Tempest Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Tempest is a clinical-stage oncology company with no approved products and no product-sales revenue. Its lead clinical programs are TPST-1120 and TPST-1495; it also reports two preclinical programs.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development | $6.0m | $4.6m | $16.7m | $12.5m |
| General and administrative | $2.8m | $3.1m | $9.0m | $7.2m |
| Operating loss | $8.8m | $7.7m | $25.7m | $19.6m |
| Net loss | $8.9m | $8.1m | $26.6m | $20.5m |
| Basic and diluted loss per share | $0.66 | $1.21 | $2.46 | $7.49 |
Gross profit and margins are not applicable because the company reports no product-sales revenue. Nine-month operating cash use was $24.6m, versus $18.0m in 2021; investing cash use was $0.2m. Financing provided $16.1m, primarily from common stock and pre-funded warrants. Cash and cash equivalents were $42.8m at September 30, down from $51.8m at December 31, 2021. The cash-flow statement reports ending cash, cash equivalents and restricted cash of $43.2m.
Current assets were $60.3m and current liabilities $24.1m, including a $15.2m legal-settlement accrual offset by a matching insurance-recovery asset. Net loan carrying value was $15.3m ($3.5m current and $11.8m non-current); the loan bears a floating 7.15% rate and matures August 2025. Management cited $23.9m of material cash requirements payable within 12 months. No revenue-based margin information is provided.
Material changes and financing
- Compared with the prior-year nine-month period, R&D expense increased $4.3m, primarily from greater CRO/vendor activity and higher compensation; G&A increased $1.8m, mainly from professional fees and public-company insurance costs. Net loss increased $6.1m.
- In April 2022, Tempest completed a PIPE issuing common shares and pre-funded warrants, generating approximately $14.5m net proceeds. Common shares outstanding rose from 6.9m at December 31, 2021 to 10.5m at September 30, 2022. The pre-funded warrants cover up to 3.2m additional shares, subject to ownership limits.
- The $10m second loan tranche expired in March 2022; a further $10m tranche remains available at the lender’s option. The company also maintains an ATM program permitting up to $100m of common-stock sales.
Outlook, risks and unusual items
- Management expects continued losses and increased spending as development advances. It believes September 30 cash and continued access to the term loan will fund requirements for at least 12 months, but says additional capital will be needed to fully implement its plans. Financing may be unavailable or dilutive; failure to obtain it could force delays, reductions or termination of programs.
- TPST-1120 is being developed in a first-line, randomized global Phase 1b/2 study in hepatocellular carcinoma with Roche; Tempest reported presenting Phase 1 dose- and schedule-finding data at ASCO 2022. TPST-1495 is in a Phase 1 solid-tumor trial. TREX-1 and an undisclosed-target program are preclinical. All candidates remain subject to substantial clinical, regulatory, manufacturing and commercial uncertainty.
- A $15m OvaScience-related shareholder class-action settlement is expected to be funded entirely by insurance and was recorded as equal settlement liability and insurance-recovery asset; final court approval remained pending. Two related derivative matters had settlements in principle, with attorney-fee terms and court approval unresolved.
- The South San Francisco lease was amended to end in January 2023. A new eight-year Brisbane lease is scheduled to commence in January 2023, adding future lease commitments; the filing lists $1.7m for 2023, $1.8m for 2024, $1.9m for 2025 and $10.3m for 2026 and beyond.
- Disclosure controls were determined ineffective at September 30 because of material weaknesses involving insufficient accounting-control resources and review of clinical-trial expense accruals. Management reported remediation work and expected to complete efforts by year-end 2022, but gave no assurance of timely or successful remediation.
- Other principal risks include clinical-trial delays or failure, dependence on third-party research and manufacturing, need for additional capital, competition, intellectual-property disputes, and possible disruption from public-health or macroeconomic events.
Investor verification priorities
- Check clinical-trial progress, safety and efficacy data, enrollment, and Roche collaboration milestones for TPST-1120 and TPST-1495.
- Assess cash runway against actual spending, the $23.9m near-term cash requirements, access to the optional loan tranche, and potential equity issuance under the ATM.
- Review dilution from the PIPE warrants and any subsequent share sales or exercises.
- Track final approval and insurance funding of the $15m settlement, plus resolution and potential costs of the derivative settlements.
- Confirm whether management remediated the material weaknesses and whether disclosure controls subsequently became effective.
- Evaluate the financial and operational impact of the Brisbane lease commencement and ongoing clinical-development commitments.