Terns Pharmaceuticals Inc

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, and those discussed in Part II, "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2024 maand in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 may not be the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Our Companys business may be materially affected by the imposition of duties, tariffs and other trade barriers, including retaliatory countermeasures, implemented by the U.S. and other governments.

Recently, there have been significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, trade policies and tariffs affecting products from outside of the U.S. While the timing regarding the implementation, if any, of such changes is uncertain, any implementation of such changes could increase uncertainties and associated risks relating to the supply of pharmaceutical ingredients and/or products given our operations within China, Canada and other international jurisdictions, as well as supplying global trials conducted in China, Europe and other countries.

Disruptions at the FDA and other government agencies from funding cuts, personnel losses, regulatory reform, government shutdowns and other developments could hinder our ability to obtain guidance from the FDA regarding our clinical development programs and develop and secure approval of our product candidates in a timely manner, which would negatively impact our business.

The FDA and comparable regulatory agencies in foreign jurisdictions, such as the European Medicines Agency and Committee for Medicinal Products for Human Use, play an important role in the development of our product candidates by providing guidance on our clinical development programs and reviewing our regulatory submissions, including investigational new drug applications (INDs), requests for special designations and marketing applications. If these oversight and review activities are disrupted, then correspondingly our ability to develop and secure timely approval of our product candidates could be impacted in a negative manner.

For example, the recent loss of FDA leadership and personnel could lead to disruptions and delays in FDA guidance, ror review and approval of our product candidates. Pursuant to President Trump's E.O. 14210, Implementing the Presidents Department of Government Efficiency Workforce Optimization Initiative, the Secretary of the Department of Health and Human Services (HHS) announced on March 27, 2025, a reorganization and Rreduction in Fforce (RIF), across the Department HHS of approximately 20,000 employees (82,000 to 62,000), with FDAs workforce tof approximately 20,000 to decrease by 3,500 full-time employees. Shorubsequently, thereafter, FDA indicated thousands at roughly a quarter of ethose employees at the FDA were fired on April 1who received reduction in force notices had been reinstated. On July 14, 2025., following litigation reaching the U.S. Subsequentlypreme Court, there have administration been reports from gan to carry out these layoffs across HHS, including the preliminary budget memorandum for HHS thatFDA. There are also ongoing deliberations within the administration will propose an additionand Congress over potentially substantial 30%proposed cut ins to the overall budget for the Department, with a reduction of $700 million in fHHS and funding atof the FDA ($7.2 billion to $6.5 billion) for the 2026 federal fiscal year.

Further, while the FDAs review of marketing applications and other activities for new drugs and biologics is largely funded through the user fee program established under the Prescription Drug User Fee Act (PDUFA), it remains unclear how the administrations RIF reduction in force and budget cuts will impact this program and the ability of the FDA to provide guidance and review our product candidates in a timely manner. For example, while the FDA RIF reduction in force did not reportedly specifically target FDA reviewers, many operations, administrative and policy staff that help support such reviews were affected and those losses could lead to delays in PDUFA reviews and related activities. As of July 15, 2025, there has been at least one report in which the FDA failed to meet a PDUFA goal date for approval of a New Drug Application (NDA) due to heavy workload and limited resources. In addition, while currently unclear, there is a risk that the RIF reduction in force and budget cutbacks could threaten the integrity of the PDUFA program itself. That is because, for the FDA to obligate user fees collected under PDUFA in the first place, a certain amount of non-user fee appropriations must be spent on the process for the review of applications plus certain other costs during the same fiscal year.

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There is also substantial uncertainty as to how regulatory reform measures being implemented by the Trump Administration across the government will impact the FDA and other federal agencies with jurisdiction over our activities. For example, since taking office, the President has issued a number of executive orders that could have a significant impact on the manner in which the FDA conducts its operations and engages in regulatory and oversight activities. These include E.O. 14192, Unleashing Prosperity Through Deregulation, January 31, 2025; E.O. 14212, Establishing the Presidents Make America Healthy Again Commission, February 13, 2025; and E.O. 14219, Ensuring Lawful Governance and Implementing the Presidents Department of Government Efficiency Deregulatory Initiative, February 21, 2025. If these or other orders or executive actions impose constraints on the FDAs ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

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Similarly, actions by the U.S. government have significantly disrupted the operations of U.S. government agencies such as the National Institutes of Health, National Science Foundation, Centers for Disease Control and Prevention, and FDA, which have traditionally provided funding for basic research, research and development, and clinical testing. These U.S. government actions have included, among other things, suspending, terminating and withholding of disbursements of funds owed under ongoing contracts, grants, and other financial assistance agreements; declining to continue multi-year research projects for additional annual budget periods; canceling or delaying solicitations for new contract, grant and other financial assistance awards; canceling or delaying proposal evaluation processes and issuance of such new awards; substantially reducing federal agency staff responsible for managing contract and financial assistance programs; eliminating agency information and resources for facilitating research activity; delaying or terminating federal agency procedures for authorizing international transactions; initiating aggressive enforcement actions that may disrupt the operations of major research universities that are significant contributors to life sciences research in the U.S., and threatening access to federal agency contracts and other funding awards based on companies otherwise lawful corporate policies and choice of counsel. These U.S. government actions could, directly or indirectly, significantly disrupt, delay, prevent, or increase the costs of our research and product commercialization programs, including our ability to develop new product candidates, conduct clinical trials, implement research collaborations with other companies or institutions, and obtain approvals to market and sell new products. 

In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions and could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

At the same time, disruptions at the FDA and other government agencies may result from public health events similar to the COVID-19 pandemic. For example, during the pandemic, a number of companies announced receipt of complete response letters due to the FDAs inability to complete required inspections for their applications. In the event of a similar public health emergency in the future, the FDA may not be able to continue its current pace and review timelines could be extended. Regulatory authorities outside the United States.S. facing similar circumstances may adopt similar restrictions or other policy measures in response to a similar public health emergency and may also experience delays in their regulatory activities.

Accordingly, if any of the foregoing developments and others impact the ability of the FDA to provide us with guidance regarding our clinical development programs or delay the agencys review and processing of our regulatory submissions, including INDs and new drug applicationNDAs or biologics license applications, our business would be negatively impacted. Further, any future government shutdown could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

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Changes in patent law in the United States or in other countries could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. 

As is the case with other pharmaceuticand uncertainty surrounding U.S. trade policy could have a material companies, our success is heavily dependenadverse impact on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technologicour business, financial and legal complexity and is therefore costly, time consumingcondition and inherently uncertain. Our patent rights may be affected by developments or uncertainty in U.S. or ex-U.S. patent statutes,results of operations.

This patent case laws in USPTO rules and regulations or in the rules and regulast spring the Trump administrations of ex-U.S. patent offices. There are initiated a number of changseries to the U.S. patent laws that may have a significant impact on our ability to protect our technology and enforce our intellectual property rightof tariff-related actions against U.S. trading partners. For example, in September 2011, the AIA, was signed into law. TOn April 2, 2025, the AIA includes provisions that affect the way patePresident applications are prosecutissued and affect patent litigation. In particular, un Executive Order the AIA, the United States transitioned in March 2013 to a first to file system in which the first inventor to file a patent application is entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and may become involved in post-grant proceeannouncing a baseline reciprocal tariff of 10% on all U.S. tradings including opposition, derivation, reexamination, inter partes review or interference proceedings challenging our patent rights or the patent r partners effective April 5, 2025, and hights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope or enforceability of, or invalidate, our patent rights, whicer individualized reciprocal tariffs on 57 countries (with could adversely affect our competitive posiertain product exemption. This could have a negative impact on some of our intellectual property and could increase uncertainties surroundins for pharmaceutical-related products, among obtaining and enforcement or defense of our issued patents.

Inthers). Previously, the addition, Congress may pass patent reform legislministration that is unfavorable to us. The U.S. Supreme Court has rulhad imposed on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances a 25% tariff on Canada and Mexico for weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Dependgoods not covered by the United States-Mexico-Canada Agreement (the USMCA), and tariffs equaling 20% on decisions by CongChina. In ress, the fedeponse, several courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existintries threatened retaliatory measures, including patentsCanada and patents we might obtaiChina, which then in the future. Similarly, statutmposed retaliatory or judicial changes to the patent laws of otariffs. Prior to when ther countries may increase the uncertainties and costs surrounding the y-specific reciprosecution of patent applications and the enforcement or defense of issucal tariffs were scheduled patents. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and internto take effect, the administrational legislative bodies. Those changes may materially a delayed the effect the patents and pive datent applications of our licensors, our existing  of such tariffs for future patents and patent applications and our ability to obtain additional pall countries except China. Latents in r, the future.

Additionally,U.S. and China recent reforms and changes at governmentached a framework agencies of the United States and those of non-U.S. jurisdictions coulreement that resulted increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications, and the maintenance, enforcement, or defense of our issued patents. For example, the ability of the USPTO and suspension of the higher reciprocal tariffs on China until August 10, 2025. Three other applicable patent authorities to properly administer their functions is highly dependent on the levels of funding available to the agencycountries, the United Kingdom, Vietnam and their ability to retain key personnel and fill key leadership appointments, among various factors. Termination of employees or delays in replacing or hiring for key positions could significantly impact the ability of tIndonesia, have also reached deals with the USPTO and other applicable patent authorities to fulfill their functions and could greatly impact our ability to timely.S. that include reduced tariff rates and adequately prosecute oother maintain our patent applications, and our ability to timely and adequately maintain, enforce, or defend our issued patents.

Changes in and uncertainty surrounding U.S. trade policy could have a material adverse impact on our business, financial condition and results of operations.

Teasures. The administration has not indicated the effective date for these deals. Recently, the Trump Aadministration has recently imposannounced a series of tariffs n extension U.S. trading partners. On April 2, 2025, of the deadline for the President issued an Executive Order anneffective date of the councing a baseline reciprocaltry-specific tariff of 10% ons for all U.S. trading partners effective April 5remaining countries until August 1, 2025, and higher individualized. 

Currently, the 10% baseline reciprocal tariffs on 57 cannountries (with certain product exemptions for pharmaceutical-related products, among others). Previously, the administration had imposed a 25% tariff on Canada and Mexico for goods not covered by ced in April remains in effect, in addition to the United States-Mexico-Canada Agreement (USMCA), and other tariffs equaling 20% on China. In response, several countries threatened retaliatory measures, including Canada and China, which then imposed retaliatory tariffs. Prior to when the country-specific reciprocal tariffs were scheduled to take effect, the administration delayed the effective date (a minimum of an additional 20% as of July 15, 2025) and Canada and Mexico (25% as of such tariffs July 15, 2025 for all countries except China. The 10% baseline reciprocal tariff on all countries remains in effect, in addition togoods that are not covered by the tariffs on China, Canada and MexicoUSMCA). Sustained uncertainty about, or the further escalation of, trade and political tensions between the United States.S. and China could result in a disadvantageous research and manufacturing environment in China, particularly for U.S. based companies, including retaliatory restrictions that hinder or potentially inhibit our ability to rely on contract development and manufacturing organizations and other service providers that operate in China.

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Separately, on April 16, 2025, the U.S. Department of Commerce announced an investigation under Section 232 of the Trade Expansion Act of 1962 into imports of pharmaceuticals and pharmaceutical ingredients, including finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients, and key starting materials, and derivative products of those items. The investigation will examine the impact of these imports on U.S. national security culminating in a decision by the President whether to take action to remedy any identified threats, including by imposing additional tariffs. The statute provides that the Commerce

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Department report must be completed within 270 days of initiation of the investigation and that the President must decide whether to act within 90 days of receiving the report.

As a result of changes in tariffs that have been announced and/or implemented, and the underlying uncertainty currently surrounding international trade, we could experience a negative impact to our costs of materials as a resnd production processes, and supply chain disruptions and delays as a result of any new tariff policies or trade restrictions. If we are unable to obtain necessary raw materials or product components in sufficient quantity and in a timely manner due to disruptions in the global supply chain caused by macroeconomic events and conditions, the development, testing and clinical trials of our product candidates may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business. We cannot yet predict the effect of the recently imposed U.S. tariffs on imports, or the extent to which other countries will impose quotas, duties, tariffs, taxes or other similar restrictions upon imports or exports in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business.

2Changes in tax laws or in their implementation or interpretation could adversely affect our business and financial condition.

Income, sales, use or other tax laws, statutes, rules, or regulations could be enacted or amended at any time, which could affect our business or financial condition, including causing potentially adverse impacts to our effective tax rate, tax liabilities, and cash tax obligations. For example, the Inflation Reduction Act (IRA) was signed into law in August 2022, and the One Big Beautiful Bill Act (OBBBA) was signed into law in July 2025. The IRA introduced new tax provisions, including a one percent excise tax imposed on certain stock repurchases by publicly traded companies. The one percent excise tax generally applies to any acquisition of stock by the publicly traded company (or certain of its affiliates) from a stockholder of the company in exchange for money or other property (other than stock of the company itself), subject to a de minimis exception. Thus, the excise tax could apply to certain transactions that are not traditional stock repurchases. The OBBBA contains numerous tax provisions that we are currently in the process of evaluating, and which may significantly affect our business or financial condition. The recent changes under the OBBBA include tax rate extensions and changes to the business interest deduction limitation, the expensing of domestic research and development expenditures (in contrast to the continued capitalization and amortization of foreign research and development expenditures), the bonus depreciation deduction rules, and the international tax framework. Regulatory guidance under the IRA, the OBBBA, and other tax-related legislation is and continues to be forthcoming, and such guidance could ultimately increase or lessen the impact of these laws on our business and financial condition. In addition, it is uncertain if and to what extent various states will conform to changes to federal tax legislation.

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