Tempest Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited. Tempest is a clinical-stage oncology company with no approved products and no product-sales revenue.
Business context and pipeline
- Lead programs TPST-1495 (EP2/EP4 antagonist) and TPST-1120 (PPARα antagonist) were in Phase 1 trials. TPST-1120 was also being studied with Roche’s atezolizumab and bevacizumab in a Phase 1b/2 trial for advanced or metastatic hepatocellular carcinoma.
- A TREX-1 inhibitor program was in preclinical development.
Financial performance and liquidity
- Revenue: None from product sales in the periods presented.
- Q2 2022: R&D expense was $5.651 million and G&A expense was $3.123 million, producing an operating loss of $8.774 million and net loss of $9.168 million, or $0.79 per share. Net loss in Q2 2021 was $7.058 million, or $7.63 per share.
- First six months of 2022: R&D expense was $10.760 million and G&A expense was $6.175 million. Operating loss was $16.935 million and net loss was $17.659 million, or $1.88 per share, versus a net loss of $12.413 million, or $17.30 per share, in the first six months of 2021.
- Expense changes: Year-over-year Q2 R&D increased $1.422 million and G&A increased $0.567 million. For the six-month period, R&D increased $2.939 million and G&A increased $2.084 million. Management attributed the increases mainly to expanded external research and development work, higher headcount, and public-company costs, including insurance and professional fees.
- Margins: Not meaningful to report because the company had no product revenue.
- Cash and liquidity: Cash and cash equivalents were $51.621 million at June 30, 2022, versus $51.829 million at December 31, 2021. Current assets were $68.307 million and current liabilities $22.423 million; current assets include a $15 million insurance recovery receivable related to a legal settlement.
- Cash flow: Operating activities used $15.521 million in the first six months of 2022, versus $6.183 million in 2021. Investing activities used $0.098 million; financing activities provided $15.779 million. Ending cash, cash equivalents and restricted cash totaled $51.989 million, including $0.368 million of restricted cash.
- Debt: The Oxford term loan had a carrying value of $15.301 million, with $2.000 million current and $13.301 million noncurrent. It bears floating interest at 7.15% and matures August 1, 2025; monthly $0.5 million principal payments are scheduled to begin March 2023. The lender may elect to provide an additional $10 million tranche; the separate $10 million Tranche B expired.
- Equity financing and dilution: The April PIPE generated approximately $14.5 million net proceeds through common shares and pre-funded warrants. Common shares outstanding increased from 6.910 million at year-end 2021 to 10.325 million at June 30, 2022; warrants covered up to 3.206 million additional shares. Shares outstanding on August 10 were 10,418,856.
Changes, outlook, and material items
- Management said June 30 cash and cash equivalents were expected to fund requirements for at least the next 12 months. The company nevertheless expects increasing losses and says additional capital will be needed to fully implement its plans. It may seek equity or debt financing, partnerships, or licensing transactions; unavailable or inadequate financing could require changes to operating plans.
- The company reported an accumulated deficit of $117.722 million and stated it has incurred losses since inception. It expects substantial ongoing R&D and public-company costs.
- In June, Tempest amended its South San Francisco lease to end January 31, 2023, earlier than the original February 2024 expiry. A Brisbane office lease is scheduled to commence in November 2022, with an eight-year term and future minimum payments disclosed in the filing.
- A $15 million shareholder class-action settlement remains subject to final court approval and is expected to be funded entirely by insurance; the company recorded equal settlement liability and insurance recovery. For two other legacy OvaScience matters, potential losses could not be estimated; management considers material exposure remote in light of insurance.
- Disclosure controls were deemed ineffective at June 30 because of previously identified material weaknesses in financial-reporting resources and controls over clinical-trial expense accruals. Management reported remediation efforts and expected to complete them in Q3 2022, but gave no assurance of successful or timely remediation.
- Key risks include clinical and regulatory failure or delay, patient enrollment and third-party manufacturing or CRO dependencies, competition, need for additional financing and potential dilution, COVID-19 or other disruptions, and the material weaknesses in internal controls. Management’s forward-looking statements are subject to substantial uncertainty.
Important facts for investors to verify
- Whether the clinical programs produce meaningful safety and efficacy data, and the timing and progress of TPST-1120’s Roche-partnered study.
- Cash burn and runway against management’s stated 12-month expectation, including the impact of planned R&D spending and the Brisbane lease.
- Future financing requirements, availability of the optional loan tranche or other capital, and potential dilution from outstanding pre-funded warrants and equity plans.
- Final approval and insurance funding of the $15 million settlement, and developments in the other legacy litigation.
- Whether management completes remediation of the material weaknesses and establishes effective controls over clinical-trial accruals.