1,994

 

2028 and beyond

 

 

6,410

 

Total minimum lease payments

 

 

13,637

 

Less: imputed interest

 

 

(3,864

)

Present value of operating lease obligations

 

 

9,773

 

Less: current portion

 

 

(858

)

Noncurrent operating lease obligations

 

$

8,915

 

 

Related to this Brisbane Lease agreement, the Company entered into a letter of credit with a bank to deposit $388 in a separate account that is classified as restricted cash to serve as security rent deposit. This amount is included in other noncurrent assets in the accompanying consolidated balance sheets as of March 31, 2024.

6. LOAN PAYABLE

On January 15, 2021, the Company entered into a loan agreement with Oxford Finance LLC (the “Lender”) to borrow a term loan amount of $35,000 to be funded in three tranches. Tranche A of $15,000 was wired to the Company on January 15, 2021. Tranche B of $10,000 expired on March 31, 2022. Tranche C of $10,000 is available at the Lender’s option.

On December 23, 2022, the Company entered into a First Amendment to the loan agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo Therapeutics US, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Millendo”), were joined as co-borrowers under the Loan Agreement; (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances); and (iii) a security interest in all of the assets of the Company, TempestTx and Millendo, including any intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $5.0 million, which the Company paid on December 23, 2022.

Following the amendment to the loan agreement, the term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is an Index Rate plus 7.10%. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05%. In the fourth quarter of 2023, the Company achieved the circumstances necessary to extend the interest-only repayment period through June 30, 2024. Monthly principal payments of $733 are required to begin on July 1, 2024. Related to this borrowing, the Company recorded loan discounts totaling $898 and paid $95 of debt issuance costs. These amounts would be amortized as additional interest expense over the life of the loan. As of March 31, 2024, the balance of the loan payable (net of debt issuance costs) was $10.6 million. The carrying value of the loan approximates fair value (Level 2).

For the three months ended March 31, 2024 and 2023, total interest expense was $368 and $344, respectively.

7. STOCKHOLDERS' EQUITY

Common Stock

As of March 31, 2024 and December 31, 2023, the Company was authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of preferred stock, each with a par value of $0.001 per share. Of the common stock shares authorized, 22,217,265 and 22,045,255 were issued and outstanding at March 31, 2024 and December 31, 2023, respectively. There were no shares subject to repurchase due to remaining vesting requirements. Common stockholders are entitled to dividends as declared by the Company’s board of directors (the “Board of Directors”), subject to rights of holders of all classes of stock

12


outstanding having priority rights as to dividends. There was no preferred stock issued nor outstanding as of March 31, 2024 and December 31, 2023.

Common stockholders are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holders of each share of common stock are entitled to one vote. Except for effecting or validating certain specific actions intended to protect the preferred stockholders, the holders of common stock vote together with preferred stockholders and have the right to elect one member of the Board of Directors.

Rights Plan

On October 10, 2023, the Board of Directors adopted a limited duration stockholder rights plan (the “Rights Plan”), effective immediately, and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the common stock, par value $0.001 per share (the “Common Shares”), of the Company. The dividend was effective as of October 23, 2023 (the “Record Date”) with respect to stockholders of record on that date. The Rights will also attach to new Common Shares issued after the Record Date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, (the “Preferred Shares”), of the Company at a price of $25.00 per one one-thousandth of a Preferred Share, subject to adjustment. The descriptions and terms of the Rights are set forth in a Rights Agreement, dated as of October 10, 2023 (the “Rights Agreement”), between the Company and Computershare Trust Company, NA. The Rights will expire on October 10, 2024, or, if the Company’s stockholders approve the Rights Plan, on October 10, 2026, unless the Rights are earlier redeemed or exchanged by the Company.

8. STOCK-BASED COMPENSATION

Equity Plans

The Board of Directors adopted the Amended and Restated 2023 Equity Incentive Plan (the “2023 Plan”) on April 30, 2023, subject to approval by the Company’s stockholders. On June 15, 2023, the Company’s stockholders approved the 2023 Plan, which amended and restated the A&R 2019 Plan and will be a successor to, and replacement of, the A&R 2019 Plan. The number of shares of the Company's common stock reserved for issuance under the 2023 Plan will automatically increase on January 1st of each year, for a period of 10 years, from January 1, 2024 continuing through January 1, 2033, by 4% of the total number of shares of the Company's common stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors. Accordingly, on January 1, 2024, the common stock reserved for issuance was increased by 881,810 shares. As of March 31, 2024, there were 566,620 shares available for future grant under the 2023 Plan.

The 2023 Plan allows the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards.

The Board of Directors adopted the 2023 Inducement Plan (“2023 Inducement Plan”) on June 21, 2023, pursuant to which the Company reserved 1,150,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2023 Inducement Plan was approved by the Board of Directors without stockholder approval in accordance with such rule. As of March 31, 2024, there were 1,092,350 shares available for future grant under the 2023 Inducement Plan.

The Company measures employee and non-employee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award.

13


Employee Stock Ownership Plan

The Millendo Board adopted the 2019 Employee Stock Purchase Plan on April 29, 2019, which became effective upon stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Employee Stock Purchase Plan (the “2019 ESPP”). The 2019 ESPP enables employees to purchase shares of the Company's common stock through offerings of rights to purchase the Company's common stock to all eligible employees.

The 2019 ESPP provides that the number of shares of common stock reserved for issuance under the 2019 ESPP will automatically increase on January 1, 2023 and continuing through (and including) January 1, 2029, by the lesser of 1.5% of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, (ii) 500,000 shares of Common Stock, or (iii) such lesser number of shares of Common Stock as determined by the Board of Directors (which may be zero). On January 1, 2024, the common stock reserved for issuance was increased by 330,678 shares.

As of March 31, 2024, 528,791 shares of common stock remained available for future issuance under the 2019 ESPP. During the three months ended March 31, 2024, 34,023 shares of common stock were issued under the 2019 ESPP.

Stock Options

Options to purchase the Company’s common stock may be granted at a price not less than the fair market value in the case of both NSOs and ISOs, except for an options holder who owns more than 10% of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110% of the fair market value per share on the grant date. Stock options granted under the Plans generally vest over four years and expire no later than ten (10) years from the date of grant. Vested options can be exercised at any time.

The following shows the stock option activities for the three months ended March 31, 2024 and 2023:

 

 

 

Total
Options
Outstanding

 

 

Weighted-Average
Exercise
Price

 

Balance—December 31, 2023

 

 

3,554,112

 

 

$

7.28

 

Granted

 

 

664,775

 

 

 

4.62

 

Exercised

 

 

(81,699

)

 

 

1.91

 

Cancelled and forfeited

 

 

(198,742

)

 

 

8.31

 

Balance—March 31, 2024

 

 

3,938,446

 

 

 

6.68

 

 

 

 

 

 

 

 

Balance—December 31, 2022

 

 

1,553,041

 

 

$

6.66

 

Granted

 

 

623,550

 

 

 

1.23

 

Exercised

 

 

 

 

 

 

Cancelled and forfeited

 

 

(29,180

)

 

 

3.59

 

Balance—March 31, 2023

 

 

2,147,411

 

 

 

5.13

 

 

The following table summarizes information about stock options outstanding at March 31, 2024:

 

 

 

Shares

 

 

Weighted
Average
Remaining
Contractual
Life (In Years)

 

 

Weighted
Average
Exercise Price

 

 

Aggregate
Intrinsic Value

 

Options outstanding

 

 

3,938,446

 

 

 

8.86

 

 

$

6.68

 

 

$

2,522,827

 

Vested and expected to vest

 

 

3,938,446

 

 

 

8.86

 

 

$

6.68

 

 

$

2,522,827

 

Exercisable

 

 

1,028,582

 

 

 

7.63

 

 

$

5.58

 

 

$

1,167,566

 

 

14


During the three months ended March 31, 2024 and 2023, the Company granted employees and non-employees stock options to purchase 664,775 and 623,550 shares of common stock, respectively, with a weighted-average grant date fair value of $3.88 and $1.03 per share, respectively. As of March 31, 2024 and 2023, total unrecognized compensation costs related to unvested employee stock options were $15,833 and $4,140, respectively. These costs are expected to be recognized over a weighted-average period of approximately 3.3 years and 2.5 years, respectively.

The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee and non-employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of employee and non-employee stock options was estimated using the following assumptions for the three months ended March 31, 2024 and 2023:

 

 

 

2024

 

2023

Expected term (in years)

 

6.0 - 6.1

 

6.0

Expected volatility

 

109%

 

109%

Risk-free interest rate

 

3.8% - 3.9%

 

3.9%

Dividends

 

%

 

%

 

Expected Term—The expected term of options granted represents the period of time that the options are expected to be outstanding. Due to the lack of historical exercise history, the expected term of the Company’s employee stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options.

Expected Volatility—The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available.

Risk-Free Interest Rate—The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.

Dividends—The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used.

Stock-Based Compensation Expense

The following table summarizes the components of stock-based compensation expense recognized in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2024:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

546

 

 

$

146

 

General and administrative

 

 

772

 

 

 

300

 

Total

 

$

1,318

 

 

$

446

 

 

9. RETIREMENT PLAN

The Company participates in a qualified 401(k) Plan sponsored by its professional service organization. The retirement plan is a defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. During the three months ended March 31, 2024 and 2023, the Company contributed $51 and $57 to the 401(k) Plan, respectively.

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10. NET LOSS PER SHARE

The following table sets forth the computation of the Company’s basis in diluted net loss per share for the three months ended March 31, 2024 and 2023 (in thousands, except share and per share amounts):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(7,904

)

 

$

(7,636

)

Denominator:

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

22,234,225

 

 

 

13,763,173

 

Weighted-average shares used in computing basic and diluted net loss per share

 

 

22,234,225

 

 

 

13,763,173

 

Net loss per share attributable to common stockholders—basic and diluted

 

$

(0.36

)

 

$

(0.55

)

 

As of March 31, 2024 and 2023, the Company’s potentially dilutive securities included unvested stock warrants and stock options, which have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect would be anti-dilutive. The issuance of pre-funded warrants and vested RSUs have been included in the computation of basic and diluted net loss per share attributable to common stockholders. Based on the amounts outstanding as of March 31, 2024 and 2023, the Company excluded the following potential common shares from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:

 

 

 

As of March 31,

 

 

 

2024

 

 

2023

 

Options to purchase common stock

 

 

3,938,446

 

 

 

2,147,411

 

Common stock warrants

 

 

6,036

 

 

 

6,036

 

Total

 

 

3,944,482

 

 

 

2,153,447

 

 

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Table of Contents

 

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

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and our audited consolidated financial statements and related notes for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission ("SEC") on March 19, 2024. This discussion and other parts of this report contains forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, and beliefs, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors,” under Part II, Item 1A of this report and those discussed in our other disclosures and filings with the SEC.

Overview

We are a clinical-stage biotechnology company moving into late-stage development with a diverse portfolio of first-in-class targeted and immune-mediated product candidates with the potential to treat a wide range of cancers. Our novel programs range from early research to the lead program, TPST-1120, that is poised to begin a pivotal study in first-line liver cancer. Our philosophy is to build a company based upon not only good ideas and creative science, but also upon the efficient translation of those ideas into therapies that will improve patients’ lives. Each of our programs embody different and independent approaches to fighting cancer, providing a portfolio of truly diversified assets.

Our two clinical-stage therapeutics product candidates are TPST-1120 and TPST-1495, which we believe are the first clinical-stage molecules designed to inhibit their respective targets.

TPST-1120 is a selective antagonist of peroxisome proliferator-activated receptor alpha (“PPARα”). On October 11, 2023, we announced new and updated positive results from the planned data analysis of the ongoing global randomized Phase 1b/2 trial of TPST-1120 combined with the standard-of-care first-line regimen of atezolizumab and bevacizumab in patients with advanced or metastatic hepatocellular carcinoma (“HCC”). The study is comparing the TPST-1120 arm to standard of care alone and enrolled 40 patients randomized to the TPST-1120 arm and 30 patients randomized to the control arm. With a median follow-up of 9.2 and 9.9 months for the TPST-1120 arm and standard-of-care arm, respectively, the data showed a 30% confirmed objective response rate (“ORR”) achieved in TPST-1120 arm compared to 13.3% for atezolizumab and bevacizumab in the control arm, a substantial increase since an earlier interim data release that is specific to the TPST-1120 arm compared to the previous data cut of 17.5% versus 10.3% in the control arm. 40% of the TPST-1120 arm patients remained on treatment versus 16.7% in the control arm, while 72.5% of the TPST-1120 arm patients remained on study versus 46.7% in the control arm. The results also showed a favorable progression free survival and overall survival (“OS”) hazard ratio for the TPST-1120 arm as compared to the standard-of-care control arm.

In addition to the overall data, the new biomarker subpopulation findings are consistent with the mechanism of action of TPST-1120: patients with b-catenin activating mutations (21% in this study (n=7)) showed a confirmed ORR of 43% and a disease control rate (“DCR”) of 100% in the TPST-1120 arm; and distinct from the control arm, the TPST-1120 arm was consistently active across PD-L1 negative tumors with a confirmed ORR of 27% in the TPST-1120 arm, compared to a reduced ORR of 7% for the control arm.

These randomized data build upon clinical data from Phase 1 trials, both as a monotherapy and in combination with an anti-PD1 therapy, nivolumab, that were reported at a podium presentation at the American Society of Clinical Oncology (“ASCO”) annual meeting in June 2022. RECIST responses were also observed in this study at the two highest TPST-1120 doses in combination with nivolumab for an ORR of those cohorts of 30% (three of 10 patients), including in patients who previously progressed on anti-PD-1 (-L1) therapy. We believe the next step in TPST-1120 development is a pivotal Phase 3 in first-line HCC and are planning to meet with the FDA in 2024 towards that goal, and given the totality of the data, also have interest in development in kidney cancer (“RCC”) and potentially other indications.

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Our second clinical program, TPST-1495, a dual antagonist of the EP2 and EP4 receptors of prostaglandin E2, is in an ongoing Phase 1 combination trial in patients with endometrial cancer. Data from the TPST-1495 Phase 1 trial was presented at the ASCO annual meeting in June 2023. Additionally, we are planning to advance TPST-1495 in a new indication, Familial Adenomatous Polyposis (“FAP”), for which there are no approved therapies. Given that prostaglandin signaling is implicated in FAP and based on positive preclinical data in a relevant mouse model, we believe there is strong mechanistic support for this approach. We are working with the Cancer Prevention Clinical Trials Network on a National Cancer Institute (“NCI”)-funded Phase 2 study and subject to final approval from the consortium, plan to start the study in 2024.

Beyond these clinical programs, we plan to continue to leverage our drug development and company-building experience along with academic relationships to identify promising new targets that may feed new programs into our pipeline. Our Discovery Research team employs a multidisciplinary approach to identify and validate therapeutic targets in oncology, and preclinical validation studies are then conducted to further understand the mechanism of action and potential therapeutic benefit to patients.

Potential Future Milestones

Advance TPST-1120 into a pivotal study in first-line HCC patients where TPST-1120 will be studied in a combination treatment and compared to a standard-of-care therapy, subject to obtaining feedback from the FDA. We believe positive results from the ongoing randomized Phase 1b/2 study provide strategic opportunities for us, and we expect to receive updated results from this randomized study in 2024. We are also evaluating further development in RCC and cholangiocarcinoma (“CCA”) based on the Phase 1 data presented at ASCO 2022.
Explore TPST-1495 beyond original tumor types of interest. We plan to complete the ongoing combination arm in patients with advanced endometrial cancer, where prostaglandin signaling is implicated, and report the data in 2024. Additionally, subject to final approval with the FAP Consortium on NCI, we are planning to advance TPST-1495 into a Phase 2 study in patients with the Cancer Prevention Clinical Trials Network in 2024.

Going Concern

We have no products approved for commercial sale and have not generated any revenue from product sales. From inception to March 31, 2024, we have raised $201.5 million, through sales of our capital securities.

We have never been profitable and have incurred operating losses in each period since inception. Our net losses were $7.9 million and $7.6 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $173.2 million. Substantially all of the operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We expect to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidates and add personnel necessary to advance our pipeline of clinical-stage product candidates. In addition, operating as a publicly traded company involves the hiring of additional financial and other personnel, upgrading our financial information and other systems, and incurring substantial costs associated with operating as a public company. We expect our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.

As of March 31, 2024, we had cash and cash equivalents of $32.3 million. Our ability to fund continued development will require additional capital, and we intend to raise such capital through the issuance of additional debt or equity including in connection with potential merger opportunities, or through business development activities. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and ultimately attain profitable operations. If we are unable to obtain adequate capital, we could be forced to cease operations.

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Components of Results of Operations

Research and Development Expense

Research and development expenses represent costs incurred to conduct research and development, such as the development of our product candidates.

We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:

salaries, benefits and stock-based compensation;
licensing costs;
allocated occupancy;
materials and supplies;
contracted research and manufacturing;
consulting arrangements; and
other expenses incurred to advance our research and development activities.

The largest component of our operating expenses has historically been the investment in research and development activities. We expect research and development expenses will increase in the future as we advance our product candidates into and through clinical trials and pursues regulatory approvals, which will require a significant investment in costs of clinical trials, regulatory support and contract manufacturing and inventory build-up. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments, as well as added clinical development costs.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist of employee-related expenses, including salaries, benefits, travel and non-cash stock-based compensation, for our personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and patent costs. We expect to continue to incur expenses as a result of being a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest expense, interest income, and various other income or expense items of a non-recurring nature.

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Results of Operations

Comparison of the three months ended March 31, 2024 and 2023

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

 

 

 

Three Months Ended

 

 

Increase/ (Decrease)

 

 

Percentage Increase/ (Decrease)

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

2024 vs. 2023

 

 

 

(in thousands, except percentages)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,340

 

 

$

4,678

 

 

$

(338

)

 

 

(7

)%

General and administrative

 

 

3,634

 

 

 

2,903

 

 

 

731

 

 

 

25

%

Loss from operations

 

 

(7,974

)

 

 

(7,581

)

 

 

393

 

 

 

5

%

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(368

)

 

 

(344

)

 

 

24

 

 

 

7

%

Interest income and other income (expense), net

 

 

438

 

 

 

289

 

 

 

149

 

 

 

52

%

Total other income (expense), net

 

 

70

 

 

 

(55

)

 

 

125

 

 

 

227

%

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

0

%

Net loss

 

$

(7,904

)

 

$

(7,636

)

 

$

268

 

 

 

4

%

 

Research and development

Our research and development expenses for the three months ended March 31, 2024 and 2023 were primarily incurred in connection with our most advanced product candidates, TPST-1120 and TPST-1495. We typically have various early-stage research and drug discovery projects, as well as various potential product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research and drug discovery project and our resources are typically deployed across multiple projects.

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

 

 

 

Three Months Ended

 

 

Increase/ (Decrease)

 

 

Percentage Increase/ (Decrease)

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

2024 vs. 2023

 

 

 

(in thousands, except percentages)

 

TPST-1120

 

$

882

 

 

$

817

 

 

$

65

 

 

 

8

%

TPST-1495

 

 

596

 

 

 

843

 

 

 

(247

)

 

 

(29

)%

Preclinical and other

 

 

472

 

 

 

1,052

 

 

 

(580

)

 

 

(55

)%

Total candidate specific research costs

 

 

1,950

 

 

 

2,712

 

 

 

(762

)

 

 

(28

)%

Personnel and other costs

 

 

1,766

 

 

 

1,734

 

 

 

32

 

 

 

2

%

Stock-based compensation and depreciation

 

 

624

 

 

 

232

 

 

 

392

 

 

 

169

%

Total research and development expenses

 

$

4,340

 

 

$

4,678

 

 

$

(338

)

 

 

(7

)%

 

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

 

 

 

Three Months Ended

 

 

Increase/ (Decrease)

 

 

Percentage Increase/ (Decrease)

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

2024 vs. 2023

 

 

 

(in thousands, except percentages)

 

Research and development outside services

 

$

1,446

 

 

$

2,292

 

 

$

(846

)

 

 

(37

)%

Compensation expense

 

 

1,124

 

 

 

1,118

 

 

 

6

 

 

 

1

%

Stock-based compensation expense

 

 

546

 

 

 

146

 

 

 

400

 

 

 

274

%

Consulting and professional services

 

 

487

 

 

 

402

 

 

 

85

 

 

 

21

%

Other expenses

 

 

737

 

 

 

720

 

 

 

17

 

 

 

2

%

Total research and development expense

 

$

4,340

 

 

$

4,678

 

 

$

(338

)

 

 

(7

)%

 

General and administrative

General and administrative expenses increased by $0.7 million to $3.6 million for the three months ended March 31, 2024, compared to the prior year period. The increase was primarily due to an increase in stock-based compensation expense and consulting services.

Other income (expense), net

For the three months ended March 31, 2024 and 2023, other income (expense), net consisted of total interest expense of $368 thousand and $344 thousand, respectively, related to the Oxford Loan, and interest income of $438 thousand and $289 thousand, respectively.

Liquidity and Capital Resources

Overview

Since inception through March 31, 2024, our operations have been financed primarily by net cash proceeds from the sale of our common stock, convertible preferred stock and issuance of debt. As of March 31, 2024, we had $32.3 million in cash and cash equivalents and an accumulated deficit of $173.2 million. We expect that our research and development and general and administrative expenses will increase, and, as a result, we anticipate that we will continue to incur increasing losses in the foreseeable future.

 

We expect to have sufficient resources to fund operations into the second quarter of 2025. We believe our cash and cash equivalents as of March 31, 2024 will fund our ongoing working capital, investing, and financing requirements for at least the next 12 months from the date our consolidated financial statements were available to be issued.

 

Loan Agreement with Oxford Finance

 

On January 15, 2021, we entered into a loan and security agreement with Oxford to borrow a term loan amount of $35.0 million to be funded in three tranches (the “Loan Agreement”). Tranche A of $15.0 million was funded on January 15, 2021. Tranche B of $10.0 million expired on March 31, 2022. Tranche C of $10.0 million is available at Oxford’s option.

 

On December 23, 2022, we entered into a First Amendment to the Loan Agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo Therapeutics US, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Millendo”), were joined as co-borrowers under the Loan Agreement, (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances), and (iii) a security interest in the property of the Company, TempestTx and Millendo, including any

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intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $5.0 million which we paid on December 23, 2022.

During the fourth quarter of 2023, we met the circumstances necessary to extend the interest-only repayment period through June 30, 2024.

 

The term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is an Index Rate plus 7.10%. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05%. As of March 31, 2024, the balance of the loan payable (net of debt issuance costs) was $10.6 million.

 

At-the-Market Offering

 

On July 23, 2021, we entered into a sales agreement with Jefferies LLC, pursuant to which we may sell, from time to time at its sole discretion through Jefferies, as our sales agent, shares of our common stock having, up to an aggregate sales price of $100.0 million through Jefferies (the “ATM Program”). Any shares of our common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-257990). We will pay Jefferies a commission up to 3.0% of the gross sales proceeds of any shares of our common stock sold under the ATM Program and also have provided Jefferies with indemnification and contribution rights. As of March 31, 2024, we have sold an aggregate of 9,017,110 shares of our common stock for net proceeds of approximately $41.5 million, after deducting commissions and offering expenses pursuant to the ATM Program. During the three months ended March 31, 2024, we sold an aggregate of 56,288 shares of our common stock for net proceeds of approximately $0.3 million, after deducting commissions and expenses. As of March 31, 2024, approximately $57.3 million remained available for sale under the ATM Program.

Cash Flows

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands)

 

Cash used in operating activities

 

$

(7,186

)

 

$

(8,303

)

Cash used in investing activities

 

 

(168

)

 

 

(46

)

Cash provided by financing activities

 

 

450

 

 

 

44

 

Net decrease in cash and cash equivalents

 

$

(6,904

)

 

$

(8,305

)

 

Cash flows used in operating activities

Cash used in operating activities for the three months ended March 31, 2024 was $7.2 million, consisting of a net loss of $7.9 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $1.9 million, plus changes in operating assets and liabilities of $1.2 million.

Cash used in operating activities for the three months ended March 31, 2023 was $8.3 million, consisting of a net loss of $7.6 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $1.1 million, plus changes in operating assets and liabilities of $1.7 million.

Cash flows used in investing activities

Cash used in investing activities for the three months ended March 31, 2024 and 2023 was related to purchases of property and equipment, primarily related to laboratory and computer equipment.

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Cash flows provided by financing activities

Cash provided by financing activities for the three months ended March 31, 2024 was related to proceeds from the issuance of common stock of $450 thousand.

Cash provided by financing activities for the three months ended March 31, 2023 was related to proceeds from the issuance of common stock of $44 thousand.

Funding Requirements

We believe that our available cash and cash equivalents are sufficient to fund existing and planned cash requirements for the next 12 months from the date our consolidated financial statements were available to be issued. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.

Our future funding requirements will depend on many factors, including the following:

the costs associated with a pivotal study for TPST-1120 in first-line HCC patients, as well as other costs associated with the scope, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
the costs associated with the manufacturing of our product candidates;
the costs related to the extent to which we enter into partnerships or other arrangements with third parties to further develop our product candidates;
the costs and fees associated with the discovery, acquisition or in-license of product candidates or technologies;
our ability to establish collaborations on favorable terms, if at all;
the costs of future commercialization activities, if any, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.

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. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

 

Material Cash Requirements

Our material cash requirements as of March 31, 2024 primarily relate to the maturities of the principal obligations under our long-term debt, operating leases for office space, trade payables, and accrued expenses. As of March 31, 2024, we have $10.7 million payable within 12 months, including the current loan payable of $6.5 million due to Oxford Finance. Refer to Notes 5 and 6 to our consolidated financial statements for additional information. In addition, the Oxford Finance loan facility matures on August 1, 2025, and as of March 31, 2024, the total balance of the loan payable (net of debt issuance costs) was $10.6 million. We also expect our operating expenses to continue to increase in connection with our ongoing development activities,

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particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. Accordingly, we will need substantial additional funding in connection with our continuing operations.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs, including those set forth above, primarily through the issuance of additional equity, borrowings and strategic alliances with partner companies. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies since December 31, 2023. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 2 to our Condensed Consolidated Financial Statements for a description of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements.

Smaller Reporting Company Status

We are a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by nonaffiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance

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of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Vice-President, Strategy and Finance (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. Based on such evaluation, our Chief Executive Officer and Vice-President, Strategy and Finance have concluded that as of March 31, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Information pertaining to legal proceedings is provided in Note 5 to the Condensed Consolidated Financial Statements contained in this report and is incorporated by reference herein.

Item 1A. Risk Factors

Our business involves significant risks, some of which are described below. You should carefully consider the risks described below, together with all of the other information contained in this Quarterly Report on Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes. Any of these events could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made or may make from time to time.

Summary of Selected Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, any one of which could materially adversely affect our business, financial condition, operating results, and prospects. You should read this summary together with the more detailed description of each risk factor contained below.

We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. If we fail to obtain additional funding to conduct our planned research and development efforts, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.
We will need to raise additional funding to finance our operations, which may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
In the past, we have faced substantial doubt regarding our ability to continue as a going concern and may face such challenges in the future. If we are unable to maintain the cash reserves required to fund our business, we will require substantial additional funding to finance our operations, and if we are unable to raise capital, we could be forced to delay, reduce or explore other strategic options for certain of our development programs, or even terminate our operations.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish proprietary rights.
The terms of the Loan Agreement with Oxford Finance provide Oxford with a lien against all of our assets, including our intellectual property, and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.
We expect to expand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
If we are unable to develop, obtain regulatory approval for and commercialize TPST-1120, TPST-1495, or any of our future product candidates, or if we experience significant delays in doing so, our business will be materially harmed.

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Success in preclinical studies and earlier clinical trials for our product candidates may not be indicative of the results that may be obtained in later clinical trials, which may delay or prevent obtaining regulatory approval.
We may not be successful in our efforts to expand our pipeline of product candidates and develop marketable products.
The commercial success of our product candidates, including TPST-1495 and TPST-1120, will depend upon their degree of market acceptance by providers, patients, patient advocacy groups, third-party payors and the general medical community.
We may rely on third parties to manufacture our clinical product supplies, and we may have to rely on third parties to produce and process our product candidates, if approved.
We face significant competition in an environment of rapid technological change, and it is possible that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business, financial condition and ability to successfully market or commercialize TPST-1495, TPST-1120, and any future product candidates.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenues.
We may not be successful in finding strategic collaborators for continuing development of certain of our future product candidates or successfully commercializing or competing in the market for certain indications.
The U.S. Food and Drug Administration (“FDA”) regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.
Our success depends in part on our ability to obtain, maintain and protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.
Our owned and in-licensed patents and patent applications may not provide sufficient protection of our product candidates or result in any competitive advantage.
The trading price of the shares of our common stock has been and is likely to continue to be volatile, and purchasers of our common stock could incur substantial losses.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.
Our common stock is thinly traded and our stockholders may be unable to sell their shares quickly or at market price.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

Risks Related to Our Financial Position and Capital Needs

We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. If we fail to obtain additional funding to conduct our planned research and

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development efforts, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.

We are a clinical-stage biotechnology company with a limited operating history. Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. Our operations to date have been limited primarily to organizing and staffing, business planning, raising capital, acquiring and developing product and technology rights, manufacturing, and conducting research and development activities for our product candidates. We have never generated any revenue from product sales and we have not obtained regulatory approvals for any of our product candidates. We incurred net losses of $7.9 million and $7.6 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $173.2 million. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future as we continue to conduct research and development, clinical testing, regulatory compliance activities, manufacturing activities, and, if any of our product candidates is approved, sales and marketing activities. Our prior losses, combined with our expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will need to raise additional funding to finance our operations, which may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

Our operations have consumed significant amounts of cash since inception. We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we conduct clinical trials of, and seek marketing approval for, our product candidates, including later stage clinical trials such as our potential pivotal Phase 3 trial in first-line HCC, subject to our discussions with the FDA, and advance our other programs. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Other unanticipated costs may also arise. Because the design and outcome of our ongoing and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amount of resources and funding that will be necessary to successfully complete the development and commercialization of any product candidate we develop. Moreover, we will need to obtain substantial additional funding in connection with our continuing operations and planned research and clinical development activities. Our future capital requirements will depend on many factors, including:

the timing, progress, costs and results of our ongoing preclinical studies and clinical trials of our product candidates;

the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other product candidates that we may pursue;

• our ability to establish collaborations on favorable terms, if at all;

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, reimbursement and distribution, for any of our product candidates for which we may receive marketing approval;

• the revenue, if any, received from commercial sales of our product candidates for which we may receive marketing approval;

• the cost of any milestone and royalty payments with respect to any approved product candidates;

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• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

• the costs of operating as a public company; and

• the extent to which we acquire or in-license other product candidates and technologies.

We may never generate the necessary data or results required to obtain regulatory approval in order to generate revenue from product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on our cash and cash equivalents and additional financing to achieve our business objectives.

As of March 31, 2024, we had cash and cash equivalents of $32.3 million. We believe that our cash and cash equivalents as of March 31, 2024, will fund our current operating plans through at least the next 12 months from the date the financial statements were issued. We have based this assessment on assumptions that may prove to be wrong, and it is possible that we will not achieve the progress that we expect with these funds because the actual costs and timing of clinical development and regulatory and commercial activities are difficult to predict and are subject to substantial risks and delays, and that we will use our capital resources sooner than we currently expect. This estimate does not reflect any additional expenditures that may result from any further strategic transactions to expand and diversify our product pipeline, including acquisitions of assets, businesses, rights to products, product candidates or technologies or strategic alliances or collaborations that we may pursue.

Accordingly, we will require substantial additional capital to develop our product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. If we require additional capital at a time when investment in our industry or in the marketplace in general is limited, we might not be able to raise funding on favorable terms, if at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions, inflation expectations, and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from public health crises and geopolitical tensions, such as the Russia-Ukraine war and the war in Israel. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce, or explore other strategic options for our research and development programs or other opportunities, or even our operations. If we do not obtain additional financing and are required to terminate our operations, our stockholders will lose their investment.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish proprietary rights.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. We do not have any committed external source of funds. In July 2021, we entered into Sales Agreement, or the ATM Agreement, with Jefferies LLC, for an at-the-market offering program that allows us to sell up to an aggregate of $100 million of our common stock. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be further diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. In addition, we may issue equity or debt securities as consideration for obtaining rights to additional compounds.

Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures, declaring dividends or placing limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could negatively impact our ability to conduct our business. For example, our obligations under the loan and security agreement, or Loan Agreement, with Oxford Finance LLC, or Oxford Finance, are secured by a

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security interest in all of our assets, including our intellectual property. In addition, the Loan Agreement contains customary covenants that, subject to specific exceptions, restrict our ability to, among other things, declare dividends or redeem or repurchase equity interests, incur additional liens, make loans and investments, incur additional indebtedness, engage in mergers, acquisitions and asset sales, transact with affiliates, undergo a change in control, add or change business locations, or engage in businesses that are not related to its existing business.

In addition, if we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.

The terms of the Loan Agreement with Oxford Finance provide Oxford with a lien against all of our assets, including our intellectual property, and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.

In January 2021, we entered into a Loan Agreement with Oxford Finance that provided us with up to $35.0 million of borrowing capacity across three potential tranches, which was subsequently amended in December 2022. The initial tranche of $15.0 million was funded at the closing of the Loan Agreement, of which $5.0 million was repaid in December 2022. As of March 31, 2024, the balance of the loan payable (net of debt issuance costs) was $10.6 million and a total of $10.0 million in borrowing capacity remained available at the option of Oxford Finance. Our overall leverage and certain obligations and affirmative and negative covenants contained in the related documentation could adversely affect our financial health and business and future operations by limiting our ability to, among other things, satisfy our obligations under the Loan Agreement, refinance our debt on terms acceptable to us or at all, plan for and adjust to changing business, industry and market conditions, use our available cash flow to fund future acquisitions and make dividend payments, and obtain additional financing for working capital, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity.

If we default under the Loan Agreement, Oxford Finance may accelerate all of our repayment obligations and exercise all of their rights and remedies under the Loan Agreement and applicable law, potentially requiring us to renegotiate our agreement on terms less favorable to us. In addition, since the borrowings under the Loan Agreement are secured by a lien on our assets, including our intellectual property, Oxford Finance would be able to foreclose on our assets if we do not cure any default or pay any amounts due and payable under the Loan Agreement. Further, if we are liquidated, the lenders’ right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. Oxford Finance could declare a default upon the occurrence of an event of default, including events that they interpret as a material adverse change as defined in the Loan Agreement, payment defaults or breaches of certain affirmative and negative covenants, thereby requiring us to repay the loan immediately. Any declaration by Oxford Finance of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. Additionally, if we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

Our operations to date have been limited to organizing and staffing, business planning, raising capital, acquiring our technology, identifying potential product candidates, undertaking research and preclinical studies of our product candidates, manufacturing, and establishing licensing arrangements. We have not yet demonstrated the ability to complete clinical trials of our product candidates, obtain marketing approvals, manufacture a commercial scale product or conduct sales and marketing activities

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necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

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