OnKure Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023. Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “Reneo,” the “company,” “we,” “our,” “us” or similar terms refer to Reneo Pharmaceuticals, Inc. and its subsidiary. Forward-Looking Statements In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “project,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would” or the negative of these terms or other similar expressions. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. Overview Reneo is a pharmaceutical company historically focused on the development and commercialization of therapies for patients with rare genetic mitochondrial diseases, which are often associated with the inability of mitochondria to produce adenosine triphosphate. Our only product candidate, mavodelpar, is a potent and selective agonist of the peroxisome proliferator-activated receptor delta (PPARδ). Mavodelpar has been shown to increase transcription of genes involved in mitochondrial function and increase fatty acid oxidation , and may increase production of new mitochondria. On December 14, 2023, we announced that our pivotal STRIDE study, a global, randomized, double-blind, placebo-controlled Phase 2b trial of mavodelpar in adult patients with primary mitochondria myopathy (PMM) due to mitochondrial DNA (mtDNA) defects, did not meet its primary or secondary efficacy endpoints. As a result, we suspended the development activities for mavodelpar and implemented cash preservation activities, including a substantial workforce reduction. We implemented a reduction in workforce in December 2023 and February 2024, and currently have eight full-time employees remaining. In January 2024, our Board of Directors retained an independent financial advisor to initiate a formal process to evaluate potential strategic alternatives focused on maximizing stockholder value, including, but not limited to, a merger, sale, other business combination, a strategic partnership with one or more parties, or the licensing, sale or divestiture of our assets. Our Board of Directors, in consultation with our independent financial and legal advisors, is evaluating a number of strategic alternatives. If we do not successfully consummate a transaction with a strategic alternative, our Board of Directors may decide to pursue a dissolution and liquidation of our company. We are no longer pursuing further clinical development of mavodelpar at this time. The disclosures throughout this Quarterly Report on Form 10-Q include discussion regarding our historical operations along with potential risks that could arise if we or a third party pursue further research, development or clinical trials in the future. Our evaluation of potential strategic alternatives entails numerous significant risks and uncertainties, including those set forth in Part II, Item 1A under the heading “Risk Factors” of this Quarterly Report on Form 10-Q. 17 History of Mavodelpar Clinical Trials Overview The following table summarizes our historical clinical trials. Study Design Subjects Dose Duration NCT Study Number 1 Phase 1 RDBPC† Healthy 25-250 mg Single-dose - 2 Phase 1 RDBPC† Obese (dyslipidemic) 50-200 mg 14 days - 3 Phase 1 RDBPC† (leg immobilization) Healthy 200 mg 28 days - 4 Open-label Phase 1b PMM (mtDNA) 100 mg 12 weeks (+36 weeks) NCT03862846 5 Open-label Phase 1b McArdle Disease 100 mg 12 weeks NCT04226274 6 Open-label Phase 1b LC-FAOD* (nDNA)^ 100 mg 12 weeks NCT03833128 7 RDBPC† Phase 2b (STRIDE) PMM (mtDNA) 100 mg 24 weeks NCT04535609 8 Open-label safety (STRIDE AHEAD) PMM (mtDNA + nDNA) 100 mg 2 years NCT05267574 † randomized double-blind placebo-controlled clinical trial * long-chain fatty acid oxidation disorder ^ nuclear DNA License Agreement In December 2017, we entered into a License Agreement (vTv License Agreement) with vTv Therapeutics LLC (vTv Therapeutics), under which we obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPARδ agonists and products containing such PPARδ agonists, including mavodelpar, for any therapeutic, prophylactic or diagnostic application in humans. Since we have suspended all development activity related to mavodelpar, we are not currently performing any development efforts under the vTv License Agreement. Under the terms of the vTv License Agreement, we paid vTv Therapeutics an initial upfront license fee of $3.0 million and $2.0 million of milestone payments and issued an aggregate of 576,443 shares of our common stock to vTv Therapeutics. On October 30, 2023, we repurchased from vTv Therapeutics all 576,443 shares of our common stock previously issued to vTv Therapeutics under the vTv License Agreement for an aggregate purchase price of approximately $4.4 million in a private, non-underwritten transaction. Upon the achievement of certain pre-specified development and regulatory milestones, we are also required to pay vTv Therapeutics milestone payments totaling up to $64.5 million. We are also required to pay vTv Therapeutics up to $30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. As of March 31, 2024, we have paid an aggregate of $2.0 million in development and regulatory milestone payments. In addition, we are obligated to make tiered royalty payments to vTv Therapeutics at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions. There were no milestone payments achieved or recorded for the three months ended March 31, 2024 and 2023. Although we have suspended development activities related to mavodelpar, we continue to maintain and prosecute mavodelpar intellectual property. 18 Components of Our Results of Operations Operating Expenses Research and Development Expenses Research and development expenses primarily relate to preclinical and clinical development of mavodelpar. Research and development expenses include: • personnel expenses, including severance payments, salaries, benefits, and stock-based compensation expense; • external expenses incurred under agreements with contract research organizations (CROs), investigative sites and consultants to conduct and support our preclinical studies and clinical trials; • raw materials related to manufacturing of our product candidate for clinical trials and preclinical studies, including fees paid to third-party manufacturers; • expenses related to regulatory activities, including filing fees paid to regulatory agencies; • expenses related to medical affairs activities, including field teams to initiate relevant disease education and publications; • depreciation and maintenance expenses; and • fees for maintaining licenses under our third-party licensing agreements. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Costs for certain activities, such as manufacturing and preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators. We expense amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023 (unaudited and in thousands): Three Months Ended March 31, 2024 2023 Clinical and regulatory $ 3,578 $ 6,057 Contract manufacturing cost 34 2,028 Nonclinical 439 1,244 Medical affairs 568 1,018 Research and development-other expense 323 644 Total $ 4,942 $ 10,991 As a result of implementing our cash preservation activities, including suspension of development activities for mavodelpar, we expect our research and development expenses to decrease for the foreseeable future. If we pursue further development of mavodelpar or any other product candidates in the future, we cannot determine with certainty the timing of initiation, the duration or the completion costs of such clinical trials due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We may need to raise substantial additional capital in the future. In addition, we cannot forecast whether any future product candidate may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Our research and development costs may vary significantly based on factors such as: 19 • the scope, rate of progress, expense and results of clinical trials and preclinical studies; • per patient trial costs; • the number of trials required for approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the number of patients that participate in the trials; • uncertainties in patient enrollment or drop out or discontinuation rates; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • the safety and efficacy of our product candidate; • the cost and timing of manufacturing our product candidates; and • the extent to which we establish strategic collaborations or other arrangements. General and Administrative Expenses General and administrative expenses consist primarily of personnel expenses, including severance payments, salaries, benefits, and stock-based compensation expenses for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for accounting, legal, and commercial development, insurance and corporate facility costs not otherwise included in research and development expenses. We expect our general and administrative expenses to decrease for the foreseeable future as a result of our cash preservation activities. Other Income Other income consists of interest income on our cash, cash equivalents and short-term investments. Results of Operations Comparison of Three Months Ended March 31, 2024 and 2023 (Unaudited) The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (unaudited and in thousands): Three Months Ended March 31, 2024 2023 Change Operating expenses: Research and development $ 4,942 $ 10,991 $ (6,049 ) General and administrative 4,622 5,132 (510 ) Total operating expenses 9,564 16,123 (6,559 ) Loss from operations (9,564 ) (16,123 ) 6,559 Other income 1,138 1,016 122 Net loss $ (8,426 ) $ (15,107 ) $ 6,681 Operating Expenses Research and Development Expenses 20 Research and development expenses decreased by $6.0 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily due to the suspension of development activities for mavodelpar and cash preservation activities, including workforce reductions in December 2023 and February 2024. General and Administrative Expenses General and administrative expenses decreased by $0.5 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. This decrease was primarily due to the workforce reductions in December 2023 and February 2024. Other Income The increase in other income for the three months ended March 31, 2024, compared to the three months ended March 31, 2023 relates to higher interest income attributable to increasing interest rates during 2024. Liquidity and Capital Resources Since inception, we have financed our operations primarily through the sale of equity securities. We have not generated any revenue from the sale of any products. As of March 31, 2024, we had available cash, cash equivalents and short-term investments of approximately $82.8 million. In November 2023, we entered into an at-the-market equity offering sales agreement (Sales Agreement) with Leerink Partners LLC (Leerink) under which we may offer and sell, from time to time, at our sole discretion, up to $100.0 million in shares of our common stock (2023 ATM Facility). As of March 31, 2024, we had not sold any shares of our common stock under the 2023 ATM Facility. Effective as of April 8, 2024, we terminated the Sales Agreement. Funding Requirements From our inception in 2014, we have incurred significant losses and negative cash flows from operations. As of March 31, 2024, we had an accumulated deficit of $226.9 million. For the three months ended March 31, 2024, we had a net loss of $8.4 million and we used $21.0 million of cash in operating activities during the three months ended March 31, 2024. We may incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, pursuing and evaluating potential strategic alternatives for the Company. We believe that our existing cash, cash equivalents, and short-term investments will be sufficient to meet our cash requirements through at least the next 12 months. We are subject to all the risks related to the development and commercialization of any future product candidates, including those discussed in the section titled “Risk Factors” under Part II, Item 1A below. 21 Cash Flows The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023 (unaudited and in thousands): Three Months Ended March 31, 2024 2023 Net cash used in operating activities $ (21,014 ) $ (9,048 ) Net cash provided by investing activities 13,757 18,507 Net cash provided by financing activities — 1,009 Net (decrease) increase in cash and cash equivalents $ (7,257 ) $ 10,468 Operating Activities Net cash used in operating activities for the three months ended March 31, 2024 was $21.0 million, consisting primarily of our net loss of $8.4 million adjusted for non-cash items of $0.3 million primarily due to $1.1 million of stock-based compensation expense and $0.1 million in non-cash lease expense, offset by $0.9 million of amortization/accretion on short-term investments and a $12.9 million net change in operating assets and liabilities. The change in our net operating assets and liabilities was primarily due to a decrease in prepaid and other current assets of $2.6 million, offset by a decrease in accounts payable and accrued expenses of $15.4 million due to timing of payments. Net cash used in operating activities for the three months ended March 31, 2023 was $9.0 million, consisting primarily of our net loss of $15.1 million adjusted for non-cash items of $0.8 million primarily due to $1.2 million of stock-based compensation expense offset by $0.8 million of amortization/accretion on short-term investments and a $5.2 million net change in operating assets and liabilities. The change in our net operating assets and liabilities was primarily due to a decrease in prepaid and other current assets of $2.0 million and an increase in accounts payable and accrued expenses of $3.4 million primarily due to timing of receipt of invoices. Investing Activities Net cash provided by investing activities for the three months ended March 31, 2024 and 2023 was $13.8 million and $18.5 million, respectively, consisting primarily of the net proceeds from maturities of available-for-sale short-term investments. Financing Activities There were no cash flows from financing activities for the three months ended March 31, 2024. Net cash provided by financing activities for the three months ended March 31, 2023 was primarily from issuance of common stock under the at-the-market facility, net of offering costs. Material Cash Requirements The discussion below summarizes our significant contractual obligations and commitments as of March 31, 2024. Leases . See Note 7 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding our leases, including the future operating lease minimum payments. Performance Award. See Note 8 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding a special performance award that our chief executive officer may be entitled to receive, including the maximum payout. 22 vTv License Agreement . See Note 9 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding the vTv License Agreement, including potential milestone and royalty payments. In addition to the contractual obligations above, we also expect to have near term future material cash requirements associated with pursuing and evaluating potential strategic alternatives for the Company. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Our critical accounting policies are described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023, and the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023. Recent Accounting Pronouncements See Note 2 of Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.