What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-07 · 73 added, 58 removed, 102 unchanged (56% of the section changed)

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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.

and its subsidiaries.

Forward-Looking Statements

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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.

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 due to mitochondrial DNA 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.

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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.

History of Mavodelpar Clinical Trials Overview

The following table summarizes our historical clinical trials.

NCT Study Number

Phase 1 RDBPC

Obese (dyslipidemic)

Phase 1 RDBPC (leg immobilization)

Open-label Phase 1b

RDBPC Phase 2b

Open-label safety

(STRIDE AHEAD)

(mtDNA + nDNA)

randomized double-blind placebo-controlled clinical trial

* long-chain fatty acid oxidation disorder

On May 10, 2024, we entered into an Agreement and Plan of Merger (Merger Agreement and the transactions contemplated thereby, Proposed Transactions) with Radiate Merger Sub I, Inc., a Delaware corporation and our direct, wholly owned subsidiary (Merger Sub I), Radiate Merger Sub II, LLC, a Delaware limited liability company and our direct, wholly owned subsidiary (Merger Sub II), and OnKure, Inc., a Delaware corporation (OnKure), pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, (a) Merger Sub I will merge with and into OnKure (the First Merger), with Merger Sub I ceasing

to exist and OnKure surviving the First Merger as our wholly owned subsidiary (Reneo following the First Merger, NewCo), and (b) as promptly as practicable following the First Merger, OnKure, as the surviving corporation of the First Merger, will merge with and into Merger Sub II, with OnKure ceasing to exist and Merger Sub II surviving the Second Merger as a wholly owned subsidiary of NewCo (the Second Merger, and together with the First Merger, the Mergers).

At the effective time of the First Merger (First Effective Time) and upon filing of an amendment to our amended and restated certificate of incorporation to reclassify our common stock, each share of our common stock existing and outstanding immediately prior thereto will be recapitalized and remain outstanding as a share of NewCo Class A common stock without any conversion or exchange thereof, subject to a proposed reverse stock split of all of the shares of our common stock outstanding at the time of effectiveness thereof by a ratio to be determined by OnKure subject to our approval (the Reverse Stock Split).

Upon the First Effective Time, all shares of OnKure capital stock outstanding immediately prior to the First Effective Time, after giving effect to an assumed common stock exchange ratio of 0.24482 and an assumed preferred stock exchange ratio of 1.50062, will be converted into the right to receive approximately 76,958,781 shares of NewCo common stock in the aggregate, which is subject to adjustment as set forth in the Merger Agreement.

In connection with the Mergers, on May 10, 2024, we concurrently entered into a Subscription Agreement with certain existing OnKure stockholders and new investors (collectively, PIPE Investors) pursuant to which, among other things, we agreed to issue to the PIPE Investors shares of NewCo Class A common stock concurrently with the Mergers in a private placement transaction for an aggregate purchase price of $65.0 million, which amount may be increased to up to $85.0 million through additional subscriptions from additional PIPE Investors (the Concurrent PIPE Investments).

The closing of the Concurrent PIPE Investments is conditioned upon the satisfaction or waiver of the conditions to the closing of the Mergers and the substantially concurrent closing of the Mergers, as well as certain other conditions.

Immediately after the Mergers, pre-Mergers OnKure stockholders are expected to own approximately 69.4% of NewCo on a fully-diluted basis and pre-Mergers Reneo stockholders are expected to own approximately 30.6% of NewCo on a fully-diluted basis.

Following the completion of the Concurrent PIPE Investments, assuming a subscription amount of (i) $65.0 million, pre-Mergers OnKure stockholders are expected to own approximately 54.8% of NewCo on a fully-diluted basis, pre-Mergers Reneo stockholders are expected to own approximately 24.2% of NewCo on a fully-diluted basis, and the PIPE Investors are expected to own approximately 21.0% of NewCo on a fully-diluted basis, and (ii) $85.0 million, pre-Mergers OnKure stockholders are expected to own approximately 51.5% of NewCo on a fully-diluted basis, pre-Mergers Reneo stockholders are expected to own approximately 22.7% of NewCo on a fully-diluted basis, and the PIPE Investors are expected to own approximately 25.8% of NewCo on a fully-diluted basis.

The exchange ratios, and related pro forma ownership, will be adjusted (i) to account for the effect of the proposed Reverse Stock Split and (ii) to the extent that Reneo’s net cash as of the close of business on the business day immediately preceding the closing date of the Mergers is less than $59.0 million or greater than $61.0 million (resulting in pre-Mergers Reneo stockholders owning less or more of NewCo, respectively).

The expected relative ownership percentages of pre-Mergers OnKure stockholders and pre-Mergers Reneo stockholders of NewCo are calculated using the treasury stock method, as described in the Merger Agreement.

The Mergers, which have been approved by our Board of Directors and the board of directors of OnKure, are expected to close in the second half of 2024, subject to the satisfaction or waiver of certain closing conditions, including the approval of our stockholders.

Certain stockholders of Reneo holding approximately 28.2% of the outstanding shares of our common stock entered into support agreements with Reneo and OnKure to vote all of their shares of our common stock in favor of the Mergers, subject to the terms of the support agreements.

Although we have entered into the Merger Agreement and intend to consummate the proposed Mergers, there is no assurance that we will be able to successfully consummate the proposed Mergers on a timely basis, or at all.

If, for any reason, the proposed Mergers are not completed, we will reconsider our strategic alternatives and could pursue another strategic transaction similar to the proposed Mergers, potential collaborative, partnering or other strategic arrangements for our assets, including a license, sale or divestiture of our assets, or liquidate and distribute available cash.

License Agreement

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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.

As of June 30, 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.

There were no milestone payments achieved or recorded for the three and six months ended June 30, 2024 and 2023.

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

Components of Our Results of Operations

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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,

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 and six months ended June 30, 2024 and 2023 (unaudited and in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Clinical and regulatory

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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 consist primarily of costs related to the proposed Mergers with OnKure, 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.

We expect our general and administrative

expenses , not related to the proposed Mergers, to decrease for the foreseeable future as a result of our cash preservation activities.

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,

Comparison of Three Months Ended June 30, 2024 and 2023 (Unaudited)

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023 (unaudited and in thousands):

Three Months Ended June 30,

Operating expenses:

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Research and Development Expenses

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.

Research and development expenses decreased by $13.8 million during the three months ended June 30, 2024, compared to the three months ended June 30, 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.

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.

General and administrative expenses decreased by $0.9 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

This decrease was primarily due to a decrease of $1.6 million in facility and personnel-related costs related to our workforce reductions in December 2023 and February 2024 and a decrease of $1.7 million in commercial development and consulting costs due to the suspension of mavodelpar development activities, offset by an increase of $2.4 million in legal and advisory fees related to the proposed Mergers.

The decrease in other income for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 relates to a decrease in our short-term investment balance during 2024.

Comparison of Six Months Ended June 30, 2024 and 2023 (Unaudited)

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023 (unaudited and in thousands):

Six Months Ended June 30,

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Operating Expenses

Research and Development Expenses

Research and development expenses decreased by $19.9 million during the six months ended June 30, 2024, compared to the six months ended June 30, 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 $1.4 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

This decrease was primarily due to a decrease of $2.1 million in facility and personnel-related costs related to our workforce reductions in December 2023 and February 2024 and a decrease of $1.9 million in commercial development and consulting costs due to the suspension of mavodelpar development activities, offset by an increase of $2.7 million in legal and advisory fees related to the proposed Mergers.

The decrease in other income for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 relates to a decrease in our short-term investment balance during 2024.

Liquidity and Capital Resources

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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.

As of June 30, 2024, we had available cash, cash equivalents and short-term investments of approximately $76.7 million, which we believe will be sufficient to fund our current operating plan for at least the next 12 months from the date of issuance of these unaudited condensed financial statements.

In November 2023, we entered into an at-the-market equity offering sales agreement (Sales Agreement) with Leerink Partners LLC (Leerink) under which we could 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).

Effective as of April 8, 2024, we terminated the Sales Agreement.

We did not sell any shares of our common stock under the 2023 ATM Facility.

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.

As of June 30, 2024, we had an accumulated deficit of $232.3 million.

For the three and six months ended June 30, 2024, we had a net loss of $5.4 million and $13.8 million, respectively, and we used $27.8 million of cash in operating activities during the six months ended June 30, 2024.

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.

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,

However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, including as a result of the proposed Mergers with OnKure, and actual results could vary materially.

If we liquidate, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to our stockholders after paying our debts and other obligations and setting aside funds for reserves.

The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023 (unaudited and in thousands):

Six Months Ended June 30,

Net cash used in operating activities

Net cash provided by investing activities

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

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.

Net cash used in operating activities for the six months ended June 30, 2024 was $27.8 million, consisting primarily of our net loss of $13.8 million adjusted for non-cash items of $0.6 million primarily due to $2.1 million of stock-based compensation expense, offset by $1.6 million of amortization/accretion on short-term investments and a $14.6 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 $2.3 million, offset by a decrease in accounts payable and accrued expenses of $16.8 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.

Net cash used in operating activities for the six months ended June 30, 2023 was $25.2 million, consisting primarily of our net loss of $34.6 million adjusted for non-cash items of $1.5 million primarily due to $2.4 million of stock-based compensation expense and $0.8 million in fair value of a performance award, offset by $2.0 million of amortization/accretion on short-term investments and a $7.9 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 $1.3 million and an increase in accounts payable and accrued expenses of $6.8 million due to timing of receipt of invoices and payments.

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.

Net cash provided by investing activities for the six months ended June 30, 2024 was $36.2 million, consisting primarily of the net proceeds from maturities of available-for-sale short-term investments.

Net cash used in investing activities for the six months ended June 30, 2023 was $50.5 million, consisting primarily of the net purchase 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.

Net cash used in financing activities for the six months ended June 30, 2024 was $0.1 million consisting primarily of the payment of deferred costs in connection with the Concurrent PIPE Investments.

Net cash provided by financing activities for the six months ended June 30, 2023 was $64.8 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, in our May 2023 private placement, and under our May 2022 at-the-market equity offering sales agreement with SVB Securities LLC, respectively.

Material Cash Requirements

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

The discussion below summarizes our significant contractual obligations and commitments as of June 30, 2024.

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.

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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.

In addition to the contractual obligations above, we also expect to have near term future material cash requirements associated with the proposed Mergers.

Critical Accounting Policies and Estimates

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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.

During the six months ended June 30, 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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis