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X`

 

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, 2022 

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

For the transition period from __________ to ____________

Commission File Number: 001-38938

 

Stoke Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1144582

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

45 Wiggins Ave

Bedford, Massachusetts

01730

(Address of principal executive offices)

(Zip Code)

(781430-8200

(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 May 2, 2022 the registrant had 39,189,720 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed consolidated balance sheets

4

 

Condensed consolidated statements of operations and comprehensive loss

5

 

Condensed consolidated statements of stockholders’ equity

6

 

Condensed consolidated statements of cash flows

7

 

Notes to unaudited condensed consolidated financial statements

8

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 3.

Defaults Upon Senior Securities

71

Item 4.

Mine Safety Disclosures

71

Item 5.

Other Information

71

Item 6.

Exhibits

72

Signatures

73

 

2


 

FORWARD-LOOKING STATEMENTS

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

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

 

our ability to become profitable;

 

our ability to procure sufficient funding;

 

our limited operating history;

 

our ability to develop, obtain regulatory approval for and commercialize STK-001, STK-002 and our future product candidates;

 

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

 

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

 

our ability to obtain regulatory approval to commercialize STK-001, STK-002 or any other future product candidate;

 

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

 

our ability to identify patients with the diseases treated by STK-001, STK-002 or our future product candidates, and to enroll patients in trials;

 

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

 

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

 

our reliance upon intellectual property licensed from third parties;

 

our ability to identify, recruit and retain key personnel;

 

our financial performance; and

 

developments or projections relating to our competitors or our industry.

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

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Stoke Therapeutics, Inc.

Condensed consolidated balance sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

84,111

 

 

$

144,895

 

Marketable Securities

 

 

209,105

 

 

 

74,915

 

Prepaid expenses and other current assets

 

 

12,290

 

 

 

9,159

 

Deferred financing costs

 

 

 

 

 

117

 

Interest receivable

 

 

265

 

 

132

 

Total current assets

 

$

305,771

 

 

$

229,218

 

Restricted cash

 

 

569

 

 

569

 

Operating lease right-of-use assets

 

 

4,563

 

 

 

4,939

 

Property and equipment, net

 

 

5,035

 

 

 

4,139

 

Total assets

 

$

315,938

 

 

$

238,865

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,328

 

 

$

2,385

 

Accrued and other current liabilities

 

 

11,108

 

 

 

14,754

 

Deferred revenue - current portion

 

 

8,469

 

 

 

 

Total current liabilities

 

$

22,905

 

 

$

17,139

 

Deferred revenue - net of current portion

 

 

49,545

 

 

 

 

Other long term liabilities

 

 

3,511

 

 

 

3,949

 

Total long term liabilities

 

 

53,056

 

 

 

3,949

 

Total liabilities

 

$

75,961

 

 

$

21,088

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

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

   authorized, 39,044,669 and 36,902,499 shares issued and outstanding as

   of March 31, 2022 and December 31, 2021, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

461,389

 

 

 

414,024

 

Accumulated other comprehensive loss

 

 

(684

)

 

 

(168

)

Accumulated deficit

 

 

(220,732

)

 

 

(196,083

)

Total stockholders’ equity

 

$

239,977

 

 

$

217,777

 

Total liabilities and stockholders’ equity

 

$

315,938

 

 

$

238,865

 

 

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

4


Stoke Therapeutics, Inc.

Condensed consolidated statements of operations and comprehensive loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

Revenue

 

$

3,000

 

 

$

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,309

 

 

 

9,913

 

 

General and administrative

 

 

9,486

 

 

 

6,914

 

 

Total operating expenses

 

 

27,795

 

 

 

16,827

 

 

Loss from operations

 

 

(24,795

)

 

 

(16,827

)

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

104

 

 

 

6

 

 

Other income (expense), net

 

 

42

 

 

 

28

 

 

Total other income

 

 

146

 

 

 

34

 

 

Net loss

 

$

(24,649

)

 

$

(16,793

)

 

Net loss per share, basic and diluted

 

$

(0.66

)

 

$

(0.46

)

 

Weighted-average common shares outstanding, basic

   and diluted

 

 

37,448,301

 

 

 

36,643,205

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(24,649

)

 

$

(16,793

)

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

(516

)

 

 

 

 

Total other comprehensive loss

 

$

(516

)

 

$

 

 

Comprehensive loss

 

$

(25,165

)

 

$

(16,793

)

 

 

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

5


Stoke Therapeutics, Inc.

Condensed consolidated statements of stockholders’ equity

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Additional

paid-in capital

 

 

Accumulated other comprehensive loss

 

 

Accumulated

deficit

 

 

Stockholders’

equity

 

 

 

Shares

 

 

Amount

 

 

Amount

 

 

Amount

 

 

Amount

 

 

Amount

 

Balance as of December 31, 2020

 

 

36,577,149

 

 

$

4

 

 

$

396,352

 

 

$

 

 

$

(110,278

)

 

$

286,078

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,793

)

 

 

(16,793

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,698

 

 

 

 

 

 

 

 

 

2,698

 

Issuance of common stock upon exercise of stock options

 

 

111,858

 

 

 

 

 

 

371

 

 

 

 

 

 

 

 

 

371

 

Issuance of common stock upon follow-on offering, net of underwriting discounts and offering costs

 

 

 

 

 

 

 

 

(64

)

 

 

 

 

 

 

 

 

(64

)

Issuance of common stock related to employee stock purchase plan

 

 

8,801

 

 

 

 

 

 

175

 

 

 

 

 

 

 

 

 

175

 

Balance as of March 31, 2021

 

 

36,697,808

 

 

$

4

 

 

$

399,532

 

 

$

 

 

$

(127,071

)

 

$

272,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

 

36,902,499

 

 

$

4

 

 

$

414,024

 

 

$

(168

)

 

$

(196,083

)

 

$

217,777

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,649

)

 

 

(24,649

)

Stock-based compensation

 

 

 

 

 

 

 

 

4,975

 

 

 

 

 

 

 

 

 

4,975

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(516

)

 

 

 

 

 

(516

)

Issuance of common stock upon exercise of stock options

 

 

53,377

 

 

 

 

 

 

93

 

 

 

 

 

 

 

 

 

93

 

Shares sold as part of controlled equity offering sales agreement

 

 

2,080,486

 

 

 

 

 

 

42,128

 

 

 

 

 

 

 

 

 

42,128

 

Issuance of common stock related to employee stock purchase plan

 

 

8,307

 

 

 

 

 

 

169

 

 

 

 

 

 

 

 

 

169

 

Balance as of March 31, 2022

 

 

39,044,669

 

 

$

4

 

 

$

461,389

 

 

$

(684

)

 

$

(220,732

)

 

$

239,977

 

 

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

6


Stoke Therapeutics, Inc.

Condensed consolidated statements of cash flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(24,649

)

 

$

(16,793

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

247

 

 

 

236

 

Amortization and accretion of marketable securities

 

 

235

 

 

 

 

Stock-based compensation

 

 

4,975

 

 

 

2,698

 

Loss on disposal of property and equipment

 

 

 

 

 

29

 

Reduction in the carrying amount of right of use assets

 

 

377

 

 

 

271

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,265

)

 

 

(1,078

)

Accounts payable and accrued liabilities

 

 

(3,443

)

 

 

(5,499

)

Deferred revenue

 

 

58,014

 

 

 

 

Net cash provided by (used in) operating activities

 

$

32,491

 

 

$

(20,136

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(143,941

)

 

 

 

Purchases of property and equipment

 

 

(841

)

 

 

(204

)

Sales of marketable securities

 

 

9,000

 

 

 

 

Net cash used in investing activities

 

$

(135,782

)

 

$

(204

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

169

 

 

 

175

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

93

 

 

 

371

 

Proceeds from controlled equity offering sales agreement

 

 

42,245

 

 

 

 

Net cash provided by financing activities

 

$

42,507

 

 

$

546

 

Net decrease in cash, cash equivalents and restricted cash

 

$

(60,784

)

 

$

(19,794

)

Cash, cash equivalents and restricted cash—beginning of period

 

$

145,464

 

 

$

287,513

 

Cash, cash equivalents and restricted cash—end of period

 

$

84,680

 

 

$

267,719

 

 

 

 

 

 

 

 

 

 

Property and equipment included in accrued expense and accounts payable

 

$

301

 

 

$

97

 

 

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

 

7


 

Stoke Therapeutics, Inc. and subsidiaries

Notes to condensed consolidated financial statements—(unaudited)

1. Nature of the business and basis of presentation

Organization

Stoke Therapeutics, Inc. (the “Company”) was founded in June 2014 and was incorporated under the laws of the State of Delaware. The Company is a biotechnology company dedicated to addressing the underlying cause of severe diseases by upregulating protein expression with RNA-based medicines.

Shelf Registration

In July 2020, the Company filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”). The Registration Statement was declared effective by the SEC on July 20, 2020,  and contains two prospectuses: a base prospectus, which covers the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $150,000,000 of our common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“Sales Agreement”). The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus. The $150,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. As of March 31, 2022, the Company had issued approximately 2.1 million shares in connection with the Sales Agreement for net proceeds of $42.2 million. Since April 1, 2022, the Company sold approximately 138,000 shares of our common stock and received $3.1 million after deducting commissions related to the Sales Agreement.

Uncertainties

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

Liquidity

The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of the issuance date of these unaudited condensed consolidated financial statements, the Company expects that its cash, cash equivalents, marketable securities and restricted cash will be sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the issuance date of these unaudited condensed consolidated financial statements.

2. Summary of significant accounting policies and recent accounting pronouncements

Basis of presentation and consolidation

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

Unaudited interim financial information

The accompanying interim unaudited condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and related footnotes as of and for the year ended December 31, 2021, which was filed with the SEC on March 10, 2022. The Company’s financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 is unaudited, but in the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and

8


cash flows at the dates and for the periods presented of the results of these interim periods have been included. The balance sheet information as of December 31, 2021 was derived from audited financial statements. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

Use of estimates

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

Cash, cash equivalents and restricted cash

 

The Company considers all highly liquid investments with an original maturity of nine 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, 2022, restricted cash consisted of money market accounts collateralizing letters of credit issued as security deposits in connection with the Company’s leases of its corporate facilities.

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

 

 

 

As of March 31,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

84,111

 

 

$

267,514

 

Restricted cash - short-term

 

$

 

 

$

147

 

Restricted cash - long-term

 

$

569

 

 

$

58

 

Total cash, cash equivalents and restricted cash

 

$

84,680

 

 

$

267,719

 

Marketable Securities

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

Concentration of credit risk

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

 

Fair value of financial instruments

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

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

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

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

9


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

Revenue recognition

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

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

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

Upfront license fees

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

Customer options

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

Research and development services

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

10


Milestone payments

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

Emerging growth company and smaller reporting company status

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

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

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

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

Recently adopted accounting pronouncements

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. The Company adopted this standard on January 1, 2021 and the adoption of this update did not have a material impact on its condensed consolidated financial statements.

11


3. Fair value measurements

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

 

 

 

Fair value measurements as of March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

84,111

 

 

$

 

 

$

 

 

$

84,111

 

Total

 

$

84,111

 

 

$

 

 

$

 

 

$

84,111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

17,277

 

 

$

 

 

$

17,277

 

Commercial paper

 

 

 

 

 

22,479

 

 

 

 

 

 

22,479

 

US Government debt securities

 

 

 

 

 

169,349

 

 

 

 

 

 

169,349

 

Total

 

$

 

 

$

209,105

 

 

$

 

 

$

209,105

 

 

 

 

Fair value measurements as of December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

144,897

 

 

$

 

 

$

 

 

$

144,897

 

Total

 

$

144,897

 

 

$

 

 

$

 

 

$

144,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

17,524

 

 

$

 

 

$

17,524

 

Commercial paper

 

 

 

 

 

27,487

 

 

 

 

 

 

27,487

 

US Government debt securities

 

 

 

 

 

29,904

 

 

 

 

 

 

29,904

 

Total

 

$

 

 

$

74,915

 

 

$

 

 

$

74,915

 

 

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described in Note 2. 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 condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

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 following table summarizes the Company’s marketable securities as of March 31, 2022 (in thousands):

 

 

 

March 31, 2022

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Loss

 

 

Fair Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

17,524

 

 

$

 

 

$

(247

)

 

$

17,277

 

Commercial paper

 

 

22,479

 

 

 

 

 

 

 

 

 

22,479

 

US Government debt securities

 

 

169,786

 

 

 

 

 

 

(437

)

 

 

169,349

 

Total

 

$

209,789

 

 

$

 

 

$

(684

)

 

$

209,105

 

12


 

 

The following table summarizes the Company’s marketable securities as of December 31, 2021 (in thousands):

 

 

 

December 31, 2021

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Loss

 

 

Fair Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

17,598

 

 

$

 

 

$

(74

)

 

$

17,524

 

Commercial paper

 

 

27,487

 

 

 

 

 

 

 

 

 

27,487

 

US Government debt securities

 

 

29,998

 

 

 

 

 

 

(94

)

 

 

29,904

 

Total

 

$

75,083

 

 

$

 

 

$

(168

)

 

$

74,915

 

The weighted average maturity of the Company’s marketable securities as of March 31, 2022 ranged from approximately 0.3 years to 0.9 years. As of December 31, 2021 the weighted average maturity of the Company’s marketable securities ranged from approximately 0.2 years to 1.1 years.

The Company did not record an allowance for credit losses as of March 31, 2022 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,

 

 

 

2022

 

 

2021

 

Accrued employee compensation costs

 

$

1,345

 

 

$

5,383

 

Accrued professional costs

 

 

1,450

 

 

 

523

 

Accrued research and development costs

 

 

6,255

 

 

 

6,801

 

Current portion of operating lease liabilities

 

 

1,535

 

 

 

1,507

 

Other current liabilities

 

 

523

 

 

 

540

 

 

 

$

11,108

 

 

$

14,754

 

 

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 condensed 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. The Company recognized a right-of-use asset and operating lease liability of $3.5 million for the 23,000 square feet.  As the Company did not have access to the additional 15,000 square feet of space, a right of use asset was not recognized as of March 31, 2022.

13


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.

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. 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, 2022, including leases entered into where access has yet to be granted, were as follows (in thousands):

 

2022

 

$

1,707

 

2023