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 our plans, objectives, expectations, intentions, and beliefs, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors," under Part II, Item 1A of this report and those discussed in our other disclosures and filings.
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 third program targeting the three prime repair exonuclease ("TREX-1"). 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 (" 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
PIPE Financing
In
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Limitation"); provided, however, that the holder may increase or decrease the
Beneficial Ownership Limitation by giving 61 days' notice, but not to any
percentage in excess of 19.99%. We entered into a registration rights agreement
(the "Registration Rights Agreement") with the
Components of Results of Operations
Research and Development Expense
Research and development expenses represent costs incurred to conduct research and development, such as the development of our product candidates.
We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:
•Salaries, benefits and stock-based compensation;
•licensing costs; •allocated occupancy; •materials and supplies;
•contracted research and manufacturing;
•consulting arrangements; and
•other expenses incurred to advance our research and development activities.
The largest component of our operating expenses has historically been the investment in research and development activities. We expect research and development expenses will increase in the future as we advance our product candidates into and through clinical trials and pursues regulatory approvals, which will require a significant investment in costs of clinical trials, regulatory support and contract manufacturing and inventory build-up. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments, as well as added clinical development costs.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist of employee-related expenses,
including salaries, benefits, travel and non-cash stock-based compensation, for
our personnel in executive, finance and accounting, and other administrative
functions, as well as fees paid for legal, accounting and tax services,
consulting fees and facilities costs not otherwise included in research and
development expense. Legal costs include general corporate legal fees and patent
costs. We expect to incur additional expenses as a result of becoming a public
company following completion of the merger, including expenses related to
compliance with the rules and regulations of the
Other (Expense) Income, Net
Other (expense) income, net consists primarily of interest expense, interest income, and various income or expense items of a non-recurring nature.
Results of Operations
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Comparison of the three months ended
The following table summarizes our operating results for the three months endedJune 30, 2022 and 2021: Three Months Ended June 30, 2022 2021 (in thousands) Expenses: Research and development$ 5,651 $ 4,229 General and administrative 3,123 2,556 Total expenses 8,774 6,785 Operating loss (8,774) (6,785) Interest expense (464) (276) Interest and other (expense) income, net 70 3 Provision for income taxes - - Net loss$ (9,168) $ (7,058) Research and development
Our research and development expenses for the three months ended
Research and development expense increased by
Three Months Ended June 30,
2022 2021
(in thousands)
Research and development outside services $ 3,686 $ 2,850
Compensation expense 1,010 679
Stock-based compensation expense 125 44
Consulting and professional services 374 425
Other expenses 456 231
Total research and development expense $ 5,651 $ 4,229 The increase in research and development expense of
General and administrative
General and administrative expenses increased by
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Other (expense) income, net
For the three months ended
Comparison of the six months ended
The following table summarizes our operating results for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 (in thousands) Expenses: Research and development$ 10,760 $ 7,821 General and administrative 6,175 4,091 Total expenses 16,935 11,912 Operating loss (16,935) (11,912) Interest expense (797) (507) Interest and other (expense) income, net 73 6 Provision for income taxes - - Net loss$ (17,659) $ (12,413) Research and development
Our research and development expenses for the six months ended
Research and development expense increased by
Six Months Ended June 30,
2022 2021
(in thousands)
Research and development outside services $ 6,900 $ 4,963
Compensation expense 2,023 1,400
Stock-based compensation expense 227 122
Consulting and professional services 669 891
Other expenses 941 445
Total research and development expense $ 10,760 $ 7,821 The increase in research and development expense of
General and administrative
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General and administrative expenses increased by
Other (expense) income, net
For the six months ended
Liquidity and Capital Resources
Sources of Liquidity
Since inception through
We believe our cash and cash equivalents as of
On
On
In
Cash Flows
The following table summarizes our cash flows for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 (in thousands) Cash used in operating activities$ (15,521) $ (6,183) Cash used in investing activities (98) (84) Cash provided by financing activities 15,779 55,905 Net increase in cash and cash equivalents $ 160$ 49,638
Cash flows from operating activities
Cash used in operating activities for the six months ended
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Cash used in operating activities for the six months ended
Cash flows from investing activities
Cash used in investing activities for the six months ended
Cash flows from financing activities
Cash provided by financing activities for the six months ended
Cash provided by financing activities for the six months period ended
Material Cash Requirements
We expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval for our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.
Our material cash requirements as of
Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through the issuance of additional equity, borrowings and strategic alliances with partner companies. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourself.
Recent Accounting Pronouncements
See Note 2 to our Condensed Consolidated Financial Statements for a description of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements.
Smaller Reporting Company Status
We are a smaller reporting company as defined in the Securities Exchange Act of
1934, as amended. We may take advantage of certain of the scaled disclosures
available to smaller reporting companies and will be able to take advantage of
these scaled disclosures for so long as (i) our voting and non-voting common
stock held by nonaffiliates is less than
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