stok-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from __________ to ____________

Commission File Number: 001-38938

 

Stoke Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1144582

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

45 Wiggins Ave

Bedford, Massachusetts

01730

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) 430-8200

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

STOK

 

Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

As of August 14, 2019, the registrant had 32,718,134 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

Signatures

63

 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective products, planned preclinical studies and clinical or field trials, regulatory approvals, research and development costs, and timing and likelihood of success, as well as plans and objectives of management for future operations, may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A “Risk Factors.” These risks and uncertainties include, but are not limited to:

 

our ability to become profitable;

 

our ability to procure sufficient funding;

 

our limited operating history;

 

our ability to develop, obtain regulatory approval for and commercialize STK-001 and our future product candidates;

 

our success in early preclinical studies or clinical trials, which may not be indicative of results obtained in later studies or trial;

 

our ability to obtain regulatory approval to commercialize STK-001 or any other future product candidate;

 

our ability to identify patients with the diseases treated by STK-001 or our future product candidates, and to enroll patients in trials;

 

the success of our efforts to use TANGO to expand our pipeline of product candidates and develop marketable products;

 

our ability to obtain, maintain and protect our intellectual property;

 

our reliance upon intellectual property licensed from third parties;

 

our ability to identify, recruit and retain key personnel;

 

our financial performance; and

 

developments or projections relating to our competitors or our industry.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Stoke Therapeutics, Inc.

Condensed consolidated balance sheets

(in thousands, except share and per share amounts)

 

 

 

(unaudited)

 

 

(audited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

242,680

 

 

$

105,399

 

Prepaid expenses and other current assets

 

 

1,505

 

 

 

548

 

Interest receivable

 

260

 

 

 

196

 

Total current assets

 

$

244,445

 

 

$

106,143

 

Restricted cash

 

205

 

 

 

204

 

Property and equipment, net

 

 

1,722

 

 

 

1,192

 

Total assets

 

$

246,372

 

 

$

107,539

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,238

 

 

$

1,071

 

Accrued and other current liabilities

 

 

3,580

 

 

 

1,396

 

Total current liabilities

 

$

4,818

 

 

$

2,467

 

Long term liabilities

 

 

18

 

 

 

4

 

Total liabilities

 

$

4,836

 

 

$

2,471

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred Stock, par value of $0.0001 per share; 10,000,000 shares

   authorized, none issued and outstanding as of June 30, 2019; and

   none authorized as of December 31, 2018

 

 

 

 

 

 

Convertible Preferred Stock, par value of $0.0001 per share; no shares authorized,

   issued or outstanding at June 30, 2019; 22,677,585 shares issued and outstanding

   as of December 31, 2018; aggregate liquidation preference of $130,850 at

   December 31, 2018

 

 

 

 

 

2

 

Common stock, par value of $0.0001 per share; 300,000,000 shares

   authorized, 32,674,565 and 727,413 shares issued and outstanding as

   of June 30, 2019 and December 31, 2018, respectively

 

 

3

 

 

 

 

Additional paid-in capital

 

 

280,804

 

 

 

130,776

 

Accumulated deficit

 

 

(39,271

)

 

 

(25,710

)

Total stockholders’ equity

 

$

241,536

 

 

$

105,068

 

Total liabilities and stockholders’ equity

 

$

246,372

 

 

$

107,539

 

 

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

 

 

4


Stoke Therapeutics, Inc.

Condensed consolidated statements of operations and comprehensive loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,023

 

 

 

1,888

 

 

 

10,156

 

 

 

3,140

 

General and administrative

 

 

2,422

 

 

 

1,122

 

 

 

4,611

 

 

 

1,782

 

Total operating expenses

 

 

8,445

 

 

 

3,010

 

 

 

14,767

 

 

 

4,922

 

Loss from operations

 

 

(8,445

)

 

 

(3,010

)

 

 

(14,767

)

 

 

(4,922

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

629

 

 

 

 

 

 

1,210

 

 

 

 

Other expense, net

 

 

(3

)

 

 

 

 

 

(4

)

 

 

 

Total other income (expense)

 

 

626

 

 

 

 

 

 

1,206

 

 

 

 

Net loss

 

$

(7,819

)

 

$

(3,010

)

 

$

(13,561

)

 

$

(4,922

)

Net loss per share attributable to common stockholders, basic

   and diluted

 

$

(1.54

)

 

$

(4.36

)

 

$

(4.57

)

 

$

(7.14

)

Weighted-average common shares outstanding, basic and diluted

 

 

5,083,620

 

 

 

691,212

 

 

 

2,970,292

 

 

 

689,112

 

 

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

5


Stoke Therapeutics, Inc.

Condensed consolidated statements of stockholders’ equity

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance as of December 31, 2018

 

 

22,677,585

 

 

$

2

 

 

 

727,413

 

 

$

 

 

$

130,776

 

 

$

(25,710

)

 

$

105,068

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,742

)

 

 

(5,742

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

181

 

 

 

 

 

 

181

 

Issuance of common stock upon exercise of

  stock options

 

 

 

 

 

 

 

 

164,810

 

 

 

 

 

 

74

 

 

 

 

 

 

74

 

Balance as of March 31, 2019

 

 

22,677,585

 

 

$

2

 

 

 

892,223

 

 

$

 

 

$

131,031

 

 

$

(31,452

)

 

$

99,581

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,819

)

 

 

(7,819

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

298

 

 

 

 

 

 

298

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

 

29,981

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

Issuance of common stock upon initial public

   offering, net of underwriting discounts,

   commissions, and offering costs

 

 

 

 

 

 

 

 

9,074,776

 

 

 

1

 

 

 

149,448

 

 

 

 

 

 

149,449

 

Conversion of preferred stock to common stock

 

 

(22,677,585

)

 

 

(2

)

 

 

22,677,585

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

 

 

 

$

 

 

 

32,674,565

 

 

$

3

 

 

$

280,804

 

 

$

(39,271

)

 

$

241,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

 

4,980,168

 

 

 

 

 

 

670,090

 

 

 

 

 

 

11,897

 

 

 

(13,189

)

 

 

(1,292

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,912

)

 

 

(1,912

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

21,119

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Issuance of convertible Preferred Stock, net

   of issuance costs of $88

 

 

4,071,554

 

 

 

1

 

 

 

 

 

 

 

 

 

15,411

 

 

 

 

 

 

15,412

 

Balance as of March 31, 2018

 

 

9,051,722

 

 

$

1

 

 

 

691,209

 

 

$

 

 

$

27,320

 

 

$

(15,101

)

 

$

12,220

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,010

)

 

 

(3,010

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

 

 

 

77

 

Balance as of June 30, 2018

 

 

9,051,722

 

 

$

1

 

 

 

691,209

 

 

$

 

 

$

27,397

 

 

$

(18,111

)

 

$

9,287

 

 

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

6


Stoke Therapeutics, Inc.

Condensed consolidated statements of cash flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(13,561

)

 

$

(4,922

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

185

 

 

75

 

Stock-based compensation

 

 

479

 

 

81

 

Gain/Loss on disposal of property and equipment

 

 

3

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,021

)

 

 

(42

)

Accounts payable and accrued liabilities

 

 

1,095

 

 

402

 

Deferred rent

 

 

14

 

 

 

(2

)

Net cash used in operating activities

 

$

(12,806

)

 

$

(4,408

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(484

)

 

 

(326

)

Proceeds from sale of property and equipment

 

 

2

 

 

 

 

Net cash used in investing activities

 

$

(482

)

 

$

(326

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible Preferred Stock

 

 

 

 

 

12,475

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

102

 

 

 

8

 

Proceeds from the issuance of common stock upon initial public offering

 

 

151,912

 

 

 

 

Payments of initial public offering costs

 

 

(1,443

)

 

 

 

Other

 

 

(1

)

 

 

(1

)

Net cash provided by financing activities

 

$

150,570

 

 

$

12,482

 

Net increase in cash, cash equivalents and restricted cash

 

$

137,282

 

 

$

7,748

 

Cash, cash equivalents and restricted cash—beginning of period

 

 

105,603

 

 

 

1,854

 

Cash, cash equivalents and restricted cash—end of period

 

$

242,885

 

 

$

9,602

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment included in accrued expenses and accounts

   payable

 

$

236

 

 

$

91

 

Deferred offering costs not yet paid

 

$

1,021

 

 

$

 

Issuance of convertible Preferred Stock in exchange for simple agreement

   for future equity

 

$

 

 

$

3,000

 

 

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

 

7


Stoke Therapeutics, Inc. and subsidiaries

Notes to condensed consolidated financial statements—(unaudited)

1. Nature of the business and basis of presentation

Organization

Stoke Therapeutics, Inc. (the Company) was founded in June 2014 and was incorporated under the laws of the State of Delaware. The Company is an early-stage biopharmaceutical company pioneering a new way to treat the underlying causes of severe genetic diseases by precisely upregulating protein expression.

Initial public offering

On June 21, 2019, the Company completed an initial public offering (“IPO”) of its common stock and issued and sold 9,074,776 shares of common stock at a public offering price of $18.00 per share, which included 1,183,666 shares sold upon full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $149.4 million after deducting underwriting discounts, commissions and offering costs of $13.9 million. Upon closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into shares of common stock (see Note 7). Upon conversion of the convertible preferred stock, the Company reclassified the carrying value of the convertible preferred stock to common stock and additional paid-in capital.

On June 6, 2019, in connection with the IPO, the Company effected a one-for-9.95 reverse split of the Company’s issued and outstanding common and convertible preferred stock. Upon the effectiveness of the reverse stock split, (i) all shares of outstanding common stock and convertible preferred stock were adjusted; (ii) the number of shares of common stock for which each outstanding option to purchase common stock is exercisable were adjusted; and (iii) the exercise price of each outstanding option to purchase common stock were adjusted. All of the outstanding common stock share numbers (including shares of common stock subject to the Company’s options and as converted for the outstanding convertible preferred stock shares), share prices, exercise prices and per share amounts contained in the interim condensed consolidated financial statements have been retroactively adjusted in the interim condensed consolidated financial statements to reflect this reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock and convertible preferred stock were not adjusted as a result of the reverse stock split.

On June 21, 2019, the Company filed an amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to authorize the issuance of up to 300 million shares of common stock, $0.0001 par value per share, and 10 million shares of undesignated preferred stock, $0.0001 par value per share.

Uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Liquidity

The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of the issuance date of these unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2019, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements into 2023. The future viability of the Company beyond that date is dependent on its ability to raise additional capital to finance its operations.

2. Summary of significant accounting policies and recent accounting pronouncements

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and its wholly-owned subsidiary. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).  All intercompany transactions between and among its consolidated subsidiary have been eliminated.

8


Unaudited interim financial information

The accompanying interim unaudited condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and related footnotes as of and for the year ended December 31, 2018, included in the Company’s prospectus, which was filed with the Securities and Exchange Commission on June 19, 2019. The Company’s financial information as of June 30, 2019, and for the three and six months ended June 30, 2019 and 2018 is unaudited, but in the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented of the results of these interim periods have been included. The balance sheet data as of December 31, 2018 was derived from audited financial statements. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

Use of estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, expenses and disclosure of contingent assets and liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from Company estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company deposits its cash in checking, sweep and money market accounts.

Restricted cash

At June 30, 2019, restricted cash consisted of money market accounts collateralizing letters of credit issued as a security deposits in connection with the Company’s leases of its corporate facilities.

The following table reconciles cash and cash equivalents and restricted cash per the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):

 

 

 

As of June 30,

 

 

 

2019

 

 

2018

 

Cash and cash equivalents

 

$

242,680

 

 

$

9,546

 

Restricted cash

 

205

 

 

 

56

 

Total cash, cash equivalents and restricted cash

 

$

242,885

 

 

$

9,602

 

 

Fair value of financial instruments

Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier value hierarchy that distinguishes between the following:

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

Level 3—Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use.

9


To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Deferred offering costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in the condensed consolidated Statement of stockholders’ equity as a reduction of additional paid-in capital.

Net loss per share

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Company considers its convertible preferred stock (Preferred Stock) to be participating securities as in the event a dividend is paid on common stock, the holders of Preferred Stock would be entitled to receive dividends on a basis consistent with the common stockholders. Under the two-class method, the net loss attributable to common stockholders is not allocated to the Preferred Stock as the holders of the Preferred Stock do not have a contractual obligation to share in losses.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock.

Emerging growth company and smaller reporting company status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the Company’s unaudited condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The Company will remain an emerging growth company until the earliest of (1) the last day of its first fiscal year (a) in which the Company has total annual gross revenues of at least $1.07 billion, or (b) in which the Company is deemed to be a large accelerated filer, which means the market value of its common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (2) the date on which it has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2024.

The Company is also a “smaller reporting company,” meaning that as of the date of its initial public offering, the market value of its stock held by non-affiliates is less than $100 million during the most recently completed fiscal year. The Company may continue to be a smaller reporting company as long as either (i) the market value of its stock held by non-affiliates is less than $250 million or (ii) its annual revenue is less than $100 million during the most recently completed fiscal year and the market value of its stock held by non-affiliates is less than $700 million. If the Company is a smaller reporting company at the time it ceases to be an emerging growth company, the Company may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, the Company may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently adopted accounting pronouncements

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company adopted ASU 2017-09 effective January 1, 2018, and the adoption of ASU 2017-09 did not impact the Company’s consolidated financial statements or financial statement disclosures.

 

10


Recently issued accounting pronouncements  

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize all leases, including operating leases, with a term greater than 12 months on the consolidated balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance was effective for public companies for annual and interim periods beginning after December 15, 2018. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. The Company intends to adopt this standard on January 1, 2020. While the Company expects the implementation of ASU 2016-02 to result in the recognition of right-of-use assets and lease liabilities for leased facilities, the Company is still evaluating the impact that the adoption of ASU 2016-2 will have on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. For public business entities, the amendments in Part I of ASU-2017-11 were effective for fiscal years and interim periods within those years beginning after December 15, 2018. For all other entities, the amendments in Part I of this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company intends to adopt Part I on January 1, 2020. Early adoption is permitted for all entities, including adoption in an interim period. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its consolidated financial statements and financial statement disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This ASU removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 will be effective for all entities, for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company intends to adopt this standard on January 1, 2020 and does not expect that the adoption of this update will have a material impact on its consolidated financial statements.

3. Fair value measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

Fair value measurements as of June 30, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

242,680

 

 

$

 

 

$

 

 

$

242,680

 

Total

 

$

242,680

 

 

$

 

 

$

 

 

$

242,680

 

 

 

 

Fair value measurements as of December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

105,399

 

 

$

 

 

$

 

 

$

105,399

 

Total

 

$

105,399

 

 

$

 

 

$

 

 

$

105,399

 

 

11


The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the consolidated balance sheets as of June 30, 2019 and December 31, 2018.

There were no transfers among Level 1, Level 2, or Level 3 categories in the periods presented.

The carrying value of cash, cash equivalents, accounts payable and accrued expenses that are reported on the consolidated balance sheets approximate their fair value due to the short-term nature of these assets and liabilities.

4. Accrued and other current liabilities

Accrued and other current liabilities consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued employee compensation costs

 

$

882

 

 

$

901

 

Accrued professional

 

 

988

 

 

 

200

 

Accrued research and development costs

 

 

1,677

 

 

 

234

 

Accrued other

 

 

33

 

 

 

61

 

 

 

$

3,580

 

 

$

1,396

 

 

5. Simple agreement for future equity

In October 2017, the Company entered into a simple agreement for future equity (the “SAFE”) with an investor, receiving $3.0 million in exchange for the investor’s right to participate in a future equity financing. The SAFE contained a number of conversion and redemption provisions, including settlement upon liquidity or dissolution events. The Company elected the fair value option of accounting for the SAFE. In January 2018, the investor exercised its rights to convert the SAFE in connection with the Company’s equity financing and exchanged the SAFE for 788,042 shares of Series A-2 convertible Preferred Stock (“Series A-2 Preferred”).

6. Commitments and contingencies

Operating lease

In August 2018, the Company entered into an agreement to sublease approximately 23,000 square feet of space for a term of three years. Lease terms are triple net lease commencing at $0.9 million per year, then with three percent annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees. The lease commencement date was December 10, 2018.

In December 2018, the Company entered into an agreement to lease 2,485 square feet of space for a term of three years. The lease includes one renewal option for an additional two years. Lease terms commence at $0.2 million per annum, with 2.5% annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees. The Company first occupied this space in May 2019.

As of June 30, 2019, the future minimum payments for operating leases are as follows (in thousands):

 

July 1, 2019 to December 31, 2019

 

$

561

 

2020

 

 

1,149

 

2021

 

 

1,102

 

2022

 

 

81

 

Thereafter

 

 

 

 

 

$

2,893

 

 

Rent expense incurred under operating leases was approximately $0.26 million and $0.07 million for the three months ended June 30, 2019 and 2018, respectively and $0.5 million and $0.1 million for the six months ended June 30, 2019 and 2018 respectively.

12


Consulting agreement

In October 2014, the Company entered into a consulting agreement with a member of the Company’s board of directors, who is also an employee of Cold Spring Harbor Laboratory (“CSHL”), to provide consulting services related to scientific research related to the development of antisense-based drugs, therapies, diagnostic and research tools, products, services and intellectual property. The Company recognized expense of $0.02 million and $0.02 million in the three month period ended June 30, 2019 and 2018 respectively, and $0.05 million and $0.05 million in the six month period ended June 30, 2019 and 2018 respectively, for such consulting services. The initial term of this agreement was five years and may be extended by the mutual consent of the Company and the board member.

License and research agreements

In July 2015, the Company entered into a worldwide license agreement (the “CSHL Agreement”), with CSHL, with respect to Targeted Augmentation of Nuclear Gene Output (“TANGO”) patents. Under the CSHL Agreement, the Company receives an exclusive (except with respect to certain government rights and non-exclusive licenses), worldwide license under certain patents and applications relating to TANGO. As part of the CSHL Agreement, the Company granted CSHL 164,927 shares of common stock valued based on an independent appraisal at approximately $0.07 million. The CSHL Agreement obligates the Company to make additional payments that are contingent upon certain milestones being achieved. The Company is also required to pay royalties, tiered based on the scope of patent coverage for each licensed product, ranging from a low-single digit percentage to a mid-single digit percentage on annual net sales. These royalty obligations apply on a licensed product-by-licensed product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a CSHL patent covering the applicable licensed product or (ii) the expiration of any regulatory exclusivity for the applicable licensed product. In addition, if the Company sublicenses the rights under the CSHL Agreement, the Company is required to pay a maximum of twenty percent of the sublicense revenue to CSHL, which may be reduced to a mid-teens or a mid-single digit percentage upon achievement of certain clinical milestones for the applicable licensed product. Finally, the Company is required to pay an annual license maintenance fee of $0.01 million, which amount is creditable against any owed royalty or milestone payments. The maximum aggregate potential milestone payments payable total approximately $0.9 million. Additionally, certain licenses under the CSHL Agreement require the Company to reimburse CSHL for certain past and ongoing patent related expenses, however there were no expenses related to these reimbursable patent costs during the three months and six months ended June 30, 2019 and 2018.

In April 2016, the Company entered into an exclusive, worldwide license agreement with the University of Southampton, (the “Southampton Agreement”), whereby the Company acquired rights to foundational technologies related to the Company’s TANGO technology. Under the Southampton Agreement, the Company receives an exclusive, worldwide license under certain licensed patents and applications relating to TANGO. As part of the Southampton Agreement, the Company paid 0.06 million pounds sterling (approximately $0.07 million as of the date thereof) as an up-front license fee. Under the Southampton Agreement, the Company may be obligated to make additional payments that are contingent upon certain milestones being achieved, as well as royalties on future product sales. These royalty obligations survive until the latest of (i) the expiration of the last valid claim of a licensed patent covering a subject product or (ii) the expiration of any regulatory exclusivity for the subject product in a country. In addition, if the Company sublicenses its rights under the Southampton Agreement, the Company is required to pay a mid-single digit percentage of the sublicense revenue to the University of Southampton. The maximum aggregate potential milestone payments payable by the Company totaled approximately 0.4 million pounds sterling (approximately $0.5 million as of June 30, 2019). As of June 30, 2019, and December 31, 2018, the Company had recorded no liabilities under the Southampton Agreement.

Sponsored research agreement

In December 2017, the Company entered into a sponsored research agreement with the University of Michigan (the “University of Michigan Agreement”) to fund research conducted at the University of Michigan through November 2018. The budget for the scope of work described in the research agreement was $0.4 million. In December 2018, the University of Michigan Agreement was renewed and extended through November 2020 with a budget for the scope of work of $0.6 million. The costs incurred by the Company under the University of Michigan Agreement are recorded as research and development expense and expensed in the period in which they are incurred. Research and development spending under the University of Michigan Agreement was $0.16 million and $0.09 million for the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively.

 

  

 

7. Convertible preferred stock

On June 6, 2019, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation which became effective on June 21, 2019 upon which the authorized capital stock of the Corporation consisted of 300 million shares of common stock, $0.0001 per share par value, and 10 million shares of undesignated preferred stock, $0.0001 per share par value.

13


On June 21, 2019, the Company completed its IPO and in conjunction therewith, all outstanding convertible preferred stock was converted into common stock.  Accordingly, as of June 30, 2019, there was no preferred stock outstanding. At December 31, 2018, the Company’s amended and restated certificate of incorporation authorized the Company to issue 225,584,874 shares of $0.0001 par value convertible preferred stock, 49,540,132 were designated Series A convertible preferred stock (Series A Preferred), 75,777,370 were designated Series A-2 Preferred and 100,267,372 were designated Series B convertible preferred stock (Series B Preferred) (collectively, the Preferred Stock). The following table summarizes the Company’s issued and outstanding Preferred Stock (in thousands except share amounts):

 

 

 

Series A Preferred

 

 

Series A-2 Preferred

 

 

Series B Preferred

 

 

Total convertible Preferred

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance, December 31, 2018

 

 

4,980,168

 

 

$

11,725

 

 

 

7,617,746

 

 

$

28,880

 

 

 

10,079,671

 

 

$

89,742

 

 

 

22,677,585

 

 

$

130,347

 

 

8. Equity incentive plans

In June 2019, the Company’s board of directors and stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) which became effective on June 17, 2019 and replaced the Company’s 2014 Equity Incentive Plan (the “2014 Plan”). In addition to the shares of common stock reserved for future issuance under the 2014 Plan that were added to the 2019 Plan upon its effective date, the Company initially reserved 2,200,000 shares of common stock for issuance under the 2019 Plan. The number of shares reserved for issuance under the Company’s 2019 Plan will increase automatically on January 1 of each of 2020 through 2029 by the number of shares equal to 4% of the aggregate number of outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s board of directors.  

As of June 30, 2019, there were no shares available for future issuance under the 2014 Plan and 2,413,594 shares were available under the 2019 Plan.

During the six months ended June 30, 2019, the Company granted options to purchase 906,203 shares of common stock to certain of its employees, and directors, respectively. The options vest over four years and are exercisable at a per share price equal to the fair value of the common stock on the grant date.

The Company determined the volatility for options granted in 2019 based on a study of reported data for a guideline group of companies that issued options with substantially similar terms. The risk-free interest rate is based on a zero-coupon United States Treasury instrument with terms consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to be zero.

A summary of stock option activity for awards is presented below:

 

 

 

Number of

shares

 

 

Weighted

average

exercise

price

 

 

Weighted

average

remaining

contractual

life (years)

 

 

Aggregate

intrinsic

value(1)

 

Outstanding as of December 31, 2018

 

 

3,484,628

 

 

$

1.20

 

 

 

8.9

 

 

$

3,436

 

Granted

 

 

906,203

 

 

 

4.67

 

 

 

 

 

 

 

Exercised

 

 

(194,788

)

 

 

0.53

 

 

 

 

 

 

 

Forfeited or expired

 

 

(9,652)

 

 

 

0.55

 

 

 

 

 

 

 

Outstanding as of June 30, 2019

 

 

4,186,391

 

 

$

1.99

 

 

 

8.7

 

 

$

113,796

 

Exercisable as of June 30, 2019

 

 

1,672,557

 

 

$

0.71

 

 

 

7.9

 

 

$

47,600

 

 

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for the options that were in the money at June 30, 2019 (in thousands).

The weighted average grant date fair value per share of stock options granted during the six months ended June 30, 2019 was $4.67. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2019 was $5.6 million.

The aggregate grant date fair value of stock options granted during the six months ended June 30, 2019 was approximately $4.2 million.

14


Stock-based compensation

As of June 30, 2019, there was $4.0 million of unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the 2014 Plan. The compensation is expected to be recognized over a weighted average period of 4 years as of June 30, 2019.

Stock-based compensation expense recorded as research and development and general and administrative expenses in the accompanying condensed consolidated statements of operations is as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Research and development

 

$

121

 

 

$

25

 

 

$

195

 

 

$

26

 

General and administrative

 

 

177

 

 

 

52

 

 

 

284

 

 

 

55

 

 

 

$

298

 

 

$

77

 

 

$

479

 

 

$

81

 

 

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair values of the options granted to employees and directors were calculated using the following assumptions for the three months and six months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

2018

 

 

2019

 

2018

 

Risk-free interest rate

 

2.01% - 2.42%

 

2.67%

 

 

2.01% - 2.81%

 

2.67%

 

Expected dividend yield

 

 

 

 

 

 

Expected life

 

6.375 years

 

6.25 - 6.375 years

 

 

6.375 years

 

6.25 - 6.375 years

 

Expected volatility

 

61% - 68%

 

57%

 

 

60% - 68%

 

57%

 

 

2019 Employee stock purchase plan

In June 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 18, 2019.  The Company initially reserved 315,000 shares of common stock for sale under the ESPP. The number of shares reserved for issuance under the ESPP will increase automatically on January 1st of each of the first ten calendar years following the first offering date by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 or a lower amount determined by the Company’s board of directors. The aggregate number of shares issued over the term of the ESPP will not exceed 3,150,000 shares of the Company’s common stock.

 

9. Net loss per share attributable to common stockholders

The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in thousands except share and per share amounts):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,819

)

 

$

(3,010

)

 

$

(13,561

)

 

$

(4,922

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares,

   basic and diluted

 

 

5,083,620

 

 

 

691,212

 

 

 

2,970,292

 

 

 

689,112

 

Net loss per common share attributable to

   common stockholders, basic and diluted

 

$

(1.54

)

 

$

(4.36

)

 

 

(4.57

)

 

 

(7.14

)

 

15


The Company’s potential dilutive securities, which include Preferred Stock and common stock options, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders for the period indicated because including them would have had an anti-dilutive effect:

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Preferred Stock

 

 

 

 

 

9,051,722

 

Outstanding options to purchase common stock

 

 

4,186,391

 

 

 

2,081,131

 

 

 

 

4,186,391

 

 

 

11,132,853

 

 

 

10. Income taxes

The Company did not record an income tax benefit in its consolidated statement of operations for the three and six months ended June 30, 2019 and 2018 as it is more likely than not that the Company will not recognize the federal and state deferred tax benefits generated by its losses. The Company had net deferred tax assets and liabilities of $7.6 million at December 31, 2018. The Company has provided a valuation allowance for the full amount of its net deferred tax assets and liabilities as of June 30, 2019 and December 31, 2018, as management has determined it is more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized.

The Company did not record any amounts for unrecognized tax benefits as of June 30, 2019 or December 31, 2018.

11. Employee benefits  

In 2016, the Company established a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. The Company was not required to make and did not made any contributions to the 401(k) Plan for the three and six months ended June 30, 2019 and 2018, respectively.

 

12. Subsequent events

The Company has evaluated subsequent events through the issuance date of these interim condensed consolidated financial statements.

16


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

You should read the following discussion and analysis of our financial condition and consolidated results of operations together with the section entitled “Risk Factors” and our interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should carefully read the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

We are a biotechnology company that is pioneering a new way to treat the underlying causes of severe genetic diseases by precisely upregulating protein expression. We are developing novel antisense oligonucleotide, or ASO, medicines that target ribonucleic acid, or RNA, and modulate precursor-messenger RNA, or pre-mRNA, splicing to upregulate protein expression where needed and with appropriate specificity to near normal levels. We aim to develop the first precision medicine platform to target the underlying cause of a broad spectrum of genetic diseases in which the patient has one healthy copy of a gene and one mutated copy that fails to produce a protein essential to health. These diseases, in which loss of approximately 50 percent of normal protein expression causes disease, are called autosomal dominant haploinsufficiencies.

We utilize our proprietary technology platform, Targeted Augmentation of Nuclear Gene Output, or TANGO, to design ASOs to upregulate the expression of protein by individual genes in a patient. Our approach is designed to allow us to deliver in a highly precise, durable and controlled manner disease-modifying therapies to a wide range of relevant tissues, including the central nervous system, or CNS, eye, kidney and liver.

We designed our lead product candidate, STK-001, to treat Dravet syndrome, a severe and progressive genetic epilepsy. With a well-defined patient population based on routine genetic testing and learnings from recently approved drugs for the treatment of Dravet syndrome to inform the clinical and regulatory pathways, we anticipate an efficient clinical program for STK-001. We plan to submit an investigational new drug application for STK-001 by early 2020 and expect to initiate a Phase 1/2 clinical trial in the first half of 2020. We intend to nominate a second candidate to treat an additional genetic disease for preclinical development by the first half of 2020.

We were incorporated in June 2014. In July 2015 and April 2016, we entered into worldwide license agreements with Cold Spring Harbor Laboratory, (CSHL), and the University of Southampton, respectively, with respect to certain licensed patents and applications relating to TANGO. TANGO exploits non-productive splicing events to effect targeted enhancement of protein expression. Since our inception through June 21, 2019, our operations have been financed primarily from the sale of convertible notes payable and our convertible preferred stock.

On June 21, 2019, we completed an initial public offering (“IPO”) of our common stock and issued and sold 9,074,776 shares of common stock at a public offering price of $18.00 per share, which included 1,183,666 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock resulting in net proceeds of $151.9 million after deducting underwriting discounts and commissions but before deducting offering costs of approximately $2.5 million.  

As of June 30, 2019 and December 31, 2018 we had $242.9 million and $105.6 million, respectively, in cash, cash equivalents and restricted cash.

Since inception, we have had operating losses, the majority of which are attributable to research and development activities. Our net losses were $7.8 million and $3.0 million for the three months ended June 30, 2019 and 2018, respectively. Our net losses were $13.6 million and $4.9 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had an accumulated deficit of $39.3 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses and losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and accountants, and incur increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.  

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Based upon our current operating plan, we believe that our existing cash, cash equivalents and restricted cash as of June 30, 2019, will enable us to fund our operating expenses and capital expenditure requirements into 2023. To date, we have not had any products approved for sale and have not generated any product sales. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

Recent Developments

On August 6, 2019, we announced that the U.S Food and Drug Administration has granted orphan drug designation to our lead product candidate, STK-001, an investigational new treatment for Dravet Syndrome.

Financial operations overview

Revenue

We currently do not have any products approved for sale and have not generated any revenue since inception. If we are able to successfully develop, receive regulatory approval for and commercialize any of our current or future product candidates alone or in collaboration with third parties, we may generate revenue from the sales of these product candidates.

Operating expenses

Research and development

Research and development expenses consist primarily of costs incurred for the development of our discovery work and preclinical programs, which include:

 

personnel costs, which include salaries, benefits and stock-based compensation expense;

 

expenses incurred under agreements with consultants, third-party contract organizations that conduct research and development activities on our behalf, costs related to production of preclinical material and laboratory and vendor expenses related to the execution of preclinical studies;

 

scientific consulting, collaboration and licensing fees;

 

laboratory equipment and supplies; and

 

facilities costs, depreciation and other expenses related to internal research and development activities.

We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates. Our direct research and development expenses are tracked on a program-by-program basis from the point a program becomes a clinical candidate for us and consist primarily of external costs, such as fees paid to consultants, central laboratories and contractors in connection with our preclinical activities. We do not allocate employee costs, costs associated with our technology or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are currently deployed across multiple product development programs and, as such, are not separately classified. We use internal resources to manage our development activities and our employees work across multiple development programs and, therefore, we do not track their costs by program.

The table below summarizes our research and development expenses incurred by development program (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

STK-001