SEC Form 10-Q filed by Terns Pharmaceuticals Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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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.
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).
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 |
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Emerging growth company |
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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 Exchange Act). Yes ☐ No
As of May 2, 2025, the registrant had
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
i
Table of Contents
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PART I. |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
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Item 1. |
26 |
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Item 1A. |
26 |
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Item 2. |
30 |
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Item 3. |
30 |
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Item 4. |
30 |
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Item 5. |
30 |
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Item 6. |
31 |
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32 |
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ii
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).
Terns Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited; in thousands, except share and per share data)
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March 31, 2025 |
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December 31, 2024 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Current portion of operating lease liabilities |
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Total current liabilities |
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Taxes payable, non-current |
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Operating lease liabilities, non-current |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Terns Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited; in thousands, except share and per share data)
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Three Months Ended March 31, |
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2025 |
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2024 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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Other income: |
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Interest income |
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Other expense, net |
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Total other income, net |
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Loss before income taxes |
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Income tax expense |
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( |
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( |
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Net loss |
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$ |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
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$ |
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Weighted average common stock outstanding, basic and diluted |
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Other comprehensive loss: |
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Net loss |
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$ |
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$ |
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Net unrealized gain (loss) on available-for-sale securities, net of tax |
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( |
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Foreign exchange translation adjustment, net of tax |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Terns Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited; in thousands, except share data)
Three Months Ended March 31, 2025 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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(Loss) Income |
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Deficit |
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Equity |
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Balances at December 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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— |
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— |
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— |
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Vesting of restricted stock units with service conditions |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net unrealized gain on available-for-sale securities |
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— |
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— |
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— |
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— |
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Foreign exchange translation adjustment |
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— |
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— |
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— |
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( |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Balances at March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2024 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Vesting of restricted stock units with service conditions |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net unrealized loss on available-for-sale securities |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign exchange translation adjustment |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances at March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Terns Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
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Three Months Ended March 31, |
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2025 |
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2024 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation expense |
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Net accretion on marketable securities |
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Change in deferred taxes and uncertain tax positions |
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Amortization of right-of-use assets |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Accrued interest, net of interest received |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
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( |
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Operating lease liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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Purchase of marketable securities |
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Proceeds from maturities of marketable securities |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Payment of deferred offering costs |
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Proceeds from stock option exercises |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for amounts included in the measurement of lease liabilities |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Terns Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies
Nature of the Business
Terns Pharmaceuticals, Inc. (Terns or the Company) is a clinical-stage biopharmaceutical company developing a portfolio of small-molecule product candidates to address serious diseases, including oncology and obesity.
Terns was incorporated as an exempted company in the Cayman Islands in December 2016. In December 2020, the Company effected a de-registration of the Company in the Cayman Islands and a domestication in the State of Delaware, pursuant to which it became a Delaware corporation. Terns owns all of the share capital of Terns Pharmaceutical HongKong Limited (Terns Hong Kong) and Terns, Inc., a Delaware corporation (Terns U.S. Opco). Terns Hong Kong holds all of the share capital of Terns China Biotechnology Co., Ltd. (organized in Shanghai, People’s Republic of China (PRC)) (Terns China) and Terns (Suzhou) Biotechnology Co., Ltd. (organized in Suzhou, PRC) (Terns Suzhou).
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.
Basis of Presentation
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of Terns and its wholly owned subsidiaries Terns U.S. Opco and Terns Hong Kong and its wholly owned subsidiaries Terns China and Terns Suzhou, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2024 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.
Reclassifications
Certain reclassifications have been made to prior period balances in the accompanying Condensed Consolidated Financial Statements and Notes thereto to conform to the current year presentation. The reclassifications had no effect on previously reported results of operations, accumulated deficit, subtotals of operating, investing or financing cash flows or consolidated balance sheet totals.
Unaudited Interim Financial Information
These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim periods. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (the Annual Report) for the fiscal year ended December 31, 2024, as filed with the Securities and Exchange Commission (SEC) on March 20, 2025. There have been no significant changes to the Company's significant accounting policies described in Note 1, Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K for the fiscal year ended December 31, 2024.
Any reference to these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASUs) of the Financial Accounting Standards Board (FASB).
5
At-the-Market Offering
In May 2023, the Company entered into a Sales Agreement with Cowen (Sales Agreement) as sales agent, pursuant to which the Company has the ability to offer and sell, from time to time, through Cowen, shares of its common stock having an aggregate offering price of up to $
September 2024 Financing
In September 2024, the Company issued
The pre-funded warrants were classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return. The Company valued the pre-funded warrants at issuance, concluding that their sales price approximated their fair value, and allocated net proceeds from the sale proportionately to the common stock and pre-funded warrants, of which $
Summary of Significant Accounting Policies
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the estimates for accruals of research and development expenses, accrual of research contract costs, unrecognized tax benefits, fair value of common stock and stock option valuations. On an ongoing basis, the Company evaluates its estimates and judgments, using historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could materially differ from those estimates.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consist of standard checking accounts and money market funds. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents.
The Company classifies as available-for-sale marketable securities with a remaining maturity when purchased of greater than three months. The Company’s marketable securities are maintained by investment managers and consist of U.S. government securities. Debt securities are carried at fair value with the unrealized gains and losses included in the condensed consolidated statements of operations and comprehensive loss and as a component of stockholders’ equity until realized. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded in interest income and/or expense. Gains and losses on securities sold are recorded based on the specific identification method and are included in interest income, net in the condensed consolidated statements of operations and comprehensive loss. The Company has not incurred any material realized gains or losses from sales of securities to date.
The Company assesses its available-for-sale debt securities for impairment as of each reporting date in order to determine if a portion of any decline in fair value below carrying value is the result of a credit loss. The Company records credit losses in the condensed consolidated statements of operations and comprehensive loss as credit loss expense within other expense, net, which is limited to the difference between the fair value and the amortized cost of the security. To date, the Company has not recorded any credit losses on its available-for-sale debt securities.
6
Interest receivable related to the Company's available-for-sale debt securities is presented as marketable securities on the Company's condensed consolidated balance sheets. The Company writes off interest receivable once it has determined that the asset is not realizable. To date, the Company has not written off any interest receivables associated with its marketable securities.
Operating Leases and Rent Expense
At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, upon lease commencement, the Company records a lease liability which represents the Company’s obligation to make lease payments arising from the lease, and a corresponding right-of-use (ROU) asset which represents the Company’s right to use an underlying asset during the lease term.
Operating lease ROU assets and liabilities are recognized on the balance sheet at the lease commencement date based on the present value of the future minimum lease payments over the lease term. In determining the net present value of the lease payments, the Company uses its incremental borrowing rate applicable to the underlying asset unless the implicit rate is readily determinable. Any lease incentives received are deferred and recorded as a reduction of the ROU asset and amortized over the term of the lease. The Company does not separate lease and non-lease components and instead treats them as a single component. Rent expense is recognized on a straight-line basis over the lease term. The Company determines the lease term as the noncancellable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
The Company elected to not apply the recognition requirements of the new leasing standard to short-term leases with terms of 12 months or less which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. For short-term leases, lease payments are recognized as operating expenses on a straight-line basis over the lease term. As a result, leases with a term of 12 months or less are not recognized on the balance sheet.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation expense, allocated facility-related and depreciation expenses, third-party license fees and external costs, including fees paid to consultants and contract research organizations (CROs) in connection with nonclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered. Costs incurred in obtaining technology licenses are charged immediately to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future uses.
The Company has from time to time entered into various research and development and other agreements with commercial firms, researchers, universities and others for provisions of goods and services. These agreements are generally cancelable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates. Since inception, the Company’s historical accrual estimates have not been materially different from the actual costs.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities included the following:
(in thousands) |
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Research and development costs |
|
$ |
|
|
$ |
|
||
Compensation and benefit costs |
|
|
|
|
|
|
||
Accrued professional fees |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
7
Executive Leadership Transition
In August 2023, Bryan Yoon, former chief operating officer and general counsel, and Mark Vignola, Ph.D., former chief financial officer, received retention awards that were fully paid in 2024. During the year ended December 31, 2024, the Company recognized an expense of $
In July 2024, Mr. Yoon entered into a separation agreement with the Company. During the year ended December 31, 2024, the Company recorded an accrued liability and recognized expense of $
In July 2024, Dr. Vignola entered into a transition agreement with the Company. During the year ended December 31, 2024, the Company recorded an accrued liability and recognized expense of $
In November 2023, Erin Quirk, M.D., former president and head of research & development, received a retention award payable in cash in the aggregate amount of $
Income Taxes
The provision for income taxes primarily relates to projected federal, state and foreign income taxes. To determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. In addition, the tax effects of certain significant or unusual items are recognized discretely in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
Income taxes are computed using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements. In estimating future tax consequences, the Company considers all expected future events including the enactment of changes in tax laws or rates. A valuation allowance is recorded, if necessary, to reduce net deferred tax assets to their realizable values if management does not believe it is more likely than not that the net deferred tax assets will be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.
The Company assesses accounting for uncertainty in income taxes by modeling for the recognition, measurement and disclosure in financial statements any uncertain income tax positions that the Company has taken or expects to take on a tax return. The Company accrues interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes.
The Company recorded income tax expense for each of the three months ended March 31, 2025 and 2024 of $
8
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
Stock-Based Compensation
Stock-based compensation expense relates to stock options, restricted stock units (RSUs) with service conditions, and RSUs with market conditions issued under the Company’s equity incentive plan and rights to acquire stock granted under the Company’s employee stock purchase plan (ESPP). Grants are measured at the grant date based on the fair value of the awards and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are recognized as they occur.
The Black-Scholes option pricing model estimates the fair value of stock options with time-based vesting and rights to acquire stock under the ESPP. The Company lacks sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The Company estimates risk-free rates using the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term and dividend yield using the Company’s expectations and historical data. The Company uses the simplified method to calculate the expected term of stock option grants as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. Under the simplified method, the expected term is estimated to be the mid-point between the vesting date and the contractual term of the option. The fair value is calculated based upon the Company’s common stock valuation on the date of the grant.
The fair value of RSUs with service conditions is based upon the Company’s common stock valuation on the date of the grant.
The Monte Carlo simulation model estimates the fair value of the RSUs with market conditions, using inputs for the common stock valuation on the date of the grant, volatility, the risk-free interest rate, and the dividend yield. Compensation expense is recognized on a straight-line basis over the derived service period commencing on the grant date. The derived service period is the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model. If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense is accelerated, and a cumulative catch-up expense is recorded during the period in which the market condition is met.
Pre-funded Warrants
Pre-funded warrants are classified as a component of permanent stockholders’ equity within additional paid-in capital and are recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return. The value of the pre-funded warrants is known at issuance, as their sales price approximates their fair value, and net proceeds from the sale are recorded as a component of additional paid-in capital.
Net Loss Per Share of Common Stock
Basic net income (loss) per share of common stock is computed by dividing the net income (loss) per share of common stock by the weighted average number of shares of common stock outstanding for the period. The weighted-average shares of common stock outstanding as of March 31, 2025 included pre-funded warrants, as the warrants were issued for minimal consideration and were immediately exercisable.
Diluted net income (loss) per share of common stock is computed by adjusting net income (loss) to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share of common stock is computed by dividing the diluted net loss by the weighted average number of shares of common stock outstanding for the period, including potential dilutive shares.
9
The Company reported a net loss for each of the three months ended March 31, 2025 and 2024. In periods in which the Company reported a net loss, diluted net loss per share of common stock was the same as basic net loss per share of common stock, since dilutive shares were not assumed to have been issued if their effect is anti-dilutive.
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Options to purchase common stock |
|
|
|
|
|
|
||
Unvested restricted stock units with service conditions |
|
|
|
|
|
|
||
Unvested restricted stock units with market conditions |
|
|
|
|
|
|
||
Shares issuable under employee stock purchase plan |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.
After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of stockholders’ equity as a reduction of additional paid-in capital or equity generated as a result of such offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss.
Commitments and Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. For all periods presented, the Company was not a party to any pending material litigation or other material legal proceedings.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended (JOBS Act). Under the JOBS Act, emerging growth companies have extended transition periods available for complying with new or revised accounting standards. The Company has elected to use this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies. Where allowable, the Company has early adopted certain standards as described below.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires additional income tax disclosures in the annual consolidated financial statements. The amendments in ASU 2023-09 are intended to enhance the transparency and decision usefulness of income tax disclosures. For non-public entities, ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2025. Under the JOBS Act, emerging growth companies have extended transition periods available for complying with new or revised accounting standards. The Company is currently evaluating the impact of ASU 2023-09 on its financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which enhances the disclosures required for expense disaggregation in annual and interim consolidated financial statements. In January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) – Clarifying the effective Date (ASU 2025-01), which clarifies the effective date of ASU 2024-03. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on disclosures in its consolidated financial statements.
10
2. Cash Equivalents and Marketable Securities
The amortized cost and fair value of cash equivalents and marketable securities by major security type is as follows:
|
|
March 31, 2025 |
|
|||||||||||||
(in thousands) |
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. government securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2024 |
|
|||||||||||||
(in thousands) |
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. government securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
The aggregate fair value of the Company’s available-for-sale marketable securities that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer is as follows:
|
|
March 31, 2025 |
|
|||||||||||||||||||||
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|||||||||||||||
(in thousands) |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
U.S. government securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
December 31, 2024 |
|
|||||||||||||||||||||
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|||||||||||||||
(in thousands) |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
U.S. government securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
At March 31, 2025, the Company had
11
3. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs that may be used to measure fair value are defined below:
The carrying values of the Company’s other assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:
|
|
Fair Value at March 31, 2025 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash in bank balances |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Money market funds |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total marketable securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Fair Value at December 31, 2024 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash in bank balances |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Money market funds |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total cash and equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total marketable securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
The aggregate amortized cost and fair value of marketable securities as of March 31, 2025, by contractual maturity, are as follows:
(in thousands) |
|
Amortized Cost |
|
|
Fair Value |
|
||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through two years |
|
|
|
|
|
|
||
Total marketable securities |
|
$ |
|
|
$ |
|
||
There were
12
4. Leases
The Company has an operating lease agreement for office space in Foster City, California.
Components of lease cost are as follows:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Short-term cost |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Weighted-average remaining lease term |
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
% |
|
|
% |
||
The Company's future minimum lease payments are as follows:
(in thousands) |
|
Operating Leases |
|
|
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 and thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
Present value of lease liabilities |
|
|
|
|
Less: Current portion of lease liabilities |
|
|
( |
) |
Total lease liabilities, non-current |
|
$ |
|
|
5. Common Stock and Stock-Based Compensation
The Company is authorized to issue
The Company had reserved shares of common stock for issuance in connection with the following:
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Options outstanding under incentive award plans |
|
|
|
|
|
|
||
Unvested restricted stock units with service conditions |
|
|
|
|
|
|
||
Unvested restricted stock units with market conditions |
|
|
|
|
|
|
||
Shares available for future grant under incentive award plans |
|
|
|
|
|
|
||
Shares available for future grant under employee stock purchase plans |
|
|
|
|
|
|
||
Shares available for future grant under employment inducement award plans |
|
|
|
|
|
|
||
Pre-funded warrants |
|
|
|
|
|
|
||
Total shares reserved |
|
|
|
|
|
|
||
13
Stock-Based Compensation Plans
The Company has
2021 Incentive Award Plan
In January 2021, the Company's board of directors approved the 2021 Plan which permits the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSU awards, performance bonus awards, performance stock unit awards and other stock awards to employees, directors, officers and consultants. In February 2021,
2021 Employee Stock Purchase Plan
The 2021 Employee Stock Purchase Plan (the 2021 ESPP) was approved by the Company’s board of directors in January 2021. In February 2021, a total of
Under the 2021 ESPP, eligible employees may select a rate of payroll deduction up to
As of March 31, 2025, there was $
2022 Employment Inducement Award Plan
In September 2022, the Company's compensation committee approved the 2022 Inducement Plan which authorized
14
Pre-Funded Warrants
In September 2024, the Company sold pre-funded warrants to purchase
In August 2022, the Company sold pre-funded warrants to purchase
Stock Options
Stock options granted to employees and non-employees under the plans generally vest over four years and allow the holder of the option to purchase common stock at a stated exercise price. Options granted under the plans generally expire ten years after the date of grant. The Company recognizes the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period.
The following table summarizes the stock option activity for all stock plans during the three months ended March 31, 2025:
|
|
Number |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||||
Outstanding as of December 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable, March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest, March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.
As of March 31, 2025, there was $
Restricted Stock Units with Service Conditions
RSUs with service conditions granted to employees under the plans generally vest over four years. The number of shares issued on the date the RSUs vest is net of the minimum statutory tax withholdings, which are paid in cash to the appropriate taxing authorities on behalf of the Company’s employees. The Company recognizes the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period.
The following table summarizes the RSUs with service conditions activity for all stock plans during the three months ended March 31, 2025:
|
|
Number |
|
|
Weighted Average Grant-Date |
|
||
Unvested restricted stock units as of December 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested restricted stock units as of March 31, 2025 |
|
|
|
|
$ |
|
||
15
As of March 31, 2025, there was $
Restricted Stock Units with Market Conditions
In March 2024, the Company granted
The Company estimated the fair value of RSUs with market conditions granted using a Monte Carlo simulation model with the following assumptions:
|
|
Three Months Ended March 31, 2024 |
|
|
Expected volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Fair value of underlying common stock |
|
$ |
|
|
Weighted average grant-date fair value per share |
|
$ |
|
|
As of March 31, 2025, none of the escalating stock price thresholds had been met for any of the RSUs with market conditions, resulting in no shares vested.
As of March 31, 2025, there was $
Stock-Based Compensation Expense
The Company estimated the fair value of options granted and rights to acquire stock granted under the Company’s employee stock purchase plan using a Black-Scholes option pricing model with the following assumptions presented on a weighted average basis:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Stock Option Plans |
|
|
|
|
|
|
||
Expected term (years) |
|
|
|
|
|
|
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Fair value of underlying common stock |
|
$ |
|
|
$ |
|
||
Weighted average grant-date fair value per share |
|
$ |
|
|
$ |
|
||
Stock-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Research and development expense |
|
$ |
|
|
$ |
|
||
General and administrative expense |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
||
16
6. Assignment, License and Collaboration Agreements
Assignment Agreement
In June 2019, the Company entered into an assignment agreement with Vintagence Biotechnology Ltd. (Vintagence) (Vintagence 2019 Assignment Agreement). Under the terms of the Vintagence 2019 Assignment Agreement, Vintagence assigned and agreed to assign to the Company any and all worldwide rights, title, and interest in and to the Vintagence technology and gave Terns a sublicensing right that allows the Company to grant sublicenses to any of its affiliates and/or to licensees or contractors to perform any portion of the development, manufacture, and/or commercialization of covered compounds or covered products. The Company will remain directly responsible for all amounts owed to Vintagence under this agreement, regardless of sublicenses. The Company is required to use commercially reasonable efforts to commercialize the covered product in the field in the major markets.
In June 2019, the Company paid Vintagence an upfront payment of $
Hansoh Option and License Agreement
In July 2020, the Company entered into an exclusive option and license agreement with Hansoh (Shanghai) Healthtech Co., Ltd. (Hansoh Healthtech) and Jiangsu Hansoh Pharmaceutical Group Company Ltd. (Jiangsu Hansoh) (collectively, Hansoh) (Hansoh 2020 Option and License Agreement). Under the terms of the Hansoh 2020 Option and License Agreement, the Company granted Hansoh an exclusive, non-transferable, non-sublicensable, fully-paid, royalty-free license to conduct preliminary studies on the licensed compound, TERN-701, with an option to exclusively license the same for development and commercialization of licensed products in all prophylactic, palliative, therapeutic and/or diagnostic uses in connection with all human diseases and disorders (including development and research activities on animal models thereof) in the field of oncology, including all types of cancers (Field) in mainland China, Taiwan, Hong Kong and Macau (collectively, the Territory).
In November 2021, Hansoh exercised its option and was granted an exclusive, royalty-bearing license, with the right to sublicense to exploit licensed compound and licensed products in the Field and in the Territory. In connection with Hansoh’s exercise of its option, the Company recognized $
17
7. Segment Reporting
The Company has
The Company’s chief operating decision maker (the CODM), its chief executive officer, manages the Company’s operations as a single segment for the purposes of assessing performance and making operating decisions. When evaluating the Company’s financial position, the CODM reviews, as presented on a consolidated basis, cash, cash equivalents and marketable securities, total assets, cash flows from operating activities, research and development expenses by program, personnel and other, general and administrative expenses and net loss.
Cash, cash equivalents and marketable securities and total assets are presented on the Company’s Consolidated Balance Sheets. Cash flows from operating activities are presented on the Company's Consolidated Statements of Cash Flows.
Consolidated segment loss, including segment expenses reviewed by the CODM, include the following:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Research and development expenses |
|
|
|
|
|
|
||
External expenses by program: |
|
|
|
|
|
|
||
TERN-701 |
|
$ |
|
|
$ |
|
||
TERN-601 |
|
|
|
|
|
|
||
Other programs |
|
|
|
|
|
|
||
Total external expenses |
|
|
|
|
|
|
||
Unallocated internal expenses: |
|
|
|
|
|
|
||
Personnel-related expenses |
|
|
|
|
|
|
||
Other expenses |
|
|
|
|
|
|
||
Total research and development expenses |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
Other income: |
|
|
|
|
|
|
||
Interest income |
|
|
|
|
|
|
||
Other expense, net |
|
|
( |
) |
|
|
( |
) |
Total other income, net |
|
|
|
|
|
|
||
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
Income tax expense |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 20, 2025. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Special Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our fiscal year ends on December 31 each year.
Overview
We are a clinical-stage biopharmaceutical company developing a portfolio of small-molecule product candidates to address serious diseases, including oncology and obesity. Our programs are based on mechanisms of action that have achieved proof-of-concept in clinical trials in indications with significant unmet medical needs. We are advancing multiple drug candidates we believe have the potential to deliver improved clinical outcomes in the target indication as either single-agent or combination therapies. The most advanced product candidates in our pipeline – TERN-701, TERN-601 and TERN-501 – were internally discovered. Additionally, we have an ongoing discovery effort for the TERN-800 series of small-molecule glucose-dependent insulinotropic polypeptide receptor (GIPR) modulators for obesity, which have the potential to be combined with glucagon-like peptide-1 (GLP-1) receptor agonists, such as TERN-601.
TERN-701 is our proprietary, oral, potent, next-generation allosteric BCR-ABL inhibitor specifically targeting the ABL myristoyl pocket for chronic myeloid leukemia (CML), a form of cancer that begins in the bone marrow and leads to the growth of leukemic cells. In December 2024, we announced positive early data from the dose escalation portion of the phase 1 CARDINAL study. As of the October 2024 cutoff date, 15 patients were enrolled across three once-daily (QD) dose cohorts of 160 mg, 320 mg and 400 mg, with an overall median treatment duration of 3 months. TERN-701 demonstrated compelling molecular responses starting at the lowest dose level in heavily pre-treated patients with high baseline BCR-ABL transcript levels. TERN-701 also showed an encouraging safety profile with no dose limiting toxicities, adverse event (AE) related treatment discontinuations or dose reductions across all dose escalation cohorts. While the dose escalation portion of the study is complete, optional backfill dosing of new participants continues in existing cohorts of the dose escalation. Both the encouraging safety profile and dose-related increase in molecular responses observed in the escalation portion of the study that evaluated a maximum QD dose of 500 mg, provided the basis to select two of the higher QD dose levels, 320 mg and 500 mg, for evaluation in the expansion portion of the study. The first patient was enrolled in the dose expansion portion of the study in April 2025 with planned enrollment to include 40 patients at each dose level. Additional safety and efficacy data are expected to be released in the fourth quarter of 2025 and are anticipated to include a larger cohort of patients with longer durations of treatment and with read through to a potential approval endpoint of a six-month major molecular response. The United States Food and Drug Administration (FDA) granted Orphan Drug Designation for TERN-701 for the treatment of CML in March 2024.
TERN-601 is our small-molecule GLP-1 receptor agonist that is intended to be orally administered once-daily (QD) for obesity. In September 2024, we announced positive results from the Phase 1 study of TERN-601, demonstrating weight loss over 28 days up to 5.5% and favorable safety and tolerability despite rapid dose titration every three days. The Phase 1 study was a randomized, double-blind, placebo-controlled single and multiple-ascending dose (MAD) study in healthy adults with obesity or who are overweight. The primary endpoint of the study was to evaluate safety and tolerability of TERN-601 administered QD for 28 days. Secondary endpoints included pharmacokinetics, efficacy as measured by body weight loss following 28 days of treatment with TERN-601, and other exploratory markers. The clinical study results showed TERN-601 was well tolerated and demonstrated dose-dependent, statistically significant placebo-adjusted mean weight loss across all three doses evaluated in the 28-day MAD study, with maximum placebo-adjusted mean weight loss of 4.9% (p<0.0001) at the highest dose of 740 mg QD. Additionally, 67% of participants lost 5% or more of their baseline body weight at the top dose. TERN-601 was well tolerated with no treatment-related dose interruptions, reductions or discontinuations at any dose, despite fast titration to high doses. The majority (>95%) of treatment emergent AEs were mild. All gastrointestinal events were mild to moderate and consistent with the GLP-1R agonist class. Importantly, there were no clinically meaningful changes in liver enzymes, vital signs or electrocardiograms observed. The absence of treatment-related dose interruptions, reductions, or discontinuations with mostly mild AEs, despite aggressive titration to high doses in this 28-day study, indicates potential for further improved tolerability in subsequent studies with slower titration. The first patient enrolled in the Phase 2 FALCON trial of TERN-601 in March 2025, enrollment is continuing as expected, and top-line 12-week data are anticipated in the fourth quarter of 2025.
19
TERN-501 is our thyroid hormone receptor beta (THR-β) agonist initially developed for metabolic dysfunction-associated steatohepatitis (MASH). Agonism of THR-β increases fatty acid metabolism via mitochondrial oxidation and affects cholesterol synthesis and metabolism. As a result, THR-β stimulation has the potential to provide broad metabolic benefits including reducing hepatic steatosis, increasing fat oxidation, and improving fibrosis and serum lipid parameters such as LDL cholesterol and triglycerides. Since announcing positive top-line data from the Phase 2a DUET trial in August 2023, we have decided to limit spend in the development of TERN-501 for MASH given the current regulatory and clinical development requirements for the indication. We continue to evaluate opportunities for TERN-501 in metabolic diseases. Based on non-clinical studies, THR-β agonism is a complementary mechanism to GLP-1 receptor antagonism, potentially providing broader metabolic and liver benefits in addition to increased weight loss. In June 2024, we highlighted preclinical data supporting TERN-501 in combination with a GLP-1R agonist for obesity at the American Diabetes Association 84th Scientific Sessions. TERN-501 significantly improved the efficacy of a GLP-1 receptor agonist in an obese mouse model by normalizing energy expenditure, resulting in greater weight loss, increased fat mass loss and relative preservation of lean mass compared to the GLP-1R agonist alone. These preclinical combination data support the potential for TERN-501 as a combination partner for injectable and oral GLP-1 agonists for use in obesity and other metabolic disorders.
TERN-800 series is our ongoing effort to discover small molecule GIPR modulators for obesity, which we believe have the potential for combination with GLP-1 receptor agonists, such as TERN-601. We are prioritizing our discovery efforts towards nominating a GIPR antagonist development candidate based on in-house discoveries and growing specific scientific rationale supporting the potential of GLP-1 receptor agonist and GIPR antagonist combinations for obesity.
Since the commencement of our operations, we have devoted substantially all of our resources to research and development activities, organizing and staffing our company, business planning, raising capital, establishing and maintaining our intellectual property portfolio, conducting preclinical studies and clinical trials and providing general and administrative support for these operations.
Results of operations
The following table summarizes our results of operations for the three months ended March 31, 2025 and 2024:
|
|
Three Months Ended March 31, |
|
|
|
|
||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|||
Results of operations |
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
18,720 |
|
|
$ |
18,587 |
|
|
$ |
133 |
|
General and administrative |
|
|
8,707 |
|
|
|
6,859 |
|
|
|
1,848 |
|
Total operating expenses |
|
|
27,427 |
|
|
|
25,446 |
|
|
|
1,981 |
|
Loss from operations |
|
|
(27,427 |
) |
|
|
(25,446 |
) |
|
|
(1,981 |
) |
Other income: |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
3,643 |
|
|
|
3,182 |
|
|
|
461 |
|
Other expense, net |
|
|
(36 |
) |
|
|
(12 |
) |
|
|
(24 |
) |
Total other income, net |
|
|
3,607 |
|
|
|
3,170 |
|
|
|
437 |
|
Loss before income taxes |
|
|
(23,820 |
) |
|
|
(22,276 |
) |
|
|
(1,544 |
) |
Income tax expense |
|
|
(88 |
) |
|
|
(97 |
) |
|
|
9 |
|
Net loss |
|
$ |
(23,908 |
) |
|
$ |
(22,373 |
) |
|
$ |
(1,535 |
) |
Revenue
To date, we have not generated, and do not expect to generate for the foreseeable future, any revenue from the sale of products. We may generate revenue from pre-specified clinical, regulatory and sales milestones as part of an exclusive option and license agreement for TERN-701 in greater China with Hansoh.
20
Research and development expenses
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal expenses incurred in connection with the discovery and development of our product candidates. To date, our research and development expenses have related primarily to discovery efforts, preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Costs for certain activities, such as manufacturing and preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators. Technology acquisitions are expensed or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use.
External expenses include:
Internal expenses include:
The following table summarizes our research and development expenses for the three months ended March 31, 2025 and 2024:
|
|
Three Months Ended March 31, |
|
|
|
|
||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|||
Research and development expenses |
|
|
|
|
|
|
|
|
|
|||
External expenses by program: |
|
|
|
|
|
|
|
|
|
|||
TERN-701 |
|
$ |
4,441 |
|
|
$ |
3,454 |
|
|
$ |
987 |
|
TERN-601 |
|
|
5,800 |
|
|
|
4,137 |
|
|
|
1,663 |
|
Other programs |
|
|
2,728 |
|
|
|
3,762 |
|
|
|
(1,034 |
) |
Total external expenses |
|
|
12,969 |
|
|
|
11,353 |
|
|
|
1,616 |
|
Unallocated internal expenses: |
|
|
|
|
|
|
|
|
|
|||
Personnel-related expenses |
|
|
5,555 |
|
|
|
6,886 |
|
|
|
(1,331 |
) |
Other expenses |
|
|
196 |
|
|
|
348 |
|
|
|
(152 |
) |
Total research and development expenses |
|
$ |
18,720 |
|
|
$ |
18,587 |
|
|
$ |
133 |
|
The increase in research and development expenses for the three months ended March 31, 2025, compared to the same period in 2024, was primarily due to a $1.6 million increase in clinical and preclinical program expenses, partially offset by a $1.3 million decrease in personnel-related expenses and a $0.2 million decrease due to lower allocated overhead, facility-related and depreciation expenses to research and development expenses.
21
General and administrative expenses
General and administrative expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation expense, for personnel in executive, finance, accounting, business development, legal, human resources, information technology, and other administrative functions. General and administrative expenses also include corporate facility costs, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, not otherwise included in research and development expenses, as well as professional fees for legal, patent, consulting, investor and public relations, accounting and tax services.
The increase in general and administrative expenses for the three months ended March 31, 2025, compared to the same period in 2024, was primarily due to a $1.1 million increase in personnel-related expenses and a $0.7 million increase in other professional services consulting.
Interest income
Interest income primarily consists of interest income on our cash equivalents and marketable securities.
Interest income for the three months ended March 31, 2025 was $3.6 million, compared to $3.2 million for the same period in 2024. The increase in interest income was primarily due to an increase in cash, cash equivalents and marketable securities.
Other expense, net
Other expense, net for the three months ended March 31, 2025 and 2024 was less than $0.1 million in each respective period.
Income tax expense
Income tax expense for the three months ended March 31, 2025 and 2024 was $0.1 million in each respective period.
Trends and uncertainties
As we continue to pursue clinical and discovery development in both U.S. and international markets, and given our research operations have included work within China, as well as other countries, we remain attentive to evolving global economic conditions, including uncertainties related to international trade policies, tariffs, and supply chain dynamics. Although these factors have not had a material impact on our operations to date, we continue to monitor these developments closely.
Liquidity and capital resources
Uses of cash
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
We believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements into 2028, including key clinical data readouts from our lead programs in CML and obesity. However, we continue to anticipate that our research and development expenses, general and administrative expenses and capital expenditures will remain significant to support our ongoing and planned activities. We expect to continue to incur net operating losses for at least the next several years.
Sources of liquidity
We have primarily funded our operations through proceeds from the sale of shares of our common stock, convertible preferred stock and convertible promissory notes. We have devoted substantially all of our resources to research and development activities, organizing and staffing our company, raising capital, establishing and maintaining our intellectual property portfolio, conducting preclinical studies and clinical trials and providing general and administrative support for these operations.
22
Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses and negative cash flows from our operations. As of March 31, 2025, we had an accumulated deficit of approximately $445.4 million and cash, cash equivalents and marketable securities of $334.3 million. For the three months ended March 31, 2025, we had a net loss of approximately $23.9 million and negative cash flows from operations of approximately $24.4 million.
In May 2023, we entered into the Sales Agreement pursuant to which we have the ability to offer and sell, from time to time, through Cowen, shares of our common stock having an aggregate offering price of up to $150.0 million in an at-the-market offering. The shares are offered pursuant to our shelf registration statement on Form S-3 filed with the SEC, which became effective in February 2023. This Sales Agreement remains in effect. There were no sales of our common stock pursuant to this agreement through March 31, 2025.
In September 2024, we issued 14,064,048 shares of our common stock at a public offering price of $10.50 per share and, to certain investors in lieu of common stock, pre-funded warrants to purchase 2,380,952 shares of common stock at a public offering price of $10.4999 per pre-funded warrant in an underwritten public offering. The purchase price per share of each pre-funded warrant represents the per share public offering price for the common stock, minus the $0.0001 per share exercise price of such pre-funded warrant. Aggregate net proceeds were $161.9 million after deducting underwriting discounts and commissions and offering expenses.
We believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements into 2028. We will need substantial additional funding to support our operating activities.
Future funding requirements
We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will remain significant for the foreseeable future in connection with conducting additional preclinical studies and clinical trials for our current and future research programs and product candidates, contracting with CROs and CMOs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.
Our primary uses of cash are to fund our research and development activities, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these operations.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for our product candidates, we expect to incur significant commercialization expenses related to any approved products, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts.
Our future capital requirements will depend on many factors, including:
23
Until such time, if ever, as we can generate substantial revenues from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. 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 funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Cash flows
Operating activities
Net cash used in operating activities during the three months ended March 31, 2025 was $24.4 million and consisted primarily of our net loss of $23.9 million, a $4.3 million decrease from changes in operating assets and liabilities primarily attributable to the timing of expenses incurred and payments issued as well as a non-cash adjustment of $0.1 million due to net accretion on marketable securities. This was partially offset by non-cash adjustments of $3.7 million of stock-based compensation, $0.1 million in amortization of right-of-use assets and $0.1 million of depreciation.
Net cash used in operating activities during the three months ended March 31, 2024 was $22.8 million and consisted primarily of our net loss of $22.4 million, a $3.8 million decrease from changes in operating assets and liabilities primarily attributable to the timing of expenses incurred and payments issued as well as a non-cash adjustment of $0.9 million due to net accretion on marketable securities. This was partially offset by non-cash adjustments of $4.0 million of stock-based compensation, $0.2 million in amortization of right-of-use assets and $0.1 million of depreciation.
Investing activities
Net cash provided by investing activities during the three months ended March 31, 2025 was $2.0 million and consisted primarily of proceeds from the maturity of marketable securities of $27.0 million, partially offset by $25.0 million in purchases of marketable securities.
Net cash provided by investing activities during the three months ended March 31, 2024 was $8.0 million and consisted primarily of proceeds from the maturity of marketable securities of $58.6 million partially offset by $50.6 million in purchases of marketable securities.
Financing activities
Net cash provided by financing activities during the three months ended March 31, 2025 was $0.1 million and consisted of $0.1 million in proceeds from stock option exercises.
There were no financing activities during the three months ended March 31, 2024.
24
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and use of estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024.
Adoption of New and Recently Issued Accounting Pronouncements
Note 1 – Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies – Recent Accounting Pronouncements which is contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, describes these accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to the information provided under Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" which is included and described in our Annual Report on Form 10-K for the year ended December 31, 2024.
Item 4. Controls and Procedures.
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
As of March 31, 2025, management, with the supervision and participation of our chief executive officer and the chief financial officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our chief executive officer and the chief financial officer concluded that, as of March 31, 2025, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes during the quarter ended March 31, 2025 to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in legal proceedings or subject to claims incident to the ordinary course of business. While the outcome of any such proceedings cannot be predicted with certainty, as of March 31, 2025, we were not a party to any litigation or legal proceedings that, in the opinion of our management, are probable to have a material adverse effect on our business. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources, reputational harm, and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2024 may not be the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Our Company’s business may be materially affected by the imposition of duties, tariffs and other trade barriers, including retaliatory countermeasures, implemented by the U.S. and other governments.
Recently, there have been significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, trade policies and tariffs affecting products from outside of the U.S. While the timing regarding the implementation, if any, of such changes is uncertain, any implementation of such changes could increase uncertainties and associated risks relating to the supply of pharmaceutical ingredients and/or products given our operations within China, Canada and other international jurisdictions, as well as supplying global trials conducted in China, Europe and other countries.
Disruptions at the FDA and other government agencies from funding cuts, personnel losses, regulatory reform, government shutdowns and other developments could hinder our ability to obtain guidance from the FDA regarding our clinical development program and develop and secure approval of our product candidates in a timely manner, which would negatively impact our business.
The FDA and comparable regulatory agencies in foreign jurisdictions, such as the European Medicines Agency and Committee for Medicinal Products for Human Use, play an important role in the development of our product candidates by providing guidance on our clinical development programs and reviewing our regulatory submissions, including investigational new drug applications (INDs), requests for special designations and marketing applications. If these oversight and review activities are disrupted, then correspondingly our ability to develop and secure timely approval of our product candidates could be impacted in a negative manner.
For example, the recent loss of FDA leadership and personnel could lead to disruptions and delays in FDA guidance, review and approval of our product candidates. Pursuant to President Trump's E.O. 14210, “Implementing the President’s ‘Department of Government Efficiency’ Workforce Optimization Initiative,” the Secretary of the Department of Health and Human Services (HHS) announced on March 27, 2025, a reorganization and Reduction in Force (RIF), across the Department of approximately 20,000 employees (82,000 to 62,000), with FDA’s workforce to decrease by 3,500 full-time employees. Shortly thereafter, thousands of employees at the FDA were fired on April 1, 2025. Subsequently, there have been reports from the preliminary budget memorandum for HHS that the administration will propose an additional 30% cut in the overall budget for the Department, with a reduction of $700 million in funding at the FDA ($7.2 billion to $6.5 billion) for the 2026 federal fiscal year.
Further, while the FDA’s review of marketing applications and other activities for new drugs and biologics is largely funded through the user fee program established under the Prescription Drug User Fee Act (PDUFA), it remains unclear how the administration’s RIF and budget cuts will impact this program and the ability of the FDA to provide guidance and review our product candidates in a timely manner. For example, while the FDA RIF did not reportedly specifically target FDA reviewers, many operations, administrative and policy staff that help support such reviews were affected and those losses could lead to delays in PDUFA reviews and related activities. In addition, while currently unclear, there is a risk that the RIF and budget cutbacks could threaten the integrity of the PDUFA program itself. That is because, for the FDA to obligate user fees collected under PDUFA in the first place, a certain amount of non-user fee appropriations must be spent on the process for the review of applications plus certain other costs during the same fiscal year.
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There is also substantial uncertainty as to how regulatory reform measures being implemented by the Trump Administration across the government will impact the FDA and other federal agencies with jurisdiction over our activities. For example, since taking office, the President has issued a number of executive orders that could have a significant impact on the manner in which the FDA conducts its operations and engages in regulatory and oversight activities. These include E.O. 14192, “Unleashing Prosperity Through Deregulation,” January 31, 2025; E.O. 14212, “Establishing the President’s Make America Healthy Again Commission,” February 13, 2025; and E.O. 14219, Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency” Deregulatory Initiative,” February 21, 2025. If these or other orders or executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
Similarly, actions by the U.S. government have significantly disrupted the operations of U.S. government agencies such as the National Institutes of Health, National Science Foundation, Centers for Disease Control and Prevention, and FDA, which have traditionally provided funding for basic research, research and development, and clinical testing. These U.S. government actions have included, among other things, suspending, terminating and withholding of disbursements of funds owed under ongoing contracts, grants, and other financial assistance agreements; declining to continue multi-year research projects for additional annual budget periods; canceling or delaying solicitations for new contract, grant and other financial assistance awards; canceling or delaying proposal evaluation processes and issuance of such new awards; substantially reducing federal agency staff responsible for managing contract and financial assistance programs; eliminating agency information and resources for facilitating research activity; delaying or terminating federal agency procedures for authorizing international transactions; initiating aggressive enforcement actions that may disrupt the operations of major research universities that are significant contributors to life sciences research in the U.S., and threatening access to federal agency contracts and other funding awards based on companies’ otherwise lawful corporate policies and choice of counsel. These U.S. government actions could, directly or indirectly, significantly disrupt, delay, prevent, or increase the costs of our research and product commercialization programs, including our ability to develop new product candidates, conduct clinical trials, implement research collaborations with other companies or institutions, and obtain approvals to market and sell new products.
In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions and could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
At the same time, disruptions at the FDA and other government agencies may result from public health events similar to the COVID-19 pandemic. For example, during the pandemic, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. In the event of a similar public health emergency in the future, the FDA may not be able to continue its current pace and review timelines could be extended. Regulatory authorities outside the United States facing similar circumstances may adopt similar restrictions or other policy measures in response to a similar public health emergency and may also experience delays in their regulatory activities.
Accordingly, if any of the foregoing developments and others impact the ability of the FDA to provide us with guidance regarding our clinical development programs or delay the agency’s review and processing of our regulatory submissions, including INDs and new drug applications or biologics license applications, our business would be negatively impacted. Further, any future government shutdown could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
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Changes in patent law in the United States or in other countries could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Our patent rights may be affected by developments or uncertainty in U.S. or ex-U.S. patent statutes, patent case laws in USPTO rules and regulations or in the rules and regulations of ex-U.S. patent offices. There are a number of changes to the U.S. patent laws that may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, in September 2011, the AIA, was signed into law. The AIA includes provisions that affect the way patent applications are prosecuted and affect patent litigation. In particular, under the AIA, the United States transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application is entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and may become involved in post-grant proceedings including opposition, derivation, reexamination, inter partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position. This could have a negative impact on some of our intellectual property and could increase uncertainties surrounding obtaining and enforcement or defense of our issued patents.
In addition, Congress may pass patent reform legislation that is unfavorable to us. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents we might obtain in the future. Similarly, statutory or judicial changes to the patent laws of other countries may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and international legislative bodies. Those changes may materially affect the patents and patent applications of our licensors, our existing or future patents and patent applications and our ability to obtain additional patents in the future.
Additionally, recent reforms and changes at government agencies of the United States and those of non-U.S. jurisdictions could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications, and the maintenance, enforcement, or defense of our issued patents. For example, the ability of the USPTO and other applicable patent authorities to properly administer their functions is highly dependent on the levels of funding available to the agency and their ability to retain key personnel and fill key leadership appointments, among various factors. Termination of employees or delays in replacing or hiring for key positions could significantly impact the ability of the USPTO and other applicable patent authorities to fulfill their functions and could greatly impact our ability to timely and adequately prosecute or maintain our patent applications, and our ability to timely and adequately maintain, enforce, or defend our issued patents.
Changes in and uncertainty surrounding U.S. trade policy could have a material adverse impact on our business, financial condition and results of operations.
The Trump Administration has recently imposed a series of tariffs on U.S. trading partners. On April 2, 2025, the President issued an Executive Order announcing a “baseline” reciprocal tariff of 10% on all U.S. trading partners effective April 5, 2025, and higher individualized reciprocal tariffs on 57 countries (with certain product exemptions for pharmaceutical-related products, among others). Previously, the administration had imposed a 25% tariff on Canada and Mexico for goods not covered by the United States-Mexico-Canada Agreement (USMCA), and tariffs equaling 20% on China. In response, several countries threatened retaliatory measures, including Canada and China, which then imposed retaliatory tariffs. Prior to when the country-specific reciprocal tariffs were scheduled to take effect, the administration delayed the effective date of such tariffs for all countries except China. The 10% baseline reciprocal tariff on all countries remains in effect, in addition to the tariffs on China, Canada and Mexico. Sustained uncertainty about, or the further escalation of, trade and political tensions between the United States and China could result in a disadvantageous research and manufacturing environment in China, particularly for U.S. based companies, including retaliatory restrictions that hinder or potentially inhibit our ability to rely on contract development and manufacturing organizations and other service providers that operate in China.
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Separately, on April 16, 2025, the U.S. Department of Commerce announced an investigation under Section 232 of the Trade Expansion Act of 1962 into imports of pharmaceuticals and pharmaceutical ingredients, including finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients, and key starting materials, and derivative products of those items. The investigation will examine the impact of these imports on U.S. national security culminating in a decision by the President whether to take action to remedy any identified threats, including by imposing additional tariffs. The statute provides that the Commerce Department report must be completed within 270 days of initiation of the investigation and that the President must decide whether to act within 90 days of receiving the report.
As a result of changes in tariffs that have been announced and/or implemented, and the underlying uncertainty currently surrounding international trade, we could experience a negative impact to our costs of materials as a result of any new tariff policies or trade restrictions. If we are unable to obtain necessary raw materials or product components in sufficient quantity and in a timely manner due to disruptions in the global supply chain caused by macroeconomic events and conditions, the development, testing and clinical trials of our product candidates may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business. We cannot yet predict the effect of the recently imposed U.S. tariffs on imports, or the extent to which other countries will impose quotas, duties, tariffs, taxes or other similar restrictions upon imports or exports in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2025,
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Item 6. Exhibits.
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
Form |
Date |
Number |
Filed Herewith |
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3.1 |
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8-K |
2/9/2021 |
3.1 |
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3.2 |
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8-K |
10/10/2023 |
3.1 |
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4.1 |
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S-1/A |
2/1/2021 |
4.2 |
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4.2 |
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8-K |
8/16/2022 |
4.1 |
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4.3 |
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8-K |
9/12/2024 |
4.1 |
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4.4 |
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S-1 |
1/15/2021 |
10.1 |
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10.1 |
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Consulting Agreement, dated February 1, 2025, by and between the Registrant and Mark Vignola. |
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X |
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10.2 |
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Employment Agreement, dated February 22, 2025, by and between the Registrant and Andrew Gengos. |
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X |
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31.1 |
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X |
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31.2 |
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X |
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32.1^ |
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X |
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32.2^ |
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X |
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101.INS |
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Inline XBRL Instance Document |
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X |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
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X |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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X |
# |
Indicates management contract or compensatory plan. |
^ |
The certification that accompanies this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is not deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TERNS PHARMACEUTICALS, INC. |
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Date: May 8, 2025 |
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By: |
/s/Amy Burroughs |
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Amy Burroughs |
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Chief Executive Officer and Director (Principal Executive Officer) |
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Date: May 8, 2025 |
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By: |
/s/ Andrew Gengos |
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Andrew Gengos |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
32