What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-29 compared with 2021-03-29 · 582 added, 551 removed, 104 unchanged (92% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MILLENDO THERAPEUTICS, INC.

TEMPEST THERAPEUTICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 42 )

Report of Independent Registered Public Accounting Firm (PCAOB ID 34 )

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Operations

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Millendo Therapeutics, Inc.

To the Stockholders and the Board of Directors of Tempest Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Millendo Therapeutics, Inc.

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheet of Tempest Therapeutics, Inc.

(the Company) as of December 31, 2021, the related consolidated statements of operations , convertible preferred stock and stockholders' equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended in conformity with U.S.

generally accepted accounting principles .

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These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued preclinical and clinical costs

Description of the Matter As described in Note 2 to the consolidated financial statements under the caption “Research and development expenses”, and within Note 6, the Company records the cost of research and development activities as they are incurred.

These include, among others, costs of funding research performed by third parties, amounts due under agreements with contract manufacturing organizations and outsourced professional scientific development services.

The amounts recorded include an estimate of progress toward the completion of the applicable research or development objectives.

The Company compares payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives.

Such estimates are subject to change as additional information becomes available.

Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

As of December 31, 2020, the Company’s accrual for preclinical and clinical costs was $1 million.

Auditing the Company’s accrual for preclinical and clinical costs was challenging because information necessary to estimate the accruals was accumulated from multiple sources.

In addition, 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 management.

How We Addressed the Matter in Our Audit To test the accrued preclinical and clinical costs, our audit procedures included, among others, testing the completeness and accuracy of the underlying data used in the estimate, including, but not limited to, estimated project duration, research and manufacturing services incurred to date and terms of contractual arrangements.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued research and development expenses

Description of the Matter As described in Note 2 to the consolidated financial statements under the caption “Research and development expenses and accrued research and development”, the Company records the cost of research and development activities as they are incurred.

The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf.

Service fees are accrued based on the Company’s estimates of the time period over which services will be performed and the level of effort to be expended in each period.

These estimates are based on communications with the third-party service providers, the Company’s estimates of accrued expenses and on information available at each balance sheet date.

As of December 31, 2021, the Company’s accrued clinical trial liability was $0.8 million.

Auditing the Company’s accrual for research and development expenses was challenging because of the estimation involved in determining the accrual balance, which included information that was accumulated 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 management.

How We Addressed the Matter

in Our Audit To test the accrued research and development expenses, our audit procedures included, among others, testing the completeness and accuracy of the underlying data used in the estimate, including, but not limited to, estimated project duration, research and manufacturing services incurred to date and terms of contractual arrangements.

To assess the reasonableness of the data, we corroborated the progress of the clinical trials with Company research and development personnel and obtained third-party evidence supporting the activities performed to date.

We recalculated the accrual based on executed contracts with the clinical research organizations, contract manufacturing organizations and clinical study sites.

We also tested subsequent invoicing received from third parties and any pending change orders to assess the impact to the accrual through the balance sheet date and compared that to the Company’s estimates.

We recalculated the accrual based on executed contracts with the clinical research organizations, contract manufacturing organizations, clinical study sites and collaboration partners.

We also tested subsequent invoicing received from third parties to assess the impact to the accrual at the balance sheet date and compared that to the Company’s estimates.

/s/ Ernst & Young LLP

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March 29, 2022

Millendo Therapeutics, Inc.

Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of Tempest Therapeutics Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Tempest Therapeutics Inc.

(the "Company") as of December 31, 2020, the related statement of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements as of and for the year ended December 31, 2020 have been prepared assuming that the Company will continue as a going concern.

The Company had incurred losses since inception and had forecasted cash needs in excess of current liquidity as of December 31, 2020, which raised substantial doubt about its ability to continue as a going concern.

The financial statements as of and for the year ended December 31, 2020 did not include any adjustments that might have resulted from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

San Francisco, California

May, 10, 2021 (March 29, 2022, as to the effects of the stock exchange as described in Note 1)

We began serving as the Company's auditor in 2017.

In 2021 we became the predecessor auditor.

Tempest Therapeutics, Inc.

Consolidated Balance Sheets

(in thousands except share and per share amounts)

As of December 31,

Current assets:

Cash and cash equivalents $ 51,829 $ 18,820

$ 38,174 $ 62,478

Short-term restricted cash 484 1,034

Insurance recovery of legal settlement 15,000 —

Prepaid expenses and other current assets 2,134 1,005

Refundable tax credit 314 1,276

Total current assets 68,963 19,825

40,901 71,132

Property and equipment — net 1,113 1,110

Operating lease right-of-use assets 3,051 1,877

Other assets 351 507

Other noncurrent assets 111 51

Total assets $ 73,238 $ 22,863

Liabilities and stockholders’ equity

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

Current liabilities:

Current portion of debt $ 239 $ 208

Accounts payable $ 991 $ 1,071

Accrued legal settlement 15,000 —

Accrued expenses 1,589 665

Operating lease liabilities - current 737 1,751

Current operating lease liabilities 1,442 712

Accrued compensation 912 695

Interest payable 92 —

Early option exercise liability — 79

Total current liabilities 20,026 3,222

Debt, net of current portion 61 168

Loan payable (net of discount and issuance costs of $ 756 )

Operating lease liabilities 2,026 1,727

Other liabilities — 16

Total liabilities 37,121 4,949

Commitments and contingencies (Note 7)

Stockholders’ equity:

Preferred stock, $ 0.001 par value:

5,000,000 shares authorized;

no shares issued and outstanding

Convertible preferred stock, $ 0.001 par value;

shares 5,000,000 and 135,936,731 shares authorized at December 31, 2021 and 2020;

nil and 114,686,731 shares issued and outstanding at December 31, 2021 and 2020, respectively;

liquidation preference of $ 0 and $ 100,186,732 at December 31, 2021 and 2020, respectively

Stockholders’ equity (deficit):

Common stock, $ 0.001 par value;

100,000,000 shares authorized;

18,999,701 shares and 18,266,545 shares issued and outstanding at December 31, 2020 and 2019, respectively

100,000,000 shares and 196,000,000 shares authorized at December 31, 2021 and 2020;

6,910,324 and 527,265 shares issued and outstanding, nil and 28,996 subject to repurchase at December 31, 2021 and 2020, respectively

Additional paid-in capital 136,173 2,967

Accumulated deficit ( 100,063 ) ( 71,761 )

Accumulated other comprehensive income 452 165

Total stockholders’ equity attributable to Millendo Therapeutics, Inc.

33,058 58,547

Equity attributable to noncontrolling interests 668 1,324

Total stockholders’ equity 33,726 59,871

Total liabilities and stockholders’ equity $ 43,409 $ 74,970

Total stockholders’ equity (deficit) 36,117 ( 68,793 )

Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 73,238 $ 22,863

See accompanying Notes to Consolidated Financial Statements

Millendo Therapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Tempest Therapeutics, Inc.

Consolidated Statements of Operations

(in thousands except share and per share amounts)

Year Ended December 31,

For the Years Ended December 31,

Operating expenses:

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( 26,986 ) ( 19,298 )

Other expenses:

Interest income, net ( 155 ) ( 1,038 )

Other loss 589 207

Other (expenses) income, net:

Interest expense ( 1,282 ) —

Interest income and other (expense) income, net ( 34 ) 90

Total other (expenses) income, net ( 1,316 ) 90

Provision for income taxes — —

Net loss $ ( 28,302 ) $ ( 19,208 )

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Weighted-average shares of common stock outstanding, basic and diluted 3,790,303 468,161

Other comprehensive income (loss):

Foreign currency translation adjustment $ 287 $ 17

Comprehensive loss $ ( 36,119 ) $ ( 44,551 )

See accompanying Notes to Consolidated Financial Statements

Millendo Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

Tempest Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands except share amounts)

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders’

to Millendo Therapeutics,

Attributable to

Noncontrolling

Interests Total

Stockholders’

Shares Amount

Balance at January 1, 2019 13,357,999 $ 13 $ 234,876 $ ( 164,086 ) $ 148 $ 70,951 $ 2,171 $ 73,122

Series A Convertible

Preferred Stock Series B Convertible

Preferred Stock Series B-1 Convertible

Preferred Stock Common Stock Additional

Paid-In Capital Deficit

Accumulated Total Stockholders'

Equity (Deficit)

Shares Amount Shares Amount Shares Amount Shares Amount

BALANCE — January 1, 2020

17,000,000 $ 16,982 25,186,738 $ 12,235 28,749,997 $ 22,755 410,429 $ 1 $ 2,188 $ ( 52,553 ) $ ( 50,364 )

Exercise of stock options — — — — — — 14,406 — 68 — 68

Issuance of common stock to board of directors 1,941 — 20 — — 20 — 20

Issuance of common stock, net of issuance costs 4,791,667 5 26,486 — — 26,491 — 26,491

Exercise/forfeiture of BSPCE warrants 17,713 — 958 — — 958 ( 847 ) 111

Stock-based compensation expense — — 4,317 — — 4,317 — 4,317

Foreign currency translation adjustment — — — — 17 17 — 17

Net income (loss) — — — ( 44,568 ) — ( 44,568 ) — ( 44,568 )

Balance at December 31, 2019 18,266,545 $ 18 $ 267,018 $ ( 208,654 ) $ 165 $ 58,547 $ 1,324 $ 59,871

Issuance of preferred stock for cash—net of issuance costs of $ 265

— — — — 43,749,996 34,735 — — — — —

Vesting of early exercised stock options and restricted stock — — — — — — 73,434 — 258 — 258

Share-based compensation — — — — — — — — 453 — 453

Net loss — — — — — — — — — ( 19,208 ) ( 19,208 )

BALANCE — December 31, 2020

17,000,000 $ 16,982 25,186,738 $ 12,235 72,499,993 $ 57,490 498,269 $ 1 $ 2,967 $ ( 71,761 ) $ ( 68,793 )

Exercise of stock options — — — — — — 33,127 — 139 — 139

Issuance of common stock, net of issuance costs 719,400 1 5,649 — — 5,650 — 5,650

Exercise/forfeiture of BSPCE warrants 12,307 — 734 — — 734 ( 656 ) 78

Stock-based compensation expense — — 4,244 — — 4,244 — 4,244

Foreign currency translation adjustment — — — — 287 287 — 287

Net income (loss) — — — ( 36,406 ) — ( 36,406 ) — ( 36,406 )

Balance at December 31, 2020 18,999,701 $ 19 $ 277,647 $ ( 245,060 ) $ 452 $ 33,058 $ 668 $ 33,726

Vesting of early exercised stock options — — — — — — 28,196 — 133 — 133

Conversion of preferred stock to common stock ( 17,000,000 ) ( 16,982 ) ( 25,186,738 ) ( 12,235 ) ( 72,499,993 ) ( 57,490 ) 3,692,912 4 86,703 — 86,707

Issuance of common stock for cash, net of issuance cost of $ 446

— — — — — — 1,388,374 1 33,473 — 33,474

Share-based compensation — — — — — — — — 1,105 — 1,105

Reverse recapitalization transaction costs — — — — — — — — ( 6,420 ) — ( 6,420 )

Issuance of common stock to Millendo shareholders — — — — — — 1,269,446 1 18,000 — 18,001

Issuance of common stock warrants 73 — 73

Net loss — — — — — — — — — ( 28,302 ) ( 28,302 )

BALANCE — December 31, 2021

— $ — — $ — — $ — 6,910,324 $ 7 $ 136,173 $ ( 100,063 ) $ 36,117

See accompanying Notes to Consolidated Financial Statements

Millendo Therapeutics, Inc.

Tempest Therapeutics, Inc.

Consolidated Statements of Cash Flows

(in thousands)

For the Years Ended December 31,

Operating activities:

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

Depreciation expense 374 339

Stock-based compensation expense 1,105 453

Foreign currency remeasurement loss 321 —

Amortization of right-of-use asset 952 955

Other non-cash items 6 30

Noncash lease expense 896 476

Noncash interest and other expense, net 583 ( 6 )

Changes in operating assets and liabilities:

Prepaid expenses and other current assets 5,361 ( 698 )

Other assets 21 66

Prepaid expenses and other assets

( 179 ) ( 367 )

Accounts payable ( 209 ) ( 574 )

Accrued expenses and other liabilities 723 ( 205 )

Interest payable 92 —

Operating lease liabilities ( 1,040 ) 75

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Purchase of property and equipment ( 135 ) ( 50 )

Proceeds from sale of marketable securities — 4,385

Cash (used in) provided by investing activities ( 26 ) 3,988

Repayment of related party note receivable

Cash used in investing activities ( 97 ) ( 6 )

Financing activities:

Repayment of debt ( 108 ) ( 184 )

Proceeds from the issuance of common stock, net of issuance costs 5,453 26,688

Proceeds from sale of private placement, net of issuance costs — ( 15 )

Repayment of principal on finance lease ( 37 ) ( 18 )

Proceeds from option and BSPCE warrant exercises 78 472

Proceeds from issuance of series B-1 convertible preferred stock

Payment of preferred stock issuance costs — ( 469 )

Proceeds from the issuance of common stock, net of equity issuance costs of $ 446

Borrowings on loan payable 15,000 —

Payment of loan issuance costs ( 95 ) —

Cash acquired in connection with the reverse recapitalization 17,045 —

Payment of reverse recapitalization transaction costs ( 6,420 ) —

Proceeds from option exercises 108 69

Repurchase of unvested options

Cash provided by financing activities 59,063 34,599

Effect of foreign currency exchange rate changes on cash 221 33

Net decrease in cash, cash equivalents and restricted cash ( 24,854 ) ( 10,258 )

Cash, cash equivalents and restricted cash at beginning of period 63,512 73,770

Cash, cash equivalents and restricted cash at end of period $ 38,658 $ 63,512

Supplemental schedule of non-cash investing and financing activities:

Financing costs in accounts payable and accrued expenses $ — $ 197

Right-of-use assets acquired under operating leases $ — $ 3,414

Net increase in cash and cash equivalents 33,009 15,576

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

$ 51,829 $ 18,820

Supplemental disclosure of cash flow information:

Cash paid for interest $ 953 $ —

Non-cash investing activities:

Property and equipment in accounts payable

Non-cash financing activities:

Vesting of early exercise stock options $ 136 $ 258

Debt issuance costs related to financing in accrued liabilities

Issuance of common stock for license agreement $ 49 $ —

See accompanying Notes to Consolidated Financial Statements

Millendo Therapeutics, Inc.

Tempest Therapeutics, Inc.

Notes to Consolidated Financial Statements

As of and For the Years Ended December 31, 2021 and 2020

(In Thousands Except Share and Per Share Amount)

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 the second quarter, which resulted in the Company recording $ 3.1 million in the second quarter of 2020.

The Company recorded additional expense in the second half of 2020 related to the livoletide program, which reflects changes to estimated closeout costs.

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 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 the second quarter of 2020.

The Company recorded additional expense in the second half of 2020 related to the nevanimibe program, which reflects changes to estimated close out costs.

The Company does not expect to incur future material expenses related to its nevanimibe program for the treatment of CAH as it is no longer developing this program

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.

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 %, with the majority of the reduction in personnel expected to be completed by April 15, 2021.

The Company initiated this reduction in force in January 2021 and expects to 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, substantially all of which 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”).

If the Merger is completed, the business of Tempest will continue as the business of the combined company (see Note 12).

The Company had also been investigating nevanimibe (ATR-101) as a potential treatment for patients with endogenous Cushing's syndrome (“CS”), a rare endocrine disease characterized by excessive cortisol production from the adrenal glands.

As a result of slower than anticipated enrollment in its CS Phase 2 clinical trial, the Company elected to discontinue this trial in

August 2019, suspend development of nevanimibe for the treatment of CS, and focus its resources on other programs in its research and development pipeline.

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 December 31, 2020, the Company had cash, cash equivalents and restricted cash of $ 38.7 million and an accumulated deficit of $ 245.1 million.

In December 2019, the Company sold a total of 4,791,667 shares of its common stock pursuant to an underwriting agreement (the “Underwriting Agreement”) with Citigroup Global Markets Inc.

and SVB Leerink LLC, as representatives of the several underwriters named therein (the “Underwriters”), for total net proceeds of approximately $ 26.5 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

The price to the public in this offering was $ 6.00 per share and resulted in the sale of 4,166,667 shares of the Company's common stock for net proceeds of approximately $ 23.0 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

In addition, the Underwriters purchased an additional 625,000 shares of the Company's common stock at the public offering price of $ 6.00 per share pursuant to a purchase option granted to them under the Underwriting Agreement, resulting in net proceeds of approximately $ 3.5 million, after deducting underwriting discounts and commissions.

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 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 our 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) pursue another strategic transaction or (iii) may resume research and development activities.

The Company believes its cash, cash equivalents and restricted cash at December 31, 2020 are sufficient to fund its current operations for at least 12 months following the issuance of these financial statements.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation and consolidation principles

The accompanying Consolidated Financial Statements include the accounts of Millendo Therapeutics, Inc.

and its subsidiaries, and all intercompany amounts have been eliminated.

The Consolidated Financial Statements have been prepared in conformity with U.S.

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 clinical programs are TPST-1120 and TPST-1495, antagonists of PPARα and EP2/EP4, respectively.

Both TPST-1120 and TPST-1495 are advancing through Phase 1 clinical trials designed to study both agents as monotherapies and in combination with other approved agents.

In collaboration with F.

Hoffmann La Roche, TPST-1120 is also advancing through a randomized first line, global, Phase 1b/2 clinical study in combination with the standard-of-care regimen of atezolizumab and bevacizumab in patients with advanced or metastatic hepatocellular carcinoma.

Tempest is also developing an orally-available inhibitor of TREX-1 designed to activate selectively the cGAS/STING pathway, an innate immune response pathway important for the development of anti-tumor immunity.

Tempest is headquartered in South San Francisco.

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 12) 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”).

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 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.

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.

Actual results could differ from those estimates.

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 spread of the ongoing COVID-19 pandemic in 2020, the Company has implemented 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 clinical and preclinical development activities.

The extent to which the COVID-19 pandemic impacts the Company’s business, its preclinical and clinical development and regulatory efforts, its corporate development objectives and the value of and market for its 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.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development operations, including, without limitation, risks and uncertainties associated with:

obtaining regulatory approval of its product candidates, loss of single source suppliers or failure to comply with manufacturing regulations, identifying, acquiring or in-licensing additional products or product candidates;

pharmaceutical product development and the inherent uncertainty of clinical success;

and the challenges of protecting and enhancing its intellectual property rights;

complying with applicable regulatory requirements.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects its business and results of operations, the Company may also have the effect of heightening many of the other risks and uncertainties discussed above.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and restricted cash.

The Company generally invests its cash in deposits with high credit quality financial institutions.

Deposits at banks may exceed the insurance provided on such deposits.

Additionally, the Company performs periodic evaluations of the relative credit standing of these financial institutions.

Cash and cash equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents.

Cash equivalents as of December 31, 2020 and 2019 consisted of money market funds.

Restricted cash

Restricted cash relates to amounts used to secure the Company’s credit card facility balances held on deposit with major financial institutions, to collateralize a letter of credit in the name of the Company’s landlord pursuant to a certain operating lease agreement, and to fund an escrow arrangement in connection with a sublease agreement also pursuant to that same operating lease agreement.

The escrow agreement ended in connection with the expiration of the Company's Waltham, Massachusetts lease agreement in November 2020 (see Note 7).

The following table provides a reconciliation of the components of cash, cash equivalents, and restricted cash reported in the Company's consolidated balance sheets to the total of the amount presented in the Consolidated Statements of Cash Flows:

(in thousands)

Cash and cash equivalents $ 38,174 $ 62,478

Restricted cash 484 1,034

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows $ 38,658 $ 63,512

Refundable tax credit

The Company earns French research tax credits (crédit d’impôt recherche) or (“CIR”) in connection with its research efforts through its wholly owned subsidiary in Lyon, France.

CIR earned are refundable or they can offset French corporate income tax due.

Since the French research tax credit can be recovered in cash, the Company has elected to treat this as a grant.

During the year ended December 31, 2020 and 2019, the Company recognized a reduction of research and development expenses of $ 0.5 million and $ 1.2 million, respectively, and had a research tax credit receivable of $ 0.3 million and $ 1.3 million at December 31, 2020 and 2019, respectively.

The Company determines if an arrangement is a lease at contract inception.

Under this method of accounting, Private Tempest was 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.

In the course of its development activities, t he Company had incurred losses since inception and had forecasted cash needs in excess of current liquidity as of December 31, 2020, which raised substantial doubt about its ability to continue as a going concern at that time.

Management implemented a plan to remove this condition by raising additional capital.

In January 2021, the Company entered into a loan agreement with a lender to borrow a term loan amount of $35.0 million of which $15.0 million was funded to the Company on January 15, 2021 (see Note 8).

In addition, as a result of the merger with Millendo, the Company raised an additional $30.0 million.

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

The additional capital will fund the Company’s ongoing working capital, investing, and financing requirements for at least the next 12 months.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation —The accompanying Consolidated Financial Statements have been prepared in accordance with US generally accepted accounting principles ("GAAP") and necessarily include amounts based on estimates and assumptions by management.

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.

Segment Information —The Company operates and manages its business as one reportable and operating segment, which is the business of discovery and development of small molecule drugs to treat cancers.

All assets and operations are in the U.S.

The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

Risks and Uncertainties —The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on single-source vendors, availability of raw materials, patentability of the Company’s products and processes and clinical efficacy and safety of the Company’s products under development, compliance with government regulations and the need to obtain additional financing to fund operations.

Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval, prior to commercialization.

These efforts will require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.

The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales.

The Company operates in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies.

In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

Moreover, the current COVID-19 pandemic, which is impacting worldwide economic activity, poses risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.

The extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be predicted at this time.

Concentration of Credit Risk —Financial instruments, which potentially subject the Company to concentration of risk, consist principally of cash and money market fund.

All of the Company’s cash and money market fund are deposited in accounts with a major financial institution, and amounts may exceed federally insured limits.

Management believes that the Company is not

exposed to significant credit risk due to the financial strength of the depository institution in which the cash and money market fund are held.

The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Cash and Cash Equivalents —The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisitions to be cash equivalents.

As of December 31, 2021 and 2020, the Company’s cash and cash equivalents consisted of bank deposits and money market funds.

Leases —The Company determines if an arrangement is a lease at contract inception.

A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.

7 unchanged sentences

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Refer to Note 7 for further details.

Fair value of financial instruments

Certain assets and liabilities are carried at fair value under GAAP.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying value of the Company’s debt approximates fair value as of December 31, 2020 and 2019.

Other assets includes property and equipment and other assets.

Property and equipment, less accumulated depreciation, are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives which range from three to five years except for leasehold improvements which are amortized over the shorter of the asset life or lease term.

Repairs and maintenance costs are expensed as incurred.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company has not recognized any impairment of long-lived assets through December 31, 2020.

Research and development expenses

Research and development costs are expensed as incurred and consist primarily of personnel expenses, costs of funding research performed by third-parties, expenses incurred under agreements with contract manufacturing organizations, payments under third-party licensing agreements, consultant fees and expenses associated with outsourced professional scientific development services, expenses related to regulatory activities and allocated expense for facility costs.

Milestone payment obligations incurred prior to regulatory approval of the product, which are accrued when the event requiring payment of the

milestone occurs, are included in research and development expenses.

Upfront milestone payments made to third-parties who perform research and development services on the Company’s behalf are expensed as services are rendered.

At the end of each reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives.

Such estimates are subject to change as additional information becomes available.

As of December 31, 2020 and 2019, the Company has not made any material adjustments to its prior estimates of accrued research and development expenses.

Stock-based compensation

The Company measures and recognizes compensation expense for all stock options awarded to employees and nonemployees based on the estimated fair market value of the award on the grant date.

The Company uses the Black-Scholes option pricing model to value its stock option awards.

The Company recognizes compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award.

The Company accounts for forfeitures of stock options as they occur.

Estimating the fair market value of options requires the input of subjective assumptions, including the estimated fair value of the Company’s common stock, the expected life of the options, stock price volatility, the risk-free interest rate and expected dividends.

The assumptions used in the Company’s Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are inherently subjective.

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities and the expected benefits of net operating loss carryforwards.

The impact of changes in tax rates and laws on deferred taxes, if any, applied during the period in which temporary differences are expected to be settled, is reflected in the Company’s financial statements in the period of enactment.

The measurement of deferred tax assets is reduced, if necessary, if, based on weight of the evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized.

As of December 31, 2020 and 2019, the Company has concluded that a full valuation allowance is necessary for all of its net deferred tax assets.

The Company had no material amounts recorded for uncertain tax positions, interest or penalties in the accompanying Consolidated Financial Statements.

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):

Year ended December 31,

Stock options 3,749,102 2,498,606

Common stock warrants 17,125 17,125

BSA and BSPCE warrants 48,265 95,567

3,814,492 2,611,298

Segment information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company views its operations and manages its business in one segment.

Foreign currency

Results of foreign operations are translated from their functional currency into U.S.

dollars (reporting currency) using average exchange rates in effect during the year, while assets and liabilities are translated into U.S.

dollars using exchange rates in effect at the balance sheet date.

The resulting translation adjustments are recorded in accumulated other comprehensive loss.

Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency are included in income in the period in which the change occurs and reported within other expenses in the consolidated statements of operations and comprehensive loss.

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.

Property and Equipment —Property and equipment is recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method.

Upon disposal of an asset, the related cost and accumulated depreciation are removed from the asset accounts and any resulting gain or loss is included in the consolidated statements of operations.

Repair and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment.

The estimated useful lives of the Company’s respective assets are as follows:

Computer equipment and software 3 years

Furniture and fixtures 7 years

Laboratory equipment 5 years

Leasehold improvements Shorter of the useful life of the asset or the life of the lease

Impairment of Long-Lived Assets —Long-lived assets are reviewed for impairment if events or circumstances indicate the carrying amount of these assets may not be recoverable.

If this review indicates that these assets will not be recoverable, based on the forecasted undiscounted future operating cash flows expected to result from the use of long-lived assets and their eventual disposition, the Company’s carrying value of the long-lived assets is reduced to fair value based on a discounted future cash flow approach or quoted market values.

For the years ended December 31, 2021 and 2020, there were no events or circumstances which required an impairment test of long-lived assets.

Convertible Preferred Stock —The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs.

The convertible preferred stock is recorded outside of stockholders’ deficit because the shares contain liquidation features that are not solely within the Company’s control.

The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of convertible preferred stock.

Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur.

Research and Development Expenses and Accrued Research and Development —Research and development expenses are charged to expense as incurred.

Research and development expenses include certain payroll and personnel expenses including stock-based compensation, laboratory supplies, consulting costs, external contract research and development expenses and facility or lease expenses.

In-licensing fees and other costs to acquire technologies that are utilized in research and development, and that are not expected to have alternative future use, are expensed when incurred.

Advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed.

In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period.

These estimates are based on communications with the third-party service providers, the Company’s estimates of accrued expenses and on information available at each balance sheet date.

If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

The estimates are trued up to reflect the best information available at the time of the financial statement issuance.

Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s estimate of the status and timing of services performed relative to the actual status and timing of services performed may vary.

Patent Costs —Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain.

These patent-related legal costs are reported as a component of general and administrative expense.

General and Administrative Expense —General and administrative costs are expensed as incurred and include employee-related expenses including salaries, benefits, travel and stock-based compensation for the Company’s 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.

Fair Value Measurements —Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The carrying amounts of the Company’s financial instruments approximate fair value due to their short-term maturities.

Stock-Based Compensation Expense —The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based payments made to employees, directors and non-employees based on estimated grant-date fair values.

The Company uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period.

The Company estimates the fair value of stock options to employees, directors and non-employees using the Black-Scholes option-valuation model.

The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return, and the fair value of the underlying common stock on the date of grant.

Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

The historical volatility is calculated based on a period of time commensurate with the expected term assumption.

The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry.

The Company uses the simplified method to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting.

The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method.

For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options.

The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

The Company accounts for forfeitures as they occur.

The fair value of restricted stock awards granted to employees are valued as of the grant date using the estimated fair value of the Company’s common stock.

Net Loss per Share Attributable to Common Stockholders —The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities.

The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period.

Diluted net loss attributable to

common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares.

For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to purchase shares of convertible preferred stock are considered potential dilutive common shares.

Income Taxes —The Company accounts for income taxes using the asset and liability method.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis.

In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes.

Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made.

As of December 31, 2021 and 2020, the Company has recorded a full valuation allowance on its deferred tax assets.

Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit.

Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Recently Issued Accounting Pronouncements —From time to time, new accounting pronouncements are issued by the FASB, or other standard setting bodies and adopted by the Company as of the specified effective date.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts With Customers.

The ASU improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.

Under the new ASU, acquiring entities are required to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

The ASU is effective for fiscal years beginning after December 15, 2022 for public business entities, and for fiscal years beginning after December 15, 2023 for all other entities.

Early adoption is permitted.

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 intraperiod 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 is in the process of evaluating the impact of this new guidance on its financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt With Conversions and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40).

The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

Under the new ASU, convertible instruments will now more frequently accounted for as a single unit of account.

That is, a conversion feature and the host instrument in which it is embedded now generally will be treated as a single unit of account unless the conversion feature requires bifurcation under Topic 815.

The ASU is effective for fiscal years beginning after December 15, 2021 for public business entities, and for fiscal years beginning after December 15, 2023 for all other entities.

Early adoption is permitted.

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 measurement disclosures, primarily related to level 3 fair value measurements.

The 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 ASU 2018-13 did not have a material impact on the Company's 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.

Subsequent events

Subsequent events were evaluated through the filing date of this Annual Report.

The Company is in the process of evaluating the impact of this new guidance on its financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes.

The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.

ASU 2019-12 is effective for the Company beginning January 1, 2022.

Early adoption is permitted.

The Company has early adopted this guidance in 2020 on a prospective basis and the impact on the Company’s financial statements was not material.

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 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 an 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 is winding down the legacy Millendo operations.

In addition, the Company incurred approximately $ 0.2 million in share-based compensation expense as a result of the acceleration of vesting of stock options at the time of merger.

This amount was recorded in general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2021.

The Company also incurred transaction costs of approximately $ 6.4 million and this amount is recorded in additional paid-in capital in the accompanying consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the year ended December 31, 2021.

FAIR VALUE MEASUREMENTS

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis (amounts in thousands):

December 31, 2020

(Level 1) (Level 2) (Level 3)

Money market funds (included in cash and cash equivalents) $ 33,636 $ — $ —

December 31, 2019

(Level 1) (Level 2) (Level 3)

Money market funds (included in cash and cash equivalents) $ 59,382 $ — $ —

Accrued Expenses

Accrued expenses consist of (amounts in thousands):

Compensation and related benefits $ 1,978 $ 2,042

Professional fees 719 2,929

Preclinical and clinical costs 1,002 1,820

Insurance premiums 1,476 1,423

Other 350 852

The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):

As of December 31, 2021

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 51,829 $ — $ — $ 51,829

Total $ 51,829 $ — $ — $ 51,829

Bpifrance Reimbursable Advance

In December 2017, in connection with its acquisition of Alizé, a privately held biotechnology company based in Lyon, France, 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 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.

For the year ending December 31, 2020 the Company made $ 0.1 million in 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.

During the third quarter the Company resumed normal principal payments under the Bpifrance Advance agreement.

For the year ending December 31, 2019, the Company made principal payments of $ 0.2 million.

At December 31, 2020, the balance outstanding was $ 0.3 million (€ 0.2 million).

License Agreements

University of Michigan License Agreement

In June 2013, the Company entered into a license agreement with the Regents of the University of Michigan (the “University of Michigan”) for a worldwide, exclusive, sublicensable license to the University of Michigan’s interest in certain patent rights jointly owned with the Company, covering the use of ATR-101 for the treatment of certain indications (the “UM License Agreement”).

Due to the Company's decision to cease investing in the nevanimibe program, effective on March 5, 2021, the Company notified the University of Michigan of its decision to terminate the UM License Agreement, which termination shall be effective April 30, 2021, as agreed to by the University of Michigan.

The Company would have been obligated to make payments to the University of Michigan totaling up to $ 2.5 million upon the achievement of certain development and commercial milestones.

No amounts were paid in 2018 or 2019 related to the achievement of development or commercial milestones.

During the year ended December 31, 2019, $ 0.1 million was paid in order to extend the milestone achievement date of certain development milestones.

The Company would have also been required to pay the University of Michigan a low-single digit royalty percentage on net sales of applicable products, if any.

In addition, $ 20,000 in annual minimum royalties would have been due under the UM License Agreement for each of 2021 through 2023.

Further, beginning in 2024, the Company would have been required to pay an annual fee of $ 0.2 million which would have been creditable against royalties due, if any, until the expiration or termination of the UM License Agreement.

Assignment agreement with Erasmus University Medical Center and the University of Turin

In connection with its acquisition of Alizé, the Company assumed Alizé’s obligations under an assignment agreement with Erasmus University Medical Center, the University of Turin and certain individuals (collectively “the Assignors”), for certain patents and patent applications relating to livoletide.

In March 2021, the Company notified the assignors that it had discontinued its PWS program.

In connection with the assignment, the Company agreed to pay the Assignors a flat, low single digit royalty on net commercial sales of products containing livoletide that are covered by the claims of the assigned intellectual property.

Further, upon approval of livoletide by the FDA or EMA, the Company would have been required to pay the Assignors CDN $ 100,000 , which amount would have been deducted from any future royalty payments due to the Assignors.

The Company also agreed to pay the Assignors a low single digit percentage of any amounts received in connection with its license of the assigned intellectual property or products containing livoletide that are covered by the claims of the assigned intellectual property.

License Agreement with Roche

On October 16, 2018, the Company entered into a license agreement with F.

Hoffmann-La Roche Ltd and Hoffman-La Roche Inc.

(collectively, “Roche”), for a worldwide, exclusive license to Roche's interest in certain patent rights and know-how covering, among other things, the use of a neurokinin 3 receptor antagonist (the "Roche License Agreement").

Due to the Company's decision to discontinue developing the MLE-301 program, in March 2021, the Company notified Roche that it was terminating the Roche License Agreement effective three months from the date of such notice.

As consideration for the rights granted to the Company under the Roche License Agreement, the Company agreed to pay Roche an up-front payment.

Under the terms of the Roche License Agreement, the Company would have also been obligated to make significant milestone and royalty payments in connection with the attainment of certain development steps and the sale of resulting products with respect to the neurokinin 3 receptor antagonist.

In addition, the Company would have been required to share a portion of any net proceeds received in connection with certain agreements that it may enter into with third-parties to develop and commercialize the neurokinin 3 receptor antagonist.

Commitments and Contingencies

Operating leases

The Company has noncancelable operating leases for office space which have remaining lease terms of approximately 3.5 years.

In connection with the OvaScience Merger, the Company assumed 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 noncancelable 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 December 31, 2020, the operating lease ROU asset and the operating lease liabilities were $ 2.2 million and $ 2.4 million, respectively.

The weighted average discount rate used to account for the Company's operating leases 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 year ended December 31, 2020.

The weighted average remaining term of the Company's noncancelable operating leases is 3.38 years.

Rent expense related to the Company's operating leases was approximately $ 0.9 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively.

The Company recognizes rent expense on a straight-line basis over the lease period.

Cash paid for amounts included in the measurement of the lease liabilities was approximately $ 1.8 million and $ 1.5 million during the years ended December 31, 2020 and 2019, respectively.

The Company received approximately $ 0.3 million in sublease payments related to its Waltham, Massachusetts lease during each of the years ended December 31, 2020 and 2019.

Future minimum rental payments under the Company’s noncancelable operating leases at December 31, 2020 is as follows (amounts in thousands):

Year Ending December 31,

As of December 31, 2020

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 18,820 $ — $ — $ 18,820

Total $ 18,820 $ — $ — $ 18,820

Present Value Adjustment ( 279 )

Lease liability at December 31, 2020 $ 2,372

Employment benefit plan

The Company maintains a defined contribution 401(k) plan in which employees may contribute up to 100 % of their salary and bonus, subject to statutory maximum contribution amounts.

The Company contributes a safe harbor minimum contribution equivalent to 3 % of employees’ compensation.

The Company generally assumes all administrative costs of the plan.

For the years ended December 31, 2020 and 2019, the expense relating to the contributions made was $ 0.2 million and $ 0.2 million, respectively.

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.

16-3443-BLS1 (Mass.

Ct.)) against certain former officers and directors of OvaScience and one current director of the Company (a former director of OvaScience) and OvaScience 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 OvaScience’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 case remains stayed until at least April 30, 2021, when the parties are due to file a further 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 OvaScience and certain former officers of OvaScience 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.

The Company believes that the amended complaint and the second amended complaint are without merit.

On August 17, 2020, the court granted the parties’ joint motion to stay all proceedings in the case pending mediation.

The parties agreed to participate in a second mediation session on November 10, 2020.

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 remain pending.

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.

1:17-cv-11382-IT (D.

Mass.)) against OvaScience as a nominal defendant, certain former officers and directors of OvaScience and one current director of the Company (a former director of OvaScience) 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 OvaScience’s January 2015 follow-on public offering and other public statements concerning OvaScience’s AUGMENT treatment.

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, 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 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.

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.

Common Stock and Convertible Preferred Stock

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

Subject to preferences that may apply to any outstanding preferred stock, holders of common stock are entitled to receive ratably any dividends that the Company’s board of directors may declare out of funds legally available for that purpose on a non-cumulative basis.

No dividends had been declared through December 31, 2020.

Common stock warrants

As of December 31, 2020, there were 17,125 common stock warrants outstanding with a weighted average exercise price of $ 16.93 per share.

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 “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 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, 2019 were added to the number of available shares effective January 1, 2020.

The term "Prior Plans' 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;

or (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 (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.

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 1 % of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, (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, 2020.

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 years ended December 31, 2020 and 2019 (amounts in thousands):

Research and development $ 977 $ 1,299

General and administrative 3,267 3,018

TRANSACTIONS WITH RELATED PARTIES (AMOUNTS IN THOUSANDS)

Inception Sciences Service Agreements —Inception Sciences, Inc.

("Inception Sciences US") and Inception Sciences Canada, Inc.

(Inception Sciences Canada) are subsidiaries of Versant Ventures, affiliates of which, together, are a holder of more than 5 % of our capital stock.

The Company has service agreements with Inception Sciences US, and Inception Sciences Canada whereby research and support services are provided to the Company.

On June 30, 2020, the Company terminated these Inception Sciences service agreements.

Total expenses under the service agreements consist of charges for services, equipment usage, lab supplies and other out of pocket expenses as incurred.

For the years ended December 31, 2021 and 2020, the Company incurred nil and $ 1,315 , respectively, in expenses under the Inception Sciences service agreements.

Related Party Notes Receivable —On November 19, 2017, the Company loaned three employees a total of $ 353 pursuant to promissory notes in order for such employees to early exercise certain stock options which had a total exercise cost of $ 652 .

The notes receivable accrue interest at 2 % per year and had a maturity date of November 29, 2022.

The notes receivable vest over time until maturity in conjunction with the vesting of the early-exercised stock options.

On June 25, 2021, prior to the closing of the Merger Agreement, one of the employees’ note receivable plus accrued interest totaling $ 278 was forgiven by the Company.

This amount was recognized as compensation included in general and administrative expense in the accompanying consolidated statements of operations for the years ended December 31, 2021 and 2020.

The remaining amounts of the notes were repaid.

As of December 31, 2021 and 2020, the balance of the vested notes receivable and accrued interest was nil and $ 260 , respectively.

BALANCE SHEET ITEMS (AMOUNTS IN THOUSANDS)

Prepaid expenses and other current asset consist of the following as of December 31, 2021 and 2020:

Prepaid expenses $ 949 $ 245

Prepaid research and development costs 632 441

Notes and interest receivable — 260

Other current assets 553 59

Total $ 2,134 $ 1,005

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 was 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.

The following table summarizes the activity related to stock option grants to employees and nonemployees for the years ended December 31, 2020 and 2019:

Shares Weighted-average exercise price share Weighted-average remaining contractual life (years)

Outstanding at January 1, 2019 1,764,287 $ 26.81 8.0

Property and equipment, net, consists of the following as of December 31, 2021 and 2020:

Computer equipment and software $ 156 $ 85

Furniture and fixtures 193 135

Lab equipment 748 600

Leasehold improvements 840 746

Property and equipment 1,937 1,566

Less accumulated depreciation ( 824 ) ( 456 )

Property and equipment—net $ 1,113 $ 1,110

Depreciation expense for the years ended December 31, 2021 and 2020 were $ 374 and $ 339 , respectively.

Accrued liabilities as of December 31, 2021 and 2020 consist of the following:

Accrued other liabilities $ 748 $ 441

Accrued clinical trial liability 841 224

$ 1,589 $ 665

COMMITMENTS AND CONTINGENCIES (AMOUNTS IN THOUSANDS)

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 remaining lease term of the SSF Lease is two years and two months as of December 31, 2021.

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 2.4 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 December 31, 2021.

As of December 31, 2021 and 2020, the balance of the operating lease right of use assets were $ 3,051 and $ 1,877 , respectively, and the related operating lease liability were $ 3,468 and $ 2,439 , respectively, as shown in the accompanying consolidated balance sheets.

Rent expense was $ 1,039 and $ 665 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, future minimum annual lease payments under the Company’s operating lease liabilities for the SSF Lease and Ann Arbor Leases were as follows:

Total Commitment

Year Ending (in thousands)

Total minimum lease payments 3,693

imputed interest ( 225 )

Present value of operating lease obligations 3,468

current portion 1,442

Noncurrent operating lease obligations $ 2,026

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 December 31, 2021 and 2020, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

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 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.

No material proceedings have occurred since the case was filed.

On February 25, 2022, the parties filed a joint status report with the Court.

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.

The settlement is subject to both preliminary and final approval.

The amount of $ 15 million was recorded as Accrued legal settlement with offsetting Insurance recovery of legal settlement in the accompanying consolidated balance sheet as of 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.

With respect to the two OvaScience matters described above (Cima v.

Dipp and Chiu v.

Dipp), the Company is unable to estimate potential losses, if any.

However, the Company believes the matters are without merit, and that in light of applicable insurance, any material exposure to the Company is remote.

LOAN PAYABLE (AMOUNTS IN THOUSANDS)

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 will be available through March 31, 2022 contingent upon achievement of each of the following:

(i) receipt of at least $50,000 in Series

C equity capital, (ii) initiation of the Phase 1 combination study of TPST-1495 or monotherapy expansion study, and (iii) initiation of Phase 2 trial of TPST-1120 or the 1L Triplet Collaboration study .

And 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 December 31, 2021, the balance of the loan payable (net of debt issuance costs) was $ 15,069 .

The carrying value of the loan approximates fair value (Level 2).

For the year ended December 31, 2021, total interest expense was $ 1,282 .

CONVERTIBLE PREFERRED STOCK

As of December 31, 2021, the Company was authorized to issue up to 5,000,000 shares of preferred stock at a par value of 0.001 as a result of Private Tempest completing the merger with Millendo on June 25, 2021.

As of December 31, 2020, Private Tempest was authorized to issue up to 135,936,731 shares of preferred stock at par value of 0.001 .

In October 2011, Private Tempest received a commitment from its venture investor for a Series A Preferred Stock financing totaling $10 million to be taken down in two tranches of $5 million each.

Upon execution of the stock purchase agreement, Private Tempest received the first tranche of $5 million, which included $2,399 in cash proceeds and the conversion of notes payable and accrued interest totaling $2,601 for issuing 5,000,000 shares of its Series A Preferred Stock.

In June 2012, Private Tempest received cash proceeds of $5 million related to the second tranche of the Series A Preferred Stock financing from the issuance of 5,000,000 shares of Series A Preferred Stock.

In August 2015, Private Tempest issued an additional 2,000,000 shares of Series A Preferred Stock to its venture investor for cash proceeds of $2 million.

In September 2016, Private Tempest issued an additional 5,000,000 shares of Series A Preferred Stock to its venture investor for cash proceeds of $5 million.

In February 2018, Private Tempest issued 25,186,738 shares of Series B Preferred Stock for $1.00 per share in connection with the closing of the Series B Preferred Stock Purchase Agreement.

Private Tempest’s convertible notes of $8 million and accrued interest were converted as part of the Series B offering.

In February 2019, Private Tempest issued 28,749,997 shares of Series B-1 preferred stock for $0.80 per share for total cash proceeds of $23 million.

In January 2020, Private Tempest issued 43,749,996 shares of Series B-1 preferred stock for $0.80 per share for total cash proceeds of $35 million.

The authorized, issued and outstanding shares of the convertible preferred stock and liquidation preferences December 31, 2020 were as follows (in thousands except share and per share amounts):

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

On June 25, 2021, Private Tempest completed the merger with Millendo in accordance with the Merger Agreement.

Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock.

The significant rights, preferences, and privileges of the convertible preferred stock as of December 31, 2020 were as follows:

Dividends —The holders of the Company’s convertible preferred stock are entitled to receive noncumulative dividends of 8% per share (as adjusted for stock splits, combinations, and reorganizations) per annum on each outstanding share of Series convertible preferred stock.

Such dividends shall be payable only when and if declared by the Board of Directors.

As of December 31, 2020, and 2019, the Company’s Board of Directors had not declared any dividends.

Dividends on convertible preferred stock shall be payable in preference to and prior to any payments of any dividends on common stock.

No dividends have been declared to date.

Voting Rights —The holders of preferred stock are entitled to one vote for each share of common stock into which such preferred stock could then be converted;

and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

Liquidation —The holders of preferred stock are entitled to receive liquidation preferences at an amount per share of preferred stock equal to the original price plus all declared and unpaid dividends on the preferred stock.

Liquidation payments to the holders of preferred stock have priority and are made in preference to any payments to the holders of common stock.

After full payment of the liquidation preference to the holders of the preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock and preferred stock on an as-if-converted to common stock basis.

Redemption and Balance Sheet Classification — The convertible preferred stock is recorded within mezzanine equity because while it is not mandatorily redeemable, it will become redeemable at the option of the stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control.

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 million ( 1,136,849 common shares).

As of December 31, 2021, the Company was authorized to issue 100,000,000 shares of common stock at a par value of $ 0.001 .

Of the 100,000,000 common stock shares authorized, 6,910,324 are legally issued and outstanding at December 31, 2021 and 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 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.

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

STOCK COMPENSATION

In 2011, Private Tempest adopted the 2011 Equity Incentive Plan, and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan, together “the Tempest Equity Plans”.

Upon adoption of the 2017 Equity Incentive Plan, the 2011 Equity Incentive Plan was terminated.

The Board of Directors of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”) and 2019 Employee Stock Purchase Plan (the “2019 ESPP,” and together with the 2019 Plan, the “Millendo Equity Plans”) 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 and Millendo Equity Plans were assumed by the Company.

Both the Tempest Equity Plans and the 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 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 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 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 of Directors.

The number of shares of the Company's common stock reserved for issuance under the 2019 ESPP will automatically increase 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) 0.01 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 of Directors.

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.

As of December 31, 2021, a total of 403,109 shares are available for future grant under the Tempest Equity Plans and the Millendo Equity Plans.

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 employee or non-employee with options 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 % percent 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 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 had 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.

The following shows the stock option activities for the years ended December 31, 2020 and 2021:

Total Options Outstanding Weighted-Average Exercise Price

Balance—December 31, 2019 264,924 $ 4.81

Granted 224,490 $ 5.90

Exercised ( 14,406 ) $ 4.76

Forfeited ( 394,357 ) 40.42

Outstanding at December 31, 2019 2,498,606 17.18 7.7

Cancelled and forfeited ( 22,843 ) $ 4.92

Balance—December 31, 2020 452,165 $ 5.35

Assumed in reverse recapitalization 177,591 $ 179.79

Granted 307,529 $ 16.78

Exercised ( 33,127 ) $ 4.20

Forfeited ( 612,430 ) 13.39

Outstanding at December 31, 2020 3,749,102 $ 11.60 7.9

Vested and exercisable at December 31, 2020 1,819,399 $ 16.34 6.8

Vested and expected to vest at December 31, 2020 3,749,102 $ 11.60 7.9

As of December 31, 2020, the unrecognized compensation cost related to 1,929,703 unvested stock options expected to vest was $ 8.1 million.

This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.3 years.

The aggregate intrinsic value of options exercised during the year ended December 31, 2020 was $ 1,000 .

The aggregate intrinsic value of options exercised during the year ended December 31, 2019 was $ 0.7 million.

The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2020 was $ 0.2 million and $ 0.1 million,

respectively.

The options granted during the years ended December 31, 2020 and 2019, had an estimated weighted average grant date fair value of $ 3.13 and $ 6.74 , respectively.

The fair value of options is estimated using the Black-Scholes option pricing model, which takes into account inputs such as the exercise price, the value of the underlying common stock at the grant date, expected term, expected volatility, risk-free interest rate and dividend yield.

The fair value of each grant of options during the years ended December 31, 2020 and 2019 was determined using the methods and assumptions discussed below.

• The expected term of employee options with service-based vesting is determined using the “simplified” method, as prescribed in SEC’s Staff Accounting Bulletin (“SAB”) No.

107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data.

The expected term of nonemployee options is equal to the contractual term.

• The expected volatility is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the expected term assumption as described in SAB No.

• The risk-free interest rate is based on the interest rate payable on U.S.

Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term.

• The expected dividend yield is 0 % because the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend on its common stock.

• Prior to the OvaScience Merger, the Company’s common stock was not publicly traded.

The Company’s board of directors periodically estimated the fair value of the Company’s common stock considering, among other things, contemporaneous valuations of its common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Following the OvaScience Merger, the fair market value of the Company’s common stock is determined based on the closing price of its common stock on the Nasdaq Capital Market.

The grant date fair value of each option grant was estimated throughout the year using the Black-Scholes option-pricing model using the following assumptions for the Plan:

December 31, Year Ended,

Cancelled and forfeited ( 113,521 ) $ 115.72

Balance—December 31, 2021 790,637 $ 32.82

The following table summarizes information about stock options outstanding at December 31, 2021:

Shares Weighted Average Remaining Contractual Life (In Years) Weighted Average Exercise Price Aggregate Intrinsic Value

Options outstanding 790,637 8.53 $ 32.82 $ 62,820

Vested and expected to vest 790,476 8.53 $ 32.83 $ 62,820

Exercisable 339,921 7.99 $ 60.29 $ 42,790

Employee Stock Options —For the years ended December 31, 2021 and 2020, the Company granted employees stock options to purchase 290,894 and 210,100 shares of common stock with a weighted-average grant date fair value of $ 11.26 and $ 3.42 per share, respectively.

As of December 31, 2021, there was total unrecognized compensation costs related to unvested employee stock options of $ 3,341 .

These costs are expected to be recognized over a weighted-average period of approximately 1.4 years.

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 employee stock options was estimated using the following assumptions for the years ended December 31, 2021 and 2020:

Expected term (in years) 5.7 - 6.1

1 unchanged sentence

Risk-free interest rate 0.9 % - 1.3 %

Expected dividend yield 0 % 0 %

Fair market value of common stock $ 4.71 $ 9.73

At the time of the Alizé acquisition, Alizé had 6,219 non-employee (BSA) warrants and 5,360 employee (BSPCE) warrants outstanding, which have weighted-average exercise prices of € 80.06 and € 83.40 , respectively.

As of December 31, 2020, all BSAs and BSPCEs were vested.

During the year ended December 31, 2020, 910 BSPCE warrants were exercised resulting in the issuance of 12,307 shares of the Company's common stock.

In addition, during the year ended December 31, 2020, a total of 2,586 BSA and BSPCE warrants were forfeited.

As of December 31, 2020, there were an aggregate of 48,265 shares of common stock issuable upon the exercise of the warrants with a weighted-average exercise price of $ 7.85 per share.

These instruments are included in the equity attributable to noncontrolling interests.

As of December 31, 2020, the Company had approximately $ 330.8 million and $ 280.9 million of federal and state net operating loss carryforwards, respectively, which begin to expire in 2031.

As of December 31, 2020, the Company had approximately $ 5.3 million and $ 1.1 million of federal and state research and development tax credit carryforwards, respectively, that begin to expire in 2031 and 2029, respectively.

As of December 31, 2020, the Company had approximately $ 7.4 million of federal orphan drug tax credit carryforwards that begin to expire in 2032.

As of December 31, 2020, the Company had foreign net operating loss carryforwards of approximately $ 20.7 million which can be carried forward indefinitely.

Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) provides for limitation on the use of net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined in Code) that

could limit the Company's ability to utilize these carryforwards.

Pursuant to Section 382 of the Code, an ownership change occurs when the stock ownership of a 5% stockholder increases by more than 50% over a three-year testing period.

The Company may have experienced various ownership changes, as defined by the Code, as a result of past financing and may in the future experience an ownership change.

Accordingly, the Company's ability to utilize the aforementioned carryforwards may be limited.

Additionally, U.S.

tax laws limit the time during which these carryforwards may be applied against future taxes.

The components of the net deferred income tax asset as of December 31, 2020 and 2019 are as follows (amounts in thousands):

Deferred taxes:

Net operating loss carryforwards $ 90,842 $ 96,378

Research and development credit carryforwards 13,603 13,404

0.4 % - 0.5 %

Dividends — % — %

Expected Term —The expected term of options granted represents the period of time that the options are expected to be outstanding.

Due to the lack of historical exercise history, the expected term of the Company’s employee stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options.

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

The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available.

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

Treasury instruments whose term was consistent with the expected term of the Company’s stock options.

Dividends —The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in the foreseeable future.

Consequently, an expected dividend yield of zero was used.

Non-Employee Stock Options — For the years ended December 31, 2021 and 2020, the Company granted non-employees stock options to purchase 16,635 and 14,390 shares of common stock, respectively.

As of December 31, 2021, there was total unrecognized compensation costs related to unvested non-employee stock options of $ 95 .

These costs are expected to be recognized over a weighted-average period of approximately 1.3 years.

Stock-Based Compensation Expense — The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2021 and 2020:

Research and development $ 303 $ 389

General and administrative 802 64

Total $ 1,105 $ 453

There was no provision for income taxes for the years ended December 31, 2021 and 2020, because the Company has incurred losses since inception.

At December 31, 2021 and 2020 the Company concluded it was not more likely than not that it would realize its deferred tax assets, and therefore has recorded a full valuation allowance.

For the years ended December 31, 2021 and 2020, income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pre-tax loss as follows:

federal provision (benefit) 2021 2020

At statutory rate $ ( 5,906 ) $ ( 4,033 )

State taxes ( 3,887 ) ( 1,799 )

Valuation allowance 9,154 6,395

Tax credits ( 767 ) ( 604 )

Stock-based compensation 1,366 37

Accruals 352 414

Right-of-use asset ( 508 ) ( 742 )

Permanent differences 40 4

Total $ — $ —

Significant components of the Company’s deferred tax assets at December 31, 2021 and 2020 are shown below.

Deferred tax assets:

Net operating losses $ 125,111 $ 23,943

Research and development tax credits 16,670 4,597

Amortization 1,094 78

Lease liability 1,027 714

Capitalized start-up costs 775 855

Gross deferred tax asset 109,714 115,360

Stock based compensation 3,784 254

Other 254 204

Total gross deferred tax assets 147,940 29,790

valuation allowance ( 146,933 ) ( 29,073 )

Net deferred tax asset $ — $ —

In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible.

After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against its net deferred tax assets as of December 31, 2020 because the Company has determined that is it more likely than not that these assets will not be fully realized due to historic net operating losses incurred.

The valuation allowance decreased by $ 5.6 million during the year ended December 31, 2020, primarily due to the write-off of net operating loss carryforwards related to a wholly owned foreign subsidiary that filed for liquidation during the year ended December 31, 2020, offset by the generation of net operating losses and credit carryforwards during 2020.

In addition to the deferred taxes listed in the above table, an income tax reduction of $ 83.4 million (tax-effected $ 19.5 million deferred tax asset with a full valuation allowance) resulting from the foreign subsidiary liquidation may be available as capital loss carryforwards, net operating loss carryforwards or a combination of both in the U.S., however, a detailed analysis of these losses is required to make this determination and has not yet been initiated.

On December 31, 2020 and 2019, the Company had no unrecognized tax benefits.

The Company’s policy is to record interest and penalties related to income taxes as a component of income tax expense.

As of December 31, 2020 and 2019, the Company had no accrued interest or penalties related to income taxes and no amounts have been recognized in the Company’s statement of operations.

A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:

Federal income tax benefit at statutory rate 21.0 % 21.0 %

State income tax, net of federal benefit 2.2 % 2.4 %

Permanent differences ( 2.4 ) % ( 1.0 ) %

Rate change — % ( 8.7 ) %

Research and development credit benefit 1.7 % 2.7 %

Change in valuation allowance ( 22.5 ) % ( 16.4 ) %

Effective income tax rate — % — %

The Company files income tax returns in the U.S.

Federal, various state, and foreign jurisdictions.

The statute of limitations for assessment by the Internal Revenue Service (IRS) and state tax authorities is open for the Company’s tax years from 2017 to present.

Federal and state carryforward attributes that were generated prior to the tax year ended December 31, 2017 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a period for which the statute of limitations remains open.

The statute of limitations for assessment by the authorities in the various foreign jurisdictions in which the Company files ranges from one to three years and is open for the Company’s tax years from 2017 to present.

There are currently no federal, state or foreign income tax audits in progress.

Related Party Transactions

As discussed in Note 1, the Company sold shares of its common stock in December 2019.

Roche invested in the Company's December 2019 financing.

One of the Company's Board members is affiliated with Roche.

Subsequent Events

Following an extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, on March 29, 2021, the Company entered into a Merger Agreement with Tempest.

If the Merger is completed, the business of Tempest will continue as the business of the combined organization.

At the closing of the Merger, (a) each then outstanding share of Tempest common stock (including shares of Tempest common stock issued upon conversion of Tempest preferred stock and shares of Tempest common stock issued in the financing transaction described in the Merger Agreement) will be converted into the right to receive a number of shares of Millendo common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of Millendo common stock) calculated in accordance with the Merger Agreement and (b) each then outstanding Tempest stock option and warrant to purchase Tempest common stock will be assumed by Millendo, subject to adjustment as set forth in the Merger Agreement.

The Merger Agreement contains certain termination rights of each of Millendo and Tempest, including, subject to compliance with the applicable terms of the Merger Agreement, the right of each party to terminate the Merger Agreement to enter into a definitive agreement for a superior proposal.

Upon termination of the Merger Agreement under specified circumstances, Millendo may be required to pay Tempest a termination fee of $ 1.4 million or reimburse Tempest’s expenses up to a maximum of $ 1.0 million and Tempest may be required to pay Millendo a termination fee of $ 2.8 million or reimburse Millendo’s expenses up to a maximum of $ 1.0 million.

Total deferred tax assets 1,007 717

Deferred tax liability:

Right-of-use assets ( 903 ) ( 550 )

Fixed assets ( 104 ) ( 167 )

Total gross deferred tax liabilities ( 1,007 ) ( 717 )

Net deferred tax assets $ — $ —

The deferred tax assets and valuation allowance increased by $ 117.9 million from December 31, 2020 to December 31, 2021 due primarily to the Millendo reverse merger, the generation of net operating losses, and research and development credits.

As of December 31, 2021, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $ 452.4 million and $ 394.1 million, respectively.

As of December 31, 2020, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $ 80.9 million and $ 80.3 million, respectively.

The federal and state net operating loss carryforwards begin to expire in 2031 and 2022, respectively, if not utilized.

Federal net operating losses of $ 231.2 million are not subject to expiration.

As of December 31, 2021, the Company has federal and state research and development carryforwards of approximately $ 10.2 million and $ 3.2 million, respectively.

The Company also has $ 7.4 million of Orphan Drug Credit.

As of December 31, 2020, the Company has federal and state research and development carryforwards of approximately $ 3.9 million and $ 1.9 million, respectively.

The federal and state credits begin to expire in 2031 and 2029, respectively, if not utilized;

$ 2.1 million of the state credits can be carried forward indefinitely.

Utilization of some of the federal and state net operating loss and credit carryforwards may be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.

The annual limitations may result in the expiration of net operating losses and credits before utilization.

The Company has not performed a Section 382 study as of December 31, 2021.

At least $ 455.8 thousand of legacy Millendo federal net operating losses are expected to expire unused due to prior ownership changes.

The Company has the following activity relating to unrecognized tax benefits as of December 31, 2021 and 2020:

Beginning balance $ 1,280 $ 1,080

Gross increase - tax positions in prior periods 2,767 —

Gross decrease - tax positions in prior periods — —

Gross increase - tax position in current period 246 $ 200

Settlements — —

Lapses in statutes of limitations — —

Ending balance $ 4,293 $ 1,280

As of December 31, 2021 and 2020, none of the unrecognized tax benefits would impact the Company's effective tax rate due to the valuation allowance.

The Company does not anticipate the uncertain tax positions will materially change in the next 12 months.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

The Company had no accrual for interest and penalties on the accompanying consolidated balance sheets as of December 31, 2021 and 2020, respectively, and has not recognized penalties and interest in the accompanying statements of operations for the years ended December 31, 2021 and 2020, respectively.

The Company is subject to taxation in the United States, California, Massachusetts, and Michigan.

The Company’s tax years from inception are subject to examination by the IRS and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

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.

There was no contribution from the Company for the years ended December 31, 2021 and 2020.

NET LOSS PER SHARE

The following table sets forth the computation of the Company’s basic and diluted net loss per share for the years ended December 31, 2021 and 2020 (in thousands except share and per share amounts):

Net loss $ ( 28,302 ) $ ( 19,208 )

Weighted-average common shares outstanding 3,799,392 521,146

Weighted-average unvested restricted shares and shares subject to repurchase ( 9,089 ) ( 52,985 )

Weighted-average shares used to computing basic and diluted net loss per share 3,790,303 468,161

Net loss per share attributable to common stockholders—basic and diluted $ ( 7.47 ) $ ( 41.03 )

As of December 31, 2021 and 2020, the Company’s potentially dilutive securities included unvested stock warrants and stock options, which have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect would be anti-dilutive.

Based on the amounts outstanding as of December 31, 2021 and 2020, 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:

Series A preferred stock — 547,400

Series B preferred stock — 811,013

Series B-1 preferred stock — 2,334,500

Options to purchase common stock 790,637 452,166

Unvested restricted common stock — 28,996

Common stock warrants 6,036 —

796,673 4,174,075

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data