Tempest Therapeutics(TPST) - 2020 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Unaudited interim financials for H1 2020 report a $22.7 million net loss, reduced cash, and a strategic pivot to MLE-301 development Consolidated Balance Sheets Total assets decreased to $57.1 million by June 30, 2020, primarily due to a reduction in cash and cash equivalents Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $50,312 | $62,478 | | Total current assets | $54,072 | $71,132 | | Total assets | $57,132 | $74,970 | | Total current liabilities | $10,086 | $12,520 | | Total liabilities | $12,188 | $15,099 | | Total stockholders' equity | $44,944 | $59,871 | Consolidated Statements of Operations and Comprehensive Loss Net loss for Q2 2020 was $10.7 million, and $22.7 million for H1 2020, primarily due to increased R&D expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $6,466 | $5,981 | $14,006 | $12,185 | | General and administrative | $4,138 | $4,179 | $8,733 | $8,632 | | Loss from operations | $10,604 | $10,160 | $22,739 | $20,817 | | Net loss | $(10,672) | $(9,871) | $(22,670) | $(20,237) | | Net loss per share | $(0.56) | $(0.74) | $(1.21) | $(1.51) | Consolidated Statements of Cash Flows Net cash used in operations for H1 2020 was $18.0 million, with a $12.5 million decrease in total cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,030) | $(21,174) | | Net cash (used in) provided by investing activities | $(26) | $4,108 | | Net cash provided by (used in) financing activities | $5,513 | $(38) | | Net decrease in cash, cash equivalents and restricted cash | $(12,495) | $(17,139) | | Cash, cash equivalents and restricted cash at end of period | $51,017 | $56,631 | Notes to Unaudited Interim Consolidated Financial Statements Notes detail program discontinuations, associated $3.1 million closeout costs and $1.1 million termination benefits, and a $51.0 million cash position - The company discontinued the development of livoletide for PWS in April 2020, recording $3.1 million in associated costs in Q2 2020[22] - Following the PWS program discontinuation, the company eliminated approximately 30% of its workforce, resulting in $1.1 million in one-time termination benefits in Q2 2020[23] - In June 2020, the company ceased investing in the development of nevanimibe for CAH based on an interim data review[24] - As of June 30, 2020, the company had $51.0 million in cash, cash equivalents, and restricted cash, which management believes is sufficient to fund operations for at least 12 months[27][31] - In March 2020, the company sold 719,400 shares of common stock under its "at-the-market" (ATM) equity distribution agreement for net proceeds of approximately $5.7 million[30] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to MLE-301, increased R&D expenses, and a $51.0 million cash position projected to fund operations into 2022 Overview and COVID-19 Update The company refocused on MLE-301 development with a Phase 1 trial planned for Q3 2020, initiated a strategic review, and monitors COVID-19 impacts - The company's primary focus is now on developing MLE-301 for vasomotor symptoms (VMS) in menopausal women, with a Phase 1 trial expected to start in Q3 2020[78][79] - Development of livoletide for PWS was discontinued in April 2020, and investment in nevanimibe for CAH ceased in June 2020[80][82] - The company has engaged SVB Leerink to support a strategic review process to maximize stockholder value[84] - The COVID-19 pandemic is being closely monitored, but the company expects to have an adequate supply of MLE-301 for its planned Phase 1 trial[86][87] Results of Operations R&D expenses increased to $6.5 million in Q2 2020 and $14.0 million in H1 2020, driven by MLE-301 and closeout costs Comparison of Operating Results (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $6,466 | $5,981 | $14,006 | $12,185 | | General and administrative | $4,138 | $4,179 | $8,733 | $8,632 | | Net loss | $(10,672) | $(9,871) | $(22,670) | $(20,237) | - The increase in Q2 2020 R&D expense was driven by a $0.5 million increase in preclinical/clinical costs (mainly for MLE-301) and a $0.3 million increase in compensation due to severance, partially offset by a $0.2 million decrease in stock-based compensation[100][101][102] - The increase in H1 2020 R&D expense was primarily due to a $1.9 million rise in preclinical/clinical development costs related to MLE-301 and livoletide program closeout activities[107][110] Liquidity and Capital Resources The company holds $51.0 million in cash, projected to fund operations into 2022, after using $18.0 million in H1 2020 operations - The company had cash, cash equivalents, and restricted cash of $51.0 million as of June 30, 2020[119] - Management projects the current cash position is sufficient to fund operations into 2022, based on current plans[90][119] - In March 2020, the company sold 719,400 shares under its ATM agreement for net proceeds of approximately $5.7 million[118] - Net cash used in operating activities for the first six months of 2020 was $18.0 million, compared to $21.2 million for the same period in 2019[111][112] Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures as it qualifies as a smaller reporting company - The company is not required to provide disclosures about market risk as it qualifies as a smaller reporting company[127] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal controls - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2020[128] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[129] PART II – OTHER INFORMATION Legal Proceedings The company is defending against shareholder derivative and class action lawsuits inherited from OvaScience, unable to estimate potential losses - The company is defending against a purported shareholder derivative action (Cima v. Dipp) and a shareholder class action lawsuit (Dahhan v. OvaScience, Inc.) related to the former operations of OvaScience[132][133] - A third shareholder derivative complaint (Chiu v. Dipp) is currently stayed pending the resolution of the Dahhan Action[134] - The company believes the complaints are without merit but cannot estimate potential losses at this time[132][133][134] Risk Factors Significant risks include operating losses, capital needs, dependence on MLE-301, COVID-19 impacts, intense competition, and reliance on third parties - The company has a history of significant operating losses ($231.3 million accumulated deficit as of June 30, 2020) and expects to incur substantial losses for the foreseeable future[137] - Future success is highly dependent on the successful clinical development, regulatory approval, and commercialization of MLE-301, as previous lead candidates have been discontinued[155][156] - The COVID-19 pandemic poses a material risk to business operations, clinical trial timelines, and the ability to access capital[305][308] - The company relies on third-party CMOs for manufacturing and CROs for clinical trials, making it dependent on their performance and compliance with regulations like cGMP and GCP[291][300] - The company faces substantial competition from major pharmaceutical and biotech companies with greater resources, such as Astellas and KaNDy Therapeutics in the VMS space[177][179] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold, nor were any issuer purchases made during Q2 2020 - There were no sales of unregistered securities during the three months ended June 30, 2020[346] Defaults Upon Senior Securities This item is not applicable as the company has no defaults upon senior securities to report - Not applicable[348] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[349] Other Information No other information is reported for this period - Not applicable[350] Exhibits Exhibits include amendments to equity incentive plans and CEO/CFO certifications required by Sarbanes-Oxley - The report includes amendments to the 2012 and 2019 Equity Incentive Plans[352] - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are filed as exhibits[352]