Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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 oncology company reimagining known biology to deliver high impact medicines. Our portfolio consists of 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, and TERN-501 - were internally discovered. Additionally, we have the TERN-800 series of small-molecule glucose-dependent insulinotropic polypeptide receptor (GIPR) modulators for obesity and have nominated our first development candidate, TERN-801. In October 2025, we announced that we will not advance TERN-601 or invest in other metabolic assets, while reiterating our focus on rapidly advancing TERN-701.

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. TERN-701 is currently being evaluated in the CARDINAL trial (NCT06163430), a global multi-center dose escalation and dose-expansion Phase 1 clinical trial to assess safety, tolerability, and efficacy in patients with previously treated chronic phase (CP) CML. The dose escalation portion of CARDINAL completed in January 2025 with no dose limiting toxicities (DLTs) observed up to the maximum dose of 500 mg once daily (QD). Terns initiated the dose expansion of the trial in April 2025, with patients randomized to one of two dose cohorts (320 mg or 500 mg QD) with up to 40 patients per arm. In November 2025, Terns announced that an abstract with updated data from the CARDINAL trial has been selected for oral presentation at the 67th ASH Annual Meeting and Exposition. As of the June 30, 2025 cutoff date, 55 patients were enrolled. Of 32 efficacy-evaluable patients, the overall (cumulative) major molecular response (MMR) rate was 75% (24/32) by 24 weeks, with 64% (14/22) achieving MMR and 100% (10/10) maintaining MMR. Overall (cumulative) MMR by 24 weeks in difficult to treat patient subgroups was 69% (11/16) in patients with lack of efficacy to last tyrosine kinase inhibitor (TKI), 60% (6/10) in patients who had prior asciminib, and 67% (8/12) in patients with prior asciminib / ponatinib / investigational TKI. No patients had lost MMR at the time of data cutoff. Enrolled patients had heavily pretreated, refractory disease, with a median of 3 prior TKIs; 35% had ≥4 prior TKIs; 56% and 44% had baseline BCR::ABL1 >1% and >10%, respectively; 64% discontinued their last TKI due to lack of efficacy; 36% had prior asciminib treatment; 25% had prior ponatinib and/or an investigational TKI (olverembatinib / ELVN-001); and 13% had BCR::ABL1 mutations (9% with T315I and 4% with F317L.) An encouraging safety profile was observed, with 87% (48/55) patients remaining on treatment as of the data cut-off and discontinuations due to disease progression (n=4), adverse events (n=1), and consent withdrawal/lost to follow up (n=2). No DLTs were observed in dose escalation and a maximum tolerated dose was not reached. The majority (74%) of treatment-emergent adverse events (TEAEs) were low grade with no apparent dose relationship. The most common TEAEs were diarrhea (22%), headache (18%) and nausea (16%), all Grade 1 or 2; and Grade 3 or higher TEAEs were all less than 10%, most commonly neutropenia (7%) and thrombocytopenia (4%). TERN-701 exposures were approximately dose proportional across the dose range. Overall, TERN-701 achieved consistently high overall (cumulative) MMR rates in key, difficult to treat patient subgroups while maintaining an encouraging safety profile. These emerging data reinforce our belief that TERN-701 has the potential to be a best-in-disease therapy, with broad opportunity across all CML treatment lines. A more expansive and updated dataset from the CARDINAL trial will be presented at the ASH Annual Meeting in December 2025. 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 QD for obesity. In October 2025, we announced topline 12-week data from our Phase 2 FALCON trial evaluating TERN-601 in obesity. Results showed a maximum placebo-adjusted weight loss of 4.6% with 12% treatment discontinuation due to adverse events. Additionally, asymptomatic, reversible grade 3 liver enzyme elevations occurred in three participants during the post-treatment follow-up period, two of which were deemed drug related. Based on these results, we announced that we will not advance TERN-601 or invest in other metabolic assets, including TERN-501 or the TERN-800 series. Detailed results from the Phase 2 FALCON trial may be published in the future.

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 to hepatic steatosis, increasing fat oxidation, and improving fibrosis and serum lipid parameters such as LDL cholesterol and triglycerides. 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. We are seeking a strategic partner to advance the TERN-501 program.

TERN-800 is our small molecule GIPR modulator series for obesity, which we believe has the potential for combination with GLP-1 receptor agonists. We have prioritized our discovery efforts towards GIPR antagonism and have nominated our first development candidate, TERN-801. We are seeking a strategic partner to advance TERN-801.

The development and commercialization of therapeutics for obesity is highly competitive. In addition to currently marketed drugs, there are numerous product candidates in various stages of clinical development by third parties with which our metabolic programs may compete. We anticipate that potential collaborators, licensors or other strategic partners for TERN-501 or TERN-801 will evaluate a number of factors in relation to competing drugs on the market or in development, including, among others, efficacy, safety and tolerability results from clinical trials, dosing and administration, expected timing to complete clinical development and obtain marketing approval, intellectual property, resources required to develop, market and promote an approved drug and potential availability of coverage and reimbursement from government and third-party payors. As a result, even if we obtain favorable results from our studies, establishing a collaboration, license arrangement or other strategic partnership for our metabolic programs on favorable terms may be challenging.

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 and nine months ended September 30, 2025 and 2024:

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.

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 and nine months ended September 30, 2025 and 2024:

The increase in research and development expenses for the three months ended September 30, 2025, compared to the same period in 2024, was primarily due to a $4.1 million increase in clinical and preclinical program expenses, and a $0.7 million increase in personnel-related expenses.

The increase in research and development expenses for the nine months ended September 30, 2025, compared to the same period in 2024, was primarily due to a $9.4 million increase in clinical and preclinical program expenses, partially offset by a $2.1 million decrease in personnel-related expenses and a $0.3 million decrease primarily due to lower allocated overhead, facility-related and depreciation expenses to research and development expenses.

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 decrease in general and administrative expenses for the three months ended September 30, 2025, compared to the same period in 2024, was primarily due to a $2.7 million decrease in personnel-related expenses partially offset by a $0.6 million increase in other professional services consulting.

The decrease in general and administrative expenses for the nine months ended September 30, 2025, compared to the same period in 2024, was primarily due to a $2.5 million decrease in personnel-related expenses, partially offset by a $1.9 million increase in other professional services consulting, and a $0.3 million increase primarily due to lower allocated overhead, facility-related and depreciation expenses to research and development expenses.

Interest income

Interest income primarily consists of interest income on our cash equivalents and marketable securities.

Interest income for the three months ended September 30, 2025 and 2024 was $3.1 million in each respective period.

Interest income for the nine months ended September 30, 2025 was $10.1 million, compared to $9.1 million for the same period in 2024. The increase in interest income was primarily due to an increase in the average balance of cash, cash equivalents and marketable securities.

Other expense, net

Other expense, net for the three and nine months ended September 30, 2025 and 2024 was less than $0.1 million in each respective period.

Income tax expense

Income tax expense for the three months ended September 30, 2025 and 2024 was less than $0.1 million in each respective period.

Income tax expense for the nine months ended September 30, 2025 and 2024 was $0.2 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. However, we continue to anticipate that our operating expenses 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

Since our initial public offering in February 2021, we have primarily funded our operations through proceeds from the sale of shares of our common stock and pre-funded warrants to purchase our common stock. We have devoted substantially all 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.

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 September 30, 2025, we had an accumulated deficit of approximately $494.1 million and cash, cash equivalents and marketable securities of $295.6 million. For the nine months ended September 30, 2025, we had a net loss of approximately $72.6 million and negative cash flows from operations of approximately $63.1 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 TD Securities (USA) LLC, as successor to Cowen and Company, LLC, 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 September 30, 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:

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 interests 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 nine months ended September 30, 2025 was $63.1 million and consisted primarily of our net loss of $72.6 million, a $0.9 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 $10.0 million of stock-based compensation, $0.3 million in amortization of right-of-use assets and $0.1 million of depreciation.

Net cash used in operating activities during the nine months ended September 30, 2024 was $55.4 million and consisted primarily of our net loss of $67.1 million, as well as a non-cash adjustment of $1.9 million due to net accretion on marketable securities. This was partially offset by non-cash adjustments of $12.6 million of stock-based compensation, $0.4 million in amortization of operating lease assets, $0.3 million of depreciation and a $0.1 million increase from changes in operating assets and liabilities primarily attributable to the timing of expenses incurred and payments issued.

Investing activities

Net cash provided by investing activities during the nine months ended September 30, 2025 was $52.0 million and consisted primarily of proceeds from the maturity of marketable securities of $77.0 million, partially offset by $25.0 million in purchases of marketable securities.

Net cash provided by investing activities during the nine months ended September 30, 2024 was $81.9 million and consisted primarily of proceeds from the maturity of marketable securities of $132.6 million, partially offset by $50.6 million in purchases of marketable securities.

Financing activities

Net cash provided by financing activities during the nine months ended September 30, 2025 was $0.4 million and consisted of $0.3 million in proceeds from the issuance of common stock under our employee stock purchase plan and $0.1 million in proceeds from stock option exercises.

Net cash provided by financing activities during the nine months ended September 30, 2024 was $163.7 million and consisted of $162.3 million in proceeds from the issuance of common stock and pre-funded warrants in connection with the September 2024 underwritten public offering, $1.1 million in proceeds from stock option exercises and $0.4 million in proceeds from the issuance of common stock under our employee stock purchase plan. This was partially offset by $0.1 million in payment of deferred offering costs.

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.