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, 2023 December 31, 2022 (Unaudited) Assets Current assets: Cash and cash equivalents $ 11,737 $ 19,927 Short-term investments 113,877 81,246 Prepaid expenses and other current assets 3,158 5,180 Total current assets 128,772 106,353 Property and equipment, net 529 453 Right-of-use assets 1,006 1,292 Other non-current assets 81 84 Total assets $ 130,388 $ 108,182 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,473 $ 1,893 Accrued expenses 10,765 4,827 Operating lease liabilities, current portion 325 404 Total current liabilities 13,563 7,124 Operating lease liabilities, less current portion 812 1,059 Performance award 1,069 29 Total liabilities 15,444 8,212 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.0001 par value; 200,000,000 shares authorized at September 30, 2023 and December 31, 2022; 33,872,166 and 24,699,553 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 3 3 Additional paid-in capital 305,479 236,693 Accumulated deficit ( 190,517 ) ( 136,683 ) Accumulated other comprehensive loss ( 21 ) ( 43 ) Total stockholders’ equity 114,944 99,970 Total liabilities and stockholders’ equity $ 130,388 $ 108,182 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, 2023 2022 2023 2022 Operating expenses: Research and development $ 13,622 $ 9,938 $ 39,009 $ 27,348 General and administrative 7,266 3,902 19,038 11,938 Total operating expenses 20,888 13,840 58,047 39,286 Loss from operations ( 20,888 ) ( 13,840 ) ( 58,047 ) ( 39,286 ) Other income 1,692 833 4,213 931 Net loss ( 19,196 ) ( 13,007 ) ( 53,834 ) ( 38,355 ) Unrealized gain (loss) on short-term investments 10 ( 194 ) 22 ( 60 ) Comprehensive loss $ ( 19,186 ) $ ( 13,201 ) $ ( 53,812 ) $ ( 38,415 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.57 ) $ ( 0.53 ) $ ( 1.81 ) $ ( 1.57 ) Weighted-average shares used in computing net loss per share, basic and diluted 33,807,945 24,496,313 29,718,689 24,472,974 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, 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 Issuance of common stock in public offering, net of offering costs 7,906,250 — 58,862 — — 58,862 Issuance of common stock in private placement, net of offering costs 625,000 — 4,667 — — 4,667 Stock based compensation — — 1,207 — — 1,207 Issuance of common stock in connection with equity plans 162,108 — 282 — — 282 Other comprehensive loss — — — ( 43 ) ( 43 ) Net loss — — — — ( 19,531 ) ( 19,531 ) Balances, June 30, 2023 33,800,788 $ 3 $ 303,877 $ ( 31 ) $ ( 171,321 ) $ 132,528 Stock based compensation — — 1,429 — — 1,429 Issuance of common stock in connection with equity plans 71,378 — 173 — — 173 Other comprehensive income — — — 10 — 10 Net loss — — — — ( 19,196 ) ( 19,196 ) Balances, September 30, 2023 33,872,166 $ 3 $ 305,479 $ ( 21 ) $ ( 190,517 ) $ 114,944 5 RENEO PHARMACEUTICALS, INC. Consolidated Statements of Changes in Stockholders’ Equity (Continued) (In thousands, except share data) (Unaudited) Additional Accumulated Other Total Common Stock Paid-In Comprehensive Accumulated Stockholders’ Shares Amount Capital Income 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 common 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 common 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. 6 RENEO PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities Net loss $ ( 53,834 ) $ ( 38,355 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 3,793 3,103 Depreciation and amortization 126 63 Amortization/accretion on short-term investments ( 3,551 ) ( 169 ) Changes in the fair value of performance award 1,040 ( 378 ) Non-cash lease expense 354 338 Loss on disposal of fixed asset 5 3 Changes in operating assets and liabilities: Prepaid expenses and other assets 2,025 1,146 Accounts payable and accrued expenses 6,507 2,838 Operating lease liabilities ( 394 ) ( 338 ) Net cash used in operating activities ( 43,929 ) ( 31,749 ) Cash flows from investing activities Purchases of property and equipment ( 196 ) ( 96 ) Purchase of available-for-sale short-term investments ( 190,058 ) ( 67,329 ) Proceeds from maturities of available-for-sale short-term investments 161,000 36,500 Net cash used in by investing activities ( 29,254 ) ( 30,925 ) Cash flows from financing activities Proceeds from public offering of common stock, net of offering costs 58,862 — Proceeds from private placement of common stock, net of offering costs 4,667 — Proceeds from issuance of common stock under the at-the-market facility, net of offering costs 1,009 — Proceeds from issuance of common stock in connection with equity plans 455 146 Net cash provided by financing activities 64,993 146 Net decrease in cash and cash equivalents ( 8,190 ) ( 62,528 ) Cash and cash equivalents, beginning of period 19,927 124,660 Cash and cash equivalents, end of period $ 11,737 $ 62,132 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 $ 11 $ — 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 mavodelpar (REN001), a novel oral peroxisome proliferator-activated receptor delta (PPARδ) agonist. Liquidity From its inception in 2014, the Company has incurred significant losses and negative cash flows from operations. For the three and nine months ended September 30, 2023, the Company had a net loss of $ 19.2 million and $ 53.8 million, respectively, and used $ 43.9 million of cash in operating activities during the nine months ended September 30, 2023. As of September 30, 2023, the Company had an accumulated deficit of $ 190.5 million. The Company follows Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern , which requires that management perform a two-step analysis over its ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued (step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (step 2). As of September 30, 2023, the Company had cash, cash equivalents and short-term investments of $ 125.6 million, which the Company expects are sufficient to fund operations through the potential submission of a new drug application for mavodelpar for the treatment of primary mitochondrial myopathies in the United States anticipated in the first half of 2024, however, based on the anticipated increase in commercial development expenses for mavodelpar, not for more than one year from the date of the filing of this Quarterly Report on Form 10-Q. Accordingly, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern. Management plans to alleviate this risk by raising 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. In addition, the Company has the ability to defer certain commercial development activities until additional capital is received. 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 negatively impact 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, including those resulting from armed conflicts, infectious diseases, bank failures, 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 . 8 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, 2022. 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, 2023 ; 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, 2023 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, 2022. New Accounting Pronouncements Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standard Update (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 are not 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 was effective for the Company as of January 1, 2023. The Company adopted the guidance as of January 1, 2023 , with no material impact on its financial statements and related disclosures. Recent Accounting Pronouncements Not Yet Adopted In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (ASC 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. 9 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, 2023 and 2022 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 September 30, 2023 2022 Common stock options outstanding 6,095,807 4,470,120 Unvested restricted stock units 441,500 309,500 Total 6,537,307 4,779,620 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. 10 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 9. 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, 2023. The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at September 30, 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 $ 4,946 $ — $ — $ 4,946 Short-term investments: U.S. treasury securities — 113,877 — 113,877 Total $ 4,946 $ 113,877 $ — $ 118,823 Liabilities Performance award $ — $ — $ 1,069 $ 1,069 Total $ — $ — $ 1,069 $ 1,069 The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at December 31, 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 $ 9,365 $ — $ — $ 9,365 Commercial paper — 4,978 — 4,978 Short-term investments: U.S. treasury securities — 76,253 — 76,253 Commercial paper — 4,993 — 4,993 Total $ 9,365 $ 86,224 $ — $ 95,589 Liabilities Performance award $ — $ — $ 29 $ 29 Total $ — $ — $ 29 $ 29 11 The following table summarizes changes in fair value measurements of the Performance Award during the nine months ended September 30, 2023 (in thousands): Performance Award Balance as of January 1, 2023 $ 29 Change in fair value 1,040 Balance as of September 30, 2023 $ 1,069 5. Marketable Debt Securities The Company’s investments in debt securities are carried at fair value and classified as current assets available-for-sale as they mature within 12 months and represent the investment of funds available for current operations. 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 September 30, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Market Value Available-for-sale securities: U.S. treasury securities $ 113,898 $ 1 $ ( 22 ) $ 113,877 Total $ 113,898 $ 1 $ ( 22 ) $ 113,877 As of December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Market Value Available-for-sale securities: U.S. treasury securities $ 76,297 $ 2 $ ( 46 ) $ 76,253 Commercial paper 4,993 — — 4,993 Total $ 81,290 $ 2 $ ( 46 ) $ 81,246 6. Accrued Expenses Accrued expenses consisted of the following (in thousands): As of September 30, 2023 As of December 31, 2022 Accrued clinical and regulatory $ 5,176 $ 1,872 Accrued contract manufacturing cost 1,005 1,583 Accrued compensation 3,830 807 Accrued other 754 565 Total accrued expenses $ 10,765 $ 4,827 12 7. Leases The Company’s headquarters are located in Irvine, California, where it leases office space. The Company leases additional office space located in Sandwich, United Kingdom. The lease terms for the Irvine and Sandwich offices extend through November 30, 2026 and October 23, 2027, respectively. Other information related to the Company ’s operating leases as of the balance sheet dates presented are as follows: As of September 30, 2023 2022 Weighted incremental borrowing rate 5 % 5 % Weighted average remaining lease term (in years) 3.4 3.8 Cash paid for amounts included in the measurement of lease liabilities (in thousands) $ 430 $ 397 Lease expense (in thousands) $ 354 $ 338 Maturities of lease liabilities by fiscal year for the Company ’s operating leases are as follows (in thousands): As of September 30, 2023 2023 (remaining three months) $ 94 2024 381 2025 381 2026 343 2027 34 Total lease payments 1,233 Less: Imputed interest ( 96 ) Present value of lease liabilities $ 1,137 8. Stockholders’ Equity On May 8, 2023, the Company completed a public offering in which it sold an aggregate of 7,906,250 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 1,031,250 shares of common stock, at a price of $ 8.00 per share. The Company received total net proceeds from the offering of approximately $ 58.9 million, after deducting underwriting discounts and commissions and offering expenses. On May 9, 2023, the Company completed a concurrent private placement in which it sold an aggregate of 625,000 shares of common stock to Abingworth Bioventures 8 L.P., a holder of more than 5 % of the Company’s common stock, at a price of $ 8.00 per share. The Company received total net proceeds of approximately $ 4.7 million, after deducting advisor fees and other estimated fees and expenses. 13 9. 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 September 30, 2023 , 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 September 30, 2023, the Company had reserved shares of its common stock for future issuance as follows: Shares Reserved Common stock options outstanding 6,095,807 Unvested restricted stock units 441,500 Available for future grants under the 2021 Equity Incentive Plan 1,300,869 Available for future grants under the 2021 Employee Stock Purchase Plan 546,341 Total shares of common stock reserved 8,384,517 Stock Options A summary of the Company’s stock option activity and related information during the nine months ended September 30, 2023 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, 2022 5,877,745 $ 4.47 8.2 $ 907 Granted 548,915 $ 6.88 Exercised ( 149,190 ) $ 2.15 Forfeited/Expired ( 181,663 ) $ 5.60 Outstanding at September 30, 2023 6,095,807 $ 4.71 7.8 $ 19,172 Vested at September 30, 2023 2,946,079 $ 4.94 7.0 $ 8,770 Exercisable at September 30, 2023 3,416,089 $ 4.52 6.8 $ 10,045 Options exercisable at September 30, 2023 include vested options and options eligible for early exercise. All outstanding options as of September 30, 2023 are expected to vest. 14 Unrecognized stock-based compensation expense at September 30, 2023 was $ 9.5 million, which is expected to be recognized over a weighted-average vesting term of 2.4 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, 2023 2022 2023 2022 Risk-free interest rate 4.3 % 3.1 % 4.0 % 2.5 % Expected volatility 91.2 % 93.6 % 88.4 % 87.2 % Expected term (in years) 6.1 6.0 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 a blend of volatilities of the Company’s share price and a peer group of similar companies whose share prices are publicly available. For awards granted prior to April 2023, the expected volatility assumption was based on the 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. 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 activity during the nine months ended September 30, 2023: Number of RSUs Weighted-Average Grant Date Fair Value Unvested at December 31, 2022 329,500 $ 5.70 Granted 117,000 $ 5.72 Cancelled ( 5,000 ) $ 2.14 Unvested at September 30, 2023 441,500 $ 5.75 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 15 straight-line basis. The Company had 57,000 unvested shares underlying TSUs as of September 30, 2023. Unrecognized stock-based compensation expense at September 30, 2023 was $ 0.4 million, which is expected to be recognized over a weighted-average vesting term of 2.1 years. Stock-based compensation expense related to the TSUs during the three and nine months ended September 30, 2023 was immaterial. Performance-Based Units The vesting of the PSUs is based on the Company achieving certain 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 had 264,500 unvested shares underlying PSUs as of September 30, 2023. The Company concluded that achievement of the performance conditions was not probable as of September 30, 2023 , and therefore no stock-based compensation expense was recognized for the three and nine months ended September 30, 2023. As of September 30, 2023, there was $ 1.7 million of unrecognized stock-based compensation expense related to the 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 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 September 30, 2023. Stock-based compensation expense related to the MSUs during the three and nine months ended September 30, 2023 was immaterial. As of September 30, 2023, there was $ 0.2 million of unrecognized stock-based compensation expense related to MSUs. 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 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. The Company recognized approximately $ 0.2 million and $ 1.0 million in compensation expense related to the change in the fair value of the Performance Award for the three and nine months ended September 30, 2023, respectively. The expense is reflected in consolidated statements of operations and comprehensive loss in the general and administrative expense. 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. During the nine months ended September 30, 2023, 188,015 shares of common stock were purchased under the ESPP. 16 In September 2021, the Company’s board of directors adopted the Company’s 2021 United Kingdom 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, 2023. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Research and development $ 537 $ 411 $ 1,504 $ 1,184 General and administrative 892 579 2,289 1,919 Total $ 1,429 $ 990 $ 3,793 $ 3,103 10. 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 mavodelpar, for any therapeutic, prophylactic or diagnostic application in humans. Under the terms of the vTv License Agreement, the Company paid vTv Therapeutics an initial upfront license fee of $ 3.0 million 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. As of September 30, 2023 , 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 and nine months ended September 30, 2023 and 2022 . 11. Subsequent Events On October 30, 2023, pursuant to a Common Stock Repurchase Agreement with vTv Therapeutics, the Company repurchased 576,443 shares of the Company’s common stock from vTv Therapeutics at a price of $ 7.64 per share for an aggregate purchase price of approximately $ 4.4 million. The repurchase was made directly in a private, non-underwritten transaction. Subsequently, the Company retired the repurchased shares. On November 13, 2023, the Company entered into an at-the-market equity offering sales agreement (the 2023 ATM Facility) with Leerink Partners LLC (Leerink) under which the Company may offer and sell, from time to time, at its sole discretion, up to $ 100.0 million in shares of its common stock. The Company has not yet sold any shares of its common stock under the 2023 ATM Facility. Concurrently with entering into the 2023 ATM Facility, the Company and Leerink agreed to terminate the Company’s at-the-market equity offering sales agreement entered into on May 2, 2022, with Leerink (previously SVB Securities LLC) under which the Company could offer 17 and sell, from time to time, at its sole discretion, up to $ 20.0 million in shares of its common stock (the 2022 ATM Facility). The Company had sold an aggregate of $ 1.2 million under the 2022 ATM Facility as of the termination date. 18 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, 2022. 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 We are 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, 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 (FAO), 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. Mavodelpar was studied in healthy male volunteers with one leg immobilized to produce muscle atrophy. Compared to placebo, administration of mavodelpar resulted in statistically significant increases in expression of genes involved in mitochondrial oxidative phosphorylation, and statistically significant improvements in muscle strength. Mavodelpar was studied in an open-label trial in patients with primary mitochondrial myopathies (PMM) with confirmed mitochondrial gene defects. Patients with PMM in this trial exhibited improved function, reduced symptoms, and increased expression of genes involved in mitochondrial function. Mavodelpar was also studied in an open-label trial in patients with long-chain fatty acid oxidation disorder (LC-FAOD). In this trial, patients with LC-FAOD due to certain gene defects exhibited improved function and reduced symptoms. 19 As a PPARδ agonist, mavodelpar 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 mavodelpar in rare genetic diseases that typically present with myopathy, including PMM and LC-FAOD. There are currently no approved therapies for the treatment of PMM, representing a high unmet medical need. We have received orphan drug designations for mavodelpar in the United States for PMM and LC-FAOD. Additionally, we have received orphan drug designations for mavodelpar for mitochondrial encephalomyopathy, lactic acidosis, and neurological stroke-like episodes (MELAS), a form of PMM, and long-chain 3-hydroxy acyl-CoA dehydrogenase (LCHAD), a form of LC-FAOD in Europe. We have received Fast Track designation for mavodelpar for the treatment of patients with PMM and LC-FAOD due to LCHAD deficiency, one of the predominant LC-FAOD genotypes. Mavodelpar for the Treatment of PMM We completed an open-label Phase 1b study of mavodelpar in patients with PMM due to mitochondrial DNA (mtDNA) defects to assess the safety and tolerability of mavodelpar, and evaluated changes in patient function using a 12-minute walk test (12MWT). Mavodelpar was well-tolerated and had an adequate safety profile in this trial. Compared to baseline, patients receiving mavodelpar once-daily for 12 weeks experienced an average increase in distance of 104.4 meters in the 12MWT, an average increase in weight-adjusted peak VO2 of 1.7 mL/min/kg, 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 the STRIDE study, a global, randomized, double-blind, placebo-controlled pivotal Phase 2b trial of mavodelpar in adult patients with PMM due to mtDNA defects. We completed enrollment of 213 patients in March 2023, exceeding target enrollment of 200 patients, and expect to announce topline data in December 2023. If successful, we anticipate potential submissions of a new drug application (NDA) in the first half of 2024 and a Marketing Authorization Application (MAA) in late 2024. The STRIDE study is designed to investigate the efficacy and safety of 100 mg mavodelpar administered once-daily over a 24-week period. The primary efficacy endpoint of the trial is the change from baseline in the distance walked during the 12MWT at week 24. Secondary and exploratory endpoints include changes from baseline in PROMIS® Short Form Fatigue 13a, Modified Fatigue Impact Scale (MFIS), Patient Global Impression of Change (PGIC), Patient Global Impression of Severity (PGIS), 30 Second Sit-To-Stand (30STS) Test, Brief Pain Inventory (BPI), 36-Item Health Survey (SF-36), Work Productivity and Activity Impairment Questionnaire: Specific Health Problem (WPAI:SHP), and Pedometer Step Count. We are also conducting the STRIDE AHEAD study, a 24-month, open-label extension (OLE) trial outside of the United States in patients with PMM due to mtDNA defects who participated in STRIDE or the mavodelpar Phase 1b study. STRIDE AHEAD is designed to evaluate the long-term safety and tolerability of 100 mg mavodelpar administered once-daily over a 24-month period. Over 65 patients have been treated beyond 52-weeks of dosing in this study. The STRIDE AHEAD study has been amended to allow enrollment of patients with PMM due to nuclear DNA (nDNA) defects, and the first patient was dosed in November 2023. Based on interactions with the U.S. Food and Drug Administration (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 mavodelpar for adult patients with PMM in the United States and Europe. We intend to submit the data from STRIDE, together with the data from STRIDE AHEAD, to the FDA in the first half of 2024 and the EMA in late 2024. 20 Mavodelpar for the Treatment of LC-FAOD We completed an open-label Phase 1b study in LC-FAOD adult patients with nDNA defects to assess the safety and tolerability of mavodelpar, and measure changes in functional test 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 (VLCAD), or trifunctional protein (TFP). A total of 24 patients were enrolled, including patients with defective LCHAD (n=5), CPT2 (n=8), VLCAD (n=9), or TFP (n=2). We initiated the trial with a dose of 50 mg once-daily in the first three patients followed by 100 mg once-daily in all subsequent patients. The LCHAD and CPT2 groups had the greatest improvement over baseline in 12MWT (73.7 and 51.9 meters, respectively). In the LC-FAOD Phase 1b study, mavodelpar was well tolerated. The most common adverse events experienced by patients were rhabdomyolysis (4 patients) and myalgia (4 patients), the majority reported to be mild or moderate in severity. We also completed the FORWARD study, a 16-week, observational, non-interventional study in patients with LC-FAOD with different nDNA mutations to better understand the natural history of LC-FAOD and changes in patient function and symptoms over time. A total of 58 patients participated in the FORWARD study, including patients with defective LCHAD (n=16), CPT2 (n=30), or VLCAD (n=12). Based on the results of the LC-FAOD Phase 1b study, in conjunction with the results of the FORWARD study, we intend to continue the development of mavodelpar for certain genotypes of patients with LC-FAOD. Results of the studies were presented at the International Network of Fatty Acid Oxidation Research and Management Conference in August 2022. 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 mavodelpar, 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 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. As of September 30, 2023, 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 and nine months ended September 30, 2023 and 2022. Components of Our Results of Operations Operating Expenses Research and Development Research and development expenses primarily relate to preclinical and clinical development of mavodelpar and include: • personnel expenses, including salaries, benefits, and stock-based compensation expense; 21 • 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 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Clinical and regulatory $ 7,373 $ 5,555 $ 20,408 $ 14,143 Contract manufacturing cost 2,609 2,469 7,761 6,802 Nonclinical 632 577 3,719 3,060 Medical affairs 2,217 193 4,883 409 Research and development-other expense 791 1,144 2,238 2,934 Total $ 13,622 $ 9,938 $ 39,009 $ 27,348 We expect our research and development expenses to increase substantially for the foreseeable future as we advance our product candidate into and through clinical trials, continue to conduct preclinical studies and pursue regulatory approval of 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; 22 • 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 General and administrative expenses consist primarily of salaries, benefits, and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for accounting, legal, and commercial development, corporate facility costs not otherwise included in research and development expenses, and insurance. We expect our general and administrative expenses to increase for the foreseeable future to support overall growth of our corporate infrastructure, as well as our commercial development 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 September 30, 2023 and 2022 (Unaudited) The following table summarizes our results of operations (in thousands): Three Months Ended September 30, 2023 2022 Change Operating expenses: Research and development $ 13,622 $ 9,938 $ 3,684 General and administrative 7,266 3,902 3,364 Total operating expenses 20,888 13,840 7,048 Loss from operations (20,888 ) (13,840 ) (7,048 ) Other income 1,692 833 859 Net loss $ (19,196 ) $ (13,007 ) $ (6,189 ) Research and Development Research and development expenses for the three months ended September 30, 2023 were $13.6 million, compared to $9.9 million for the three months ended September 30, 2022. This increase of $3.7 million was primarily due to an increase of $2.2 million related to clinical development and contract manufacturing costs to support the marketing registration for mavodelpar, an increase of $1.0 million in medical affairs costs, and an increase of $0.9 million in personnel-related costs due to additional headcount offset by a decrease of $0.5 million of other research and development activities. 23 General and Administrative General and administrative expenses for the three months ended September 30, 2023 were $7.3 million, compared to $3.9 million for the three months ended September 30, 2022. This increase of $3.4 million was primarily due to an increase of $2.1 million in commercial development activities and an increase of $1.2 million in facility and personnel-related costs due to additional headcount. Other Income The increase in other income for the three months ended September 30, 2023, compared to the same period in the prior year was due to a higher interest rate earned on our short-term investments and an increase in short-term investment balance. Comparison of Nine Months Ended September 30, 2023 and 2022 (Unaudited) The following table summarizes our results of operations (in thousands): Nine Months Ended September 30, 2023 2022 Change Operating expenses: Research and development $ 39,009 $ 27,348 $ 11,661 General and administrative 19,038 11,938 7,100 Total operating expenses 58,047 39,286 18,761 Loss from operations (58,047 ) (39,286 ) (18,761 ) Other income 4,213 931 3,282 Net loss $ (53,834 ) $ (38,355 ) $ (15,479 ) Research and Development Research and development expenses for the nine months ended September 30, 2023 were $39.0 million, compared to $27.3 million for the nine months ended September 30, 2022. This increase of $11.7 million was primarily due to an increase of $7.6 million related to clinical development and contract manufacturing costs to support the marketing registration for mavodelpar, an increase of $2.7 million in personal-related costs due to additional headcount, and an increase of $1.8 million in medical affairs costs offset by a decrease of $0.4 million of other research and development activities. General and Administrative General and administrative expenses for the nine months ended September 30, 2023 were $19.0 million, compared to $11.9 million for the nine months ended September 30, 2022. This increase of $7.1 million was primarily due to an increase of $3.7 million in commercial development activities and an increase of $3.2 million in facility and personnel-related costs due to additional headcount. Other Income The increase in other income for the nine months ended September 30, 2023, compared to the same period in the prior year was due to a higher interest rate earned on our short-term investments and an increase in short-term investment balance. 24 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 September 30, 2023, we had available cash, cash equivalents and short-term investments of approximately $125.6 million. In May 2022, we entered into an at-the-market equity offering sales agreement (2022 ATM Facility) with Leerink Partners LLC (previously SVB Securities LLC) (Leerink) under which we could offer and sell, from time to time, at our sole discretion, up to $20.0 million in shares of our common stock. As of September 30, 2023, we had sold and issued approximately 500,000 shares of our common stock pursuant to the 2022 ATM Facility at a weighted-average price of $2.48 per share, resulting in aggregate gross proceeds to us of $1.2 million. Sales commissions to Leerink and other issuance expenses were immaterial. The remaining capacity under the 2022 ATM Facility was approximately $18.8 million in shares of common stock as of September 30, 2023. In November 2023, we terminated the 2022 ATM Facility. In May 2023, we completed a public offering in which we sold an aggregate of 7,906,250 shares of common stock which included the full exercise of the underwriters’ option to purchase an additional 1,031,250 shares of common stock, at a price of $8.00 per share. Total net proceeds from the public offering, after deducting underwriting discounts and commissions and offering expenses, were approximately $58.9 million. Also, in May 2023, we completed a concurrent private placement in which we sold an aggregate of 625,000 shares of common stock to Abingworth Bioventures 8 L.P. (Abingworth), a holder of more than 5% of our common stock, at a price of $8.00 per share (the Private Placement). Total net proceeds from the Private Placement, after deducting advisor fees and other estimated fees and expenses, were approximately $4.7 million. On October 30, 2023, pursuant to a Common Stock Repurchase Agreement with vTv Therapeutics, we repurchased 576,443 shares of our common stock from vTv Therapeutics at price of $7.64 per share for an aggregate purchase price of approximately $4.4 million. The repurchase was made directly in a private, non-underwritten transaction. Subsequently, we retired the repurchased shares. In November 2023, we entered into an at-the-market equity offering sales agreement (2023 ATM Facility) with 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. We have not yet sold any shares of our common stock under the 2023 ATM Facility. Operating Capital Requirements From our inception in 2014, we have incurred significant losses and negative cash flows from operations. For the three and nine months ended September 30, 2023, we had a net loss of $19.2 million and $53.8 million, respectively, and used $43.9 million of cash in operating activities during the nine months ended September 30, 2023. As of September 30, 2023, we have an accumulated deficit of $190.5 million. We have incurred operating losses since inception and we expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue product development for mavodelpar. Since product development is time-consuming and expensive, we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. We are subject to all the risks related to the development and commercialization of a product candidate, including those discussed in the section titled “Risk Factors” under Part II, Item 1A below. As of September 30, 2023, we have cash, cash equivalents and short-term investments of $125.6 million, which we expect will be sufficient to fund operations through the potential submission of a new drug application for mavodelpar for the treatment of PMM in the United States anticipated in first half of 2024, however, based on 25 the anticipated increase in commercial development expenses for mavodelpar, not for more than one year from the date of the filing of this Quarterly Report on Form 10-Q. Accordingly, management has concluded that substantial doubt exists about our ability to continue as a going concern . Management plans to alleviate this risk by raising 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. In addition, we have the ability to defer certain commercial development activities until additional capital is received. There can be no assurance that we will be successful in obtaining additional funding, that our projections of our future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. If we are not able to secure adequate additional funding, we 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 negatively impact our business, results of operations, and future prospects. Our 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, including those resulting from armed conflicts, infectious diseases, bank failures, actual or perceived changes in interest rates and economic inflation. We 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 our cost structure. Cash Flows The following table summarizes our cash flows (unaudited and in thousands): Nine Months Ended September 30, 2023 2022 Net cash used in operating activities $ (43,929 ) $ (31,749 ) Net cash used in by investing activities (29,254 ) (30,925 ) Net cash provided by financing activities 64,993 146 Net decrease in cash and cash equivalents $ (8,190 ) $ (62,528 ) Operating Activities Net cash used in operating activities for the nine months ended September 30, 2023 was $43.9 million, consisting primarily of our net loss of $53.8 million adjusted for non-cash items of $1.8 million primarily due to $3.8 million of stock-based compensation expense and $1.0 million in fair value of a performance award, offset by $3.6 million of amortization/accretion on short term investments and a $8.1 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 $2.1 million and an increase in accounts payable and accrued expenses of $6.4 million due to timing of receipt of invoices and payments. 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. 26 Investing Activities Net cash used in investing activities for the nine months ended September 30, 2023 was $29.3 million, consisting primarily of the net purchase of available-for-sale short-term investments. Net cash used in investing activities for the nine months ended September 30, 2022 was $30.9 million, consisting primarily of the net purchase of available-for-sale short-term investments. Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2023 was $65.0 million, consisting primarily of the net proceeds of $58.9 million, $4.7 million, and $1.0 million from the sale of common stock in our May 2023 public offering, the Private Placement, and the 2022 ATM Facility, respectively. Net cash provided by financing activities for the nine months ended September 30, 2022 was immaterial. Material Cash Requirements The discussion below summarizes our significant contractual obligations and commitments as of September 30, 2023. 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 9 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. vTv License Agreement . See Note 10 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 future material cash requirements related to our contract manufacturing, preclinical and clinical programs, and personnel expenses. 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, 2022, 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, 2023, 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, 2022. 27 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.