Rain Oncology (US:RAIN)2021-11-10 21:11markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed financial statements for Rain Therapeutics Inc., including the balance sheets, statements of operations and comprehensive loss, statements of changes in convertible preferred stock and stockholders' equity (deficit), and statements of cash flows, along with their accompanying notes [Condensed Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020](index=3&type=section&id=Condensed%20Balance%20Sheets%20as%20of%20September%2030%2C%202021%20(Unaudited)%20and%20December%2031%2C%202020) The balance sheet shows a significant increase in total assets and stockholders' equity as of September 30, 2021, primarily driven by the IPO proceeds and short-term investments, while convertible preferred stock was eliminated Balance Sheet Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $13,258 | $58,863 | $(45,605) | | Short-term investments | $136,823 | $— | $136,823 | | Total current assets | $157,406 | $59,525 | $97,881 | | Total assets | $158,531 | $61,080 | $97,451 | | Total current liabilities | $10,904 | $3,419 | $7,485 | | Total liabilities | $11,256 | $3,800 | $7,456 | | Total convertible preferred stock | $— | $94,697 | $(94,697) | | Total stockholders' equity (deficit) | $147,275 | $(37,417) | $184,692 | [Condensed Statements of Operations and Comprehensive Loss (Unaudited) for the three and nine months ended September 30, 2021 and 2020](index=4&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20(Unaudited)%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) The company experienced increased operating expenses, particularly in R&D and G&A, leading to a higher net loss for both the three and nine months ended September 30, 2021, compared to the prior year Statements of Operations Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $15,284 | $7,893 | $26,101 | $11,195 | | General and administrative | $3,154 | $591 | $7,334 | $2,311 | | Total operating expenses | $18,438 | $8,484 | $33,435 | $13,506 | | Net loss | $(18,426) | $(10,446) | $(33,409) | $(15,640) | | Net loss per share, basic and diluted | $(0.70) | $(3.05) | $(1.96) | $(4.73) | [Condensed Statements of Changes in Convertible Preferred Stock and Stockholders' Equity (Deficit) (Unaudited) for the three and nine months ended September 30, 2021 and 2020](index=5&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)%20(Unaudited)%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) The statements reflect significant changes in equity structure, primarily due to the conversion of all convertible preferred stock into common stock and non-voting common stock, and the issuance of common stock from the IPO, leading to a substantial increase in additional paid-in capital and total stockholders' equity Equity Changes Data (in thousands) | Metric (in thousands) | Dec 31, 2020 | Sep 30, 2021 | | :-------------------- | :----------- | :----------- | | Total convertible preferred stock | $94,697 | $— | | Common Stock (Amount) | $4 | $27 | | Additional paid-in capital | $1,149 | $219,222 | | Accumulated deficit | $(38,570) | $(71,979) | | Total stockholders' equity (deficit) | $(37,417) | $147,275 | - Conversion of convertible preferred stock to common stock resulted in a **$94.7 million** increase in additional paid-in capital[12](index=12&type=chunk) - Issuance of common stock upon IPO, net of issuance cost, contributed **$121.5 million** to additional paid-in capital[12](index=12&type=chunk) [Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2021 and 2020](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) Cash flow from operating activities remained negative, while investing activities saw a significant increase in cash used due to short-term investments. Financing activities provided substantial cash, primarily from the IPO, offsetting the cash used in operating and investing activities Cash Flow Data (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(27,704) | $(6,775) | | Net cash used in investing activities | $(139,480) | $(5,156) | | Net cash provided by financing activities | $121,579 | $69,518 | | Net (decrease) increase in cash and cash equivalents | $(45,605) | $57,587 | | Cash and cash equivalents at end of period | $13,258 | $63,381 | - Proceeds from initial public offering, net of issuance costs, provided **$121.494 million** in financing activities for the nine months ended September 30, 2021[15](index=15&type=chunk) - Purchases of short-term investments accounted for **$136.852 million** in cash used in investing activities for the nine months ended September 30, 2021[15](index=15&type=chunk) [Notes to Unaudited Condensed Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Financial%20Statements%20(Unaudited)) These notes provide detailed information on the company's organization, significant accounting policies, fair value measurements, related party transactions, convertible promissory notes, changes in equity, license agreements, commitments, net loss per share calculations, and subsequent events [Note 1 – Organization and Nature of Operations](index=8&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Nature%20of%20Operations) Rain Therapeutics Inc. is a late-stage precision oncology company focused on developing therapies targeting oncogenic drivers, with its lead product candidate, milademetan, and a preclinical RAD52 program. The company completed its IPO in April 2021, raising $121.5 million net proceeds, and converted all preferred stock to common stock - Rain Therapeutics Inc. is a late-stage precision oncology company developing therapies for oncogenic drivers, using a tumor-agnostic strategy[17](index=17&type=chunk) - Lead product candidate, milademetan, is an oral inhibitor of MDM2[17](index=17&type=chunk) - Completed IPO on April 27, 2021, issuing 7,352,941 shares of common stock at $17.00/share, with net proceeds of **$121.5 million**[19](index=19&type=chunk) - All convertible preferred stock was converted into common stock or non-voting common stock immediately prior to and upon the closing of the IPO[20](index=20&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=9&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies, including the use of estimates, classification of cash and cash equivalents, available-for-sale investments, deferred offering costs, research and development costs, preclinical and clinical trial accruals, stock-based compensation, comprehensive loss, and net loss per share. It also discusses recent accounting pronouncements - Research and development costs are expensed as incurred[32](index=32&type=chunk) - Stock-based compensation expense is recognized over the vesting period using the Black-Scholes option pricing model[34](index=34&type=chunk) - The company elected early adoption of ASU 2020-06 (Debt and Equity Instruments) on January 1, 2020, with no material impact[40](index=40&type=chunk) [Note 3 – Fair Value Measurements](index=11&type=section&id=Note%203%20%E2%80%93%20Fair%20Value%20Measurements) The company classifies its financial assets measured at fair value into a three-tier hierarchy (Level 1, 2, 3) based on the observability of inputs. As of September 30, 2021, most investments were classified as Level 2, with money market funds as Level 1, and no Level 3 liabilities Fair Value of Financial Assets (in thousands) | Financial Assets (in thousands) | Level 1 (Sep 30, 2021) | Level 2 (Sep 30, 2021) | Total (Sep 30, 2021) | | :------------------------------ | :--------------------- | :--------------------- | :------------------- | | Money market funds | $6,340 | $— | $6,340 | | Commercial paper | $— | $102,290 | $102,290 | | U.S. government securities | $— | $24,365 | $24,365 | | U.S. agency bonds | $— | $8,047 | $8,047 | | Corporate debt securities | $— | $7,280 | $7,280 | | Total investments | $6,340 | $141,982 | $148,322 | - Cash and cash equivalents are classified using Level 1 inputs[45](index=45&type=chunk) - Commercial paper, corporate debt securities, U.S. government securities, and U.S. agency bonds are valued using Level 2 inputs[50](index=50&type=chunk) - Contractual maturities of AFS securities as of September 30, 2021: **$113.9 million** due within one year, **$22.9 million** due within one to two years[52](index=52&type=chunk) [Note 4 – Related Party Transactions](index=13&type=section&id=Note%204%20%E2%80%93%20Related%20Party%20Transactions) This note details the issuance and subsequent conversion of convertible promissory notes to certain preferred stock holders in 2019 and 2020, which were treated as related party transactions - The company issued 2019 Notes (**$2.5 million**) and 2020 Notes (**$6.4 million**) to certain holders of convertible preferred stock[55](index=55&type=chunk) - In September 2020, all outstanding convertible promissory notes (fair value **$11.2 million** plus **$167,000** accrued interest) were converted to 1,905,688 shares of Series B convertible preferred stock[55](index=55&type=chunk) - Change in fair value of convertible promissory notes for the three and nine months ended September 30, 2020, was **$1.9 million** and **$2.0 million**, respectively[55](index=55&type=chunk) [Note 5 – Convertible Promissory Notes](index=13&type=section&id=Note%205%20%E2%80%93%20Convertible%20Promissory%20Notes) This note provides detailed terms and conversion features of the 2019 and 2020 convertible promissory notes, which bore 5% interest and were convertible into preferred stock upon a qualifying financing or common stock under other conditions. All notes were converted to Series B preferred stock in September 2020 - 2019 Notes (**$2.5 million**) and 2020 Notes (**$6.4 million**) bore an interest rate of **5%** per annum[56](index=56&type=chunk)[58](index=58&type=chunk) - Notes were designed to automatically convert to convertible preferred stock upon a 'Future Qualifying Financing' or 'Qualifying Financing' (net proceeds of at least $10.0 million)[56](index=56&type=chunk)[58](index=58&type=chunk) - In September 2020, all outstanding convertible promissory notes (fair value **$11.2 million** and accrued interest **$167,000**) were converted to 1,905,688 shares of Series B convertible preferred stock[59](index=59&type=chunk) [Note 6 – Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=14&type=section&id=Note%206%20%E2%80%93%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) This note details the company's capital structure changes, including the authorization of common and preferred stock, the reverse stock split, the issuance of Series A and B convertible preferred stock, and their subsequent conversion into common and non-voting common stock prior to the IPO. It also covers the equity incentive plans (2018 Plan, 2021 Plan, ESPP) and stock-based compensation - Prior to IPO, 8,344,905 shares of convertible preferred stock were exchanged for 7,727,470 shares of non-voting common stock, and 7,928,501 shares of convertible preferred stock converted into 7,341,860 shares of common stock[65](index=65&type=chunk) - No convertible preferred stock was outstanding as of September 30, 2021[65](index=65&type=chunk) - The 2021 Equity Incentive Plan (effective April 15, 2021) initially reserved **3,246,120 shares** of common stock, with automatic annual increases[68](index=68&type=chunk) - The 2021 Employee Share Purchase Plan (ESPP) initially reserved **259,689 shares**, with automatic annual increases, allowing employees to purchase stock at **85%** of the lower fair market value[70](index=70&type=chunk) Stock-Based Compensation Expense (in thousands) | Expense Category (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $683 | $133 | $1,452 | $379 | | General and administrative | $179 | $68 | $368 | $217 | | Total | $862 | $201 | $1,820 | $596 | - Unrecognized compensation cost related to outstanding options was **$8.8 million** as of September 30, 2021, to be recognized over approximately **3.3 years**[73](index=73&type=chunk) [Note 7 – License Agreements](index=17&type=section&id=Note%207%20%E2%80%93%20License%20Agreements) This note details the company's license agreements, including the Drexel License Agreement for RAD52 inhibitors and the Daiichi Sankyo License Agreement for milademetan. It outlines milestone payments, royalties, and development obligations under these agreements - Drexel License Agreement (July 30, 2020) grants exclusive worldwide license for RAD52 inhibitors for cancer treatment[81](index=81&type=chunk) - Daiichi Sankyo License Agreement (September 2, 2020) grants exclusive worldwide rights to milademetan[87](index=87&type=chunk) - Aggregate future milestone payments of up to **$222.5 million** (excluding a **$2.5 million** milestone) and high single-digit royalties on net sales are required under the Daiichi Sankyo agreement[89](index=89&type=chunk) - A **$5.5 million** milestone fee was recorded as R&D expense in Q3 2021 due to the first patient randomization in the Phase 3 MANTRA trial for milademetan, with **$2.5 million** paid and **$3.0 million** accrued[92](index=92&type=chunk) [Note 8 – Commitments and Contingencies](index=19&type=section&id=Note%208%20%E2%80%93%20Commitments%20and%20Contingencies) This note describes the company's noncancelable operating lease for its corporate headquarters, including an amendment in March 2020 for rent relief and lease extension. It also outlines the future minimum lease payments - The company has a noncancelable operating lease for office space in Newark, CA, ending September 2024[93](index=93&type=chunk)[94](index=94&type=chunk) Future Minimum Lease Payments (in thousands) | Year | Amount (in thousands) | | :--- | :----- | | 2021 - remainder | $40 | | 2022 | $167 | | 2023 | $171 | | 2024 | $129 | | Total minimum lease payments | $507 | [Note 9 – Net Loss Per Share](index=20&type=section&id=Note%209%20%E2%80%93%20Net%20Loss%20Per%20Share) This note provides the computation of basic and diluted net loss per share, highlighting that for the periods presented, there is no difference between basic and diluted shares due to the company's net loss position, making all potentially dilutive securities anti-dilutive Net Loss Per Share Calculation | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss (in thousands) | $(18,426) | $(10,446) | $(33,409) | $(15,640) | | Weighted-average shares outstanding | 26,466,746 | 3,422,458 | 17,025,032 | 3,307,932 | | Net loss per share | $(0.70) | $(3.05) | $(1.96) | $(4.73) | - Potentially dilutive securities (stock options, convertible preferred stock, unvested common stock) were excluded from diluted EPS calculation as they were anti-dilutive due to net loss[97](index=97&type=chunk) [Note 10 – Subsequent Events](index=20&type=section&id=Note%2010%20%E2%80%93%20Subsequent%20Events) The company evaluated subsequent events after September 30, 2021, and determined that no additional material events arose that require disclosure - No material subsequent events were identified after September 30, 2021[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Rain Therapeutics Inc.'s business, recent developments, and detailed analysis of its financial condition and results of operations for the three and nine months ended September 30, 2021. It highlights the company's focus on precision oncology, its lead product candidate milademetan, and its preclinical RAD52 program, along with significant increases in operating expenses and ongoing liquidity needs [Overview](index=21&type=section&id=Overview) Rain Therapeutics is a precision oncology company focused on MDM2 inhibitor milademetan and a preclinical RAD52 program. The company has incurred significant operating losses and an accumulated deficit of $72.0 million, primarily funding operations through its April 2021 IPO ($121.5 million net proceeds) and prior convertible notes/preferred stock. It expects to require additional capital for future R&D and commercialization - Rain is a late-stage precision oncology company developing therapies targeting oncogenic drivers, with a lead candidate milademetan (MDM2 inhibitor) and a preclinical RAD52 program[100](index=100&type=chunk) - Accumulated deficit was **$72.0 million** as of September 30, 2021[101](index=101&type=chunk) - Net losses were approximately **$18.4 million** for the three months and **$33.4 million** for the nine months ended September 30, 2021[101](index=101&type=chunk) - IPO in April 2021 generated **$121.5 million** in net proceeds[101](index=101&type=chunk) - Cash, cash equivalents, and short-term investments totaled **$150.1 million** as of September 30, 2021, believed to be sufficient for at least the next twelve months[101](index=101&type=chunk) [COVID-19](index=22&type=section&id=COVID-19) The company continues to monitor the evolving COVID-19 pandemic, acknowledging its uncertain impact on business, operations, clinical development timelines, and financial needs, while most employees work remotely - The extent of COVID-19's impact on business, operations, and clinical development timelines remains uncertain[105](index=105&type=chunk) - Most employees are working remotely, and the company is conducting business with necessary modifications[105](index=105&type=chunk) [Recent Developments](index=22&type=section&id=Recent%20Developments) Recent developments include plans to commence a Phase 2 clinical trial (MANTRA-3) for milademetan in Merkel cell carcinoma (MCC) in mid-2022, replacing a previously planned trial in intimal sarcoma. The company also announced patient referral partnerships with Caris Life Sciences and Tempus for its planned Phase 2 tumor-agnostic basket trial (MANTRA-2) - Plan to commence Phase 2 clinical trial (MANTRA-3) for milademetan in Merkel cell carcinoma (MCC) in mid-2022, replacing the intimal sarcoma trial[106](index=106&type=chunk)[109](index=109&type=chunk) - Announced patient referral partnership with Caris Life Sciences for the planned Phase 2 MDM2-amplified tumor-agnostic basket trial (MANTRA-2)[110](index=110&type=chunk) - Announced genomic analysis platform agreement with Tempus for centralized tumor testing and patient matching services for the MANTRA-2 trial[111](index=111&type=chunk) - First patient randomized in the multicenter, open-label, Phase 3 registrational trial (MANTRA) evaluating milademetan for de-differentiated liposarcoma (DD LPS) in July 2021[110](index=110&type=chunk) [Our Development Pipeline](index=23&type=section&id=Our%20Development%20Pipeline) The company's pipeline focuses on genetically selecting patients for targeted therapies. Milademetan, an MDM2 inhibitor, is in Phase 3 for DD LPS and has planned Phase 2 trials for tumor-agnostic solid tumors (MANTRA-2) and MCC (MANTRA-3). The preclinical RAD52 program targets DNA damage repair in HRD+ tumors - Development pipeline targets oncogenic drivers with differentiated therapies, using genetic selection for patients[112](index=112&type=chunk) - Retains global development and commercialization rights to all product candidates[112](index=112&type=chunk) [Overview of Milademetan](index=23&type=section&id=Overview%20of%20Milademetan) Milademetan, an oral MDM2 inhibitor, is being developed for MDM2-dependent cancers, leveraging a rationally designed dosing schedule to mitigate hematologic toxicities. It is in a pivotal Phase 3 trial (MANTRA) for DD LPS, with top-line data anticipated in 2023, and Phase 2 trials (MANTRA-2, MANTRA-3) planned for MDM2-amplified solid tumors and MCC, respectively - Milademetan is a small molecule, oral inhibitor of MDM2, developed for MDM2-dependent cancers[113](index=113&type=chunk) - A rationally designed dosing schedule aims to reduce toxicities while preserving activity due to milademetan's rapid plasma clearance and lack of drug accumulation[113](index=113&type=chunk) - Pivotal Phase 3 registrational trial (MANTRA) for de-differentiated liposarcoma (DD LPS) commenced in July 2021, with top-line data anticipated in 2023[115](index=115&type=chunk)[116](index=116&type=chunk) - Phase 2 tumor-agnostic basket trial (MANTRA-2) for MDM2-amplified advanced solid tumors is anticipated to commence in Q4 2021, with interim analysis in H2 2022[119](index=119&type=chunk) - Phase 2 clinical trial (MANTRA-3) for Merkel cell carcinoma (MCC) refractory to immune checkpoint inhibition is planned for mid-2022[118](index=118&type=chunk) [Overview of RAD52](index=24&type=section&id=Overview%20of%20RAD52) The preclinical RAD52 program targets the DNA damage repair pathway, aiming to induce synthetic lethality in HRD+ cancer cells (e.g., BRCA1/2 mutations) or those relapsing on PARP inhibitors. Lead candidate selection is expected in 2022 - Preclinical program focused on targeting RAD52 in the DNA damage repair pathway[120](index=120&type=chunk) - Aims to treat patients with molecularly diagnosed HRD+ (e.g., BRCA1/2 mutations) or those relapsed on PARP inhibitor therapy[120](index=120&type=chunk) - Lead candidate selection for RAD52 inhibitors is expected in 2022[123](index=123&type=chunk) [Collaboration and License Agreements](index=25&type=section&id=Collaboration%20and%20License%20Agreements) The company is party to several license agreements for its product candidates and development programs, as detailed in Note 7 to the Condensed Financial Statements - The company has license agreements for in-licensed product candidates and development programs[124](index=124&type=chunk) - Details of these agreements are provided in Note 7 to the Condensed Financial Statements[124](index=124&type=chunk) [Components of Our Results of Operations](index=25&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section outlines the components of the company's financial results, primarily focusing on operating expenses (R&D and G&A) as it has not generated product revenue. It details the types of costs included in R&D and G&A - No revenue from product sales, licenses, or collaborations to date, and none expected in the foreseeable future[125](index=125&type=chunk) - Operating expenses consist solely of research and development costs (including in-process R&D acquisition) and general and administrative costs[126](index=126&type=chunk) [Revenue](index=25&type=section&id=Revenue) The company has not generated any revenue from product sales, licenses, or collaborations since its inception and does not anticipate doing so in the foreseeable future, as it is still in the development phase for its product candidates - No revenue generated from product sales, licenses, or collaborations to date[125](index=125&type=chunk) - Does not expect to generate revenue from product sales in the foreseeable future[125](index=125&type=chunk) [Operating Expenses](index=25&type=section&id=Operating%20Expenses) Operating expenses are categorized into research and development (R&D) and general and administrative (G&A) costs, which are expensed as incurred - Operating expenses since inception have consisted solely of research and development costs and general and administrative costs[126](index=126&type=chunk) [Research and Development Expenses](index=25&type=section&id=Research%20and%20Development%20Expenses) R&D expenses, recognized as incurred, include personnel costs, preclinical study expenses, clinical trial costs (CROs, consultants), drug manufacturing, regulatory compliance, and license fees/milestone payments. The company expects these expenses to increase significantly as it expands its product candidate development - R&D expenses are recognized as incurred and include salaries, preclinical/clinical study costs, manufacturing, regulatory costs, and license/milestone payments[127](index=127&type=chunk)[128](index=128&type=chunk) - External development costs are tracked by product candidate, but internal costs are not allocated to specific programs[128](index=128&type=chunk) Research and Development Expenses by Category (in thousands) | Category (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Milademetan | $10,366 | $5,493 | $16,603 | $5,493 | | Other clinical candidate | $209 | $2,129 | $1,546 | $5,364 | | Unallocated internal R&D costs | $4,709 | $271 | $7,952 | $338 | | Total R&D expenses | $15,284 | $7,893 | $26,101 | $11,195 | - R&D expenses are expected to increase substantially as development of product candidates expands[129](index=129&type=chunk) [General and Administrative Expenses](index=26&type=section&id=General%20and%20Administrative%20Expenses) G&A expenses include personnel costs, legal fees, professional fees (accounting, consulting), and facility costs. These expenses are expected to increase due to continued R&D, pre-commercial activities, and public company compliance requirements - G&A expenses include salaries, stock-based compensation, legal fees, professional fees, and facility costs[131](index=131&type=chunk) - G&A expenses are expected to increase due to continued R&D, pre-commercial preparation, and public company operating costs[131](index=131&type=chunk) [Interest Income](index=26&type=section&id=Interest%20Income) Interest income is generated from the company's available-for-sale securities - Interest income consists of interest on available-for-sale securities[132](index=132&type=chunk) [Interest Expense](index=26&type=section&id=Interest%20Expense) The company had no interest expense for the nine months ended September 30, 2021. Interest expense for the prior year period was related to outstanding convertible promissory notes - No interest expense for the nine months ended September 30, 2021[133](index=133&type=chunk) - Interest expense in 2020 was from outstanding convertible promissory notes[133](index=133&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and nine months ended September 30, 2021, versus 2020, highlighting significant increases in R&D and G&A expenses, leading to higher net losses [Comparison of Three and Nine Months Ended September 30, 2021 and 2020](index=27&type=section&id=Comparison%20of%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) The company's net loss increased significantly for both the three and nine months ended September 30, 2021, primarily driven by higher research and development and general and administrative expenses Operating Results Comparison (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (3 Months) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (9 Months) | | :----- | :-------------------------- | :-------------------------- | :---------------- | :-------------------------- | :-------------------------- | :---------------- | | Research and development | $15,284 | $7,893 | $7,391 | $26,101 | $11,195 | $14,906 | | General and administrative | $3,154 | $591 | $2,563 | $7,334 | $2,311 | $5,023 | | Total operating expenses | $18,438 | $8,484 | $9,954 | $33,435 | $13,506 | $19,929 | | Net loss | $(18,426) | $(10,446) | $(7,980) | $(33,409) | $(15,640) | $(17,769) | [Research and Development Expenses](index=27&type=section&id=Research%20and%20Development%20Expenses) R&D expenses increased significantly for both the three and nine months ended September 30, 2021, primarily due to a $5.5 million milestone payment to Daiichi Sankyo, increased costs for the milademetan Phase 3 study, and higher personnel costs, including stock-based compensation - R&D expenses increased by **$7.4 million** (3 months) and **$14.9 million** (9 months) YoY[136](index=136&type=chunk)[137](index=137&type=chunk) - Increase primarily due to **$5.5 million** milestone fees to Daiichi Sankyo and increased costs for the milademetan Phase 3 pivotal study[136](index=136&type=chunk)[137](index=137&type=chunk) - Non-cash stock-based compensation in R&D was **$0.7 million** (3 months) and **$1.4 million** (9 months) in 2021, up from **$0.2 million** and **$0.4 million** in 2020, respectively[136](index=136&type=chunk)[137](index=137&type=chunk) [General and Administrative Expenses](index=27&type=section&id=General%20and%20Administrative%20Expenses) G&A expenses rose substantially for both periods in 2021, driven by increased third-party costs (legal, consulting, accounting, audit) associated with public company compliance and growth in headcount and related personnel costs - G&A expenses increased by **$2.6 million** (3 months) and **$5.0 million** (9 months) YoY[138](index=138&type=chunk)[139](index=139&type=chunk) - Increase primarily due to higher third-party G&A costs (legal, consulting, accounting, audit) related to public company compliance and increased headcount[138](index=138&type=chunk)[139](index=139&type=chunk) - Non-cash stock-based compensation in G&A was approximately **$0.1 million** (3 months) and **$0.4 million** (9 months) in 2021, up from **$0.1 million** and **$0.2 million** in 2020, respectively[138](index=138&type=chunk)[139](index=139&type=chunk) [Other (Income) Expense](index=28&type=section&id=Other%20(Income)%20Expense) Other income (expense), net, for both periods in 2021 and 2020, primarily reflects interest income, interest expense on convertible promissory notes, and changes in their fair value, with nominal amounts in 2021 - Other income (expense), net, includes interest income, interest expense on convertible promissory notes, and changes in their fair value[141](index=141&type=chunk) - Nominal amounts for other income (expense) in 2021 compared to 2020, which included significant changes in fair value of convertible promissory notes[141](index=141&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company has incurred significant operating losses and expects this to continue, requiring additional capital for R&D and public company operations. It raised $121.5 million net from its April 2021 IPO, bringing cash, cash equivalents, and short-term investments to $150.1 million as of September 30, 2021, which is estimated to fund operations for at least the next twelve months - Incurred significant operating losses since inception and expects to continue incurring losses[142](index=142&type=chunk) - Raised **$121.5 million** net proceeds from IPO in April 2021[143](index=143&type=chunk) - Cash, cash equivalents, and short-term investments totaled **$150.1 million** as of September 30, 2021[143](index=143&type=chunk) - Existing capital is estimated to be sufficient for at least the next twelve months, but additional capital will be required for future R&D[143](index=143&type=chunk) [Future Funding Requirements](index=28&type=section&id=Future%20Funding%20Requirements) The company anticipates substantial increases in expenses for ongoing and new clinical trials for milademetan, preclinical research for RAD52, and general public company operating costs. Future capital needs are highly dependent on development progress, regulatory outcomes, and potential collaborations, with no assurance of profitability or positive cash flow - Expenses are expected to increase substantially due to ongoing and new clinical trials for milademetan, preclinical research for RAD52, and public company operating costs[144](index=144&type=chunk) - Future capital requirements depend on the scope, progress, and costs of clinical trials, regulatory review, intellectual property, and potential acquisitions/collaborations[146](index=146&type=chunk) - Development is lengthy, expensive, and uncertain; no assurance of marketing approval or commercial success[147](index=147&type=chunk) - Will need substantial additional funds, potentially through equity/debt financings or collaborations, which may dilute stockholders or involve relinquishing rights[149](index=149&type=chunk) [Cash Flows](index=30&type=section&id=Cash%20Flows) Net cash used in operating activities increased significantly to $27.7 million for the nine months ended September 30, 2021, primarily due to higher net loss and R&D expenses. Investing activities used $139.5 million, mainly for short-term investments. Financing activities provided $121.6 million, predominantly from the IPO Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :------- | :-------------------------- | :-------------------------- | | Operating activities | $(27,704) | $(6,775) | | Investing activities | $(139,480) | $(5,156) | | Financing activities | $121,579 | $69,518 | | Net (decrease) increase in cash and cash equivalents | $(45,605) | $57,587 | [Operating Activities](index=30&type=section&id=Operating%20Activities) Net cash used in operating activities for the nine months ended September 30, 2021, was $27.7 million, primarily driven by a net loss of $33.4 million from R&D and G&A expenses, partially offset by non-cash adjustments and changes in operating assets/liabilities - Net cash used in operating activities was **$27.7 million** for the nine months ended September 30, 2021, primarily due to a **$33.4 million** net loss[151](index=151&type=chunk) - Net cash used in operating activities was **$6.8 million** for the nine months ended September 30, 2020, due to a **$15.6 million** net loss[152](index=152&type=chunk) [Investing Activities](index=30&type=section&id=Investing%20Activities) Net cash used in investing activities for the nine months ended September 30, 2021, was $139.5 million, mainly due to $136.9 million in purchases of available-for-sale securities and a $2.5 million payment for in-process R&D - Net cash used in investing activities was **$139.5 million** for the nine months ended September 30, 2021[153](index=153&type=chunk) - This includes **$136.9 million** for purchases of short-term investments and **$2.5 million** for in-process R&D expense[153](index=153&type=chunk) [Financing Activities](index=31&type=section&id=Financing%20Activities) Net cash provided by financing activities for the nine months ended September 30, 2021, was $121.5 million, primarily from the net proceeds of the IPO. In the prior year, financing was mainly from convertible promissory notes and preferred stock issuance - Net cash provided by financing activities was **$121.5 million** for the nine months ended September 30, 2021, primarily from IPO net proceeds[154](index=154&type=chunk) - Net cash provided by financing activities was **$69.5 million** for the nine months ended September 30, 2020, from convertible promissory notes (**$6.4 million**) and preferred stock issuance (**$63.2 million**)[155](index=155&type=chunk) [Contractual Obligations and other Commitments](index=31&type=section&id=Contractual%20Obligations%20and%20other%20Commitments) There were no material changes to the company's principal contractual obligations and commitments during the period ended September 30, 2021, compared to those reported in its IPO prospectus - No material changes to contractual obligations and commitments during the period ended September 30, 2021[156](index=156&type=chunk) [Critical Accounting Policies and Use of Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) There have been no significant changes to the company's critical accounting policies from those disclosed in its IPO prospectus, except as noted in Note 2 of the condensed financial statements - No significant changes to critical accounting policies, except as described in Note 2[157](index=157&type=chunk) [Emerging Growth Company Status](index=31&type=section&id=Emerging%20Growth%20Company%20Status) The company is an "emerging growth company" under the JOBS Act, allowing it to take advantage of reduced reporting requirements, including an extended transition period for new accounting standards and exemption from auditor attestation of internal control over financial reporting. This status will continue until December 31, 2026, or earlier if certain revenue or market capitalization thresholds are met - The company is an "emerging growth company" (EGC) under the JOBS Act[158](index=158&type=chunk) - Elected to use the extended transition period for complying with new or revised accounting standards[158](index=158&type=chunk) - Exempt from auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b)[158](index=158&type=chunk) - EGC status will continue until the earliest of December 31, 2026, or meeting certain revenue/market value thresholds[159](index=159&type=chunk) [Recent Accounting Pronouncements](index=31&type=section&id=Recent%20Accounting%20Pronouncements) A description of recent accounting pronouncements that may impact the company's financial position, results of operations, or cash flows is provided in Note 2 to the unaudited condensed financial statements - Recent accounting pronouncements are discussed in Note 2 of the unaudited condensed financial statements[160](index=160&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) The company did not have any off-balance sheet arrangements during the periods presented or currently - No off-balance sheet arrangements existed during the periods presented or currently[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Rain Therapeutics Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[162](index=162&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and Chief Accounting Officer, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021. No material changes in internal control over financial reporting were identified during the quarter [Limitations on Effectiveness of Controls and Procedures](index=32&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) Management acknowledges that controls and procedures, regardless of design, can only provide reasonable assurance of achieving objectives due to inherent limitations and resource constraints requiring judgment in cost-benefit evaluation - Controls and procedures provide only reasonable assurance due to inherent limitations and resource constraints[163](index=163&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=32&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and Chief Accounting Officer evaluated the effectiveness of disclosure controls and procedures as of September 30, 2021, and concluded they were effective at the reasonable assurance level - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2021[164](index=164&type=chunk) [Changes in Internal Control over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No changes in internal control over financial reporting were identified during the quarter ended September 30, 2021, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[165](index=165&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings - No legal proceedings were reported[167](index=167&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 - No material changes to risk factors from the prior Quarterly Report on Form 10-Q for Q1 2021[168](index=168&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company completed its IPO on April 27, 2021, issuing 7,352,941 shares of common stock at $17.00 per share, plus an additional 492,070 shares from the underwriters' option, generating net proceeds of $121.5 million. These proceeds are being used to fund clinical trials for milademetan (Phase 3 in LPS, Phase 2 tumor-agnostic, and Phase 2 in MCC, replacing intimal sarcoma), manufacturing, and general corporate purposes - IPO completed on April 27, 2021, with 7,352,941 shares sold at $17.00/share, plus 492,070 shares from underwriters' option[169](index=169&type=chunk) - Net proceeds from IPO totaled approximately **$121.5 million**[171](index=171&type=chunk) - Proceeds are used to fund a pivotal Phase 3 trial in LPS, a Phase 2 tumor-agnostic basket trial, and a Phase 2 trial in Merkel cell carcinoma (replacing intimal sarcoma) for milademetan, as well as manufacturing and general corporate purposes[172](index=172&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[173](index=173&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures - No mine safety disclosures were reported[174](index=174&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) The company reported no other information - No other information was reported[174](index=174&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including organizational documents, investor agreements, certifications, and XBRL documents - Lists exhibits filed or furnished, including Amended and Restated Certificate of Incorporation, Bylaws, Form of Common Stock Certificate, Investors' Rights Agreement, Executive Severance Plan, and various certifications and XBRL documents[177](index=177&type=chunk) [Signatures](index=35&type=section&id=Signatures) The report is duly signed on behalf of Rain Therapeutics Inc. by its Chairman and Chief Executive Officer, Avanish Vellanki, and its Senior Vice President of Finance and Administration, Nelson Cabatuan, on November 10, 2021 - Report signed by Avanish Vellanki (Chairman and CEO) and Nelson Cabatuan (SVP of Finance and Administration) on November 10, 2021[181](index=181&type=chunk)