TEMPEST THERAPEUTICS, INC. You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited Interim Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this report contains forward-looking statements that involve risks and uncertainties, such as its plans, objectives, expectations, intentions, and beliefs, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors," under Part II, Item 1A of this report and those discussed in our other disclosures and filings.
Overview
We are a clinical-stage oncology company focused on leveraging a deep scientific understanding of cancer biology and medicinal chemistry to develop and advance novel, orally available therapies for the treatment of solid tumors. Our philosophy is to build a company based upon not only creative science and thoughtful management, but also upon the efficient translation of those ideas into therapies that will improve patient's lives. To this end, we currently are advancing three programs, TPST-1495, TPST-1120 and a TREX-1 antagonist. TPST-1495 is a dual antagonist of the EP2 and EP4 prostaglandin E2 receptors, and, to our knowledge, is the only such dual antagonist in clinical development. TPST-1495 is currently in a Phase 1 trial in solid tumors. Our second clinical program, TPST-1120, is a selective antagonist of peroxisome proliferator-activated receptor alpha, or PPAR?, and is also in a Phase 1 trial in solid tumors. Similar to TPST-1495, we believe TPST-1120 is the only PPAR? antagonist in clinical development. We also have a third program in preclinical studies that could be the first to target TREX-1, a cellular enzyme that regulates the innate immune response in tumors.
We have no products approved for commercial sale and have not generated any
revenue from product sales. From inception to
We have never been profitable and has incurred operating losses in each period
since inception. Our net losses were
We expect to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidates and add personnel necessary to advance our pipeline of clinical-stage product candidates. In addition, operating as a publicly traded company will involve the hiring of additional financial and other personnel, upgrading our financial information and other systems, and incurring substantial costs associated with operating as a public company. We expect our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.
As of
Recent Developments
Oxford Loan and Security Agreement
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Table of Contents annual floating interest rate of 7.15% which is an index rate plus 7%. The index rate is the greater of (i) 30-day US LIBOR or (ii) 0.15%.
Merger Agreement
On
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Financial Operations Overview
Research and Development Expense
Research and development expenses represent costs incurred to conduct research and development, such as the development of our product candidates.
We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:
•Salaries, benefits and stock-based compensation;
•licensing costs; •allocated occupancy; •materials and supplies;
•contracted research and manufacturing;
•consulting arrangements; and
•other expenses incurred to advance our research and development activities.
The largest component of our operating expenses has historically been the investment in research and development activities. We expect research and development expenses will increase in the future as we advance our product candidates into and through clinical trials and pursues regulatory approvals, which will require a significant investment in costs of clinical trials, regulatory support and contract manufacturing and inventory build-up. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments, as well as added clinical development costs.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for its product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of its product candidates.
General and Administrative Expenses
General and administrative expenses consist of employee-related expenses, including salaries, benefits, travel and noncash stock-based compensation, for our personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expense. Legal costs include general corporate legal fees and patent costs. We expect to incur additional expenses as a result of becoming a public company following completion of the merger, including expenses related to
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compliance with the rules and regulations of the
Other Income (Expense), Net
Other income (expense), net consists primarily of interest expense, interest income, and various income or expense items of a non-recurring nature.
Results of Operations
Comparison of the three months ended
The following table summarizes our operating results for the periods indicated:
Three Months Ended September 30,
2021 2020
(in thousands)
Expenses:
Research and development $ 4,630 $ 4,271
General and administrative 3,106 1,163
Total expenses 7,736 5,434
Operating loss (7,736) (5,434)
Interest expense (437) -
Interest income and other income, net 63 3
Provision for income taxes - -
Net loss $ (8,110) $ (5,431)
Research and development
Our research and development expenses for the three months ended
Research and development expense increased by$0.4 million to$4.6 million for the three months endedSeptember 30, 2021 . The following table summarizes our research and development expenses for the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 (in thousands) Research and development outside services$ 3,207 $ 3,008 Compensation expense 617 590 Stock-based compensation expense 106 59 Consulting and professional services 418 407 Other expenses 282 207 Total research and development expense$ 4,630 $ 4,271 25
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The growth in total research and development expense of
General and administrative
General and administrative expenses increased by
Other income and expense
For the three months ended
Comparison of the nine months ended
The following table summarizes our operating results for the periods indicated:
Nine Months Ended
September 30,
2021 2020
Expenses: (in thousands)
Research and development $ 12,451 $ 11,392
General and administrative 7,197 3,583
Total expenses 19,648 14,975
Operating loss (19,648) (14,975)
Interest expense (944) -
Interest income and other income, net 69 87
Provision for income taxes - -
Net loss $ (20,523) $ (14,888)
Research and development
Our research and development expenses for the nine months ended
Research and development expense increased by
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Nine Months Ended September
30,
2021 2020
(in thousands)
Research and development outside services $ 8,170 $ 7,893
Compensation expense 2,016 1,564
Stock-based compensation expense 227 290
Consulting and professional services 1,309 963
Other expenses 729 682
Total research and development expense $ 12,451 $ 11,392 The growth in total research and development expense of
General and administrative
General and administrative expenses increased by
Other income and expense
For the nine months ended
Liquidity and Capital Resources
Sources of Liquidity
Since inception through
Therefore, we will need to raise additional capital to fund our operations, which may be through the issuance of additional equity or through borrowings, including in connection with the merger, or through business development activities.
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The common stock sold in the offering will be issued pursuant to a prospectus
supplement filed with the
Sales of the common stock, if any, made pursuant to the Sales Agreement may be sold in negotiated transactions or transactions that are deemed to be an "at the market offering", as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the "Securities Act"), including sales made directly on or through the Nasdaq Capital Market, on or through any other existing trading market for the common stock or by any other method permitted by law, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices, or as otherwise agreed between us and the Agent. The Agent will be entitled to compensation equal to 3.0% of the gross proceeds from the sale of all shares of common stock sold through it as Agent under the Sales Agreement.
Cash Flows
The following table summarizes our cash flows for the nine months period
indicated:
Nine Months Ended September 30,
2021 2020
(in thousands)
Cash used in operating activities $ (17,972) $ (14,743)
Cash used in investing activities (70) (1)
Cash provided by financing activities 59,072 34,569
Effect of exchange rate changes on cash (89) -
Net increase in cash and cash equivalents $ 40,941 $ 19,825 Cash flows from operating activities
Cash used in operating activities for the nine months ended
Cash used in operating activities for the nine months ended
Cash flows from investing activities
Cash used in investing activities for the nine months ended
Cash flows from financing activities
Cash provided by financing activities for the nine months ended
Future Funding Requirements
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Table of Contents We have not generated any revenue from product sales, and does not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval of and commercializes any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seeks regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations. We plan to continue to fund our operations and capital requirements through equity financing, debt financing and/or business development activities, but there are no assurances that we will be able to raise sufficient amounts of funding in the future on acceptable terms, or at all.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through the issuance of additional equity, borrowings and strategic alliances with partner companies. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market itself.
Contractual Obligations
We enter into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing and other services. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities.
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