tpst-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 001-35890

Tempest Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware			45-1472564
(State or Other Jurisdiction of			(I.R.S. Employer
Incorporation or Organization)			Identification No.)
7000 Shoreline Court, Suite 275
South San Francisco, California			94080
(Address of Principal Executive Offices)			(Zip Code)

Registrant’s telephone number, including area code: (415) 798-8589

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Name of each exchange

Symbol(s)

on which registered

Common Stock, $0.001 par value

TPST

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of shares of Registrant’s Common Stock, $0.001 par value per share, outstanding as of May 11, 2022 was 10,323,006.

Table of Contents

INDEX TO FORM 10-Q


		Page
Special Note Regarding Forward-Looking Statements		3
	PART I — FINANCIAL INFORMATION	5
Item 1.	Financial Statements (unaudited):	5
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	6
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021	7
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Controls and Procedures	24

	PART II — OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	80
Signatures		81

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements (including within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)) about us and our industry that involve substantial risks and uncertainties. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of our management, as well as assumptions made by, and information currently available to, our management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “could”, “expect,” “anticipate,” “plan,” “likely,” “believe,” “estimate,” “intend,” and other similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: our strategies, prospects, plans, expectations or objectives for future operations; the progress, scope or timing of the development of our product candidates; the benefits that may be derived from any future products or the commercial or market opportunity with respect to any of our future products; our ability to protect our intellectual property rights; our anticipated operations, financial position, ability to raise capital to fund operations, revenues, costs or expenses; statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item 1A, “Risk Factors.” Other sections of this Quarterly Report on Form 10-Q, as well as our other disclosures and filings, include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our expected future growth and our ability to manage such growth;

•our ability to develop, obtain regulatory approval for and commercialize TPST-1495 and TPST-1120 and our future product candidates;

•the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

•the development, regulatory approval, efficacy and commercialization of competing products;

•our ability to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates;

•our ability to retain regulatory approval for our product candidates or future product candidates in the United States and in any foreign countries in which we make seek to do business;

•our ability to retain and hire our board of directors, senior management, or operational personnel;

•our ability to integrate TempestTx, Inc. and Millendo Therapeutics, Inc. (now the Company) successfully and realize the anticipated benefits of the merger of the two entities, which closed in July 2021;

•our expectation regarding the period during which we will qualify as a smaller reporting company under the federal securities laws;

Table of Contents

•our ability to develop and maintain our corporate infrastructure, including our ability to remediate our existing material weakness and to design and maintain an effective system of internal controls;

•our financial performance and capital requirements; and

•our expectations regarding our ability to obtain, maintain and enforce intellectual property protection for our products and technology, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.

You should read this Quarterly Report on Form 10-Q as well as the documents that we reference in, and have filed as exhibits to, this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Tempest,” “the Company,” “we,” “us,” and “our” refer to Tempest Therapeutics, Inc. and, where appropriate, its subsidiaries.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands except share and per share amounts)


	March 31, 2022 (Unaudited)		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	45,754	$	51,829
Insurance recovery of legal settlement	15,000		15,000
Prepaid expenses and other current assets	1,956		2,134
Total current assets	62,710		68,963
Property and equipment — net	1,024		1,113
Operating lease right-of-use assets	2,739		3,051
Other noncurrent assets	480		111
Total assets	$	66,953	$	73,238
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	684	$	991
Accrued legal settlement	15,000		15,000
Accrued expenses	3,234		1,589
Current operating lease liabilities	1,473		1,442
Accrued compensation	330		912
Interest payable	94		92
Total current liabilities	20,815		20,026
Loan payable (net of discount and issuance costs of $692 and $756, respectively)	15,133		15,069
Operating lease liabilities	1,648		2,026
Total liabilities	37,596		37,121
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized at March 31, 2022 and December 31, 2021; 7,173,094 and 6,910,324 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	7		7
Additional paid-in capital	137,904		136,173
Accumulated deficit	(108,554)		(100,063)
Total stockholders’ equity	29,357		36,117
Total liabilities and stockholders’ equity	$	66,953	$	73,238

See accompanying Notes to the Condensed Consolidated Financial Statements

Table of Contents

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands except share and per share amounts)


	Three Months Ended March 31,
	2022		2021
Operating expenses:
Research and development	$	5,109	$	3,592
General and administrative	3,052		1,535
Loss from operations	(8,161)		(5,127)
Other (expense) income, net:
Interest expense	(333)		(231)
Interest and other (expense) income, net	3		3
Total other (expense) income, net	(330)		(228)
Provision for income taxes	—		—
Net loss	$	(8,491)	$	(5,355)
Net loss per share of common stock, basic and diluted	$	(1.18)	$	(10.55)
Weighted-average shares of common stock outstanding, basic and diluted	7,167,255		507,450

See accompanying Notes to the Condensed Consolidated Financial Statements

Table of Contents

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands except share amounts)

Three Months Ended March 31, 2022


	Common Stock			Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity
	Shares	Amount
BALANCE — December 31, 2021	6,910,324	$	7		$	136,173		$	(100,063)		$	36,117
Issuance of common stock for cash, net of issuance cost of $44	262,770	—			1,403			—			1,403
Share-based compensation	—	—			328			—			328
Net loss	—	—			—			(8,491)			(8,491)
BALANCE — March 31, 2022	7,173,094	$	7		$	137,904		$	(108,554)		$	29,357

Three Months Ended March 31, 2021


	Common Stock			Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Deficit
	Shares	Amount
BALANCE — December 31, 2020	498,269	$	1		$	2,967		$	(71,761)		$	(68,793)
Exercise of stock options	4,368	—			20			—			20
Vesting of early exercised stock options	11,916	—			57			—			57
Share-based compensation	—	—			120			—			120
Net loss	—	—			—			(5,355)			(5,355)
BALANCE — March 31, 2021	514,553	$	1		$	3,164		$	(77,116)		$	(73,951)

See accompanying Notes to the Condensed Consolidated Financial Statements.

Table of Contents

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	For The Three Months Ended March 31,
	2022		2021
Operating activities:
Net loss	$	(8,491)	$	(5,355)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	108		78
Stock-based compensation expense	328		120
Noncash lease expense	311		136
Noncash interest and other expense, net	64		3
Changes in operating assets and liabilities:
Prepaid expenses and other assets	178		(350)
Accounts payable	(323)		(314)
Accrued expenses and other liabilities	1,063		(480)
Interest payable	2		92
Operating lease liabilities	(347)		(240)
Cash used in operating activities	(7,107)		(6,310)
Investing activities:
Purchase of property and equipment	(3)		(14)
Cash used in investing activities	(3)		(14)
Financing activities:
Proceeds from the issuance of common stock, net of equity issuance costs	1,403		—
Borrowings on loan payable	—		15,000
Payment of loan issuance costs	—		(59)
Proceeds from option exercises	—		3
Cash provided by financing activities	1,403		14,944
Net (decrease) increase in cash and cash equivalents	(5,707)		8,620
Cash, cash equivalents and restricted cash at beginning of period	51,829		18,820
Cash, cash equivalents and restricted cash at end of period	$	46,122	$	27,440
Supplemental disclosure of cash flow information:
Cash paid for interest	$	268	$	108
Non-cash investing activities: Property and equipment in accounts payable	$	16	$	—
Non-cash financing activities:
Vesting of early exercise stock options	$	—	$	57

See accompanying Notes to the Condensed Consolidated Financial Statements

Table of Contents

TEMPEST THERAPEUTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(Amounts are in thousands except share and per share data)

1.ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Description of Business—Tempest Therapeutics, Inc. (“Tempest” or the “Company”) is a clinical-stage oncology company advancing small molecules that combine both tumor-targeted and immune-mediated mechanisms with the potential to treat a wide range of tumors. The Company’s two clinical programs are TPST-1120 and TPST-1495, antagonists of PPARα and EP2/EP4, respectively. Both TPST-1120 and TPST-1495 are advancing through Phase 1 clinical trials designed to study both agents as monotherapies and in combination with other approved agents. In collaboration with F. Hoffmann La Roche, TPST-1120 is also advancing through a randomized first line, global, Phase 1b/2 clinical study in combination with the standard-of-care regimen of atezolizumab and bevacizumab in patients with advanced or metastatic hepatocellular carcinoma. Tempest is also developing an orally available inhibitor of TREX-1 designed to activate selectively the cGAS/STING pathway, an innate immune response pathway important for the development of anti-tumor immunity. Tempest is headquartered in South San Francisco, California.

Merger with Millendo—On March 29, 2021, TempestTx, Inc. (“Private Tempest”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Millendo Therapeutics, Inc. (“Millendo”).

Concurrent with the execution and delivery of the Merger Agreement, Private Tempest entered into funding agreements with certain investors named therein, pursuant to which the investors agreed to purchase, in the aggregate, $30.0 million of common stock of Private Tempest, convertible into securities of Millendo.

On June 25, 2021, Private Tempest completed the merger with Millendo in accordance with the Merger Agreement. Prior to the effective time of the merger, Millendo effected a 1-for-15 reverse stock split, and right after the merger, Millendo changed its name to Tempest Therapeutics, Inc. Under the terms of the Merger Agreement, immediately prior to the effective time of the merger, each share of Private Tempest’s preferred stock was converted into a share of Private Tempest’s common stock. At closing of the merger, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock, resulting in approximately 6,635,345 shares of the Company’s common stock being issued and outstanding immediately following the effective time of the merger. The Company also assumed all of the outstanding and unexercised stock options and warrants to purchase shares of Private Tempest capital stock. The assumed options continue to be governed by the terms of the 2011 and 2017 Equity Incentive Plans (as discussed more in Note 10) under which the options were originally granted, with such options hence forth representing the right to purchase a number of shares of the Company’s common stock equal to 0.0322 multiplied by the number of shares of Private Tempest common stock previously represented by such options.

The merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, Private Tempest was be deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the expectation that, immediately following the merger: (i) Private Tempest stockholders would own a substantial majority of the voting rights; (ii) Private Tempest would designate a substantial majority of the initial members of the board of directors of the combined company; (iii) Private Tempest’s executive management team would become the management of the combined company; and (iv) the combined company would be named Tempest Therapeutics, Inc. Accordingly, for accounting purposes, the merger was treated as the equivalent of Tempest issuing stock to acquire the net assets of Millendo. As a result of the merger, the net assets of Millendo were recorded at their acquisition-date fair value in the financial statements of Private Tempest and the reported operating results prior to the merger will be those of Private Tempest. Historical per share figures of Private Tempest have been retroactively restated based on the exchange ratio of 0.0322.

Liquidity and Management Plans—The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred operating losses since inception. The Company’s ultimate success depends on the outcome of the ongoing research and development activities. The Company has not yet generated product sales and as a result has experienced operating losses since inception. The Company expects to incur additional losses in the future to conduct research and development and will need to raise additional capital to fully implement management’s business plan. The Company intends to raise such capital through the issuance of additional equity and potentially through borrowings, strategic alliances with partner companies and other licensing transactions. However, if such

Table of Contents

financing is not available at adequate levels, the Company may need to reevaluate its operating plans. Management believes that its cash and cash equivalents as of March 31, 2022 will be sufficient to fund the Company’s cash requirements for the next 12 months following the issuance of these financial statements.

On April 29, 2022, the Company completed a $15 million private investment in public equity (“PIPE”) financing from the sale of 3,149,912 shares of its common stock at a price per share of $2.36 and, and in lieu of shares of common stock, pre-funded warrants to purchase up to 3,206,020 shares of its common stock at price per pre-funded warrant of $2.359 to EcoR1 Capital, LLC and Versant Venture Capital (the “PIPE Investors”). Gross proceeds from the PIPE financings total approximately $15.0 million, before deducting offering expenses.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies -- The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2022. There have been no material changes to the significant accounting policies during the period ended March 31, 2022, except for items mentioned below.

Basis of Presentation—The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company has prepared the accompanying condensed consolidated financial statements on the same basis as the audited financial statements, and the unaudited interim financial statements include, in the Company’s opinion, all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of its financial position and results of operations for these periods.

Use of Estimates—The preparation of 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 financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development accruals, recoverability of long-lived assets, right-of-use assets, lease obligations, stock-based compensation and income taxes uncertainties and valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

3. MILLENDO MERGER

As described in Note 1, Private Tempest merged with the Company on June 25, 2021. The merger was accounted for as a reverse recapitalization with Private Tempest as the accounting acquirer. The primary pre-combination assets of Millendo were cash, cash equivalents and restricted cash. Under reverse recapitalization accounting, the assets and liabilities of Millendo were recorded at their fair value which approximated book value due to the short-term nature of the instruments. No goodwill or intangible assets were recognized. Consequently, the condensed consolidated financial statements of Tempest reflect the operations of Millendo for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer.

As part of the reverse recapitalization, the Company obtained approximately $17.0 million of cash, cash equivalents and restricted cash. The Company also obtained prepaids and other assets of approximately $1.4 million and assumed payables and accruals of approximately $0.5 million. The Company also acquired the operating lease right-of-use asset of $2.1 million and the related operating lease liability of $2.1 million. All of the development programs and associated collaboration arrangements were terminated prior to the merger and were deemed to have no value at the transaction date and the Company is winding down the legacy Millendo operations.

The Company incurred transaction costs of approximately $6.4 million and this amount is recorded in additional paid-in capital in the condensed consolidated statements of stockholders’ equity for the year ended December 31, 2021.

4. FAIR VALUE MEASUREMENTS

Table of Contents

The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:


	March 31, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	45,754	$	—	$	—	$	45,754
Total	$	45,754	$	—	$	—	$	45,754

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	51,829	$	—	$	—	$	51,829
Total	$	51,829	$	—	$	—	$	51,829

5. BALANCE SHEET ITEMS

Prepaid expenses and other current asset consist of the following as of March 31, 2022 and December 31, 2021:


	March 31,		December 31,
	2022		2021
Prepaid expenses	$	643	$	949
Prepaid research and development costs	622		632
Other current assets	691		553
Total	$	1,956	$	2,134

Property and equipment, net, consists of the following as of March 31, 2022 and December 31, 2021:


	March 31,		December 31,
	2022		2021
Computer equipment and software	$	162	$	156
Furniture and fixtures	203		193
Lab equipment	751		748
Leasehold improvements	840		840
Property and equipment

SEC Form 10-Q filed by Tempest Therapeutics Inc.