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 Reneo’s financial condition and results of operations together with (i) the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, (ii) the audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Reneo’s Annual Report on Form 10-K for the year ended December 31, 2023, (iii) Legacy OnKure’s audited financial statements and the related notes for the years ended December 31, 2023 and 2022 included in the proxy statement/prospectus (the Proxy Statement/Prospectus) filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act), with the SEC on August 26, 2024 and (iv) the unaudited pro forma condensed combined financial statements for the six months ended June 30, 2024 and for the year ended December 31, 2023 included in the Proxy Statement/Prospectus. Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “OnKure,” the “Company,” “we,” “our,” “us” or similar terms refer to OnKure Therapeutics, Inc. and its subsidiaries after completion of the Merger. In addition, references to “Reneo” refers to the Company prior to the completion of the Merger. 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. Merger On the Closing Date, Reneo, consummated the previously announced Merger pursuant to the terms of the Merger Agreement, by and among Reneo, Merger Sub I, Merger Sub II, and Legacy OnKure. Pursuant to the Merger Agreement, on the Closing Date, (i) Reneo effected the Reverse Stock Split, (ii) Reneo changed its name to “OnKure Therapeutics, Inc.”, (iii) Reneo reclassified all of its common stock as Class A Common Stock, and (iv) Merger Sub I merged with and into Legacy OnKure, with Legacy OnKure as the surviving company in the Merger and, after giving effect to such Merger, Legacy OnKure became a wholly-owned subsidiary of OnKure Therapeutics, Inc. Pursuant to the terms of the Merger Agreement, we determined that the Merger would qualify for the intended tax treatment even if only the merger with Merger Sub I was consummated, and therefore the parties determined not to consummate the second merger with Merger Sub II contemplated by the Merger Agreement. Concurrently with the closing of the Merger, Reneo completed a private placement with certain investors (the PIPE Investors) to purchase 2,839,005 shares of Class A Common Stock at a price per share of approximately $22.895 per share for an aggregate purchase price of approximately $65.0 million, including the conversion of outstanding convertible notes and accrued but unpaid interest thereon held by certain Legacy OnKure investors (the Concurrent PIPE Investments). In connection with the Concurrent PIPE Investments, Reneo entered into a registration rights agreement with the PIPE Investors, pursuant to which Reneo agreed to use commercially reasonable efforts to prepare and file a registration statement with the SEC within 45 calendar days after the Closing Date, registering the resale of the shares of Class A Common Stock issued pursuant to the Concurrent PIPE 20 Investments. The Company filed such Registration Statement on Form S-1 with the SEC, and it was declared effective by the SEC on October 30, 2024. Immediately after the effective time of the Merger, following the consummation of the Concurrent PIPE Investments, Legacy OnKure stockholders owned approximately 53.6%, pre-Merger Reneo stockholders owned approximately 25.1%, and the PIPE Investors owned approximately 21.3% of the Combined Company’s outstanding common stock. As of the open of trading on October 7, 2024, the Class A Common Stock of the Combined Company began trading on the Nasdaq Global Market (Nasdaq) under the symbol “OKUR.” Post-Merger Business As a result of the Merger, Reneo’s historic business operations ceased and our go-forward operations will be those of Legacy OnKure. We are a clinical-stage biopharmaceutical company focused on the discovery and development of precision medicines designed to target biologically validated drivers of cancers underserved by available therapies. Using a structure- and computational chemistry-driven drug design platform, we are committed to improving clinical outcomes for patients by building a robust pipeline of small molecule drugs designed to selectively target specific mutations thought to be key drivers of cancer. Our lead product candidate, OKI-219, is a highly selective inhibitor of 3 kinase alpha (PI3Kα), a key mediator in cancer growth signaling, harboring the H1047R mutation (PI3KαH1047R) that has a much smaller impact on non-mutated (or wild-type) PI3Kα (PI3KαWT). OKI-219 is currently in a first-in-human Phase 1 monotherapy dose-escalation trial in H1074R-mutated advanced solid tumors including breast cancer. Early clinical data are anticipated in the fourth quarter of 2024. In addition to OKI-219,we are also pursuing programs designed to selectively target the other specific mutations of PI3Kα. The unaudited interim financial information included in this section are representative of Reneo’s operations prior to the closing of the Merger, the adoption of our business plan and the commencement of conducting our business. License Agreement In December 2017, Reneo entered into a License Agreement (vTv License Agreement) with vTv Therapeutics LLC (vTv Therapeutics), under which Reneo 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, Reneo’s product candidate, for any therapeutic, prophylactic or diagnostic application in humans. Since all development activity related to mavodelpar has been suspended, no development efforts under the vTv License Agreement are currently being performed. Under the terms of the vTv License Agreement, Reneo 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 Reneo’s common stock to vTv Therapeutics. On October 30, 2023, Reneo repurchased from vTv Therapeutics all 576,443 shares of Reneo’s 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. On October 22, 2024, we provided vTv Therapeutics notice of our intention to terminate the vTv License Agreement effective 90 days from the date of notice. Following termination of the vTv License Agreement, we intend to cease maintenance and prosecution of all mavodelpar intellectual property. 21 Components of Reneo’s Results of Operations Operating Expenses Research and Development Expenses Research and development expenses primarily related to preclinical and clinical development of mavodelpar. Research and development expenses included: • 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 Reneo’s 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 Reneo’s third-party licensing agreements. Reneo recognized research and development expenses as incurred and capitalized payments made prior to the receipt of goods or services to be used in research and development until receipt of the goods or services. Costs for certain activities, such as manufacturing and preclinical studies and clinical trials, were generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to Reneo by its vendors and collaborators. Reneo expensed amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid was uncertain and the technology had no alternative future use when acquired. General and Administrative Expenses General and administrative expenses consisted primarily of costs related to the Merger, 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. Other Income Other income consisted of interest income on Reneo’s cash, cash equivalents and short-term investments. 22 Reneo’s Results of Operations Comparison of Three Months Ended September 30, 2024 and 2023 (Unaudited) The following table summarizes Reneo’s results of operations for the three months ended September 30, 2024 and 2023 (unaudited and in thousands): Three Months Ended September 30, 2024 2023 Change Operating expenses: Research and development $ 904 $ 13,622 $ (12,718 ) General and administrative 3,760 7,266 (3,506 ) Total operating expenses 4,664 20,888 (16,224 ) Loss from operations (4,664 ) (20,888 ) 16,224 Other income 972 1,692 (720 ) Net loss $ (3,692 ) $ (19,196 ) $ 15,504 Operating Expenses Research and Development Expenses Research and development expenses decreased by $12.7 million during the three months ended September 30, 2024, compared to the three months ended September 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 $3.5 million during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. This decrease was primarily due to a decrease of $2.1 million in commercial development and consulting costs due to the suspension of mavodelpar development activities and a decrease of $1.3 million in facility and personnel-related costs related to Reneo’s workforce reductions in December 2023 and February 2024. Other Income The decrease in other income for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, relates to a decrease in Reneo’s short-term investment balance during 2024. 23 Comparison of Nine Months Ended September 30, 2024 and 2023 (Unaudited) The following table summarizes Reneo’s results of operations for the nine months ended September 30, 2024 and 2023 (unaudited and in thousands): Nine Months Ended September 30, 2024 2023 Change Operating expenses: Research and development $ 6,436 $ 39,009 $ (32,573 ) General and administrative 14,155 19,038 (4,883 ) Total operating expenses 20,591 58,047 (37,456 ) Loss from operations (20,591 ) (58,047 ) 37,456 Other income 3,112 4,213 (1,101 ) Net loss $ (17,479 ) $ (53,834 ) $ 36,355 Operating Expenses Research and Development Expenses Research and development expenses decreased by $32.6 million during the nine months ended September 30, 2024, compared to the nine months ended September 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 $4.9 million during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. This decrease was primarily due to a decrease of $3.4 million in commercial development and consulting costs due to the suspension of mavodelpar development activities and a decrease of $3.3 million in facility and personnel-related costs related to Reneo’s workforce reductions in December 2023 and February 2024, offset by an increase of $2.1 million in legal and advisory fees related to the proposed Merger. Other Income The decrease in other income for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, relates to a decrease in Reneo’s short-term investment balance during 2024. Liquidity and Capital Resources Since inception, Reneo has incurred significant losses and negative cash flows from operations, and financed its operations primarily through the sale of equity securities. Reneo has not generated any revenue from the sale of any products. As of September 30, 2024, Reneo had available cash, cash equivalents and short-term investments of approximately $76.7 million. As a result of the Merger, Reneo’s historic business operations ceased and our go-forward operations will be those of Legacy OnKure. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials and manufacturing our product candidates to support commercialization and providing general and administrative support for our operations, including the costs associated with operating 24 as a public company following the Closing. As a result, we will need additional capital to fund our operations, which we may seek to obtain from equity or debt financings, collaborations, licensing arrangements or other sources. After giving effect to the Merger and the PIPE Financing in October 2024, we believe the resulting cash resources are sufficient to fund our planned operations for at least the next 12 months from the date of issuance of these unaudited condensed financial statements. Funding Requirements Our primary uses of cash to date have been to fund our research and development activities, including with respect to our PI3Kα and other programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these activities. We have never generated any revenue from product sales and do not expect to generate any meaningful product revenue unless and until we obtain regulatory approval for our product candidates, and management does not know when, or if, that will occur. Until we can generate significant revenue from product sales, if ever, we will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. We are subject to all the risks inherent in the development of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize product candidates, if approved, we will require substantial additional capital. Accordingly, until such time that we can generate a sufficient amount of revenue from product sales or other sources, we expect to seek to raise any necessary additional capital through equity financings, debt financings or other capital sources, which could include income from collaborations, partnerships, licensing or other strategic arrangements with third parties. To the extent that we raise additional capital through equity financings or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our own common stock, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise capital through collaborations, partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional capital from these sources on favorable terms, or at all. Our ability to secure capital is dependent upon a number of factors, including our success in developing our product candidates. The failure to obtain sufficient capital on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to delay, reduce or curtail our research, product development or future commercialization efforts. We may also be required to license rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. We cannot provide assurance that we will ever generate positive cash flow from operating activities. Our future funding requirements will depend on many factors, including: • the scope, timing, progress, results and costs of researching and developing OKI-219, and conducting preclinical studies and clinical trials; • the scope, timing, progress, results and costs of researching and developing other product candidates that we may pursue; • the costs, timing and outcome of regulatory review of our product candidates; • the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution for our product candidates for which it receives marketing approval; 25 • the costs of manufacturing commercial-grade products and producing sufficient inventory to support commercial launch; • the revenue, if any, received from commercial sales of our products, should its product candidates receive marketing approval; • the cost and timing of attracting, hiring and retaining skilled personnel to support our operations and continued growth; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • our ability to establish, maintain and derive value from collaborations, partnerships or other marketing, distribution, licensing or other strategic arrangements with third parties on favorable terms, if at all; • the extent to which we acquire or in-licenses other product candidates and technologies, if any; and • the costs associated with operating as a public company. A change in the outcome of any of these or other factors with respect to the development of OKI-219 or any of our future product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional capital to meet the capital requirements associated with such operating plans. Reneo’s Cash Flows The following table summarizes Reneo’s cash flows for the nine months ended September 30, 2024 and 2023 (unaudited and in thousands): Nine Months Ended September 30, 2024 2023 Net cash used in operating activities $ (30,102 ) $ (43,929 ) Net cash provided by (used in) investing activities 61,248 (29,254 ) Net cash provided by financing activities 1,911 64,993 Net increase (decrease) in cash and cash equivalents $ 33,057 $ (8,190 ) Operating Activities Net cash used in operating activities for the nine months ended September 30, 2024 was $30.1 million, consisting primarily of Reneo’s net loss of $17.5 million adjusted for non-cash items of $1.2 million primarily due to $2.9 million of stock-based compensation expense, offset by $1.9 million of amortization/accretion on short-term investments and a $13.8 million net change in operating assets and liabilities. The change in Reneo’s net operating assets and liabilities was primarily due to a decrease in prepaid and other current assets of $3.4 million, offset by a decrease in accounts payable and accrued expenses of $16.9 million due to timing of payments. Net cash used in operating activities for the nine months ended September 30, 2023 was $43.9 million, consisting primarily of Reneo’s 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 an $8.1 million net change in operating assets and liabilities. The change in Reneo’s 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. 26 Investing Activities Net cash provided by investing activities for the nine months ended September 30, 2024 was $61.2 million, consisting primarily of the net proceeds from maturities of available-for-sale short-term investments. Net cash used in investing activities for the nine months ended September 30, 2023 was $29.3 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, 2024 was $0.1 million consisting primarily of cash deposits received in connection with the Concurrent PIPE Investments. 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 Reneo’s May 2023 public offering, Reneo’s May 2023 private placement, and Reneo’s May 2022 at-the-market equity offering sales agreement, respectively. Reneo’s Material Cash Requirements The discussion below summarizes Reneo’s significant contractual obligations and commitments as of September 30, 2024. Leases . See Note 7 of Notes to Reneo’s Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding our leases, including the future operating lease minimum payments. vTv License Agreement . See Note 9 of Notes to Reneo’s Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding the vTv License Agreement terminated in October 2024, including potential milestone and royalty payments. Critical Accounting Policies and Estimates Reneo’s management’s discussion and analysis of its financial condition and results of operations are based on its 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 required Reneo 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. Reneo based its estimates on historical experience, known trends and events, and various other factors that it believed 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. Reneo’s 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 its Annual Report on Form 10-K for the year ended December 31, 2023, and the notes to the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2024, there were no material changes to Reneo’s critical accounting policies from those discussed in its Annual Report on Form 10-K for the year ended December 31, 2023. Recent Accounting Pronouncements See Note 2 of Notes to Reneo’s Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to Reneo’s consolidated financial statements. 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.