stok-10q_20200930.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 September 30, 2020

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)

(781) 430-8200

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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 November 5, 2020, the registrant had 33,470,262 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

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 3.

Defaults Upon Senior Securities

72

Item 4.

Mine Safety Disclosures

72

Item 5.

Other Information

72

Item 6.

Exhibits

73

Signatures

74

 

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:

 

the direct and indirect impact of COVID-19 on our business, financial condition and operations, including on our expenses, supply chain, strategic partners, research and development costs, clinical trials and employees;

 

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, including any impact from COVID-19;

 

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

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

191,461

 

 

$

222,471

 

Prepaid expenses and other current assets

 

 

3,615

 

 

 

3,281

 

Deferred financing costs

 

 

378

 

 

 

 

Interest receivable

 

 

2

 

 

281

 

Total current assets

 

$

195,456

 

 

$

226,033

 

Restricted cash

 

 

205

 

 

205

 

Operating lease right-of-use assets

 

 

1,381

 

 

 

 

Property and equipment, net

 

 

2,893

 

 

 

2,512

 

Total assets

 

$

199,935

 

 

$

228,750

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,095

 

 

$

751

 

Accrued and other current liabilities

 

 

5,640

 

 

 

3,350

 

Total current liabilities

 

$

6,735

 

 

$

4,101

 

Long term liabilities

 

 

665

 

 

 

221

 

Total liabilities

 

$

7,400

 

 

$

4,322

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

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

   authorized, 33,361,188 and 32,861,842 shares issued and outstanding as

   of September 30, 2020 and December 31, 2019, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

288,249

 

 

 

282,460

 

Accumulated deficit

 

 

(95,717

)

 

 

(58,035

)

Total stockholders’ equity

 

$

192,535

 

 

$

224,428

 

Total liabilities and stockholders’ equity

 

$

199,935

 

 

$

228,750

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,109

 

 

 

6,518

 

 

 

23,293

 

 

 

16,675

 

General and administrative

 

 

5,602

 

 

 

3,324

 

 

 

15,165

 

 

 

7,935

 

Total operating expenses

 

 

13,711

 

 

 

9,842

 

 

 

38,458

 

 

 

24,610

 

Loss from operations

 

 

(13,711

)

 

 

(9,842

)

 

 

(38,458

)

 

 

(24,610

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

11

 

 

 

1,236

 

 

 

734

 

 

 

2,447

 

Other income (expense), net

 

 

16

 

 

 

2

 

 

 

42

 

 

 

(2

)

Total other income

 

 

27

 

 

 

1,238

 

 

 

776

 

 

 

2,445

 

Net loss and comprehensive loss

 

$

(13,684

)

 

$

(8,604

)

 

$

(37,682

)

 

$

(22,165

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.41

)

 

$

(0.26

)

 

$

(1.14

)

 

$

(1.71

)

Weighted-average common shares outstanding, basic

   and diluted

 

 

33,273,597

 

 

 

32,707,647

 

 

 

32,954,727

 

 

 

12,991,672

 

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,604

)

 

 

(8,604

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

731

 

 

 

 

 

 

731

 

Issuance of common stock upon exercise of stock

   options

 

 

 

 

 

 

 

 

49,588

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Balance as of September 30, 2019

 

 

 

 

$

 

 

 

32,724,153

 

 

$

3

 

 

$

281,555

 

 

$

(47,875

)

 

$

233,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

32,861,842

 

 

$

3

 

 

$

282,460

 

 

$

(58,035

)

 

$

224,428

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,039

)

 

 

(11,039

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

754

 

 

 

 

 

 

754

 

Issuance of common stock upon exercise of stock

   options

 

 

 

 

 

 

 

 

105,508

 

 

 

 

 

 

199

 

 

 

 

 

 

199

 

Balance as of March 31, 2020

 

 

 

 

$

 

 

 

32,967,350

 

 

$

3

 

 

$

283,413

 

 

$

(69,074

)

 

$

214,342

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,959

)

 

 

(12,959

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,649

 

 

 

 

 

 

1,649

 

Issuance of common stock upon exercise of stock

   options

 

 

 

 

 

 

 

 

245,194

 

 

 

 

 

 

368

 

 

 

 

 

 

368

 

Balance as of June 30, 2020

 

 

 

 

$

 

 

 

33,212,544

 

 

$

3

 

 

$

285,430

 

 

$

(82,033

)

 

$

203,400

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,684

)

 

 

(13,684

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,785

 

 

 

 

 

 

1,785

 

Issuance of common stock upon exercise of stock

   options

 

 

 

 

 

 

 

 

131,253

 

 

 

 

 

 

682

 

 

 

 

 

 

682

 

Issuance of common stock related to employee

   stock purchase plan

 

 

 

 

 

 

 

 

17,391

 

 

 

 

 

 

352

 

 

 

 

 

 

352

 

Balance as of September 30, 2020

 

 

 

 

$

 

 

 

33,361,188

 

 

$

3

 

 

$

288,249

 

 

$

(95,717

)

 

$

192,535

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(37,682

)

 

$

(22,165

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

651

 

 

 

311

 

Stock-based compensation

 

 

4,188

 

 

 

1,210

 

Loss on disposal of property and equipment

 

 

3

 

 

 

3

 

Reduction in the carrying amount of right of use assets

 

 

772

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(55

)

 

 

(2,887

)

Accounts payable and accrued liabilities

 

 

833

 

 

 

2,652

 

Deferred rent

 

 

 

 

 

22

 

Net cash used in operating activities

 

$

(31,290

)

 

$

(20,854

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(960

)

 

 

(1,067

)

Proceeds from sale of property and equipment

 

 

 

 

 

2

 

Net cash used in investing activities

 

$

(960

)

 

$

(1,065

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

1,248

 

 

 

121

 

Proceeds from Employee Stock Purchase Plan

 

 

352

 

 

 

 

Deferred Financing Costs

 

 

(360

)

 

 

 

Proceeds from the issuance of common stock upon initial public offering

 

 

 

 

 

151,912

 

Payments of initial public offering costs

 

 

 

 

 

(2,463

)

Net cash provided by financing activities

 

$

1,240

 

 

$

149,570

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

$

(31,010

)

 

$

127,651

 

Cash, cash equivalents and restricted cash—beginning of period

 

$

222,676

 

 

$

105,603

 

Cash, cash equivalents and restricted cash—end of period

 

$

191,666

 

 

$

233,254

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Right-of-use assets recognized in exchange for operating leases upon

   adoption of Topic 842

 

$

2,153

 

 

$

 

Property and equipment included in accrued expense and accounts payable

 

$

76

 

 

$

 

Deferred offering costs not yet paid

 

$

17

 

 

$

 

 

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 6). 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.

Shelf Registration

In July 2020, the Company filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”). The Registration Statement was declared effective by the SEC on July 20, 2020,  and contains two prospectuses: a base prospectus, which covers the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $150,000,000 of our common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement. The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus. The $150,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. As of September 30, 2020, the Company has not issued any securities in connection with Registration Statement.

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.

8


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 the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the issuance date of these unaudited condensed consolidated financial statements.

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.

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, 2019, which was filed with the SEC on March 23, 2020. The Company’s financial information as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019 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 information as of December 31, 2019 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 those 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 September 30, 2020, restricted cash consisted of money market accounts collateralizing letters of credit issued as 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 sheets to the condensed consolidated statements of cash flows (in thousands):

 

 

 

As of September 30,

 

 

 

2020

 

 

2019

 

Cash and cash equivalents

 

$

191,461

 

 

$

233,049

 

Restricted cash

 

$

205

 

 

$

205

 

Total cash, cash equivalents and restricted cash

 

$

191,666

 

 

$

233,254

 

 

9


Fair value of financial instruments

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.

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.

10


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 $700 million and our annual revenue 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements. The Company adopted Topic 842 on January 1, 2020 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize a cumulative-effect adjustment to the balance sheet on the date of adoption. The Company has also elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components.

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. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted Part 1 of this standard on January 1, 2020 and the adoption of this update did not have a material impact 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 is effective for all entities, for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company adopted this standard on January 1, 2020 and the adoption of this update did not have a material impact on its consolidated financial statements.

11


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 September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

191,461

 

 

$

 

 

$

 

 

$

191,461

 

Total

 

$

191,461

 

 

$

 

 

$

 

 

$

191,461

 

 

 

 

Fair value measurements as of December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

222,471

 

 

$

 

 

$

 

 

$

222,471

 

Total

 

$

222,471

 

 

$

 

 

$

 

 

$

222,471

 

 

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 condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.

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 condensed 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):

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued employee compensation costs

 

$

2,409

 

 

$

2,053

 

Accrued professional

 

 

559

 

 

 

228

 

Accrued research and development costs

 

 

1,231

 

 

 

959

 

Current portion of operating lease liabilities

 

 

1,119

 

 

 

 

Accrued Other

 

 

67

 

 

 

56

 

Other Current Liabilities

 

 

255

 

 

 

54

 

 

 

$

5,640

 

 

$

3,350

 

 

5. Commitments and contingencies

Operating lease

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements. The Company adopted Topic 842 on January 1, 2020 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize a cumulative-effect adjustment to the balance sheet on the date of adoption. The Company has also elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components.

Upon adoption of Topic 842 on January 1, 2020, the Company recorded right-of-use assets of $2.2 million, operating lease liabilities of $2.2 million and the elimination of deferred rent of $0.03 million. Adoption of the standard did not result in the Company recording a cumulative effect adjustment.

The Company determines whether an arrangement is a lease at inception. The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. The Company determined that it held operating leases for office and laboratory space as of January 1, 2020. Operating lease right-of-use assets and

12


operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as the Company did not have information to determine the rate implicit in the leases. Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments (which include initial direct costs and lease incentives). The expense is included in operating expenses in the condensed consolidated statements of operations. The Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the right-of-use assets and lease liabilities.

In August 2018, the Company entered into an agreement to lease 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 3% 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 an initial term of three years. The lease includes one renewal option for an additional two years, however, any time after the initial term the landlord may relocate the Company from the premises to a space reasonably comparable in size and utility. As the Company does not have the right to control the use of the identified asset after the initial term, the renewal option was excluded from the lease liability calculation. 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 lease commencement date was May 1, 2019.

Future minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows (in thousands):

 

2020

 

$

290

 

2021

 

 

1,102

 

2022

 

 

81

 

Total lease payments

 

 

1,473

 

Less imputed interest

 

 

(58

)

Present value of lease liabilities

 

$

1,415

 

 

Future minimum lease payments under non-cancellable leases as of December 31, 2019 are as follows (in thousands):

 

2020

 

$

1,149

 

2021

 

 

1,102

 

2022

 

 

81

 

2023

 

 

 

Thereafter

 

 

 

 

 

$

2,332

 

 

Lease balances as of September 30, 2020 are as follows (in thousands):

 

Operating right-of-use assets

 

$

1,381

 

Current Portion of operating lease liabilities

 

$

1,119

 

Non-current portion of operating lease liabilities

 

 

296

 

Total operating lease liabilities

 

$

1,415

 

 

The weighted average remaining lease term and weighted average discount rate of our operating leases as of September 30, 2020 are as follows:

 

Weighted average remaining lease term in years

 

 

1.3

 

Weighted average discount rate

 

 

7.02

%

 

Rent expense incurred under operating leases was approximately $0.3 million for the three months and $0.9 million for the nine months ended September 30, 2020 respectively.

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 expenses of $0.02 million for the three-month period ended March 31, 2020 and did not recognize any

13


additional expense in the nine-month period ended September 30, 2020. The Company recognized expenses of $0.02 million in the three-month period ending September 30, 2019 and $0.07 million in the nine-month period ending September 30, 2019, for such consulting services. The initial term of this agreement was five years and the parties mutually agreed not to extend the consulting agreement in April 2020. 

Scientific Advisory Board Agreement

In June 2020, the Company entered into a scientific advisory board agreement with a member of the Company’s board of directors, who is also an employee of CSHL, to provide scientific advisory services related to the Company’s Targeted Augmentation of Nuclear Gene Output (“TANGO”) antisense oligonucleotide technology and other antisense oligonucleotide technologies, as well as current and future therapeutic targets and programs.  The Company recognized expense of $0.01 million in the three-month period ended September 30, 2020 and $0.04 million in the nine-month period ended September 30, 2020, for such scientific advisory services. The term of this agreement is 12 months.  

License and research agreements

In July 2015, the Company entered into a worldwide license agreement (the “CSHL Agreement”), with CSHL, with respect to 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 nine months ended September 30, 2020 and 2019.

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 September 30, 2020). As of September 30, 2020, and December 31, 2019, the Company had recorded no liabilities under the Southampton Agreement.

6. 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.

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 September 30, 2020, there was no preferred stock outstanding.

7. 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

14


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 September 30, 2020, there were no shares available for future issuance under the 2014 Plan and 2,358,296 shares were available under the 2019 Plan.

During the three-months ended September 30, 2020, the Company granted options to purchase 168,255 shares of common stock to certain of its employees and 1,138,657 shares for the nine-months ended September 30, 2020. 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.

Stock-based compensation

As of September 30, 2020, there was $18.8 million of unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the 2014 and 2019 Plans. The compensation is expected to be recognized over a weighted average period of 3.01 years as of September 30, 2020.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development

 

$

499

 

 

$

134

 

 

$

1,237

 

 

$

330

 

General and administrative

 

 

1,286

 

 

 

597

 

 

 

2,951

 

 

 

880

 

 

 

$

1,785

 

 

$

731

 

 

$

4,188

 

 

$

1,210

 

 

2019 Employee stock purchase plan

In June 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective on June 18, 2019. The Company initially reserved 315,000 shares of common stock for sale under the ESPP. At September 30, 2020, the Company had 297,609 shares available for issuance under the plan. The average grant date fair value per share under the plan was $26.54 for 2020. The total ESPP stock-based compensation expense for the nine-months ended September 30, 2020 was $0.2 million. 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.

8. 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,684

)

 

$

(8,604

)

 

$

(37,682

)

 

$

(22,165

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares,

   basic and diluted

 

 

33,273,597

 

 

 

32,707,647

 

 

 

32,954,727

 

 

 

12,991,672

 

Net loss per common share attributable to

   common stockholders, basic and diluted

 

$

(0.41

)

 

$

(0.26

)

 

$

(1.14

)

 

$

(1.71

)

 

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:

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Preferred Stock