Tenaya Therapeutics Inc

Organization and Description of the Business

Description of the Business

Tenaya Therapeutics, Inc. (the Company) was incorporated in the state of Delaware in August 2016 and is headquartered in South San Francisco, California. The Company is a clinical-stage biotechnology company focused on discovering, developing and delivering curative therapies that address the underlying drivers of heart disease. The Company’s lead product candidates include TN-201, a gene therapy for myosin binding protein C3-associated hypertrophic cardiomyopathy, TN-401, a gene therapy for plakophilin 2-associated arrhythmogenic right ventricular cardiomyopathy, and TN-301, a small molecule for heart failure with preserved ejection fraction.

Liquidity

The Company has incurred net losses since inception and expects such losses to continue in the future as it conducts research and development activities. As of June 30, 2024, the Company had an accumulated deficit of $464.9 million. The Company incurred a net loss of $61.7 million and $65.0 million during the six months ended June 30, 2024 and 2023, respectively. The Company had $99.3 million of cash, cash equivalents and investments in marketable securities as of June 30, 2024.

On August 6, 2024, the Company entered into a Loan Agreement with Silicon Valley Bank (SVB), a division of First-Citizens Bank & Trust Company (the Loan Agreement). Under the Loan Agreement, the Company has the right to draw down $15.0 million at its discretion, up to an additional $10.0 million upon the satisfaction of certain milestones and up to an additional $20.0 million that may be available at SVB's discretion, subject to specified conditions. See Note 10, Subsequent Event, for further details.

Management recognizes the need to raise additional capital to fully implement its business plan. The Company may seek to raise capital through equity financings, debt financings, license agreements, collaborative agreements or other sources of financing. Management believes that its existing cash, cash equivalents and investments in marketable securities as of June 30, 2024, along with the $15.0 million of funds available under its Loan Agreement with SVB, will be sufficient to fund the Company’s operations for at least the next twelve months following the date these condensed financial statements are filed with the Securities and Exchange Commission (SEC).

Workforce Reduction

On May 14, 2024, the Company announced cost containment measures, including a committed plan to reduce its workforce (the Workforce Reduction) by approximately 22%. The cost containment measures align with the Company's focus on generating data from its clinical-stage gene therapy programs. The Workforce Reduction has been substantially completed as of June 30, 2024. During the quarter ended June 30, 2024, the Company recognized $1.4 million of aggregate charges, primarily related to employee cash severance and continuing health insurance benefits.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and follow the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted.

The interim condensed balance sheet as of June 30, 2024, the interim condensed statements of operations and comprehensive loss, stockholders’ equity and cash flows for the six months ended June 30, 2024 and 2023 are unaudited. These unaudited interim condensed financial statements have been prepared on the same basis as the Company’s annual financial statements and reflect all adjustments that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the interim periods presented. The condensed results of operations for the six months ended June 30, 2024, are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period. The condensed balance sheet as of December 31, 2023, included herein was derived from the audited financial statements as of that date. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and the related notes thereto for the year ended December 31, 2023, included in Company’s Annual Report on Form 10-K, filed with the SEC on March 18, 2024.

Use of Estimates

The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to, accrued expenses related to research and development activities. The Company bases its estimates on historical experience, the current economic environment, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Significant Accounting Policies

There have been no material revisions to the Company’s significant accounting policies described in Note 2 to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures(ASU 2023-07), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, ASU 2023-07 enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company is evaluating the impact of this standard on its financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures(ASU 2023-09), which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for the Company beginning January 1, 2025. The Company is evaluating the impact of this standard on its financial statements and related disclosures.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs other than quoted market prices included in Level 1 are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 - Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy:

Money market funds and U.S. treasury securities are classified as Level 1 because they are valued using quoted market prices in active markets for identical assets. Financial instruments classified within Level 2 of the fair value hierarchy are valued based on observable inputs or can be derived from non-binding quotes from the Company’s investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, or historical pricing trends of a security relative to its peers.

The Company believes it is more likely than not that its marketable securities in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company hasnot recorded any allowance for credit losses on its investment securities. Based upon its quarterly impairment review, the Company determined that the unrealized losses were not attributed to credit risk, but were primarily driven by the broader change in interest rates.

As of June 30, 2024, the fair value of available-for-sale marketable securities was $41.2 million, all of which had remaining maturities of less thanone year.

The carrying amount of the Company’s remaining financial assets and liabilities, which include cash, receivables and payables, approximate their fair values due to their short-term nature.

Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consists of the following:

Depreciation and amortization expense for the three months ended June 30, 2024 and 2023 was $2.1 million and $2.2 million, respectively. Depreciation and amortization expense for each of the six months ended June 30, 2024 and 2023 was $4.3 million.

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

Commitments and Contingencies

Facility Leases

In December 2016, the Company entered into a lease agreement for office and laboratory space in South San Francisco, California. The lease was initially set to expire in May 2025 and the Company may renew the lease term fortwo additional five-year periods. In June 2024, the Company entered the First Amendment to the lease. Under the First Amendment, the Company extendedthe term of the lease from June 2025 through November 2027. This extended term was deemed to represent the first of thetwo renewal options. The Company hasone option remaining to extend the lease term for a period offive years at the end of the extended lease term.

In February 2021, the Company entered into a lease agreement for the Union City Facility. The lease commenced in May 2021 and has aten-year term withone five-year renewal option.

In November 2021, the Company entered into a short-term sublease agreement for additional office and laboratory space in South San Francisco, California with a lease term that was initially set to expire on June 30, 2022. In May 2022, the Company entered into an amendment to extend the term for the existing sublease premise through December 31, 2022. Under the amendment, the Company also subleased additional office and laboratory space at the same sublease premise through November 30, 2023. In October 2023, the Company entered into a second amendment for additional laboratory space and to extend the term of the sublease premise through November 30, 2024.

Information related to operating lease activity during the three and six months ended June 30, 2024 was as follows (in thousands):

As of June 30, 2024, the Company’s operating leases had a weighted average remaining lease term of 5.0 years and a weighted average discount rate of 8.8%. As of December 31, 2023, the Company’s operating leases had a weighted average remaining lease term of 5.1 years and a weighted average discount rate of 9.3%. Future minimum lease payments under the Company’s operating leases as of June 30, 2024 were as follows:

Purchase Commitments

The Company enters into contractual agreements with various suppliers in the normal course of its business, including vendors that provide machinery and equipment. All contracts are terminable, with varying provisions regarding termination. If a contract with a specific vendor were to be terminated, the Company would only be obligated for the products or services that the Company had received through the time of termination.

Indemnification

From time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated. The Company was not involved in any material litigation as of June 30, 2024.

In the normal course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amounts of future payments the Company could be required to make under these provisions is not determinable. In addition, the Company has entered into indemnification agreements with its directors and certain officers that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. As of June 30, 2024, the Company did not have any material indemnification claims that were probable or reasonably possible and, consequently, has not recorded any related liabilities.

Stock-Based Compensation

2021 Equity Incentive Plan

Under the Company's 2021 Equity Incentive Plan (2021 Plan),4,000,000 shares of the Company’s common stock were initially reserved for issuance of equity awards to employees, directors, and consultants, under terms and provisions established by the board of directors. The number of shares of common stock available for issuance under the 2021 Plan automatically increases on the first day of January for a period often years, commencing on January 1, 2022, in an amount equal to the lesser of:4,000,000 shares;4% of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding year; or such other amount as the board of directors may determine.

Total shares reserved and available for grant under the 2021 Plan as of June 30, 2024 are 781,439.

Stock Option Activity

The following table summarizes stock option activity:

Stock option awards granted to employees generally vest over afour-year period. The contractual term of stock option awards is generally 10 years from the grant date.

Stock Option Valuation

The fair value of the Company’s stock option awards is estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions:

Restricted Stock Units

Restricted stock units (RSUs) are awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon the completion of a specific period of continued service. RSUs generally vest over atwo tofour year periodand are subject to forfeiture if employment terminates prior to the release of vesting restrictions. RSUs are valued at the market price of the underlying common stock on the date of grant. The Company recognizes noncash compensation expense for the fair value of RSUs on a straight-line basis over the requisite service period of the awards. The following table summarizes activity of RSUs granted to employees with service-based vesting under the 2021 Plan.

2021 Employee Stock Purchase Plan

Under the Company's 2021 Employee Stock Purchase Plan (ESPP), the Company initially reserved 800,000 shares for future issuance. The number of shares of common stock available for issuance under the ESPP automatically increases on the first day of each fiscal year for a period often years beginning with 2022 in an amount equal to the lesser of:800,000 shares;1% of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding year; or such other amount as the board of directors may determine. As of June 30, 2024,1,767,746 shares were reserved for future issuance under the ESPP. Under the Company’s ESPP, employees are generally eligible to participate and can purchase shares on each purchase date established semi-annually through payroll deductions at the lower of 85% of the fair market value of the Company’s stock at the commencement of the offering period or each purchase date of the offering period. Each offering period spans 6 months. The ESPP permits eligible employees to purchase common stock through payroll deductions for up to 15% of qualified compensation, up to an annual limit of $25,000 per the Internal Revenue Service. For the six months ended June 30, 2024 and 2023, the stock-based compensation expense for ESPP was not material.

Stock-Based Compensation

The following table summarizes stock-based compensation recognized in the Company’s condensed statements of operations and comprehensive loss:

Stockholders' Equity

“At-the-Market” Equity Offering

On August 10, 2022, the Company entered into a sales agreement (Sales Agreement) with Leerink Partners LLC (formerly SVB Securities LLC) to establish an at-the-market (ATM) offering defined in Rule 415 under the Securities Act. Pursuant to the Sales Agreement, the Company is permitted to offer and sell, from time to time, shares of its common stock having a maximum aggregate offering price of up to $75.0 million. As of June 30, 2024, the Company may issue and sell up to approximately $71.0 million in additional shares of its common stock under the ATM.

Follow-On Offering

On February 12, 2024, the Company completed an underwritten offering of 8,888,890 shares of its common stock at a price of $4.50 per share and, to an investor in lieu of common stock, pre-funded warrants to purchase 2,222,271 shares of its common stock at a price of $4.499 pereach pre-funded warrant. The pre-funded warrants can beexercised at any time after issuance for an exercise price of $0.001 per share, subject to certain ownership limitations. The Company received net proceeds of approximately $46.8 million, after deducting underwriting discounts and commissions of approximately $3.0 million and offering expenses of $0.2 million.

As of June 30, 2024, total shares of common stock reserved for issuance, on an as-if converted basis, are as follows:

Income Taxes

For the six months ended June 30, 2024 and 2023, the Company didnot record any income tax expense or benefit. The Company has recorded a full valuation allowance against its U.S. federal and state deferred tax assets as the Company believes it is more likely than not that the benefit will not be realized.

Net Loss Per Share

Basic and diluted loss per share are computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Basic weighted-average shares of common stock outstanding includes the weighted-average effect of the Company’s outstanding pre-funded warrants.

The following potentially dilutive securities were not included in the calculation of diluted net loss per share as of the periods presented because the effect would have been anti-dilutive:

Subsequent Event

On August 6, 2024, the Company entered into the Loan Agreement with SVB. Under the Loan Agreement, the Company has the right to draw down $15.0 million at its discretion, up to an additional $10.0 million upon the satisfaction of certain milestones and up to an additional $20.0 million that may be available at SVB's discretion, subject to specified conditions.

In connection with the Loan Agreement, the Company issued to SVB a warrant to purchase shares of our common stock. The warrant is exercisable for 73,649 shares upon closing, which represents 0.075% of our common stock and common stock equivalents outstanding as of June 30, 2024, on a fully-diluted basis, at an exercise price of $2.55 per share. The warrant becomes exercisable for up to an additional 98,199 shares pro-rated based on amounts actually advanced for the various tranches under the Loan Agreement. The warrant expires on August 6, 2034.