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Item 5. Market for Registrant’s Common Equity

2023-03-22 compared with 2022-03-29 · 203 added, 3 removed, 10 unchanged (95% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Market Information

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In connection with and immediately following the merger, the combined company changed its name to Tempest Therapeutics.

Millendo’s shares of common stock were listed on the Nasdaq Stock Market through the close of business on Friday, June 25, 2021 under the ticker symbol “MLND.” On Monday, June 28, 2021, we began trading on the Nasdaq Stock Market under the ticker symbol “TPST.”

As of March 15, 2022, we ha d 7,173,094 sha res of common stock outstanding held by 39 ho lders of record.

Millendo’s shares of common stock were listed on the Nasdaq Stock Market through the close of business on Friday, June 25, 2021 under the ticker symbol “MLND.”

On Monday, June 28, 2021, we began trading on the Nasdaq Stock Market under the ticker symbol “TPST.”

As of March 16, 2023, we had 10,561,700 shares of common stock outstanding held by 83 holders of record.

The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.

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Purchases of Equity Securities by the Issuer and Affiliated Parties

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes to those statements included later in this Annual Report.

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties.

Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Item 1A.

“Risk Factors”

and “Special Note Regarding Forward-Looking Statements.”

We are a clinical-stage oncology company focused on leveraging our 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 good ideas and creative science, but also upon the efficient translation of those ideas into therapies that will improve patients’

To this end, we are advancing TPST-1120 and TPST-1495, two product candidates in clinical trials that we believe are the first clinical-stage molecules designed to inhibit their respective targets;

as well as two preclinical programs, including one that could be the first to target TREX-1, a key cellular enzyme that regulates the innate immune response in tumors.

TPST-1120 is a selective antagonist of peroxisome proliferator-activated receptor alpha, or PPARα.

Clinical data from initial Phase 1 trials, both as a monotherapy and in combination with an anti-PD1 therapy, nivolumab, were reported at a podium presentation at the American Society of Clinical Oncology (ASCO) conference in June 2022.

RECIST responses were observed at the two highest TPST-1120 doses in combination with standard dose nivolumab for an objective response rate ("ORR") of those cohorts of 30% (3 of 10 patients), including in patients who previously progressed on anti-PD-1 (-L1) therapy.

TPST-1120 is also being studied in an ongoing global randomized Phase 1b/2 trial in combination with the standard-of-care first-line regimen of atezolizumab and bevacizumab in patients with advanced or metastatic hepatocellular carcinoma, or HCC.

The study has fully enrolled (targeting 40 patients in each arm), and we expect the initial data in the first half of 2023.

Our second clinical program, TPST-1495, a dual antagonist of the EP2 and EP4 receptors of prostaglandin E2, is in an ongoing Phase 1 monotherapy and combination trial in solid tumors.

We expect data from the TPST-1495 Phase 1 trial to be presented at a cancer conference in 2023, if accepted to present.

Additionally, we have what we believe to be exciting third and fourth preclinical programs targeting the three prime repair exonuclease (“TREX-1”) and a novel oncology drug target in a newly defined pathway, respectfully.

Beyond these four ongoing 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.

We have no products approved for commercial sale and have not generated any revenue from product sales.

From inception to December 31, 2022, we have raised $164.4 million, through sales of our capital securities.

We have never been profitable and has incurred operating losses in each period since inception.

Our net losses were $35.7 million and $28.3 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $135.8 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 December 31, 2022, we had cash and cash equivalents of $31.2 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.

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;

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 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

The following table summarizes our operating results for the years ended December 31, 2022 and 2021:

(in thousands)

Research and development

General and administrative

Total expenses

Operating loss

Interest expense

Interest income and other income (expense), net

Provision for income taxes

Research and Development

Our research and development expenses for the years ended December 31, 2022 and 2021 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.

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.

(in thousands)

Preclinical and other

Total candidate specific research costs

Personnel and other costs

Stock-based compensation and depreciation

Total research and development expenses

Research and development expense increased by $5.3 million to $22.5 million for the year ended December 31, 2022.

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

(in thousands)

Research and development outside services

Compensation expense

Stock-based compensation expense

Consulting and professional services

Other expenses

Total research and development expense

The growth in total research and development expense of $5.3 million for the year ended December 31, 2022 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.

General and Administrative

General and administrative expenses increased by $2.3 million to $12.1 million for the year ended December 31, 2022.

The increase was primarily due to an increase of $1.1 million in professional and consulting fees and an increase of $0.5 million in insurance expense.

Other Income (Expense), Net

For the year ended December 31, 2022 and 2021, other income (expense), net consisted of total interest expense of $1.6 million and $1.3 million, respectively, related to the Oxford Loan, and interest income of $612 thousand and $7 thousand, respectively.

Liquidity and Capital Resources

Since inception through December 31, 2022, 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 December 31, 2022, we had $31.2 million in cash and cash equivalents and an accumulated deficit of $135.8 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 December 31, 2022 will fund our ongoing working capital, investing, and financing requirements for at least the next 12 months.

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, 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 the property 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.

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%.

At-the-Market Offering

On July 23, 2021, we entered into a sales agreement (the “Sales Agreement”) with Jefferies LLC (the “Agent”), 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.

PIPE Financing

In April 2022, we completed a private investment in public equity (“PIPE”) financing from the sale of 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 our 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 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, but not to any percentage in excess of 19.99%.

We entered into a registration rights agreement (the “Registration Rights Agreement”) with the PIPE Investors pursuant to which we 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.

The following table summarizes our cash flows for the years ended December 31, 2022 and 2021:

(in thousands)

Cash used in operating activities

Cash used in investing activities

Cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash flows from operating activities

Cash used in operating activities for the year ended December 31, 2022 was $31.1 million, consisting of a net loss of $35.7 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $3.8 million, plus changes in operating assets and liabilities of $0.9 million.

Cash used in operating activities for the year ended December 31, 2021 was $26.0 million consisting of a net loss of $28.3 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense offset by other non-cash items totaling $3.0 million, less changes in operating assets and liabilities of $0.6 million.

Cash flows from investing activities

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

Cash flows from financing activities

Cash provided by financing activities for the year ended December 31, 2022 was $11.4 million, primarily related to proceeds from the issuance of common stock of $8.9 million and pre-funded warrants of $7.3 million related to the PIPE financing, offset by $4.7 million used in the partial repayment of our loan with Oxford.

Cash provided by financing activities for the year ended December 31, 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 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.

Funding Requirements

We believe that our available cash and cash equivalents are sufficient to fund existing and planned cash requirements.

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 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;

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

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 December 31, 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 December 31, 2022, we have $7.2 million payable within 12 months.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs 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 ourself.

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (“US GAAP”).

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses.

On an ongoing basis, we evaluate these estimates and judgments.

We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances.

These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Actual results may differ materially from these estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Research and Development Expenses

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials and contract manufacturing activities.

We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations.

These costs are a significant component of our research and development expenses.

We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services.

We make significant judgments and estimates in determining the accrued balance in each reporting period, which includes gathering information from multiple sources.

In certain circumstances, the determination of the nature and level of services that have been received during the reporting period requires judgment because the timing and pattern of vendor invoicing did not correspond to the level of services provided and invoicing from clinical study sites and other vendors may not yet be available to us.

As actual costs become known, we adjust our accrued estimates.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period.

Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers.

Stock-Based Compensation

We recognize noncash stock-based compensation expense related to stock-based awards to employees, non-employees and directors, including stock options, based on the fair value on the grant date using the Black-Scholes option pricing model.

The related stock-based compensation is recognized as expense on a straight line-basis over the employee’s, non-employee’s or director’s requisite service period (generally the vesting period).

Noncash stock compensation expense is based on awards ultimately expected to vest and is reduced by any forfeitures as they occur.

In determining the fair value of stock options, we use the Black-Scholes option-pricing model and assumptions discussed below.

Each of these inputs is subjective and generally requires significant judgment to determine.

Expected Term —Our expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) for employee options.

Expected Volatility —The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as we did not have any trading history for our common stock.

We will continue to analyze the historical stock price volatility and expected term assumption as more historical data for our common stock becomes available.

Risk-Free Interest Rate —The risk-free interest rate is based on the U.S.

Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend —We have never paid dividends on our common stock and have no plans to pay dividends on our common stock.

Therefore, we use an expected dividend yield of zero.

Recent Accounting Pronouncements

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity