10-Q 1 dsgn-20240331.htm 10-Q 10-Q
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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 March 31, 2024

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: 001-40288

 

Design Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

82-3929248

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

6005 Hidden Valley Road, Suite 110

Carlsbad, California

 

92011

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (858) 293-4900

 

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

 

DSGN

 

The 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

The number of outstanding shares of the registrant’s common stock, $0.0001 par value per share, as of May 3, 2024, was 56,495,039.

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our plans to research, develop and commercialize our product candidates;
our expectations for resuming clinical development of our program in Friedrich ataxia and announcing data therefrom and the timing thereof;
the side effect profile observed in nonclinical testing of DT-216P2 being indicative of the side effect profile that may be expected in clinical studies, and in general the ability of DT-216P2 to prevent injection site thrombophlebitis or other limiting side effects;
the initiation, progress, success, cost and timing of our nonclinical studies, clinical trials and product development activities;
the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;
our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;
our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;
the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our nonclinical studies and clinical trials as well as third-party suppliers and manufacturers;
our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;
the size and growth of the potential markets for our product candidates and our ability to serve those markets;
the potential scope, duration and value of our intellectual property rights;
our ability, and the ability of our licensors, to obtain, maintain, defend and enforce intellectual property rights protecting our platform technologies and product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;
our ability to recruit and retain key personnel;
the effects of macroeconomic factors on our operations;
our expected use of the net proceeds from our initial public offering; and
other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

i


 

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context otherwise indicates, references in this Quarterly Report to the terms “Design”, “the Company”, “we”, “our”, and “us” refer to Design Therapeutics, Inc., and references to our “common stock” refers to our voting common stock.

 

Trademarks and Service Marks

“Design Therapeutics,” “Design,” “GeneTAC,” the Design logo and other trademarks, trade names or service marks of Design Therapeutics, Inc. appearing in this Quarterly Report on Form 10-Q are the property of Design Therapeutics, Inc. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:

We have a limited operating history, have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, may not be able to sustain it.
We are early in our development efforts, with our research programs currently in the nonclinical or discovery stage. We have a limited history of conducting clinical trials to test our product candidates in humans.
Nonclinical and clinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of nonclinical studies and clinical trials may not be predictive of future trial results. If development of our programs is unsuccessful or delayed, we may be unable to obtain required regulatory approvals and be unable to commercialize our product candidates on a timely basis, if at all.
Our product candidates are based on novel technologies, which make it difficult to predict the timing, results and cost of product candidate development and likelihood of obtaining regulatory approval.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, cause us to suspend or discontinue clinical trials, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of our product candidates and adversely impact our ability to generate revenue, our business and our results of operations.
A health epidemic or pandemic could adversely impact our business and affect our operations, as well as the business or operations of our manufacturers or other third parties with whom we conduct business.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

ii


 

We may rely on third parties to conduct, supervise, and monitor our clinical trials and perform some of our research and nonclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.
We contract with third parties for the manufacturing and supply of our product candidates for use in nonclinical testing and clinical trials, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.
Any approved products may fail to achieve the degree of market acceptance by physicians, patients, hospitals, healthcare payors and others in the medical community necessary for commercial success.
If the market opportunities for any of our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
If any of our product candidates are approved for marketing and commercialization and we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we will be unable to successfully commercialize our product candidates if and when they are approved.
We may not realize the benefits of any acquisitions, in-license or strategic alliances that we enter into.
We may wish to form collaborations in the future with respect to our product candidates, but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, transparency laws and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we are unable to obtain and maintain sufficient intellectual property protection for our platform technologies and product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.
We may not be able to protect our intellectual property rights throughout the world.
We may rely on trade secrets and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
The price of our common stock could be subject to volatility related or unrelated to our operations.

iii


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

Condensed Balance Sheets

1

Condensed Statements of Operations

2

Condensed Statements of Comprehensive Loss

3

Condensed Statements of Stockholders’ Equity

4

Condensed Statements of Cash Flows

5

Notes to Condensed Financial Statements

6

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

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

 

 

 

 

iv


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DESIGN THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,397

 

 

$

21,200

 

Investment securities

 

 

241,289

 

 

 

260,598

 

Prepaid expenses and other current assets

 

 

3,200

 

 

 

2,786

 

Total current assets

 

 

273,886

 

 

 

284,584

 

Property and equipment, net

 

 

1,718

 

 

 

1,691

 

Right-of-use asset, related party

 

 

2,762

 

 

 

2,938

 

Other assets

 

 

427

 

 

 

430

 

Total assets

 

$

278,793

 

 

$

289,643

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,372

 

 

$

1,940

 

Accrued expenses and other current liabilities (including related party amounts of $736 and $716 respectively)

 

 

5,722

 

 

 

7,682

 

Total current liabilities

 

 

7,094

 

 

 

9,622

 

Operating lease liability, net, related party

 

 

2,142

 

 

 

2,334

 

Total liabilities

 

 

9,236

 

 

 

11,956

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized at March 31, 2024 and December 31, 2023; 56,494,271 and 56,473,598 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

458,449

 

 

 

455,245

 

Accumulated deficit

 

 

(188,731

)

 

 

(177,626

)

Accumulated other comprehensive (loss) income

 

 

(167

)

 

 

62

 

Total stockholders’ equity

 

 

269,557

 

 

 

277,687

 

Total liabilities and stockholders’ equity

 

$

278,793

 

 

$

289,643

 

 

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

1


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development (including related party amounts of $224 and $259, respectively)

 

$

9,801

 

 

$

15,730

 

General and administrative (including related party amounts of $135 and $135, respectively)

 

 

4,599

 

 

 

5,921

 

Total operating expenses

 

 

14,400

 

 

 

21,651

 

Loss from operations

 

 

(14,400

)

 

 

(21,651

)

Other income, net

 

 

3,295

 

 

 

2,357

 

Net loss

 

$

(11,105

)

 

$

(19,294

)

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.20

)

 

$

(0.35

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

56,488,527

 

 

 

55,908,033

 

 

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

2


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(11,105

)

 

$

(19,294

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities

 

 

(229

)

 

 

1,374

 

Comprehensive loss

 

$

(11,334

)

 

$

(17,920

)

 

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

3


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2023

 

 

56,473,598

 

 

$

6

 

 

$

455,245

 

 

$

62

 

 

$

(177,626

)

 

$

277,687

 

Exercises of stock options

 

 

20,673

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

20

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,184

 

 

 

 

 

 

 

 

 

3,184

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(229

)

 

 

 

 

 

(229

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,105

)

 

 

(11,105

)

Balance at March 31, 2024

 

 

56,494,271

 

 

$

6

 

 

$

458,449

 

 

$

(167

)

 

$

(188,731

)

 

$

269,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

55,895,596

 

 

$

6

 

 

$

441,424

 

 

$

(3,356

)

 

$

(110,764

)

 

$

327,310

 

Exercises of stock options and vesting of restricted stock

 

 

23,965

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,426

 

 

 

 

 

 

 

 

 

3,426

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

1,374

 

 

 

 

 

 

1,374

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,294

)

 

 

(19,294

)

Balance at March 31, 2023

 

 

55,919,561

 

 

$

6

 

 

$

444,852

 

 

$

(1,982

)

 

$

(130,058

)

 

$

312,818

 

 

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

4


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(11,105

)

 

$

(19,294

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

143

 

 

 

129

 

Stock-based compensation

 

 

3,184

 

 

 

3,426

 

Amortization of premiums on investment securities, net

 

 

(1,731

)

 

 

(1,142

)

Non-cash lease expense

 

 

4

 

 

 

10

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expense and other assets

 

 

(411

)

 

 

1,192

 

Accounts payable and other liabilities

 

 

(2,523

)

 

 

(1,745

)

Net cash used in operating activities

 

 

(12,439

)

 

 

(17,424

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investment securities

 

 

(45,659

)

 

 

(33,615

)

Proceeds from maturities of investment securities

 

 

66,470

 

 

 

53,435

 

Purchases of property and equipment

 

 

(195

)

 

 

(87

)

Net cash provided by investing activities

 

 

20,616

 

 

 

19,733

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

20

 

 

 

 

Net cash provided by financing activities

 

 

20

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

8,197

 

 

 

2,309

 

Cash and cash equivalents at beginning of period

 

 

21,200

 

 

 

26,500

 

Cash and cash equivalents at end of period

 

$

29,397

 

 

$

28,809

 

 

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

5


 

DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Organization

Design Therapeutics, Inc. (the “Company”) was incorporated in Delaware in December 2017 and is based in Carlsbad, California. The Company is a biopharmaceutical company pioneering the research and development of GeneTACTM molecules, which are a novel class of small-molecule gene targeted chimera therapeutic candidates designed to be disease-modifying by addressing the underlying cause of diseases caused by inherited nucleotide repeat expansion mutations. The Company’s lead product candidate is in Friedreich ataxia (“FA”), its second product candidate is in Fuchs endothelial corneal dystrophy (“FECD”), and it is also advancing GeneTACTM programs to address other diseases.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net operating losses since inception and had an accumulated deficit of $188.7 million as of March 31, 2024. The Company had cash, cash equivalents and investment securities of $270.7 million as of March 31, 2024, and has not generated positive cash flow from operations.

Management expects to incur net losses for the foreseeable future. There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved, that they will be sustained on a continuing basis. In addition, the research, product development and clinical development activities as well as the commercialization of the Company's products, if approved, will require significant additional financing. The Company may be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company or the current stockholders. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations. The Company's currently available cash and cash equivalents as of March 31, 2024 are sufficient to meet its anticipated cash requirements for more than 12 months following the date the financial statements are issued.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles and following the requirements of the United States Securities and Exchange Commission (“SEC”) for interim reporting. The Company's financial statements include all adjustments, consisting of only normal recurring adjustments, which in the opinion of management are necessary to present fairly the Company’s financial position as of the reporting date and results of operations and cash flows for the periods presented.

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company manages its operations as a single reportable segment for the purposes of assessing performance and making operating decisions.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2023-07, Accounting Standards Codification (ASC) Topic 280, Segment Reporting: Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about

6


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

significant segment expenses. The ASU also requires public entities with a single reportable segment to provide all segment disclosures under ASC 280, including the new disclosures under the ASU. Annual disclosures are required for fiscal years beginning after December 15, 2023 and for interim disclosures within fiscal years beginning after December 15, 2024. Retrospective application is required and early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, ASC Topic 740, Income Taxes: Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.

3. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of stock options outstanding under the Company’s equity incentive plans, restricted common stock subject to repurchase, and employee stock purchase rights under the Company’s 2021 Employee Stock Purchase Plan (the “ESPP”), as applicable. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company's net loss position.

The following table sets forth the outstanding, potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

 

 

 

March 31,
2024

 

 

March 31,
2023

 

Stock options

 

 

10,710,448

 

 

 

7,914,191

 

Shares subject to repurchase

 

 

 

 

 

25,990

 

Employee stock purchase plan

 

 

113,342

 

 

 

46,573

 

Total

 

 

10,823,790

 

 

 

7,986,754

 

 

4. Fair Value Measurements

Accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an 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 such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

7


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

The following table summarizes the Company’s financial instruments measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

Fair Value Measurement at End of Period Using:

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

 

 

In Active

 

 

 

 

 

 

 

 

 

 

 

 

Markets

 

 

Significant

 

 

 

 

 

 

 

 

 

For

 

 

Other

 

 

Significant

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

As of March 31, 2024:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

27,397

 

 

$

27,397

 

 

$

 

 

$

 

Certificates of deposit

 

 

12,870

 

 

 

12,870

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

211,937

 

 

 

211,937

 

 

 

 

 

 

 

U.S. Government agency securities

 

 

16,482

 

 

 

 

 

 

16,482

 

 

 

 

Total

 

$

268,686

 

 

$

252,204

 

 

$

16,482

 

 

$

 

As of December 31, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

19,619

 

 

$

19,619

 

 

$

 

 

$

 

Certificates of deposit

 

 

14,336

 

 

 

14,336

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

221,304

 

 

 

221,304

 

 

 

 

 

 

 

U.S. Government agency securities

 

 

24,958

 

 

 

 

 

 

24,958

 

 

 

 

Total

 

$

280,217

 

 

$

255,259

 

 

$

24,958

 

 

$

 

 

(1)
Included in cash and cash equivalents on the accompanying balance sheets.

 

Interest bearing money market accounts and certificates of deposit are valued at amortized cost, which approximates fair value. The carrying value of the Company’s cash, accounts payable and accrued liabilities are considered to be representative of their respective fair values due to the short-term nature of those instruments. The Company’s investment securities, which may include money market accounts, money market funds, certificates of deposits, U.S. Treasury securities, and high quality, marketable debt instruments of corporations and government sponsored enterprises, are measured at fair value in accordance with the fair value hierarchy. The Company obtains the fair value of its available-for-sale debt securities from a professional pricing service. Level II securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data and include our investments in marketable debt instruments of government sponsored enterprises. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis and no transfers between levels have occurred during the periods presented.

8


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

5. Investment Securities

The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. The Company’s investment securities consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

 

 

As of March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance

 

 

Fair

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

for Credit

 

 

Market

 

 

 

Maturity

 

Cost

 

 

Gains

 

 

Losses

 

 

Losses

 

 

Value

 

Certificates of deposits

 

Within 1 year

 

$

9,755

 

 

$

1

 

 

$

(18

)

 

$

 

 

$

9,738

 

U.S. Treasury securities

 

Within 1 year

 

 

159,617

 

 

 

5

 

 

 

(201

)

 

 

 

 

 

159,421

 

U.S. Government agency securities

 

Within 1 year

 

 

2,500

 

 

 

 

 

 

(11

)

 

 

 

 

 

2,489

 

Certificates of deposits

 

1 year to 2 years

 

 

3,127

 

 

 

8

 

 

 

(3

)

 

 

 

 

 

3,132

 

U.S. Treasury securities

 

1 year to 2 years

 

 

52,457

 

 

 

76

 

 

 

(17

)

 

 

 

 

 

52,516

 

U.S. Government agency securities

 

1 year to 2 years

 

 

14,000

 

 

 

 

 

 

(7

)

 

 

 

 

 

13,993

 

Total

 

 

 

$

241,456

 

 

$

90

 

 

$

(257

)

 

$

 

 

$

241,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance

 

 

Fair

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

for Credit

 

 

Market

 

 

 

Maturity

 

Cost

 

 

Gains

 

 

Losses

 

 

Losses

 

 

Value

 

Certificates of deposits

 

Within 1 year

 

$

10,488

 

 

$

2

 

 

$

(23

)

 

$

 

 

$

10,467

 

U.S. Treasury securities

 

Within 1 year

 

 

162,746

 

 

 

70

 

 

 

(349

)

 

 

 

 

 

162,467

 

U.S. Government agency securities

 

Within 1 year

 

 

12,499

 

 

 

 

 

 

(29

)

 

 

 

 

 

12,470

 

Certificates of deposits

 

1 year to 2 years

 

 

3,862

 

 

 

12

 

 

 

(5

)

 

 

 

 

 

3,869

 

U.S. Treasury securities

 

1 year to 2 years

 

 

58,441

 

 

 

412

 

 

 

(16

)

 

 

 

 

 

58,837

 

U.S. Government agency securities

 

1 year to 2 years

 

 

12,500

 

 

 

2

 

 

 

(14

)

 

 

 

 

 

12,488

 

Total

 

 

 

$

260,536

 

 

$

498

 

 

$

(436

)

 

$

 

 

$

260,598

 

 

The Company reviews its investments at each reporting date to identify and evaluate whether a decline in fair value below the amortized cost basis of available-for-sale securities is due to credit-related factors and determines if such unrealized losses are the result of credit losses that require impairment. Factors considered in determining whether an unrealized loss is the result of a credit loss or other factors include the extent to which the fair value is less than the cost basis, any changes to the rating of the security by a rating agency, the financial condition and near-term prospects of the issuer, any historical failure of the issuer to make scheduled interest or principal payments, any adverse legal or regulatory events affecting the issuer or issuer’s industry, any significant deterioration in economic condition and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

9


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

There were 93 and 71 securities in an unrealized loss position at March 31, 2024 and December 31, 2023, respectively. The Company determined that unrealized losses on its available-for-sale investment securities were primarily attributable to changes in interest rates. Each security remained at a high credit quality rating. Further, there had been no adverse conditions noted for any of the issuers and the Company does not intend to sell any of the securities prior to maturity. As such, an allowance for credit losses has not been recognized as of March 31, 2024 or December 31, 2023.

The following tables present available-for-sale investments that were in an unrealized loss position as of March 31, 2024 and December 31, 2023, aggregated by security type and length of time in a continuous unrealized loss position (in thousands):

 

 

 

As of March 31, 2024

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Estimated

 

 

 

 

 

Estimated

 

 

 

 

 

Estimated

 

 

 

 

 

 

Fair

 

 

 

 

 

Fair

 

 

 

 

 

Fair

 

 

 

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Certificates of deposits

 

$

6,807

 

 

$

(8

)

 

$

3,418

 

 

$

(13

)

 

$

10,225

 

 

$

(21

)

U.S. Treasury securities

 

 

120,676

 

 

 

(138

)

 

 

27,338

 

 

 

(80

)

 

 

148,014

 

 

 

(218

)

U.S. Government agency securities

 

 

13,993

 

 

 

(7

)

 

 

2,489

 

 

 

(11

)

 

 

16,482

 

 

 

(18

)

Total

 

$

141,476

 

 

$

(153

)

 

$

33,245

 

 

$

(104

)

 

$

174,721

 

 

$

(257

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2023

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Estimated

 

 

 

 

 

Estimated

 

 

 

 

 

Estimated

 

 

 

 

 

 

Fair

 

 

 

 

 

Fair

 

 

 

 

 

Fair

 

 

 

 

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

Market

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Certificates of deposits

 

$

8,514

 

 

$

(14

)

 

$

1,456

 

 

$

(14

)

 

$

9,970

 

 

$

(28

)

U.S. Treasury securities

 

 

44,346

 

 

 

(102

)

 

 

51,979

 

 

 

(263

)

 

 

96,325

 

 

 

(365

)

U.S. Government agency securities

 

 

12,484

 

 

 

(16

)

 

 

7,473

 

 

 

(27

)

 

 

19,957

 

 

 

(43

)

Total

 

$

65,344

 

 

$

(132

)

 

$

60,908

 

 

$

(304

)

 

$

126,252

 

 

$

(436

)

 

As of March 31, 2024, the Company held 53 domestic certificates of deposit with amortized costs below the Federal Deposit Insurance Corporation insured limit. Accrued interest receivable on available-for-sale investment securities, included in prepaid expenses and other current assets on the Company’s balance sheets, was $1.7 million and $1.4 million at March 31, 2024 and December 31, 2023, respectively.

6. Balance Sheet Details

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Prepaid expenses

 

$

1,524

 

 

$

1,354

 

Interest receivable

 

 

1,676

 

 

 

1,432

 

Total

 

$

3,200

 

 

$

2,786

 

 

10


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

Property and equipment consisted of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Laboratory equipment

 

$

2,146

 

 

$

1,976

 

Computer equipment and software

 

 

102

 

 

 

102

 

Furniture and fixtures

 

 

521

 

 

 

521

 

Leasehold improvements

 

 

151

 

 

 

151

 

 

 

2,920

 

 

 

2,750

 

Less accumulated depreciation

 

 

(1,202

)

 

 

(1,059

)

Total

 

$

1,718

 

 

$

1,691

 

 

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

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued personnel costs

 

$

2,069

 

 

$

4,034

 

Accrued research and development costs

 

 

2,341

 

 

 

2,350

 

Current portion of operating lease liability

 

 

736

 

 

 

716

 

Accrued other

 

 

576

 

 

 

582

 

Total

 

$

5,722

 

 

$

7,682

 

 

7. Leases

In February 2021, the Company entered into a lease agreement with Crossing Holdings, LLC to rent approximately 12,370 square feet of laboratory and office space (the “Lease”). Dr. Pratik Shah and entities that he controls are the sole members of Crossing Holdings, LLC. The lease commenced in September 2021 with a term of 72 months and an option to extend the lease term for a period of three years; however, it is not reasonably certain the Company will exercise the option to renew when the lease term ends in 2027, and thus, the incremental term was excluded from the calculation of the right-of-use asset or lease liability. Lease payments are subject to annual increases of 3% and the Company is responsible for its share of operating expenses and taxes, which are expensed as incurred. In March 2022, the Company entered into an amendment (the “Lease Amendment”) to its Lease with Crossing Holdings, LLC to rent approximately 4,900 square feet of additional office space in the same building. The Lease Amendment commenced in June 2022 and the term of the additional premises under the Lease Amendment coincides with the term of the Lease and ends in 2027. As of March 31, 2024, the weighted-average remaining lease term for the Company's leases was 3.4 years and the weighted-average discount rate used to determine the right-of-use asset and corresponding operating lease liability was 7.37%.

Maturities of operating lease liabilities as of March 31, 2024 are as follows (in thousands):

 

 2024 (remaining nine months)

 

$

690

 

 2025

 

 

945

 

 2026

 

 

973

 

 2027

 

 

663

 

Thereafter

 

 

 

Total future minimum lease payments

 

 

3,271

 

Less: Present value adjustment

 

 

(393

)

Operating lease liabilities

 

$

2,878

 

 

Rent expense for each of the three months ended March 31, 2024 and 2023 was $0.2 million.

11


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

8. Commitments and Contingencies

Contingencies

From time to time, the Company may become subject to claims or suits arising in the ordinary course of business. The Company accrues a liability for such matters when it is probable that the future expenditures will be made and such expenditures can be reasonably estimated. The Company had no such contingent liabilities as of March 31, 2024 or December 31, 2023.

9. License Agreement

In February 2019, the Company entered into a Human Therapeutics Exclusive License Agreement (the “License Agreement”) with the Wisconsin Alumni Research Foundation (“WARF”). Under the License Agreement, the Company licensed the exclusive, worldwide, royalty-bearing, sublicensable rights to certain WARF patents and the nonexclusive worldwide rights to certain know-how to develop and commercialize products for the prevention, diagnosis and treatment of disease. As consideration for the license, the Company agreed to pay an upfront fee of $0.3 million, which the Company immediately expensed as research and development expense in its statements of operations as there was no alternative future use for the license.

In 2022, pursuant to the License Agreement, the Company paid $0.1 million upon the acceptance of an Investigational New Drug Application (“IND”) in the U.S. The Company will be required to make further aggregate milestone payments of up to $17.5 million upon achievement of certain other regulatory and commercial milestones. The Company may also be required to pay royalties based on annual net product sales in the low single digits on its or its sublicensees’ net product sales on a country-by-country and product-by-product basis, and is subject to a minimum royalty of $0.1 million per calendar year upon first commercial product sale. Further, the Company may be required to pay sublicense fees in the mid-single digits percentage for fees, royalties or other payments earned from the granting of sublicenses to the WARF patents and know-how.

The Company is responsible for reimbursing WARF for costs incurred in connection with prosecuting and maintaining patent rights that are specific to the License Agreement. Expenses recognized in connection with legal patent fees under this License Agreement were immaterial for the three months ended March 31, 2024 and 2023, respectively.

The Company may terminate the License Agreement with 90 days written notice or for certain breaches of the agreement. WARF may terminate the License Agreement with 90 days written notice if first commercial sale does not occur before December 31, 2031. Unless terminated earlier by the parties, the term of the License Agreement will continue until the last licensed patent expires in all countries.

10. Stockholders’ Deficit

Shelf Registration Statement

In April 2022, the Company filed a shelf registration statement on Form S-3 (the “2022 Shelf Registration Statement”), which became effective in May 2022. The 2022 Shelf Registration Statement permits: (i) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $300.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination; and (ii) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $100.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement (the “ATM Program”). The $100.0 million of common stock that may be issued and sold under the ATM Program is included in the $300.0 million of securities that may be issued and sold under the 2022 Shelf Registration Statement. As of March 31, 2024, the Company has not sold any shares of its common stock under the ATM Program.

 

11. Stock-Based Compensation

Equity Incentive Award Plans

The number of shares of common stock available for issuance under the Company's 2021 Equity Incentive Plan will automatically increase on January 1 of each calendar year through January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors. As of March 31, 2024, the total number of shares available for future issuance was 5,757,043.

12


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(continued)

(unaudited)

 

The following table summarizes stock option activity for the three months ended March 31, 2024:

 

 

 

Options

 

 

Weighted-Average Exercise Price

 

Outstanding at December 31, 2023

 

 

8,561,753

 

 

$

8.67

 

Granted

 

 

2,497,450

 

 

$

2.55

 

Exercised

 

 

(20,673

)

 

$

0.95

 

Forfeited

 

 

(328,082

)

 

$

13.52

 

Balance at March 31, 2024

 

 

10,710,448

 

 

$

7.11

 

 

Stock-based compensation expense has been reported in the Company's condensed statements of operations as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

1,567

 

 

$

1,482

 

General and administrative

 

 

1,617

 

 

 

1,944

 

Total

 

$

3,184

 

 

$

3,426

 

 

In August 2023, the Company granted two stock options, each to purchase up to 525,000 shares of the Company's common stock, which contained both time-based and performance-based conditions. Stock-based compensation expense for awards with performance conditions is recognized ratably over the expected performance period when the achievement of such performance conditions is determined to be probable.

The Company has assessed the probability of achievement of the performance-based conditions and has recorded related stock-based compensation expense to the extent the performance-based conditions were determined to be probable.

2021 Employee Stock Purchase Plan

The number of shares of common stock available for issuance under the Company's ESPP will automatically increase on January 1 of each calendar year through January 1, 2031, in an amount equal to the lesser of (i) 1% of the total number of shares of the Company’s common stock on the last day of the calendar month before the date of each automatic increase and (ii) 1,200,000 shares; or a lesser number of shares determined by the Company’s board of directors. As of March 31, 2024, the Company had issued 132,776 shares of the Company's common stock under the ESPP and had 2,148,209 shares available for future issuance.

Lease Agreement

In February 2021, the Company entered into the Lease with Crossing Holdings, LLC to rent laboratory and office space. In March 2022, the Company entered into the Lease Amendment with Crossing Holdings, LLC amending the Lease for additional office space in the same building. Dr. Pratik Shah and entities that he controls are the sole members of Crossing Holdings, LLC.

Expenses recognized by the Company under the Lease and Lease Amendment during the periods presented were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development