OnKure Therapeutics, Inc. 10-Q

Item 1. Financial Statements RENEO PHARMACEUTICALS, INC. Consolidated Balance Sheets (In thousands, except share and par value data) September 30, 2022 December 31, 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 62,132 $ 124,660 Short-term investments 53,948 23,010 Prepaid expenses and other current assets 4,918 6,064 Total current assets 120,998 153,734 Property and equipment, net 241 212 Right-of-use assets 1,186 — Other non-current assets 79 78 Total assets $ 122,504 $ 154,024 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,189 $ 2,022 Accrued expenses 6,851 4,180 Operating lease liabilities, current portion 410 — Total current liabilities 9,450 6,202 Operating lease liabilities, less current portion 943 — Other long-term liabilities — 167 Performance award 66 444 Total liabilities 10,459 6,813 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.0001 par value; 200,000,000 shares authorized at September 30, 2022 and December 31, 2021; 24,529,646 shares issued and outstanding at September 30, 2022; and 24,457,838 and 24,455,390 shares issued and outstanding at December 31, 2021, respectively 3 3 Additional paid-in capital 235,151 231,902 Accumulated deficit ( 123,083 ) ( 84,728 ) Accumulated other comprehensive (loss) income ( 26 ) 34 Total stockholders’ equity 112,045 147,211 Total liabilities and stockholders’ equity $ 122,504 $ 154,024 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating expenses: Research and development $ 9,938 $ 9,318 $ 27,348 $ 21,069 General and administrative 3,902 3,434 11,938 8,125 Total operating expenses 13,840 12,752 39,286 29,194 Loss from operations ( 13,840 ) ( 12,752 ) ( 39,286 ) ( 29,194 ) Other income 833 17 931 31 Net loss ( 13,007 ) ( 12,735 ) ( 38,355 ) ( 29,163 ) Unrealized (loss) gain on short-term investments ( 194 ) 12 ( 60 ) 17 Comprehensive loss $ ( 13,201 ) $ ( 12,723 ) $ ( 38,415 ) $ ( 29,146 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.53 ) $ ( 0.52 ) $ ( 1.57 ) $ ( 1.82 ) Weighted-average shares used in computing net loss per share, basic and diluted 24,496,313 24,396,798 24,472,974 16,025,813 The accompanying notes are an integral part of these consolidated financial statements. 4 RENEO PHARMACEUTICALS, INC. Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit ) (In thousands, except share data) (Unaudited) Convertible Preferred Stock Additional Accumulated Other Total Series A Series B Common Stock Paid-In Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Income (Loss) Deficit Equity Balances, December 31, 2021 — $ — — $ — 24,455,390 $ 3 $ 231,902 $ 34 $ ( 84,728 ) $ 147,211 Stock based compensation — — — — — — 1,107 — — 1,107 Issuance of common stock in connection with equity plans — — — — 3,160 — 6 — — 6 Other comprehensive income — — — — — — — 30 — 30 Net loss — — — — — — — — ( 13,036 ) ( 13,036 ) Balances, March 31, 2022 — $ — — $ — 24,458,550 $ 3 $ 233,015 $ 64 $ ( 97,764 ) $ 135,318 Stock based compensation — — — — — — 1,006 — — 1,006 Issuance of commons stock in connection with equity plans — — — — 21,096 — 41 — — 41 Other comprehensive income — — — — — — — 104 — 104 Net loss — — — — — — — — ( 12,312 ) ( 12,312 ) Balances, June 30, 2022 — $ — — $ — 24,479,646 $ 3 $ 234,062 $ 168 $ ( 110,076 ) $ 124,157 Stock based compensation — — — — — — 990 — — 990 Issuance of commons stock in connection with equity plans — — — — 50,000 — 99 — — 99 Other comprehensive loss — — — — — — — ( 194 ) — ( 194 ) Net loss — — — — — — — — ( 13,007 ) ( 13,007 ) Balances, September 30, 2022 — $ — — $ — 24,529,646 $ 3 $ 235,151 $ ( 26 ) $ ( 123,083 ) $ 112,045 The accompanying notes are an integral part of these consolidated financial statements. 5 RENEO PHARMACEUTICALS, INC. Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Continued) (In thousands, except share data) (Unaudited) Convertible Preferred Stock Additional Accumulated Other Total Series A Series B Common Stock Paid-In Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Income Deficit Equity (Deficit) Balances, December 31, 2020 24,302,472 $ 45,652 23,440,514 $ 47,068 2,053,070 — $ 2,843 $ — $ ( 44,958 ) $ ( 42,115 ) Issuance of series B convertible preferred stock, net of issuance costs of $ 29 — — 23,440,514 47,356 — — — — — — Stock based compensation — — — — — — 471 — — 471 Issuance of common stock in connection with equity plans — — — — 70,663 — 139 — — 139 Net loss — — — — — — — — ( 7,212 ) ( 7,212 ) Balances, March 31, 2021 24,302,472 $ 45,652 46,881,028 $ 94,424 2,123,733 $ — $ 3,453 $ — $ ( 52,170 ) $ ( 48,717 ) Conversion of convertible preferred stock into common stock upon initial public offering ( 24,302,472 ) ( 45,652 ) ( 46,881,028 ) ( 94,424 ) 15,907,629 2 140,076 — — 140,078 Issuance of common stock in initial public offering, net of offering costs — — — — 6,250,000 1 84,532 — — 84,533 Stock based compensation — — — — — — 854 — — 854 Issuance of common stock in connection with equity plans — — — — 7,337 — 14 — — 14 Other comprehensive income — — — — — — — 5 — 5 Net loss — — — — — — — — ( 9,216 ) ( 9,216 ) Balances, June 30, 2021 — $ — — $ — 24,288,699 $ 3 $ 228,929 $ 5 $ ( 61,386 ) $ 167,551 Stock based compensation — — — — — — 1,145 — — 1,145 Issuance of common stock in connection with equity plans — — — — 119,073 — 235 — — 235 Other comprehensive income — — — — — — — 12 — 12 Net loss — — — — — — — — ( 12,735 ) ( 12,735 ) Balances, September 30, 2021 — $ — — $ — 24,407,772 $ 3 $ 230,309 $ 17 $ ( 74,121 ) $ 156,208 The accompanying notes are an integral part of these consolidated financial statements. 6 RENEO PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net loss $ ( 38,355 ) $ ( 29,163 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 3,103 2,470 Depreciation and amortization 63 33 Amortization/accretion on short-term investments ( 169 ) 113 Changes in the fair value of performance award ( 378 ) 284 Non-cash lease expense 338 — Loss on disposal of fixed asset 3 — Changes in operating assets and liabilities: Prepaid expenses and other assets 1,146 ( 3,577 ) Accounts payable and accrued expenses 2,838 1,816 Operating lease liabilities ( 338 ) — Other current and long-term liabilities — 62 Net cash used in operating activities ( 31,749 ) ( 27,962 ) Cash flows from investing activities Purchases of property and equipment ( 96 ) ( 108 ) Purchase of available-for-sale short-term investments ( 67,329 ) ( 31,421 ) Proceeds from maturities of available-for-sale short-term investments 36,500 — Net cash used in investing activities ( 30,925 ) ( 31,529 ) Cash flows from financing activities Proceeds from issuance of Series B convertible preferred stock, net of issuance costs — 47,239 Proceeds from initial public offering, net of offering costs — 84,641 Proceeds from issuance of common stock in connection with equity plans 146 407 Net cash provided by financing activities 146 132,287 Net (decrease) increase in cash and cash equivalents ( 62,528 ) 72,796 Cash and cash equivalents, beginning of period 124,660 53,613 Cash and cash equivalents, end of period $ 62,132 $ 126,409 Noncash operating activities: Right-of-use assets obtained in exchange for lease obligations $ 1,524 $ — Noncash investing and financing activities: Property and equipment in accounts payable $ — $ 56 Vesting of unvested exercised options $ — $ 19 The accompanying notes are an integral part of these consolidated financial statements. 7 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 clinical-stage pharmaceutical company focused on the development of therapies for patients with rare genetic mitochondrial diseases. In December 2017, the Company in-licensed REN001, a novel oral peroxisome proliferator-activated receptor (PPAR) agonist. Initial Public Offering On April 13, 2021, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 6,250,000 shares of its common stock at a price to the public of $ 15.00 per share. The gross proceeds from the IPO were approximately $ 93.8 million before deducting underwriting discounts and commissions of $ 6.6 million and offering expenses of approximately $ 2.6 million payable by the Company. At the closing of the IPO, 71,183,500 shares of outstanding convertible preferred stock were automatically converted into 15,907,629 shares of common stock. Following the IPO, there were no shares of preferred stock outstanding. Liquidity Since inception in 2014, the Company has incurred significant losses and negative cash flows from operations. As of September 30, 2022, the Company had cash, cash equivalents and short-term investments of $ 116.1 million and an accumulated deficit of $ 123.1 million. Due to the Company’s continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future and may never become profitable. As a result, the Company will need to raise capital through public or private equity or debt financings, government or other third-party funding, collaborations, strategic alliances and licensing arrangements or a combination of these. In May 2022, the Company entered into an at-the-market equity offering sales agreement with SVB Securities LLC (ATM facility) under which the Company may offer and sell, from time to time at its sole discretion, up to $ 20.0 million in shares of its common stock. The Company has no t sold shares of common stock under the ATM facility as of September 30, 2022. 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, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions, disruptions to and volatility in, financial markets in the United States and worldwide, as well as actual or perceived changes in interest rates and economic inflation. The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all. In addition, successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. 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 8 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 latest Annual Report on Form 10-K. 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 subsidiaries as of September 30, 2022 ; all intercompany transactions and balances have been eliminated. Summary of Significant Accounting Policies The significant accounting policies used in the preparation of these consolidated financial statements for the nine months ended September 30, 2022 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, 2021. New Accounting Pronouncements Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASC 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires a lessee to recognize a liability for lease payments (lease liability) and a right-of-use (ROU)assets (representing its right to use the underlying asset for the lease term) on the balance sheet. In July 2018, the FASB issued ASU 2018-11, Leases (ASC 842): Targeted Improvements , which provides entities an optional transition method to apply the new guidance as of the adoption date, rather than as of the earliest period presented. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the effective date, unless the lease was modified, to not reassess (a) whether a contract is or contains a lease, (b) lease classification or (c) determination of initial direct costs, which effectively allows entities to carryforward accounting conclusions under previous GAAP. The Company early adopted this standard on January 1, 2022 , using the optional transitional method and elected the package of practical expedients in transition for leases that commenced prior to January 1, 2022. As a result of implementing ASC 842, the Company recognized operating lease ROU assets of $ 1.5 million and lease liabilities of $ 1.7 million on January 1, 2022, with no impact on its beginning retained earnings, consolidated statements of operations and comprehensive loss, or cash flows. See Note 6, Leases, for further details. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes . The standard simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification (ASC) 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new guidance was effective for the Company as of January 1, 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted this standard on January 1, 2022 . Adoption of this standard had no material impact on the Company’s consolidated financial position, results of operations or cash flows. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (ASC 326), Measurement of Credit Losses on Financial Instruments . The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in the carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. This new guidance is effective for the Company as of January 1, 2023. The Company is currently evaluating the impact of this ASU and does not expect that adoption of this standard will have a material impact on its consolidated financial statements and related disclosures. 9 In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . The ASU clarifies that (1) a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value, (2) an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction, and (3) new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with ASC 820. The new guidance is effective for the Company for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. 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 restricted stock units were excluded from the diluted net loss per share calculation for the three and nine months ended September 30, 2022 and 2021 because such shares are anti-dilutive. Reverse Stock Split On April 5, 2021, in connection with the IPO, the Company effected a 1-for-4.4748 reverse stock split of its common stock. The par value and the authorized number of shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the Series A and Series B convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying consolidated financial statements and notes to the consolidated financial statements give retroactive effect to the reverse stock split for all periods presented. Historical outstanding anti-dilutive securities not included in the diluted net loss per share calculation include the following: As of September 30, 2022 2021 Common stock options outstanding 4,470,120 3,215,904 Unvested restricted stock units 309,500 — Total 4,779,620 3,215,904 4. Fair Value Measurements ASC 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 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 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, that 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. 10 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 categorized its money market funds as Level 1, using the quoted prices in active markets. U.S. treasury securities and commercial paper are valued using Level 2 significant other observable inputs. The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. 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 award 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 nine months ended September 30, 2022. The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at September 30, 2022 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 $ 15,634 $ — $ — $ 15,634 U.S. treasury securities — 37,907 — 37,907 Short-term Investments: U.S. treasury securities — 53,923 — 53,923 Commercial paper — 22,484 — 22,484 Total $ 15,634 $ 114,314 $ — $ 129,948 Liabilities Performance award $ — $ — $ 66 $ 66 Total $ — $ — $ 66 $ 66 The following table summarizes changes in fair value measurements of the Performance Award during the nine months ended September 30, 2022 (in thousands): Performance Award Balance as of January 1, 2022 $ 444 Change in fair value ( 378 ) Balance as of September 30, 2022 $ 66 T he recurring fair value measurement of the Company’s assets and liabilities measured at fair value at December 31, 2021 consisted of the following (in thousands): 11 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 $ 118,535 $ — $ — $ 118,535 Short-term Investments: Commercial paper — 23,010 — 23,010 Total $ 118,535 $ 23,010 $ — $ 141,545 Liabilities Performance award $ — $ — $ 444 $ 444 Total $ — $ — $ 444 $ 444 5 . Accrued Expenses Accrued expenses consisted of the following (in thousands): As of September 30, 2022 As of December 31, 2021 Accrued clinical and regulatory $ 1,955 $ 1,236 Accrued contract manufacturing cost 2,088 1,482 Accrued compensation 2,287 1,027 Accrued research and development-other 521 435 Total accrued expenses $ 6,851 $ 4,180 6. Leases The Company’s headquarters are located in Irvine, California, where it leases office space. The Company leases additional office space located in San Diego, California, and in Sandwich, United Kingdom. The lease terms for the Irvine, San Diego, and Sandwich offices extend through November 30, 2026, July 31, 2023, and December 20, 2022, respectively. On October 20, 2022, the Company and Discovery Park Limited entered into a lease agreement (2022 Lease Agreement) for approximately 2,600 square feet of office space located in Sandwich, United Kingdom, with a term of 5 years and a termination option after three years . The Company did not have control of the space as of September 30, 2022. Therefore, no ROU or lease liabilities were recorded in connection with the 2022 Lease Agreement as of September 30, 2022. The Company adopted ASU 2016-02 on January 1, 2022, which requires it to recognize a liability for lease payments and a ROU asset on the balance sheet. The Company elected the package of practical expedients permitted within the standard, which allows an entity to forego reassessing (i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease and non-lease components. At September 30, 2022 , the weighted average incremental borrowing rate was 5 % and the weighted average remaining lease term was 3.8 years for the operating leases held by the Company. During the three and nine months ended September 30, 2022, cash paid for amounts included for the measurement of lease liabilities was $ 0.1 million and $ 0.4 million, respectively. During the three and nine months ended September 30, 2022, the Company recorded operating lease expense of $ 0.1 million and $ 0.4 million, respectively. 12 Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows: As of September 30, 2022 2022 (remaining three months) $ 132 2023 414 2024 323 2025 332 2026 285 Total lease payments 1,486 Less: Imputed interest ( 133 ) Present value of lease liabilities $ 1,353 7. Convertible Preferred Stock Series A Convertible Preferred Stock As of September 30, 2022 , there were no shares of Series A convertible preferred stock outstanding. In connection with the IPO (Note 1) in April 2021, all outstanding shares of Series A convertible preferred stock were converted into 5,430,957 shares of common stock. Series B Convertible Preferred Stock As of September 30, 2022 , there were no shares of Series B convertible preferred stock outstanding. In March 2021, the Company completed the milestone closing of its the Series B convertible preferred stock financing and sold a total of 23,440,514 shares of Series B convertible preferred stock, at $ 2.0215 per share, for aggregate net proceeds of approximately $ 47.4 million. In connection with the IPO in April 2021, all outstanding shares of Series B convertible preferred stock were converted into 10,476,672 shares of common stock. 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 effectiveness 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 employees and consultants of the Company’s 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 September 30, 2022 , there were no shares subject to stock options that have been early exercised. Shares Reserved for Future Issuance As of September 30, 2022, the Company had reserved shares of its common stock for future issuance as follows: Shares Reserved Common stock options outstanding 4,470,120 Unvested restricted stock units 309,500 Available for future grants under the 2021 Equity Incentive Plan 1,977,969 Available for future grants under the 2021 Employee Stock Purchase Plan 457,916 Total shares of common stock reserved 7,215,505 13 Stock Options A summary of the Company’s stock option activity and related information during the nine months ended September 30, 2022 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, 2021 4,215,643 $ 5.49 8.5 $ 13,530 Granted 555,576 4.36 Exercised ( 50,712 ) 1.99 Forfeited/Expired ( 250,387 ) 6.09 Outstanding at September 30, 2022 4,470,120 $ 5.36 7.7 $ 729 Vested at September 30, 2022 1,991,029 $ 5.02 6.4 $ 479 Exercisable at September 30, 2022 2,898,534 $ 4.98 6.9 $ 479 Options exercisable as of September 30, 2022 include vested options and options eligible for early exercise. All outstanding options as of September 30, 2022 are expected to vest. Unrecognized stock-based compensation expense at September 30, 2022 was $ 9.0 million, which is expected to be recognized over a weighted-average vesting term of 2.6 years. The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Risk-free interest rate 3.1 % 1.0 % 2.5 % 0.7 % Expected volatility 93.6 % 90.7 % 87.2 % 72.9 % Expected term (in years) 6.0 6.1 5.9 5.9 Expected dividend yield — % — % — % — % 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. Since the Company does not have sufficient trading history for its common stock the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. 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. Fair value of common stock. For periods prior to the Company's IPO in April 2021, since there had been no public market for the Company’s common stock, the Company’s board of directors, with input from management, determined the fair value of the Company’s common stock on each grant date by considering a number of objective and subjective factors, including the most recent independent third-party valuations of the Company’s common stock, sales of the Company’s convertible preferred stock to unrelated third-parties, operating and financial performance of the Company, the lack of liquidity of capital stock and general and industry-specific economic outlook, and the Company’s board of directors’ assessment of additional objective and subjective factors that it believed were relevant. 14 Performance-Based Restricted Stock Units (PSUs) The following table summarizes PSU activity as of September 30, 2022: Number of PSUs Weighted-Average Grant Date Fair Value Unvested at December 31, 2021 299,500 $ 6.32 Granted 40,000 4.43 Cancelled ( 30,000 ) 6.69 Unvested at September 30, 2022 309,500 $ 6.04 The PSUs vest based on the Company achieving certain regulatory milestones and are 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 concluded that achievement of the performance conditions was not probable as of September 30, 2022 , and therefore no stock-based compensation expense was recognized for the three and nine months ended September 30, 2022 in connection with the PSUs. As of September 30, 2022, unrecognized stock-based compensation expense related to the PSUs that were deemed not probable was $ 1.4 million. Market-Based Awards Restricted Stock Units In December 2021, the Company granted 100,000 market-based restricted stock units (MRSUs) to its CEO pursuant to the 2021 Plan. The MRSUs vest 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 MRSUs was $ 6.69 per share. The fair value was $ 0.4 million based on Monte Carlo simulation model on the grant date. Stock-based compensation expense is recognized over the derived service period of 3 years . Stock-based compensation expense in connection with the MRSUs was $ 0.1 million for the nine months ended September 30, 2022. As of September 30, 2022, there was $ 0.3 million of unrecognized stock-based compensation expense related to this MRSU. 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 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 directors, exceeds $ 750 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 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. During the nine months ended September 30, 2022 , the Company reversed approximately $ 0.4 million in stock-based compensation expenses as a direct result of decreased value of the Performance Award caused by a decline in the Company’s common stock price. 2021 Employee Stock Purchase Plan (ESPP) In March 2021, the Company’s board of directors adopted the ESPP, which became effective immediately prior to the execution of the underwriting agreement in connection with the Company’s IPO. As of September 30, 2022 , 29,720 shares have been issued under the ESPP. 15 In September 2021, the Company’s board of directors 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. No shares have been issued under the SAYE through September 30, 2022. The stock-based compensation expense related to the ESPP and SAYE for the three and nine months ended September 30, 2022 and 2021, was immaterial. The following table summarizes stock-based compensation expense, including expense associated with award modifications for unvested options, reflected in the unaudited consolidated statements of operations and comprehensive loss (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Research and development $ 411 $ 1,001 $ 1,184 $ 2,093 General and administrative 579 144 1,919 377 Total $ 990 $ 1,145 $ 3,103 $ 2,470 9. License Agreement In December 2017, the Company entered into a License Agreement with vTv Therapeutics LLC (vTv Therapeutics) (the vTv License Agreement), 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 REN001, for any therapeutic, prophylactic or diagnostic application in humans. To date, the Company has paid a $ 3.0 million upfront payment and $ 2.0 million in milestone payments and issued an aggregate of 576,443 shares of its common stock to vTv Therapeutics. 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. 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 and nine months ended September 30, 2022 and 2021 . 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, 2021. 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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” 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 clinical-stage pharmaceutical company 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 (ATP). Our lead product candidate, REN001, is a potent and selective agonist of the peroxisome proliferator-activated receptor delta (PPARδ). REN001 has been shown to increase transcription of genes involved in mitochondrial function and increase fatty acid oxidation, and may increase production of new mitochondria. The PPAR family of nuclear hormone receptors, PPARα, PPARγ, and PPARδ, control the transcription of genes critical for regulating energy metabolism and homeostasis. PPARδ is highly expressed in muscle, kidney, brain, and liver tissue. Activation of PPARδ results in changes in the expression of genes involved with multiple aspects of energy metabolism including uptake of fatty acids, utilization of fatty acids as an energy source, and mitochondrial biogenesis. Increases in PPARδ activity also correlate with a shift in muscle tissue towards oxidative, fat-consuming type I fibers that are associated with endurance as opposed to glycolytic, type II fibers. In preclinical and clinical studies, increased PPARδ activity through transgenic overexpression or pharmacological activation increases muscular strength and endurance across a variety of functional measures. REN001 was studied in healthy male volunteers with one leg immobilized to produce muscle atrophy. Compared to placebo, administration of REN001 resulted in statistically significant increases in expression of genes involved in mitochondrial oxidative phosphorylation, and statistically significant improvements in muscle strength. REN001 was also studied in an open-label trial in patients with primary mitochondrial myopathies (PMM). In this trial, administration of REN001 improved function, reduced symptoms, and increased expression of genes involved in mitochondrial activities. As a PPARδ agonist, REN001 may benefit patients with genetic mitochondrial myopathies who experience weakness, fatigue, or deterioration in muscle due to impaired mitochondrial energy production. Patients with these diseases are unable to perform many everyday activities, can experience cardiomyopathy and other organ dysfunction, and typically have a reduced life expectancy. We are currently developing REN001 in rare genetic diseases that typically present with myopathy, including PMM and long-chain fatty acid oxidation disorders (LC-FAOD). 17 There are currently no approved therapies for the treatment of PMM, representing a high unmet medical need with more than 66,000 and 82,000 patients with PMM in the United States and Europe, respectively. There are approximately 5,000 and more than 6,000 LC-FAOD patients in the United States and Europe, respectively. We have received orphan drug designation from the U.S. Food and Drug Administration (FDA) for REN001 for the treatment of PMM and LC-FAOD and Fast Track designation for REN001 for treatment of PMM in the United States. Additionally, we have received orphan drug designation for REN001 for treatment of long-chain 3-hydroxy acyl-CoA dehydrogenase (LCHAD) and mitochondrial encephalomyopathy, lactic acidosis, and neurological stroke-like episodes (MELAS) in the European Union (EU). We completed an open-label Phase 1b study in PMM patients with mitochondrial DNA (mtDNA) defects to assess the safety and tolerability of REN001, and measure changes in functional tests such as walk distance, exercise capacity and patient-reported symptoms that could serve as potential endpoints in future clinical studies. REN001 was well-tolerated and had an adequate safety profile in this trial. Compared to baseline, patients receiving REN001 once-daily for 12 weeks experienced an average increase in distance of 104.4 meters in the 12-minute walk test (12MWT), an average increase in weight-adjusted peak oxygen consumption (VO 2 ) of 1.7 mL/kg/min, a reduction in fatigue and pain, and increased expression of genes involved with transport and metabolism of nutrients in the mitochondria including Pyruvate dehydrogenase lipoamide kinase isozyme 4 (PDK4), Angiopoietin-like 4 (ANGPTL4), and Solute carrier family 25 member 34 (SLC25A34). Based on these results, we initiated a global, randomized, double-blind, placebo-controlled pivotal Phase 2b study of REN001 in adult PMM patients with mtDNA (STRIDE). As of November 2022, we have achieved over 80% enrollment on our ongoing STRIDE study. We expect to complete enrollment of this pivotal trial in the first quarter of 2023 and anticipate announcement of topline results in the fourth quarter of 2023. We are also conducting a two-year, open-label, long-term safety trial in PMM patients (STRIDE AHEAD) outside the United States. Following our interactions with the FDA, European Medicines Agency (EMA), and several other National regulatory agencies in Europe, we believe that positive results from the ongoing pivotal STRIDE and STRIDE AHEAD studies could potentially support registration of REN001 for PMM patients with mtDNA in the United States and Europe. In addition, we are planning to study REN001 in PMM patients with nuclear DNA (nDNA) defects. We completed an open-label Phase 1b study in LC-FAOD patients with nuclear DNA (nDNA) defects to assess the safety and tolerability of REN001, and measure changes in functional tests such as walk distance, exercise capacity and patient-reported symptoms that could serve as potential endpoints in future clinical studies. The study included patients with defective LCHAD, carnitine palmitoyltransferase 2 (CPT2), very long-chain acyl-CoA dehydrogenase (VCLAD), or trifunctional protein (TFP). REN001 was well-tolerated and had an adequate safety profile in this trial. The LCHAD and CPT2 groups had the greatest improvement over baseline in 12MWT (73.7 and 51.9 meters, respectively). We also completed an observational, non-interventional study in LC-FAOD patients with nDNA defects to better understand the natural history of LC-FAOD and changes in patient function and symptoms over time (FORWARD). Results of the studies were presented at the International Network of Fatty Acid Oxidation Research and Management (INFORM) Conference in August 2022. Based on the results of the LC-FAOD Phase 1b study, in conjunction with the results of the FORWARD study, we intend to continue development of REN001 in LC-FAOD patients. We expect feedback from the FDA in the first quarter of 2023 that will direct our regulatory pathways for our LC-FAOD program. Since our inception in 2014, our operations have primarily focused on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical, clinical and manufacturing development for REN001. We do not have any product candidates approved for sale, have not generated any revenue from product sales, and do not expect to generate revenues from the commercial sale of our product candidate for several years, if ever. Since inception, we have incurred significant operating losses. Our net losses were $38.4 million and $29.2 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $123.1 million, and cash, cash equivalents and short-term investments of $116.1 million. We have funded our operations primarily through the issuance and sale of equity securities. In May 2022, we entered into an at-the-market equity offering sales agreement with SVB Securities LLC (ATM facility) under which we may offer and sell, from time to time at our sole discretion, up to $20.0 million in shares of our common stock. We have not yet sold any shares of our common stock under the ATM facility. We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase as we conduct our ongoing and planned clinical trials and preclinical studies, engage in other research and development activities, seek regulatory 18 approvals for any product candidates that successfully complete clinical trials, incur development milestone payments related to our research and development activities, prepare for commercialization, hire additional personnel, and protect our intellectual property. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, our expenditures on other research and development, and commercialization activities. As a result, we will need to raise additional capital. Until such time as we can generate significant revenue from sales of our product candidate, if ever, we expect to finance our operations through public or private equity offerings or debt financings, credit or loan facilities, collaborations, strategic alliances, licensing arrangements or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, the credit and financial markets in the United States and worldwide, including those resulting from the ongoing COVID-19 pandemic, as well as actual or perceived changes in interest rates and economic inflation. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Based upon our current operating plan, we believe that our cash, cash equivalents, and short-term investments as of September 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements into 2024. COVID-19 The COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 situation closely. The extent of the impact of COVID-19 on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the pandemic, including new variants of the virus, and its impact on our clinical trial enrollment, trial sites, contract research organizations, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. For example, our Phase 1b study of REN001 in PMM patients was closed early as a result of COVID-19, and we may face future clinical trial disruptions. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees and the communities in which we operate. While we have experienced impacts to our clinical development activities as a result of COVID-19, there has been minimal disruption to date in our ability to ensure the effective operation of our business. We will continue to actively monitor the evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain. License Agreement In December 2017, we entered into a License Agreement with vTv Therapeutics LLC (vTv Therapeutics) (the vTv License Agreement), 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 REN001, for any therapeutic, prophylactic or diagnostic application in humans. 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. 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. 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 and nine months ended September 30, 2022 and 2021. 19 Components of Our Results of Operations Operating Expenses Research and Development Expenses To date, our research and development expenses have primarily related to preclinical and clinical development of REN001. Research and development expenses include: • personnel expenses, including 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; • facility costs including rent, 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 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Clinical and regulatory $ 5,555 $ 3,686 $ 14,143 $ 10,796 Contract manufacturing cost 2,469 2,570 6,802 5,035 Nonclinical 577 696 3,060 2,024 Research and development-other expense 1,337 2,366 3,343 3,214 Total $ 9,938 $ 9,318 $ 27,348 $ 21,069 We expect our research and development expenses to increase substantially for the foreseeable future as we advance our product candidate through clinical trials, continue to conduct preclinical studies and pursue regulatory approval for our product candidate. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidate may be affected by a variety of factors including: the safety and efficacy of our product candidate, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for our product candidate. As a result of the uncertainties discussed above, at this time we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of and obtain regulatory approval for our product candidate. Our research and development costs may vary significantly based on factors such as: • 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; 20 • uncertainties in patient enrollment or drop out or discontinuation rates, particularly in light of the current COVID-19 pandemic environment; • 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 salaries, benefits, and stock-based compensation expense, for personnel in executive, finance, accounting, and human resource and other administrative functions. General and administrative expenses also include corporate facility costs not otherwise included in research and development expenses, legal fees related to intellectual property and corporate matters, insurance costs and fees for accounting and consulting services. We expect our general and administrative expenses to increase for the foreseeable future to support continued research and development activities, including our ongoing and planned research and development of our product candidate for multiple indications. 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 September 30, 2022 and 2021 (Unaudited) The following table summarizes our results of operations (in thousands): Three Months Ended September 30, 2022 2021 Change Operating expenses: Research and development $ 9,938 $ 9,318 $ 620 General and administrative 3,902 3,434 468 Total operating expenses 13,840 12,752 1,088 Loss from operations (13,840 ) (12,752 ) (1,088 ) Other income 833 17 816 Net loss $ (13,007 ) $ (12,735 ) $ (272 ) Research and Development Expenses Research and development expenses for the three months ended September 30, 2022 were $9.9 million, compared to $9.3 million for the three months ended September 30, 2021. This increase of $0.6 million was primarily due to a $1.4 million increase in clinical study and manufacturing costs primarily related to our STRIDE study and a $0.8 million increase in personnel-related costs due to the additional headcount required to support our clinical and manufacturing operations, offset by a $1.5 million decrease in non-clinical activities. General and Administrative Expenses General and administrative expenses for the three months ended September 30, 2022 were $3.9 million, compared to $3.4 million for the three months ended September 30, 2021. This increase of $0.5 million was primarily attributable to increased costs to operate as a public company, including increases in outside professional services of $0.8 million offset by a decrease in stock-based compensation of $0.4 million. 21 Other Income The increase in other income for the three months ended September 30, 2022, compared to the same period in the prior year was due to a higher interest rate earned on our short-term investments. Comparison of Nine Months Ended September 30, 2022 and 2021 (Unaudited) The following table summarizes our results of operations (in thousands): Nine Months Ended September 30, 2022 2021 Change Operating expenses: Research and development $ 27,348 $ 21,069 $ 6,279 General and administrative 11,938 8,125 3,813 Total operating expenses 39,286 29,194 10,092 Loss from operations (39,286 ) (29,194 ) (10,092 ) Other income 931 31 900 Net loss $ (38,355 ) $ (29,163 ) $ (9,192 ) Research and Development Expenses Research and development expenses for the nine months ended September 30, 2022 were $27.3 million, compared to $21.1 million for the nine months ended September 30, 2021. This increase of $6.3 million was primarily due to an increase of $4.0 million related to clinical trial and manufacturing costs associated with the launch of our STRIDE study as well as our Phase 1b clinical trials of LC-FAOD. In addition, there was a $2.7 million increase in personnel-related costs due to the additional headcount required to support our clinical and manufacturing operations offset by a $0.4 million decrease in non-clinical activities. General and Administrative Expenses General and administrative expenses for the nine months ended September 30, 2022 were $11.9 million, compared to $8.1 million for the nine months ended September 30, 2021. This increase of $3.8 million was primarily attributable to increased costs to operate as a public company, including increases in outside professional services of $3.3 million, insurance premiums of $0.3 million, and personnel-related expenses of $0.2 million. Other Income The increase in other income for the nine months ended September 30, 2022, compared to the same period in the prior year was due to a higher interest rate earned on our short-term investments. Liquidity and Capital Resources Since inception, we have incurred operating losses and negative cash flows from operations and have funded our operations primarily through the sale of preferred and common stock. We do not have any product candidates approved for sale and have not generated any revenue from product sales, and we do not expect to generate revenues from the commercial sale of our product candidate for at least the foreseeable future, if ever. We are subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. We continue to incur additional costs associated with operating as a public company. We anticipate that we will need substantial additional funding in connection with our continuing operations. In May 2022, we entered into the ATM facility under which we may offer and sell, from time to time at our sole discretion, up to $20.0 million in shares of our common stock. We have not yet sold any shares of our common stock under the ATM facility. 22 Cash Flows The following table summarizes our cash flows (unaudited and in thousands): Nine Months Ended September 30, 2022 2021 Net cash used in operating activities $ (31,749 ) $ (27,962 ) Net cash used in investing activities (30,925 ) (31,529 ) Net cash provided by financing activities 146 132,287 Net (decrease) increase in cash and cash equivalents $ (62,528 ) $ 72,796 Operating Activities Net cash used in operating activities for the nine months ended September 30, 2022 was $31.7 million, consisting primarily of our net loss of $38.4 million adjusted for non-cash items of $3.0 million primarily due to stock-based compensation expense and a $3.6 million net change in operating assets and liabilities. The change in our net operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $2.8 million due to timing of receipt of invoices and payments and a decrease in prepaid and other current assets of $1.1 million. Net cash used in operating activities for the nine months ended September 30, 2021 was $28.0 million, consisting primarily of our net loss of $29.2 million and a $1.7 million net decrease in operating assets and liabilities, partially offset by $2.9 million in non-cash charges primarily consisting of stock-based compensation expense. Investing Activities Net cash used in investing activities for the nine months ended September 30, 2022 and 2021 was $30.9 million and $31.5 million, respectively, consisting primarily of the purchases of available-for-sale short-term investments. Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2022 was immaterial. Net cash provided by financing activities for the nine months ended September 30, 2021 was $132.3 million, consisting primarily of $84.6 million of net proceeds from our initial public offering (IPO), $47.4 million of net proceeds from the issuance of Series B convertible preferred stock, and $0.4 million of proceeds from the exercise of stock options. Funding Requirements We will need to raise additional capital through public or private equity offerings or debt financings, credit or loan facilities, collaborations, strategic alliances, licensing arrangements or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, the credit and financial markets in the United States and worldwide, including those resulting from the ongoing COVID-19 pandemic, as well as actual or perceived changes in interest rates and economic inflation. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Our future capital requirements will depend on many factors, including: • the scope, progress, results and costs of clinical trials and preclinical studies for REN001; • the scope, prioritization and number of our research and clinical indications we pursue; • the costs and timing of manufacturing for our product candidates; • the costs, timing, and outcome of regulatory review of REN001; • the timing and amount of the milestone or other payments we must make to vTv Therapeutics and any future licensors; • the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; 23 • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • the extent to which we acquire or in-license other product candidates and technologies; • the costs of securing manufacturing arrangements for commercial production; • our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; and • the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market any product candidates. As of September 30, 2022, we had $116.1 million in cash, cash equivalents and short-term investments. We believe, based upon our current operating plan, that our cash, cash equivalents and short-term investments as of September 30, 2022 will be sufficient to fund our planned operations into 2024. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive, and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidate, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of a product candidate that we do not expect to be commercially available for many years, if at all. Until such time as we can generate significant revenue from sales of our product candidate, if ever, we expect to finance our operations through public or private equity offerings or debt financings, credit or loan facilities, collaborations, strategic alliances, licensing arrangements or a combination of one or more of these funding sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidate that we would otherwise prefer to develop and market ourselves. Material Cash Requirements The discussion below summarizes our significant contractual obligations and commitments as of September 30, 2022. Leases . See Note 6 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information, 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, including the maximum payout. vTv License Agreement . See Note 9 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information, including the milestone payments, associated with the vTv License Agreement. In addition to contractual obligations above, we also expect to have future material cash requirements related to our contract manufacturing, preclinical and clinical programs, personnel expenses, and commercialization activities. 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 24 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, 2021, and the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2022, 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, 2021. 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.