Tempest Therapeutics, Inc. quarterly report, Q2 FY2013

Business context and reporting period

The filing is OvaScience, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013—not a filing under the name Tempest Therapeutics, Inc. OvaScience was a development-stage life sciences company developing fertility-treatment products based on egg precursor cells. It reported no significant product revenue.

Financial results and liquidity

Amounts below are in U.S. dollars; income statement and cash flow figures are in millions unless stated otherwise.

• At June 30, 2013, cash and cash equivalents were $28.193 million and short-term investments were $26.152 million, totaling $54.345 million. Working capital was $53.450 million.
• Total assets were $56.240 million and total liabilities were $1.827 million. The balance sheet reports no borrowings; debt is not separately discussed.
• Net cash provided by financing in the first half was $32.654 million, primarily from a March private placement of 3,888,880 common shares at $9 per share, generating $32.652 million net proceeds.
• Margins are not meaningful because the company had no revenue. No profitability was reported; no clearer margin value is provided in the filing.

Changes versus the prior comparable period

• Second-quarter R&D expense rose 91% and G&A expense rose 83% year over year; first-half increases were 129% and 52%, respectively. Management attributed increases chiefly to research and clinical-service costs, higher headcount and stock-based compensation, and commercial preparation.
• Second-quarter net loss increased by $2.762 million year over year. First-half operating cash use increased by $4.484 million.
• Cash and short-term investments rose from $31.391 million at December 31, 2012 to $54.345 million at June 30, 2013, principally reflecting the equity placement. The company’s common shares outstanding also increased.

Outlook, commentary, and risks

• Management expected available cash and investments to fund its current operating plan through 2014, assuming no product-sales revenue, and said additional funding would be required thereafter. It cautioned that estimates could prove wrong and no external funding was committed.
• AUGMENT, the lead candidate, was being studied in the United States in women aged 38–42; the planned initial study covered 40 patients, with additional enrollment and sites planned. Subject to positive study results, management anticipated potential revenue in the second half of 2014 and planned expansion outside the United States. These were expectations, not assured outcomes.
• Management believed AUGMENT could be regulated by the FDA as a 361 HCT/P without premarket approval, but acknowledged regulatory uncertainty and FDA contact regarding the study and product classification. A different FDA determination could require additional trials, delay commercialization, or increase costs substantially.
• OvaTure remained preclinical and had not been tested in humans. Management planned further proof-of-concept work and enabling studies in 2014; commercialization would require regulatory approval.
• Key risks include uncertain underlying science and clinical results, enrollment and manufacturing delays, reliance on third parties, potential regulatory requirements, limited reimbursement and patient affordability, competition, intellectual-property risks, and the need for additional capital. The filing also notes a new AUGMENT manufacturing agreement entered into in July 2013 and an August 2013 acquisition of a patent and pending application related to ovarian-cell culture.
• Stock-based compensation was $2.211 million for the first half of 2013. Management reported effective disclosure controls; no material legal proceedings or off-balance-sheet arrangements were reported.

Important facts for investors to verify

• Confirm the issuer: the supplied filing names OvaScience, Inc., while the request metadata names Tempest Therapeutics, Inc.
• Track AUGMENT study enrollment, safety and efficacy results, and whether the FDA accepts the company’s proposed 361 HCT/P classification.
• Test the cash runway against actual spending and assess when and on what terms the company may need additional financing.
• Verify whether the planned 2014 study, international expansion, and potential revenue timeline were achieved; the filing does not establish that these milestones occurred.
• Assess the execution and cost implications of the new manufacturing arrangement, and the status and significance of the August 2013 patent acquisition.