Tempest Therapeutics Inc

Comparison of the three months ended March 31, 2024 and 2023

The following table summarizes our operating results for the three months ended March 31, 2024 and 2023:

Research and development

Our research and development expenses for the three months ended March 31, 2024 and 2023 were primarily incurred in connection with our most advanced product candidates, TPST-1120 and TPST-1495. We typically have various early-stage research and drug discovery projects, as well as various potential product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research and drug discovery project and our resources are typically deployed across multiple projects.

The following table shows our research and development expenses by program for the three months ended March 31, 2024 and 2023:

The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023:

General and administrative

General and administrative expenses increased by $0.7 million to $3.6 million for the three months ended March 31, 2024, compared to the prior year period. The increase was primarily due to an increase in stock-based compensation expense and consulting services.

Other income (expense), net

For the three months ended March 31, 2024 and 2023, other income (expense), net consisted of total interest expense of $368 thousand and $344 thousand, respectively, related to the Oxford Loan, and interest income of $438 thousand and $289 thousand, respectively.

Liquidity and Capital Resources

Overview

Since inception through March 31, 2024, our operations have been financed primarily by net cash proceeds from the sale of our common stock, convertible preferred stock and issuance of debt. As of March 31, 2024, we had $32.3 million in cash and cash equivalents and an accumulated deficit of $173.2 million. We expect that our research and development and general and administrative expenses will increase, and, as a result, we anticipate that we will continue to incur increasing losses in the foreseeable future.

We expect to have sufficient resources to fund operations into the second quarter of 2025. We believe our cash and cash equivalents as of March 31, 2024 will fund our ongoing working capital, investing, and financing requirements for at least the next 12 months from the date our consolidated financial statements were available to be issued.

Loan Agreement with Oxford Finance

On January 15, 2021, we entered into a loan and security agreement with Oxford to borrow a term loan amount of $35.0 million to be funded in three tranches (the “Loan Agreement”). Tranche A of $15.0 million was funded on January 15, 2021. Tranche B of $10.0 million expired on March 31, 2022. Tranche C of $10.0 million is available at Oxford’s option.

On December 23, 2022, we entered into a First Amendment to the Loan Agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo Therapeutics US, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Millendo”), were joined as co-borrowers under the Loan Agreement, (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances), and (iii) a security interest in the property of the Company, TempestTx and Millendo, including any intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $5.0 million which we paid on December 23, 2022.

During the fourth quarter of 2023, we met the circumstances necessary to extend the interest-only repayment period through June 30, 2024.

The term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is an Index Rate plus 7.10%. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05%. As of March 31, 2024, the balance of the loan payable (net of debt issuance costs) was $10.6 million.

At-the-Market Offering

On July 23, 2021, we entered into a sales agreement with Jefferies LLC, pursuant to which we may sell, from time to time at its sole discretion through Jefferies, as our sales agent, shares of our common stock having, up to an aggregate sales price of $100.0 million through Jefferies (the “ATM Program”). Any shares of our common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-257990). We will pay Jefferies a commission up to 3.0% of the gross sales proceeds of any shares of our common stock sold under the ATM Program and also have provided Jefferies with indemnification and contribution rights. As of March 31, 2024, we have sold an aggregate of 9,017,110 shares of our common stock for net proceeds of approximately $41.5 million, after deducting commissions and offering expenses pursuant to the ATM Program. During the three months ended March 31, 2024, we sold an aggregate of 56,288 shares of our common stock for net proceeds of approximately $0.3 million, after deducting commissions and expenses. As of March 31, 2024, approximately $57.3 million remained available for sale under the ATM Program.

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023:

Cash flows used in operating activities

Cash used in operating activities for the three months ended March 31, 2024 was $7.2 million, consisting of a net loss of $7.9 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $1.9 million, plus changes in operating assets and liabilities of $1.2 million.

Cash used in operating activities for the three months ended March 31, 2023 was $8.3 million, consisting of a net loss of $7.6 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $1.1 million, plus changes in operating assets and liabilities of $1.7 million.

Cash flows used in investing activities

Cash used in investing activities for the three months ended March 31, 2024 and 2023 was related to purchases of property and equipment, primarily related to laboratory and computer equipment.

Cash flows provided by financing activities

Cash provided by financing activities for the three months ended March 31, 2024 was related to proceeds from the issuance of common stock of $450 thousand.

Cash provided by financing activities for the three months ended March 31, 2023 was related to proceeds from the issuance of common stock of $44 thousand.

Funding Requirements

We believe that our available cash and cash equivalents are sufficient to fund existing and planned cash requirements for the next 12 months from the date our consolidated financial statements were available to be issued. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.

Our future funding requirements will depend on many factors, including the following:

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the costs associated with a pivotal study for TPST-1120 in first-line HCC patients, as well as other costs associated with the scope, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

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the costs associated with the manufacturing of our product candidates;

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the costs related to the extent to which we enter into partnerships or other arrangements with third parties to further develop our product candidates;

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the costs and fees associated with the discovery, acquisition or in-license of product candidates or technologies;

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our ability to establish collaborations on favorable terms, if at all;

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the costs of future commercialization activities, if any, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

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revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.

Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Material Cash Requirements

Our material cash requirements as of March 31, 2024 primarily relate to the maturities of the principal obligations under our long-term debt, operating leases for office space, trade payables, and accrued expenses. As of March 31, 2024, we have $10.7 million payable within 12 months, including the current loan payable of $6.5 million due to Oxford Finance. Refer to Notes 5 and 6 to our consolidated financial statements for additional information. In addition, the Oxford Finance loan facility matures on August 1, 2025, and as of March 31, 2024, the total balance of the loan payable (net of debt issuance costs) was $10.6 million. We also expect our operating expenses to continue 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. Accordingly, we will need substantial additional funding in connection with our continuing operations.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs, including those set forth above, 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 ourselves.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies since December 31, 2023. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K.

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 $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.