OnKure Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data ​ ​ 116 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 118 ​ ​ Consolidated Balance Sheets 119 ​ ​ Consolidated Statements of Operations and Comprehensive Loss 120 ​ ​ Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) 121 ​ ​ Consolidated Statements of Cash Flows 122 ​ ​ Notes to Consolidated Financial Statements 123 ​ ​ ​ 117 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Reneo Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Reneo Pharmaceuticals, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. ​ San Diego, California March 23, 2022 ​ 118 Table of Contents RENEO PHARMACEUTICALS, INC. Consolidated Balance Sheets (In thousands, except par value and share data ) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 Assets ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 124,660 ​ $ 53,613 Short-term investments ​ 23,010 ​ — Prepaid expenses and other current assets ​ 6,064 ​ 1,412 Total current assets ​ 153,734 ​ 55,025 Property and equipment, net ​ 212 ​ 69 Other non-current assets ​ 78 ​ ​ 127 Total assets ​ $ 154,024 ​ $ 55,221 Liabilities, convertible preferred stock and stockholders’ equity (deficit) ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 2,022 ​ $ 908 Accrued expenses ​ 4,180 ​ 3,672 Total current liabilities ​ 6,202 ​ 4,580 Deferred rent ​ 167 ​ 36 Performance award ​ ​ 444 ​ ​ — Total liabilities ​ 6,813 ​ 4,616 Commitments and contingencies ​ ​ Series A convertible preferred stock, $ 0.0001 par value; zero and 24,302,472 shares authorized and outstanding at December 31, 2021 and 2020 , respectively; liquidation preference of $ 0 and $ 49,127 at December 31, 2021 and 2020, respectively ​ — ​ 45,652 Series B convertible preferred stock, $ 0.0001 par value; zero and 46,881,028 shares authorized at December 31, 2021 and 2020, respectively; zero and 23,440,514 shares issued and outstanding at December 31, 2021 and 2020, respectively; liquidation preference of $ 0 and $ 47,385 as of December 31, 2021 and 2020, respectively ​ — ​ 47,068 Stockholders’ equity (deficit): ​ ​ Common stock, $ 0.0001 par value; 200,000,000 and 105,000,000 shares authorized at December 31, 2021 and 2020, respectively; 24,457,838 and 24,455,390 shares issued and outstanding at December 31, 2021, respectively; and 2,053,070 shares issued and outstanding at December 31, 2020 ​ 3 ​ — Additional paid-in capital ​ 231,902 ​ 2,843 Accumulated deficit ​ ( 84,728 ) ​ ( 44,958 ) Accumulated other comprehensive income ​ 34 ​ — Total stockholders’ equity (deficit) ​ 147,211 ​ ( 42,115 ) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) ​ $ 154,024 ​ $ 55,221 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 119 Table of Contents RENEO PHARMACEUTICALS, INC. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Operating expenses: ​ ​ ​ ​ ​ ​ Research and development ​ $ 28,169 ​ $ 15,944 General and administrative ​ 11,649 ​ 3,608 Total operating expenses ​ 39,818 ​ 19,552 Loss from operations ​ ( 39,818 ) ​ ( 19,552 ) Other income ​ 48 ​ 87 Net loss ​ ( 39,770 ) ​ ( 19,465 ) Unrealized gain (loss) on short-term investments ​ 34 ​ ( 3 ) Comprehensive loss ​ $ ( 39,736 ) ​ $ ( 19,468 ) Net loss per share attributable to common stockholders, basic and diluted ​ $ ( 2.19 ) ​ $ ( 9.60 ) Weighted-average shares used in computing net loss per share, basic and diluted ​ 18,143,487 ​ 2,028,198 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 120 Table of Contents RENEO PHARMACEUTICALS, INC. Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit ) (In thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ Total ​ ​ Series A ​ Series B ​ ​ Common Stock ​ Paid-In ​ Comprehensive ​ ​ Accumulated ​ ​ Stockholders' ​ Shares Amount Shares Amount ​ ​ Shares Amount Capital Income (Loss) ​ Deficit ​ Equity (Deficit) Balances, December 31, 2019 ​ 24,302,472 ​ $ 45,652 ​ — ​ $ — ​ ​ 2,008,905 ​ $ — ​ $ 2,363 ​ $ 3 ​ $ ( 25,493 ) ​ $ ( 23,127 ) Issuance of series B convertible preferred stock, net of issuance costs of $ 317 — ​ ​ — ​ 23,440,514 ​ ​ 47,068 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 393 ​ ​ — ​ ​ — ​ ​ 393 Stock option exercise — ​ ​ — ​ — ​ ​ — ​ ​ 44,165 ​ ​ — ​ ​ 87 ​ ​ — ​ ​ — ​ ​ 87 Other comprehensive loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3 ) ​ ​ — ​ ​ ( 3 ) Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 19,465 ) ​ ​ ( 19,465 ) Balances, December 31, 2020 24,302,472 ​ $ 45,652 ​ 23,440,514 ​ $ 47,068 ​ ​ 2,053,070 ​ $ — ​ $ 2,843 ​ $ — ​ $ ( 44,958 ) ​ $ ( 42,115 ) Issuance of series B convertible preferred stock, net of issuance costs of $ 29 — ​ ​ ​ ​ 23,440,514 ​ ​ 47,356 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Conversion of convertible preferred stock into common stock upon initial public offering ​ ( 24,302,472 ) ​ ​ ( 45,652 ) ​ ( 46,881,028 ) ​ ​ ( 94,424 ) ​ ​ 15,907,629 ​ ​ 2 ​ ​ 140,076 ​ ​ — ​ ​ — ​ ​ 140,078 Issuance of common stock in public offering, net of offering costs of $ 2,654 ​ — ​ ​ — ​ — ​ ​ — ​ ​ 6,250,000 ​ ​ 1 ​ ​ 84,532 ​ ​ — ​ ​ — ​ ​ 84,533 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,891 ​ ​ — ​ ​ — ​ ​ 3,891 Stock option exercise — ​ ​ — ​ — ​ ​ — ​ ​ 236,067 ​ ​ — ​ ​ 507 ​ ​ — ​ ​ — ​ ​ 507 Employee stock purchase plan ​ — ​ ​ — ​ — ​ ​ — ​ ​ 8,624 ​ ​ — ​ ​ 53 ​ ​ — ​ ​ — ​ ​ 53 Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 39,770 ) ​ ​ ( 39,770 ) Other comprehensive loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 34 ​ ​ — ​ ​ 34 Balances, December 31, 2021 — ​ $ — ​ — ​ $ — ​ ​ 24,455,390 ​ $ 3 ​ $ 231,902 ​ $ 34 ​ $ ( 84,728 ) ​ $ 147,211 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 121 Table of Contents RENEO PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2021 2020 Cash flows from operating activities ​ ​ ​ Net loss ​ $ ( 39,770 ) ​ $ ( 19,465 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ Depreciation and amortization ​ 50 ​ ​ 37 Amortization/accretion on short-term investments ​ 202 ​ ​ ( 17 ) Changes in the fair value of performance award ​ 444 ​ ​ — Loss on disposal of property, plant & equipment ​ ​ — ​ ​ 2 Stock-based compensation ​ 3,891 ​ ​ 393 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ Accounts payable, accrued expenses and other ​ 1,780 ​ ​ 1,486 Prepaid expenses and other assets ​ ( 4,711 ) ​ ​ ( 967 ) Deferred rent ​ 131 ​ ​ ( 5 ) Net cash used in operating activities ​ ( 37,983 ) ​ ( 18,536 ) Cash flows from investing activities ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 198 ) ​ ​ ( 24 ) Purchase of available-for-sale short-term investments ​ ( 31,406 ) ​ ​ — Proceeds from maturities of available-for-sale short-term investments ​ 8,228 ​ ​ 7,400 Net cash (used in) provided by investing activities ​ ( 23,376 ) ​ 7,376 Cash flows from financing activities ​ ​ ​ ​ ​ ​ Proceeds from issuance of Series B convertible preferred stock, net of issuance costs ​ 47,238 ​ ​ 47,185 Proceeds from initial public offering, net of offering costs ​ 84,612 ​ ​ — Proceeds from issuance of common stock pursuant to equity award plans ​ ​ 556 ​ ​ 87 Net cash provided by financing activities ​ 132,406 ​ 47,272 Effect of exchange rates on cash and cash equivalents ​ ​ ​ ​ ​ — Net increase in cash and cash equivalents ​ 71,047 ​ 36,112 Cash and cash equivalents, beginning of period ​ 53,613 ​ ​ 17,501 Cash and cash equivalents, end of period ​ $ 124,660 ​ $ 53,613 Supplemental cash flow information: ​ ​ Vesting of unvested exercised options ​ $ 4 ​ $ — Unpaid Series B convertible preferred stock issuance costs ​ $ — ​ $ 117 Costs incurred in connection with initial public offering included in accrued expenses ​ $ — ​ $ 33 Property and equipment in accounts payable ​ $ — ​ $ 5 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 122 Table of Contents RENEO PHARMACEUTICALS, INC. Notes to Consolidated Financial Statements ​ 1. Organization and Business Organization Reneo Pharmaceuticals, Inc. (Reneo or the Company) commenced operations on September 22, 2014 as a clinical-stage pharmaceutical company focused on the development of therapies for patients with rare genetic mitochondrial diseases. In December 2017, the Company in-licensed REN001, a novel oral peroxisome proliferator-activated receptor (PPAR) agonist. Reverse Stock Split On April 5, 2021, the Company effected a 1-for- 4.4748 reverse stock split of its common stock. The par value and the authorized number of shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the Series A and Series B convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying consolidated financial statements and notes to the consolidated financial statements give retroactive effect to the reverse stock split for all periods presented . Initial Public Offering On April 13, 2021, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 6,250,000 shares of its common stock at a price to the public of $ 15.00 per share. The gross proceeds from the IPO were approximately $ 93.8 million before deducting underwriting discounts and commissions of $ 6.6 million and offering expenses of approximately $ 2.6 million payable by the Company. At the closing of the IPO, 71,183,500 shares of outstanding convertible preferred stock were automatically converted into 15,907,629 shares of common stock. Following the IPO, there were no shares of preferred stock outstanding. Liquidity The Company has incurred significant losses and negative cash flows from operations. As of December 31, 2021, the Company had cash, cash equivalents and short-term investments of $ 147.7 million and an accumulated deficit of $ 84.7 million. The Company had a net loss of $ 39.8 million and used cash of $ 38.0 million for operating activities for the year ended December 31, 2021. In accordance with Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern , management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the date the consolidated financial statements are issued. If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt. Due to the Company’s continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future and may never become profitable. As a result, the Company will need to raise capital through public or private equity or debt financings, government or other third-party funding, collaborations, strategic alliances and licensing arrangements or a combination of these. There can be no assurance that the Company will be successful in obtaining additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic , as well as actual or perceived changes in interest rates and economic inflation . The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all. In addition, successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. 123 Table of Contents As of December 31, 2021, the Company had $ 147.7 million in cash, cash equivalents and short-term investments, which management believes will be sufficient to fund operations for at least one year from date on which this Annual Report on Form 10-K is issued. ​ 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP) and reflect the operation of Reneo and its wholly owned subsidiary. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation . Use of Estimates The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure in the Company’s consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates. Risks and Uncertainties Any product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration (FDA) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s current product candidates will meet desired efficacy and safety requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its financial statements. The Company is subject to a number of risks similar to other clinical-stage pharmaceutical companies including, but not limited to, dependency on the clinical and commercial success of the Company’s product candidate, REN001, ability to obtain regulatory approval of REN001, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians, consumers and third-party payors, significant competition and untested manufacturing capabilities, and dependence on key individuals and sole source suppliers. The Company’s business has been and could continue to be adversely affected by the evolving COVID-19 pandemic. For example, the COVID-19 pandemic has resulted in and could result in delays to the Company’s clinical trials for numerous reasons including additional delays or difficulties in enrolling patients, diversion of healthcare resources away from the conduct of clinical trials, interruption or delays in the operations of the FDA or other regulatory authorities, and delays in clinical sites receiving the supplies and materials to conduct the Company’s clinical trials. At this time, the extent to which the COVID-19 pandemic impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted. Segment Reporting The Company operates and manages its business as one operating segment, which is the business of developing novel therapies for rare genetic mitochondrial diseases. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of December 31, 2021 and 2020, the Company had cash balances deposited at major financial institutions. Cash balances are subject to minimal credit risk as the balances are with high credit quality financial institutions. Cash and cash equivalents include cash in readily available checking, and money market accounts and repurchase agreements. Short-term Investments The Company accounts for short-term investments in accordance with ASC Topic 320, Investments – Debt and Equity Securities . Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determinations at each reporting period. 124 Table of Contents At December 31, 2021, the Company’s investments consisted of U.S. treasury bills and they were classified as available-for-sale securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income in stockholders’ deficit. Realized gains and losses on sales of investments are included in interest income and are derived using the specific identification method for determining the cost of securities. The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the amortized cost basis of such securities is judged to be other-than-temporarily impaired. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and if the entity has the intent to sell the security, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. The Company did no t recognize any other-than-temporary impairment charges on its short-term investments during the years ended December 31, 2021 and 2020. Money market account balances are included as cash and cash equivalents on the consolidated balance sheets, which are also disclosed in Note 4, Fair Value Measurements. Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Property and Equipment, Net Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred. The following estimated useful lives were used to depreciate or amortize the Company’s assets: ​ ​ ​ ​ ​ ESTIMATED USEFUL LIFE Furniture and fixtures 5 years Computers and software 3 years Leasehold improvements Shorter of useful life or remaining lease term ​ Impairment of Long-Lived Assets Long-lived assets consist primarily of property and equipment. Long-lived assets are evaluated for impairment when events and circumstances indicate the assets might be impaired by first comparing the estimated future undiscounted cash flows of the asset or asset group to the carrying value. If the carrying value exceeds the estimated future undiscounted cash flows, an impairment loss is recognized based on the amount that the carrying value exceeds the fair value of the asset or asset group. The Company did no t recognize impairment losses during the years ended December 31, 2021 and 2020. Leases Leases are accounted for under ASC Topic 840, Leases , and classified as operating leases. The Company records rent expense on a straight-line basis over the term of the lease. The difference between rent payments and straight-line rent expense is recorded as deferred rent. Convertible Preferred Stock The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Prior to the IPO, upon the occurrence of certain potential events that would have been outside the Company’s control, including a “deemed liquidation event” such as a merger, acquisition and sale of all or substantially all of the Company’s assets, holders of the convertible preferred stock could cause redemption for cash. Therefore, convertible preferred stock was classified as temporary equity (mezzanine) on the consolidated balance sheets as events triggering the liquidation preferences are not solely within the Company’s control. All convertible preferred stock was converted to common stock in connection with the IPO in April 2021 . 125 Table of Contents Research and Development Costs and Accruals All research and development costs are expensed as incurred. Research and development costs consist primarily of costs associated with manufacturing drug substance and drug product, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), license fees, salaries and employee benefits. The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites and others. Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. Payments made in advance of or after performance are reflected in the consolidated balance sheets as prepaid expenses or accrued liabilities, respectively. Up-front costs, such as costs associated with setting up clinical trial sites for participation in the trials, are expensed immediately once the set-up has occurred as research and development expenses. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts accrued expenses or prepaid expenses accordingly, which impact research and development expenses. License Fees The Company expenses 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. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidate would be reached when the requisite regulatory approvals are obtained to make the product available for sale. Contingent milestone payments are recognized when the related contingency is resolved, and the amounts are paid or become payable. These amounts are expensed to research and development if there is no alternative future use associated with the license or capitalized as an intangible asset if alternative future use of the license exists. Patent Costs Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These costs are included in general and administrative expenses. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to unrecognized tax benefits. The Company is subject to taxation in the United States and the UK. As of December 31, 2021, the Company’s tax years since inception are subject to examination by taxing authorities in the United States and the UK tax returns from 2018 forward are subject to examination. 126 Table of Contents Stock-Based Compensation The Company recognizes stock-based compensation expense for grants under its 2014 and 2021 Equity Incentive Plans and employee stock purchase plan (ESPP). The Company accounts for all stock-based awards granted to employees and board of directors at their fair value and recognizes compensation expense over the award’s vesting period. Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates of fair values of stock options as of the grant date. The Company calculates the grant date fair values of stock options using the Black-Scholes valuation model, which requires the input of subjective assumptions, including but not limited to expected stock price volatility over the term of the awards and the expected term of stock options. The fair value of restricted stock awards granted to employees is based on the quoted closing market price per share on grant date. The Company granted restricted stock awards with performance conditions that are based upon the achievement of pre-specified clinical development or regulatory performance events. As the outcome of each event has inherent risks and uncertainties, and a positive outcome may not be known until the event is achieved, the Company will begin to recognize the value of the performance-based restricted stock awards when the achievement of each performance condition is deemed probable, a determination that requires significant judgment by management. Compensation cost is recognized under the accelerated method and is adjusted in future periods for subsequent changes in the expected outcome of the performance-related conditions. The Company granted restricted stock awards with market conditions. The Company measures the fair value of stock-based awards with market-based vesting conditions on the date of grant using a Monte Carlo simulation model. In accordance with accounting guidance for awards with market conditions, the stock-based compensation expense will be recognized over the derived service period regardless of whether the award achieves the market condition and will only be adjusted to the extent the service condition is not met. Foreign Currency Transactions The functional currency of Reneo Pharma Ltd is the U.S. dollar. All foreign exchange transactional and remeasurement gains and losses are recognized in the consolidated statements of operations and comprehensive loss. For the years ended December 31, 2021 and 2020, total foreign currency gains and losses were a loss of $ 0.3 million and gain of $ 0.1 million, respectively. Comprehensive Income or Loss Comprehensive income or loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. Net Loss Per Share The Company computes basic loss per share by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company has reported net loss for the years ended December 31, 2020 and 2021, therefore, excluded all outstanding common stock equivalents including the Company’s stock options, performance-based and market-based RSUs, employee stock purchase, and convertible preferred stock, from the diluted net loss per share calculation for the years ended December 31, 2021 and 2020 because such shares are anti-dilutive. Historical outstanding anti-dilutive securities not included in the diluted net loss per share calculation include the following: ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2021 2020 Convertible preferred stock (as converted) ​ — 10,669,291 Common stock options outstanding ​ 4,215,643 935,478 Unvested restricted stock units ​ 299,500 ​ — Total ​ 4,515,143 11,604,769 ​ 127 Table of Contents New Accounting Pronouncements Recent Accounting Pronouncements Not Yet Adopted In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes . The standard simplifies the accounting for income taxes, eliminates certain exceptions within ASC Topic 740, Income Taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new guidance was effective for the Company as of January 1, 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is in the process of evaluating the impact of the application of this ASU on its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in the carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. This new guidance is effective for the Company as of January 1, 2023. The Company is currently evaluating the impact of this ASU and does not expect that adoption of this standard will have a material impact on its consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires a lessee to recognize a liability for lease payments (the lease liability) and a right-of-use asset (representing its right to use the underlying asset for the lease term) on the balance sheet. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the new guidance as of the adoption date, rather than as of the earliest period presented. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the effective date, unless the lease was modified, to not reassess (a) whether a contract is or contains a lease, (b) lease classification or (c) determination of initial direct costs, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company will adopt the standard using the modified retrospective method and elect a package of practical expedients for leases that commenced prior to January 1, 2022 and will not reassess: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs capitalization for any existing leases. The Company is finalizing its assessment of the impact of this guidance and anticipates establishing liabilities and corresponding right-of-use assets on its consolidated balance sheets with no material impact to its consolidated statements of operation and comprehensive loss. ​ Other accounting standard updates effective for interim and annual periods beginning after December 31, 2021 are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. ​ 3. Fair Value Measurements ASC Topic 820, Fair Value Measurement , establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: ● Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities. ● Level 2 – Inputs, other than quoted prices in active markets, which are observable for the asset or liability, either directly or indirectly. 128 Table of Contents ● Level 3 – Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company’s financial assets and convertible preferred stock purchase right liability are subject to fair value measurements on a recurring basis. The Company categorized its money market funds as Level 1, using the quoted prices in active markets. Commercial papers are valued using level 2 significant other observable inputs. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets. For the years ended December 31, 2021 and 2020, gains or losses realized on the sale of investments were not material. Investments are reviewed periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized losses for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired for any of the periods presented. In November 2020, the Company hired a new chief executive officer who is entitled to receive a special performance bonus in the amount of $ 7.5 million (Performance Award), payable in cash, common stock or a combination of cash and common stock, at the election of the Company, based on achievement of certain conditions as described in more detail in Note 7. The Company estimated the fair value of the Performance Award using a Monte Carlo simulation, which incorporates the stock price at the date of the valuation and utilizes level 3 inputs such as volatility, probabilities of success, and other inputs that are not observable in active markets. The Performance Award is required to be measured at fair value on a recurring basis each reporting period, with changes in the fair value recognized in general and administrative expense in the consolidated statements of operations and comprehensive loss over the derived service period of the award. No assets or liabilities were transferred into or out of their classifications during the years ended December 31, 2021 and 2020. The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at December 31, 2021 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ Active Markets ​ Significant Other ​ Unobservable ​ ​ ​ ​ For Identical Items ​ Observable Inputs ​ Inputs ​ ​ ​ ​ (Level 1) (Level 2) (Level 3) Total Assets ​ ​ ​ ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market investments ​ $ 118,535 ​ $ — ​ $ — ​ $ 118,535 Short-term Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial papers ​ ​ — ​ ​ 23,010 ​ ​ — ​ ​ 23,010 Total ​ $ 118,535 ​ $ 23,010 ​ $ — ​ $ 141,545 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance award ​ $ — ​ $ — ​ $ 444 ​ $ 444 Total ​ $ — ​ $ — ​ $ 444 ​ $ 444 ​ The recurring fair value measurement of the Company’s assets and liabilities measured at fair value at December 31, 2020 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ Active Markets ​ Significant Other ​ Unobservable ​ ​ ​ ​ For Identical Items ​ Observable Inputs ​ Inputs ​ ​ ​ ​ (Level 1) (Level 2) (Level 3) Total Assets: ​ ​ ​ ​ ​ Money market investments ​ $ 49,632 ​ $ — ​ $ — ​ $ 49,632 Total ​ $ 49,632 ​ $ — ​ $ — ​ $ 49,632 ​ 129 Table of Contents The following table sets forth a summary of changes in the fair value of the Company’s performance award liability (in thousands): ​ ​ ​ ​ ​ Balance as of January 1, 2021 ​ $ — Expense recorded upon consummation of the IPO ​ ​ 590 Change in fair value ​ ​ ( 146 ) Balance as of December 31, 2021 ​ $ 444 ​ ​ 4. Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2021 2020 Computer, software and office equipment ​ $ 315 ​ $ 122 Leasehold improvements ​ ​ 30 ​ 30 Total property and equipment, gross ​ 345 ​ 152 Less: accumulated depreciation and amortization ​ ( 133 ) ​ ( 83 ) Total property and equipment, net ​ $ 212 ​ $ 69 ​ Depreciation and amortization expense related to property and equipment was immaterial for the years ended December 31, 2021 and 2020, respectively. ​ 5. Accrued Expenses Accrued expenses consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2021 2020 Accrued clinical and regulatory ​ $ 1,236 ​ $ 1,019 Accrued contract manufacturing cost ​ ​ 1,482 ​ 1,443 Accrued compensation ​ ​ 1,027 ​ ​ 888 Accrued research and development-other ​ 435 ​ 322 Total accrued expenses ​ $ 4,180 ​ $ 3,672 ​ ​ 6. Convertible Preferred Stock and Stockholders’ Deficit Preferred Stock The Company has authorized up to 10,000,000 shares of preferred stock, $ 0.0001 par value per share, for issuance. The Company’s preferred stock will have such rights, preferences, privileges, and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, which will be determined by its board of directors upon its issuance. As of December 31, 2021, there were no shares of preferred stock outstanding. Series A Convertible Preferred Stock As of December 31, 2020, there were 24,302,472 shares of Series A convertible preferred stock outstanding with a liquidation preference of $ 49.1 million. In connection with the IPO (Note 1) in April 2021, all outstanding shares of Series A convertible preferred stock were converted into 5,430,957 shares of common stock. Series B Convertible Preferred Stock In December 2020, the Company and certain investors entered into a Series B preferred stock purchase agreement, whereby the Company issued 23,440,514 shares of Series B convertible preferred stock at $ 2.0215 per share for total gross proceeds of approximately $ 47.4 million, which constituted the closing of the first tranche of the Series B convertible preferred stock. In connection with the closing of the first tranche of Series B convertible preferred stock in December 2020, the Company issued rights to the purchasers for the purchase of an additional 23,440,514 shares of Series B convertible preferred stock (Series B Tranche 130 Table of Contents Rights). The Company evaluated the Series B Tranche Right and concluded that it was not a free-standing instrument that met the definition of a derivative that required separate accounting. In March 2021, the Company completed the Series B Tranche Right at $ 2.0215 per share. A total of 23,440,514 shares of Series B convertible preferred stock were issued for aggregate net proceeds of approximately $ 47.4 million. In connection with the IPO in April 2021, all outstanding shares of Series B convertible preferred stock were converted into 10,476,672 shares of common stock. ​ ​ 7. Stock-Based Compensation In March 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (2021 Plan), which is the successor to the 2014 Equity Incentive Plan (2014 Plan). A total of 2,187,524 new shares of common stock were approved to be initially reserved for issuance under the 2021 Plan, which includes 117,639 shares reserved and available for issuance pursuant to the grant of new awards under the 2014 Plan as of the effectiveness of the 2021 Plan and will include any shares subject to stock awards granted under the 2014 Plan that, after the date the 2021 Plan became effective, are forfeited or otherwise become available under the 2014 Plan. Under the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s affiliates. As of December 31, 2021, there were 760,267 shares available for future grant under the 2021 Plan. Under the 2014 Plan, certain employees may be granted the ability to early exercise their options. The shares of common stock issued pursuant to the early exercise of unvested stock options are restricted and continue to vest over the requisite service period after issuance. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. As of December 31, 2021, 2,447 shares subject to stock options have been early exercised, which vested in January 2022. Cash received in exchange for early exercises of stock options has been recorded as a liability for the early exercise of stock options and were transferred into common stock and additional paid-in capital as the shares vested. As of December 31, 2021, such liability for early exercises of stock options was immaterial. In October 2021, the Company granted inducement awards, in accordance with Nasdaq Listing Rule 5635(c)(4) (Inducement Awards), in the aggregate amount of 210,000 shares, which included options to purchase 180,000 shares and performance-based restricted stock units (PSUs) of 30,000 shares. Shares Reserved for Future Issuance As of December 31, 2021, the Company had reserved shares of its common stock for future issuance as follows: ​ ​ ​ ​ ​ Shares ​ ​ Reserved Common stock options outstanding and unvested restricted stock units 4,515,143 Available for future grants under the 2021 Equity Incentive Plan 970,267 Available for future grants under the 2021 Employee Stock Purchase Plan ​ 234,434 Total shares of common stock reserved 5,719,844 ​ 131 Table of Contents Stock Options The Company estimates stock awards fair value on the date of grant using the Black-Scholes valuation, with the vesting being subject to service requirements. The Company accounts for forfeitures when they occur . ​ The following table summarizes stock options as of December 31, 2021, and changes during the year ended December 31, 2021 (in thousands, except share and per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- Weighted-Average ​ ​ ​ Options ​ ​ Average Exercise ​ Remaining Aggregate ​ ​ Outstanding ​ Price ​ Contractual Term Intrinsic Value Outstanding at December 31, 2020 ​ 935,478 ​ $ 2.56 ​ 7.7 ​ ​ Granted ​ 3,537,885 ​ $ 6.03 ​ ​ ​ ​ Exercised ​ ( 238,515 ) ​ $ 2.13 ​ ​ ​ ​ Forfeited/Expired ( 19,205 ) $ 4.54 ​ ​ Outstanding at December 31, 2021 4,215,643 $ 5.49 8.5 $ 13,530 Vested at December 31, 2021 1,179,617 $ 3.84 7.1 $ 5,553 Exercisable at December 31, 2021 2,695,756 $ 4.50 7.9 $ 8,089 ​ Options exercisable at December 31, 2021 include vested options and options eligible for early exercise. All outstanding options as of December 31, 2021 are expected to vest. Unrecognized stock-based expense at December 31, 2021 was $ 11.4 million, which is expected to be recognized over a weighted-average vesting term of 3.0 years. The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 ​ 2020 Risk-free interest rate 0.88 % ​ 1.00 % Expected volatility 78.3 % ​ 71.7 % Expected term (in years) 6.0 ​ 5.8 ​ Expected dividend yield — % ​ — % ​ Risk-free interest rate. The Company bases the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Expected volatility. Since the Company recently completed its IPO and does not have sufficient trading history for its common stock the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry . Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period. Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends. Performance-Based Restricted Stock Units In December 2021, the Company granted 169,500 PSUs to employees pursuant to the 2021 Plan and 30,000 PSUs Inducement Awards. The PSUs vest based on the Company achieving certain regulatory milestones and are subject to the employee’s continued employment with the Company through the achievement date. The fair value of the awards was based on the value of the Company’s common stock at the date of the award and expense recognition is based on the probability of achieving the performance metric. The Company concluded that achievement of the performance conditions was not probable as of December 31, 2021, and therefore no compensation expense was recognized for the year ended December 31, 2021 in connection with the PSU awards. Compensation cost is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions. 132 Table of Contents Market-Based Awards Restricted Stock Units In December 2021, the Company granted 100,000 market-based restricted stock units (MRSUs) to an employee pursuant to the 2021 Plan. The MRSUs vest based on the Company’s closing stock price trading above $ 20 per share for 30 consecutive trading days subject to the employee’s continued employment with the Company through the date of achievement. The share price of the Company’s common stock on the date of issuance of the MRSUs was $ 6.69 per share. The fair value was $ 0.4 million based on Monte Carlo simulation model on the grant date. Compensation expense is recognized over the derived service period of 3 years . During the year ended December 31, 2021, the Company recognized $ 8 thousand of stock-based compensation expense in connection with the MRSUs. As of December 31, 2021, there was $ 0.4 million of unrecognized compensation expense related to this MRSU. Performance Award In November 2020, the Company hired a new chief executive officer who is entitled to receive a Performance Awards in the amount of $ 7.5 million, payable in cash, common stock or a combination of cash and common stock, at the election of the Company, in the event that (i) the Company’s market value exceeds $ 750 million utilizing the volume-weighted average of the closing sale price of its common stock on the Nasdaq Stock Market or other principal exchange for each of the 30 trading days immediately prior to the measurement date, or (ii) the fair market value of the net proceeds available for distribution to the Company’s stockholders in connection with a change in control as defined in the Company’s severance benefit plan, as determined in good faith by its board of directors, exceeds $ 750 million. The Company has determined that the Performance Award is subject to ASC Topic 718 , Compensation – Stock Compensation and includes both market and performance conditions. Since the IPO, neither of the events have yet been satisfied. The Company estimated the fair value of the Performance Award at each reporting period using the Monte Carlo simulation (Note 3), which is recognized as compensation cost over the derived service period. During the year ended December 31, 2021, the Company recorded a stock-based compensation expense of $ 0.4 million. Employee Stock Purchase Plan In March 2021, the Company’s board of directors adopted the Company’s 2021 ESPP, which became effective immediately prior to the execution of the underwriting agreement in connection with the Company’s IPO. A total of 243,058 shares of common stock were approved to be initially reserved for issuance under the ESPP. As of December 31, 2021, 8,624 shares have been issued under the ESPP. In September 2021, the Company’s board of directors adopted the Company’s 2021 UK Sharesave Sub-plan (SAYE). An allocation of 25,875 shares of common stock from the ESPP was approved and reserved for issuance under the SAYE. No shares have been issued under the SAYE through December 31, 2021. The stock-based compensation expense related to the ESPP and SAYE for the year ended December 31, 2021 was immaterial. The following table summarizes stock compensation expense, including expense associated with award modifications that accelerated the recognition of expense for unvested options, reflected in the consolidated statements of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, ​ 2021 2020 Research and development $ 1,036 ​ $ 165 General and administrative ​ 2,855 ​ ​ 228 Total $ 3,891 ​ $ 393 ​ ​ 8. License Agreement In December 2017, the Company entered into a License Agreement with vTv Therapeutics LLC (vTv Therapeutics) (the vTv License Agreement), under which the Company obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPARδ agonists and products containing such PPARδ agonists, including REN001, for any therapeutic, prophylactic or diagnostic application in humans. Under the terms of the vTv License Agreement, the Company paid vTv Therapeutics an initial upfront license fee payment of $ 3.0 million and issued an aggregate of 576,443 shares of its common stock to vTv Therapeutics. The vTv License Agreement was accounted for as an asset acquisition and 133 Table of Contents the upfront cash payment of $ 3.0 million and the fair value of common stock of $ 0.7 million issued to vTv Therapeutics was recorded in research and development expenses, as there was no alternative use for the asset. Upon the achievement of certain pre-specified development and regulatory milestones, the Company is also required to pay vTv Therapeutics milestone payments totaling up to $ 64.5 million. The Company is also required to pay vTv Therapeutics up to $ 30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. In addition, the Company is obligated to make royalty payments to vTv Therapeutics at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions. I n July 2021, a milestone under the vTv License Agreement was achieved, and the Company made a payment of $ 2.0 million to vTv Therapeutics that was recognized as research and development expenses. ​ 9. Income Taxes The Company’s net loss was generated in the following jurisdictions (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 2020 Domestic ​ $ ( 39,718 ) ​ $ ( 21,291 ) Foreign ​ ( 52 ) ​ 1,826 Net Loss ​ $ ( 39,770 ) ​ $ ( 19,465 ) ​ The components of net deferred taxes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Deferred tax assets: ​ ​ ​ ​ ​ ​ NOL carryforwards ​ $ 13,446 ​ $ 6,488 Credit carryforwards ​ ​ 2,155 ​ ​ 663 Compensation accruals ​ ​ 653 ​ ​ 179 Other accruals and reserves ​ ​ 35 ​ ​ 24 Intangible assets ​ ​ 3,469 ​ ​ 3,316 Depreciation ​ ​ 104 ​ ​ — Other ​ ​ 2 ​ ​ 1 Gross deferred tax assets ​ ​ 19,864 ​ ​ 10,671 Less valuation allowance ​ ​ ( 19,864 ) ​ ​ ( 10,662 ) Total deferred tax assets ​ ​ — ​ ​ 9 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Depreciation ​ ​ — ​ ​ ( 9 ) Net deferred tax assets (liabilities) ​ $ — ​ $ — ​ For the years ended December 31, 2021 and 2020, the Company recorded no provision for income taxes. A reconciliation of the effective tax rate to the amount computed by applying the statutory federal income tax rate to the loss from operations is summarized for the years ended December 31, 2021 and 2020, as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 ​ U. S. Federal statutory income tax rate ​ 21.0 % ​ 21.0 % UK R&D true-up ​ ( 0.1 ) % ​ 6.5 % UK permanent items ​ — % ​ 1.8 % Other ​ ( 1.0 ) % ​ ( 0.1 ) % Tax credits, net ​ 3.5 % ​ 2.2 % GILTI inclusion ​ ( 0.5 ) % ​ ( 0.2 ) % Valuation allowance ​ ( 22.9 ) % ​ ( 31.2 ) % Effective tax rate ​ — % ​ — % ​ 134 Table of Contents The Company had federal net operating loss (NOL) carryforwards available of approximately $ 59.7 million as of December 31, 2021, before consideration of limitations under Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), as further described below. The federal NOLs generated after 2018 of $ 58.1 million will carry forward indefinitely. NOLs generated prior to 2018 of $ 1.6 million will begin to expire in 2034. Additionally, the Company had state NOL carryforwards available of $ 1.6 million as of December 31, 2021. The state NOLs may be used to offset future taxable income and will begin to expire in 2034. The Company has generated UK NOLs of $ 3.0 million which carryforward indefinitely. At December 31, 2021, the Company had federal and state tax credit carry forwards of approximately $ 4.8 million and $ 0.3 million, respectively. The Company has not performed a formal research and development credit study with respect to these credits. The federal credits will begin to expire in 2034, if unused, and the state credits carry forward indefinitely. The future utilization of the Company’s NOL and tax credit carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by stockholders that hold 5% or more of the Company’s common stock. An assessment of such ownership changes under Section 382 was not completed through December 31, 2021. To the extent that an assessment is completed in the future, the Company’s ability to utilize tax attributes could be restricted on a year-by-year basis and certain attributes could expire before they are utilized. The Company will examine the impact of any potential ownership changes in the future. The Company has elected to record the inclusion related to the Global Intangible Low-Taxed Income (GILTI) in the period incurred. The estimated GILTI inclusion generated by the Company’s wholly-owned controlled foreign corporation in the United Kingdom for the year ended December 31, 2021 was $ 0.9 million. This amount is included in the income tax provision, however, has zero impact to the provision due to the full valuation allowance. The Company has established a full valuation allowance for its deferred tax assets due to uncertainties that preclude it from determining that it is more likely than not that the Company will be able to generate sufficient taxable income to realize such assets. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth. Based on this evaluation, as of December 31, 2021, a full valuation allowance of $ 19.9 million has been recorded against the Company net deferred tax assets, as the Company has determined that none of the Company’s balance of deferred tax assets is more likely than not to be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted in the future if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as estimates of future taxable income during carryforward periods and the Company’s projections for growth. The following table summarizes the changes to unrecognized tax benefits (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Beginning balance of unrecognized tax benefits ​ $ 258 ​ $ 168 Additions based on tax positions related to the current year ​ 2,741 ​ 90 Ending balance of unrecognized tax benefits ​ $ 2,999 ​ $ 258 ​ The amount of the unrecognized tax benefits that would impact the effective tax rate, absent the valuation allowance, would be $ 3.0 million. Due to the full valuation allowance, the impact, however, is zero. At December 31, 2021 and 2020, the Company has no t accrued any interest or penalties related to uncertain tax positions. The Company does not anticipate that there will be a significant change in the amount of unrecognized tax benefits over the next 12 months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to taxation in the United States and the UK. The Company’s federal and state returns since inception are subject to examination due to the carryover of net operating losses. The Company has not been, nor is it currently, under examination by any tax authorities. The UK tax returns from 2018 forward are subject to examination by the UK tax authorities. ​ 135 Table of Contents 10. Commitments and Contingencies Operating Leases In June 2018, the Company leased certain office space for its U.S. headquarters in San Diego, California under a non-cancelable operating lease with terms through July 2023, with an option to extend the terms for the entire premises for a period of five years . In June 2021, the Company leased 5,137 square feet of office space for its U.S. headquarters in Irvine, California under a non-cancelable operating lease with terms through November 2026. The lease provides for a 3 % annual rent increase, five months of abated rent and a tenant improvement allowance of $ 6.50 per square foot. The total minimum lease payment over the life of the lease is $ 1.6 million. The rent expense in the United States for the years ended December 31, 2021 and 2020 totaled $ 0.4 million and $ 0.2 million for the years ended December 31, 2021 and 2020, respectively. In December 2018, the Company leased certain office space for its UK subsidiary under a non-cancelable operating lease with lease terms through November 2021. The Company extended the lease for an additional one year per the terms of the agreement. The rent expense in the UK is immaterial. Future annual minimum payments under the non-cancelable operating leases are as follows (in thousands): ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2022 $ 501 2023 ​ 430 2024 ​ ​ 322 2025 ​ ​ 332 Thereafter ​ ​ 313 Total minimum lease payments ​ $ 1,898 ​ Legal Proceedings The Company is currently not a party to any legal proceedings, nor is the Company aware of any threatened or pending litigation . However, from time-to-time in the future, the Company could be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business, which may have a material adverse effect on the Company’s consolidated results of operations or financial position. 401(k) Plan The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. Matching contributions to the 401(k) plan are made for certain eligible employees to meet non-discrimination provisions of the plan. During the years ended December 31, 2021 and 2020, the expense recorded by the Company was immaterial. ​ 11. Subsequent Events On January 28, 2022, Vineet R. Jindal notified the Company that he will resign as Chief Financial Officer effective March 31, 2022. In connection with Mr. Jindal’s resignation, the Company entered into a Transition, Separation and Consulting Agreement with Mr. Jindal (Separation Agreement). Mr. Jindal’s resignation and his Separation Agreement is not expected to have material impact on the Company’s consolidated financial statements. ​ 136 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. ​