SEC Filing | Terns Pharmaceuticals, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2021


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

For the transition period from to

Commission File Number: 001-39926

Terns Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	98-1448275
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1065 East Hillsdale Blvd., Suite 100 Foster City, California	94404
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 525-5535

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	TERN	The Nasdaq Global Select Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 August 6, 2021, the registrant had 25,130,613 shares of common stock, $0.0001 par value per share, outstanding.

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 related to the global COVID-19 pandemic 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:



our expectations regarding the potential market size and size of the potential patient populations for our single-agent and combination therapy candidates and any future single-agent and combination therapy candidates if approved for commercial use;



our clinical and regulatory development plans;



our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing and availability of data from such studies;



the timing of commencement of future nonclinical studies and clinical trials and research and development programs;



our ability to acquire, discover, develop and advance single-agent and combination therapy candidates into, and successfully complete, clinical trials;



our intentions and our ability to establish collaborations and/or partnerships;



the timing or likelihood of regulatory filings and approvals for our single-agent and combination therapy candidates;



our commercialization, marketing and manufacturing capabilities and expectations;



our intentions with respect to the commercialization of our single-agent and combination therapy candidates;



the pricing and reimbursement of our single-agent and combination therapy candidates, if approved;



the potential effects of COVID-19 on our preclinical and clinical programs and business;



the implementation of our business model and strategic plans for our business and single-agent and combination therapy candidates, including additional indications which we may pursue;



the scope of protection we are able to establish, maintain, protect and enforce for intellectual property rights covering our single-agent and combination therapy candidates including the projected terms of patent protection;



estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;



our future financial performance; and



developments and projections relating to our competitors and our industry, including competing products.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Noncontrolling Interest, Convertible Preferred Stock and Stockholders’ Equity (Deficit)	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		29

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)


	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	67,589		$	74,854
Marketable securities		117,495			—
Notes receivable		—			12,718
Deferred offering costs		—			2,137
Prepaid expenses and other current assets		1,788			1,160
Total current assets		186,872			90,869
Property and equipment, net		959			1,175
Other assets		176			246
Total assets	$	188,007		$	92,290
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	1,688		$	935
Accrued expenses and other current liabilities		4,130			9,006
Loans payable		—			12,880
Total current liabilities		5,818			22,821
Deferred rent, net of current portion		193			220
Taxes payable, non-current		664			657
Total liabilities		6,675			23,698
Commitments and contingencies
Convertible preferred stock, $0.0001 par value; 10,000,000 and 188,029,084 shares authorized as of June 30, 2021 and December 31, 2020, respectively; no shares issued or outstanding as of June 30, 2021; 12,958,452 shares issued and outstanding as of December 31, 2020		—			186,033
Stockholders’ equity (deficit):
Common stock, $0.0001 par value, 150,000,000 and 299,700,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 25,130,613 and 337,508 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		3			—
Additional paid-in capital		337,493			14,598
Accumulated other comprehensive loss		(174	)		(124	)
Accumulated deficit		(155,990	)		(131,915	)
Total stockholders’ equity (deficit)		181,332			(117,441	)
Total liabilities, convertible preferred stock and stockholders’ equity	$	188,007		$	92,290

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited; in thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Operating expenses:
Research and development	$	5,961		$	7,611		$	14,696		$	14,855
General and administrative		4,857			2,486			9,418			4,665
Total operating expenses		10,818			10,097			24,114			19,520
Loss from operations		(10,818	)		(10,097	)		(24,114	)		(19,520	)
Other income:
Interest income		55			2			66			52
Other income, net		39			250			26			417
Total other income, net		94			252			92			469
Loss before income tax expense		(10,724	)		(9,845	)		(24,022	)		(19,051	)
Income tax expense		(14	)		—			(53	)		—
Net loss		(10,738	)		(9,845	)		(24,075	)		(19,051	)
Net loss attributable to non-controlling interest		—			(157	)		—			(362	)
Net loss attributable to common stockholders	$	(10,738	)	$	(9,688	)	$	(24,075	)	$	(18,689	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.43	)	$	(33.09	)	$	(1.19	)	$	(73.48	)
Weighted average common stock outstanding, basic and diluted		25,109,973			292,813			20,162,496			254,351

Other comprehensive loss:
Net loss	$	(10,738	)	$	(9,845	)	$	(24,075	)	$	(19,051	)
Unrealized gain (loss) on available-for-sale securities, net of tax		36			—			(7	)		—
Foreign exchange translation adjustment, net of tax		22			16			(43	)		(160	)
Comprehensive loss		(10,680	)		(9,829	)		(24,125	)		(19,211	)
Less: Comprehensive loss attributable to non-controlling interest		—			(157	)		—			(362	)
Comprehensive loss attributable to common stockholders	$	(10,680	)	$	(9,672	)	$	(24,125	)	$	(18,849	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Noncontrolling Interest, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited; in thousands, except share data)


Three and Six Months Ended June 30, 2021
	Non- Controlling			Series A Convertible Preferred Stock						Series B Convertible Preferred Stock						Series C Convertible Preferred Stock						Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ (Deficit)
	Interest			Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount		Capital		Loss			Deficit			Equity
Balances at December 31, 2020	$	—			2,857,142		$	30,000			2,600,645		$	68,995			7,500,665		$	87,038			337,508	$	—	$	14,598	$	(124	)	$	(131,915	)	$	(117,441	)
Conversion of preferred stock to common stock upon closing of the initial public offering		—			(2,857,142	)		(30,000	)		(2,600,645	)		(68,995	)		(7,500,665	)		(87,038	)		16,079,230		2		186,031		—			—			186,033
Sale of common stock in initial public offering, net of issuance costs of $3,339		—			—			—			—			—			—			—			8,625,000		1		133,022		—			—			133,023
Stock-based compensation expense		—			—			—			—			—			—			—			—		—		1,832		—			—			1,832
Unrealized loss on available-for-sale securities		—			—			—			—			—			—			—			—		—		—		(43	)		—			(43	)
Foreign exchange translation adjustment		—			—			—			—			—			—			—			—		—		—		(65	)		—			(65	)
Net loss		—			—			—			—			—			—			—			—		—		—		—			(13,337	)		(13,337	)
Balances at March 31, 2021	$	—			—		$	—			—		$	—			—		$	—			25,041,738	$	3	$	335,483	$	(232	)	$	(145,252	)	$	190,002
Exercise of stock options		—			—			—			—			—			—			—			17,446		—		101		—			—			101
Vesting of restricted stock		—			—			—			—			—			—			—			71,429		—		—		—			—			—
Stock-based compensation expense		—			—			—			—			—			—			—			—		—		1,909		—			—			1,909
Unrealized gain on available-for-sale securities		—			—			—			—			—			—			—			—		—		—		36			—			36
Foreign exchange translation adjustment		—			—			—			—			—			—			—			—		—		—		22			—			22
Net loss		—			—			—			—			—			—			—			—		—		—		—			(10,738	)		(10,738	)
Balances at June 30, 2021	$	—			—		$	—			—		$	—			—		$	—			25,130,613	$	3	$	337,493	$	(174	)	$	(155,990	)	$	181,332

Three and Six Months Ended June 30, 2020
	Non- Controlling			Series A Convertible Preferred Stock						Series B Convertible Preferred Stock						Series C Convertible Preferred Stock						Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Interest			Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount		Capital		Loss			Deficit			Deficit
Balances at December 31, 2019	$	14,117			2,089,285		$	21,938			2,384,195		$	73,029			—		$	—			215,890	$	—	$	1,208	$	(106	)	$	(91,862	)	$	(90,760	)
Stock-based compensation expense		—			—			—			—			—			—			—			—		—		202		—			—			202
Foreign exchange translation adjustment		—			—			—			—			—			—			—			—		—		—		(176	)		—			(176	)
Net loss		(205	)		—			—			—			—			—			—			—		—		—		—			(9,001	)		(9,001	)
Balances at March 31, 2020	$	13,912			2,089,285		$	21,938			2,384,195		$	73,029			—		$	—			215,890	$	—	$	1,410	$	(282	)	$	(100,863	)	$	(99,735	)
Vesting of restricted stock		—			—			—			—			—			—			—			83,333		—		23		—			—			23
Stock-based compensation expense		—			—			—			—			—			—			—			—		—		190		—			—			190
Capital discount on issuance of loans payable		—			—			—