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Item 5. Market for Registrant’s Common Equity

2024-03-20 compared with 2023-03-22 · 1 added, 388 removed, 14 unchanged (97% of the section changed)

1 unchanged sentence

Market Information for Common Stock

Our Class A common stock is traded on the Nasdaq Stock Market LLC under the symbol “RANI.”

Dividend Policy

10 unchanged sentences

Recent Sales of Unregistered Securities

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.

The following management’s discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and the related notes and other information included elsewhere in this Annual Report on Form 10-K.

This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under “Special Note Regarding Forward-Looking Statements,”

“Risk Factors”

and in Part I and elsewhere in this Annual Report on Form 10-K.

Unless we state otherwise or the context otherwise requires, the terms “we,”

“us,”

“our,”

and “Rani”

and similar references refer to Rani Therapeutics Holdings, Inc.

and its consolidated subsidiaries.

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.

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 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.

Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development of the RaniPill capsule, which we expect will take a number of years.

Given our stage of development, we have not yet established a commercial organization or distribution capabilities, and we have no experience as a company in marketing drugs or a drug-delivery platform.

When, and if, any of our product candidates are approved for commercialization, we plan to develop a commercialization infrastructure for those products in the United States, Europe, Asia, and potentially in certain other key markets.

We may also rely on partnerships to provide commercialization infrastructure, including sales, marketing, and commercial distribution.

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 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.

Certain of our suppliers of components and materials are single source suppliers.

We believe our vertically integrated manufacturing strategy will offer significant advantages, including rapid product iteration, control over our product quality and the ability to rapidly scale our manufacturing capacity.

This capability also allows us to develop future generations of products while maintaining the confidentiality of our intellectual property.

Our vertically integrated manufacturing strategy will result in material future capital outlays and fixed costs related to constructing and operating a manufacturing facility.

We have and plan to continue to invest in automated manufacturing production lines for the current RaniPill capsule and RaniPill HC.

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

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

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.

federal and state income tax purposes and accordingly has not been subject to U.S.

federal or state income tax.

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"), 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.

In addition to tax expenses, we also incur expenses related to our operations and may be required to make payments under the Tax Receivable Agreement with certain of the individuals and entities that continue to hold interests in Rani LLC after the IPO (the "Continuing LLC Owners").

The Continuing LLC Owners are entitled to exchange, subject to the terms of the Rani LLC Agreement, the Class A Units they hold in Rani LLC, together with the shares they hold of our Class B common stock (together referred to as a "Paired Interest"), in return for shares of our Class A common stock on a one-for-one basis 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.

Any shares of Class B common stock will be cancelled on a one-for-one basis if, at the election of the Continuing LLC Owners, we redeem or exchange such Paired Interest pursuant to the terms of the Rani LLC Agreement.

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 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

Contract Revenue

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 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 generate any commercial product revenue.

Operating Expenses

Our operating expenses consisted of research and development and general and administrative activities.

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 GO and RaniPill HC.

These expenses include:

External expenses, consisting of:

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;

expenses associated with consulting, legal fees for patent matters, advisors, and other external services.

Internal expenses, consisting of:

expenses including salaries, bonuses, equity-based compensation and benefits for personnel engaged in the research and development functions;

expenses associated with service and repair of equipment, equipment depreciation, and allocated facility costs for research and development;

other research and development costs related to compliance with quality and regulatory requirements.

We expense research and development costs as incurred.

Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors.

Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.

Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.

Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

Until future commercialization is considered probable and the future economic benefit is expected to be realized, we do not capitalize pre-launch inventory costs.

Costs of property and equipment related to scaling-up our manufacturing capacity for clinical trials and to support commercialization are capitalized as property and equipment unless the related asset does not have an alternative future use.

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 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, and facilities, 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 GO and RaniPill HC and our product candidates.

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 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 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 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 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 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 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 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.

The Rani LLC-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 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 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.

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 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

General and administrative

Financing activity

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

Exclusive License Agreement

In June 2021, we and ICL entered into an Amended and Restated Exclusive License Agreement which replaces the 2012 Exclusive License Agreement, as amended in 2013, and terminates the Intellectual Property Agreement, as amended in June 2013.

Under the Amended and Restated Exclusive License Agreement, we have a fully paid, exclusive license under certain scheduled patents related to optional features of the device and certain other scheduled patents to exploit products covered by those patents in the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine.

We will cover patent-related expenses and, after a certain period, we will have the right to acquire four specified United States patent families from ICL by making a one-time payment of $0.3 million to ICL for each United States patent family that we desire to acquire, up to $1.0 million in the aggregate.

This payment will not become an obligation until the fifth anniversary of the Amended and Restated Exclusive License Agreement.

The Amended and Restated Exclusive License Agreement will terminate when there are no remaining valid claims of the patents licensed under the Amended and Restated Exclusive License Agreement.

Additionally, we may terminate the Amended and Restated Exclusive License Agreement in its entirety or as to any particular licensed patent upon notification to ICL of such intent to terminate.

Non-Exclusive License Agreement between Rani and ICL (“Non-Exclusive License Agreement”)

In June 2021, we entered into the Non-Exclusive License Agreement with ICL, pursuant to which we granted ICL a non-exclusive, fully-paid license under specified patents that were assigned from ICL to us.

Additionally, we agreed not to license these patents to a third party in a specific field outside the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine, if ICL can prove that it or its sublicensee has been in active development of a product covered by such patents in that specific field.

ICL may grant sublicenses under this license to third parties only with our prior approval.

The Non-Exclusive License Agreement will continue in perpetuity unless terminated.

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 (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.

The initial term of the Mir Agreement is three years, which can be extended upon mutual consent of the parties.

The Mir Agreement may be terminated by either party for any reason within the initial three-year term upon providing three months’

notice to the other party.

Tax Receivable Agreement

ICL is party to the TRA, entered into in August 2021 pursuant to the IPO and Organizational Transactions.

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

In connection with the IPO, we entered into a Registration Rights Agreement with the Continuing LLC Owners, including ICL.

The Registration Rights Agreement provides the Continuing LLC Owners certain registration rights whereby, at any time following the IPO and the expiration of any related lock-up period, the Continuing LLC Owners can require us to register under the Securities Act shares of Class A common stock issuable to them upon, at our election, redemption or exchange of their LLC Interests.

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, 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”).

The governance of Rani LLC, and the rights and obligations of the holders of LLC Interests, are set forth in the Rani LLC Agreement.

As a Continuing LLC Owner, ICL is entitled to exchange, subject to the terms of the Rani LLC Agreement, Paired Interests for our Class A common stock;

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.

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):

Year Ended December 31,

Contract revenue

Operating expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense), net

Interest income and other, net

Loss on extinguishment of debt

Interest expense and other, net

Change in estimated fair value of preferred unit warrant

Loss before income taxes

Income tax expense

Net loss attributable to non-controlling interest

Net loss attributable to Rani Therapeutics Holdings, Inc.

* No comparable result in the period

Contract Revenue

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

Facilities, materials and supplies

Third-party services

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 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.

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 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

Source of Liquidity

We have not generated any revenue from commercial product sales and have incurred significant operating losses and negative cash flows from operations.

We have not yet commercialized any products, and we do not expect to generate revenue from sales of commercial products for several years, if at all.

We anticipate that we will continue to incur net losses for the foreseeable future.

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, 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.

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 $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, 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.

If we are unable to raise capital or enter into such 36 agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates.

Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.

Tax Receivable Agreement

We entered into a Tax Receivable Agreement with certain of the Continuing LLC Owners in August 2021 in connection with the IPO.

The Tax Receivable Agreement provides for our payment to certain of the Continuing LLC Owners of 85% of the amount of tax benefits, if any, that we are deemed to realize as a result of any basis adjustments and certain other tax benefits arising from payments under the Tax Receivable Agreement.

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 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.

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

Based on our current operating plan, we estimate that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next twelve months.

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 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.

We do not expect to generate any commercial product revenue unless and until we obtain regulatory approval and commercialize any of our commercial product candidates, and we do not know when, or if at all, that will occur.

We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future.

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 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, 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.

Our failure to raise capital as and when needed could have a negative impact on our consolidated financial condition and our ability to pursue our business strategies.

We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:

the progress, costs, trial design, results of and timing of our preclinical studies and clinical trials;

the progress, costs, and results of our research pipeline;

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 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;

the number and characteristics of product candidates that we pursue;

our ability to manufacture sufficient quantities of the RaniPill capsules;

our need to expand our research and development activities;

the costs associated with manufacturing our product candidates, including establishing commercial supplies and sales, marketing, and distribution capabilities;

the costs associated with securing and establishing commercial infrastructure;

the costs of acquiring, licensing, or investing in businesses, product candidates, and technologies;

our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense, and enforcement of any patents or other intellectual property rights;

our need and ability to retain key management and hire scientific, technical, business, and engineering personnel;

the effect of competing drugs and product candidates and other market developments;

the timing, receipt, and amount of sales from our potential products, if approved;

our ability to establish strategic collaborations;

our need to implement additional internal systems and infrastructure, including financial and reporting systems;

security breaches, data losses or other disruptions affecting our information systems;

the economic and other terms, timing of and success of any collaboration, licensing, or other arrangements which we may enter in the future;

the effects of disruptions to and volatility in the credit and financial markets in the United States and worldwide from the COVID-19 pandemic.

If we raise additional capital through debt financing, we may be subject to covenants that restrict our operations including limitations on our ability to incur liens or additional debt, pay dividends, make certain investments, and engage in certain merger, consolidation, or asset sale transactions.

Any debt financing or additional equity that we raise may contain terms that are not favorable to us.

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 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):

Year Ended December 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

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.

Investing Activities

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, 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

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.

Critical Accounting Policies and Estimates

This discussion and analysis of financial condition and results of operation is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and assumptions.

Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Research and Development Costs

Research and development costs are expensed as incurred.

Research and development expenses consist primarily of contract research fees and process development, outsourced labor and related expenses for personnel, facilities cost, fees paid to consultants and advisors, depreciation and supplies used in research and development and costs incurred under our evaluation agreements.

Payments made prior to the receipt of goods or services to be used in research and development activities are recorded as prepaid expenses until the related goods or services are received.

Until future commercialization is considered probable and the future economic benefit is expected to be realized, we do not capitalize pre-launch inventory costs.

Costs of property and equipment related to scaling-up of the manufacturing capacity for clinical trials and to support commercialization are capitalized as property and equipment unless the related asset does not have an alternative future use.

Clinical and preclinical costs are a component of research and development expense.

We accrue and expense clinical and pre-clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with its service providers.

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.

Recently Adopted Accounting Standards

For a description of the expected impact of recent accounting pronouncements, see “Note 2.

Summary of Significant Accounting Policies”

in the “

Notes to the Consolidated Financial Statements ”

contained in Part II, Item 8 of this Annual Report on Form 10-K.

Other Information

JOBS Act Accounting Election

We are an “emerging growth company”

within the meaning of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.

We are electing to use this extended transition period and we will therefore comply with new or revised accounting standards on the earlier of (i) when they apply to private companies;

or (ii) when we lose our emerging growth company status.

As a result, our financial statements may not be comparable with companies that comply with public company effective dates for accounting standards.

We also rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we cease to be an emerging growth company.

We will remain an emerging growth company until the earliest of (1) December 31, 2026 (the last day of the fiscal year following the fifth anniversary of the closing of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer”

as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our Class A common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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