Rani Therapeutics Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Rani is a clinical-stage biotherapeutics company developing the RaniPill capsule, intended to deliver biologics orally. It has no approved products and has not generated product-sale revenue. RT-101 is its lead candidate; other programs remain in preclinical development.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Contract revenue | $0 | $0.1m | $2.7m | $0.3m |
| Research and development | $12.0m | $2.1m | $19.1m | $8.7m |
| General and administrative | $15.8m | $0.8m | $21.9m | $3.1m |
| Total operating expenses | $27.8m | $2.9m | $41.0m | $11.9m |
| Consolidated net loss | $28.7m | $2.9m | $39.8m | $10.9m |
| Cash used in operations | Not separately presented for the quarter | $20.8m | $8.3m |
Gross or operating margins are not meaningful given the absence of product sales. The reported Q3 and nine-month consolidated losses include substantial losses allocated to non-controlling interests. Since the August IPO, $3.1m of the nine-month loss was attributable to Rani Therapeutics Holdings, Inc.; reported basic and diluted loss per Class A share was $0.16 for the post-IPO period.
- Liquidity: Cash and cash equivalents were $129.7m at September 30, 2021, versus $73.1m at December 31, 2020. Management expects available cash to fund operations and capital needs for at least 12 months from issuance of the statements.
- Cash flows, nine months: Investing activities used $0.2m; financing activities provided $77.7m, primarily reflecting the IPO and preferred-unit proceeds, partly offset by debt repayments.
- Debt: No debt remained at September 30. The company repaid the $3.0m Avenue loan in July and the approximately $1.3m PPP loan in September. Avenue repayment and fees produced a $0.7m extinguishment loss.
Changes and unusual items
- Operating expenses and losses rose sharply year over year. Management attributed much of the increase to higher headcount, greater R&D activity, public-company costs, and IPO-related equity compensation. Equity-based compensation was $18.7m in Q3 and $19.0m for the first nine months; it is a substantial non-cash expense.
- Takeda gave notice in May 2021 that it intended to terminate its evaluation agreement. Rani recognized the remaining $2.0m of deferred revenue in Q2; there was no Takeda revenue in Q3 and no active evaluation agreement at September 30.
- The August IPO raised approximately $73.6m net, according to the filing. The IPO and organizational transactions converted the former LLC structure into a public holding-company structure; continuing LLC owners retained substantial interests and voting power.
Outlook, risks and contingencies
Management expects continued operating losses and negative operating cash flows as it develops the RaniPill platform. It provided no specific revenue or earnings guidance. The filing describes plans to initiate Phase 1 trials for certain candidates in 2022 and 2023, subject to development and regulatory progress; it also states that existing resources will not fund pivotal trials and that additional capital will be needed over time.
- Key risks include clinical and regulatory uncertainty, manufacturing scale-up and reliance on third-party suppliers, potential delays from COVID-19, competition, and the need for future financing.
- Novo Nordisk has asserted several European Patent Office opposition proceedings. Management said a loss was not considered probable or reasonably estimable, but the outcome could affect commercialization in Europe.
- Related-party arrangements include services and facility use through ICL, an entity affiliated with the Executive Chairman. The tax receivable agreement provides for payment to certain continuing LLC owners of 85% of specified tax benefits; no liability was recorded because no triggering exchanges had occurred.
- The dual-class structure gives Class B shares ten votes per share. The filing reports that Class B holders held approximately 94% of voting power, concentrating control and limiting public-stockholder influence.
Most important facts for investors to verify
- Cash runway against the reported $20.8m nine-month operating cash use and anticipated development spending.
- Clinical progress, trial timing and data for RT-101 and other candidates, and the assumptions behind planned 2022–2023 trials.
- How much the large IPO-related equity-compensation charge affects comparisons of underlying operating costs, and the expected future compensation expense.
- Potential future financing needs, dilution, and the effects of the LLC exchange structure, concentrated voting control and tax receivable agreement.
- Status and potential consequences of the Novo Nordisk patent oppositions, as well as the company’s dependence on ICL and other third parties.