10-Q 1 rphm-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2024

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: 001-40315

 

 

img28448619_0.jpg 

Reneo Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

47-2309515

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

18575 Jamboree Road, Suite 275-S, Irvine, CA

(Address of Principal Executive Offices)

92612

(Zip Code)

(Registrant’s telephone number, including area code): (858) 283-0280

 

 

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

RPHM

 

The Nasdaq Stock Market LLC

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, a 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

 

 

 

 

 

 

Smaller reporting company

Non-accelerated filer

 

 

 

 

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 May 3, 2024, there were 33,420,808 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

Part I

 

Financial Information

3

 

 

 

 

Item 1.

 

Consolidated Financial Statements (Unaudited)

3

 

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss

4

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

23

 

 

 

 

Item 4.

 

Controls and Procedures

23

 

 

 

 

Part II

 

Other Information

25

 

 

 

 

Item 1.

 

Legal Proceedings

25

 

 

 

 

Item 1A.

 

Risk Factors

25

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

82

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

82

 

 

 

 

Item 4.

 

Mine Safety Disclosures

82

 

 

 

 

Item 5.

 

Other Information

82

 

 

 

 

Item 6.

 

Exhibits

83

 

 

 

 

Signatures

 

 

84

 

 

2


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

RENEO PHARMACEUTICALS, INC.

Consolidated Balance Sheets

(In thousands, except share and par value data)

 

 

March 31,
2024

 

 

December 31,
2023

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,375

 

 

$

27,632

 

Short-term investments

 

 

62,460

 

 

 

75,331

 

Prepaid expenses and other current assets

 

 

1,092

 

 

 

3,659

 

Total current assets

 

 

83,927

 

 

 

106,622

 

Property and equipment, net

 

 

102

 

 

 

134

 

Right-of-use assets

 

 

546

 

 

 

599

 

Other non-current assets

 

 

64

 

 

 

81

 

Total assets

 

$

84,639

 

 

$

107,436

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

676

 

 

$

8,717

 

Accrued expenses

 

 

1,807

 

 

 

9,129

 

Operating lease liabilities, current portion

 

 

331

 

 

 

331

 

Total current liabilities

 

 

2,814

 

 

 

18,177

 

Operating lease liabilities, less current portion

 

 

576

 

 

 

642

 

Performance award

 

 

7

 

 

 

7

 

Total liabilities

 

 

3,397

 

 

 

18,826

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized at
   March 31, 2024 and December 31, 2023;
33,420,808 shares
   issued and outstanding at March 31, 2024 and December 31, 2023

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

308,151

 

 

 

307,073

 

Accumulated deficit

 

 

(226,900

)

 

 

(218,474

)

Accumulated other comprehensive (loss) income

 

 

(12

)

 

 

8

 

Total stockholders’ equity

 

 

81,242

 

 

 

88,610

 

Total liabilities and stockholders’ equity

 

$

84,639

 

 

$

107,436

 

 

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

3


 

RENEO PHARMACEUTICALS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

4,942

 

 

$

10,991

 

General and administrative

 

 

4,622

 

 

 

5,132

 

Total operating expenses

 

 

9,564

 

 

 

16,123

 

Loss from operations

 

 

(9,564

)

 

 

(16,123

)

Other income

 

 

1,138

 

 

 

1,016

 

Net loss

 

 

(8,426

)

 

 

(15,107

)

Unrealized (loss) gain on short-term investments

 

 

(20

)

 

 

55

 

Comprehensive loss

 

$

(8,446

)

 

$

(15,052

)

Net loss per share attributable to common stockholders,
   basic and diluted

 

$

(0.25

)

 

$

(0.60

)

Weighted-average shares used in computing net
   loss per share, basic and diluted

 

 

33,420,808

 

 

 

25,036,410

 

 

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

4


 

RENEO PHARMACEUTICALS, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances, December 31, 2023

 

 

33,420,808

 

 

$

3

 

 

$

307,073

 

 

$

8

 

 

$

(218,474

)

 

$

88,610

 

Stock based compensation

 

 

 

 

 

 

 

 

1,078

 

 

 

 

 

 

 

 

 

1,078

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(20

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,426

)

 

 

(8,426

)

Balances, March 31, 2024

 

 

33,420,808

 

 

$

3

 

 

$

308,151

 

 

$

(12

)

 

$

(226,900

)

 

$

81,242

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

Deficit

 

 

Equity

 

Balances, December 31, 2022

 

 

24,699,553

 

 

$

3

 

 

$

236,693

 

 

$

(43

)

 

$

(136,683

)

 

$

99,970

 

Stock based compensation

 

 

 

 

 

 

 

 

1,157

 

 

 

 

 

 

 

 

 

1,157

 

Issuance of common stock in connection
   with at-the-market facility, net of
   issuance costs

 

 

407,877

 

 

 

 

 

 

1,009

 

 

 

 

 

 

 

 

 

1,009

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

55

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,107

)

 

 

(15,107

)

Balances, March 31, 2023

 

 

25,107,430

 

 

$

3

 

 

$

238,859

 

 

$

12

 

 

$

(151,790

)

 

$

87,084

 

 

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

5


 

RENEO PHARMACEUTICALS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(8,426

)

 

$

(15,107

)

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

 

 

 

 

 

 

Stock-based compensation

 

 

1,078

 

 

 

1,157

 

Depreciation and amortization

 

 

16

 

 

 

41

 

Amortization/accretion on short-term investments

 

 

(906

)

 

 

(770

)

Changes in the fair value of performance award

 

 

 

 

 

295

 

Non-cash lease expense

 

 

67

 

 

 

120

 

Loss on disposal of fixed asset

 

 

16

 

 

 

3

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other assets

 

 

2,584

 

 

 

1,952

 

Accounts payable and accrued expenses

 

 

(15,363

)

 

 

3,398

 

Operating lease liabilities

 

 

(80

)

 

 

(137

)

Net cash used in operating activities

 

 

(21,014

)

 

 

(9,048

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(172

)

Purchase of available-for-sale short-term investments

 

 

(45,243

)

 

 

(28,321

)

Proceeds from maturities of available-for-sale short-term investments

 

 

59,000

 

 

 

47,000

 

Net cash provided by investing activities

 

 

13,757

 

 

 

18,507

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock under the at-the-market
   facility, net of offering costs

 

 

 

 

 

1,009

 

Net cash provided by financing activities

 

 

 

 

 

1,009

 

Net (decrease) increase in cash and cash equivalents

 

 

(7,257

)

 

 

10,468

 

Cash and cash equivalents, beginning of period

 

 

27,632

 

 

 

19,927

 

Cash and cash equivalents, end of period

 

$

20,375

 

 

$

30,395

 

 

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

6


 

RENEO PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Business

Organization

Reneo Pharmaceuticals, Inc. (Reneo or the Company) commenced operations on September 22, 2014 as a pharmaceutical company and has historically focused on the development of therapies for patients with rare genetic mitochondrial diseases. In December 2017, the Company in-licensed mavodelpar (REN001), a novel oral peroxisome proliferator-activated receptor delta (PPARδ) agonist.

Risks and Uncertainties

On December 14, 2023, the Company announced that its pivotal STRIDE study, a global, randomized, double-blind, placebo-controlled Phase 2b trial of mavodelpar in adult patients with primary mitochondria myopathy due to mitochondrial DNA defects, did not meet its primary or secondary efficacy endpoints. As a result, the Company suspended the development activities of its only product candidate, mavodelpar, and implemented cash preservation activities, including substantial workforce reduction. In December 2023 and February 2024, the Company implemented a workforce reduction and recognized approximately $2.5 million and $1.6 million in severance and continuation of benefit expenses, respectively.

The Company is subject to a number of risks similar to other pharmaceutical companies including, but not limited to, dependency on the clinical and commercial success of the Company’s potential product candidates, ability to obtain regulatory approval of any such potential product candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians, consumers and third-party payors, significant competition and untested manufacturing capabilities, and dependence on key individuals and sole source suppliers.

Liquidity

From its inception in 2014, the Company has incurred significant losses and negative cash flows from operations and expects to continue to incur net losses into the foreseeable future and may never become profitable. As of March 31, 2024, the Company had cash, cash equivalents and short-term investments of $82.8 million to fund future operations. Since inception through March 31, 2024, the Company has funded its operations primarily through the issuance and sale of equity securities. Management has prepared cash flow forecasts which indicate that, based on the Company’s current cash resources available and working capital, the Company will have sufficient resources to fund its operations for at least one year after the date the consolidated financial statements are issued.

Future capital requirements will depend on many factors, including the timing and extent of spending on its operations and there can be no assurance that the Company will be successful in obtaining additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, and liquidate assets where possible. Any of these actions could negatively impact the Company’s business, results of operations, and future prospects.

7


 

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The Company has prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information not misleading. The Company recommends that the unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements, have been included in the accompanying unaudited financial statements. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of these consolidated financial statements for the three months ended March 31, 2024 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

New Accounting Pronouncements

There were various accounting standards and interpretations issued recently, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

3. Net Loss Per Share

The Company computes basic loss per share by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For purposes of this calculation, common stock shares to be issued upon exercise of all outstanding stock options and vesting of restricted stock units were excluded from the diluted net loss per share calculation for the three months ended March 31, 2024 and 2023 because such shares are anti-dilutive.

Historical outstanding anti-dilutive securities not included in the diluted net loss per share calculation include the following:

 

 

As of March 31,

 

 

2024

 

 

2023

 

Common stock options outstanding

 

 

4,798,794

 

 

 

6,013,345

 

Unvested restricted stock units

 

 

311,500

 

 

 

369,500

 

Total

 

 

5,110,294

 

 

 

6,382,845

 

 

8


 

4. Fair Value Measurements

ASC Topic 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

ASC Topic 820 identifies fair value as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than quoted prices in active markets, which are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company’s financial assets are subject to fair value measurements on a recurring basis.

The Company categorizes its money market funds as Level 1, using the quoted prices in active markets. Commercial paper and U.S. treasury securities are categorized as Level 2, using significant other observable inputs. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets.

In connection with the Company’s chief executive officer’s (CEO) employment agreement, he is entitled to receive a special performance bonus in the amount of $7.5 million (Performance Award), payable in cash, common stock or a combination of cash and common stock, at the election of the Company, based on achievement of certain conditions as described in more detail in Note 8. The Company estimated the fair value of the Performance Award using a Monte Carlo simulation, which incorporates the stock price at the date of the valuation and utilizes Level 3 inputs such as volatility, probabilities of success, and other inputs that are not observable in active markets. The Performance Award is required to be measured at fair value on a recurring basis each reporting period, with changes in the fair value recognized in general and administrative expense in the consolidated statements of operations and comprehensive loss over the derived service period of the award.

No assets or liabilities were transferred into or out of their classifications during the three months ended March 31, 2024.

9


 

The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at March 31, 2024 consisted of the following (in thousands):

 

 

Quoted Prices in
Active Markets
For Identical
Items
(Level 1)

 

 

Significant Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market investments

 

$

10,902

 

 

$

 

 

$

 

 

$

10,902

 

U.S. treasury securities

 

 

 

 

 

5,975

 

 

 

 

 

 

5,975

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

 

 

 

62,439

 

 

 

 

 

 

62,439

 

Total

 

$

10,902

 

 

$

68,414

 

 

$

 

 

$

79,316

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Performance award

 

$

 

 

$

 

 

$

7

 

 

$

7

 

Total

 

$

 

 

$

 

 

$

7

 

 

$

7

 

 

The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at December 31, 2023 consisted of the following (in thousands):

 

 

Quoted Prices in
Active Markets
For Identical
Items
(Level 1)

 

 

Significant Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market investments

 

$

10,983

 

 

$

 

 

$

 

 

$

10,983

 

U.S. treasury securities

 

 

 

 

 

9,928

 

 

 

 

 

 

9,928

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

 

 

 

75,331

 

 

 

 

 

 

75,331

 

Total

 

$

10,983

 

 

$

85,259

 

 

$

 

 

$

96,242

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Performance award

 

$

 

 

$

 

 

$

7

 

 

$

7

 

Total

 

$

 

 

$

 

 

$

7

 

 

$

7

 

 

The following table sets forth a summary of changes in the fair value measurements of the Performance Award liability (in thousands):

 

 

 

Performance
Award

 

Balance as of January 1, 2024

 

$

7

 

Change in fair value

 

 

 

Balance as of March 31, 2024

 

$

7

 

 

5. Marketable Debt Securities

The Company’s investments in debt securities are carried at fair value and classified as current assets available-for-sale and represent the investment of funds available for current operations. Accretion of bond

10


 

discount and interest income on marketable securities is included in other income as a separate component of other income (expense) on the statement of operations and comprehensive loss. Unrealized gains and losses on available-for-sale debt securities are included in other comprehensive income or loss, and charged to income or expense in the period when realized. The following tables summarize the gross unrealized gains and losses of the Company’s available-for-sale securities (in thousands):

 

 

 

As of March 31, 2024

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

62,451

 

 

$

 

 

$

(12

)

 

$

62,439

 

Total

 

$

62,451

 

 

$

 

 

$

(12

)

 

$

62,439

 

 

 

 

 

As of December 31, 2023

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

75,324

 

 

$

8

 

 

$

(1

)

 

$

75,331

 

Total

 

$

75,324

 

 

$

8

 

 

$

(1

)

 

$

75,331

 

As of March 31, 2024, the Company considered the unrealized losses in its investment portfolio to be temporary in nature and not due to credit losses. The Company has the intent and ability to hold such investments until their recovery at fair value. The Company did not have any realized gains or losses in its available for sale securities during the three months ended March 31, 2024 and 2023.

6. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

As of March 31, 2024

 

 

As of December 31, 2023

 

Accrued clinical and regulatory

 

$

190

 

 

$

3,661

 

Accrued contract manufacturing cost

 

 

1

 

 

 

1,100

 

Accrued compensation*

 

 

1,170

 

 

 

3,948

 

Accrued other

 

 

446

 

 

 

420

 

Total accrued expenses

 

$

1,807

 

 

$

9,129

 

*Accrued compensation includes severance costs.

7. Leases

The Company’s headquarters are located in Irvine, California, where it leases office space under a lease agreement that expires in November 2026. The Company leases additional office space located in Sandwich, United Kingdom under a lease agreement that expires in October 2027, with an option to early terminate in October 2025 with no termination fee. In January 2024, the Company exercised its early termination option.

11


 

Other information related to the Company’s operating leases as of the balance sheet dates presented are as follows:

 

 

 

As of March 31,

 

 

2024

 

 

2023

 

Weighted incremental borrowing rate

 

 

5

%

 

 

5

%

Weighted average remaining lease term (in years)

 

 

2.5

 

 

 

3.8

 

Cash paid for amounts included in the measurement of lease liabilities (in thousands)

 

$

96

 

 

$

142

 

Lease expense (in thousands)

 

$

83

 

 

$

120

 

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):

 

 

As of March 31, 2024

 

2024 (remaining nine months)

 

$

293

 

2025

 

 

371

 

2026

 

 

285

 

Total lease payments

 

 

949

 

Less: Imputed interest

 

 

(42

)

Present value of lease liabilities

 

$

907

 

 

8. Stock-Based Compensation

In March 2021, the Company’s Board of Directors adopted the Company’s 2021 Equity Incentive Plan (2021 Plan), which is the successor to the Company’s 2014 Equity Incentive Plan (2014 Plan). As of the effective date of the 2021 Plan, awards granted under the 2014 Plan that are forfeited or otherwise become available under the 2014 Plan will be included and available for issuance under the 2021 Plan. Under the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other awards to individuals who are employees, officers, directors or consultants of the Company and its affiliates.

Under the 2014 Plan, certain employees were granted the ability to early exercise their options. The shares of common stock issued pursuant to the early exercise of unvested stock options are restricted and continue to vest over the requisite service period after issuance. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. As of March 31, 2024, there were no unvested shares of common stock outstanding that were issued pursuant to the early exercise of stock options.

Shares Reserved for Future Issuance

As of March 31, 2024, the Company had reserved shares of its common stock for future issuance as follows:

 

Shares
Reserved

 

Common stock options outstanding

 

 

4,798,794

 

Unvested restricted stock units

 

 

311,500

 

Available for future grants under the 2021 Equity Incentive Plan

 

 

4,296,163

 

Available for future grants under the 2021 Employee Stock Purchase Plan

 

 

780,098

 

Total shares of common stock reserved

 

 

10,186,555

 

 

12


 

Stock Options

A summary of the Company’s stock option activity and related information for the three months ended March 31, 2024 is as follows:

 

Options
Outstanding

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual Term (in years)

 

 

Aggregate
Intrinsic
Value (in thousands)

 

Outstanding at December 31, 2023

 

 

5,301,254

 

 

$

4.76

 

 

 

6.9

 

 

$

 

Forfeited/Expired

 

 

(502,460

)

 

$

4.85

 

 

 

 

 

 

 

Outstanding at March 31, 2024

 

 

4,798,794

 

 

$

4.75

 

 

 

6.9

 

 

$

 

Vested at March 31, 2024

 

 

3,105,675

 

 

$

4.90

 

 

 

6.4

 

 

$

 

Exercisable at March 31, 2024

 

 

3,369,189

 

 

$

4.90

 

 

 

6.4

 

 

$

 

Options exercisable at March 31, 2024 include vested options and options eligible for early exercise. All outstanding options as of March 31, 2024 are expected to vest.

Unrecognized stock-based compensation expense as of March 31, 2024 was $4.4 million, which is expected to be recognized over a weighted-average vesting term of 1.8 years.

The Company estimates stock awards fair value on the date of grant using the Black-Scholes valuation, with the vesting being subject to service requirements. The Company accounts for forfeitures when they occur. The Company did not grant any stock options during the three months ended March 31, 2024. The fair value of the options granted during the three months ended March 31, 2023 were estimated at the date of grant with the following assumptions: risk-free interest rate of 3.9%, expected volatility of 85.1%, expected life of 6.1 years, and expected dividend yield of 0%.

Risk-free interest rate. The Company bases the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Expected volatility. The expected volatility assumption was based on the volatilities of a peer group of similar companies whose share prices are publicly available and the Company’s own stock. The peer group was developed based on companies in the biotechnology industry.

Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends.

Restricted Stock Units (RSUs)

RSUs consist of time-based units (TSUs), performance-based units (PSUs) and market-based units (MSUs). The following table summarizes RSU activities during the three months ended March 31, 2024:

13


 

 

Number of
RSUs

 

 

Weighted-Average
Grant Date
Fair Value

 

Unvested at December 31, 2023

 

 

326,500

 

 

$

5.90

 

Cancelled

 

 

(15,000

)

 

$

6.98

 

Unvested at March 31, 2024

 

 

311,500

 

 

$

5.85

 

Time-Based Units

TSUs typically vest over four years, with 25% vesting on the one-year anniversary of the employee’s hire date and the remainder vesting monthly or quarterly over the following three years subject to the employee’s continued employment with the Company through the vesting dates. The fair value of the awards was based on the value of the Company’s common stock at the grant date of the award and expense is recognized on a straight-line basis. The Company had 57,000 unvested shares underlying TSUs as of March 31, 2024. The stock-based compensation expense related to such TSUs for the three months ended March 31, 2024 was immaterial. Unrecognized stock-based compensation expense as of March 31, 2024 was $0.3 million, which is expected to be recognized over a weighted-average vesting term of 3.4 years.

Performance-Based Units

The vesting of the PSUs is based on the Company achieving certain regulatory milestones and is subject to the employee’s continued employment with the Company through the achievement date. The fair value of the awards was based on the value of the Company’s common stock at the grant date of the award and expense recognition is based on the probability of achieving the performance conditions. Stock-based compensation expense is adjusted in future periods for subsequent changes in the expected outcome of the performance conditions. The Company had 134,500 unvested shares underlying PSUs as of March 31, 2024. The Company concluded that achievement of the performance conditions was not probable as of March 31, 2024 and 2023, and therefore no stock-based compensation expense was recognized for the three months ended March 31, 2024 and 2023 in connection with the PSUs. As of March 31, 2024, there was $1.1 million of unrecognized stock-based compensation expense related to PSUs that were deemed not probable of vesting.

Market-Based Units

The vesting of the MSUs is based on the Company’s closing stock price trading above $20 per share for 30 consecutive trading days subject to the employee’s continued employment with the Company through the date of achievement. The share price of the Company’s common stock on the date of issuance of the MSUs was $2.78 per share. The fair value was based on Monte Carlo simulation model on the grant date. Stock-based compensation expense is recognized over the derived service period of approximately 3 years. The Company had 120,000 unvested shares underlying MSUs as of March 31, 2024. Stock-based compensation expense related to the MSUs during the three months ended March 31, 2024 and 2023 was immaterial. As of March 31, 2024, unrecognized stock-based compensation expense related to the MSUs was immaterial.

Performance Award

In connection with the CEO’s employment agreement, he is entitled to receive a Performance Award in the amount of $7.5 million, payable in cash, common stock or a combination of cash and common stock, at the election of the Company, in the event that (i) the Company’s market value exceeds $750.0 million utilizing the volume-weighted average of the closing sale price of its common stock on the Nasdaq Stock Market or other principal exchange for each of the 30 trading days immediately prior to the measurement date, or (ii) the fair market value of the net proceeds available for distribution to the Company’s stockholders in connection with a change in control as defined in the Company’s severance benefit plan, as determined in good faith by its Board of

14


 

Directors, exceeds $750.0 million. The Company has determined that the Performance Award is subject to ASC 718, Compensation – Stock Compensation and includes both market and performance conditions. Since the Company’s initial public offering (IPO), neither of the events have yet been satisfied. The Company estimated the fair value of the Performance Award at each reporting period using the Monte Carlo simulation (Note 4), which is recognized as stock-based compensation expense over the derived service period. For the three months ended March 31, 2024, stock-based compensation expense was immaterial. For the three months ended March 31, 2023, the Company recognized approximately $0.3 million in stock-based compensation expense as a direct result of the increased value of the Performance Award primarily caused by the increase in the Company’s common stock price.

2021 Employee Stock Purchase Plan

In March 2021, the Company’s Board of Directors adopted the Company’s 2021 Employee Stock Purchase Plan (ESPP), which became effective immediately prior to the execution of the underwriting agreement in connection with the Company’s IPO. As of March 31, 2024, 288,466 shares have been issued under the ESPP.

In September 2021, the compensation committee of the Company’s Board of Directors (Compensation Committee) adopted the Company’s 2021 UK Sharesave Sub-plan (SAYE). An allocation of 25,875 shares of common stock from the ESPP reserve pool was approved and reserved for issuance under the SAYE. The Compensation Committee terminated the SAYE in January 2024 and the reserved shares were returned to the ESPP reserve pool. No shares were issued under the SAYE prior to its termination.

The stock-based compensation expense related to the ESPP and the SAYE for the three months ended March 31, 2024 and 2023, was immaterial.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense, including expense associated with options, TSUs, MSUs and award modifications for unvested options, reflected in the consolidated statements of operations and comprehensive loss (in thousands):

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Research and development

 

$

253

 

 

$

473

 

General and administrative

 

 

825

 

 

 

684

 

Total

 

$

1,078

 

 

$

1,157

 


 

9. License Agreement

In December 2017, the Company entered into a license agreement (the vTv License Agreement) with vTv Therapeutics LLC (vTv Therapeutics), under which the Company obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPARδ agonists and products containing such PPARδ agonists, including mavodelpar, for any therapeutic, prophylactic or diagnostic application in humans. Since the Company has suspended all development activity related to mavodelpar, it is not currently performing any development efforts under the vTv License Agreement.

To date, the Company has paid a $3.0 million upfront payment, $2.0 million in milestone payments and issued an aggregate of 576,443 shares of its common stock to vTv Therapeutics. On October 30, 2023, the Company repurchased from vTv Therapeutics all 576,443 shares of its common stock previously issued to vTv Therapeutics under the vTv License Agreement for an aggregate purchase price of approximately $4.4 million in a private, non-underwritten transaction.

15


 

Upon the achievement of certain pre-specified development and regulatory milestones, the Company is also required to pay vTv Therapeutics milestone payments totaling up to $64.5 million. The Company is also required to pay vTv Therapeutics up to $30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. As of March 31, 2024, the Company has paid an aggregate of $2.0 million in development and regulatory milestone payments. In addition, the Company is obligated to make royalty payments to vTv Therapeutics at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions. There were no milestone payments achieved or recorded for the three months ended March 31, 2024 and 2023.

16


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023. Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “Reneo,” the “company,” “we,” “our,” “us” or similar terms refer to Reneo Pharmaceuticals, Inc. and its subsidiary.

Forward-Looking Statements

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 in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “project,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would” or the negative of these terms or other similar expressions.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Overview

Reneo is a pharmaceutical company historically focused on the development and commercialization of therapies for patients with rare genetic mitochondrial diseases, which are often associated with the inability of mitochondria to produce adenosine triphosphate. Our only product candidate, mavodelpar, is a potent and selective agonist of the peroxisome proliferator-activated receptor delta (PPARδ). Mavodelpar has been shown to increase transcription of genes involved in mitochondrial function and increase fatty acid oxidation , and may increase production of new mitochondria.

On December 14, 2023, we announced that our pivotal STRIDE study, a global, randomized, double-blind, placebo-controlled Phase 2b trial of mavodelpar in adult patients with primary mitochondria myopathy (PMM) due to mitochondrial DNA (mtDNA) defects, did not meet its primary or secondary efficacy endpoints. As a result, we suspended the development activities for mavodelpar and implemented cash preservation activities, including a substantial workforce reduction. We implemented a reduction in workforce in December 2023 and February 2024, and currently have eight full-time employees remaining.

In January 2024, our Board of Directors retained an independent financial advisor to initiate a formal process to evaluate potential strategic alternatives focused on maximizing stockholder value, including, but not limited to, a merger, sale, other business combination, a strategic partnership with one or more parties, or the licensing, sale or divestiture of our assets. Our Board of Directors, in consultation with our independent financial and legal advisors, is evaluating a number of strategic alternatives. If we do not successfully consummate a transaction with a strategic alternative, our Board of Directors may decide to pursue a dissolution and liquidation of our company. We are no longer pursuing further clinical development of mavodelpar at this time. The disclosures throughout this Quarterly Report on Form 10-Q include discussion regarding our historical operations along with potential risks that could arise if we or a third party pursue further research, development or clinical trials in the future. Our evaluation of potential strategic alternatives entails numerous significant risks and uncertainties, including those set forth in Part II, Item 1A under the heading “Risk Factors” of this Quarterly Report on Form 10-Q.

17


 

History of Mavodelpar Clinical Trials Overview

The following table summarizes our historical clinical trials.

Study

Design

Subjects

Dose

Duration

NCT Study Number

1

Phase 1 RDBPC†

Healthy

25-250 mg

Single-dose

-

2

Phase 1 RDBPC†

Obese (dyslipidemic)

50-200 mg

14 days

-

3

Phase 1 RDBPC† (leg immobilization)

Healthy

200 mg

28 days

-

4

Open-label Phase 1b

PMM

(mtDNA)

100 mg

12 weeks

(+36 weeks)

NCT03862846

5

Open-label Phase 1b

McArdle

Disease

100 mg

12 weeks

NCT04226274

6

Open-label Phase 1b

LC-FAOD*

(nDNA)^

100 mg

12 weeks

NCT03833128

7

RDBPC† Phase 2b

(STRIDE)

PMM

(mtDNA)

100 mg

24 weeks

NCT04535609

8

Open-label safety

(STRIDE AHEAD)

PMM

(mtDNA + nDNA)

100 mg

2 years

NCT05267574

† randomized double-blind placebo-controlled clinical trial

* long-chain fatty acid oxidation disorder

^ nuclear DNA

License Agreement

In December 2017, we entered into a License Agreement (vTv License Agreement) with vTv Therapeutics LLC (vTv Therapeutics), under which we obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPARδ agonists and products containing such PPARδ agonists, including mavodelpar, for any therapeutic, prophylactic or diagnostic application in humans. Since we have suspended all development activity related to mavodelpar, we are not currently performing any development efforts under the vTv License Agreement.

Under the terms of the vTv License Agreement, we paid vTv Therapeutics an initial upfront license fee of $3.0 million and $2.0 million of milestone payments and issued an aggregate of 576,443 shares of our common stock to vTv Therapeutics. On October 30, 2023, we repurchased from vTv Therapeutics all 576,443 shares of our common stock previously issued to vTv Therapeutics under the vTv License Agreement for an aggregate purchase price of approximately $4.4 million in a private, non-underwritten transaction.

Upon the achievement of certain pre-specified development and regulatory milestones, we are also required to pay vTv Therapeutics milestone payments totaling up to $64.5 million. We are also required to pay vTv Therapeutics up to $30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. As of March 31, 2024, we have paid an aggregate of $2.0 million in development and regulatory milestone payments. In addition, we are obligated to make tiered royalty payments to vTv Therapeutics at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions. There were no milestone payments achieved or recorded for the three months ended March 31, 2024 and 2023.

Although we have suspended development activities related to mavodelpar, we continue to maintain and prosecute mavodelpar intellectual property.

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Components of Our Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses primarily relate to preclinical and clinical development of mavodelpar. Research and development expenses include:

personnel expenses, including severance payments, salaries, benefits, and stock-based compensation expense;
external expenses incurred under agreements with contract research organizations (CROs), investigative sites and consultants to conduct and support our preclinical studies and clinical trials;
raw materials related to manufacturing of our product candidate for clinical trials and preclinical studies, including fees paid to third-party manufacturers;
expenses related to regulatory activities, including filing fees paid to regulatory agencies;
expenses related to medical affairs activities, including field teams to initiate relevant disease education and publications;
depreciation and maintenance expenses; and
fees for maintaining licenses under our third-party licensing agreements.

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. We expense amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired.

The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023 (unaudited and in thousands):

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Clinical and regulatory

 

$

3,578

 

 

$

6,057

 

Contract manufacturing cost

 

 

34

 

 

 

2,028

 

Nonclinical

 

 

439

 

 

 

1,244

 

Medical affairs

 

 

568

 

 

 

1,018

 

Research and development-other expense

 

 

323

 

 

 

644

 

Total

 

$

4,942

 

 

$

10,991

 

 

As a result of implementing our cash preservation activities, including suspension of development activities for mavodelpar, we expect our research and development expenses to decrease for the foreseeable future. If we pursue further development of mavodelpar or any other product candidates in the future, we cannot determine with certainty the timing of initiation, the duration or the completion costs of such clinical trials due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We may need to raise substantial additional capital in the future. In addition, we cannot forecast whether any future product candidate may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Our research and development costs may vary significantly based on factors such as:

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the scope, rate of progress, expense and results of clinical trials and preclinical studies;
per patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the number of patients that participate in the trials;
uncertainties in patient enrollment or drop out or discontinuation rates;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the safety and efficacy of our product candidate;
the cost and timing of manufacturing our product candidates; and
the extent to which we establish strategic collaborations or other arrangements.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including severance payments, salaries, benefits, and stock-based compensation expenses for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for accounting, legal, and commercial development, insurance and corporate facility costs not otherwise included in research and development expenses. We expect our general and administrative expenses to decrease for the foreseeable future as a result of our cash preservation activities.

Other Income

Other income consists of interest income on our cash, cash equivalents and short-term investments.

Results of Operations

Comparison of Three Months Ended March 31, 2024 and 2023 (Unaudited)

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (unaudited and in thousands):

 

 

Three Months Ended March 31,

 

 

 

 

 

2024

 

 

2023

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,942

 

 

$

10,991

 

 

$

(6,049

)

General and administrative

 

 

4,622

 

 

 

5,132

 

 

 

(510

)

Total operating expenses

 

 

9,564

 

 

 

16,123

 

 

 

(6,559

)

Loss from operations

 

 

(9,564

)

 

 

(16,123

)

 

 

6,559

 

Other income

 

 

1,138

 

 

 

1,016

 

 

 

122

 

Net loss

 

$

(8,426

)

 

$

(15,107

)

 

$

6,681

 

Operating Expenses

Research and Development Expenses

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Research and development expenses decreased by $6.0 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily due to the suspension of development activities for mavodelpar and cash preservation activities, including workforce reductions in December 2023 and February 2024.

General and Administrative Expenses

General and administrative expenses decreased by $0.5 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily due to the workforce reductions in December 2023 and February 2024.

Other Income

The increase in other income for the three months ended March 31, 2024, compared to the three months ended March 31, 2023 relates to higher interest income attributable to increasing interest rates during 2024.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the sale of equity securities. We have not generated any revenue from the sale of any products. As of March 31, 2024, we had available cash, cash equivalents and short-term investments of approximately $82.8 million.

In November 2023, we entered into an at-the-market equity offering sales agreement (Sales Agreement) with Leerink Partners LLC (Leerink) under which we may offer and sell, from time to time, at our sole discretion, up to $100.0 million in shares of our common stock (2023 ATM Facility). As of March 31, 2024, we had not sold any shares of our common stock under the 2023 ATM Facility. Effective as of April 8, 2024, we terminated the Sales Agreement.

Funding Requirements

From our inception in 2014, we have incurred significant losses and negative cash flows from operations. As of March 31, 2024, we had an accumulated deficit of $226.9 million. For the three months ended March 31, 2024, we had a net loss of $8.4 million and we used $21.0 million of cash in operating activities during the three months ended March 31, 2024.

We may incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, pursuing and evaluating potential strategic alternatives for the Company. We believe that our existing cash, cash equivalents, and short-term investments will be sufficient to meet our cash requirements through at least the next 12 months. We are subject to all the risks related to the development and commercialization of any future product candidates, including those discussed in the section titled “Risk Factors” under Part II, Item 1A below.

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Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023 (unaudited and in thousands):

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net cash used in operating activities

 

$

(21,014

)

 

$

(9,048

)

Net cash provided by investing activities

 

 

13,757

 

 

 

18,507

 

Net cash provided by financing activities

 

 

 

 

 

1,009

 

Net (decrease) increase in cash and cash equivalents

 

$

(7,257

)

 

$

10,468

 

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2024 was $21.0 million, consisting primarily of our net loss of $8.4 million adjusted for non-cash items of $0.3 million primarily due to $1.1 million of stock-based compensation expense and $0.1 million in non-cash lease expense, offset by $0.9 million of amortization/accretion on short-term investments and a $12.9 million net change in operating assets and liabilities. The change in our net operating assets and liabilities was primarily due to a decrease in prepaid and other current assets of $2.6 million, offset by a decrease in accounts payable and accrued expenses of $15.4 million due to timing of payments.

Net cash used in operating activities for the three months ended March 31, 2023 was $9.0 million, consisting primarily of our net loss of $15.1 million adjusted for non-cash items of $0.8 million primarily due to $1.2 million of stock-based compensation expense offset by $0.8 million of amortization/accretion on short-term investments and a $5.2 million net change in operating assets and liabilities. The change in our net operating assets and liabilities was primarily due to a decrease in prepaid and other current assets of $2.0 million and an increase in accounts payable and accrued expenses of $3.4 million primarily due to timing of receipt of invoices.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2024 and 2023 was $13.8 million and $18.5 million, respectively, consisting primarily of the net proceeds from maturities of available-for-sale short-term investments.

Financing Activities

There were no cash flows from financing activities for the three months ended March 31, 2024.

Net cash provided by financing activities for the three months ended March 31, 2023 was primarily from issuance of common stock under the at-the-market facility, net of offering costs.

Material Cash Requirements

The discussion below summarizes our significant contractual obligations and commitments as of March 31, 2024.

Leases. See Note 7 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding our leases, including the future operating lease minimum payments.

Performance Award. See Note 8 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding a special performance award that our chief executive officer may be entitled to receive, including the maximum payout.

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vTv License Agreement. See Note 9 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding the vTv License Agreement, including potential milestone and royalty payments.

In addition to the contractual obligations above, we also expect to have near term future material cash requirements associated with pursuing and evaluating potential strategic alternatives for the Company.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our critical accounting policies are described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023, and the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recent Accounting Pronouncements

See Note 2 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our principal executive officer and our principal financial officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that as of March 31, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission (SEC) rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors, and there can be no assurances that favorable outcomes will be obtained.

Item 1A. Risk Factors

We face many risks and uncertainties, as more fully described in this section under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below. The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.”

We have incurred significant net losses since our inception in 2014 and anticipate that we will continue to incur net losses for the foreseeable future.
Our activities to evaluate and pursue potential strategic alternatives may not result in any definitive transaction or enhance stockholder value.
If we fail to achieve the expected financial and operational benefits of our recent cash preservation activities, our business and financial results may be harmed.
We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable.
If we fail to satisfy applicable listing standards, our common stock may be delisted from the Nasdaq Global Market.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the risks described below could harm our business, financial condition, results of operations, growth prospects, and/or stock price or cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. You should consider all of the risk factors described when evaluating our business. We have marked with an asterisk (*) those risk factors that reflect changes from the similarly titled risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Risks Related to Our Business and Industry

We have incurred significant net losses since our inception in 2014 and anticipate that we will continue to incur net losses for the foreseeable future.*

We are a pharmaceutical company founded in 2014. Prior to the recent suspension of our development activities for mavodelpar announced on December 14, 2023, our operations focused primarily on raising capital,

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establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of, and manufacturing development for, our only product candidate, mavodelpar. As an organization, we have not yet demonstrated an ability to successfully complete clinical development, obtain regulatory approvals, manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful commercialization. Further, we have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a history of successfully developing and commercializing pharmaceutical products.

Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effectiveness in the targeted indication or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue to date, and we continue to incur expenses related to our ongoing operations. As a result, we are not profitable and have incurred significant net losses since our inception. We may never generate any revenue. For the three months ended March 31, 2024 and 2023, we reported a net loss of $8.4 million and $15.1 million, respectively. As of March 31, 2024, we had an accumulated deficit of $226.9 million.

We expect to continue to incur significant losses for the foreseeable future. We may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior net losses and expected future net losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with our business, we are unable to accurately predict the timing or amount of increased expenses, or when, if at all, we will be able to achieve profitability.

Our activities to evaluate and pursue potential strategic alternatives may not result in any definitive transaction or enhance stockholder value.

Following the suspension of development activities of our only product candidate, mavodelpar, we have begun evaluating and exploring a variety of strategic alternatives focused on maximizing stockholder value, including, but not limited to, a merger, sale, other business combination, a strategic partnership with one or more parties, or the licensing, sale or divestiture of our assets. Our ability to successfully execute on a strategic alternative is dependent on a number of factors and we may not be able to execute upon a transaction or other strategic alternative upon favorable terms within an advantageous timeframe and recognize significant value for these assets, if at all. Additionally, the negotiation and consummation of a transaction or other strategic alternative may be costly and time-consuming. Any executed strategic alternative may not result in anticipated savings or other economic benefits, could result in total costs and expenses that are greater than expected, could make it more difficult to attract and retain qualified personnel and may disrupt our operations, each of which could have a material adverse effect on our business.

The current market price of our common stock may reflect a market assumption that a strategic alternative will occur, and a failure to complete a strategic alternative could result in negative investor perceptions and could cause a decline in the market price of our common stock, which could adversely affect our ability to access the equity and financial markets, as well as our ability to explore and enter into different strategic alternatives. There can be no certainty that any strategic alternative will be completed, be on attractive terms, enhance stockholder value or deliver the anticipated benefits, and successful integration or execution of the strategic alternatives will be subject to additional risks. In addition, potential strategic alternatives that require stockholder approval may not be approved by our stockholders. If we do not successfully consummate a strategic alternative, our Board of Directors may decide to pursue a dissolution and liquidation of our company. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation, the amount of cash that will need to be reserved for commitments and contingent liabilities. Depending on these factors, the

26


 

amount available for distribution to our common stockholders could be as low as $0.00 and result in a total loss of investment to our stockholders.

If we fail to achieve the expected financial and operational benefits of our recent cash preservation activities, our business and financial results may be harmed.

Following the suspension of development activities of our only product candidate, mavodelpar, we implemented a reduction in workforce in December 2023 and February 2024, which resulted in approximately $4.1 million in severance and continuation of benefit expenses. The estimates of the costs we expect to incur, and the successful implementation of the restructuring activities pursuant to the cash preservation activities, are subject to a number of assumptions, risks and uncertainties, and actual results may differ from the above-described estimates. We may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the cash preservation activities. Restructuring activities may also result in a loss of continuity, accumulated knowledge and inefficiency during transitional periods and thereafter. In addition, restructurings can require a significant amount of time and focus from management and other employees, which may divert attention from our core business activities.

As a result of the negative data from our STRIDE clinical study and the reductions in our workforce that we implemented in December 2023 and February 2024, we may not be successful in retaining key employees. If we are unable to retain our remaining staff, our ability to identify and evaluate and pursue strategic alternatives and consummate any strategic alternative will be seriously jeopardized.

We implemented a reduction in workforce in December 2023 and February 2024, and currently have eight full-time employees remaining. Our cash preservation activities may yield unintended consequences, such as attrition beyond our reductions in workforce and reduced employee morale which may cause our remaining employees to seek alternate employment. Competition among biotechnology companies for qualified employees is intense. Following the suspension of development activities for mavodelpar, our ability to retain our key employees is critical to our ability to effectively manage our resources to consummate a potential strategic transaction. In addition, as a result of the workforce reductions, we face an increased risk of employment litigation.

If we pursue further development of any other product candidates, we will need substantial additional capital to develop and commercialize such product candidates and implement any such operating plan. If we fail to raise additional capital, we may be unable to begin or forced to delay, reduce or eliminate any product development programs or commercialization efforts.*

Our operations have consumed substantial amounts of cash since our inception. In December 2023, we suspended the development activities of our only product candidate, mavodelpar, and implemented cash preservation activities, including substantial workforce reductions. However, if we pursue further development of any future product candidates, we will require significant additional amounts of capital in order to prepare for commercialization, and, if approved, to launch and commercialize such product candidates. As of March 31, 2024, we had cash, cash equivalents and short-term investments of $82.8 million. Based on our current operating plan, we believe that our cash, cash equivalents and short-term investments as of March 31, 2024 will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Our future capital requirements will depend on many factors, including:

the success of our activities to evaluate and pursue strategic alternatives;
the scope, progress, results and costs of clinical trials and preclinical studies for any product candidates;
the scope, prioritization and number of our research and indications we pursue;

27


 

the costs and timing of manufacturing for any product candidates;
the costs, timing, and outcome of regulatory review of any product candidates;
the timing and amount of any future milestone or other payments to licensors;