What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-22 compared with 2022-03-31 · 150 added, 218 removed, 252 unchanged (59% of the section changed)

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Any future determination to declare or pay dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions, capital requirements general business conditions and other factors that our board of directors may deem relevant.

Our future ability to pay cash dividends on our capital stock may be limited by the terms of any future debt or preferred securities.

Our future ability to pay cash dividends on our capital stock is limited by the terms of the Loan Agreement and may also be limited by the terms of any future debt or preferred securities.

As of March 16, 2023, we had 149 holders of record of our Class A common stock and 18 holders of record of our Class B common stock.

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Upon exchange of the LLC Units for Class A common stock, the corresponding shares of Class B common stock paired with such LLC Units are cancelled.

Securities Authorized for Issuance Under Equity Compensation Plans

Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K

Recent Sales of Unregistered Securities

During the year ended December 31, 2021, we did not issue or sell any unregistered securities other than as disclosed in our Quarterly Reports on Form 10-Q for the quarter ended June 30, 2021 and September 30, 2021.

Use of Proceeds from Registered Securities

On July 29, 2021, the SEC declared effective our Registration Statement on Form S-1 (File No.

333-257809), as amended, filed in connection with our IPO.

Our planned use of proceeds to advance our internal pipeline has changed from a range of approximately $45.0 million to $55.0 million to approximately $30.0 million to $40.0 million, and our planned use of proceeds to advance manufacturing scale-up and automation has changed from a range of approximately $25.0 million to $35.0 million to approximately $15.0 million to $25.0 million.

Except as described, there has been no material change in the planned use of proceeds from our IPO as described in the Registration Statement.

During the quarter ended December 31, 2022, we issued 13,000 shares of Class A common stock to Stephanie McGrory, our former employee, in connection with the resolution of an employment matter.

The shares were offered and sold in accordance with the terms of the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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and its consolidated subsidiaries.

We are a clinical stage biotherapeutics company focusing on advancing technologies to enable the administration of biologics orally, to provide patients, physicians, and healthcare systems with a convenient alternative to painful injections.

We are advancing a portfolio of oral biologic therapeutics using our proprietary delivery technology.

We have developed and clinically tested a drug-agnostic oral delivery platform, the RaniPill capsule, which can deliver any drug, including large molecules such as peptides, proteins, and antibodies.

The current RaniPill capsule can deliver up to a 3 mg dose of drug with high bioavailability.

We are a clinical stage biotherapeutics company focusing on advancing technologies to enable the administration of biologics and drugs orally, to provide patients, physicians, and healthcare systems with a convenient alternative to painful injections.

We are advancing a portfolio of oral therapeutics using our proprietary delivery technology.

We are developing and clinically testing a drug-agnostic oral delivery platform, the RaniPill capsule, which is designed to deliver a wide variety of drug substances, including large molecules such as peptides, proteins, and antibodies.

The current RaniPill capsule, the RaniPill GO, is designed to deliver up to a 3 mg dose of drug with high bioavailability.

We are also developing a high-capacity version known as the RaniPill HC, which is in preclinical stage and which is intended to enable delivery of drug payloads up to 20 mg with high bioavailability.

Our current RaniPill capsule is optimized to orally deliver a variety of biologic therapeutics, and we are advancing development of the RaniPill HC to address biologics with higher dosing requirements.

Together, we believe that the current RaniPill capsule and RaniPill HC could enable us to deliver most biologics currently on the market via a convenient, oral daily dose.

The RaniPill GO is optimized to orally deliver a variety of therapeutics, and we are advancing development of the RaniPill HC to address biologics and drugs with higher dosing requirements.

Since our inception in 2012, we have devoted the majority of our resources to research and development, manufacturing automation and scaleup, and establishing our intellectual property portfolio.

To date, we have financed our operations primarily through the initial public offering ("IPO"), private placements of preferred units, issuance of convertible promissory notes, and contract revenue generated from the evaluation agreements.

To date, we have financed our operations primarily through an initial public offering ("IPO"), private placements of Rani LLC preferred units, the issuance of convertible promissory notes, long-term debt, and contract revenue generated from our evaluation agreements.

We do not have any products approved for sale, and we have not yet generated any revenue from sales of a commercial product.

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As is common with biotechnology companies, we rely on third-party suppliers for the supply of raw materials and active pharmaceutical ingredients ("APIs") and drug substances required for the production of our product candidates.

In addition, we work with third parties to manufacture and develop biologics for inclusion in the current RaniPill capsule and RaniPill HC.

In addition, we work with third parties to manufacture and develop biologics and drugs for inclusion in the current RaniPill capsule and RaniPill HC.

Design work, prototyping and pilot manufacturing are performed in-house, and we have utilized third-party engineering firms to assist with the design of manufacturing lines that support our supply of the current RaniPill capsule and RaniPill HC.

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Those assets deemed to have an alternative future use have been capitalized as property and equipment while those projects related to our assets determined to not have an alternative future use have been expensed as research and development costs.

Clinical Update

In August 2022, we announced positive topline results from Part 1 (“Study Part 1”) of the Phase 1 study of RT-102, which is being developed for the potential treatment of osteoporosis.

The study met all of its endpoints and RT-102 was generally well

In the study, RT-102 orally delivered 20 µg and 80 µg of PTH with 300-400% greater bioavailability than subcutaneous Forteo (teriparatide) 20 µg.

In December 2022, we announced positive topline results from Part 2 (“Study Part 2”) of the Phase 1 study of RT-102.

The study met all of its endpoints.

The study evaluated the safety and tolerability of once-daily administration of RT-102 containing 20 µg of PTH given repeatedly for seven consecutive days in ten healthy female volunteers.

RT-102 was well tolerated with no serious adverse events noted, and delivered 20 µg of PTH with high bioavailability, confirming the high bioavailability observed during Study Part 1.

In January 2023, Rani announced that it completed a pre-IND meeting with the FDA with respect to RT-102.

Following feedback from the meeting, Rani believes that a 505(b)(2) pathway is suitable for the development of RT-102 in the U.S.

In addition, Rani obtained guidance from the FDA on its preclinical and clinical development plans for RT-102, including the Phase 2 clinical trial which is expected to initiate in the second half of 2023.

In October 2022, we announced that we had begun preclinical development with RT-111, the RaniPill capsule containing an ustekinumab biosimilar.

In January 2023, we announced entering into a License and Supply Agreement with Celltrion, Inc.

(“Celltrion”) under which we receive a license and supply of Celltrion’s ustekinumab biosimilar for development and commercialization of RT-111 worldwide, subject to a right of first negotiation for Celltrion following completion of a Phase 1 clinical trial that meets its primary endpoint(s) (the “Celltrion Agreement”).

We continue to develop the RaniPill HC, a high-capacity RaniPill capsule designed to deliver drug payloads up to 20 mg, 500%-plus higher than the payload capacity of the RaniPill GO.

We are conducting preclinical studies with a fully-autonomous RaniPill HC.

Following a strategic priority review in 2022, we decided not to continue active development of RT-109, a RaniPill capsule containing human growth hormone.

We remain open to partnering opportunities with respect to RT-109, but intend to focus internal efforts on our other pipeline programs.

Financial Update

In August 2022, we entered into a loan and security agreement and related supplement (the “Loan Agreement”) with Avenue Venture Opportunities Fund, L.P (the “Lender”).

The Loan Agreement provides for term loans (the “Loans”) in an aggregate principal amount up to $45.0 million.

A Loan of $30.0 million was committed at closing, with $15.0 million funded immediately and $15.0 million available to be drawn between October 1, 2022 and December 31, 2022, which was drawn in December 2022.

The remaining $15.0 million of Loans is uncommitted and is subject to certain conditions and approval by the Lender.

The purpose of the Loans is for general corporate purposes.

The Loan Agreement also contains various covenants and restrictive provisions.

As of December 31, 2022, we were in compliance with all applicable debt covenants under the Loan Agreement and had cash, cash equivalents, and marketable securities totaling $98.5 million.

In addition, in August 2022, we entered into a Controlled Equity SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.

Wainwright & Co., LLC (collectively, the “Agents”), pursuant to which we may offer and sell from time to time through the Agents up to $150.0 million of shares of our Class A common stock, in such share amounts as we may specify by notice to the Agents, in accordance with the terms and conditions set forth in the Sales Agreement (“ATM Sales”).

As of December 31, 2022, we had not delivered any placement notices to either of the Agents and there had been no ATM Sales.

COVID-19 Business Impact

We are subject to risks and uncertainties as a result of the ongoing COVID-19 pandemic.

We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and have taken and continue to take proactive efforts to protect the health and safety of our patients, study investigators, clinical research staff and employees, and to maintain business continuity.

The extent of the impact of the COVID-19 pandemic on our activities is highly uncertain and difficult to predict, as the response to the pandemic is ongoing and information continues to evolve.

Capital markets and economies worldwide have been significantly

impacted by the COVID-19 pandemic and may be further impacted in the future.

Such economic disruption could have a material adverse effect on our business.

Policymakers around the globe have responded with fiscal policy actions to support the biotherapeutics industry and economy as a whole.

The magnitude and overall effectiveness of these actions remains uncertain.

To date, we have not incurred impairment losses in the carrying values of our assets as a result of the pandemic;

however, we have experienced delays and impacts to various parts of our business, including delays due to the unavailability of vendors or delays in their availability with respect to research and development activities due to high demand or disruption to their business, delays in certain shipments of materials for our manufacturing, increases in prices charged by third parties for goods and services due to additional processes or costs resulting from COVID-19 procedures, disruption to travel which affects our ability to establish and maintain business relationships, and disruption to employee work schedules due to direct and indirect effects of COVID-19 such as government shelter-in-place mandates.

What may have once been considered short-term impacts of COVID-19 may now reflect permanent costs of doing business.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, such as those resulting from the ongoing COVID-19 pandemic.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.

Even if we are able to generate revenue from commercial product sales, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce or terminate our operations.

The severity of the impact of the COVID-19 pandemic on our activities will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, including the severity of any additional periods of increases or spikes in the number of cases in the areas we operate and areas where our clinical trial sites are located;

the development and spread of COVID-19 variants;

the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments;

and new or continuing travel and other restrictions and public health measures, such as social distancing, business closures or disruptions.

Accordingly, the extent and severity of the impact on our existing and planned clinical trials and operations is uncertain and cannot be fully predicted.

Our future results of operations and liquidity could be adversely impacted by delays in existing and planned clinical trials and difficulties in recruiting patients for these clinical trials, the ongoing impact on our operating activities and employees, and the ongoing impact of any initiatives or programs that we may undertake to address financial and operational challenges.

As of the date of issuance of this Annual Report on Form 10-K, the extent to which the COVID-19 pandemic may materially impact our future financial condition, liquidity or results of operations is uncertain.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

We believe that, as a result of the COVID-19 pandemic, we have experienced delays due to the unavailability of vendors or delays in their availability with

respect to research and development activities due to high demand or disruption to their business, delays in certain shipments of materials for our manufacturing, increases in prices charged by third parties for goods and services due to additional processes or costs resulting from COVID-19 procedures, disruption to travel which affects our ability to establish and maintain business relationships, and disruption to employee work schedules.

While we have not experienced material impacts through December 31, 2022, the extent to which the COVID-19 pandemic will further directly or indirectly impact our results of operation and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast.

Because of these uncertainties, we cannot estimate how long or to what extent COVID-19 will impact our operations.

Organizational Transactions

Rani Therapeutics Holdings, Inc.

(“Rani Holdings”) was incorporated in April 2021 and formed for the purpose of facilitating an IPO of its Class A common stock, and to facilitate certain organizational transactions (“Organizational Transactions”) and to operate the business of Rani Therapeutics, LLC (“Rani LLC”) and its consolidated subsidiary.

In connection with the IPO, we established a holding company structure with Rani Holdings as the holding company and its principal asset being the Class A common units (“Class A Units”) of Rani LLC that it owns.

As the sole managing member of Rani LLC, Rani Holdings operates and controls all of Rani LLC’s operations, and through Rani LLC and its subsidiary, conducts all of Rani LLC’s business and the financial results of Rani LLC and its consolidated subsidiary are included in the consolidated financial statements of Rani Holdings.

The Company was incorporated in April 2021 and formed for the purpose of facilitating an IPO of its Class A common stock, and to facilitate certain organizational transactions (“Organizational Transactions”) and to operate the business of Rani Therapeutics, LLC (“Rani LLC”) and its consolidated subsidiary at such time, Rani Management Services, Inc.

(“RMS”).

In connection with the IPO, we established a holding company structure with the Company as the holding company and its principal asset being the Class A common units (“Class A Units”) of Rani LLC that it owns.

As the sole managing member of Rani LLC, the Company operates and controls all of Rani LLC’s operations, and through Rani LLC, conducts all of Rani LLC’s business and the financial results of Rani LLC and, prior to December 15, 2022, RMS are included in the consolidated financial statements of the Company.

RMS was dissolved as of December 15, 2022

Rani LLC has been, and after the IPO continues to be, treated as a pass-through entity for U.S.

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federal or state income tax.

The wholly owned subsidiary of Rani LLC, Rani Management Services, Inc.

(“RMS”), which was incorporated in 2019, is taxed as a corporation for U.S.

The wholly owned subsidiary of Rani LLC, RMS, which was incorporated in 2019 and dissolved in December 2022, was taxed as a corporation for U.S.

federal and most applicable state, local income tax and foreign tax purposes.

As a result of its ownership of interests in Rani LLC ("LLC Interests"), Rani Holdings is subject to U.S.

As a result of its ownership of interests in Rani LLC ("LLC Interests"), the Company is subject to U.S.

federal, state and local income taxes with respect to its allocable share of any taxable income of Rani LLC and will be taxed at the prevailing corporate tax rates.

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These exchanges and redemptions may result in increases in the tax basis of the assets of Rani LLC that otherwise would not have been available.

Increases in tax basis resulting from such exchanges may reduce the amount of income tax that Rani Holdings would otherwise be required to pay in the future.

This tax basis may also decrease the gains (or increase the losses) on future dispositions of certain assets to the extent tax basis

is allocated to those assets.

Increases in tax basis resulting from such exchanges may reduce the amount of income tax that the Company would otherwise be required to pay in the future.

This tax basis may also decrease the gains (or increase the losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

Due to the uncertainty of various factors, we cannot estimate the likely tax benefits we will realize as a result of exchanges, and the resulting amounts we will likely pay out to the Continuing LLC Owners pursuant to the Tax Receivable Agreement;

however, we estimate that such payments may be substantial in the event we are profitable.

Certain individuals who continue to own interests in Rani LLC but do not hold shares of the Company’s Class B common stock (“non-corresponding Class A Units”) have the ability to exchange their non-corresponding Class A Units of Rani LLC for 1,387,471 shares of the Company’s Class A common stock.

Components of Results of Operations

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To date, we have not generated any revenue from commercial product sales and do not expect to generate any revenue from the sale of commercial products in the foreseeable future.

Our only revenue has been derived from evaluation agreements, which are recorded as contract revenue.

As of December 31, 2021, we had no active evaluation agreements, and therefore we expect that our revenue for the next several years will be derived from any new agreements that we may enter into in the future.

Our only revenue to date has been derived from evaluation agreements, which are recorded as contract revenue.

As of December 31, 2022, we had no active evaluation agreements, and therefore we expect that our revenue for the next several years will be derived from any new agreements that may be executed in the future.

Our ability to generate commercial product revenue and to become profitable will depend upon our ability to successfully develop, obtain regulatory approval for and commercialize the RaniPill capsule and RaniPill HC.

Because of the numerous risks and uncertainties associated with product development, regulatory approval and commercialization, we are unable to predict the amount, timing or whether we will be able to obtain commercial product revenue.

Operating Expenses

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Research and Development Expense

Research and development expense consists primarily of direct and indirect costs incurred in connection with our research and development activities to develop the RaniPill capsule and RaniPill HC.

Research and development expense consists primarily of direct and indirect costs incurred in connection with our research and development activities to develop the RaniPill GO and RaniPill HC.

These expenses include:

External expenses, consisting of:

expenses associated with contract research organizations ("CROs"), for managing and conducting clinical trials;

expenses associated with laboratory supplies, drug material for clinical trials, developing and manufacturing of the RaniPill capsule, RaniPill HC and other materials;

expenses associated with CROs, for managing and conducting clinical trials;

expenses associated with laboratory supplies, drug material for clinical trials, developing and manufacturing of the RaniPill GO, RaniPill HC and other materials;

expenses associated with preclinical studies performed by third parties;

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The historical focus of our research and development has been on the RaniPill delivery platform and not tracked costs on a project-by-project basis associated with different drug compounds.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, the RaniPill capsule and RaniPill HC.

We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in activities related to testing and developing the RaniPill capsule and RaniPill HC, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for the RaniPill capsule and RaniPill HC upon successful completion of clinical trials, and incur expenses associated with hiring additional personnel to support the research and development efforts.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, the successful development of the RaniPill capsule and RaniPill HC is highly uncertain, and we may never succeed in achieving regulatory approval for the RaniPill capsule and RaniPill HC.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of the RaniPill GO and RaniPill HC and complete the development of, and obtain regulatory approval for, our product candidates.

We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in activities related to testing and developing the RaniPill GO and RaniPill HC and the development of our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for our product candidates upon successful completion of clinical trials, and incur expenses associated with hiring additional personnel to support the research and development efforts.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, the successful development of the RaniPill GO and RaniPill HC and our product candidates is highly uncertain, and we may never succeed in successfully developing the RaniPill GO and/or RaniPill HC or achieve the development of, and regulatory approval for, our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, equity-based compensation, and benefits) for personnel in executive, finance, accounting, legal, corporate and business development, and other administrative functions.

General and administrative expenses also include legal fees relating to corporate matters, professional fees paid for accounting, auditing, consulting, tax, and administrative consulting services, insurance costs, travel expenses, marketing expenses, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We anticipate that our general and administrative expenses will increase significantly in the foreseeable future as additional administrative personnel and services are required to manage and support the development of the RaniPill capsule and RaniPill HC.

We also anticipate that we will incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

General and administrative expenses also include legal fees relating to corporate matters, professional fees paid for accounting, auditing, consulting, tax, and administrative consulting services, insurance costs, travel, and facilities, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We also anticipate that we will incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer liability insurance, and investor and public relations.

Other Income (Expense), Net

Other income (expense), net primarily consists of interest income on our cash and cash equivalents and income (expense) associated with re-measurements of the estimated fair value of preferred unit warrants and loss on the extinguishment of debt.

Other income (expense), net primarily consists of interest income earned on our cash equivalents and marketable securities and interest expense from our long-term debt and amortization of debt discount and issuance costs.

Non-Controlling Interest

Non-controlling interest ("NCI") represents the portion of income or loss, net assets and comprehensive loss of our consolidated subsidiary that is not allocable to Rani Holdings based on its percentage of ownership of Rani LLC.

In August 2021, based on the Organizational Transactions, Rani Holdings became the sole managing member of Rani LLC.

As of December 31, 2021, Rani Holdings held approximately 39% of the Class A Units of Rani LLC, and approximately 61% of the outstanding Class A Units of Rani LLC are held by the Continuing LLC Owners.

Non-controlling interest ("NCI") represents the portion of income or loss, net assets and comprehensive loss of our consolidated subsidiary that is not allocable to the Company based on its percentage of ownership of Rani LLC.

In August 2021, based on the Organizational Transactions, the Company became the sole managing member of Rani LLC.

As of December 31, 2022, the Company held approximately 50% of the Class A Units of Rani LLC, and approximately 50% of the outstanding Class A Units of Rani LLC are held by the Continuing LLC Owners.

Therefore, we report NCI based on the Class A Units of Rani LLC held by the Continuing LLC Owners on our consolidated balance sheet as of December 31, 2022.

Income or loss attributed to the NCI in Rani LLC is based on the Class A Units outstanding during the period for which the income or loss is generated and is presented on the consolidated statements of operations and comprehensive income or loss.

Future exchanges of Paired Interests will result in a change in ownership and reduce or increase the amount recorded as NCI and increase or decrease additional paid-in-capital when Rani LLC has positive or negative net assets, respectively.

From the date of the Organizational Transactions to December 31, 2021, there were no exchanges of Paired Interests.

Future exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC will result in a change in ownership and reduce or increase the amount recorded as NCI and increase or decrease additional paid-in-capital when Rani LLC has positive or negative net assets, respectively.

From the date of the Organizational Transactions to December 31, 2022, there were 5,173,947 exchanges of Paired Interests and 158,051 exchanges of noncorresponding Class A Units of Rani LLC for an equal number of shares of our Class A common stock.

Tax Receivable Agreement

In August 2021, in connection with the IPO and Organizational Transactions, we entered into a tax receivable agreement ("TRA") with certain of the Continuing LLC Owners.

The TRA provides that we pay to such Continuing LLC Owners, 85% of the amount of tax benefits, if any, it is deemed to realize (calculated using certain assumptions) as a result of (i) increases in the tax basis of assets of Rani LLC resulting from (a) any future redemptions or exchanges of Paired Interests and (b) payments under the TRA and (ii) certain other benefits arising from payments under the TRA (collectively the “Tax Attributes”).

The TRA provides that we pay to such Continuing LLC Owners, 85% of the amount of tax benefits, if any, it is deemed to realize (calculated using certain assumptions) as a result of (i) increases in the tax basis of assets of Rani LLC resulting from (a) any future redemptions or exchanges of Paired Interests or non-corresponding Class A Units of Rani LLC and (b) payments under the TRA and (ii) certain other benefits arising from payments under the TRA (collectively the “Tax Attributes”).

A liability for the payable to parties subject to the TRA, and a reduction to stockholders’

equity, is accrued when (i) an exchange of a Paired Interest has occurred and (ii) when it is deemed probable that the Tax Attributes associated with the exchange will be used to reduce our taxable income based on the contractual percentage of the benefit of Tax Attributes that we expect to

receive over a period of time.

No exchanges of Paired Interests had occurred through December 31, 2021 and therefore no liability had been accrued for the TRA.

Relationship with InCube Labs

equity, is accrued when (i) an exchange of a Paired Interest or non-corresponding Class A Units of Rani LLC has occurred and (ii) when it is deemed probable that the Tax Attributes associated with the exchange will be used to reduce our taxable income based on the contractual percentage of the benefit of Tax Attributes that we expect to receive over a period of time.

Relationship with InCube Labs, LLC

Services Agreements

In January 2019, Rani LLC entered into a one year service agreement with InCube Labs, LLC (“ICL”).

This service agreement was amended in January 2020 to extend the period for an additional year and expired in December 2020.

In June 2021, Rani LLC entered into a Service Agreement with ICL effective retrospectively to January 1, 2021, and subsequently amended such agreement in March 2022 (as amended, the "Rani LLC-ICL Service Agreement"), pursuant to which Rani LLC and ICL agreed to provide personnel services to the other upon requests.

Under the amendment in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas (“Occupancy Services”) for general office, research and development, and light manufacturing.

In June 2021, Rani LLC entered into a service agreement with InCube Labs, LLC (“ICL”) effective retrospectively to January 1, 2021, and subsequently amended such agreement in March 2022 (as amended, the "Rani LLC-ICL Service Agreement"), pursuant to which Rani LLC and ICL agreed to provide personnel services to the other upon requests.

Under the amendment in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas (“Occupancy

Services”) for general office, research and development, and light manufacturing.

The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated;

except that the Occupancy Services in Milpitas, California have a term until February 2023, with the potential for two annual renewals, subject to approval by ICL upon a nine months’

notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months notice of termination.

except that the Occupancy Services in Milpitas, California have a term until February 2024, following an extension granted in July 2022, with the potential for one additional annual renewal, subject to approval by the landlord upon a nine months’

notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’

notice of termination.

Except for the Occupancy Services, Rani LLC or ICL may terminate services under the Rani LLC-ICL Service Agreement upon 60 days' notice to the other party.

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Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively.

In June 2021, RMS entered into a Service Agreement with ICL (the “RMS-ICL Service Agreement”) effective retrospectively to January 1, 2021, pursuant to which ICL agreed to rent a specified portion of its facility to RMS.

In June 2021, RMS entered into a service agreement with ICL (the “RMS-ICL Service Agreement”) effective retrospectively to January 1, 2021, pursuant to which ICL agreed to rent a specified portion of its facility in San Jose, California to RMS.

Additionally, RMS and ICL agreed to provide personnel services to the other upon requests based on rates specified in the RMS-ICL Service Agreement.

In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC.

The RMS-ICL Service Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless terminated.

RMS or ICL may terminate services under the RMS-ICL Service Agreement upon 60 days' notice to the other party, except for occupancy which requires six months notice.

Rani LLC or ICL may terminate services under the RMS-ICL Service Agreement upon 60 days' notice to the other party, except for occupancy which requires six months’

The RMS-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services.

Costs are billed or charged on a monthly basis by ICL or RMS, respectively, as well as allocations of expenses based upon RMS’s utilization of ICL’s facilities and equipment.

Our eligible employees are permitted to participate in ICL’s 401(k) Plan (“401(k) Plan”).

Participation in the 401(k) Plan is offered for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements.

As of December 31, 2021, all of our facilities are owned or leased by an entity affiliated with one of our directors, who is also the owner of ICL.

We pay for the use of these facilities through the RMS-ICL Service Agreement.

The table below details the amounts charged by ICL for services and rent, net of the amount that RMS charged ICL of $0.6 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively, which is included in the consolidated statements of operations and comprehensive loss (in thousands):

Research and development

General and administrative

Equity-Based Compensation

In connection with the IPO and Organizational Transactions, we effectuated an exchange of all outstanding Profits Interests into Class A Units including certain Profits Interests related to ICL and its affiliates ("ICL Holders").

Upon the IPO and Organizational Transactions, the performance condition was met for all Profits Interest no longer subject to a service based vesting condition resulting in the recognition of compensation cost associated with these awards.

ICL Holders of 919,282 Class A Units exchanged 854,807 such units for our Class A common stock, the remaining 64,475 Class A Units of Rani LLC continue to be outstanding and are exchangeable for our Class A common stock at the option of the ICL Holders.

The following table summarizes the components of equity-based compensation expense recorded in the consolidated statement of operations and comprehensive loss related to awards granted to employees of ICL and its affiliates by Rani Holdings (in thousands):

Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively, as well as allocations of expenses based upon Rani LLC’s utilization of ICL’s facilities and equipment.

The table below details the amounts charged by ICL for services and rent, net of the amount charged to ICL under the RMS-ICL Service Agreement, which is included in the consolidated statements of operations and comprehensive loss (in thousands):

Year Ended December 31,

Research and development

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Financing activity

From inception to December 31, 2017, we advanced funds to ICL, and ICL made payments directly to certain vendors on behalf of us.

We have reimbursed ICL for all such payments at cost on a monthly basis.

In June 2017, we converted the outstanding advances of $6.6 million to ICL into three notes receivable.

The notes provided for interest at 1.97% compounded annually, loan fees of 2.75% and were payable upon demand to us any time after January 1, 2024.

During the year ended December 31, 2021 and 2020, we received $1.7 million and $0.2 million, respectively, for interest and principal on the remaining ICL note receivable, respectively.

As of December 31, 2020, $1.7 million of the note was outstanding.

The outstanding balance, including all accrued interest, was fully repaid in March 2021.

In December 2020, we amended the terms of certain expired warrants to purchase Series B units (the "Series B Warrants"), issued to InCube Ventures II, LP ("ICV II"), a related party and entity affiliated with ICL, by extending its exercise period for an additional two years.

In December 2020, ICV II elected to cashless exercise all of their Series B Warrants and Rani LLC issued 51,341 Series B units.

In March 2021, an outstanding notes receivable balance totaling $1.7 million, including all accrued interest, was fully repaid by ICL.

Exclusive License Agreement

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Intellectual Property Agreement with Mir Imran (the “Mir Agreement”)

In June 2021, we entered into the Mir Agreement, pursuant to which we and Mir Imran agreed that we would own all intellectual property conceived (a) using any of our people, equipment, or facilities or (b) that is within the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine.

In June 2021, we entered into the Mir Agreement, pursuant to which we and Mir Imran agreed that we would own all intellectual property conceived (i) using any of our people, equipment, or facilities or (ii) that is within the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine.

Neither us nor Mir Imran may assign the Mir Agreement to any third party without the prior written consent of the other party.

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The TRA provides that we pay to such entities and individuals 85% of the amount of tax benefits, if any, it is deemed to realize from exchanges of Paired Interests.

During the year ended December 31, 2022, these parties to the TRA exchanged 2,317,184 Paired Interests that resulted in tax benefits subject to the TRA.

Registration Rights Agreement

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The Registration Rights Agreement also provides for piggyback registration rights for the Continuing LLC Owners.

As a result of certain stockholders exercising their registration rights under the Registration Rights Agreement, in December 2022 we filed a registration statement on Form S-3 to register 6,009,542 shares of our Class A common stock held by certain of our stockholders.

Rani LLC Agreement

We operate our business through Rani LLC and its subsidiary.

We operate our business through Rani LLC and, prior to December 15, 2022, its subsidiary, RMS.

RMS was dissolved on December 15, 2022.

In connection with the IPO, we and the Continuing LLC Owners, including ICL, entered into the Fifth Amended and Restated LLC Agreement of Rani LLC (the “Rani LLC Agreement”).

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provided that, at our election, we may effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed.

No exchanges by ICL of Paired Interests occurred during the year ended December 31, 2021.

Public Company Expenses

As a result of the IPO, we expect our operating expenses to increase.

We expect our accounting, legal and personnel-related expenses and directors’

and officers’

insurance costs reported within general and administrative to increase as we establish more comprehensive compliance and governance functions, maintain and review internal controls over financial reporting in accordance with the Sarbanes-Oxley Act of 2002 and prepare and distribute periodic reports as required by the rules and regulations of the SEC.

As a result, our historical results of operations may not be indicative of our results of operations in future periods.

During the year ended December 31, 2022, these parties to the Rani LLC Agreement exchanged 2,317,184 Paired Interests for the Company's Class A common stock.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.

The following table summarizes our results of operations (in thousands):

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Other income (expense), net

Interest income

Interest income and other, net

Loss on extinguishment of debt

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Income tax expense

Net loss and comprehensive loss

Net loss attributable to non-controlling interest

Net loss attributable to Rani Therapeutics Holdings, Inc.

* No comparable result in the period

Contract Revenue

Contract revenue was $2.7 million and $0.5 million for the years ended December 31, 2021 and 2020, respectively, which was attributable to the evaluation agreement with Takeda.

In 2021, $0.7 million of revenue related to the timing of work performed

under the agreement and remaining $2.0 million of deferred revenue, as a result of the termination of the agreement.

The termination of the contract was considered a modification of the arrangement, and the deferred revenue under this agreement was fully recognized in the second quarter of 2021.

For the year ended December 31, 2022, we had no contract revenue.

For the year ended December 31, 2021, we recognized contract revenue related to the Takeda agreement of $2.7 million.

Research and Development Expenses

The following table reflects our research and development costs by nature of expense (in thousands):

Year Ended December 31,

Payroll, equity-based compensation and related benefits

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Research and development expenses were $36.6 million for the year ended December 31, 2022, compared to $26.5 million for the year ended December 31, 2021.

The change in research and development expense was attributed to an increase of $13.3 million in salaries and related benefit costs due to higher headcount, which includes $8.2 million of equity-based compensation, of which $6.2 million was attributed to the vesting and recognition of the Profits Interests expense in connection with the IPO and Organizational Transactions, plus additional expense as a result of a modification of certain Profits Interests, and an increase in laboratory supplies of $1.1 million, partially offset by a reduction in third-party services of $0.3 million for the development of our manufacturing processes that occurred in 2020 and did not recur in 2021.

The difference was primarily attributed to higher compensation costs of $6.6 million due to headcount growth, third-party services expense of $3.3 million and facilities, materials and supplies expense of $2.1 million due to increased preclinical and clinical development activities, partially offset by a decrease of $1.9 million in equity-based compensation due to our non-recurring IPO and Organizational Transactions for the year ended December 31, 2021.

General and Administrative Expenses

General and administrative expenses were $26.8 million for the year ended December 31, 2022, compared to $27.8 million for the year ended December 31, 2021.

During the year ended December 31, 2021, our equity-based compensation expense increased by $14.4 million, of which $10.7 million was attributed to the vesting and recognition of the Profits Interests expense in connection with the IPO and Organizational Transactions, plus additional expense as a result of a modification of certain Profits Interests.

Additionally, professional and consulting services expense increased by $3.8 million primarily due to the costs associated with preparing to operate as a public company, payroll and related benefits increased by $2.5 million due to higher headcount, facility costs increased $1.7 million to support the higher headcount, and travel costs increased $0.4 million.

The difference was primarily attributed to higher compensation costs of $2.0 million due to headcount growth, third-party services of $1.6 million due to public company related costs, and travel expenses of $1.0 million, partially offset by a decrease of $4.9 million in equity-based compensation due to our non-recurring IPO and Organizational Transactions for the year ended December 31, 2021 and facility, material and supplies expenses of $0.6 million.

Other Income (Expense), Net

Other expense, net, was $1.4 million for the year ended December 31, 2021, which primarily related to $0.7 million of loss on the extinguishment of debt in July 2021, $0.5 million of interest expense on the debt, and $0.4 million due to the increase in the estimated fair value of the Series E preferred unit warrants prior to their conversion.

Other expense, net, was $0.1 million for the year ended December 31, 2020, which was primarily due to the interest expense on the debt.

Other income, net, was $0.2 million for the year ended December 31, 2022, compared to other expense, net, of $1.4 million for the year ended December 31, 2021.

The difference was primarily attributed to an increase in interest income of $1.2 million from our investment in marketable securities, loss on extinguishment of debt of $0.7 million, and change in estimated fair

value of preferred unit warrants of $0.4 million, partially offset by an increase in interest expense of $0.6 million from our long-term debt.

Liquidity and Capital Resources

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Since our inception, we have devoted substantially all of our resources on organizing and staffing our company, business planning, research and development activities, including the RaniPill platform design, drug formulation, preclinical studies, clinical trials, manufacturing automation and scale up, establishing our intellectual property portfolio, and providing general and administrative support for these operations.

To date, we have financed our operations primarily through an IPO, private placements of Rani LLC preferred units and the issuance of convertible promissory notes, with aggregate gross proceeds of $282.4 million, as well as revenue generated from evaluation agreements.

To date, we have financed our operations primarily through an IPO, private placements of Rani LLC preferred units, the issuance of convertible promissory notes, and long-term debt, as well as contract revenue generated from evaluation agreements.

In August 2021, we raised net proceeds of $73.6 million from the IPO.

As of December 31, 2021, we had cash and cash equivalents of $117.5 million.

In April 2020, we received loan proceeds in the amount of approximately $1.3 million under the Paycheck Protection Program, established pursuant to the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), with Comerica Bank as

the lender (the “PPP Loan”).

We used this loan for eligible purposes, including payroll, benefits, rent and utilities.

The loan bore interest at 1.0% per annum.

In September 2021, we repaid in full the $1.3 million of principal and interest related to the PPP Loan.

In September 2020, we entered into a secured convertible loan agreement (the “Avenue Loan Agreement”) with Avenue Venture Opportunities Fund, L.P., for loan proceeds of up to $10.0 million.

As of December 31, 2021, we had drawn down $3.0 million under the Avenue Loan Agreement.

The Loan bore interest at a variable rate per annum equal to the sum of (i) the greater of (A) the Prime Rate and (B) three and one-quarter percent (3.25%), plus (ii) eight percent (8.00%), compounded monthly until its maturity date of September 1, 2023, at which time all outstanding principal and interest would become due and payable in cash if not already converted.

Our obligations under the Avenue Loan Agreement were secured by a first priority security interest in substantially all of our assets.

In connection with the Avenue Loan Agreement, we issued warrants of 118,929 units of Series E preferred units (the “Series E Warrants”).

The Series E Warrants were exercisable for a period of seven years from the date of grant at an exercise price of $7.1471 per unit.

The loan was convertible at the option of the holder into our Series E convertible preferred units.

In July 2021, we repaid in full the $3.0 million of principal and approximately $0.5 million of final payment and fees under the Avenue Loan Agreement.

In October 2020, we entered into the Fourth Amended and Restated Limited Liability Company Agreement, which authorized the sale and issuance of up to 10,493,767 Series E Preferred Units.

As of December 31, 2021, we had issued the total authorized amount at a price of $7.1471 for gross proceeds of $75.0 million.

In conjunction with the IPO and Organizational Transactions, the Series E warrants were settled with 62,877 shares of our Class A common stock.

After completion of the IPO, Rani Holdings became a holding company and has no material assets other than its ownership of LLC Interests.

We have no independent means of generating revenue.

The Rani LLC Agreement that went into effect at the closing the IPO provides that certain distributions will be made to cover the taxes of the owners of LLC Interests and our obligations under the Tax Receivable Agreement which was entered into with certain of the Continuing LLC Owners.

In August 2022, we entered into the Loan Agreement with the Lender.

The Loan Agreement provides for Loans in an aggregate principal amount up to $45.0 million.

The remaining $15.0 million of Loans is uncommitted and is subject to certain conditions and approval by the Lender.

The purpose of the Loans is for general corporate purposes.

The Loan Agreement also contains various covenants and restrictive provisions.

As of December 31, 2022, we were in compliance with all applicable debt covenants under the Loan Agreement and had cash, cash equivalents and marketable securities totaling $98.5 million.

In August 2022, we entered into the Sales Agreement with the Agents, pursuant to which we may offer and sell from time to time through the Agents up to $150.0 million of shares of our Class A common stock, in such share amounts as we may specify by delivering a placement notice to the Agents, in accordance with the terms and conditions set forth in the Sales Agreement.

As of December 31, 2022, we had not delivered any placement notices to either of the Agents.

Since our inception, we have incurred significant losses and negative cash flows from operations.

Our net losses were $53.1 million and $16.7 million for the years ended December 31, 2021 and 2020, respectively.

Our net losses were $63.3 million and $53.1 million for the year ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $38.9 million.

We expect to continue to incur significant losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned research and development activities.

Until such time as we can generate sufficient revenue from commercial product sales, if ever, we expect to finance our operations through a combination of equity offerings and debt financings, or other capital sources, which may include strategic collaborations or other arrangements with third parties.

Until such time as we can generate sufficient revenue from commercial product sales, if ever, we expect to finance our operations through a combination of equity offerings and debt financings, which may include ATM Sales, or other capital sources, which may include strategic collaborations or other arrangements with third parties.

We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all.

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We will have in effect an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of LLC Interests for shares of our Class A common stock or cash occurs.

These Tax Receivable Agreement payments are not conditioned upon any continued ownership interest in either Rani Holdings or Rani LLC by such Continuing LLC Owners.

These Tax Receivable Agreement payments are not conditioned upon any continued ownership interest in either the Company or Rani LLC by such Continuing LLC Owners.

The rights of such Continuing LLC Owners under the Tax Receivable Agreement are assignable to transferees of their LLC Interests (other than us as transferee pursuant to subsequent redemptions (or exchanges) of the transferred LLC Interests).

We expect to benefit from the remaining 15% of tax benefits, if any, that we may realize.

Due to the uncertainty of various factors, we cannot precisely quantify the tax benefits we may realize as a result of LLC Interest exchanges and the resulting amounts we may need to pay out to certain of the Continuing LLC Owners pursuant to the Tax Receivable Agreement;

however, we estimate that such payments may be substantial.

As there have been no transactions which have occurred which would trigger a liability under this agreement, we have not recognized any deferred tax assets or liabilities related to this agreement as of December 31, 2021 .

As of December 31, 2022, we have not recorded a liability under the TRA related to the income tax benefits originating from the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC as it is not probable that the Company will realize such tax benefits.

To the extent the Company is able to realize the income tax benefits associated with the exchanges of Paired

Interest or non-corresponding Class A Units of Rani LLC subject to the TRA, the TRA payable would range from zero to $22.9 million at December 31, 2022.

The amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future.

Should the Company determine that the payment of the TRA liability becomes probable at a future date based on new information, any changes will be recorded on the Company's consolidated statement of operations and comprehensive loss at that time.

Future Funding Requirements

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We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Because of the

numerous risks and uncertainties associated with the development of the RaniPill capsule and RaniPill HC and because the extent to which we may enter into strategic collaborations or other arrangements with third parties for development of the RaniPill capsule and RaniPill HC is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Because of the numerous risks and uncertainties associated with the development of the RaniPill GO, RaniPill HC and our product candidates and because the extent to which we may enter into strategic collaborations or other arrangements with third parties for development of the RaniPill GO, RaniPill HC and/or our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

To date, we have not generated any commercial product revenue.

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Our primary uses of cash are to fund our operations, which consist primarily of research and development expenses related to our programs, manufacturing automation and scaleup, and general and administrative expenses.

We expect our expenses to continue to increase in connection with our ongoing activities as we continue to advance the RaniPill capsule and RaniPill HC.

We expect our expenses to continue to increase in connection with our ongoing activities as we continue to advance the RaniPill GO, RaniPill HC and our product candidates.

In addition, we expect to incur additional costs operating as a public company.

We may seek to raise capital through equity offerings or debt financings, collaboration agreements, or other arrangements with other companies, or through other sources of financing.

We may seek to raise capital through equity offerings or debt financings, which may include ATM Sales, collaboration agreements, or other arrangements with other companies, or through other sources of financing.

Adequate additional funding may not be available to us on acceptable terms or at all.

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the willingness of the U.S.

Food and Drug Administration (“FDA”), or other regulatory authorities to accept data from our clinical trials, as well as data from our completed and planned clinical trials and preclinical studies and other work, as the basis for review and approval of the RaniPill capsule and RaniPill HC for various indications;

Food and Drug Administration (“FDA”), or other regulatory authorities to accept data from our clinical trials, as well as data from our completed and planned clinical trials and preclinical studies and other work, as the basis for review and approval of our product candidates or collaborator drugs or biologics paired with the RaniPill GO and/or RaniPill HC for various indications;

the outcome, costs, and timing of seeking and obtaining FDA, and any other regulatory approvals;

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If we raise funds through collaborations, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials.

If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or delay investments in our manufacturing scale-up and automation.

In addition, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

The following table summarizes our cash, cash equivalents, and marketable securities:

Cash and cash equivalents

Marketable securities

Total cash, cash equivalents, and marketable securities

As of December 31, 2022, we had cash, cash equivalents, marketable securities of $98.5 million, compared to $117.5 million as of December 31, 2021.

We believe our cash, cash equivalents, and marketable securities will be sufficient to meet our anticipated operating requirements for at least the next twelve months following the date of issuance of these consolidated financial statements.

The following table summarizes our cash flows for the periods presented (in thousands):

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Net cash provided by financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash, cash equivalents and restricted cash equivalents

Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $46.5 million, which was primarily attributable to a net loss of $63.3 million, partially offset by the equity-based compensation expense of $15.8 million, non-cash operating lease expense of $0.8 million, noncash depreciation and amortization expense of $0.5 million and net accretion and amortization of investments in marketable securities of $0.9 million.

Additionally, there was a decrease in prepaid expenses and other current assets of $0.5 million and an increase in accrued expenses of $0.7 million.

Net cash used in operating activities for the year ended December 31, 2021 was $32.2 million, which was primarily attributable to a net loss of $53.1 million, partially offset by the equity-based compensation expense of $22.6 million, a loss on the extinguishment of the debt of $0.7 million, non-cash depreciation and amortization of $0.5 million, and the change in the estimated fair value of our preferred unit warrant liability of $0.4 million.

Additionally, there was an increase of $2.0 million in prepaid expenses and other assets due to director and officer insurance as a result of becoming a publicly traded company, an increase in accrued expenses of $0.7 million, and a decrease in deferred revenue of $2.7 million.

Net cash used in operating activities for the year ended December 31, 2020 was $15.0 million, which was primarily attributable to a net loss of $16.7 million, partially offset by non-cash depreciation and amortization of $0.6 million, an increase in accounts payable of $0.9 million, the payment of the related party payable balance of $1.8 million, and an increase in deferred revenue of $2.5 million.

Investing Activities

For the years ended December 31, 2021 and 2020, net cash used in investing activities was $0.5 million and $1.2 million, respectively, consisting solely of purchases of property and equipment.

For the year ended December 31, 2022, net cash used in investing activities was $72.4 million consisting of $73.8 million in purchases of marketable securities, $3.0 million in proceeds from maturities of marketable securities and $1.6 million in purchases of property and equipment.

For the year ended December 31, 2021, net cash used in investing activities was $0.5 million, consisting solely of purchases of property and equipment.

Financing Activities

For the year ended December 31, 2021, cash provided by financing activities was approximately $77.1 million, consisting of the proceeds from the issuance of Class A common stock sold in the IPO for net proceeds of $73.6 million, the sale and issuance of our Series E Preferred Units for net proceeds of $6.3 million, and $1.7 million of principal payments received from our related party note receivable, partially offset by repayments of the PPP Loan of $1.3 million and convertible loan of $3.3 million.

For the year ended December 31, 2020, cash provided by financing activities was approximately $72.7 million, consisting of net proceeds from the sale and issuance of preferred units of $68.5 million, proceeds from the PPP Loan of $1.3 million, and net proceeds from the issuance of the convertible loan for net proceeds of $2.8 million.

For the year ended December 31, 2022, net cash provided by financing activities was $29.0 million, which was primarily attributable to proceeds from the issuance of long-term debt and warrants, net of issuance costs of $29.6 million.

These items were partially offset by a $0.6 million decrease for employee taxes paid on net share settlement on the vesting of restricted stock units and payment of deferred financing costs of $0.3 million.

For the year ended December 31, 2021, cash provided by financing activities was approximately $77.1 million, consisting of the proceeds from the issuance of Class A common stock sold in the IPO for net proceeds of $73.6 million, the sale and issuance of our Series E Preferred Units for net proceeds of $6.3 million, and $1.7 million of principal payments received from our related party note receivable, partially offset by repayments of the paycheck protection plan loan of $1.3 million and convertible loan of $3.3 million.

Contractual Obligations and Other Commitments

Rani LLC pays for the use of its office, laboratory and manufacturing facility in San Jose, California as part of the RMS-ICL Service Agreement, which is accounted for as an operating lease.

The lease requires for certain payments of real estate taxes, insurance and certain common area maintenance costs in addition to future minimum lease payments.

The RMS-ICL Service Agreement has a twelve month term and will automatically renew for successive twelve month periods unless RMS or ICL terminate occupancy under the RMS-ICL Service Agreement upon six months notice.

As of December 31, 2021, no renewal option periods were included in the estimated minimum lease terms as the options were not deemed to be reasonably assured to be exercised.

Total operating lease expense incurred with ICL was and $0.8 million for each of the years ended December 31, 2021 and 2020.

Subsequently, pursuant to the Rani LLC-ICL Service Agreement, as amended in March 2022, the future aggregate minimum lease payments associated with the Occupancy Services total $0.4 million.

The following table summarizes our contractual obligations and commitments as of December 31, 2022 (in thousands):

As of December 31, 2022

Operating leases (1)

Debt obligations (2)

(1) Represents operating lease payments.

See Note 8 to the consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

(2) Represents long-term debt principal maturities and final payment equal to 5.5% of aggregate amount funded, excluding interest.

See Note 13 to the consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

In addition, we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice.

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We determine the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of services and the agreed-upon fee to be paid for such services.

Equity-Based Compensation

Stock-Based Compensation

In July 2021, we adopted and our stockholders approved, the Rani Therapeutics Holdings, Inc.

2021 Equity Incentive Plan (the “2021 Plan”).

We have subsequently granted stock options to purchase shares of our Class A common stock as well as restricted stock units (“RSUs”) and restricted stock awards ("RSAs") from the 2021 Plan to both employees and non-employees.

We measure stock-based compensation at fair value on the grant date of the award.

The fair value of employee and nonemployee RSUs is determined based on the number of shares granted and the closing market price of our Class A common stock on the date of grant.

The fair value of employee RSAs is determined based on the estimated fair value of our Class A common stock on the grant date and is subject to our reacquisition right which is accounted for as a forfeiture provision.

For awards that vest subject to the satisfaction of service requirements, compensation expense is measured based on the fair value of the award on the date of grant and expense is recognized on a straight-line basis over the requisite service period.

We account for forfeitures as they occur.

compensation is classified in the accompanying consolidated statements of operations and comprehensive loss based on the function to which the related services are provided.

The Company uses the Black-Scholes option pricing model to estimate the fair value of each stock option award on the date of grant.

The assumptions and estimates are as follows:

Expected term - The expected term represents the period of time that stock option awards are expected to remain outstanding.

The Company estimates the expected term as the midpoint between actual or expected vesting date and the contractual term.

Expected volatility - The expected volatility was derived from the historical stock volatilities of peer public companies within the Company's industry that are considered to be comparable businesses over a period equivalent to the expected term of the stock option awards, since there has been limited trading history of the Company's stock.

Risk-free interest rate - The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the date of grant for zero-coupon U.S.

Treasury notes with maturities approximately equal to the stock option awards’

expected term.

Expected dividend yield - The expected dividend yield is zero as the Company has no plans to make dividend payments.

Such assumptions represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

If actual results are not consistent with our assumptions and judgments used in making these estimates, we may be required to increase or decrease compensation expense, which could be material to our consolidated results of operations and comprehensive loss.

Unit-Based Compensation

Prior to the IPO, Rani LLC had granted equity-based awards to employees, members of the Board of Managers and nonemployees, including ICL employees and consultants, in the form of non-vested incentive units (“Profits Interests”) and/or options to purchase common units.

All awards of Profits Interests and options to purchase common units were measured based on the estimated fair value of the award on the date of grant.

Forfeitures were recognized when they occurred.

All of the Profits Interests were subject to service and performance-based conditions and we evaluate the probability of achieving each performance-based condition at each reporting date and recognized equity-based compensation expense for employee and consultant awards and distributions of equity for ICL employee awards in the consolidated financial statements when it was deemed probable that the performance-based condition would be met using the accelerated attribution method over the requisite service period.

The options to purchase common units were subject to service conditions and generally vested over three or four years.

As there has been no public market for the fair value of our units, the fair value of our preferred units, which is an input into the estimated fair value of our preferred unit warrants, and Profits Interests has been determined by our board of directors with the assistance of management and an independent third-party valuation specialist.

We believe our board of directors has the relevant experience and expertise to determine the fair value of our preferred units and Profits Interests.

In determining the fair value of the preferred units and Profits Interests, the methodologies used to estimate the enterprise values were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“AICPA Accounting and Valuation Guide”).

In accordance with the AICPA Accounting and Valuation Guide, our board of directors considered the following methods:

Current value method - Under the Current Value Method, our value is determined based on our balance sheet.

This value is then first allocated based on the liquidation preference associated with preferred units issued as of the valuation date, and then any residual value is assigned to the common units and Profits Interests.

Option-pricing method - Under the option-pricing method, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

The estimated fair values of the preferred units, common units and Profits Interests are inferred by analyzing these options.

Probability-weighted expected return method - The probability-weighted expected return method, is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each unit class.

The assumptions we use in the valuation model are based on future expectations combined with management’s judgment.

In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of the preferred units and Incentive Units as of the date of reporting period or each award, including the following factors:

independent valuations performed at periodic intervals by an independent third-party valuation firm;

the prices at which we sold shares of preferred units and the superior rights and preferences of the preferred units relative to our common units at the time of each grant;

the progress of our research and development programs, including the status and results of preclinical studies for our product candidates;

our stage of development and commercialization and our business strategy;

external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;

our financial position, including cash on hand, and our historical and forecasted performance and operating results;

the lack of an active public market for our common units, preferred units or preferred unit warrants;

the likelihood of achieving a liquidity event, such as an IPO, or sale of our company in light of prevailing market conditions;

the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

The assumptions underlying these valuations represented our board of directors and management develop best estimates based on application of these approaches and the assumptions underlying these valuations, giving careful consideration to the advice from our third-party valuation expert.

Such estimates involve inherent uncertainties and the application of significant judgment.

As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different.

Recently Adopted Accounting Standards

18 unchanged sentences

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity