0001558370-21-011213.txt : 20210811 0001558370-21-011213.hdr.sgml : 20210811 20210811063054 ACCESSION NUMBER: 0001558370-21-011213 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210811 DATE AS OF CHANGE: 20210811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Reneo Pharmaceuticals, Inc. CENTRAL INDEX KEY: 0001637715 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 472309515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-40315 FILM NUMBER: 211161897 BUSINESS ADDRESS: STREET 1: 18575 JAMBOREE ROAD STREET 2: SUITE 275-S CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: (858) 283-0280 MAIL ADDRESS: STREET 1: 18575 JAMBOREE ROAD STREET 2: SUITE 275-S CITY: IRVINE STATE: CA ZIP: 92612 10-Q 1 rphm-20210630x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to       

Commission File Number: 001-40315

Graphic

Reneo Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

47-2309515

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

18575 Jamboree Road, Suite 275-S, Irvine, CA

(Address of Principal Executive Offices)

92612

(Zip Code)

(Registrant’s telephone number, including area code): (858) 283-0280

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

  

Trading symbol

  

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

RPHM

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

  

  

Accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 6, 2021, there were 24,405,327 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS

  

Page

Part I

Financial Information

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 (Unaudited)

4

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2021 and 2020 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

27

Item 4.

Controls and Procedures

27

Part II

Other Information

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

93

Item 3.

Defaults Upon Senior Securities

93

Item 4.

Mine Safety Disclosures

94

Item 5.

Other Information

94

Item 6.

Exhibits

94

Exhibit Index

94

Signatures

96

2

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

RENEO PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and par value data)

    

JUNE 30, 

    

DECEMBER 31, 

2021

2020

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$

140,368

$

53,613

Short-term investments

 

26,963

 

Prepaid expenses and other current assets

 

3,810

 

1,412

Total current assets

 

171,141

 

55,025

Property and equipment, net

 

85

 

69

Other non-current assets

 

78

127

Total assets

$

171,304

$

55,221

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

Current liabilities:

 

  

 

  

Accounts payable

$

434

$

908

Accrued expenses

 

2,902

 

3,672

Total current liabilities

 

3,336

 

4,580

Deferred rent

 

54

 

36

Performance Award (Note 7)

363

Total liabilities

 

3,753

 

4,616

Commitments and contingencies (Note 9)

 

  

 

  

Series A convertible preferred stock, $0.0001 par value; zero and 24,302,472 shares authorized at June 30, 2021 and December 31, 2020, respectively; zero and 24,302,472 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; liquidation preference of $0 and $49,127 at June 30, 2021 and December 31, 2020, respectively

 

 

45,652

Series B convertible preferred stock, $0.0001 par value; zero and 46,881,028 shares authorized at June 30, 2021 and December 31, 2020, respectively; zero and 23,440,514 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; liquidation preference of $0 and $47,385 as of June 30, 2021 and December 31, 2020, respectively

 

 

47,068

Stockholders’ equity (deficit):

 

  

 

  

Preferred stock, $0.0001 par value, 10,000,000 and zero shares authorized at June 30, 2021 and December 31, 2020, respectively; zero shares issued and outstanding as of June 30, 2021 and December 31, 2020

Common stock, $0.0001 par value; 200,000,000 and 105,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 24,305,822 and 24,288,699 shares issued and outstanding at June 30, 2021, respectively and 2,053,070 shares issued and outstanding at December 31, 2020

 

3

 

Additional paid-in capital

 

228,929

 

2,843

Accumulated deficit

 

(61,386)

 

(44,958)

Accumulated other comprehensive income

 

5

 

Total stockholders’ equity (deficit)

 

167,551

 

(42,115)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

$

171,304

$

55,221

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

RENEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

THREE MONTHS ENDED JUNE 30, 

SIX MONTHS ENDED JUNE 30, 

    

2021

    

2020

    

2021

    

2020

    

Operating expenses:

Research and development

$

6,279

$

2,817

$

11,751

$

6,395

General and administrative

 

2,949

 

882

 

4,691

 

1,807

Total operating expenses

 

9,228

 

3,699

 

16,442

 

8,202

Loss from operations

 

(9,228)

 

(3,699)

 

(16,442)

 

(8,202)

Other income

 

12

12

 

14

 

84

Net loss

 

(9,216)

 

(3,687)

 

(16,428)

 

(8,118)

Unrealized gain (loss) on short-term investments

 

5

 

(6)

 

5

 

1

Comprehensive loss

$

(9,211)

$

(3,693)

$

(16,423)

$

(8,117)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.43)

$

(1.82)

$

(1.40)

$

(4.02)

Weighted-average shares used in computing net loss per share, basic and diluted

 

21,364,369

 

2,022,174

 

11,770,948

 

2,018,602

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

RENEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share data)

(Unaudited)

CONVERTIBLE

ACCUMULATED

PREFERRED STOCK

ADDITIONAL

OTHER

TOTAL

Series A

Series B

Common Stock

PAID-IN

COMPREHENSIVE

ACCUMULATED

STOCKHOLDERS'

    

SHARES

    

AMOUNT

    

SHARES

    

AMOUNT

SHARES

    

AMOUNT

    

CAPITAL

    

INCOME

    

DEFICIT

    

EQUITY (DEFICIT)

Balances, December 31, 2020

24,302,472

$

45,652

23,440,514

$

47,068

2,053,070

$

$

2,843

$

$

(44,958)

$

(42,115)

Issuance of series B convertible preferred stock,net of issuance costs of $29

 

23,440,514

47,356

Stock based compensation

 

471

471

Stock option exercise

 

70,663

139

139

Net loss

(7,212)

(7,212)

Balances, March, 31, 2021

 

24,302,472

$

45,652

46,881,028

$

94,424

2,123,733

$

$

3,453

$

$

(52,170)

$

(48,717)

Conversion of convertible preferred stock into common stock upon initial public offering

(24,302,472)

(45,652)

(46,881,028)

(94,424)

15,907,629

2

140,076

140,078

Issuance of common stock in public offering, net of offering costs

6,250,000

1

84,532

84,533

Vesting of early exercised options

7,337

14

14

Stock-based compensation

854

854

Change in unrealized holding gains and losses on short-term investments

 

5

5

Net loss

(9,216)

(9,216)

Balances, June 30, 2021

 

$

$

24,288,699

$

3

$

228,929

$

5

$

(61,386)

$

167,551

CONVERTIBLE

ACCUMULATED

PREFERRED STOCK

ADDITIONAL

OTHER

TOTAL

Series A

Series B

Common Stock

PAID-IN

COMPREHENSIVE

ACCUMULATED

STOCKHOLDERS'

    

SHARES

    

AMOUNT

    

  SHARES  

    

AMOUNT

    

SHARES

    

AMOUNT

    

CAPITAL

    

INCOME

    

DEFICIT

    

EQUITY (DEFICIT)

Balances, December 31, 2019

24,302,472

$

45,652

$

2,008,905

$

$

2,363

$

3

$

(25,493)

$

(23,127)

Stock based compensation

 

92

92

Stock option exercise

 

13,269

26

26

Change in unrealized holding gains and losses on short-term investments

7

7

Net loss

(4,431)

(4,431)

Balances, March, 31, 2020

 

24,302,472

$

45,652

$

2,022,174

$

$

2,481

$

10

$

(29,924)

$

(27,433)

Stock based compensation

 

88

88

Change in unrealized holding gains and losses on short-term investments

(6)

(6)

Net loss

(3,687)

(3,687)

Balances, June 30, 2020

 

24,302,472

$

45,652

$

2,022,174

$

$

2,569

$

4

$

(33,611)

$

(31,038)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

RENEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

SIX MONTHS ENDED

JUNE 30, 

2021

    

2020

Cash flows from operating activities

  

 

  

Net loss

$

(16,428)

$

(8,118)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization

 

20

18

Amortization/accretion on short-term investments

 

33

(16)

Changes in the fair value of Performance Award (Note 7)

 

363

Stock-based compensation

 

1,325

180

Changes in operating assets and liabilities:

 

Accounts payable, accrued expenses and other

 

(1,164)

934

Prepaid expenses and other assets

 

(2,457)

(380)

Deferred rent

 

18

(2)

Net cash used in operating activities

 

(18,290)

 

(7,384)

Cash flows from investing activities

Purchases of property and equipment

 

(31)

(1)

Purchase of available-for-sale short-term investments

 

(26,989)

Proceeds from maturities of available-for-sale short-term investments

 

6,200

Net cash (used in) provided by investing activities

 

(27,020)

 

6,199

Cash flows from financing activities

Proceeds from issuance of Series B convertible preferred stock, net of issuance costs

 

47,239

Proceeds from initial public offering, net of offering costs

 

84,639

Proceeds from exercise of stock options

187

26

Net cash provided by financing activities

 

132,065

 

26

Net increase (decrease) in cash and cash equivalents

 

86,755

 

(1,159)

Cash and cash equivalents, beginning of period

 

53,613

17,501

Cash and cash equivalents, end of period

$

140,368

$

16,342

Supplemental cash flow information:

 

  

 

  

Property and equipment in accounts payable

$

10

$

Costs incurred in connection with initial public offering included in accrued expenses

$

30

$

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

RENEO PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Business

Organization

Reneo Pharmaceuticals, Inc. (Reneo or the Company) was incorporated in the state of Delaware on September 22, 2014 (Inception). The Company is a clinical-stage pharmaceutical company focused on the development of therapies for patients with rare genetic mitochondrial diseases. In December 2017, the Company in-licensed REN001, a novel oral peroxisome proliferator-activated receptor (PPAR) agonist.

Reverse Stock Split

On April 5, 2021, the Company effected a 1-for-4.4748 reverse stock split of its common stock. The par value and the authorized number of shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the Series A and Series B convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.

Initial Public Offering

On April 13, 2021, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 6,250,000 shares of its common stock at a price to the public of $15.00 per share. The gross proceeds from the IPO were approximately $93.8 million before deducting underwriting discounts and commissions of $6.6 million and offering expenses of approximately $2.6 million payable by the Company.

At the closing of the IPO, 71,183,500 shares of outstanding convertible preferred stock were automatically converted into 15,907,629 shares of common stock. Following the IPO, there were no shares of preferred stock outstanding.

Liquidity

The Company has incurred significant losses and negative cash flows from operations. From Inception through June 30, 2021, the Company has raised net cash proceeds of approximately $230.6 million primarily through equity financings, including the net proceeds from the IPO, to support its drug development efforts. As of June 30, 2021, the Company had cash, cash equivalents and short-term investments of $167.3 million and an accumulated deficit of $61.4 million. The Company had a net loss of $16.4 million and used cash of $18.3 million for operating activities for the six months ended June 30, 2021. In accordance with Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern, management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the date the condensed consolidated financial statements are issued. If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt.

Due to the Company’s continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future and may never become profitable. As a result, the Company will need to raise capital through public or private equity or debt financings, government or other third-party funding, collaborations, strategic alliances and licensing arrangements or a combination of these.

There can be no assurance that the Company will be successful in obtaining additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or

7

suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all. In addition, successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.

As of June 30, 2021, the Company had $167.3 million in cash, cash equivalents and short-term investments, which management believes will be sufficient to fund operations for at least one year from date on which this Quarterly Report on Form 10-Q is issued.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at December 31, 2020, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company have been included.  Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, which are included in the Company’s prospectus, dated April 8, 2021, that forms a part of the Company’s Registration Statement on Form S-1 (File. No. 333-254534) as filed with the Securities and Exchange Commission (SEC) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act), on April 9, 2021.

The condensed consolidated financial statements include the accounts of Reneo Pharmaceuticals, Inc. and its wholly owned subsidiary, Reneo Pharma Ltd located in the United Kingdom (UK). All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure in the Company’s condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

Risks and Uncertainties

Any product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration (FDA) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s current product candidates will meet desired efficacy and safety requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its financial statements.

The Company is subject to a number of risks similar to other clinical-stage pharmaceutical companies including, but not limited to, dependency on the clinical and commercial success of the Company’s product candidate, REN001, ability to obtain regulatory approval of REN001, the need for substantial additional financing to achieve its goals, uncertainty of

8

broad adoption of its approved products, if any, by physicians, consumers and third-party payors, significant competition and untested manufacturing capabilities, and dependence on key individuals and sole source suppliers.

The Company’s business has been and could continue to be adversely affected by the evolving COVID-19 pandemic. For example, the COVID-19 pandemic has resulted in and could result in delays to the Company’s clinical trials for numerous reasons, including additional delays or difficulties in enrolling patients, diversion of healthcare resources away from the conduct of clinical trials, interruption or delays in the operations of the FDA or other regulatory authorities, and delays in clinical sites receiving the supplies and materials to conduct the Company’s clinical trials. At this time, the extent to which the COVID-19 pandemic impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted.

Segment Reporting

The Company operates and manages its business as one operating segment, which is the business of developing novel therapies for rare genetic mitochondrial diseases. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of June 30, 2021 and December 31, 2020, the Company had cash balances deposited at a major financial institution. Cash balances are subject to minimal credit risk as the balances are with high credit quality financial institutions. Cash equivalents, which consist of money market accounts and commercial paper, are stated at fair value.

Short-term Investments

The Company accounts for short-term investments in accordance with ASC Topic 320, Investments – Debt and Equity Securities. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determinations at each balance sheet date.

The Company’s investments are classified as available-for-sale securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses on sales of investments are included in interest income and are derived using the specific identification method for determining the cost of securities.

The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the amortized cost basis of such securities is judged to be other-than-temporarily impaired. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and if the entity has the intent to sell the security, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. The Company did not recognize any other-than-temporary impairment charges on its short-term investments during the three and six months ended June 30, 2021 and 2020.

Money market account balances are included as cash and cash equivalents on the condensed consolidated balance sheets, which are also disclosed in Note 3, Fair Value Measurements.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. Long-lived assets are tested for impairment when events and circumstances indicate the assets might be impaired by first comparing the estimated future undiscounted cash flows of the asset or asset group to the carrying value. If the carrying value exceeds the estimated future undiscounted cash flows, an impairment loss is recognized based on the amount that the carrying value exceeds the fair value of the asset or asset group. The Company did not recognize impairment losses during the six months ended June 30, 2021 and 2020.

9

Convertible Preferred Stock

The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Prior to the IPO, upon the occurrence of certain potential events that would have been outside the Company’s control, including a “deemed liquidation event” such as a merger, acquisition and sale of all or substantially all of the Company’s assets, holders of the convertible preferred stock could cause redemption for cash. Therefore, convertible preferred stock was classified as temporary equity (mezzanine) on the condensed consolidated balance sheets as events triggering the liquidation preferences are not solely within the Company’s control. All convertible preferred stock was converted to common stock in connection with the IPO in April 2021.

Research and Development Costs and Accruals

All research and development costs are expensed as incurred. Research and development costs consist primarily of costs associated with manufacturing drug substance and drug product, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), license fees, salaries and employee benefits.

The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites and others. Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. Payments made in advance of or after the performance are reflected in the condensed consolidated balance sheets as prepaid expenses or accrued liabilities, respectively. Up-front costs, such as costs associated with setting up clinical trial sites for participation in the trials, are expensed immediately once the set-up has occurred as research and development expenses. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts accrued expenses or prepaid expenses accordingly, which impact research and development expenses.

License Fees

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain, and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidate would be reached when the requisite regulatory approvals are obtained to make the product available for sale. Contingent milestone payments are recognized when the related contingency is resolved, and the amounts are paid or become payable. These amounts are expensed to research and development if there is no alternative future use associated with the license or capitalized as an intangible asset if alternative future use of the license exists.

Patent Costs

Costs related to filing and pursuing patent applications are expensed as incurred, as the recoverability of such expenditures is uncertain. These costs are included in general and administrative expenses.

Stock-Based Compensation

Compensation expense related to stock options granted to employees and non-employees is measured at the grant date based on the estimated fair value of the award and is recognized on a straight-line basis over the requisite service period. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model.

10

Foreign Currency Transactions

The functional currency of Reneo Pharma Ltd is the U.S. dollar. All foreign exchange transactional and remeasurement gains and losses are recognized in the condensed consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2021 and 2020, total foreign currency gains and losses were not material.

Comprehensive Income or Loss

Comprehensive income or loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.

Net Loss Per Share

The Company computes basic loss per share by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For purposes of this calculation, common stock equivalents include the Company’s stock options and convertible preferred stock, which are convertible into shares of the Company’s common stock. No shares related to the convertible preferred stock were included in the diluted net loss per share calculation for the three or six months ended June 30, 2021 and 2020 because the inclusion of such shares would have had an anti-dilutive effect. The shares to be issued upon exercise of all outstanding stock options were also excluded from the diluted net loss per share calculation for the three and six months ended June 30, 2021 and 2020 because such shares are anti-dilutive.

Historical outstanding anti-dilutive securities not included in the diluted net loss per share calculation include the following:

    

June 30, 2021

    

June 30, 2020

    

Convertible preferred stock (as converted)

 

5,430,957

Common stock options

3,197,640

 

969,463

Total

3,197,640

 

6,400,420

New Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new guidance will be effective for the Company as of January 1, 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is in the process of evaluating the impact of the application of this accounting standard update on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in the carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. This new guidance is effective for the Company as of January 1, 2023. The Company is currently evaluating the impact of this ASU and does not expect that adoption of this standard will have a material impact on its condensed consolidated financial statements and related disclosures.

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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires a lessee to recognize a liability for lease payments (the lease liability) and a right-of-use asset (representing its right to use the underlying asset for the lease term) on the balance sheet. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the new guidance as of the adoption date, rather than as of the earliest period presented. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the effective date, unless the lease was modified, to not reassess (a) whether a contract is or contains a lease, (b) lease classification or (c) determination of initial direct costs, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. This ASU is effective for annual reporting periods beginning January 1, 2022 with early adoption permitted. The Company plans to adopt the ASU on January 1, 2022 and is currently in the process of evaluating the impact of the application of this accounting standard update on its condensed consolidated financial statements and related disclosures.

3. Fair Value Measurements

ASC Topic 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than quoted prices in active markets, that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company’s financial assets are subject to fair value measurements on a recurring basis.

The Company classifies its money market funds as Level 1 using the quoted prices in active markets.

In November 2020, the Company hired a new chief executive officer under which the chief executive officer is entitled to receive a special performance bonus in the amount of $7.5 million (Performance Award), payable in cash, common stock or a combination of cash and common stock, at the election of the Company, based on achievement of certain conditions as described in more detail in Note 7. The Company estimated the fair value of the Performance Award using a Monte Carlo simulation, which utilizes level 3 inputs such as volatility, probabilities of success, and other inputs that are not observable in active markets. The Performance Award is required to be measured at fair value on a recurring basis each reporting period, with changes in the fair value recognized in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss over the derived service period of the award.

No assets or liabilities were transferred into or out of their classifications during the six months ended June 30, 2021 and 2020.

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The recurring fair value measurement of the Company’s assets measured at fair value at June 30, 2021 consisted of the following (in thousands):

Quoted Prices in

Significant

Active Markets

Significant Other

Unobservable

  

For Identical Items

Observable Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets

 

  

  

 

  

 

  

Cash and cash equivalents:

Money market investments

$

91,700

$

$

$

91,700

Commercial paper

44,994

44,994

Investments:

Commercial paper

26,963

26,963

Total

$

91,700

$

71,957

$

$

163,657

Liabilities

Performance Award

$

$

$

363

$

363

Total

$

$

$

363

$

363

The following table summarizes changes in fair value measurements of the Performance Award during the six months ended June 30, 2021 (in thousands):

Balance as of January 1, 2021

$

Expense recorded upon consummation of the IPO

590

Change in fair value

(227)

Balance as of June 30, 2021

$

363

The recurring fair value measurement of the Company’s assets measured at fair value at December 31, 2020 consisted of the following (in thousands):

Quoted Prices in

Significant

Active Markets

Significant Other

Unobservable

  

For Identical Items

Observable Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

TOTAL

Assets:

 

  

  

 

  

 

  

Money market investments

$

49,632

$

$

$

49,632

Total

$

49,632

$

$

$

49,632

4. Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

    

JUNE 30, 2021

    

DECEMBER 31, 2020

Computer, software and office equipment

$

158

$

122

Leasehold improvements

30

 

30

Total property and equipment, gross

 

188

 

152

Less: accumulated depreciation and amortization

 

(103)

 

(83)

Total property and equipment, net

$

85

$

69

Depreciation and amortization expense related to property and equipment was $10,000 and $9,000 for the three months ended June 30, 2021 and 2020, respectively, and $20,000 and $18,000 for the six months ended June 30, 2021 and 2020, respectively.

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5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

    

JUNE 30, 2021

    

DECEMBER 31, 2020

Accrued development expenses

$

404

$

1,443

Accrued clinical expenses

1,359

 

1,019

Accrued compensation

 

804

 

888

Other accrued expenses

 

335

 

322

Total other accrued expenses

$

2,902

$

3,672

6. Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Series A Convertible Preferred Stock

In December 2017, January 2018, and May 2019, the Company issued a total of 24,302,472 shares of Series A convertible preferred stock to certain investors at $2.16 per share.

In connection with the IPO (Note 1) in April 2021, all outstanding shares of Series A convertible preferred stock were converted into 5,430,957 shares of common stock.

Series B Convertible Preferred Stock

In December 2020, the Company and certain investors entered into a Series B preferred stock purchase agreement, whereby the Company issued 23,440,514 shares of Series B convertible preferred stock at $2.0215 per share for total gross proceeds of approximately $47.4 million before deducting offering costs of $0.3 million, which constituted the closing of the first tranche of the Series B convertible preferred stock. In connection with the closing of the first tranche of Series B convertible preferred stock in December 2020, the Company issued rights to the purchasers for the purchase of an additional 23,440,514 shares of Series B convertible preferred stock under the same terms and conditions upon the board of directors’ determination of either (i) that the cash balance of the Company is below $10 million, or (ii) approving the Company’s initial public offering of shares of its common stock pursuant to a registration statement under the Securities Act (Series B Tranche Right).

The Company evaluated the Series B Tranche Right and concluded that it was not a free-standing instrument that met the definition of a derivative that required separate accounting.

In March 2021, the Company completed the Series B Tranche Right at $2.0215 per share. A total of 23,440,514 shares of Series B convertible preferred stock were issued for aggregate net proceeds of approximately $47.4 million.

In connection with the IPO in April 2021, all outstanding shares of Series B convertible preferred stock were converted into 10,476,672 shares of common stock.

Shares Reserved for Future Issuance

As of June 30, 2021, the Company had reserved shares of its common stock for future issuance as follows:

    

Shares

Reserved

Common stock options outstanding

 

3,197,640

Available for future grants under the 2021 Equity Incentive Plan

 

2,221,163

Available for future grants under the 2021 Employee Stock Purchase Plan

243,058

Total shares of common stock reserved

 

5,661,861

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7. Stock-Based Compensation

In 2014, the Company adopted the 2014 Equity Incentive Plan (the 2014 Plan). The 2014 Plan provides for the issuance of incentive stock options to employees of the Company and non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and other stock awards to directors, employees and consultants of the Company. In March 2021, the Company’s board of directors increased the option pool by 234,158 shares of common stock.

Under the 2014 Plan, certain employees may be granted the ability to early exercise their options. The shares of common stock issued pursuant to the early exercise of unvested stock options are restricted and continue to vest over the requisite service period after issuance. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. As of June 30, 2021, stock options to purchase 17,123 shares of common stock have been early exercised and were subject to vesting. Cash received in exchange for early exercises of stock options has been recorded as a liability for the early exercise of stock options and will be transferred into common stock and additional paid-in capital as the shares vest. As of June 30, 2021, such liability for early exercises of stock options was immaterial.

In March 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (the 2021 Plan) and the Company’s stockholders approved the 2021 Plan in April 2021. The 2021 Plan became effective immediately prior to the execution of the underwriting agreement in connection with the IPO. Under the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s affiliates. A total of 2,187,524 new shares of common stock were approved to be initially reserved for issuance under the 2021 Plan. In addition, the number of shares of common stock reserved for issuance under the 2021 Plan includes 117,639 shares (as adjusted for reverse stock split) reserved and available for issuance pursuant to the grant of new awards under the 2014 Plan as of the effectiveness of the 2021 Plan and will include any shares subject to stock awards granted under the 2014 Plan that, after the date the 2021 Plan became effective, are forfeited or otherwise become available under the 2014 Plan. The number of shares of common stock reserved for issuance under the 2021 Plan will also automatically increase on January 1 of each calendar year, beginning on January 1, 2022 and continuing through and including January 1, 2031, by 5% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year; provided, however, that the Company’s board of directors may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock. As of June 30, 2021, there were 2,221,163 shares available for future grant under the 2021 Plan.

In March 2021, the Company’s board of directors adopted the Company’s 2021 Employee Stock Purchase Plan (ESPP) and the Company’s stockholders approved the ESPP in April 2021. The ESPP became effective immediately prior to the execution of the underwriting agreement in connection with our IPO. A total of 243,058 shares of common stock were approved to be initially reserved for issuance under the ESPP. No shares have been issued under the ESPP through June 30, 2021.

A summary of the Company’s stock option activity and related information during the six months ended June 30, 2021 is as follows:

    

    

Weighted-

    

Weighted- Average

 

Options

Average Exercise

Remaining

 

Aggregate

Outstanding

Price

Contractual Term

 

Intrinsic Value

Outstanding at December 31, 2020

935,478

$

2.56

7.7

Granted

2,357,285

$

5.42

Exercised

(95,123)

$

1.97

$

418,000

Outstanding at June 30, 2021

 

3,197,640

 

$

4.68

 

9.0

$

15,334,000

Vested at June 30, 2021

 

687,583

 

$

2.67

 

7.3

$

4,578,000

Exercisable at June 30, 2021

 

2,784,843

 

$

4.39

 

9.0

$

13,758,000

15

Options exercisable at June 30, 2021 include vested options and options eligible for early exercise. All outstanding options as of June 30, 2021 are expected to vest.

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:

    

Six Months Ended

 

June 30, 

 

    

2021

    

2020

 

Risk-free interest rate

 

0.67

%  

1.00

%

Expected volatility

 

71.2

%  

71.7

%

Expected term (in years)

 

5.9

 

5.8

Expected dividend yield

 

%  

%

The weighted average grant date fair value of options granted during the three months ended June 30, 2021 and 2020 was $10.89 and $2.65, and $3.42 and $2.51 during the six months ended June 30, 2021 and 2020, respectively.

Fair value of common stock. For periods prior to the IPO, the fair value of the shares of common stock underlying the stock options has been determined by the Company’s board of directors, with input from management. Historically, since there has been no public market for the Company’s common stock, the Company’s board of directors determined the fair value of the Company’s common stock on each grant date by considering a number of objective and subjective factors, including the most recent independent third-party valuations of the Company’s common stock, sales of the Company’s convertible preferred stock to unrelated third-parties, operating and financial performance of the Company, the lack of liquidity of capital stock and general and industry-specific economic outlook, and the Company’s board of directors’ assessment of additional objective and subjective factors that it believed were relevant. 

Risk-free interest rate. The Company bases the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Expected volatility. The expected volatility assumption is based on the volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry.

Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends.

Unrecognized compensation expense at June 30, 2021 for both employee and non-employee stock-based compensation expense was $7.3 million, which is expected to be recognized over a weighted-average vesting term of 2.9 years.

Non-cash stock-based compensation expense recorded in the condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

2021

    

2020

General and administrative

$

728

$

48

$

1,093

$

95

Research and development

 

126

 

40

 

232

 

85

Total

$

854

$

88

$

1,325

$

180

16

In November 2020, the Company hired a new chief executive officer under which the chief executive officer is entitled to receive a Performance Award in the amount of $7.5 million, payable in cash, common stock or a combination of cash and common stock, at the election of the Company, in the event that (i) the Company’s market value exceeds $750 million utilizing the volume-weighted average of the closing sale price of its common stock on the Nasdaq Stock Market or other principal exchange for each of the 30 trading days immediately prior to the measurement date, or (ii) the fair market value of the net proceeds available for distribution to the Company’s stockholders in connection with a change in control as defined in the Company’s severance benefit plan, as determined in good faith by its board of directors, exceeds $750 million. The Company has determined that the Performance Award is a liability classified award subject to ASC Topic 718, Compensation – Stock Compensation and includes both market and performance conditions. In April 2021, the performance condition was achieved in connection with the IPO. The Company estimated the fair value of the Performance Award at each reporting period using the Monte Carlo simulation (Note 3), which is recognized as compensation cost over the derived service period. During the three and six months ended June 30, 2021, the Company recorded $0.4 million in stock based compensation related to the Performance Award.

8. License Agreement

In December 2017, the Company entered into a License Agreement with vTv Therapeutics LLC (vTv Therapeutics) (the vTv License Agreement), under which the Company obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPARδ agonists and products containing such PPARδ agonists, including REN001, for any therapeutic, prophylactic or diagnostic application in humans. Under the terms of the vTv License Agreement, the Company paid vTv Therapeutics an initial upfront license fee payment of $3.0 million and issued to vTv Therapeutics 309,576 shares of its common stock. The vTv License Agreement was accounted for as an asset acquisition and the upfront cash payment of $3 million and the fair value of common stock of $0.7 million issued to vTv Therapeutics was recorded in research and development expenses, as there was no alternative use for the asset.

Upon the achievement of certain pre-specified development and regulatory milestones, the Company is also required to pay vTv Therapeutics milestone payments totaling up to $64.5 million. The Company is also required to pay vTv Therapeutics up to $30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. In addition, the Company is obligated to make royalty payments to vTv Therapeutics at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions.

The Company accrues for the contingent payments under the vTv License Agreement when the amounts are probable or when the contingency is resolved and amounts are due and payable. For the three and six months ended June 30, 2021 and 2020, the Company did not record any research and development expenses in connection with the vTv License Agreement. In July 2021, a milestone under the vTv License Agreement was achieved, and the Company became obligated to make a payment of $2.0 million to vTv Therapeutics.

9. Commitments and Contingencies

Operating Leases

United States

In June 2018, the Company leased certain office space in San Diego, California under a non-cancelable operating lease with terms through July 2023, with an option to extend the terms for the entire premises for a period of five years.

In June 2021, the Company leased 5,137 square feet of office space for its U.S. headquarters in Irvine, California under a non-cancelable operating lease with terms through November 2026. The lease provides for a 3% annual rent increase, five months of abated rent and a tenant improvement allowance of $6.50 per square foot. The total minimum lease payments over the life of the lease is $1.6 million.

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The rent expense in the United States for the three months ended June 30, 2021 and 2020 totaled $70,000 and 46,000, respectively, and for the six months ended June 30, 2021 and 2020 totaled $116,000 and $92,000, respectively.

United Kingdom

In December 2018, the Company leased certain office space for its UK subsidiary under a non-cancelable operating lease with lease terms through November 2021. The rent expense in the UK for the three months ended June 30, 2021 and 2020 totaled $7,000 and $6,000, respectively, and for the six months ended June 30, 2021 and 2020 totaled $14,000 and $12,000, respectively.

Legal Proceedings

The Company is currently not a party to any legal proceedings, nor is the Company aware of any threatened or pending litigations. However, from time-to-time in the future, the Company could be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business, which may have a material adverse effect on the Company’s consolidated results of operations or financial position.

401(k) Plan

The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. Matching contributions to the 401(k) plan are made for certain eligible employees to meet non- discrimination provisions of the plan. During the three and six months ended June 30, 2021 and 2020, the expense recorded by the Company was immaterial.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus dated April 8, 2021 that forms a part of our Registration Statement on Form S-1 (File No. 333-254534), as filed with the Securities and Exchange Commission (SEC) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act), on April 9, 2021 (Prospectus). Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “Reneo,” the “company,” “we,” “our,” “us” or similar terms refer to Reneo Pharmaceuticals, Inc. and its subsidiary.

Forward-Looking Statements

In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.

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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Overview

We are a clinical-stage pharmaceutical company focused on the development and commercialization of therapies for patients with rare genetic mitochondrial diseases, which are often associated with the inability of mitochondria to produce adenosine triphosphate (ATP). Our lead product candidate, REN001, is a potent and selective agonist of the peroxisome proliferator-activated receptor delta (PPARδ). REN001 has been shown to increase transcription of genes involved in mitochondrial function and increase fatty acid oxidation, and may increase production of new mitochondria.

The PPAR family of nuclear hormone receptors, PPARa, PPARb, and PPARδ, control the transcription of genes critical for regulating energy metabolism and homeostasis. PPARδ is highly expressed in muscle, kidney, brain, and liver tissue. Activation of PPARδ results in changes in the expression of genes involved with multiple aspects of energy metabolism including uptake of fatty acids, utilization of fatty acids as an energy source, and mitochondrial biogenesis.

Increases in PPARδ activity also correlate with a shift in muscle tissue towards oxidative, fat-consuming type I fibers that are associated with endurance as opposed to glycolytic, type II fibers. In preclinical and clinical studies, increased PPARδ activity through transgenic overexpression or pharmacological activation increases muscular strength and endurance across a variety of functional measures. REN001 was studied in healthy volunteers with one leg immobilized to produce muscle atrophy. Compared to placebo, administration of REN001 resulted in statistically significant increases in the expression of genes involved in mitochondrial oxidative phosphorylation, and statistically significant improvements in muscle strength.

As a PPARδ agonist, REN001 may benefit patients with genetic mitochondrial myopathies who experience weakness, fatigue, and/or deterioration in muscle due to impaired mitochondrial energy production. We are initially developing REN001 in three rare genetic diseases that typically present with myopathy and have high unmet medical needs: primary mitochondrial myopathies (PMM), long-chain fatty acid oxidation disorders (LC-FAOD), and McArdle disease. Patients with these diseases are unable to perform many everyday activities, and can experience cardiomyopathy and other organ dysfunction. Patients with PMM or LC-FAOD also typically have a reduced life expectancy.

We completed an open-label Phase 1b clinical trial in patients with PMM to assess the safety and tolerability of REN001, and to measure changes in functional tests such as walk distance and exercise capacity, as well as patient-reported symptoms. REN001 was well-tolerated in this trial. Compared to baseline, patients receiving REN001 once-daily for 12 weeks experienced an average increase in a 12-minute walk test (12MWT) of 104 meters, and an average increase of 1.7mL/kg/min in oxygen consumption (VO2), as well as a reduction in patient-reported fatigue and pain.

Based on these results, we initiated the STRIDE study, a global, randomized, double-blind, placebo-controlled Phase 2b clinical trial of REN001 in patients with PMM. In July 2021, we announced that the first patient was dosed in the STRIDE study, and we expect to announce topline results from this study in 2023. We also plan to conduct an open-label, long-term safety trial outside the United States in a subset of patients from the STRIDE

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study, with preliminary data anticipated to be available in 2023. Following our interactions with the U.S. Food and Drug Administration (FDA) and several European regulatory agencies, we believe that positive results from these trials could support the registration of REN001 for PMM in both the United States and in Europe.

We are also conducting two exploratory, open-label Phase 1b clinical trials of REN001 in patients with LC-FAOD and with McArdle disease. We completed enrollment of the McArdle study in July 2021, and expect to announce results in the first quarter of 2022. The LC-FAOD study is continuing to enroll patients, and we also expect to announce results from this study in the first half of 2022.

We are also enrolling an observational, non-international study of REN001 in patients with LC-FAOD to better understand disease characteristics of patients through exercise tests and symptom questionnaires (FORWARD study). The FORWARD study will also include work for validation of a new Reneo-developed patient questionnaire focused on muscle symptoms in LC-FAOD, which we plan to use in future trials. We anticipate the results of this study in the second half of 2022.

Since our inception in 2014, our operations have focused on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of and manufacturing development for REN001. We do not have any product candidates approved for sale, have not generated any revenue from product sales, and do not expect to generate revenues from the commercial sale of our product candidate for at least several years, if ever. Since inception, we have incurred significant operating losses. Our net losses were $16.4 million and $19.5 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $61.4 million, and cash, cash equivalents and short-term investments of $167.3 million. We have funded our operations primarily through the issuance and sale of equity securities. From our inception through June 30, 2021, we have raised an aggregate of $230.6 million in net proceeds primarily through equity financings, including the net proceeds from our initial public offering (IPO).

We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase as we conduct our ongoing and planned clinical trials and preclinical studies, engage in other research and development activities, seek regulatory approvals for any product candidates that successfully complete clinical trials, incur development milestone payments related to our research and development activities, prepare for commercialization, hire additional personnel, protect our intellectual property and incur additional expenses as a result of operating as a public company.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. As a result, we will need to raise additional capital. Until such time as we can generate significant revenue from sales of our product candidate, if ever, we expect to finance our operations through public or private equity offerings or debt financings, credit or loan facilities, collaborations, strategic alliances, licensing arrangements or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. 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 resulting from the ongoing COVID-19 pandemic. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Based upon our current operating plan, we believe that our cash, cash equivalents, and short-term investments as of June 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements through our planned near-term clinical milestones.

We do not own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of REN001 for preclinical studies and clinical trials, as well as for commercial manufacturing if REN001 obtains marketing approval. We also rely, and expect to continue to rely, on third parties to manufacture, package, label, store, and distribute REN001, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of REN001.

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COVID-19

The COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the pandemic, including new variants of the virus, and its impact on our clinical trial enrollment, trial sites, contract research organizations, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. For example, our Phase 1b clinical trial of REN001 in PMM patients was closed early as a result of COVID-19, and we may face future clinical trial disruptions. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees and the communities in which we operate. To date, there has been a minimal disruption in our ability to ensure the effective operation of our business. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

License Agreement

In December 2017, we entered into a License Agreement with vTv Therapeutics (the vTv License Agreement), under which we obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPARδ agonists and products containing such PPARδ agonists, including REN001, for any therapeutic, prophylactic or diagnostic application in humans. Under the terms of the vTv License Agreement, we paid vTv Therapeutics an initial upfront license fee payment of $3.0 million and issued to vTv Therapeutics shares of our common stock subject to antidilution provisions under the agreement. Upon the achievement of certain pre-specified development and regulatory milestones, we are also required to pay vTv Therapeutics up to an aggregate of $64.5 million. We are also required to pay vTv Therapeutics up to $30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. In addition, we are obligated to pay vTv Therapeutics tiered royalty payments at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions. In July 2021, a milestone under the vTv License Agreement was achieved, and we became obligated to make a payment of $2.0 million to vTv Therapeutics.

Components of Our Results of Operations

Operating Expenses

Research and Development Expenses

To date, our research and development expenses have related primarily to preclinical and clinical development of REN001. Research and development expenses include:

personnel expenses, including salaries, benefits, and stock-based compensation expense;
external expenses incurred under agreements with contract research organizations (CROs), investigative sites and consultants to conduct and support our preclinical studies and clinical trials;
laboratory supplies related to manufacturing our product candidate for clinical trials and preclinical studies, including fees paid to third-party manufacturers;
expenses related to regulatory activities, including filing fees paid to regulatory agencies;
facility costs including rent, depreciation, and maintenance expenses; and
fees for maintaining licenses under our third-party licensing agreements.

Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Costs for certain

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activities, such as manufacturing and preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators. We expense amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. The following table summarizes our research and development expenses for the three and six months ended June 30, 2021 and 2020:

    

THREE MONTHS ENDED

    

SIX MONTHS ENDED

    

JUNE 30, 

JUNE 30, 

    

2021

    

2020

    

2021

    

2020

    

(in thousands)

(in thousands)

Nonclinical

$

765

$

1,551

$

1,328

$

2,425

Contract manufacturing cost

 

1,224

 

1,409

 

2,465