Terns Pharmaceuticals(TERN) - 2025 Q4 - Annual Report

Merger and Acquisition Risks - The pending merger with Merck Sharp & Dohme LLC involves a tender offer to purchase all outstanding shares at a price of $53.00 per share[204]. - If the merger is not completed, the company may face a significant decline in stock price and could incur a termination fee of $235 million[207][217]. - The company has incurred substantial costs related to the pending transaction, which will continue regardless of whether the merger is completed[218]. - The merger agreement restricts the company's ability to pursue alternative transactions, potentially deterring other acquisition proposals[219]. - The completion of the merger would result in stockholders receiving cash for their shares, eliminating their opportunity to benefit from future growth[222]. - The announcement of the merger may disrupt business operations and relationships with third parties, adversely affecting financial results[210]. - Executive officers and directors may have interests in the merger that differ from those of stockholders, potentially influencing their support for the transaction[221]. Financial Performance and Projections - The net loss attributable to common stockholders for the years ended December 31, 2025 and 2024 was approximately $96.2 million and $88.9 million, respectively, with an accumulated deficit of $517.7 million as of December 31, 2025[224]. - The company anticipates continuing to incur significant losses for the foreseeable future, complicating assessments of its viability[223]. - The company expects to continue incurring losses for the foreseeable future, particularly as it develops its lead candidate, TERN-701, and conducts clinical trials[224]. - As of December 31, 2025, the company had capital resources of $1,019.0 million, which are expected to fund planned operating expenses into 2031[226]. - The company will require substantial additional funding to finance operations and product development, with potential delays or limitations if funding is not secured[225]. Product Development and Regulatory Challenges - The success of the company heavily depends on the successful development, regulatory approval, and commercialization of TERN-701, which is still in early clinical development[234]. - The company has not previously submitted a new drug application (NDA) to the FDA, and the approval process requires extensive preclinical and clinical data[235]. - The company may face significant delays or inability to obtain regulatory approvals or commercialize TERN-701 or other product candidates due to various factors beyond its control[237]. - Clinical drug development is lengthy and expensive, with uncertain timelines and outcomes, and previous successes do not guarantee future results[239]. - The company faces significant challenges in conducting clinical trials, including regulatory disagreements and the need for extensive negotiations with contract research organizations[241]. - Delays in clinical trial completion could harm the commercial prospects of the company's product candidates and increase costs[243]. - The company must adapt to new regulatory requirements, such as the Diversity Action Plan mandated by the Food and Drug Omnibus Reform Act, which may impact clinical development[244]. - Patient enrollment difficulties could adversely affect clinical trial timelines and outcomes, potentially delaying product development[245]. Competition and Market Dynamics - The company competes with numerous pharmaceutical and biotechnology firms, many of which have greater resources and established market positions[249]. - The company may face significant competition from alternative treatments that could be available at lower prices or with better efficacy[254]. - Regulatory approval processes are lengthy and uncertain, with a small percentage of drugs successfully completing these processes[267]. - Regulatory approval does not guarantee market acceptance, and various factors such as physician preference and reimbursement will influence the commercial success of product candidates[335]. - The company faces challenges in achieving broad market acceptance for its product candidates, which is essential for commercial success[334]. Intellectual Property Risks - The company operates in a highly competitive industry with extensive intellectual property litigation risks, which could impact its ability to commercialize products[357]. - The company may face legal proceedings related to intellectual property, which could divert management attention and financial resources[358]. - There is uncertainty regarding third-party patents that could block the commercialization of the company's product candidates[359]. - The patent application process is complex and may not guarantee the issuance of patents, affecting the company's competitive position[370]. - The enforcement of intellectual property rights may not be successful, and third parties may independently develop competitive technologies[375]. - The company may incur significant expenses from litigation related to intellectual property claims, impacting financial resources[365]. - The outcome of any future litigation is unpredictable and could materially affect the company's business and financial condition[366]. - The company seeks to maintain a competitive position through patents and other intellectual property rights, but these protections may not be adequate[369]. Regulatory Compliance and Legal Risks - Compliance with healthcare regulatory laws may expose the company to penalties and could constrain business operations and financial arrangements[337]. - The company faces potential penalties for non-compliance with various healthcare laws, which could adversely affect its financial condition and operations[339]. - Future healthcare legislation may increase the difficulty and cost of obtaining marketing approval and could affect pricing strategies[343]. - The Inflation Reduction Act requires manufacturers to engage in price negotiations with Medicare, which could impact future revenue[348]. - The company may be subject to significant civil monetary penalties for errors in reporting product and pricing data if it participates in governmental pricing programs[342]. Manufacturing and Supply Chain Risks - The company relies on third parties for manufacturing clinical drug supplies, and any failure by these parties could halt or delay commercialization efforts[312]. - Changes in manufacturing partners may require extensive effort and could lead to delays in drug development[315]. - The company relies on third-party suppliers for raw materials necessary for clinical trials, with potential supply disruptions impacting product candidate development and commercialization[317]. - There is a risk that manufacturing capacity for product candidates may not be increased in a timely or cost-effective manner, potentially delaying clinical trials and marketing approval[318]. - The company has not entered into long-term agreements with contract manufacturers, which may adversely affect the supply of finished drug products[319]. Collaboration and Partnership Risks - The company depends on third parties to conduct preclinical and clinical trials, and any failure by these parties to meet regulatory standards could delay regulatory approval[320]. - Collaborations with third parties for product development, such as TERN-701, are crucial, and failure in these collaborations could adversely affect commercialization efforts[323].