Tempest Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unless otherwise stated, financial amounts below are in U.S. dollars. The June 25 merger with Millendo was accounted for as a reverse recapitalization, with private Tempest as the accounting acquirer; 2021 results therefore include Millendo only after the merger, while prior-period results reflect private Tempest. Comparisons are not fully like-for-like.
Business context
Tempest is a clinical-stage oncology company with no approved products and no product-sales revenue. Its pipeline comprised TPST-1495 and TPST-1120, both in Phase 1 trials for solid tumors, and a preclinical TREX-1 antagonist program. The filing says the company expects to select a TREX-1 development candidate by the first half of 2022.
Financial highlights
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $4.229m | $4.094m | $7.821m | $7.121m |
| General and administrative expense | $2.556m | $1.144m | $4.091m | $2.420m |
| Operating loss | $6.785m | $5.238m | $11.912m | $9.541m |
| Net loss | $7.058m | $5.229m | $12.413m | $9.457m |
| Basic and diluted loss per share | $7.63 | $11.42 | $17.30 | $21.28 |
As a development-stage company without revenue, conventional gross margin and profitability measures are not meaningful; the filing does not report product gross margin.
- Cash and liquidity: Cash and cash equivalents were $68.413m at June 30, 2021, plus $0.045m restricted cash, versus $18.820m cash and cash equivalents at December 31, 2020. Current assets were $70.494m and current liabilities $9.794m.
- Cash flow, six months: Operating activities used $6.183m, investing activities used $0.084m, and financing activities provided $55.905m. Cash and restricted cash ended the period at $68.458m. Financing included $30.010m of common-stock proceeds, $15.000m of loan proceeds, $17.045m of cash acquired in the merger, and $6.074m of merger transaction costs.
- Debt: The Oxford term loan had $15.000m principal outstanding, reported at $14.915m net of issuance costs. It carries a floating annual rate stated as 7.15%, matures August 1, 2025, and requires monthly $0.500m principal payments beginning March 2023. Additional $10m and $10m tranches are subject to conditions and lender discretion, respectively.
- Equity: Stockholders’ equity was $48.114m, compared with a $68.793m deficit at year-end 2020. Preferred stock converted to common stock in connection with the merger. The company reported 6,637,081 common shares issued and outstanding at June 30; 6,703,242 were outstanding as of August 10.
Material changes and unusual items
- Six-month net loss increased to $12.413m from $9.457m. R&D expense rose $0.700m, attributed principally to compensation and consulting services; G&A rose $1.671m, with management citing higher compensation and merger-related audit and tax fees.
- Interest expense was $0.507m for the first half of 2021, primarily related to the Oxford loan; there was none in the comparable 2020 period.
- The June merger brought approximately $17m of cash, cash equivalents and restricted cash, while legacy Millendo development programs and collaboration arrangements had been terminated before closing and were being wound down. The merger was treated as a reverse recapitalization; no goodwill or intangible assets were recognized.
- Merger-related items included $6.074m in transaction costs recorded in equity, approximately $0.2m of accelerated stock-based compensation, and $0.278m of forgiven employee notes receivable recorded as G&A compensation expense.
Outlook, risks and contingencies
- Management expects higher R&D and G&A expenses and continued operating losses as it advances clinical programs and operates as a public company. It said June 30 cash was expected to fund operations and capital needs into early 2023, based on the then-current operating plan. The company expects to need additional capital; management cautioned that financing may not be available on acceptable terms or at all.
- On July 23, 2021, Tempest entered an at-the-market sales agreement permitting up to $100m of common-stock sales; the agent’s fee is 3% of gross proceeds. The filing does not state that any shares had been sold under the agreement by the filing date.
- Key risks include clinical and regulatory failure or delay, patient-enrollment and COVID-19 disruption, competition, dependence on third-party manufacturers and service providers, intellectual-property challenges, and the need for further financing. The company had no product revenue and no assurance of eventual commercialization.
- Disclosure controls were deemed ineffective at June 30 because of material weaknesses involving insufficient accounting-control resources and controls over clinical-trial expense accruals. Remediation was underway, but management did not assure when or whether it would be completed.
- The company described three inherited OvaScience-related legal matters and said potential losses were not estimable, while it believed material exposure was remote in light of insurance. Eleven merger-related stockholder suits were voluntarily dismissed without prejudice after additional disclosures were filed.
Important facts for investors to verify
- Whether clinical progress in TPST-1495, TPST-1120, and the TREX-1 program supports the planned development milestones and any conditions for access to additional loan tranches.
- Cash runway assumptions behind management’s early-2023 estimate, actual spending trends, and whether the company raises capital through the $100m ATM or other financing.
- The floating-rate loan’s current interest cost, covenants, repayment obligations, and availability of the conditional and discretionary tranches.
- Progress and evidence of remediation for the material weaknesses, especially the clinical-trial accrual control deficiency.
- Potential dilution and share availability following the merger, option conversions, and any ATM sales; the filing notes substantial shares could become saleable after lock-up expiration.
- Developments in inherited litigation and whether any claims become probable or reasonably estimable.