10-Q
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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 September 30, 2023

OR

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.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 3, 2023, the registrant had 61,794,522 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 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 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 location, timing of commencement and data reporting of future nonclinical studies and clinical trials and research and development programs;
our clinical and regulatory development plans;
our expectations regarding the product profile, relative benefits and clinical utility of our product candidates;
our expectations regarding the potential market size and size of the potential patient populations for our product candidates and any future product candidates if approved for commercial use;
our ability to acquire, discover, develop and advance our product 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 product candidates;
our commercialization, marketing and manufacturing capabilities and expectations;
our intentions with respect to the commercialization of our product candidates;
the pricing and reimbursement of our product candidates, if approved;
the implementation of our business model and strategic plans for our business and product 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 product 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 and the timing of the sufficiency of our capital resources;
our future financial performance; and
developments and projections relating to our competitors and our industry, including competing products.

 

i


 

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 Stockholders’ Equity

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

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

29

 

Signatures

30

 

 

 

 

 

 

 

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)

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,893

 

 

$

143,235

 

Marketable securities

 

 

228,707

 

 

 

139,879

 

Prepaid expenses and other current assets

 

 

3,855

 

 

 

2,071

 

Total current assets

 

 

270,455

 

 

 

285,185

 

Property and equipment, net

 

 

526

 

 

 

757

 

Operating lease assets

 

 

671

 

 

 

1,047

 

Other assets

 

 

35

 

 

 

37

 

Total assets

 

$

271,687

 

 

$

287,026

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,325

 

 

$

1,645

 

Accrued expenses and other current liabilities

 

 

8,055

 

 

 

6,162

 

Current portion of operating lease liabilities

 

 

707

 

 

 

661

 

Total current liabilities

 

 

12,087

 

 

 

8,468

 

Taxes payable, non-current

 

 

1,112

 

 

 

1,071

 

Operating lease liabilities, non-current

 

 

63

 

 

 

544

 

Total liabilities

 

 

13,262

 

 

 

10,083

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares
   authorized at September 30, 2023 and December 31, 2022;
   
61,785,216 and 53,723,171 shares issued and outstanding at
   September 30, 2023 and December 31, 2022, respectively

 

 

6

 

 

 

5

 

Additional paid-in capital

 

 

570,864

 

 

 

520,178

 

Accumulated other comprehensive loss

 

 

(836

)

 

 

(822

)

Accumulated deficit

 

 

(311,609

)

 

 

(242,418

)

Total stockholders’ equity

 

 

258,425

 

 

 

276,943

 

Total liabilities and stockholders’ equity

 

$

271,687

 

 

$

287,026

 

 

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)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

14,831

 

 

$

12,161

 

 

$

46,038

 

 

$

28,959

 

General and administrative

 

 

18,353

 

 

 

5,131

 

 

 

32,462

 

 

 

16,242

 

Total operating expenses

 

 

33,184

 

 

 

17,292

 

 

 

78,500

 

 

 

45,201

 

Loss from operations

 

 

(33,184

)

 

 

(17,292

)

 

 

(78,500

)

 

 

(45,201

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3,480

 

 

 

499

 

 

 

9,568

 

 

 

782

 

Other expense, net

 

 

(5

)

 

 

(14

)

 

 

(69

)

 

 

(64

)

Total other income, net

 

 

3,475

 

 

 

485

 

 

 

9,499

 

 

 

718

 

Loss before income taxes

 

 

(29,709

)

 

 

(16,807

)

 

 

(69,001

)

 

 

(44,483

)

Income tax expense

 

 

(58

)

 

 

(13

)

 

 

(190

)

 

 

(40

)

Net loss

 

$

(29,767

)

 

$

(16,820

)

 

$

(69,191

)

 

$

(44,523

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.42

)

 

$

(0.44

)

 

$

(0.98

)

 

$

(1.50

)

Weighted average common stock outstanding, basic and diluted

 

 

71,530,180

 

 

 

38,511,655

 

 

 

70,897,320

 

 

 

29,743,579

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(29,767

)

 

$

(16,820

)

 

$

(69,191

)

 

$

(44,523

)

Unrealized (loss) gain on available-for-sale securities, net of tax

 

 

(33

)

 

 

31

 

 

 

87

 

 

 

(812

)

Foreign exchange translation adjustment, net of tax

 

 

(28

)

 

 

(138

)

 

 

(101

)

 

 

(198

)

Comprehensive loss

 

$

(29,828

)

 

$

(16,927

)

 

$

(69,205

)

 

$

(45,533

)

 

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)

 

Nine Months Ended September 30, 2023

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

53,723,171

 

 

$

5

 

 

$

520,178

 

 

$

(822

)

 

$

(242,418

)

 

$

276,943

 

Issuance of common stock in at-the-market offering

 

 

2,929,922

 

 

 

 

 

 

27,924

 

 

 

 

 

 

 

 

 

27,924

 

Vesting of restricted stock units

 

 

16,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,938

 

 

 

 

 

 

 

 

 

3,938

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

418

 

 

 

 

 

 

418

 

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,528

)

 

 

(21,528

)

Balances at March 31, 2023

 

 

56,669,596

 

 

$

5

 

 

$

552,040

 

 

$

(416

)

 

$

(263,946

)

 

$

287,683

 

Exercise of stock options

 

 

95,176

 

 

 

 

 

 

248

 

 

 

 

 

 

 

 

 

248

 

Issuance of common stock under employee stock purchase plan

 

 

114,739

 

 

 

 

 

 

241

 

 

 

 

 

 

 

 

 

241

 

Issuance of common stock in connection with exercise of pre-funded warrants

 

 

4,174,960

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

10,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,233

 

 

 

 

 

 

 

 

 

4,233

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(298

)

 

 

 

 

 

(298

)

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(61

)

 

 

 

 

 

(61

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,896

)

 

 

(17,896

)

Balances at June 30, 2023

 

 

61,065,023

 

 

$

6

 

 

$

556,761

 

 

$

(775

)

 

$

(281,842

)

 

$

274,150

 

Exercise of stock options

 

 

9,000

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

20

 

Issuance of common stock in connection with exercise of pre-funded warrants

 

 

703,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

7,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

14,083

 

 

 

 

 

 

 

 

 

14,083

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

(33

)

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

(28

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,767

)

 

 

(29,767

)

Balances at September 30, 2023

 

 

61,785,216

 

 

$

6

 

 

$

570,864

 

 

$

(836

)

 

$

(311,609

)

 

$

258,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

25,269,271

 

 

$

3

 

 

$

342,711

 

 

$

(338

)

 

$

(182,073

)

 

$

160,303

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,744

 

 

 

 

 

 

 

 

 

2,744

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(551

)

 

 

 

 

 

(551

)

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,773

)

 

 

(13,773

)

Balances at March 31, 2022

 

 

25,269,271

 

 

$

3

 

 

$

345,455

 

 

$

(896

)

 

$

(195,846

)

 

$

148,716

 

Exercise of stock options

 

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

84,558

 

 

 

 

 

 

124

 

 

 

 

 

 

 

 

 

124

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,651

 

 

 

 

 

 

 

 

 

2,651

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(292

)

 

 

 

 

 

(292

)

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

(53

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,930

)

 

 

(13,930

)

Balances at June 30, 2022

 

 

25,363,829

 

 

$

3

 

 

$

348,230

 

 

$

(1,241

)

 

$

(209,776

)

 

$

137,216

 

Issuance of common stock and pre-funded warrants, net of issuance costs of $426

 

 

12,250,000

 

 

 

1

 

 

 

60,718

 

 

 

 

 

 

 

 

 

60,719

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,686

 

 

 

 

 

 

 

 

 

2,686

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

31

 

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(138

)

 

 

 

 

 

(138

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,820

)

 

 

(16,820

)

Balances at September 30, 2022

 

 

37,613,829

 

 

$

4

 

 

$

411,634

 

 

$

(1,348

)

 

$

(226,596

)

 

$

183,694

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(69,191

)

 

$

(44,523

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

22,254

 

 

 

8,081

 

Depreciation and amortization expense

 

 

220

 

 

 

391

 

(Accretion) amortization on marketable securities

 

 

(3,530

)

 

 

647

 

Change in deferred taxes and uncertain tax positions

 

 

96

 

 

 

39

 

Amortization of operating lease assets

 

 

441

 

 

 

408

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,784

)

 

 

(2,301

)

Accounts payable

 

 

1,959

 

 

 

(251

)

Accrued expenses and other current liabilities

 

 

1,957

 

 

 

66

 

Operating lease liabilities

 

 

(496

)

 

 

(455

)

Net cash used in operating activities

 

 

(48,074

)

 

 

(37,898

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(8

)

 

 

(241

)

Purchase of investments

 

 

(270,763

)

 

 

(91,720

)

Proceeds from sales and maturities of investments

 

 

185,552

 

 

 

84,235

 

Net cash used in investing activities

 

 

(85,219

)

 

 

(7,726

)

Cash flows from financing activities:

 

 

 

 

 

 

Net proceeds from issuance of common stock in at-the-market offering

 

 

27,924

 

 

 

 

Proceeds from stock option exercises

 

 

268

 

 

 

 

Net proceeds from the issuance of common stock and pre-funded warrants

 

 

 

 

 

61,145

 

Payment of deferred offering costs

 

 

(344

)

 

 

(144

)

Proceeds from issuance of common stock under employee stock purchase plan

 

 

241

 

 

 

124

 

Net cash provided by financing activities

 

 

28,089

 

 

 

61,125

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(138

)

 

 

(223

)

Net (decrease) increase in cash and cash equivalents

 

 

(105,342

)

 

 

15,278

 

Cash and cash equivalents at beginning of period

 

 

143,235

 

 

 

47,699

 

Cash and cash equivalents at end of period