10-Q 1 stok-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

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 April 29, 2024 the registrant had 52,119,860 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

Consolidated balance sheets

4

Consolidated statements of operations and comprehensive loss

5

Consolidated statements of stockholders’ equity

6

Consolidated statements of cash flows

7

Notes to unaudited consolidated financial statements

8

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

67

Signatures

68

 

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, but not limited to, statements regarding the ability of STK-001 to treat the underlying causes of Dravet syndrome and reduce seizures or show improvements in behavior or cognition at the indicated dosing levels or at all, the timing and expected progress of clinical trials, 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;
the direct and indirect impact of inflation, interest rates, foreign currency exchange rates, instability in the global banking system, geopolitical conflict and macroeconomic conditions, including as a result of a potential temporary federal government shutdown, 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 develop, obtain regulatory approval for and commercialize STK-001, STK-002 and our future product candidates;
our success in early preclinical studies or clinical trials, which may not be indicative of results obtained in later studies or trials;
the success of our collaboration with Acadia Pharmaceuticals and our ability to enter into successful collaborations in the future;
the availability of coverage and adequate reimbursement from third party payors for STK-001, STK-002 and our future product candidates, if such products are approved;
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.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Stoke Therapeutics, Inc. and subsidiary

Consolidated balance sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

178,581

 

 

$

191,442

 

Marketable securities

 

 

 

 

 

9,952

 

Prepaid expenses

 

 

10,722

 

 

 

11,320

 

Other current assets

 

 

3,559

 

 

 

2,561

 

Deferred financing costs

 

 

402

 

 

 

 

Interest receivable

 

 

11

 

 

 

64

 

Total current assets

 

$

193,275

 

 

$

215,339

 

Restricted cash

 

 

569

 

 

 

569

 

Operating lease right-of-use assets

 

 

6,060

 

 

 

6,611

 

Property and equipment, net

 

 

5,278

 

 

 

5,823

 

Total Assets

 

$

205,182

 

 

$

228,342

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,102

 

 

$

1,695

 

Accrued and other current liabilities

 

 

12,570

 

 

 

13,815

 

Deferred revenue - current portion

 

 

20,918

 

 

 

15,309

 

Total current liabilities

 

$

35,590

 

 

$

30,819

 

Deferred revenue - net of current portion

 

 

25,042

 

 

 

33,074

 

Other long term liabilities

 

 

4,208

 

 

 

4,884

 

Total long term liabilities

 

 

29,250

 

 

 

37,958

 

Total liabilities

 

$

64,840

 

 

$

68,777

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, par value of $0.0001 per share; 300,000,000 shares
   authorized,
46,498,077 and 45,918,233 shares issued and outstanding as
   of March 31, 2024 and December 31, 2023, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

568,560

 

 

 

561,433

 

Accumulated other comprehensive loss

 

 

 

 

 

(24

)

Accumulated deficit

 

 

(428,223

)

 

 

(401,849

)

Total stockholders’ equity

 

$

140,342

 

 

$

159,565

 

Total liabilities and stockholders’ equity

 

$

205,182

 

 

$

228,342

 

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

4


 

Stoke Therapeutics, Inc. and subsidiary

Consolidated statements of operations and comprehensive loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

Revenue

 

$

4,216

 

 

$

5,152

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

22,368

 

 

 

19,631

 

 

General and administrative

 

 

10,220

 

 

 

10,211

 

 

Total operating expenses

 

 

32,588

 

 

 

29,842

 

 

Loss from operations

 

 

(28,372

)

 

 

(24,690

)

 

Other income (expense):

 

 

 

 

 

 

 

Interest income (expense), net

 

 

2,426

 

 

 

2,103

 

 

Other income (expense), net

 

 

(428

)

 

 

42

 

 

Total other income (expense)

 

 

1,998

 

 

 

2,145

 

 

Net loss

 

$

(26,374

)

 

$

(22,545

)

 

Net loss per share, basic and diluted

 

$

(0.57

)

 

$

(0.53

)

 

Weighted-average common shares outstanding, basic
   and diluted

 

 

46,246,889

 

 

 

42,536,474

 

 

Comprehensive loss:

 

 

 

 

 

 

 

Net loss

 

$

(26,374

)

 

$

(22,545

)

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

24

 

 

 

577

 

 

Total other comprehensive gain

 

$

24

 

 

$

577

 

 

Comprehensive loss

 

$

(26,350

)

 

$

(21,968

)

 

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

 

5


 

Stoke Therapeutics, Inc. and subsidiary

Consolidated statements of stockholders’ equity

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Additional
paid-in capital

 

 

Accumulated other comprehensive gain (loss)

 

 

Accumulated
deficit

 

 

Total stockholders’
equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

 

 

39,439,575

 

 

$

4

 

 

$

483,170

 

 

$

(1,175

)

 

$

(297,150

)

 

$

184,849

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,545

)

 

 

(22,545

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

577

 

 

 

 

 

 

577

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,887

 

 

 

 

 

 

 

 

 

5,887

 

Issuance of common stock upon exercise of stock options

 

 

80,611

 

 

 

 

 

 

158

 

 

 

 

 

 

 

 

 

158

 

Issuance of common stock related to employee stock purchase plan

 

 

19,550

 

 

 

 

 

 

153

 

 

 

 

 

 

 

 

 

153

 

Shares sold as part of controlled equity offering sales agreement

 

 

4,635,353

 

 

 

 

 

 

44,743

 

 

 

 

 

 

 

 

 

44,743

 

Balance as of March 31, 2023

 

 

44,175,089

 

 

$

4

 

 

$

534,111

 

 

$

(598

)

 

$

(319,695

)

 

$

213,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2023

 

 

45,918,233

 

 

$

5

 

 

$

561,433

 

 

$

(24

)

 

$

(401,849

)

 

$

159,565

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,374

)

 

 

(26,374

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,410

 

 

 

 

 

 

 

 

 

5,410

 

Issuance of common stock upon exercise of stock options

 

 

270,032

 

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

250

 

Issuance of common stock related to employee stock purchase plan

 

 

37,542

 

 

 

 

 

 

168

 

 

 

 

 

 

 

 

 

168

 

Shares sold as part of controlled equity offering sales agreement

 

 

272,270

 

 

 

 

 

 

1,299

 

 

 

 

 

 

 

 

 

1,299

 

Balance as of March 31, 2024

 

 

46,498,077

 

 

$

5

 

 

$

568,560

 

 

$

 

 

$

(428,223

)

 

$

140,342

 

 

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

6


 

Stoke Therapeutics, Inc. and subsidiary

Consolidated statements of cash flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(26,374

)

 

$

(22,545

)

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

 

 

 

 

 

 

Depreciation

 

 

563

 

 

 

597

 

Amortization and accretion of marketable securities

 

 

(24

)

 

 

32

 

Stock-based compensation

 

 

5,410

 

 

 

5,887

 

Reduction in the carrying amount of right of use assets

 

 

550

 

 

 

550

 

Changes in assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(349

)

 

 

(2,088

)

Accounts payable, accrued liabilities and lease liabilities

 

 

(1,919

)

 

 

351

 

Deferred revenue

 

 

(2,423

)

 

 

(4,140

)

Net cash used in operating activities

 

 

(24,566

)

 

 

(21,356

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(12

)

 

 

(165

)

Sales of marketable securities

 

 

10,000

 

 

 

53,250

 

Net cash provided by investing activities

 

 

9,988

 

 

 

53,085

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

168

 

 

 

153

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

250

 

 

 

158

 

Proceeds from controlled equity offering sales agreements

 

 

1,299

 

 

 

44,743

 

Net cash provided by financing activities

 

 

1,717

 

 

 

45,054

 

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

 

 

(12,861

)

 

 

76,783

 

Cash, cash equivalents and restricted cash—beginning of period

 

 

192,011

 

 

 

114,125

 

Cash, cash equivalents and restricted cash—end of period

 

$

179,150

 

 

$

190,908

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

Property and equipment included in accrued expense and accounts payable

 

$

6

 

 

$

545

 

Deferred offering costs not yet paid

 

$

402

 

 

$

 

 

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

7


 

Stoke Therapeutics, Inc. and subsidiary

Notes to Consolidated financial statements—(unaudited)

1. Nature of the business

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.

Shelf Registration

In May 2022, the Company filed a 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 $400.0 million 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 $150.0 million 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 $150.0 million of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400.0 million of securities that may be offered, issued and sold by the Company under the base prospectus. As of March 31, 2024, the Company had issued approximately 6.5 million shares of common stock pursuant to the Sales Agreement for net proceeds of $53.4 million. The Company may terminate this at-the-market program at any time, pursuant to its terms. On April 2, 2024, the Company completed an underwritten public offering of its common stock and issued and sold 5,555,557 shares of common stock at a public offering price of $13.50 per share and issued pre-funded warrants to purchase 3,703,730 shares of common stock at a public offering price of $13.499 per share subject to an exercise price equal to $0.0001. The common stock and warrants sold resulted in net proceeds of $120.3 million after deducting underwriting discounts and commissions (see Note 11).

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

2. Summary of significant accounting policies and recent accounting pronouncements

Basis of presentation and consolidation

The accompanying unaudited 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 the Company and its consolidated subsidiary have been eliminated.

8


 

Unaudited interim financial information

The accompanying interim unaudited 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 notes as of and for the year ended December 31, 2023, which was filed with the SEC on March 25, 2024. The Company’s financial information as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 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, 2023 was derived from audited consolidated 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, revenue, 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 March 31, 2024, 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 consolidated statements of cash flows consists of the following (in thousands):

 

 

 

As of March 31,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

178,581

 

 

$

190,339

 

Restricted cash - long-term

 

 

569

 

 

 

569

 

Total cash, cash equivalents and restricted cash

 

$

179,150

 

 

$

190,908

 

 

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 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 (i) the last day of the first fiscal year (a) following the fifth anniversary of the completion of the Company's IPO, (b) in which the Company has total annual gross revenue of at least $1.235 billion or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three- year period. The Company anticipates ceasing to be an emerging growth company as of December 31, 2024, which is the last day of the fiscal year following the fifth anniversary of the completion of the Company's IPO.

The Company is also a “smaller reporting company,” meaning that in the event of an IPO the market value of its stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to the Company as a result of such offering is less than $700.0 million and its annual revenue is less than $100.0 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 $250.0 million or (ii) its annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of its stock held by

9


 

non-affiliates is less than $700.0 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.

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 March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

171,990

 

 

$

 

 

$

 

 

$

171,990

 

Total

 

$

171,990

 

 

$

 

 

$

 

 

$

171,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

US Government debt securities

 

$

 

 

$

 

 

$

 

 

$

 

Total

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

Fair value measurements as of December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

186,186

 

 

$

 

 

$

 

 

$

186,186

 

Total

 

$

186,186

 

 

$

 

 

$

 

 

$

186,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

US Government debt securities

 

$

 

 

$

9,952

 

 

$

 

 

$

9,952

 

Total

 

$

 

 

$

9,952

 

 

$

 

 

$

9,952

 

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy. The carrying value of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the consolidated balance sheets as of March 31, 2024 and December 31, 2023.

The Company measures its marketable securities at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. Marketable securities are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

There were no transfers to Level 3 in the periods presented.

 

4. Marketable securities

The Company had no marketable securities as of March 31, 2024.

 

The following table summarizes the Company’s marketable securities as of December 31, 2023 (in thousands):

 

10


 

 

 

December 31, 2023

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Loss

 

 

Fair Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

US Government debt securities

 

$

9,976

 

 

$

 

 

$

(24

)

 

$

9,952

 

Total

 

$

9,976

 

 

$

 

 

$

(24

)

 

$

9,952

 

As of December 31, 2023, the weighted average maturity of the Company’s marketable securities ranged from approximately 0.09 years to 0.16 years.

The Company did not record an allowance for credit losses as of March 31, 2024 related to its marketable securities. Further, given the lack of significant change in the credit risk of these investments, the Company did not recognize any other-than-temporary impairment losses.

5. Accrued and other current liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued employee compensation costs

 

$

1,653

 

 

$

5,611

 

Accrued professional costs

 

 

1,732

 

 

 

651

 

Accrued research and development costs

 

 

5,992

 

 

 

4,634

 

Current portion of operating lease liabilities

 

 

2,213

 

 

 

2,062

 

Other current liabilities

 

 

980

 

 

 

857

 

 

$

12,570

 

 

$

13,815

 

 

6. Commitments and contingencies

Operating lease

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. Operating lease right-of-use assets and 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 consolidated statements of operations and comprehensive loss. 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 September 2021, the Company entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years commencing on December 15, 2021 and ending December 31, 2024. In addition, this lease provides for the lease of an additional 15,000 square feet of rentable space beginning on April 1, 2022 and ending on December 31, 2024. In December 2021, the Company recognized a right-of-use asset and operating lease liability of $3.5 million for the 23,000 square feet. On April 1, 2022, the Company recognized a right-of-use asset and operating lease liability of $1.8 million for the 15,000 square feet.

In December 2023, the Company entered into an agreement to extend the term of the 38,000 square foot lease for a period of two years commencing on January 1, 2025 and ending on December 31, 2026. In December 2023, the Company recognized a right-of-use asset and operating lease liability of $4.1 million.

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.

11


 

In June 2021, the Company amended the agreement to extend the initial term of the 2,485 square foot lease for a period of three years commencing May 1, 2022 and ending April 30, 2025. In addition, the amendment provided for the lease of an additional 2,357 square feet of rentable space beginning on July 6, 2021 and ending on April 30, 2025. The amended lease provides the Company with the option to extend the term of the lease for an additional two years. In 2021, the Company recognized a right-of-use asset and operating lease liabilities of $0.7 million for the extension of the lease to April 30, 2025 and a right-of-use asset and operating lease liabilities of $0.8 million for the additional 2,357 square feet of rentable space.

Future minimum lease payments under non-cancellable leases as of March 31, 2024 were as follows (in thousands):

 

2024

 

$

1,959

 

2025

 

 

2,661

 

2026

 

 

2,564

 

Total lease payments

 

 

7,184

 

Less imputed interest

 

 

(846

)

Present value of lease liabilities

 

$

6,338

 

 

Lease balances as of March 31, 2024 were as follows (in thousands):

 

Operating right-of-use assets

 

$

6,060

 

Current Portion of operating lease liabilities

 

$

2,213

 

Non-current portion of operating lease liabilities

 

 

4,125

 

Total operating lease liabilities

 

$

6,338

 

 

The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases as of March 31, 2024 were as follows:

 

Weighted average remaining lease term in years

 

 

2.6

 

Weighted average discount rate

 

 

9.97

%

 

Lease expense incurred under operating leases was $0.7 million for the three months ended March 31, 2024 and for the three months ended March 31, 2023 was $0.6 million.

License and research agreements

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. 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. As of March 31, 2024, the Company had paid $0.70 million under the Southampton Agreement as a result of entering into the Acadia Pharmaceuticals Inc. license and collaboration agreement in January 2022 (see Note 7). Additionally, certain licenses under the Southampton Agreement require the Company to reimburse the University of Southampton for certain past and ongoing patent related expenses. For the three months ended March 31, 2024 these expenses were $0.03 million compared to $0.04 million for the three months ended March 31, 2023.

7. License and collaboration agreement with Acadia Pharmaceuticals Inc.

In January 2022, the Company entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc. (“Acadia”) for the discovery, development and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous system. The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest. In connection with each target, the Company will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed products. With respect to SYNGAP1, the Company has agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection therewith the Company granted to Acadia worldwide, co-exclusive (with Stoke) licenses for such licensed products. With respect to MECP2 and the neurodevelopmental target, the Company granted to Acadia worldwide, exclusive licenses to develop and commercialize licensed products for such targets.

12


 

Pursuant to the terms of the agreement, the Company received an upfront payment of $60.0 million from Acadia. Acadia agreed to fund the research to identify potential licensed products for MECP2 and the neurodevelopmental target, and the Company will equally fund with Acadia the research to identify potential licensed products for SYNGAP1. The Company is eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were achieved at least once. With respect to licensed products for MECP2 and the neurodevelopmental target, the Company is also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide. Royalties payable under the agreement are subject to standard royalty reductions. For SYNGAP1 licensed products that the Company is co-developing and co-commercializing, the Company will be responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization. The Company is provided with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at the Company’s discretion. Such opt-out would reduce development and commercialization milestones but would provide the Company with royalties on an escalating basis attributable to net sales milestones.

Acadia agreement accounting

At the commencement of the Acadia agreement, the Company identified three performance obligations consisting of pre-clinical research activities for each of the three targets, SYNGAP1, MECP2, and the undisclosed neurodevelopmental target. The exclusive or co-exclusive licenses granted to Acadia to conduct pre-clinical research activities on each of the three targets, and participation on each of the respective joint research committees were identified as promised services. However, the licenses granted to Acadia and the research activities were determined to be not distinct from each other, and therefore are considered a combined performance obligation for each of the three targets. Participation on each of the joint research committees was determined to be quantitatively and qualitatively immaterial in the context of the arrangement with Acadia.

The Company is recognizing the transaction price for the pre-clinical research activities for each of the three targets over time as the research services are provided. The transfer of control to Acadia occurs over this time period, and in management’s judgment, is the best measure of progress towards satisfying the performance obligation. An input method is used that measures the cost incurred to date in satisfying each of the three research activities in relation to the estimated total projected cost of each of the research activities to fulfill the respective obligations. The cumulative effect of revisions to estimated costs and/or the transaction price to complete the research performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated.

Milestone payments that are not within the control of the Company, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. For other milestones, the Company evaluated factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. Milestones that are outside of the Company’s or Acadia’s control will not be recognized until such milestones are achieved. As to the other milestones, to date, no milestone payments have been included in the transaction price due to the uncertainty as to whether these milestones will be achieved. The Company will at the end of each reporting period reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust its estimate of the overall transaction price for each of the research activities on the three targets. Any such adjustments will be recorded on a cumulative catch-up basis.

As of March 31, 2024, the Company had $46.0 million in upfront consideration associated with the Acadia agreement relating to performance obligations that are unsatisfied or partially unsatisfied.

8. Equity incentive plans

In June 2019, the Company’s board of directors and stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) which became effective on June 17, 2019 and replaced the Company’s 2014 Equity Incentive Plan (the “2014 Plan”). In addition to the shares of common stock reserved for future issuance under the 2014 Plan that were added to the 2019 Plan upon its effective date, the Company initially reserved 2,200,000 shares of common stock for issuance under the 2019 Plan. The number of shares reserved for issuance under the 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.

In April 2023, the Company’s board of directors adopted the Stoke Therapeutics, Inc. 2023 Inducement Plan (the “2023 Plan”). As permitted by Nasdaq stock market rules, the Company’s stockholders were not required to approve the 2023 Plan. The 2023 Plan provides for up to 1,000,000 shares of the Company’s common stock under awards granted to newly hired employees. An “award” is any right to receive common stock of the Company through nonstatutory stock options or restricted stock units (“RSUs”).

As of March 31, 2024, there were no shares available for future issuance under the 2014 Plan, 2,474,802 shares were available under the 2019 Plan and 927,000 shares were available under the 2023 Plan.

13


 

During the three months ended March 31, 2024, the Company granted options to purchase 1,099,000 shares of common stock to certain of its employees. The options vest over a period of up to four years and are exercisable at a per share price equal to the fair value of the common stock on the grant date. During the three months ended March 31, 2024, the Company granted 716,000 RSUs and 372,000 performance stock units (“PSUs”) to its employees. The RSUs vest over a period of up to four years.

Stock-based compensation

As of March 31, 2024, there was $25.2 million of unrecognized compensation cost related to unvested stock options granted under the 2019 and 2023 Plans. Compensation expense is expected to be recognized over a weighted average period of 2.9 years as of March 31, 2024. As of March 31, 2024, there was $33.4 million of unrecognized stock-based compensation related to RSUs and is expected to be recognized over a weighted average period of 2.7 years. As of March 31, 2024 there was $5.1 million of unrecognized stock-based compensation related to PSUs.

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

Research and development

 

$

2,091

 

 

$

2,255

 

 

General and administrative

 

 

3,319

 

 

 

3,632

 

 

 

$

5,410

 

 

$

5,887

 

 

 

2019 Employee stock purchase plan

In June 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 18, 2019. The Company initially reserved 315,000 shares of common stock for sale under the ESPP. At March 31, 2024, the Company had 1,704,168 shares available for issuance under the ESPP. The average grant date fair value per share under the ESPP was $5.86 for 2024. The total ESPP stock-based compensation expense for the three months ended March 31, 2024 was $0.1 million and for the three months ended March 31, 2023 was $0.09 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.

9. Net loss per share

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

Numerator:

 

 

 

 

 

 

 

Net loss

 

$

(26,374

)

 

$

(22,545

)

 

Denominator:

 

 

 

 

 

 

 

Weighted-average number of common shares,
   basic and diluted

 

 

46,246,889

 

 

 

42,536,474

 

 

Net loss per share, basic and diluted

 

$

(0.57

)

 

$

(0.53

)

 

 

14


 

The Company’s potential dilutive securities, which include common stock options, RSUs, PSUs, and ESPP purchase rights, 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 shares of the Company’s common stock outstanding used to calculate both basic and diluted net loss per share 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 for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Outstanding options to purchase common stock

 

 

7,439,396

 

 

 

9,260,264

 

Restricted stock units

 

 

2,410,752

 

 

 

786,600

 

Total

 

 

9,850,148

 

 

 

10,046,864

 

 

10. Income taxes

The Company did not record an income tax benefit in its consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023 as it is more likely than not that the Company will not recognize the federal and state deferred tax benefits generated by its losses. The Company has provided a valuation allowance for the full amount of its net deferred tax assets as of March 31, 2024 and December 31, 2023, as management has determined it is more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized.

The Company did not record any amounts for unrecognized tax benefits as of March 31, 2024 or December 31, 2023.

11. Subsequent events

In April, 2024, the Company closed an underwritten public offering, in which the Company issued and sold 5,555,557 shares of common stock at a public offering price of $13.50 per share and issued pre-funded warrants to purchase 3,703,730 shares of common stock at a public offering price of $13.499 per share subject to an exercise price equal to $0.0001. The common stock and warrants sold resulted in net proceeds of $120.3 million after deducting underwriting discounts and commissions.

15


 

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

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

Overview

We are a clinical-stage company dedicated to addressing the underlying causes of severe diseases by upregulating protein expression with RNA-based medicines. Using our proprietary TANGO (Targeted Augmentation of Nuclear Gene Output) approach, we are developing antisense oligonucleotides (“ASOs”) to selectively restore protein levels.

Our first compound, STK-001, is in clinical testing for the treatment of Dravet syndrome, a severe and progressive genetic epilepsy. Dravet syndrome is characterized by frequent, prolonged and refractory seizures beginning within the first year of life. The disease is classified as a developmental and epileptic encephalopathy due to the developmental delays and cognitive impairment associated with it. Dravet syndrome is one of many diseases caused by a haploinsufficiency, in which a loss of approximately 50% of normal protein levels leads to disease. We have announced end of study data from two Phase 1/2a open-label studies of STK-001, MONARCH in the United States and ADMIRAL in the United Kingdom. We also have two ongoing Open Label Extension (“OLE”) studies of STK-001 for children and adolescents with Dravet syndrome, SWALLOWTAIL in the U.S. and LONGWING in the United Kingdom. Patients who participated in the MONARCH study in the United States or the ADMIRAL study in the United Kingdom and met study entry criteria were eligible to continue treatment in SWALLOWTAIL or LONGWING, respectively, both of which are designed to evaluate the long-term safety and tolerability of repeat doses of STK-001.

We are also pursuing treatment for a second haploinsufficient disease, autosomal dominant optic atrophy (“ADOA”), the most common inherited optic nerve disorder. STK-002 is our lead clinical candidate for the treatment of ADOA. STK-002 is designed to upregulate OPA1 protein expression by leveraging the non-mutant (wild-type) copy of the OPA1 gene to restore OPA1 protein expression with the aim to stop or slow vision loss in patients with ADOA. We have received authorization in the United Kingdom to proceed with a Phase 1 open-label study (OSPREY) of children and adults ages 6 to 55 who have an established diagnosis of ADOA and have evidence of a genetic mutation in the OPA1gene. We expect the OSPREY study to start in 2024.

In May 2022, we filed a 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 us of up to a maximum aggregate offering price of $400.0 million of our 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 us of up to a maximum aggregate offering price of $150.0 million of 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 $150.0 million of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400.0 million of securities that may be offered, issued and sold by us under the base prospectus. As of March 31, 2024, we had issued approximately 6.5 million shares of common stock pursuant to the Sales Agreement for net proceeds of $53.4 million. We may terminate this at-the-market program at any time, pursuant to its terms. On April 2, 2024, we completed an underwritten public offering of our common stock and issued and sold 5,555,557 shares of common stock at a public offering price of $13.50 per share and issued pre-funded warrants to purchase 3,703,730 shares of common stock at a public offering price of $13.499 per share subject to an exercise price equal to $0.0001. The common stock and warrants sold resulted in net proceeds of $120.3 million after deducting underwriting discounts and commissions.

As of March 31, 2024 and December 31, 2023 we had $178.6 million and $201.4 million, respectively, in cash, cash equivalents and marketable securities.

Since inception, we have had operating losses, the majority of which are attributable to research and development activities. Our net losses were $26.4 million and $22.5 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $428.2 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses and losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved

16


 

products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and accountants, and incur increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

Based upon our current operating plan, we believe that our existing cash and cash equivalents as of March 31, 2024 together with the $120.3 million of net proceeds from our April 2024 public offering will enable us to fund our operating expenses and capital expenditure requirements at least to the end of 2025. To date, we have not had any products approved for sale and have not generated any product sales. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

Program Update

Dravet Syndrome Program – STK-001

In March 2024, we announced end of study data from the Phase 1/2a open-label studies of STK-001. The pooled data from these studies demonstrated that STK-001 was generally well tolerated. 30% (24/81) of the patients experienced a treatment-emergent adverse event that was related to study drug, with the most common being CSF protein elevations and procedural vomiting. 22% (18/81) of the patients had a treatment-emergent serious adverse event, which were all assessed as unrelated to study drug except for the previously reported case of one patient who experienced Suspected Unexpected Serious Adverse Reactions.

One of several secondary endpoints for these studies was a comparison of the percent change in convulsive seizure frequency as measured by daily seizure diaries and calculated over 4-week periods: between baseline and 12 weeks after treatment; and between baseline and end of study. Data from patients treated with multiple doses of 70mg of STK-001 demonstrated the most substantial reductions in convulsive seizures on top of the standard of care, as illustrated below.

Median reductions in convulsive seizure frequency over time

img145339505_0.jpg 

Patients who were treated with one, two or three doses of 70mg demonstrated substantial reductions in convulsive seizure frequency at three months and at six months after the last dose, as shown in the below table.

 

17


 

 

 

 

 

 

Reductions in convulsive seizure frequency among patients treated with 70mg doses of STK-001

img145339505_1.jpg 

*Seizure data excluded from month 5-6 for 1 patient because >50% seizure diary was missing

Seizure data excluded for 2 patients (1 patient prior to 3m after last dose, 1 prior to 6m after last dose) following a change in background antiseizure medicines

Additional data from patients who received cumulative doses of at least 30mg of STK-001 in the Phase 1/2a studies and then continued treatment with 30mg or 45mg doses of STK-001 every four months in one of the two OLEs demonstrated durable reductions in convulsive seizure frequency throughout the course of treatment, as illustrated below.

Durable reductions in convulsive seizure frequency in OLE studies

img145339505_2.jpg 

Data from a mixed-effects model for repeated measures analysis of these patients also indicated clinically meaningful improvements from baseline over 12 months in the OLEs in multiple measures of cognition and behavior, including multiple sub-domains of the Vineland-III (Vineland Adaptive Behavior Scale, Third Edition).

Patients in the OLE study LONGWING currently receive chronic dosing every four months of 45mg of STK-001, and in March 2024, we announced that the U.S. Food and Drug Administration will allow chronic dosing in OLE study SWALLOWTAIL in the United States to increase to 45mg every four months as well.

We plan to meet with regulatory authorities to discuss a registrational study design that includes initial doses of 70mg followed by continued dosing at 45mg of STK-001 and anticipate providing an update in the second half of 2024.

Financial operations overview

Revenue

We currently do not have any products approved for sale and have not generated any revenue from product sales since inception through March 2024. If we are able to successfully develop, receive regulatory approval for and commercialize any of our current or

18


 

future product candidates alone or in collaboration with third parties, we may generate revenue from the sales of these product candidates.

In January 2022, we entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc. (“Acadia”) for the discovery, development and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous system. The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest. In connection with each target, we will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed products. With respect to SYNGAP1, we have agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection therewith we granted to Acadia worldwide, co-exclusive (with us) licenses for such licensed products. With respect to MECP2 and the neurodevelopmental target, we granted to Acadia worldwide, exclusive licenses to develop and commercialize licensed products for such targets.

Pursuant to the terms of the agreement, we received an upfront payment of $60.0 million from Acadia. Acadia agreed to fund the research to identify potential licensed products for MECP2 and the neurodevelopmental target, and we will equally fund with Acadia the research to identify potential licensed products for SYNGAP1. We are eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were achieved at least once. With respect to licensed products for MECP2 and the neurodevelopmental target, we are also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide. Royalties payable under the agreement are subject to standard royalty reductions. For SYNGAP1 licensed products that we are co-developing and co-commercializing, we will be responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization. We are provided with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at our discretion. Such opt-out would reduce development and commercialization milestones but would provide us with royalties on an escalating basis attributable to net sales milestones.

See Note 7—License and Collaboration Agreement with Acadia Pharmaceuticals, Inc. of the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Operating expenses

Research and development

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

personnel costs, which include salaries, benefits and stock-based compensation expense;
expenses incurred under agreements with consultants, third-party contract organizations that conduct research and development activities on our behalf, costs related to production of preclinical material and laboratory and vendor expenses related to the execution of preclinical studies;
scientific consulting, collaboration and licensing fees;
laboratory equipment and supplies; and
facilities costs, depreciation and other expenses related to internal research and development activities.

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

19


 

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

STK-001

 

$

8,534

 

 

$

6,077

 

 

STK-002

 

 

1,706

 

 

 

2,137

 

 

SYNGAP1

 

 

284

 

 

 

75

 

 

MECP2

 

 

243

 

 

 

131

 

 

Non-program specific and unallocated research and
   development expenses

 

 

11,601

 

 

 

11,211

 

 

Total research and development expenses

 

$

22,368

 

 

$

19,631

 

 

 

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.

We expect that our expenses will increase substantially in connection with our planned discovery work, preclinical and clinical development activities in the near term and our planned clinical trials in the future. At this time, we cannot reasonably estimate the costs for completing the preclinical and clinical development of any of our other product candidates. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

successful completion of preclinical studies and investigational new drug-enabling studies;
successful enrollment in, and completion of, clinical trials;
receipt of regulatory approvals from applicable regulatory authorities;
furthering our commercial manufacturing capabilities and arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies and treatment options;
a continued acceptable safety profile following approval;
enforcing and defending intellectual property and proprietary rights and claims; and
achieving desirable medicinal properties for the intended indications.

 

A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development. We expect our research and development expenses to increase for the foreseeable future as we continue the development of product candidates.

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General and administrative expenses

General and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property, expenses for outside professional services, including legal, human resources, information technology, audit and accounting services, and facilities and other expenses. Personnel costs consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of operating as a public company and the potential commercialization of our product candidates. These increases are anticipated to include increased costs related to the hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and Securities and Exchange Commission (“SEC”) requirements, insurance and investor relations costs.

Other income (expense)

Our other income (expense) includes (i) interest income earned on cash reserves in our operating, money market fund, investment accounts and on our marketable securities investments and (ii) other items of income (expense), net.

Results of operations for the three months ended March 31, 2024 and 2023

The following table sets forth our results of operations:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands)

 

Condensed consolidated statements of operations:

 

 

 

 

 

 

Revenue

 

$

4,216

 

 

$

5,152

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

22,368

 

 

 

19,631

 

General and administrative

 

 

10,220

 

 

 

10,211

 

Total operating expenses

 

 

32,588

 

 

 

29,842

 

Loss from operations

 

 

(28,372

)

 

$

(24,690

)

Other income (expense):

 

 

 

 

 

 

Interest income (expense), net

 

 

2,426

 

 

 

2,103

 

Other income (expense), net

 

 

(428

)

 

 

42

 

Total other income (expense)

 

 

1,998

 

 

 

2,145

 

Net loss

 

$

(26,374

)

 

$

(22,545

)

 

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Revenue

Revenue for the three months ended March 31, 2024 was $4.2 million compared to $5.2 million for the three months ended March 31, 2023, a decrease of $0.9 million. Revenue is generated from satisfying contractual obligations of the collaboration and licensing agreement with Acadia Pharmaceuticals, Inc.

Research and development expenses

Research and development expenses were $22.4 million for the three months ended March 31, 2024 as compared to $19.6 million for the three months ended March 31, 2023, an increase of $2.8 million. The table below summarizes our research and development expenses (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

STK-001

 

$

8,534

 

 

$

6,077

 

STK-002

 

 

1,706

 

 

 

2,137

 

SYNGAP1

 

 

284

 

 

 

75

 

MECP2

 

 

243

 

 

 

131

 

Personnel-related expenses

 

 

7,956

 

 

 

8,015

 

Third-party services

 

 

168

 

 

 

531

 

Scientific consulting

 

 

240

 

 

 

158

 

Facilities and other research and development expenses

 

 

3,237

 

 

 

2,507

 

Total research and development expenses

 

$

22,368

 

 

$

19,631

 

 

The increase in research and development expenses were primarily attributable to an increase of $2.5 million in expenses related to our STK-001 program, which is comprised of third-party services and scientific consulting fees, an increase of $0.3 million in external third-party expenses related to SYNGAP1, MECP2, an increase of $0.7 million in facilities and other research and development costs offset by a decrease of $0.4 million in expenses related to our STK-002 program, which is comprised of third-party services and scientific consulting fees, a decrease of $0.3 million and non-project specific consulting and third-party services and a decrease of $0.1 million in personnel costs.

General and administrative expenses

General and administrative expenses were $10.2 million for the three months ended March 31, 2024 as compared to $10.2 million for the three months ended March 31, 2023.

Other income (expense)

Other income (expense) was $1.9 million for the three months ended March 31, 2024 as compared to $2.1 million for the three months ended March 31, 2023.

Liquidity and capital resources

Since our inception through March 31, 2024, our operations have been financed by net proceeds of $543.9 million from the sale of convertible notes payable and our convertible preferred stock, our initial public offering, follow-on offering, proceeds from the Sales Agreement and the upfront payment from Acadia. As of March 31, 2024, we had $178.6 million in cash and cash equivalents. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. On April 2, 2024, we completed an underwritten public offering of our common stock and issued and sold 5,555,557 shares of common stock at a public offering price of $13.50 per share and issued pre-funded warrants to purchase 3,703,730 shares of common stock at a public offering price of $13.499 per share subject to an exercise price equal to $0.0001. The common stock and warrants sold resulted in net proceeds of $120.3 million after deducting underwriting discounts and commissions.

We have incurred losses since our inception in June 2014 and, as of March 31, 2024, we had an accumulated deficit of $428.2 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a

22


 

lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Based upon our current operating plan, we believe that our existing cash and cash equivalents as of March 31, 2024 together with the $120.3 million of net proceeds from our April 2024 public offering will enable us to fund our operating expenses and capital expenditure requirements at least to the end of 2025. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global macroeconomic conditions, including inflation, changing interest rates and instability in the global banking system, and disruptions to and volatility in the credit and financial markets in the United States and worldwide. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

the scope, progress, results and costs of researching and developing our lead product candidates or any future product candidates, and conducting nonclinical studies and clinical trials;
the timing of, and the costs involved in, obtaining regulatory approvals or clearances for our lead product candidates or any future product candidates;
the number and characteristics of any additional product candidates we develop or acquire;
the timing of any cash milestone payments if we successfully achieve certain predetermined milestones;
the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize, including costs associated with building-out our manufacturing capabilities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;
the expenses needed to attract and retain skilled personnel;
the costs associated with being a public company; and
the timing, receipt and amount of sales of any future approved or cleared products, if any.

Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.

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Cash flows

The following table summarizes our cash flows:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

Operating activities

 

$

(24,566

)

 

$

(21,356

)

Investing activities

 

 

9,988

 

 

 

53,085

 

Financing activities

 

 

1,717

 

 

 

45,054

 

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

 

$

(12,861

)

 

$

76,783

 

 

Operating activities

During the three months ended March 31, 2024, cash used in operating activities was $24.6 million. This was primarily attributable to a net loss of $26.4 million, a net change of $4.7 million in our net operating assets and liabilities, offset by non-cash charges of $6.5 million for stock-based compensation, depreciation, amortization and accretion of marketable securities, and a reduction in the carrying amount of right of use assets.

During the three months ended March 31, 2023, cash used in operating activities was $21.4 million. This was primarily attributable to a net loss of $22.5 million, a net change of $5.9 million in our net operating assets and liabilities, offset by non-cash charges of $7.0 million for share-based compensation, depreciation, amortization and accretion of marketable securities, and a reduction in the carrying amount of right of use assets.

Investing activities

Our investing activities during the three months ended March 31, 2024 and 2023 have consisted of proceeds from the sales of marketable securities partially offset by purchases of property and equipment.

Financing activities

Our financing activities during the three months ended March 31, 2024 consisted of $1.3 million of net proceeds from the controlled equity offering sales agreement, $0.2 million from the exercise of stock options and $0.2 million in proceeds from our Employee Stock Purchase Plan (the "ESPP").

Our financing activities during the three months ended March 31, 2023 consisted of $44.7 million of net proceeds from the controlled equity offering sales agreement, $0.2 million from the exercise of stock options and $0.2 million in proceeds from the ESPP.

Contractual obligations and commitments

The following table summarizes our contractual obligations as of March 31, 2024 and the effects that such obligations are expected to have on our liquidity and cash flows in future fiscal periods:

 

 

 

Payments Due by Fiscal Period

 

 

 

Total

 

 

Less Than
1 Year

 

 

1 to 3
Years

 

 

4 to 5
Years

 

 

More than
5 Years

 

 

 

(in thousands)

 

Operating lease obligations

 

$

7,184

 

 

$

1,959

 

 

$

5,225

 

 

$

 

 

$

 

Total

 

$

7,184

 

 

$

1,959

 

 

$

5,225

 

 

$

 

 

$

 

 

In August 2018, we 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 September 2021, we entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years ending December 31, 2024. In addition, this agreement provides for the lease of an additional 15,000 square feet of rentable space beginning on April 1, 2022 and ending on December 31, 2024. Initial monthly lease payments are approximately $0.1 million with respect to the 23,000 square feet space, and $0.1 million with respect to the 15,000 square feet space, and in each case subject to annual rent escalations.

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In December 2023, we entered into an agreement to extend the term of the 38,000 square foot lease for a period of two years commencing on January 1, 2025 and ending on December 31, 2026. In December 2023, we recognized a right-of-use asset and operating lease liability of $4.1 million.

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

In June 2021, we amended the agreement to extend the initial term of the 2,485 square foot lease for a period of three years ending April 30, 2025. In addition, the amendment provided for the lease of an additional 2,357 square feet of rentable space beginning on July 6, 2021 and ending on April 30, 2025. The amended lease provides us with the option to extend the term of the lease for an additional two years with a base annual rent increase of 3%.

Commitments

Our commitments primarily consist of obligations under our agreement with the University of Southampton. As of March 31, 2024, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. For additional information regarding our agreements, see Note 6—Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Additionally, we have entered into agreements with third-party contract manufacturers for the manufacture and processing of certain of our product candidates for preclinical testing purposes, and we have entered and will enter into other contracts in the normal course of business with contract research organizations for clinical trials and other vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred.

Off-balance sheet arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Annual Report on Form 10-K filed with the SEC on March 25, 2024.

Emerging growth company and smaller reporting company status

We are 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.

We have 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 we (i) are 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, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year (a) following the fifth anniversary of the completion of our initial public offering ("IPO"), (b) in which we have total annual gross revenues of at least $1.235 billion, or (c) when we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in

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non-convertible debt securities during the prior three-year period. We anticipate ceasing to be an emerging growth company as of December 31, 2024, which is the last day of our fiscal year following the fifth anniversary of the completion of our IPO.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates was less than $700.0 million and its annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company as long as either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The standard is effective for annual reporting periods beginning after December 15, 2023, and interim periods within years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact that the adoption will have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold and certain disclosures of state versus federal income tax expenses and taxes paid. ASC 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements and will adopt the standard effective January 1, 2025.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk

We are exposed to market risks in the ordinary course, primarily including interest sensitivities. As of March 31, 2024 and December 31, 2023, we had cash, cash equivalents and marketable securities of $178.6 million and $201.4 million respectively. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an immediate 10% increase in interest rates would have any significant impact on the realized value of our investments. Accordingly, we do not believe we are exposed to material market risk with respect to our cash and cash equivalents.

Inflation Risk

Inflation generally affects us by increasing our clinical trial costs. We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the periods ended March 31, 2024 and 2023.

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Financial Officer and Chief Executive Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and report