Item 7. Management’s Discussion and Analysis
Item 7. 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 the related notes and other financial information included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements based upon our current beliefs, estimates, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report.
Unless otherwise indicated or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to “the Company,” “we,” “us,” “our” and other similar terms refer to the business and operations of Legacy OnKure prior to the Merger and to the Combined Company following the Merger. While the legal acquirer in the Merger was Reneo, for financial accounting and reporting purposes under U.S. GAAP, Legacy OnKure was the accounting acquirer and the Merger was accounted for as a “reverse recapitalization.” As a result of the Merger, the net assets of Reneo were recorded at their acquisition-date fair value in the financial statements of the Combined Company and the reported operating results prior to the Merger are those of Legacy OnKure. Legacy OnKure’s historical financial statements became the historical consolidated financial statements of the Combined Company.
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery and development of precision medicines that target biologically validated drivers of cancers and other diseases that are underserved by available therapies. Using a structure-based drug design platform, we are committed to improving clinical outcomes for patients by building a pipeline of small molecule drugs designed to achieve optimal efficacy and tolerability by selectively targeting specific mutations shown to be key drivers of cancer and other diseases. By selectively sparing the wild-type enzyme and preferentially targeting the mutated form of the protein, which is oncogenic and drives disease processes in both cancer and vascular overgrowth syndromes, we aim to discover and develop drugs with improved safety and efficacy by sparing toxicity that arises from non-selective inhibition of the non-mutated (or wild-type) version of the protein. We work under the principle that inhibiting target proteins with specific mutations instead of wild-type variants should enable precise patient selection that will, in turn, improve the probability of clinical success. We designed our current product candidates utilizing disciplined medicinal chemistry, x-ray crystallography and computational chemistry to inhibit specified mutated versions of PI3Kα, a key disease creating gene. Our lead product candidate, OKI-219, is a highly selective inhibitor of PI3K α H1047R that has a much smaller impact on PI3K α WT . We plan to initially focus on the development of OKI-219 in patients with advanced breast cancer of genetic subtypes that are (a) both HR+ and HER2-; and (b) HER2+. We believe we can potentially expand the application of OKI-219 by conducting appropriate clinical trials in earlier lines of treatment within breast cancer, other subtypes of breast cancer, potentially in other solid tumors. OKI-219 is currently in a first-in-human Phase 1 clinical trial.
Financial Overview
Since our inception, our operations have primarily focused on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of and manufacturing development for our product candidates. We do not have any product candidates approved for sale, have not generated any revenue from product sales, and do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever. Since inception, we have incurred significant operating losses. Our net losses were $59.5 million and $52.7 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $214.2 million, and cash and cash equivalents of $59.1 million.
In November 2025, we entered into a sales agreement with a placement agent to sell, from time to time, our common stock having an aggregate offering price of up to $16.0 million, in an “at the market offering.” No shares have been issued under this sales agreement.
We have funded our operations primarily through private placements of our common stock, preferred stock and issuance of convertible debt. The significant uncertainties surrounding the clinical development timelines and costs and the ability to raise a significant amount of capital raises substantial doubt about our ability to continue as a going concern from one year after the Company’s consolidated financial statements have been issued.
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Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses primarily relate to expenses incurred in connection with the discovery and development of our product candidates.
Research and development expenses include:
• employee-related expenses, including salaries, severance, retention, benefits, insurance, and share-based compensation expense;
• expenses incurred under agreements with CROs, which are investigative sites that conduct our clinical trials, other clinical trial-related vendors and clinical consultants;
• the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with CMOs;
• costs associated with non-clinical activities and regulatory operations; and
• facilities, depreciation, market research, and other expenses, which include allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies.
We make non-refundable advance payments for goods and services that will be used in future research and development activities. These payments are recorded as expenses in the period in which we receive or take ownership of the goods or when the services are performed. At any one time, we are working on multiple research or drug discovery programs and internal resources. Employees and infrastructure are not directly tied to any one program and are typically deployed across multiple programs; therefore, we do not track our research and development expenses on a program-specific basis.
Conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. As we initiate new clinical trials, our research and development expenses may increase. Product candidates in later stages of development generally have higher development costs than those in earlier stages. As a result, we expect that our research and development expenses will increase substantially over the next several years as we advance product candidates through preclinical studies into and through clinical trials, continue to discover and develop additional product candidates, undertake activities to expand, maintain, protect and enforce our intellectual property portfolio, and hire additional research and development personnel.
Successful development of product candidates is highly uncertain and may not result in approved products. The probability of success for each product candidate may be affected by numerous factors, including clinical data, preclinical data, competition, manufacturability, and commercial viability. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to enter strategic alliances with respect to each program or product candidate, the scientific and clinical success of each product candidate, and ongoing assessments as to each product candidate’s commercial potential. We will need to raise additional capital and may seek strategic alliances in the future to advance our various programs.
General and Administrative
General and administrative expenses consist primarily of salaries, bonuses and related benefits, share-based compensation, and severance and retention benefits related to our executive, finance and administrative functions, professional fees for auditing, tax, consulting and legal services, as well as insurance, board of director compensation, consulting and other administrative expenses. We recognize general and administrative expenses in the periods in which they are incurred.
We expect that our general and administrative expenses will increase over the next several years as we hire additional personnel to support the growth of our business. In addition, we will incur significant additional expenses associated with being a public company, including expenses related to accounting, audit, legal, regulatory, public
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company reporting and compliance, director and officer insurance, investor and public relations, and other administrative and professional services.
Other Income
Interest Income
Interest income primarily consists of interest income generated from our cash equivalents in interest-bearing money market accounts.
Interest and Other Expense
Interest expense consists primarily of interest expense generated from our convertible notes payable, which were converted at the time of the Merger in 2024.
Results of Operations
Comparison of the Year Ended December 31, 2025 and 2024
The following table summarizes our results of operations for the periods indicated (in thousands):
Year Ended
December 31,
2025
2024
$ Change
(in thousands)
Operating expenses:
Research and development
$
48,260
$
43,795
$
4,465
General and administrative
14,690
10,591
4,099
Total operating expenses
62,950
54,386
8,564
Loss from operations
(62,950
)
(54,386
)
(8,564
)
Other income and (expense):
Interest income
3,441
2,013
1,428
Interest and other expense
(8
)
(300
)
292
Total other income and (expense)
3,433
1,713
1,720
Net loss and comprehensive loss
$
(59,517
)
$
(52,673
)
$
(6,844
)
Research and Development Expenses
Research and development expenses were $48.3 million for the year ended December 31, 2025 compared to $43.8 million for the year ended December 31, 2024, an increase of $4.5 million. This increase was primarily due to a $3.6 million increase in personnel-related costs, including $2.6 million of increased share-based compensation charges, and $1.0 million increase in clinical trial expenses and outsourced research of $0.7 million. These increases were partially offset by a decrease in manufacturing expenses of $1.0 million.
We expect research and development expenses in 2026 to be higher than 2025 due to the continued efforts to advance of our clinical and preclinical programs.
General and Administrative Expenses
General and administrative expenses were $14.7 million for the year ended December 31, 2025 and $10.6 million for the year ended December 31, 2024, an increase of $4.1 million. The increase was primarily related to increased personnel-related costs of $3.8 million, including $3.6 million of increased share-based compensation charges. In addition, director compensation, consulting, filing fees and franchise taxes and other professional service fees, including audit and tax services and insurance, increased by $1.3 million. These increases were partially offset by a decrease in legal costs of $1.2 million, as 2024 included certain non-recurring legal costs related to the Merger.
We expect general and administrative expenses in 2026 to be higher than 2025.
Other Income (Expense)
Other income (expense) was $3.4 million for the year ended December 31, 2025 compared to $1.7 million for the year ended December 31, 2024. The change was primarily due to an increase in interest income due to an
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increase in cash and cash equivalents available to invest during the year ended December 31, 2025 and decreased interest expense related to convertible notes payable issued in 2024.
We expect other income (expense) in 2026 to be lower than 2025 with lower average available cash available to invest during 2026 and lower interest rates.
Liquidity and Capital Resources
Since inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. 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 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. The significant uncertainties surrounding the clinical development timelines and costs and the ability to raise a significant amount of capital raises substantial doubt about our ability to continue as a going concern from one year after the Company’s consolidated financial statements have been issued.
In November 2025, we entered into a sales agreement with a placement agent to sell, from time to time, our common stock having an aggregate offering price of up to $16.0 million, in an “at the market offering.” No shares have been issued under this sales agreement.
We have funded our operations primarily through private placements of equity and convertible debt.
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
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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 we receive marketing approval;
• 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 our 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. The significant uncertainties surrounding the clinical development timelines and costs and the ability to raise a significant amount of capital raises substantial doubt about our ability to continue as a going concern from one year after the Company’s consolidated financial statements have been issued.
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2025 and 2024 (in thousands):
Years Ended December 31,
2025
2024
(in thousands)
Net cash provided by (used in):
Operating activities
$
(51,828
)
$
(51,117
)
Investing activities
(46
)
15,873
Financing activities
163
116,129
Net decrease in cash and cash equivalents
$
(51,711
)
$
80,885
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Cash Flows from Operating Activities
Net cash used in operating activities during the year ended December 31, 2025 was $51.8 million. This consisted primarily of a net loss of $59.5 million, a net decrease in operating assets and liabilities of $4.8 million, and non-cash share-based compensation of $11.6 million.
Net cash used in operating activities during the year ended December 31, 2024 was $51.1 million. This consisted primarily of a net loss of $52.7 million, a net decrease in operating assets and liabilities of $4.0 million, and an increase in non-cash share-based compensation of $4.3 million.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 was $46.0 thousand and related to purchase of property and equipment.
Net cash provided by investing activities for the year ended December 31, 2024 was $15.9 million and consisted primarily of $15.9 million of proceeds from the sale of available-for-sale securities.
Cash Flows from Financing Activities
Net cash provided by financing activities was $0.2 million during the year ended December 31, 2025 and primarily consisted of $240 thousand of proceeds from the sale of stock under the employee stock purchase plan. These amounts were partially offset by $77 thousand related to payment of issuance costs from the private placement completed by Reneo concurrently with the closing of the Merger (the “Concurrent Financing”) and reverse recapitalization transaction costs in connection with the Merger.
Net cash provided by financing activities was $116.1 million during the year ended December 31, 2024 and primarily consisted of $54.6 million of net proceeds from the Concurrent Financing, $57.7 million of cash acquired in connection with the Merger, and $5.9 million of net proceeds from the issuance of convertible notes payable. These amounts were partially offset by payment of $2.0 million of reverse recapitalization transaction costs in connection with the Merger.
Material Cash Requirements
The discussion below summarizes our significant contractual obligations and commitments as of December 31, 2025.
Leases . See Note 5 of Notes to Consolidated Financial Statements included in this Annual Report for information regarding our leases, including the future operating lease minimum payments.
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.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Accrued Research and Development Expenses
We record research and development expenses in the period in which we receive or take ownership of the applicable goods or when the applicable services are performed. We are required to estimate our expenses resulting from our obligations under contracts with vendors, consultants, and contract research organizations, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses
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in our consolidated financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the preclinical studies or clinical trials, as measured by the timing of various aspects of the study or related activities. We determine accrual estimates through a review of the underlying contracts along with the preparation of financial models considering discussions with research and other key personnel as to the progress of studies, trials, or other services being conducted. During a study or trial, we adjust our rate of expense recognition if actual results differ from our estimate. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as an expense in the period that the related goods are consumed, or services are performed.
Share-Based Compensation
We maintain an equity incentive compensation plan under which incentive stock options and nonqualified stock options to purchase Common Stock, and restricted stock units for Common Stock, are granted to employees, board of directors, and non-employee consultants. Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service or performance period. The fair value of stock options granted to employees is estimated using the Black-Scholes option pricing model.
The Black-Scholes valuation method requires certain assumptions be used as inputs, such as the fair value of the underlying Common Stock, expected term of the option before exercise, expected volatility of our Common Stock, risk-free interest rate and expected dividend. Options granted have a maximum contractual term of 10 years. We have limited historical stock option activity and therefore estimate the expected term of stock options granted using the simplified method, which represents the arithmetic average of the original contractual term of the stock option and its weighted-average vesting term. The expected volatility of stock options is based on the historical volatility of several publicly traded companies in similar stages of clinical development. We will continue to apply this process until enough historical information regarding the volatility of our stock price becomes available. The risk-free interest rates used are based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. treasury notes with maturities approximately equal to the expected term of the stock options. We have historically not declared or paid any dividends and do not currently expect to do so in the foreseeable future, and therefore have estimated the dividend yield to be zero.
Stock-based compensation expenses year-over-year have increased due to more equity grants awarded in 2024 to attract and retain key scientific or management personnel having a full year of recognized expense.
Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.