RANI THERAPEUTICS HOLDINGS, INC. 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 unaudited interim condensed
consolidated financial statements and the related notes included elsewhere in
this Quarterly Report on Form 10-Q, and our final prospectus filed with the
The following discussion contains references to calendar year 2020 and the nine
months ended
Overview
We are a clinical stage biotherapeutics company advancing technologies to enable the development of orally administered biologics. We have developed the RaniPill capsule, which is our novel, proprietary and patented platform technology, intended to replace subcutaneous or IV injection of biologics with oral dosing. The RaniPill capsule is an orally ingestible pill approximately the size of a "000" capsule (or similar to the size of a standard fish oil or calcium pill) that is designed to automatically administer a precise therapeutic dose of medication upon deployment in the small intestine. To date, we have successfully conducted several preclinical and clinical studies to evaluate safety, tolerability and bioavailability using the RaniPill capsule. Our development efforts have enabled us to construct an extensive intellectual property portfolio that we believe provides us a competitive advantage. Our pipeline includes five core product candidate programs. Additionally, we envision complementing these core programs with robust partnering activities to maximize the value inherent in the RaniPill capsule.
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 our
preferred units and the issuance of convertible promissory notes, with aggregate
gross proceeds of
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
Since our inception, we have incurred significant losses and negative cash flows
from operations. Our net losses were
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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
As is common with biotechnology companies, we rely on third-party suppliers for the supply of raw materials and active pharmaceutical ingredients ("APIs") required for the production of our product candidates. In addition, we work with third parties to manufacture and develop biologics for inclusion in the RaniPill capsule. 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 RaniPill capsule. 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 RaniPill capsule. 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.
COVID-19 Pandemic
Since it was reported to have surfaced in late 2019, COVID-19 has spread across
the world and has been declared a pandemic by the
We have initiated, and may take additional, temporary precautionary measures intended to help ensure our employees' well-being and minimize business disruption. For the safety of our employees and their families, we have temporarily reduced the presence of our employees in our office and continue to rely on third parties to conduct many of the experiments and preclinical studies for our research programs. Certain third-party service providers have also experienced shutdowns or other business disruptions. The extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans, including the resulting impact on expenditures and capital needs, remains uncertain.
Organizational Transactions
The Company was incorporated in
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estimate the likely tax benefits we will realize as a result of LLC Interests 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.
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 has been derived from the evaluation
agreements, which are recorded as contract revenue. As of
Our ability to generate commercial product revenue and to become profitable will depend upon our ability to successfully develop, obtain regulatory approval and commercialize the capsule. Because of the numerous risks and uncertainties associated with product development and regulatory approval, we are unable to predict the amount, timing or whether we will be able to obtain commercial product revenue.
Operating Expenses
Our operating expenses consisted of research and development expenses and general and administrative expenses.
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 commercialize the RaniPill capsule. These expenses include:
External expenses, consisting of:
• expenses associated with contract research organizations ("CROs"), for managing and conducting clinical trials;
• expenses associated with laboratory supplies, drug material for clinical trials, developing and manufacturing of the RaniPill capsule and other materials;
• expenses associated with preclinical studies performed by third parties; and
• expenses associated with consulting, legal fees for patent matters, advisors, and other external expenses.
Internal expenses, consisting of:
• expenses including salaries, bonuses, equity-based compensation and benefits for personnel engaged in research and development functions;
• expenses associated with service and repair of equipment, equipment depreciation, and allocated facility costs for research and development; and
• 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.
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The historical focus of our research and development has been on the RaniPill delivery platform and not tracked costs on a project-by-project basis associated with different drug compounds.
At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, the RaniPill capsule. We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in research and development activities related to developing the RaniPill capsule, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for the RaniPill capsule upon successful completion of clinical trials, and incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, the successful development of the RaniPill capsule is highly uncertain, and we may never succeed in achieving regulatory approval for the RaniPill capsule.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, equity-based compensation, and benefits) for personnel in executive, finance, accounting, legal, corporate and business development, and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters, professional fees paid for accounting, auditing, consulting, tax, and administrative consulting services, insurance costs, travel expenses, marketing expenses, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We anticipate that our general and administrative expenses will increase
significantly in the foreseeable future as additional administrative personnel
and services are required to manage and support the development of the RaniPill
capsule. 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
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income on our cash and cash equivalents and income (expense) associated with re-measurements of the estimated fair value of preferred unit warrants and loss on the extinguishment of debt.
Relationship withInCube Labs Services Agreements
In
In
Our eligible employees are permitted to participate in ICL's 401(k) Plan
("401(k) Plan"). Participation in the 401(k) Plan is offered for the benefit of
our employees, including our named executive officers,
As of
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The table below details the amounts charged by ICL for services and rent, net of the amount that RMS charged ICL, which is included in the condensed consolidated statements of operations and comprehensive loss (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Research and development
174 516 625
Total $ 371 $ 152 $ 893 $ 723 Equity-Based Compensation
In connection with the IPO and Organizational Transactions, the Company
effectuated an exchange of all outstanding Profits Interests into Class A Units
including certain Profits Interests related to ICL and its affiliates ("ICL
Holders"). Upon the IPO and Organizational Transactions, the performance
condition was met for all Profits Interest no longer subject to a service based
vesting condition resulting in the recognition of compensation cost associated
with these awards. ICL Holders of 919,282 Class A Units exchanged 854,807 such
units for the Company's Class A common stock, the remaining 64,475 Class A Units
of
The following table summarizes the components of equity-based compensation expense recorded in the condensed consolidated statement of operations and comprehensive loss related to awards granted to employees of ICL and its affiliates by the Company (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Research and development $ 644 - $ 644 -
General and administrative 2,947 - 2,947 -
Total $ 3,591 - $ 3,591 -
Financing activity
From inception to
In
Exclusive License Agreement
In
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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
Intellectual Property Agreement with
In
Tax Receivable Agreement
Certain parties to the TRA, entered into in
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, and the Former LLC Owners can require us to register under the Securities Act of 1933, as amended (the "Securities Act"), the shares of Class A common stock issued to them in connection with the Organizational Transactions. The Registration Rights Agreement also provides for piggyback registration rights for the Continuing LLC Owners.
Rani LLC Agreement
The Company operates its business through
Future Public Company Expenses
As a result of the IPO, we expect our operating expenses to increase. We expect
our accounting, legal and personnel-related expenses and directors' and
officers' insurance costs reported within general and administrative to increase
as we establish more comprehensive compliance and governance functions, maintain
and review internal controls over financial reporting in accordance with the
Sarbanes-Oxley Act of 2002 and prepare and distribute periodic reports as
required by the rules and regulations of the
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Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations (in thousands):
Three Months Ended September 30,
2021 2020
Contract revenue $ - $ 108
Operating expenses
Research and development 11,959 2,090
General and administrative 15,822 845
Total operating expenses $ 27,781 $ 2,935
Loss from operations (27,781 ) (2,827 )
Other income (expense), net
Interest income 13 13
Loss on extinguishment of debt (700 ) -
Interest expense and other, net (110 ) (64 )
Change in estimated fair value of preferred unit
warrant (85 ) -
Loss before income taxes (28,663 ) (2,878 )
Income tax expense (37 ) (5 )
Net loss and comprehensive loss $ (28,700 ) $ (2,883 )
Net loss attributable to non-controlling interest (25,558 ) (2,883 )
Net loss attributable to Rani Therapeutics
Holdings, Inc. $ (3,142 ) $ -
Contract Revenue
Contract revenue was
Research and Development Expenses
The following table reflects our research and development costs by nature of
expense (in thousands):
Three Months Ended
September 30,
2021 2020
Payroll, equity-based compensation and related benefits
1,005 542
Third-party services 812 180
Other 103 34
Total $ 11,959 $ 2,090 Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
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as a public company, salaries and related benefits increased by
Other Income (Expense), Net
Other expense, net, was
Comparison of the nine months ended
The following table summarizes our results of operations (in thousands):
Nine Months Ended September 30,
2021 2020
Contract revenue $ 2,717 $ 252
Operating expenses
Research and development 19,065 8,708
General and administrative 21,889 3,144
Total operating expenses $ 40,954 $ 11,852
Loss from operations (38,237 ) (11,600 )
Other income (expense), net
Interest income 73 87
Loss on extinguishment of debt (700 ) -
Interest expense and other, net (467 ) (66 )
Change in estimated fair value of preferred unit
warrant (371 ) 655
Loss before income taxes (39,702 ) (10,924 )
Income tax expense (81 ) (23 )
Net loss and comprehensive loss $ (39,783 ) $ (10,947 )
Net loss attributable to non-controlling interest (36,641 ) (10,947 )
Net loss attributable to Rani Therapeutics
Holdings, Inc. $ (3,142 ) $ -
Contract Revenue
Contract revenue was
Research and Development Expenses
The following table reflects our research and development costs by nature of
expense (in thousands):
Nine Months Ended September 30,
2021 2020Payroll, equity-based compensation and related benefits $ 15,139 $ 4,652 Facilities, materials and supplies
2,541 1,745
Third-party services 1,172 2,243
Other 213 68
Total $ 19,065 $ 8,708
Research and development expenses were
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offset by a reduction in third-party services of
General and Administrative Expenses
General and administrative expenses were
Other Income (Expense), Net
Other expense, net was
Liquidity and Capital Resources
Source of Liquidity
Since our inception in 2012, 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 our
preferred units and the issuance of convertible promissory notes, with aggregate
gross proceeds of
In
In
In
After completion of the IPO, the Company became a holding company and has no
material assets other than its ownership of LLC Interests. The Company has no
independent means of generating revenue. The limited liability company agreement
of
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LLC Interests and the Company's obligations under the Tax Receivable Agreement which was entered into with certain of the Continuing LLC Owners.
Tax Receivable Agreement
We entered into a Tax Receivable Agreement with certain of the Continuing LLC
Owners in
As there have been no transactions which have occurred which would trigger a
liability under this agreement, we have not recognized any deferred tax assets
or liabilities related to this agreement as of
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 capsule and because the extent to which we may enter into strategic collaborations or other arrangements with third parties for development of the RaniPill capsule 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 capsule. In addition, we expect to incur additional costs operating as a public company.
We may seek to raise capital through equity offerings or debt financings, collaboration agreements, or other arrangements with other companies, or through other sources of financing. 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 theU.S. Food and Drug Administration ("FDA"), or other regulatory authorities to accept data from our clinical trials, as well as data from our completed and planned clinical trials and preclinical studies and other work, as the basis for review and approval of the RaniPill capsule 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; 36
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? 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; and ? the effects of disruptions to and volatility in the credit and financial markets inthe 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. 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
Cash Flows
The following table summarizes our cash flows for the periods presented (in
thousands):
Nine Months Ended September 30,
2021 2020
Net cash used in operating activities $ (20,796 ) $ (8,260 )
Net cash used in investing activities (235 ) (944 )
Net cash provided by financing activities 77,716 4,035
Net increase (decrease) in cash and cash equivalents $ 56,685
Operating Activities
Net cash used in operating activities for the nine months ended
Additionally there was an increase of
Net cash used in operating activities for the nine months ended
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Investing Activities
For the nine months ended
For the nine months ended
Financing Activities
For the nine months ended
For the nine months ended
Critical Accounting Policies, Significant Judgments and Use of Estimates
This discussion and analysis of financial condition and results of operation is
based on our unaudited condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
Our critical accounting policies and estimates are discussed in the Prospectus. There have been no material changes in the Company's critical accounting policies or estimates from those set forth in the Prospectus.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under the rules of the
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 Condensed Consolidated Financial Statements" contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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)
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the market value of our Class A common stock held by non-affiliates exceeded
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