SEC Filing | Tempest Therapeutics

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tpst-20220930

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 September 30, 2022


☐			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.)
7000 Shoreline Court, Suite 275
South San Francisco, California			94080
(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

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 November 2, 2022 was 10,517,099.

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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 September 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

	PART II — OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	80
Signatures

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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 our future product candidates;

•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 expectation regarding the period during which we will qualify as a smaller reporting company under the federal securities laws;

•our ability to develop and maintain our corporate infrastructure, including our ability to remediate our existing material weakness and to design and maintain an effective system of internal controls;

•our financial performance and capital requirements; and

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•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.

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PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	September 30, 2022 (Unaudited)		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	42,791	$	51,829
Insurance recovery of legal settlement	15,200		15,000
Prepaid expenses and other current assets	2,266		2,134
Total current assets	60,257		68,963
Property and equipment, net	919		1,113
Operating lease right-of-use assets	1,312		3,051
Other non-current assets	683		111
Total assets	$	63,171	$	73,238
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	925	$	991
Accrued legal settlement	15,200		15,000
Accrued expenses	2,585		1,589
Current loan payable	3,500		—
Current operating lease liabilities	871		1,442
Accrued compensation	859		912
Interest payable	119		92
Total current liabilities	24,059		20,026
Loan payable (net of discount and issuance costs of $489 and $756, respectively)	11,836		15,069
Operating lease liabilities, less current portion	503		2,026
Total liabilities	36,398		37,121
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value per share; 100,000,000 shares authorized at September 30, 2022 and December 31, 2021; 10,517,099 and 6,910,324 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	10		7
Additional paid-in capital	153,432		136,173
Accumulated deficit	(126,669)		(100,063)
Total stockholders’ equity	26,773		36,117
Total liabilities and stockholders’ equity	$	63,171	$	73,238

See accompanying Notes to the Condensed Consolidated Financial Statements

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TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	5,973	$	4,630	$	16,733	$	12,451
General and administrative	2,798		3,106		8,973		7,197
Loss from operations	(8,771)		(7,736)		(25,706)		(19,648)
Other (expense) income, net:
Interest expense	(389)		(437)		(1,186)		(944)
Interest and other (expense) income, net	213		63		286		69
Total other (expense) income, net	(176)		(374)		(900)		(875)
Provision for income taxes	—		—		—		—
Net loss	$	(8,947)	$	(8,110)	$	(26,606)	$	(20,523)
Net loss per share of common stock, basic and diluted	$	(0.66)	$	(1.21)	$	(2.46)	$	(7.49)
Weighted-average shares of common stock outstanding, basic and diluted	13,635,927		6,717,655		10,815,900		2,739,602
Other comprehensive income (loss):
Foreign currency translation adjustment	—		(89)		—		(89)
Comprehensive loss	$	(8,947)	$	(8,199)	$	(26,606)	$	(20,612)

See accompanying Notes to the Condensed Consolidated Financial Statements

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TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts

Three and Nine Months Ended September 30, 2022


	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss	Accumulated Deficit				Total Stockholders' Equity
	Shares	Amount
BALANCE — December 31, 2021	6,910,324	$	7		$	136,173		$	—	$	(100,063)		$	36,117
Issuance of common stock for cash, net of issuance cost of $44	262,770	—			1,403			—		—			1,403
Share-based compensation	—	—			328			—		—			328
Net loss	—	—			—			—		(8,491)			(8,491)
BALANCE — March 31, 2022	7,173,094	7			137,904			—		(108,554)			$	29,357
Issuance of common stock for cash, net of issuance cost of $343	3,152,265	3			7,092			—		—			7,095
Share-based compensation	—	—			367			—		—			367
Issuance of pre-funded warrants, net of issuance cost of $283	—	—			7,281			—		—			7,281
Net loss	—	—			—			—		(9,168)			(9,168)
BALANCE — June 30, 2022	10,325,359	10			152,644			—		(117,722)			34,932
Issuance of common stock for cash, net of issuance cost of $111	191,740	—			350			—		—			350
Share-based compensation	—	—			438			—		—			438
Net loss	—	—			—			—		(8,947)			(8,947)
BALANCE — September 30, 2022	10,517,099	10			153,432			—		(126,669)			26,773

See accompanying Notes to the Condensed Consolidated Financial Statements

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TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts

Three and Nine Months Ended September 30, 2021


	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss	Accumulated Deficit				Total Stockholders' Equity
	Shares	Amount
BALANCE — December 31, 2020	498,224	$	1		$	2,967		$	—	$	(71,761)		$	(68,793)
Exercise of stock options	4,368	—			20			—		—			20
Vesting of early exercised stock options	11,916	—			57			—		—			57
Share-based compensation	—	—			120			—		—			120
Net loss	—	—			—			—		(5,355)			(5,355)
BALANCE — March 31, 2021	514,508	$	1		$	3,164		$	—	$	(77,116)		$	(73,951)
Exercise of stock options	6,285	—			29			—		—			29
Vesting of early exercised stock options	8,314	—			39			—		—			39
Conversion of preferred stock to common stock	3,692,912	4			86,703			—		—			86,707
Issuance of common stock for cash	1,136,849	1			30,009			—		—			30,010
Share-based compensation	—	—			411			—		—			411
Reverse capitalization transaction costs	—	—			(6,074)			—		—			(6,074)
Record pre-merger Millendo stockholders' equity and elimination of Millendo historical accumulated deficit	1,269,446	1			18,000			—		—			18,001
Net loss	—	—			—			—		(7,058)			(7,058)
BALANCE — June 30, 2021	6,628,314	$	7		$	132,281		$	—	$	(84,174)		$	48,114
Foreign currency translation adjustment	—	—			—			(89)		—			(89)
Exercise of stock options	15,226	—			48			—		—			48
Vesting of early exercised stock options	8,631	—			37			—		—			37
Issuance of common stock for cash, net of issuance cost of $349	248,424	—			3,513			—		—			3,513
Share-based compensation	—	—			296			—		—			296
Reverse recapitalization transaction costs	—	—			(346)			—		—			(346)
Issuance of common stock warrants	—	—			73			—		—			73
Net loss	—	—			—			—		(8,110)			(8,110)
BALANCE — September 30, 2021	6,900,595	$	7		$	135,902		$	(89)	$	(92,284)		$	(43,536)

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	For The Nine Months Ended September 30,
	2022		2021
Operating activities:
Net loss	$	(26,606)	$	(20,523)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	421		272
Stock-based compensation expense	1,133		827
Non-cash lease expense	854		589
Non-cash interest and other expense, net	267		516
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(336)		190
Accounts payable	(89)		1,130
Accrued expenses and other liabilities	946		(363)
Interest payable	27		89
Operating lease liabilities	(1,210)		(699)
Cash used in operating activities	(24,593)		(17,972)
Investing activities:
Purchase of property and equipment	(206)		(108)
Repayment of note receivable	—		38
Cash used in investing activities	(206)		(70)
Financing activities:
Proceeds from the issuance of common stock, net of issuance costs	8,849		33,474
Proceeds from issuance of pre-funded warrants, net of issuance costs	7,280		—
Borrowings on loan payable	—		15,000
Payment of loan issuance costs	—		(93)
Cash acquired in connection with reverse recapitalization	—		17,045
Payment of reverse recapitalization transaction costs	—		(6,420)
Proceeds from option exercises	—		66
Cash provided by financing activities	16,129		59,072
Effect of exchange rate changes on cash	—		(89)
Net (decrease) increase in cash and cash equivalents	(8,670)		40,941
Cash, cash equivalents and restricted cash at beginning of period	51,829		18,820
Cash, cash equivalents and restricted cash at end of period	$	43,159	$	59,761
Supplemental disclosure of cash flow information:
Cash paid for interest	$	893	682
Non-cash operating activities: Lease modification	$	884	$	—
Non-cash investing activities: Property and equipment in accounts payable	$	4	$	—
Non-cash financing activities:
Vesting of early exercise stock options	$	—	$	135

See accompanying Notes to the Condensed Consolidated Financial Statements

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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 an orally available inhibitor of TREX-1, a target that controls activation of the the cGAS/STING pathway. Tempest is headquartered in South San Francisco, California.

Merger with Millendo—On March 29, 2021, TempestTx, Inc. (“Private Tempest”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Millendo Therapeutics, Inc. (“Millendo”).

Concurrent with the execution and delivery of the Merger Agreement, Private Tempest entered into funding agreements with certain investors named therein, pursuant to which the investors agreed to purchase, in the aggregate, $30.0 million of common stock of Private Tempest, convertible into securities of Millendo.

On June 25, 2021, Private Tempest completed the merger with Millendo in accordance with the Merger Agreement. Prior to the effective time of the merger, Millendo effected a 1-for-15 reverse stock split, and right after the merger, Millendo changed its name to Tempest Therapeutics, Inc. Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share of Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock. At closing of the merger, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock, resulting in approximately 6,635,345 shares of the Company’s common stock being issued and outstanding immediately following the effective time of the merger. The Company also assumed all of the outstanding and unexercised stock options and warrants to purchase shares of Private Tempest capital stock. The assumed options continue to be governed by the terms of the 2011 and 2017 Equity Incentive Plans (as discussed more in Note 9) under which the options were originally granted, with such options hence forth representing the right to purchase a number of shares of the Company’s common stock equal to 0.0322 multiplied by the number of shares of Private Tempest common stock previously represented by such options.

The merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, Private Tempest was be deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the expectation that, immediately following the merger: (i) Private Tempest stockholders would own a substantial majority of the voting rights; (ii) Private Tempest would designate a substantial majority of the initial members of the board of directors of the combined company; (iii) Private Tempest’s executive management team would become the management of the combined company; and (iv) the combined company would be named Tempest Therapeutics, Inc. Accordingly, for accounting purposes, the merger was treated as the equivalent of Tempest issuing stock to acquire the net assets of Millendo. As a result of the merger, the net assets of Millendo were recorded at their acquisition-date fair value in the financial statements of Private Tempest and the reported operating results prior to the merger will be those of Private Tempest. Historical per share figures of Private Tempest have been retroactively restated based on the exchange ratio of 0.0322.

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. The Company’s ultimate success depends on the outcome of the ongoing research and development activities. 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 fully implement management’s business plan. The Company intends to raise such capital through the issuance of additional equity and potentially through borrowings, strategic alliances with partner companies and other licensing transactions. However, if such financing is not available at adequate levels, the Company may need to reevaluate its operating plans. Management believes

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that its cash and cash equivalents as of September 30, 2022 will be sufficient to fund the Company’s cash requirements for the next 12 months following the issuance of these financial statements.

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 (the “Registration Rights Agreement”) with the PIPE Investors pursuant 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.

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 29, 2022. There have been no material changes to the significant accounting policies during the period ended September 30, 2022.

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 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, 2021.

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. MILLENDO MERGER

As described in Note 1, Private Tempest merged with the Company on June 25, 2021. The merger was accounted for as a reverse recapitalization with Private Tempest as the accounting acquirer. The primary pre-combination assets of Millendo were cash, cash equivalents and restricted cash. Under reverse recapitalization accounting, the assets and liabilities of Millendo were recorded at their fair value which approximated book value due to the short-term nature of the instruments. No goodwill or intangible assets were recognized. Consequently, the Condensed Consolidated Financial Statements of Tempest reflect the operations of Millendo for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer.

As part of the reverse recapitalization, the Company obtained approximately $17.0 million of cash, cash equivalents and restricted cash. The Company also obtained prepaids and other assets of approximately $1.4 million and assumed payables and accruals of approximately $0.5 million. The Company also acquired the operating lease right-of-use asset of $2.1 million and the related operating lease liability of $2.1 million. All of the development programs and associated collaboration arrangements were terminated prior to the merger and were deemed to have no value at the transaction date and the Company has since wound down the legacy Millendo operations.

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The Company incurred transaction costs of approximately $6.4 million and this amount is recorded in additional paid-in capital in the Condensed Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2021.

4. FAIR VALUE MEASUREMENTS

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


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	42,791	$	—	$	—	$	42,791
Total	$	42,791	$	—	$	—	$	42,791

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	51,829	$	—	$	—	$	51,829
Total	$	51,829	$	—	$	—	$	51,829

5. BALANCE SHEET COMPONENTS

Prepaid expenses and other current assets consist of the following:


	September 30,		December 31,
	2022		2021
Prepaid expenses	$	998	$	949
Prepaid research and development costs	333		632
Other current assets	935		553
Total	$	2,266	$	2,134

Property and equipment, net, consists of the following:


	September 30,		December 31,
	2022		2021
Computer equipment and software	$	184	$	156
Furniture and fixtures	203		193
Lab equipment	937		748
Leasehold improvements	840		840
Property and equipment	2,164		1,937
Less: accumulated depreciation	(1,245)		(824)
Property and equipment, net	$	919	$	1,113

Depreciation expense for the three and nine months ended September 30, 2022 was $201 and $421, respectively. Depreciation expense for the three and nine months ended September 30, 2021 was $107 and $272, respectively.

Accrued liabilities consist of the following:

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	September 30,		December 31,
	2022		2021
Accrued other liabilities	$	1,314	$	748
Accrued clinical trial liabilities	1,271		841
Total	$	2,585	$	1,589

6. COMMITMENTS AND CONTINGENCIES

Facilities Lease Agreements—In February 2019, the Company entered into a 5-year office lease agreement for a 9,780 square feet facility in South San Francisco, California (“SSF Lease”). The original lease term expires on February 29, 2024. In June 2022, the lease was amended to terminate early on January 31, 2023. The amendment was not accounted for as a separate contract and the lease liability and the right-of-use asset were remeasured on the lease modification date.

As a result of the merger with Millendo, the Company assumed Millendo’s noncancelable operating leases for office space which have remaining lease terms of approximately 1.5 years. In February 2019 and October 2018, Millendo entered into two noncancellable operating leases for office space in Ann Arbor, Michigan (“Ann Arbor Leases”) of which one that Millendo took possession of in April 2019 and the other that Millendo took possession of in July 2019, respectively. One of its leases in Ann Arbor, Michigan expires in June 2024 and the other expires in March 2024. There were no other leases assumed by the Company as of September 30, 2022.

As of September 30, 2022 and December 31, 2021, the balance of the operating lease right-of-use assets were $1,312 and $3,051, respectively, and the related operating lease liabilities were $1,374 and $3,468 respectively, as shown in the accompanying Condensed Consolidated Balance Sheets.

Rent expense was $274 and $978 for the three and nine months ended September 30, 2022, respectively. Rent expense was $358 and $680 for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, future minimum lease payments under the SSF Lease and Ann Arbor Leases were as follows:



Year Ending	Total Commitment
2022 (excluding the nine months ended September 30, 2022)	$	269
2023	875
2024	302
Total minimum lease payments	1,446
Less: imputed interest	(72)
Present value of operating lease obligations	1,374
Less: current portion	(871)
Non-current operating lease obligations	$	503

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 is scheduled to commence in January 2023. Future minimum lease payments for the Brisbane Lease as of September 30, 2022 are as follows: nil (2022), $1,738 (2023), $1,798 (2024), $1,861 (2025) and $10,331 (2026 and beyond).

Related to this Brisbane Lease agreement, the Company entered into a letter of credit with a bank to deposit $368 in a separate account that is restricted cash to serve as security rent deposit. This amount is included in other non-current assets in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2022.

Guarantees and Indemnifications—In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of September 30, 2022 and December 31, 2021, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

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Legal Proceedings—Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. As a result of the merger with Millendo, the Company is party to various litigation matters given Millendo’s role as successor to OvaScience, Inc. (“OvaScience”). OvaScience merged with Millendo in 2018. Prior to the merger with Millendo, OvaScience was sued in three matters that are disclosed below.

On November 9, 2016, a purported shareholder derivative action was filed in Massachusetts State court (Cima v. Dipp) against OvaScience and certain former officers and directors of OvaScience and OvaScience alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets for purported actions related to OvaScience’s January 2015 follow-on public offering. As of September 12, 2022, the parties have reached an agreement in principle and have executed a term sheet in connection with a settlement. On September 13, 2022, the parties filed a joint motion to stay the case pending settlement. On September 15, 2022, the court issued a 90 day nisi order. The parties are in discussions regarding a potential attorney fee award. If the parties cannot reach a resolution regarding a fee award, any potential award will be determined by the Court. Any final settlement is subject to Court approval.

On March 24, 2017, a purported shareholder class action lawsuit was filed in Massachusetts Federal court (Dahhan v. OvaScience, Inc.) against OvaScience and certain former officers of OvaScience alleging violations of Sections 10(b) and 20(a) of the Exchange Act (the “Dahhan Action”). On March 4, 2022, the parties filed a motion to preliminarily approve a settlement of the action. The settlement amount of $15 million will be funded entirely by insurance. All defendants expressly deny liability. On April 1, 2022, the Court preliminarily approved the settlement. The settlement remains subject to final approval. The amount of $15 million was recorded as accrued legal settlement with the offsetting insurance recovery of legal settlement in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

On July 27, 2017, a purported shareholder derivative complaint was filed in Massachusetts Federal court (Chiu v. Dipp) against OvaScience and certain former officers and directors of OvaScience alleging breach of fiduciary duties, unjust enrichment and violations of Section 14(a) of the Exchange Act. related to OvaScience’s January 2015 follow-on public offering and other public statements concerning OvaScience’s AUGMENT treatment. Following the Court’s dismissal of an amended complaint, the parties agreed that plaintiffs could file a second amended complaint and that the case would be stayed pending the resolution of the Dahhan Action. In May 2018, the court entered an order staying this case pending the resolution of the Dahhan Action. As of September 12, 2022, the parties have reached an agreement in principle and have executed a term sheet in connection with the settlement. The parties are in discussions regarding a potential attorney fee award. If the parties cannot reach a resolution regarding a fee award, any potential award will be determined by the Court. Any final settlement is subject to Court approval.

7. LOAN PAYABLE

On January 15, 2021, the Company entered into a loan agreement with a 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 lender’s option. 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%. Index Rate is the greater of (i) 30-day US LIBOR or (ii) 0.15%. Monthly principal payments of $500 will begin on March 1, 2023. 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 September 30, 2022, the balance of the loan payable (net of debt issuance costs) was $15,336, of which $3,500 was classified as current and $11,836 was classified as non-current. The carrying value of the loan approximates fair value (Level 2).

For the three and nine months ended September 30, 2022, total interest expense was $389 and $1,186, respectively. For the three and nine months ended September 30, 2021, total interest expense was $437 and $944, respectively.

8. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

Prior to the merger with Millendo on June 25, 2021, Private Tempest had issued and outstanding convertible preferred stock. The authorized, issued and outstanding shares of the convertible preferred stock and liquidation preferences of Private Tempest as of December 31, 2020 and June 24, 2021 were as follows:

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Series	Shares Authorized	Shares Issued and Outstanding	Per Share Liquidation Preference		Aggregate Liquidation Amount		Proceeds Net of Issuance Cost		Net Carrying Value
Series A	17,000,000	17,000,000	$	1.00	$	17,000	$	16,982	$	16,982
Series B	25,186,738	25,186,738	1.00		25,187		24,943		12,235
Series B-1	93,749,993	72,499,993	0.80		58,000		57,489		57,489
	135,936,731	114,686,731			$	100,187	$	99,414	$	86,706

There was no convertible preferred stock issued nor outstanding as of September 30, 2022 and December 31, 2021.

Common Stock

Upon completion of the merger on June 25, 2021, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock (3,692,912 common shares) and those shares of common stock issued with its pre-merger financing of $30.0 million (1,136,849 common shares).

As of September 30, 2022 and December 31, 2021, the Company 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, 10,517,099 and 6,910,324 were issued and outstanding at September 30, 2022 and December 31, 2021, respectively. There were no shares subject to repurchase due to remaining vesting requirements. 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 was no preferred stock issued nor outstanding as of September 30, 2022 and December 31, 2021.

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 Company’s Board of Directors.

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, up to an aggregate sales price of $100,000,000 of its common stock through Jefferies LLC (the "ATM Program").

Pre-Funded Warrants

In April 2022, the Company completed a PIPE financing, which included the issuance of 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 the PIPE Investors. The pre-funded warrants provide that the holder will not have the right to exercise any portion of its warrants if such holder, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the holder may increase or decrease the Beneficial Ownership Limitation by giving 61 days’ notice to the Company, but not to any percentage in excess of 19.99%.

9. STOCK-BASED COMPENSATION

Equity Plans

In 2011, Private Tempest adopted the 2011 Equity Incentive Plan (the “2011 Plan), and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan (the “2017 Plan”), and together with the 2011 Plan, “the Tempest Equity Plans”. Upon adoption of the 2017 Plan, the 2011 Plan was terminated.

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The Board of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”) on April 29, 2019, subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. As a result of the merger, the Tempest Equity Plans were assumed by the Company. The number of shares of the Company's common stock reserved for issuance under the 2019 Plan will automatically increase on January 1st of each year, for a period of 10 years, from January 1, 2020 continuing through January 1, 2029, by 4% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors. On January 1, 2022, the common stock reserved for issuance was increased by 276,412 shares.

On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan”), which amends and restates the 2019 Plan and will be a successor to, and replacement of, the 2019 Plan. The A&R 2019 Plan had been adopted by the Company’s Board of Directors and one of the material changes was to increase the number of shares available for issuance by 1,132,252. The A&R 2019 Plan still includes the annual evergreen provision of automatically increasing on January 1st of each year the number of option shares available for issuance by 4% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors.

Both the 2017 Plan and the A&R 2019 Plan allow the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards. 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.

As of September 30, 2022, a total of 954,122 shares are available for future grant under the 2017 Plan and A&R 2019 Plan.

Employee Stock Ownership Plan

The Board of Millendo adopted the 2019 Employee Stock Purchase Plan on April 29, 2019, which became effective upon such 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).

As of September 30, 2022, 137,097 shares of common stock remained available for future issuance under the 2019 ESPP. As of September 30, 2022, 6,120 shares of common stock had been issued under the 2019 ESPP during the three and nine months ended September 30, 2022.

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.

Prior to the merger, the grant date fair market value of the shares of common stock underlying stock options has historically been determined by the Company’s Board of Directors. Up until the merger, there had been no public market for the Company’s common stock, and therefore the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included valuations performed by an independent third-party, important developments in the Company’s operations, sales of convertible preferred stock, actual operating results, financial performance, the conditions in the life sciences industry, the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock.

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The following shows the stock option activities for the nine months ended September 30, 2022 and 2021:


	Total Options Outstanding	Weighted-Average Exercise Price
Balance—December 31, 2021	790,637	$	32.82
Granted	903,527	3.35
Exercised	—	—
Cancelled and forfeited	(56,235)	266.80
Balance—September 30, 2022	1,637,929	8.72

Balance—December 31, 2020	452,165	$	5.35
Assumed in reverse recapitalization	177,591	179.79
Granted	232,669	19.09
Exercised	(25,871)	3.77
Cancelled and forfeited	(100,459)	107.77
Balance—September 30, 2021	736,095	37.47

The following table summarizes information about stock options outstanding at September 30, 2022:


	Shares	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding	1,637,929	8.78	$	8.72	$	—
Vested and expected to vest	1,637,929	8.78	$	8.72	$	—
Exercisable	486,089	7.71	$	15.22	$	—

During the nine months ended September 30, 2022 and 2021, the Company granted employees and non-employees stock options to purchase 903,527 and 232,669 shares of common stock with a weighted-average grant date fair value of $2.83 and $11.83 per share, respectively. As of September 30, 2022 and 2021, total unrecognized compensation costs related to unvested employee stock options were $4,443 and $2,935, respectively. These costs are expected to be recognized over a weighted-average period of approximately 2.8 years and 1.4 years, respectively.

The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of stock options was estimated using the following assumptions for the nine months ended September 30, 2022 and 2021:


	2022	2021
Expected term (in years)	5.5 - 6.1	5.8 - 6.1
Expected volatility	110% - 112%	67% - 68%
Risk-free interest rate	1.5% - 3.4%	0.9% - 1.1%
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.

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.

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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 and nine months ended September 30, 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Research and development	$	148	$	105	$	375	$	227
General and administrative	290		191		758		600
Total	$	438	$	296	$	1,133	$	827

10. 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 and nine months ended September 30, 2022, the Company contributed $39 and $100, respectively, to the 401(k) Plan. There was no contribution from the Company for the three and nine months ended September 30, 2021.

11. 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 and nine months ended September 30, 2022 and 2021 (in thousands, except share and per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
Numerator:	2022		2021		2022		2021
Net loss	$	(8,947)	$	(8,110)	$	(26,606)	$	(20,523)
Denominator:
Weighted-average common shares outstanding	13,635,927		6,721,400		10,815,900		2,751,519
Less: Weighted-average unvested restricted shares and shares subject to repurchase	—		(3,745)		—		(11,917)
Weighted-average shares used in computing basic and diluted net loss per share	13,635,927		6,717,655		10,815,900		2,739,602
Net loss per share attributable to common stockholders—basic and diluted	$	(0.66)	$	(1.21)	$	(2.46)	$	(7.49)

As of September 30, 2022 and 2021, the Company’s potentially dilutive securities included outstanding convertible preferred stock, stock options, unvested restricted stock and stock warrants, 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 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 September 30, 2022 and 2021, 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 September 30,
	2022	2021
Options to purchase common stock	1,637,929	736,095
Common stock warrants	6,036	6,036
Total	1,643,965	742,131

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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, 2021, filed with the U.S. Securities and Exchange Commission ("SEC") on March 29, 2022. 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 oncology company focused on leveraging a deep scientific understanding of cancer biology and medicinal chemistry to develop and advance novel, orally available therapies for the treatment of solid tumors. Our philosophy is to build a company based upon not only creative science and thoughtful management, but also upon the efficient translation of those ideas into therapies that will improve patient’s lives. To this end, we currently are advancing four novel programs, two of which are in the clinic. The Company's two clinical programs, TPST-1120 and TPST-1495, are advancing through clinical trials designed to study the agents as monotherapies and in combination with other approved agents. TPST-1120 is a selective antagonist of PPARα and we recently presented data from the dose and scheduling finding Phase 1 trial in oral presentation at ASCO 2022 and are continuing development in a first-line, randomized global Phase 1b/2 study in patients with hepatocellular carcinoma under a collaboration with F. Hoffman La Roche. TPST-1495 is a dual antagonist of EP2 and EP4 prostaglandin E2 receptors and is also in a Phase 1 trial in solid tumors. Like TPST-1120, we believe TPST-1495 is the only dual EP2/4 antagonist in clinical development. We also have a third program in preclinical studies that could be the first to target TREX-1, a cellular enzyme that regulates the innate immune response in tumors. Finally, the Company has a fourth preclinical program focused on an undisclosed target that we believe may be a novel oncology target.

We have no products approved for commercial sale and have not generated any revenue from product sales. From inception to September 30, 2022, we have raised $164.4 million, through the sale of our capital securities.

We have never been profitable and have incurred operating losses in each period since inception. Our net losses were $26.6 million and $20.5 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $126.7 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 will involve 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 September 30, 2022, we had cash and cash equivalents of $42.8 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.

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.

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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 expense. Legal costs include general corporate legal fees and patent costs. We expect to incur additional expenses as a result of becoming a public company following completion of the merger, 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 (Expense) Income, Net

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

Results of Operations

Comparison of the three months ended September 30, 2022 and 2021

The following table summarizes our operating results for the three months ended September 30, 2022 and 2021:

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	Three Months Ended September 30,
	2022		2021
	(in thousands)
Expenses:
Research and development	$	5,973	$	4,630
General and administrative	2,798		3,106
Total expenses	8,771		7,736
Operating loss	(8,771)		(7,736)
Interest expense	(389)		(437)
Interest and other (expense) income, net	213		63
Provision for income taxes	—		—
Net loss	$	(8,947)	$	(8,110)

Research and development

Our research and development expenses for the three months ended September 30, 2022 and 2021 were primarily incurred in connection with our most advanced product candidates, TPST-1120 and TPST-1495. We have not historically tracked research and development expense by program other than direct external expenses in conducting clinical trials for 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. As such, we do not maintain information regarding these costs incurred for these early-stage research and drug discovery programs on a project specific basis.

Research and development expense increased by $1.4 million to $6.0 million for the three months ended September 30, 2022, compared to the prior year period, which was primarily attributable to expanded research and development efforts incurred from contract research organizations and third-party vendors, as well as compensation expenses due to an increase in employee headcount. The following table summarizes our research and development expenses for the three months ended September 30, 2022 and 2021:


	Three Months Ended September 30,
	2022		2021
	(in thousands)
Research and development outside services	$	4,054	$	3,207
Compensation expense	1,031		617
Stock-based compensation expense	148		106
Consulting and professional services	432		418
Other expenses	308		282
Total research and development expense	$	5,973	$	4,630

General and administrative

General and administrative expenses decreased by $0.3 million to $2.8 million for the three months ended September 30, 2022, compared to the prior year period. The decrease was primarily due to a decrease of $0.3 million in consulting and professional services.

Other (expense) income, net

For the three months ended September 30, 2022 and 2021, other (expense) income, net consisted of total interest expense of $389 thousand and $437 thousand, respectively, related to the Oxford Loan, and interest income of $213 thousand and $63 thousand, respectively.

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Comparison of the nine months ended September 30, 2022 and 2021

The following table summarizes our operating results for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Expenses:
Research and development	$	16,733	$	12,451
General and administrative	8,973		7,197
Total expenses	25,706		19,648
Operating loss	(25,706)		(19,648)
Interest expense	(1,186)		(944)
Interest and other (expense) income, net	286		69
Provision for income taxes	—		—
Net loss	$	(26,606)	$	(20,523)

Research and development

Our research and development expenses for the nine months ended September 30, 2022 and 2021 were primarily incurred in connection with our most advanced product candidates, TPST-1120 and TPST-1495. We have not historically tracked research and development expense by program other than direct external expenses in conducting clinical trials for 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. As such, we do not maintain information regarding these costs incurred for these early-stage research and drug discovery programs on a project specific basis.

Research and development expense increased by $4.2 million to $16.7 million for the nine months ended September 30, 2022, which was primarily attributable to expanded research and development efforts incurred from contract research organizations and third-party vendors, as well as compensation expenses due to an increase in employee headcount. The following table summarizes our research and development expenses for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Research and development outside services	$	10,954	$	8,170
Compensation expense	3,054		2,016
Stock-based compensation expense	375		227
Consulting and professional services	1,101		1,309
Other expenses	1,249		729
Total research and development expense	$	16,733	$	12,451

General and administrative

General and administrative expenses increased by $1.8 million to $9.0 million for the nine months ended September 30, 2022, compared to the prior year period. The increase was primarily due to an increase of $1.2 million in professional and consulting fees and an increase of $0.6 million in insurance expense, as a result of operating as a publicly traded company.

Other (expense) income, net

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For the nine months ended September 30, 2022 and 2021, other (expense) income, net consisted of total interest expense of $1.2 million and $0.9 million, respectively, related to the Oxford Loan, and interest income of $0.3 million and $0.1 million, respectively.

Liquidity and Capital Resources

Sources of Liquidity

Since inception through September 30, 2022, our operations have been financed primarily by net cash proceeds from the sale of our capital stock, including common stock, pre-funded warrants to purchase common stock, and convertible preferred stock. As of September 30, 2022, we had $42.8 million in cash and cash equivalents and an accumulated deficit of $126.7 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 believe our cash and cash equivalents as of September 30, 2022 and continued access to our term loan will fund our ongoing working capital, investing, and financing requirements for at least the next 12 months.

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. 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 lender’s option. 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%. The index rate is the greater of (i) 30-day US LIBOR or (ii) 0.15%. As of September 30, 2022, the balance of the loan payable (net of debt issuance costs) was $15.3 million, of which $3.5 million was classified as current and $11.8 million was classified as non-current.

On July 23, 2021, we entered into a sales agreement with Jefferies LLC, pursuant to which we may sell, from time to time, up to an aggregate sales price of $100.0 million of our common stock through the Agent in a series of one or more ATM equity offerings (the “ATM Program”).

In April 2022, we completed a PIPE financing, in which we sold 3,149,912 shares of our common stock at a price per share of $2.36 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 the PIPE Investors. Net proceeds from the PIPE financings totaled approximately $14.5 million, after deducting offering expenses.

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Cash used in operating activities	$	(24,593)	$	(17,972)
Cash used in investing activities	(206)		(70)
Cash provided by financing activities	16,129		59,072
Effect of exchange rate changes on cash	$	—	$	(89)
Net increase in cash and cash equivalents	$	(8,670)	$	40,941

Cash flows used in operating activities

Cash used in operating activities for the nine months ended September 30, 2022 was $24.6 million, consisting of a net loss of $26.6 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $2.7 million, plus changes in operating assets and liabilities of $0.6 million.

Cash used in operating activities for the nine months ended September 30, 2021 was $18.0 million consisting of a net loss of $20.5 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $2.2 million, plus changes in operating assets and liabilities of $0.3 million.

Cash flows used in investing activities

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Cash used in investing activities for the nine months ended September 30, 2022 and 2021 was related to purchases of property and equipment, primarily related to office, laboratory and computer equipment.

Cash flows provided by financing activities

Cash provided by financing activities for the nine months ended September 30, 2022 was $16.1 million, primarily related to proceeds from the issuance of common stock of $8.8 million and pre-funded warrants of $7.3 million.

Cash provided by financing activities for the nine months period ended September 30, 2021 was $59.1 million consisting of (i) proceeds from Oxford Loan of $14.9 million (net of issuance costs), (ii) issuance of common stock of $30.0 million concurrent with closing of the merger with Millendo and (iii) cash of $17.0 million brought over by Millendo as a result of the merger, offset by payment of reverse recapitalization costs of $6.4 million.

Material Cash Requirements

We expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval for our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.

Our material cash requirements as of September 30, 2022 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 September 30, 2022, we have $23.9 million payable within 12 months.