Rain Oncology (RAIN) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Rain Oncology Inc., including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with their accompanying notes. The financial data highlights a decrease in total assets and stockholders' equity, an increase in net loss, and significant cash usage in operating activities for the three months ended March 31, 2023, compared to the prior year Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and stockholders' equity from December 31, 2022, to March 31, 2023, primarily driven by a reduction in cash, cash equivalents, and short-term investments, alongside an increased accumulated deficit | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $114,178 | $135,180 | | Total liabilities | $19,621 | $22,144 | | Total stockholders' equity | $94,557 | $113,036 | | Cash and cash equivalents | $44,100 | $61,955 | | Short-term investments | $65,670 | $68,499 | | Accumulated deficit | $(186,172) | $(165,688) | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported an increased net loss for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to higher operating expenses, particularly in research and development and general and administrative costs. Interest income saw a substantial increase | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $16,677 | $13,555 | | General and administrative | $5,066 | $3,895 | | Total operating expenses | $21,743 | $17,450 | | Loss from operations | $(21,743) | $(17,450) | | Interest income | $1,259 | $56 | | Net loss | $(20,484) | $(17,394) | | Net loss per share | $(0.56) | $(0.66) | - Interest income increased significantly from $56 thousand in Q1 2022 to $1,259 thousand in Q1 2023[9] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $113.0 million at December 31, 2022, to $94.6 million at March 31, 2023, primarily due to the net loss incurred during the period, partially offset by stock-based compensation and equity financings | Item (in thousands) | December 31, 2022 | March 31, 2023 | | :------------------ | :---------------- | :------------- | | Total Stockholders' Equity | $113,036 | $94,557 | | Net loss | — | $(20,484) | | Stock-based compensation expense | — | $1,568 | | Additional paid-in capital | $278,853 | $280,739 | Condensed Consolidated Statements of Cash Flows Cash and cash equivalents decreased significantly due to increased net cash used in operating activities and a reduction in cash provided by investing activities, despite a slight increase in cash from financing activities | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(21,839) | $(17,110) | | Net cash provided by investing activities | $3,518 | $13,436 | | Net cash provided by financing activities | $466 | $399 | | Net decrease in cash and cash equivalents | $(17,855) | $(3,275) | | Cash and cash equivalents at end of period | $44,100 | $21,505 | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed information on the company's organization, significant accounting policies, fair value measurements, investments, balance sheet details, stockholders' equity, license agreements, commitments, employee benefits, and net loss per share, offering context to the condensed consolidated financial statements Note 1 – Organization and Nature of Operations Rain Oncology Inc. is a late-stage precision oncology company focused on developing therapies targeting oncogenic drivers, with its lead product candidate, milademetan, an MDM2-p53 complex inhibitor. The company changed its name from Rain Therapeutics Inc. in December 2022 and has incurred significant operating losses since inception, funding operations through equity offerings and convertible notes, with current capital expected to last at least twelve months - Rain Oncology Inc. is a late-stage precision oncology company developing therapies that target oncogenic drivers, with its lead product candidate, milademetan, a small molecule, oral inhibitor of the MDM2-p53 complex[17] - The company changed its name from 'Rain Therapeutics Inc.' to 'Rain Oncology Inc.' effective December 30, 2022[19] - The company has incurred net losses and negative cash flows from operating activities since its inception and expects current cash, cash equivalents, and short-term investments to provide sufficient funds for at least twelve months from the filing date[21][22] Note 2 – Summary of Significant Accounting Policies This note outlines the company's key accounting policies, including the use of estimates (primarily for clinical trial accruals), classification of cash equivalents and available-for-sale investments, treatment of credit losses, expensing of research and development costs, and methods for stock-based compensation and income taxes. The adoption of ASU 2016-13 on credit losses in January 2023 did not have a significant impact - The most significant estimate in the financial statements relates to clinical trial expense accruals[23] - Available-for-sale securities are classified as current assets, and unrealized gains and losses are reported in accumulated other comprehensive loss[25][26] - The company adopted ASU 2016-13, Financial Instruments—Credit Losses, on January 1, 2023, which did not have a significant impact on its condensed consolidated financial statements[37] Note 3 – Fair Value Measurements The company measures financial assets at fair value using a three-tier hierarchy. Money market funds and U.S. government securities are classified as Level 1, while commercial paper, corporate debt securities, and U.S. agency bonds are Level 2. There were no Level 3 assets or transfers between levels during the period - Money market funds and U.S. government securities are classified as Level 1 investments, while commercial paper, corporate debt securities, and U.S. agency bonds are classified as Level 2[41][42] | Category (in thousands) | March 31, 2023 Total Fair Value | December 31, 2022 Total Fair Value | | :---------------------- | :------------------------------ | :------------------------------ | | Money market funds | $6,439 | $8,528 | | Commercial paper | $54,191 | $83,423 | | U.S. government securities | $5,665 | $10,837 | | U.S. agency bonds | $42,946 | $22,143 | | Corporate debt securities | — | $997 | | Total cash equivalents and short-term investments | $109,241 | $125,928 | Note 4 – Investments The company's available-for-sale (AFS) securities consist of various investment-grade instruments. As of March 31, 2023, $58.2 million of marketable securities were in gross unrealized loss positions, primarily due to interest rate changes, with no intent to sell before maturity and no allowance for credit losses | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Amortized Cost | $109,288 | $126,094 | | Unrealized Gains | $13 | $15 | | Unrealized Losses | $(60) | $(181) | | Estimated Fair Value | $109,241 | $125,928 | - As of March 31, 2023, $58.2 million of marketable securities were in gross unrealized loss positions, primarily due to changes in interest rates, not increased credit risks[48][49] - The company does not intend to sell its AFS investments before maturity and has no allowance for credit losses[49] Note 5 - Condensed Consolidated Balance Sheet Details This note provides a breakdown of specific balance sheet accounts. Prepaid and other current assets remained stable, while property and equipment, net, slightly decreased. Other non-current assets also decreased, and other accrued liabilities saw a notable reduction, mainly due to a decrease in accrued bonus | Account (in thousands) | March 31, 2023 | December 31, 2022 | | :--------------------- | :------------- | :---------------- | | Prepaid and other current assets | $3,205 | $3,174 | | Property and equipment, net | $75 | $93 | | Other non-current assets | $904 | $1,201 | | Other accrued liabilities | $3,849 | $6,424 | | Accrued bonus | $1,015 | $3,379 | - Depreciation and amortization expense for the three months ended March 31, 2023, was $18 thousand[52] Note 6 – Stockholders' Equity The company's capital structure includes common stock (voting and non-voting) and preferred stock. Details on equity incentive plans (2021 Plan and ESPP) show automatic annual increases in reserved shares. Stock-based compensation expense increased, and a significant amount of unrecognized compensation cost remains - The company's capital stock consists of 250,000,000 shares of common stock (200,000,000 voting, 50,000,000 non-voting) and 10,000,000 shares of undesignated preferred stock[55] - The 2021 Equity Incentive Plan automatically increased shares reserved by 1,451,611 on January 1, 2023, and the ESPP increased by 362,902 shares on the same date[62][65] | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total stock-based compensation expense | $1,568 | $1,242 | | Unrecognized compensation cost (as of March 31, 2023) | $19,400 | — | | Weighted average period for recognition (as of March 31, 2023) | 2.9 years | — | Note 7 – License Agreements The company holds an exclusive worldwide license for milademetan from Daiichi Sankyo, involving potential future milestone payments up to $223.5 million and high single-digit royalties. The preclinical RAD52 program under the Drexel license was discontinued in February 2023 to prioritize milademetan. A clinical supply agreement with Roche provides atezolizumab for combination trials with no financial commitments - The company licensed worldwide rights to milademetan from Daiichi Sankyo, with aggregate future milestone payments of up to $223.5 million and high single-digit royalties on net sales[74][77][80] - The preclinical program targeting RAD52 under the Drexel license agreement was discontinued in February 2023 to focus resources on the milademetan clinical program[82] - A clinical supply agreement with Roche provides atezolizumab for planned combination trials with milademetan, with Rain as the sponsor and no financial commitments to Roche[83] Note 8 – Commitments and Contingencies The company has an operating lease for its corporate headquarters, which was amended to expand premises and extend the term to September 2024. Future minimum lease payments total $258 thousand, with $164 thousand classified as current. Operating lease expense was $40 thousand for both Q1 2023 and Q1 2022 - The company's operating lease for its corporate headquarters extends until September 2024, with amendments in October 2022 and March 2023 for premises expansion[84][85][86][87] | Lease Payments (in thousands) | As of March 31, 2023 | | :---------------------------- | :------------------- | | Total minimum lease payments | $258 | | Operating lease liabilities, current portion | $164 | | Operating lease liabilities, non-current portion | $77 | - Total operating lease expense was $40 thousand for both the three months ended March 31, 2023, and 2022[89] Note 9 – Employee Benefits The company offers a 401(k) plan to eligible employees, with discretionary matching contributions. Company matching contributions significantly increased to $433,630 for the three months ended March 31, 2023, from $75,000 in the prior year period | 401(k) Contributions | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Company matching contributions | $433,630 | $75,000 | Note 10 – Net Loss Per Share Basic and diluted net loss per share were $(0.56) for Q1 2023, an improvement from $(0.66) in Q1 2022, despite a higher net loss, due to an increase in weighted-average shares outstanding. Potentially dilutive securities, including stock options, RSUs, and ESPP shares, were excluded as their inclusion would be anti-dilutive | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(20,484) | $(17,394) | | Weighted-average shares outstanding | 36,339,851 | 26,511,743 | | Net loss per share, basic and diluted | $(0.56) | $(0.66) | - Potentially dilutive securities, including 3,750,834 stock options, 104,027 restricted stock units, and 30,993 ESPP shares as of March 31, 2023, were excluded from diluted net loss per share calculation as they were anti-dilutive[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results. It highlights the company's focus on its lead product candidate, milademetan, and its clinical development progress, while also discussing significant operating losses, liquidity challenges, and future funding requirements. Key financial changes include increased R&D and G&A expenses, a higher net loss, and a decrease in cash and investments Overview Rain Oncology Inc. is a late-stage precision oncology company with a tumor-agnostic strategy, focusing on its lead product candidate, milademetan, an MDM2-p53 inhibitor. The company has incurred significant operating losses and accumulated a deficit of $186.2 million as of March 31, 2023, but believes its $109.8 million in cash, cash equivalents, and short-term investments will be sufficient for at least the next twelve months, though additional capital will be required for future development - Rain Oncology is a late-stage precision oncology company developing therapies targeting oncogenic drivers using a tumor-agnostic strategy[95] - The lead product candidate, milademetan, is an oral, small molecule inhibitor of the MDM2-p53 complex, with a pivotal Phase 3 trial (MANTRA) in LPS and a Phase 2 tumor-agnostic basket trial (MANTRA-2) underway. A Phase 1/2 combination trial (MANTRA-4) is planned for mid-2023[96] - As of March 31, 2023, the company had an accumulated deficit of $186.2 million and cash, cash equivalents, and short-term investments of $109.8 million, which are estimated to be sufficient for at least the next twelve months, but additional capital will be required[97] Recent Developments The company expects to release topline data from its MANTRA Phase 3 trial for DDLPS in the second quarter of 2023 and plans to initiate a Phase 1/2 MANTRA-4 clinical trial for milademetan in combination with atezolizumab in mid-2023 - Topline data from the MANTRA Phase 3 registrational trial for DDLPS is expected in the second quarter of 2023[100] - A Phase 1/2 MANTRA-4 clinical trial evaluating milademetan in combination with atezolizumab for CDKN2A loss and wildtype p53 advanced solid tumors is anticipated to commence in mid-2023[100] Our Development Pipeline The company's development pipeline is centered on milademetan (RAIN-32), with ongoing clinical trials including the MANTRA Phase 3 trial for DD Liposarcoma (data expected 2Q 2023), the MANTRA-2 Phase 2 MDM2-amplified Basket trial (enrolling), and the planned MANTRA-4 Phase 1/2 trial for CDKN2A loss, p53 WT Advanced Solid Tumors in combination with atezolizumab (planned mid-2023) | INDICATION | TRIAL | STATUS | PLANNED DATA | | :-------------------------------- | :------ | :-------------------- | :----------- | | DD Liposarcoma | MANTRA | Enrollment Completed | 2Q 2023 | | MDM2-amp Basket | MANTRA-2 | Enrolling | | | CDKN2A loss, p53 WT Adv Solid Tumors | MANTRA-4 | Planned: Mid 2023 | | Our Lead Product Candidate, Milademetan Milademetan is an oral MDM2 inhibitor designed to reactivate p53, the 'guardian of the genome,' by preventing the formation of the MDM2-p53 complex. Its optimized dosing schedule aims to mitigate dose-limiting hematologic toxicities, potentially broadening its application across MDM2-dependent cancers - Milademetan is a small molecule, oral inhibitor of MDM2, designed to reactivate p53 by preventing the formation of the MDM2-p53 complex[103][105][106] - The optimized dosing schedule for milademetan aims to improve peak drug exposure while minimizing hematologic toxicity, potentially applicable to various MDM2-dependent cancer types[104] Clinical Development Plan The clinical development plan for milademetan includes the MANTRA Phase 3 trial for DDLPS, which completed enrollment in August 2022 with topline data expected in Q2 2023. The MANTRA-2 Phase 2 tumor-agnostic basket trial is enrolling patients with MDM2-amplified solid tumors, showing preliminary anti-tumor activity. A Phase 1/2 MANTRA-4 trial combining milademetan with atezolizumab for CDKN2A loss and wildtype p53 advanced solid tumors is planned for mid-2023 - The MANTRA Phase 3 trial for DDLPS completed enrollment in August 2022, with topline data expected in the second quarter of 2023[109] - Preliminary data from the MANTRA-2 Phase 2 trial in MDM2-amplified solid tumors showed two unconfirmed partial responses (pancreatic and lung cancer) and promising activity in two other patients (biliary tract and breast cancer) among 10 efficacy-evaluable patients[113] - The MANTRA-4 Phase 1/2 basket trial, evaluating milademetan in combination with atezolizumab for CDKN2A loss and wildtype p53 advanced solid tumors, is anticipated to start in mid-2023[116] Components of Our Results of Operations The company has not generated any revenue from product sales or collaborations to date and does not expect to in the foreseeable future. Operating expenses consist solely of research and development (R&D) and general and administrative (G&A) costs, both of which are expected to increase as product candidates advance through development and the company expands its operations as a public entity. Interest income is derived from available-for-sale securities - The company has not generated any revenue from product sales, licenses, or collaborations since inception and does not expect to in the foreseeable future[118] - Operating expenses are comprised of research and development costs (expensed as incurred) and general and administrative costs, both of which are anticipated to increase[119][120][124] | R&D Expense Category (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Milademetan | $7,994 | $8,551 | | Other research and clinical candidates | $68 | $250 | | Unallocated internal R&D costs | $8,615 | $4,754 | | Total research and development expenses | $16,677 | $13,555 | Results of Operations For the three months ended March 31, 2023, total operating expenses increased to $21.7 million from $17.5 million in the prior year, driven by higher R&D and G&A costs. Net loss increased to $20.5 million from $17.4 million, despite a significant increase in interest income | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (in thousands) | | :-------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Research and development | $16,677 | $13,555 | $3,122 | | General and administrative | $5,066 | $3,895 | $1,171 | | Total operating expenses | $21,743 | $17,450 | $4,293 | | Interest income | $1,259 | $56 | $1,203 | | Net loss | $(20,484) | $(17,394) | $(3,090) | - The increase in R&D expenses was primarily due to clinical trial costs for milademetan and higher payroll-related costs for R&D personnel[127] - The increase in G&A expenses was mainly due to higher professional services costs ($0.5 million), legal costs ($0.4 million), and payroll-related costs ($0.1 million)[128] Liquidity and Capital Resources The company has historically incurred significant operating losses and expects this trend to continue, necessitating additional capital for future R&D and operations. As of March 31, 2023, cash, cash equivalents, and short-term investments totaled $109.8 million, projected to fund operations for at least twelve months. Future funding will likely come from equity or debt financings, or strategic collaborations, with potential risks of dilution or unfavorable terms - The company has incurred significant operating losses since inception and expects to continue incurring substantial expenses and losses for the foreseeable future[130] - As of March 31, 2023, cash, cash equivalents, and short-term investments totaled $109.8 million, which management believes will be sufficient to meet obligations for at least the next twelve months[134] - Future funding requirements are substantial and will depend on the progress of clinical trials, regulatory approvals, commercialization efforts, and intellectual property protection, with financing expected through equity offerings, debt, or collaborations[135][137][141] Cash Flows Net cash used in operating activities increased to $21.8 million for Q1 2023, primarily due to a higher net loss. Net cash provided by investing activities decreased to $3.5 million, while net cash provided by financing activities slightly increased to $0.5 million, mainly from the ATM facility and equity incentive plans | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(21,839) | $(17,110) | | Net cash provided by investing activities | $3,518 | $13,436 | | Net cash provided by financing activities | $466 | $399 | - Net cash used in operating activities increased primarily due to a higher net loss[143][145] - Net cash provided by financing activities for Q1 2023 included $0.3 million from the ATM Facility and $0.2 million from option exercises and ESPP purchases[148] Obligations and other Commitments The company has license agreements that may require future milestone and royalty payments, which are contingent and cancelable. Contracts with CROs and other vendors for R&D generally lack minimum purchase commitments and are cancelable. Accrued research and development obligations were $8.0 million as of March 31, 2023 - License agreements may require future milestone and royalty payments contingent on development, regulatory, and commercial achievements, but are cancelable by the company[150] - Contracts with CROs and other vendors for R&D generally do not contain minimum purchase commitments and are cancelable[151] - Incurred and accrued research and development obligations were $8.0 million as of March 31, 2023, a slight decrease from $8.2 million at December 31, 2022[151][155] Critical Accounting Policies and Use of Estimates There have been no significant changes to critical accounting policies or estimates since the 2022 10-K, except as noted in Note 2. Key estimates include accrued research and development costs, which are based on contract progress and communication with personnel, and stock-based compensation, valued using the Black-Scholes model for options and closing stock price for RSUs - No significant changes to critical accounting policies and use of estimates from the 2022 Annual Report on Form 10-K, except as described in Note 2[153] - Accrued research and development expenses are estimated based on contract terms and progress, with no material differences experienced between accrued and actual costs to date[154][155] - Stock-based compensation expense is recognized over the vesting period, with stock options valued using the Black-Scholes model and RSUs based on the closing stock price on the grant date[156][157][158] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Rain Oncology Inc. is not required to provide quantitative and qualitative disclosures about market risk - Rain Oncology Inc. is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[161] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023. No material changes in internal control over financial reporting were identified during the quarter - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023[163] - No changes in internal control over financial reporting were identified during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[164] PART II. OTHER INFORMATION Item 1. Legal Proceedings There are no legal proceedings to report for the period - No legal proceedings were reported[167] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes from the risk factors disclosed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022[168] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds were reported[169] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report - No defaults upon senior securities were reported[170] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - No mine safety disclosures were reported[171] Item 5. Other Information No other information is required to be disclosed in this section - No other information was reported[172] Item 6. Exhibits This section lists all exhibits filed or furnished as part of this Quarterly Report on Form 10-Q, including organizational documents, equity incentive plans, lease agreements, and certifications - The exhibits include the Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, various forms of 2021 Equity Incentive Plan Grant Notices, the Third Amendment to Office Lease Agreement, and certifications from the principal executive and financial officers[174]