Tempest Therapeutics, Inc. 10-Q

Item 1 – Financial Statements MILLENDO THERAPEUTICS, INC. Consolidated Balance Sheets (in thousands except share and per share amounts) (Unaudited) March 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 26,802 $ 38,174 Short-term restricted cash 45 484 Marketable securities 439 — Prepaid expenses and other current assets 1,808 1,929 Refundable tax credit 300 314 Total current assets 29,394 40,901 Operating lease right-of-use assets 2,014 2,157 Other assets 299 351 Total assets $ 31,707 $ 43,409 Liabilities and stockholders’ equity Current liabilities: Current portion of debt $ 235 $ 239 Accounts payable 811 1,486 Accrued expenses 2,809 5,525 Operating lease liabilities — current 742 737 Total current liabilities 4,597 7,987 Debt, net of current portion — 61 Operating lease liabilities 1,482 1,635 Total liabilities 6,079 9,683 Commitments and contingencies (Note 6) Stockholders’ equity: Preferred stock, $ 0.001 par value: 5,000,000 shares authorized; no shares issued and outstanding — — Common stock, $ 0.001 par value: 100,000,000 shares authorized; 19,043,034 and 18,999,701 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 19 19 Additional paid-in capital 278,113 277,647 Accumulated deficit ( 253,449 ) ( 245,060 ) Accumulated other comprehensive income 277 452 Total stockholders’ equity attributable to Millendo Therapeutics, Inc. 24,960 33,058 Equity attributable to noncontrolling interests 668 668 Total stockholders’ equity 25,628 33,726 Total liabilities and stockholders’ equity $ 31,707 $ 43,409 See accompanying Notes to unaudited Interim Consolidated Financial Statements 4 Table of Contents MILLENDO THERAPEUTICS, INC. Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands except share and per share amounts) Three Months Ended March 31, 2021 2020 Operating expenses: Research and development $ 2,152 $ 7,540 General and administrative 6,410 4,595 Loss from operations 8,562 12,135 Other expenses (income): Interest expense (income), net $ 1 $ ( 162 ) Other (gain) / loss ( 174 ) 25 Net loss $ ( 8,389 ) $ ( 11,998 ) Net loss per share of common stock, basic and diluted $ ( 0.44 ) $ ( 0.65 ) Weighted-average shares of common stock outstanding, basic and diluted 19,023,293 18,448,507 Other comprehensive income (loss): Foreign currency translation adjustment $ ( 175 ) $ ( 42 ) Comprehensive loss $ ( 8,564 ) $ ( 12,040 ) See accompanying Notes to unaudited Interim Consolidated Financial Statements 5 Table of Contents MILLENDO THERAPEUTICS, INC. Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) (in thousands except share amounts) Three Months Ended March 31, 2021 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity (Deficit) attributable to Millendo Therapeutics, Inc. Total Equity Attributable to Noncontrolling Interests Total Stockholders’ Equity (Deficit) Shares Amount Balance at January 1, 2021 18,999,701 $ 19 $ 277,647 $ ( 245,060 ) $ 452 $ 33,058 $ 668 $ 33,726 Exercise of stock options 43,333 — 86 — — 86 — 86 Stock-based compensation expense — — 380 — — 380 — 380 Foreign currency translation adjustment — — — — ( 175 ) ( 175 ) — ( 175 ) Net loss — — — ( 8,389 ) — ( 8,389 ) — ( 8,389 ) Balance at March 31, 2021 19,043,034 $ 19 $ 278,113 $ ( 253,449 ) $ 277 $ 24,960 $ 668 $ 25,628 Three Months Ended March 31, 2020 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity (Deficit) attributable to Millendo Therapeutics, Inc. Total Equity Attributable to Noncontrolling Interests Total Stockholders’ Equity (Deficit) Shares Amount Balance at January 1, 2020 18,266,545 $ 18 $ 267,018 $ ( 208,654 ) $ 165 $ 58,547 $ 1,324 $ 59,871 Issuance of common stock, net of issuance costs 719,400 1 5,649 — — 5,650 — 5,650 Exercise/forfeiture of BSPCE warrants 12,307 — 593 — — 593 ( 515 ) 78 Stock-based compensation expense — — 1,080 — — 1,080 — 1,080 Foreign currency translation adjustment — — — — ( 42 ) ( 42 ) — ( 42 ) Net loss — — — ( 11,998 ) — ( 11,998 ) — ( 11,998 ) Balance at March 31, 2020 18,998,252 $ 19 $ 274,340 $ ( 220,652 ) $ 123 $ 53,830 $ 809 $ 54,639 See accompanying Notes to unaudited Interim Consolidated Financial Statements 6 Table of Contents MILLENDO THERAPEUTICS, INC. Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2021 2020 Operating activities: Net loss $ ( 8,389 ) $ ( 11,998 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 33 37 Stock-based compensation expense 380 1,080 Foreign currency remeasurement gain ( 174 ) — Amortization of right-of-use asset 143 243 Loss on disposal of equipment 9 — Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 319 ) 1,807 Other assets — ( 1 ) Accounts payable ( 669 ) 1,329 Accrued expenses and other liabilities ( 2,700 ) ( 2,255 ) Operating lease liabilities ( 149 ) ( 403 ) Cash used in operating activities ( 11,835 ) ( 10,161 ) Investing activities: Proceeds (purchases) from property and equipment 8 ( 26 ) Cash provided by (used) in investing activities 8 ( 26 ) Financing activities: Repayment of debt ( 54 ) — Proceeds from the issuance of common stock, net of issuance costs — 5,521 Proceeds from option and BSPCE warrant exercises 86 78 Repayment of principal on finance lease ( 10 ) ( 10 ) Cash provided by financing activities 22 5,589 Effect of foreign currency exchange rate changes on cash ( 6 ) ( 37 ) Net decrease in cash, cash equivalents and restricted cash ( 11,811 ) ( 4,635 ) Cash, cash equivalents and restricted cash at beginning of period 38,658 63,512 Cash, cash equivalents and restricted cash at end of period $ 26,847 $ 58,877 Supplemental schedule of non-cash investing and financing activities: Financing costs in accounts payable and accrued expenses $ — $ 68 See accompanying Notes to unaudited Interim Consolidated Financial Statements 7 Table of Contents MILLENDO THERAPEUTICS, INC. Notes to Unaudited Interim Consolidated Financial Statements 1. Organization and Description of Business Description of Business Millendo Therapeutics, Inc. (the “Company”), a Delaware corporation, together with its subsidiaries, is a biopharmaceutical company that was previously primarily focused on developing novel treatments for orphan endocrine diseases where current therapies do not exist or are insufficient. The Company had been developing livoletide (AZP-531), as a potential treatment for Prader-Willi syndrome, (“PWS”), a rare and complex genetic endocrine disease characterized by hyperphagia, or insatiable hunger. The Company discontinued the development of livoletide as a potential treatment for PWS in April 2020 based upon results from its Phase 2b trial. All costs, including estimated closeout costs associated with the livoletide program were recognized during 2020. The Company does not expect to incur future material expenses related to this program. In an effort to streamline costs after discontinuing the PWS program, the Company eliminated employee positions representing approximately 30 % of its prior headcount, which were completed in the second quarter of 2020. The Company recorded one-time costs of $ 1.1 million in the form of termination benefits related to this plan in the second quarter of 2020. The Company had also been developing nevanimibe (ATR-101) as a potential treatment for patients with classic congenital adrenal hyperplasia, (“CAH”), a rare, monogenic adrenal disease that requires lifelong treatment with exogenous cortisol, often at high doses. The Company elected to cease investing in the development of nevanimibe as a potential treatment for CAH in June 2020 based on an interim review of data from its Phase 2b trial. All costs, including estimated closeout costs associated with the nevanimibe program for the treatment of CAH were recognized during 2020. The Company does not expect to incur future material expenses related to its nevanimibe program for the treatment of CAH. The Company had also been developing a selective neurokinin 3-receptor (NK3R) antagonist (MLE-301) as a potential treatment of vasomotor symptoms (“VMS”), commonly known as hot flashes and night sweats, in menopausal women. In January 2021, the Company discontinued further investment in MLE-301 for the treatment of VMS based on an analysis of the pharmacokinetic and pharmacodynamic data from the single ascending dose portion of the Phase 1 study. All costs, including estimated closeout costs associated with the MLE-301 program were recognized during the first quarter of 2021 and the Company does not expect to incur future material expenses related to this program. In January 2021, as a result of its decision to discontinue its investment in MLE-301, the Company's Board of Directors (the “Board”) also approved a corporate restructuring plan (the “Plan”) furthering the Company's ongoing efforts to align its resources with its current strategy and operations. In connection with the Plan, the Company plans to reduce its workforce by up to 85 %, and the majority of the reduction in personnel was completed by April 15, 2021. The Company initiated this reduction in force in January 2021 and has provided or will provide severance payments and continuation of group health insurance coverage for a specified period to the affected employees. The Company has also entered into retention arrangements with employees who are expected to remain with the Company. The Company estimates that it will incur costs of approximately $ 5.5 million for termination benefits and retention arrangements related to the Plan, of which approximately $ 4.2 million has been recorded in the first quarter of 2021. Substantially all termination benefits will be cash expenditures. In 2020, the Company undertook a strategic review process, which was intended to result in an actionable plan that leverages its assets, capital and capabilities to maximize stockholder value. Following an extensive process of evaluating strategic alternatives, including identifying and reviewing potential candidates for a strategic acquisition or other transaction, on March 29, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tempest Therapeutics, Inc. (“Tempest”) under which the privately held Tempest will merge with a wholly owned subsidiary of Millendo (the “Merger”). The Merger is subject to certain closing conditions, including, among other things, approval by the Company's stockholders. If the Merger is completed, the business of Tempest will continue as the business of the combined company. Liquidity The Company has incurred net losses since inception and it expects to generate losses from operations for the foreseeable future primarily due to the ongoing review of corporate strategic alternatives that include, but are not limited to, the potential sale or merger of the Company or its assets. As of March 31, 2021, the Company had cash, cash equivalents, marketable securities and restricted cash of $ 27.3 million and an accumulated deficit of $ 253.4 million. 8 Table of Contents In April 2019, the Company entered into an “at-the-market” (“ATM”) equity distribution agreement with Citigroup Global Markets Inc. acting as sole agent with an aggregate offering value of up to $ 50.0 million, which allows the Company to sell its common stock through the facilities of the Nasdaq Capital Market. Subject to the terms of the ATM equity distribution agreement, the Company is able to determine, at its sole discretion, the timing and number of shares to be sold under this ATM facility. In March 2020, the Company amended and restated the equity distribution agreement to include SVB Leerink LLC as an additional sales agent for the ATM. In March 2020, the Company sold 719,400 shares of its common stock under its ATM equity distribution agreement for net proceeds of approximately $ 5.5 million. The Company does not expect to sell additional shares of common stock under the equity distribution agreement. Given its limited expected financing options, the Company is currently exploring an expanded range of strategic alternatives that include, but are not limited to, the potential sale or merger of the Company or its assets. In the event that the Company does not complete the Merger with Tempest, the Company (i) may elect to pursue a dissolution and liquidation of the Company, (ii) may pursue another strategic transaction or (iii) may resume research and development activities. The Company believes its cash, cash equivalents and restricted cash at March 31, 2021 are sufficient to fund its current operations for at least 12 months following the issuance of these financial statements. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of presentation and consolidation principles The accompanying unaudited Interim Consolidated Financial Statements include the accounts of Millendo Therapeutics, Inc. and its subsidiaries, and all intercompany amounts have been eliminated. The unaudited Interim Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The unaudited Interim Consolidated Financial Statements include the accounts of the Company’s subsidiaries in which the Company holds a controlling financial interest as of the financial statement date. Unaudited Interim Consolidated Financial Statements The Company has prepared the accompanying unaudited Interim Consolidated Financial Statements based on Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. These unaudited Interim Consolidated 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 consolidated financial position and results of operations for these periods. The Company’s historical results are not necessarily indicative of the results to be expected in the future and the Company’s operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The accompanying unaudited Interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 29, 2021. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies except as noted below: Use of estimates The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the Consolidated Financial Statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary. Significant Risks and Uncertainties With the global impacts of the ongoing COVID-19 pandemic continuing in the first quarter of 2021, the Company is maintaining business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business. The Company anticipates that the COVID-19 pandemic will continue to have an impact on business activities . The extent to which the COVID-19 pandemic impacts the Company’s business, its strategic planning and the value of and market for its 9 Table of Contents common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. Restricted Cash and Marketable Securities Restricted cash relates to amounts used to secure the Company’s credit card facility balances held on deposit with major financial institutions and to collateralize a letter of credit in the name of the Company’s landlord pursuant to a certain operating lease agreement as of December 31, 2020. In the first quarter of 2021, the letter of credit in the amount of $ 0.4 million expired and remained invested in a certificate of deposit. This amount is reflected in marketable securities on the Company's consolidated balance sheet as the original maturity of the certificate of deposit was greater than three months when acquired. Net loss per share Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as restricted stock and stock options, which would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share, the weighted-average number of shares of common stock remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive. The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive (amounts shown as common stock equivalents): March 31, 2021 2020 Stock options 3,520,358 3,340,732 Common stock warrants 17,125 17,125 BSA and BSPCE warrants 48,265 58,415 3,585,748 3,416,272 Recent accounting pronouncements In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) . ASU 2020-01 states any equity security transitioning from the alternative method of accounting under Topic 321 to the equity method, or vice versa, due to an observable transaction will be remeasured immediately before the transition. In addition, the ASU clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles of Topic 321 before settlement or exercise. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied on a prospective basis. The Company adopted ASU 2020-01 on January 1, 2021, which did not have a material effect on the consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes . ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intra-period tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. The Company adopted ASU 2019-01 on January 1, 2021, which did not have a material effect on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement . ASU 2018-13 resulted in certain modifications to fair value 10 Table of Contents measurement disclosures, primarily related to level 3 fair value measurements. This standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption was permitted. The adoption of this ASU did not have a material impact on the consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Additionally, ASU 2016-13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected through the use of an allowance of expected credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief , which amends ASU 2016-13 by providing entities with an option to irrevocably elect the fair value option to be applied on an instrument-by-instrument basis for eligible financial instruments that are within the scope of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326) , Derivatives and Hedging (Topic 815), and Leases (Topic 842) , which finalized effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses, leases, and hedging standards. Also, in November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses , which provides clarity about certain aspects of the amendments in ASU 2016-13. ASU 2016-13, as amended, is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and requires a modified retrospective approach. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements and related disclosures. 3. Fair Value Measurements The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands): March 31, 2021 (Level 1) (Level 2) (Level 3) Assets Money market funds (included in cash and cash equivalents) $ 24,637 $ — $ — Certificate of deposit $ 439 $ — $ — December 31, 2020 (Level 1) (Level 2) (Level 3) Assets Money market funds (included in cash and cash equivalents) $ 33,636 $ — $ — 4. Accrued Expenses Accrued expenses consist of the following (amounts in thousands): March 31, 2021 December 31, 2020 Compensation and related benefits $ 781 $ 1,978 Professional fees 1,009 719 Preclinical and clinical costs 131 1,002 Insurance premiums 775 1,476 Other 113 350 Total $ 2,809 $ 5,525 5. Debt Bpifrance Reimbursable Advance In December, 2017, in connection with its acquisition of Alizé Pharma SAS (“Alizé”), the Company assumed € 0.7 million of debt that Alizé had outstanding with Bpifrance Financing (“Bpifrance”). The original advance amount of € 0.8 million (“the 11 Table of Contents Bpifrance Advance”) was provided to Alizé as an innovation aid that required Alizé to carry out certain activities related to its livoletide clinical development program and incur a certain level of program expenditures. No interest is charged or accrued under the advance. The Company is required to make quarterly principal payments, which began in December 2016 and continue through September 2021. The quarterly principal payments escalate over the repayment period beginning with € 17,500 per quarter and increasing to € 50,000 through maturity. In addition to the quarterly payments, beginning January 1, 2016, Bpifrance may require the Company to pay, by no later than March 31 of each year, a reimbursement annuity equal to 20 % of the proceeds generated by the Company from license, assignment or use of livoletide. Under no circumstance, however, would the Company be required to reimburse to Bpifrance principal amounts greater than the original advance it received. The Company is permitted to repay the Bpifrance Advance at any time, at which point it would be released from all commitments and obligations under the Bpifrance Advance agreement. The Bpifrance Advance agreement does not contain any ongoing financial covenants. During the three months ended March 31, 2021, the Company made $ 54,000 in principal payments. During the three months ended March 31, 2020, the Company made no principal payments under the Bpifrance Advance agreement due to the fact that in April 2020, Bpifrance provided a six month deferral of principal payments to support businesses as a result of the COVID-19 pandemic. At March 31, 2021, the balance outstanding was $ 0.2 million (or € 0.2 million). 6. Commitments and Contingencies Operating Leases The Company has noncancelable operating leases for office space which have remaining lease terms of approximately 3.2 years. The Company was a party to a sublease agreement for office and laboratory space located in Waltham, Massachusetts. The sublease commenced on January 15, 2019 and expired on November 30, 2020. The total minimum sublease rentals received under the Waltham, Massachusetts agreement was $ 0.6 million. In February 2019 and October 2018, the Company entered into two additional noncancellable operating leases for office space in Ann Arbor, Michigan for the Company’s headquarters; one that the Company took possession of in April 2019, and the other that the Company 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. In April 2019, the Company entered into a lease agreement for office space in Lexington, Massachusetts. This lease was scheduled to expire on September 30, 2020; however, in June 2020 the Company exercised its right to terminate the lease early such that the lease terminated on August 11, 2020. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. In January 2020, the Company terminated its office lease agreement in Lyon, France. As of March 31, 2021, the operating lease ROU asset and the operating lease liabilities were $ 2.0 million and $ 2.2 million, respectively. The weighted average discount rate used to account for the Company's operating leases under ASC 842 is the Company’s estimated incremental borrowing rate of 7.0 %. The Company has options to extend certain of its leases for another five to ten years . These options to extend were not recognized as part of the Company’s measurement of the ROU assets and operating lease liabilities for the three months ended March 31, 2021. The weighted average remaining term of the Company’s noncancellable operating leases is 3.13 years. Rent expense related to the Company's operating leases was approximately $ 0.2 million and $ 0.2 million for the three months ended March 31, 2021 and 2020, respectively. The Company recognizes rent expense on a straight-lined basis over the lease period and has accrued for rent expense incurred but not yet paid. Cash paid for amounts included in the measurement of the lease liabilities was approximately $ 0.2 million and $ 0.5 million during the three months ended March 31, 2021 and 2020, respectively. The Company received approximately $ 87,000 in sublease payments related to its Waltham, Massachusetts lease during the three months ended March 31, 2020. 12 Table of Contents Future minimum rental payments under the Company’s noncancellable operating leases at March 31, 2021 is as follows (amounts in thousands): 2021 (excluding the three months ended March 31, 2021) $ 573 2022 783 2023 806 2024 302 2025 — Thereafter — Total $ 2,464 Present Value Adjustment ( 240 ) Lease liability at March 31, 2021 $ 2,224 Litigation 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. On November 9, 2016, a purported shareholder derivative action was filed in the Business Litigation Session of the Suffolk County Superior Court in the Commonwealth of Massachusetts (Cima v. Dipp, No. 16-3443-BLS1 (Mass. Sup. Ct.)) against certain former officers and directors of the Company and one current director of the Company and the Company as a nominal defendant alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets for purported actions related to the Company’s January 2015 follow-on public offering. On February 22, 2017, the court approved the parties’ joint stipulation to stay all proceedings in the action until further notice. Following a status conference in December 2017, the stay was lifted. On January 25, 2018, at the parties’ request, the court entered a second order staying all proceedings in the action until further order of the court. On March 2, 2020, the parties submitted a status report requesting that the court continue the stay. On March 5, 2020, the court entered an order continuing the stay and requiring that the parties file a further status report on or before June 30, 2020. On June 30, 2020, the parties filed a further status report requesting that the court continue the stay. The court continued the stay until at least January 7, 2021. On January 7, 2021, the parties filed a further status report requesting that the court continue the stay until at least April 30, 2021. The court continued the stay until April 30, 2021. On April 30, 2021, the defendants filed a status report requesting that the court continue the stay. The court has not acted yet on the April 30, 2021 status report. The Company believes that the complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. At present, the Company is unable to estimate potential losses, if any, related to the lawsuit. On March 24, 2017, a purported shareholder class action lawsuit was filed in the U.S. District Court for the District of Massachusetts (Dahhan v. OvaScience, Inc., No. 1:17-cv-10511-IT (D. Mass.)) against the Company and certain former officers of the Company alleging violations of Sections 10(b) and 20(a) of the Exchange Act (the “Dahhan Action”). On July 5, 2017, the court entered an order approving the appointment of Freedman Family Investments LLC as lead plaintiff, the firm of Robins Geller Rudman & Dowd LLP as lead counsel and the Law Office of Alan L. Kovacs as local counsel. Plaintiff filed an amended complaint on August 25, 2017. The Company filed a motion to dismiss the amended complaint, which the court denied on July 31, 2018. On August 14, 2018, the Company answered the amended complaint. On December 9, 2019, the court granted leave for the lead plaintiff to file a second amended complaint under seal and permitted the defendants to file a motion to strike the second amended complaint. On December 30, 2019, the court granted the parties’ joint motion to stay all proceedings in the case pending mediation. On March 3, 2020, the parties conducted a mediation session. The mediation was unsuccessful. The Company filed a motion to strike the second amended complaint on May 1, 2020. On August 17, 2020, the court granted the parties’ joint motion to again stay all proceedings in the case pending mediation. The parties agreed to participate in a second mediation session on November 10, 2020. The mediation was unsuccessful. The Company believes that the amended complaint and the second amended complaint are without merit. On October 16, 2020, the court granted the parties’ joint request to extend the stay until November 16, 2020. On November 16, 2020, the parties filed a joint status report seeking to extend the stay for an additional thirty days. On November 17, 2020, the court ordered the parties to file a supplemental joint status report clarifying whether they sought a continuance of the stay of all proceedings or instead, a partial lifting of the stay. On November 19, 2020, the parties filed a joint status report seeking to continue a partial stay of the case while the parties engaged in additional settlement discussions, and a partial lifting of the stay to the extent required for the court to rule on the Company’s pending motion to strike and motions to dismiss filed by other defendants. Those motions 13 Table of Contents remain pending. The Company believes that the amended complaint and the second amended complaint are without merit. A resolution of this lawsuit adverse to the Company or the other defendants could have a material effect on the Company’s consolidated financial position and results of operations. At present, the Company is unable to estimate potential losses, if any, related to the lawsuit. On July 27, 2017, a purported shareholder derivative complaint was filed in the U.S. District Court for the District of Massachusetts (Chiu v. Dipp, No. 1:17-cv-11382-IT (D. Mass.)) against OvaScience as a nominal defendant, certain former officers and directors of the Company and one current director of the Company alleging breach of fiduciary duties, unjust enrichment and violations of Section 14(a) of the Exchange Act alleging that compensation awarded to the director defendants was excessive and seeking redress for purported actions related to the Company’s January 2015 follow-on public offering and other public statements concerning the Company’s former products. On September 26, 2017, the plaintiff filed an amended complaint which eliminated all claims regarding allegedly excessive director pay and additionally alleged claims of abuse of control and waste of corporate assets. On October 27, 2017, the defendants filed a motion to dismiss the amended complaint. The court heard oral argument on the motion to dismiss on April 5, 2018. On April 13, 2018, the court granted the defendants’ motion to dismiss the amended complaint for failure to state a claim for relief under Section 14(a). The court also dismissed the plaintiffs’ pendent state law claims without prejudice, based on lack of subject matter jurisdiction. On April 25, 2018, the plaintiffs moved for leave to amend the complaint and to stay this case pending the outcome of the Dahhan Action. The Company does not believe that the proposed amended complaint cures the defects in the current complaint, but informed plaintiffs’ counsel that, in the interest of judicial economy, the defendants would not oppose the proposed amendment if the court would consider staying the case pending the resolution of the Dahhan Action. On April 27, 2018, the court granted the plaintiffs’ motion for leave to amend the complaint and for a stay. On April 30, 2018, the plaintiffs filed their second amended complaint. On May 23, 2018, the court entered an order staying this case pending the resolution of the Dahhan Action. The Company believes that the second amended complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. At present, the Company is unable to estimate potential losses, if any, related to the lawsuit. On April 23, 2021 a complaint was filed against the Company and each of its directors in the United States District Court for the Southern District of New York. The lawsuit, captioned Nakkhumpun v. Millendo Therapeutics, Inc., alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, as well as breach of fiduciary duty of candor, against the defendants for allegedly disseminating a materially incomplete and misleading registration statement with the SEC in connection with the proposed Merger. The plaintiff seeks to enjoin the defendants from proceeding with a shareholder vote on the proposed Merger until the Company discloses the material information. The plaintiff also seeks damages and an award of costs, expert fees and attorneys’ fees. On April 27, 2021, a second complaint was filed against the Company and each of its directors in the United States District Court for the Southern District of New York. The lawsuit, captioned Klaus v. Millendo Therapeutics Inc., alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a materially incomplete and misleading registration statement with the SEC in connection with the proposed Merger. The plaintiff seeks to enjoin the defendants from proceeding with or consummating the proposed merger, or, in the event the proposed Merger is consummated, the plaintiff seeks to rescind it or recover damages. The plaintiff also seeks an award of costs, expert fees and attorneys’ fees. Finally, the plaintiff seeks to direct the Company to disseminate a registration statement that does not contain any alleged misstatements of material fact. On April 29, 2021, a third complaint was filed against the Company and each of its directors in the United States District Court for the Eastern District of New York. The lawsuit, captioned Campbell v. Millendo Therapeutics Inc., alleges the same violations and demands the same relief as in Klaus v. Millendo Therapeutics Inc. On April 30, 2021, a complaint was filed against the Company and each of its directors in the United States District Court for the Southern District of New York. The lawsuit, captioned Schmidt v. Millendo Therapeutics, Inc., alleges the same violations as Campbell v. Millendo Therapeutics, Inc. and Klaus v. Millendo Therapeutics, Inc. It also demands the same relief. On May 4, 2021, a complaint was filed against the Company and each of its directors in the United States District Court for the Southern District of New York. The lawsuit, captioned Colthurst v. Millendo Therapeutics, Inc., alleges the same violations as Campbell v. Millendo Therapeutics, Inc., Klaus v. Millendo Therapeutics, Inc., and Schmidt v. Millendo Therapeutics, Inc. It also demands the same relief. On May 7, 2021, a complaint was filed against the Company and each of its directors in the United States District Court for the Eastern District of Michigan. The lawsuit, captioned Wilhelm v. Millendo Therapeutics, Inc., alleges the same violations as 14 Table of Contents Colthurst v. Millendo Therapeutics, Inc., Campbell v. Millendo Therapeutics, Inc., Klaus v. Millendo Therapeutics, Inc., and Schmidt v. Millendo Therapeutics, Inc. It also demands the same relief. On May 10, 2021, a complaint was filed against the Company and each of its directors in the United States District Court for the District of Delaware. The lawsuit, captioned Carlisle v. Millendo Therapeutics, Inc., alleges the same violations as Wilhelm v. Millendo Therapeutics, Inc., Colthurst v. Millendo Therapeutics, Inc., Campbell v. Millendo Therapeutics, Inc., Klaus v. Millendo Therapeutics, Inc., and Schmidt v. Millendo Therapeutics, Inc. It also demands the same relief. On May 11, 2021, a complaint was filed against the Company and each of its directors in the United States District Court for the Eastern District of Pennsylvania. The lawsuit, captioned Cech v. Millendo Therapeutics, Inc., alleges the same violations as Carlisle v. Millendo Therapeutics, Inc., Wilhelm v. Millendo Therapeutics, Inc., Colthurst v. Millendo Therapeutics, Inc., Campbell v. Millendo Therapeutics, Inc., Klaus v. Millendo Therapeutics, Inc., and Schmidt v. Millendo Therapeutics, Inc. It also demands the same relief. In addition to the matters described above, the Company may be a party to litigation and subject to claims incident to the ordinary course of business from time to time. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, and diversion of management resources. 7. Stock-Based Compensation On June 11, 2019, the Company held its 2019 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, the Company’s stockholders approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) and the Company’s 2019 Employee Stock Purchase Plan (the “2019 ESPP,” and together with the 2019 Plan, the “Equity Plans”). The 2019 Plan is the successor to the Private Millendo 2012 Stock Plan and the OvaScience 2012 Stock Incentive Plan (each, as amended, the “Prior Plans”) and allows the Company to grant stock options, restricted stock unit awards and other awards at levels determined appropriate by the Company’s Board of Directors (the “Board”) or the Compensation Committee of the Board. No additional awards will be granted under either of the Prior Plans. 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 Equity Plans were adopted by the Board on April 29, 2019, subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. Outstanding awards under the Prior Plans continue to be subject to the terms and conditions of the Prior Plans. The aggregate number of shares of the Company’s common stock initially reserved for issuance under the 2019 Plan was 2,919,872 shares, which is the sum of (i) 534,320 shares, (ii) the number of unallocated shares remaining available for grant under the Prior Plans as of the effective date of the 2019 Plan, and (iii) the Prior Plans’ Returning Shares (as defined below), as such shares become available from time to time. The number of shares of the Company's common stock reserved for issuance under the 2019 Plan will automatically increase on January 1 of each year, for a period of ten 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. Pursuant to the terms of the 2019 Plan, an additional 4 % of the total number of shares of the Company's common stock outstanding on December 31, 2020 were added to the number of available shares effective January 1, 2021. The term “Prior Plan’s Returning Shares” refers to the following shares of the Company's common stock subject to any outstanding stock award granted under either of the Prior Plans: shares of common stock subject to awards that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award. The foregoing includes shares subject to outstanding awards under the OvaScience 2011 Stock Incentive Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right. The following shares of the Company’s common stock under the 2019 Plan (collectively, the “2019 Plan Returning Shares”) will also become available again for issuance under the 2019 Plan: (i) any shares subject to a stock award that are not issued because such stock award expires or otherwise terminates without all of the shares covered by such stock award having been issued, (ii) any shares subject to a stock award that are not issued because such stock award is settled in cash; (iii) any shares issued pursuant to a stock award that are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares; and (iv) any shares reacquired by the Company in satisfaction of tax withholding obligations on a stock award or as consideration for the exercise or purchase price of a stock award. 15 Table of Contents The aggregate number of shares of the Company’s common stock that may be issued under the 2019 ESPP is 133,580 shares, plus the number of shares of the Company’s common stock that are automatically added on January 1st of each year, for a period of up to ten years , from January 1, 2020 continuing through January 1, 2029, by the lesser of (i) 1 % of the total number of shares of the Company's capital stock outstanding on December 31 of the preceding calendar year, or (ii) 133,580 shares of the Company's common stock, unless a lesser number of shares is determined by the Board. Pursuant to the terms of the 2019 Employee Stock Purchase Plan, an additional 133,580 shares were added to the number of available shares effective January 1, 2021. The Company measures employee and nonemployee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award. The Company recorded stock-based compensation expense in the following expense categories of its accompanying consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020, respectively (amounts in thousands): Three Months Ended March 31, 2021 2020 Research and development $ ( 258 ) $ 300 General and administrative 638 780 Total $ 380 $ 1,080 Stock options Options issued may have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the Board. Vesting generally occurs over a period of not greater than four years . In May 2020, the Company granted 840,450 stock options to its employees in connection with the PWS and CAH program changes that occurred during the second quarter of 2020 (see Note 1). The vesting is as follows: 1) 50 percent of the shares subject to this option grant will vest on the earlier of (i) December 31, 2020 or (ii) the Board's approval of the achievement of certain performance criteria; and 2) one twelfth (1/12th) of the remaining shares subject to this option grant will vest in equal monthly installments thereafter. Stock-based compensation expense is negative for research and development employees and decreased for general and administrative employees for the three months ended March 31, 2021 as compared to the prior period due to forfeitures as a result of the reduction in force initiated in the first quarter of 2021. The following table summarizes the activity related to stock option grants to employees and nonemployees for the three months ended March 31, 2021: Shares Weighted average exercise price per share Weighted-average remaining contractual life (years) Outstanding at January 1, 2021 3,749,102 $ 11.60 7.9 Granted 534,000 2.07 Exercised ( 43,333 ) 2.00 Forfeited ( 719,411 ) 6.69 Outstanding at March 31, 2021 3,520,358 $ 11.28 6.7 Vested and exercisable at March 31, 2021 2,035,439 $ 15.49 4.9 Vested and expected to vest at March 31, 2021 3,520,358 $ 11.28 6.7 As of March 31, 2021, the unrecognized compensation cost related to 1,484,919 unvested stock options expected to vest was $ 5.2 million. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.2 years. There were 43,333 stock options exercised during the three months ended March 31, 2021. There were no options exercised during the three months ended March 31, 2020. The aggregate intrinsic value of options exercised during the three months ended March 31, 2021 was $ 29,000 . The aggregate intrinsic value of both options outstanding and options exercisable 16 Table of Contents as of March 31, 2021 was $ 10,000 . The options granted during the three months ended March 31, 2021 had an estimated weighted-average grant date fair value of $ 1.36 . The grant date fair value of each option grant was estimated during the three months ended March 31, 2021 and 2020 using the following assumptions within the Black-Scholes option-pricing model: Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Expected term (in years) 6.07 6.08 Expected volatility 75 % 78 % Risk-free interest rate 0.95 % 1.36 % Expected dividend yield 0 % 0 % At the time of the Alizé acquisition, Alizé had 6,219 nonemployee (BSA) warrants and 5,360 employee (BSPCE) warrants outstanding, which have weighted-average exercise prices of € 80.06 and € 83.40 , respectively. As of March 31, 2021, all BSA and BSPCE warrants were vested. During the three months ended March 31, 2021, no shares were exercised. As of March 31, 2021, there were an aggregate of 48,265 shares of common stock issuable upon the exercise of the BSA and BSPCE warrants with a weighted-average exercise price of $ 7.50 per share. These instruments are included in the equity attributable to noncontrolling interests. 8. Subsequent Events Subsequent events were evaluated through the filing date of this Quarterly Report on Form 10-Q. 17 Table of Contents