SEC Filing - Stoke Therapeutics

View:

Download DOC

Download PDF

Download XLS

Download XBRL

stok-10q_20220630.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, 2022

☐	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 July 31, 2022 the registrant had 39,419,313 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	19
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	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
Signatures		74

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, STK-002 and our future product candidates;

•

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 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, STK-002 or any other future product candidate;

•

the success of our collaboration with Acadia Pharmaceuticals and our ability to enter into successful collaborations in the future;

•

our ability to identify patients with the diseases treated by STK-001, STK-002 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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Stoke Therapeutics, Inc.

Condensed consolidated balance sheets

(in thousands, except share and per share amounts)

(unaudited)


	June 30,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	67,754		$	144,895
Marketable securities		207,876			74,915
Prepaid expenses and other current assets		13,179			9,159
Deferred financing costs		—			117
Interest receivable		350		132
Total current assets	$	289,159		$	229,218
Restricted cash		569		569
Operating lease right-of-use assets		5,831			4,939
Property and equipment, net		5,868			4,139
Total assets	$	301,427		$	238,865
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,602		$	2,385
Accrued and other current liabilities		13,413			14,754
Deferred revenue - current portion		10,634			—
Total current liabilities	$	27,649		$	17,139
Deferred revenue - net of current portion		45,210			—
Other long term liabilities		4,247			3,949
Total long term liabilities		49,457			3,949
Total liabilities	$	77,106		$	21,088
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, par value of $0.0001 per share; 300,000,000 shares authorized, 39,382,467 and 36,902,499 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		4			4
Additional paid-in capital		470,977			414,024
Accumulated other comprehensive loss		(1,276	)		(168	)
Accumulated deficit		(245,384	)		(196,083	)
Total stockholders’ equity	$	224,321		$	217,777
Total liabilities and stockholders’ equity	$	301,427		$	238,865

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

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,
	2022			2021			2022			2021
Revenue	$	3,231		$	—		$	6,232		$	—
Operating expenses:
Research and development		18,358			14,095			36,668			24,008
General and administrative		10,111			7,934			19,596			14,848
Total operating expenses		28,469			22,029			56,264			38,856
Loss from operations		(25,238	)		(22,029	)		(50,032	)		(38,856	)
Other income:
Interest income (expense), net		544			34			648			40
Other income (expense), net		42			28			83			56
Total other income		586			62			731			96
Net loss	$	(24,652	)	$	(21,967	)	$	(49,301	)	$	(38,760	)
Net loss per share, basic and diluted	$	(0.63	)	$	(0.60	)	$	(1.29	)	$	(1.06	)
Weighted-average common shares outstanding, basic and diluted		39,258,358			36,708,188			38,358,936			36,675,876
Comprehensive loss:
Net loss	$	(24,652	)	$	(21,967	)	$	(49,301	)	$	(38,760	)
Other comprehensive loss:
Unrealized loss on marketable securities		(592	)		(42	)		(1,108	)		(42	)
Total other comprehensive loss	$	(592	)	$	(42	)	$	(1,108	)	$	(42	)
Comprehensive loss	$	(25,244	)	$	(22,009	)	$	(50,409	)	$	(38,802	)

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

Stoke Therapeutics, Inc.

Condensed consolidated statements of stockholders’ equity

(in thousands, except share and per share amounts)

(unaudited)

	Common Stock				Additional paid-in capital			Accumulated other comprehensive loss			Accumulated deficit			Stockholders’ equity
	Shares		Amount		Amount			Amount			Amount			Amount
Balance as of December 31, 2020		36,577,149	$	4	$	396,352		$	—		$	(110,278	)	$	286,078
Net loss		—		—		—			—			(16,793	)		(16,793	)
Stock-based compensation		—		—		2,698			—			—			2,698
Issuance of common stock upon exercise of stock options		111,858		—		371			—			—			371
Issuance of common stock upon follow-on offering, net of underwriting discounts and offering costs		—		—		(64	)		—			—			(64	)
Issuance of common stock related to employee stock purchase plan		8,801		—		175			—			—			175
Balance as of March 31, 2021		36,697,808	$	4	$	399,532		$	—		$	(127,071	)	$	272,465
Net loss		—		—		—			—			(21,967	)		(21,967	)
Stock-based compensation		—		—		4,452			—			—			4,452
Unrealized loss on marketable securities		—		—		—			(42	)		—			(42	)
Issuance of common stock upon exercise of stock options		24,861		—		161			—			—			161
Balance as of June 30, 2021		36,722,669	$	4	$	404,145		$	(42	)	$	(149,038	)	$	255,069

Balance as of December 31, 2021		36,902,499	$	4	$	414,024		$	(168	)	$	(196,083	)	$	217,777
Net loss		—		—		—			—			(24,649	)		(24,649	)
Stock-based compensation		—		—		4,975			—			—			4,975
Unrealized loss on marketable securities		—		—		—			(516	)		—			(516	)
Issuance of common stock upon exercise of stock options		53,377		—		93			—			—			93
Shares sold as part of controlled equity offering sales agreement		2,080,486		—		42,128			—			—			42,128
Issuance of common stock related to employee stock purchase plan		8,307		—		169			—			—			169
Balance as of March 31, 2022		39,044,669	$	4	$	461,389		$	(684	)	$	(220,732	)	$	239,977
Net loss		—		—		—			—			(24,652	)		(24,652	)
Stock-based compensation		—		—		6,163			—			—			6,163
Unrealized loss on marketable securities		—		—		—			(592	)		—			(592	)
Issuance of common stock upon exercise of stock options		194,498		—		326			—			—			326
Shares sold as part of controlled equity offering sales agreements		143,300		—		3,099			—			—			3,099
Balance as of June 30, 2022		39,382,467	$	4	$	470,977		$	(1,276	)	$	(245,384	)	$	224,321

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

Stoke Therapeutics, Inc.

Condensed consolidated statements of cash flows

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(49,301	)	$	(38,760	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		549			485
Amortization and accretion of marketable securities		42			37
Stock-based compensation		11,138			7,150
Loss on disposal of property and equipment		—			29
Reduction in the carrying amount of right of use assets		910			548
Changes in assets and liabilities:
Prepaid expenses and other current assets		(4,236	)		(2,301	)
Accounts payable and accrued liabilities		(2,383	)		(3,155	)
Deferred revenue		55,844			—
Net cash provided by (used in) operating activities	$	12,563		$	(35,967	)
Cash flows from investing activities:
Purchases of marketable securities		(196,484	)		(82,235	)
Purchases of property and equipment		(1,523	)		(724	)
Sales of marketable securities		62,371			—
Net cash used in investing activities	$	(135,636	)	$	(82,959	)
Cash flows from financing activities:
Proceeds from Employee Stock Purchase Plan		169			175
Proceeds from issuance of common stock upon exercise of stock options		419			532
Proceeds from controlled equity offering sales agreements		45,344			—
Other		—			(2	)
Net cash provided by financing activities	$	45,932		$	705
Net decrease in cash, cash equivalents and restricted cash	$	(77,141	)	$	(118,221	)
Cash, cash equivalents and restricted cash—beginning of period	$	145,464		$	287,513
Cash, cash equivalents and restricted cash—end of period	$	68,323		$	169,292

Right-of-use assets recognized in exchange for operating leases	$	1,802		$	690
Property and equipment included in accrued expense and accounts payable	$	754		$	—

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

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 a biotechnology company dedicated to addressing the underlying cause of severe diseases by upregulating protein expression with RNA-based medicines.

Shelf Registration

In July 2020, the Company filed a universal Shelf Registration statement on Form S-3 (the “Prior Registration Statement”) with the Securities and Exchange Commission (the “SEC”). The Prior Registration Statement was declared effective by the SEC on July 20, 2020, and contained two prospectuses: a base prospectus, which covered the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $400,000,000 of its common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, subscription rights to purchase 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 the Company of up to a maximum aggregate offering price of $150,000,000 of its common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“Prior Sales Agreement”). On May 31, 2022, the Prior Registration Statement was deactivated upon the effectiveness of the Registration Statement (as defined below). As of such date, the Company had issued approximately 2.2 million shares of common stock in connection with the Prior Sales Agreement for net proceeds of $45.3 million.

In May 2022, the Company filed an additional universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the SEC. The Registration Statement was declared effective by the SEC on May 31, 2022, 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 its common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, subscription rights to purchase 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 the Company of up to a maximum aggregate offering price of $150,000,000 of its common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“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 June 30, 2022, the Company had not issued any shares pursuant to the Sales Agreement. Subsequent to June 30, 2022, the Company did not sell any shares of its common stock under the Sales Agreement.

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, the Company expects that its cash, cash equivalents, marketable securities and restricted cash 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, 2021, which was filed with the SEC on March 10, 2022. The Company’s financial information as of June 30, 2022 and for the six months ended June 30, 2022 and 2021 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, 2021 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 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, cash equivalents and restricted cash

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.

At June 30, 2022, 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.

Cash and cash equivalents, and restricted cash in the condensed consolidated statements of cash flows consists of the following (in thousands):

	As of June 30,
	2022		2021
Cash and cash equivalents	$	67,754	$	169,070
Restricted cash - short-term	$	—	$	147
Restricted cash - long-term	$	569	$	75
Total cash, cash equivalents and restricted cash	$	68,323	$	169,292

Marketable Securities

Marketable securities consist of government securities and obligations, corporate bonds and commercial paper with original maturities of more than 90 days. Investments are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of other comprehensive income/(loss). Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determination at each balance sheet date.

Concentration of credit risk

Financial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash and cash equivalents. The Company maintains its cash and cash equivalents at an accredited financial institution in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

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.

Revenue recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

In January 2022, the Company entered into a collaboration and licensing agreement with Acadia Pharmaceuticals, Inc. (“Acadia”) which is within the scope of ASC 606 (see Note 7). In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under this agreement, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for this arrangement, the Company must use its judgment to determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and (d) the contract term and pattern of satisfaction of the performance obligations under step (v) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as accounts receivable in the Company’s condensed consolidated balance sheets. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.

Upfront license fees

The licenses of the Company’s intellectual property granted to Acadia was not determined to be distinct from the other promises or performance obligations identified in the arrangement. Accordingly, such licenses are therefore combined with other promises in the arrangement. The Company exercises judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Customer options

If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. No such material rights were identified in the arrangement with Acadia. If such material rights were identified, then the Company would allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized or begin to be recognized as revenue until, at the earliest, the option is exercised.

Research and development services

The promises under the Company’s collaboration agreement with Acadia includes research and development services to be performed by the Company for or on behalf of the customer. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.

Milestone payments

At the inception of the Acadia arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. The development milestones in the Acadia arrangement are not considered probable of achievement at the outset of the arrangement.

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 30^th, (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, the market value of its stock held by non-affiliates is less than $700 million and the Company’s 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. The Company adopted this standard on January 1, 2021 and the adoption of this update did not have a material impact on its condensed 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, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	67,754	$	—	$	—	$	67,754
Total	$	67,754	$	—	$	—	$	67,754

Marketable Securities:
Corporate bonds	$	—	$	34,519	$	—	$	34,519
Commercial paper		—		14,712		—		14,712
US Government debt securities		—		158,645		—		158,645
Total	$	—	$	207,876	$	—	$	207,876

Fair value measurements as of December 31, 2021

Level 1

Level 2

Level 3

Total

Cash equivalents:

Money market funds