Design Therapeutics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet figures are as of March 31, 2021 unless otherwise stated. Financial amounts below are in U.S. dollars. The company is a preclinical-stage biopharmaceutical developer of GeneTAC small molecules for nucleotide repeat expansion diseases, led by programs in Friedreich ataxia (FA) and myotonic dystrophy type 1 (DM1). It has no approved products and no product-sales revenue.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Grant revenue | $0 | $142,000 |
| Research and development expense | $3.875 million | $377,000 |
| General and administrative expense | $1.805 million | $388,000 |
| Total operating expenses | $5.680 million | $765,000 |
| Net loss | $5.514 million | $663,000 |
| Basic and diluted net loss per share | $0.31 | $0.04 |
| Cash used in operating activities | $3.697 million | $2.659 million |
Cash and cash equivalents were $400.693 million and investment securities were $10.646 million, totaling $411.339 million in cash, cash equivalents and investments. Total current liabilities were $3.706 million; total liabilities were $3.848 million. The filing reports no outstanding borrowings at quarter-end; earlier related-party notes had been repaid in 2020. Stockholders’ equity was $408.006 million. Product margins are not meaningful because the company has no product sales.
Material changes versus the prior comparable period
- Operating expenses increased $4.915 million year over year, primarily reflecting expanded FA research and development, chemistry and manufacturing work, new DM1 program costs, increased staffing, and public-company costs.
- R&D expense rose $3.498 million; G&A expense rose $1.417 million. Stock-based compensation was $647,000 versus $4,000 in Q1 2020.
- Net loss increased $4.851 million. Q1 2021 included $166,000 of other income, mainly interest income, versus $40,000 of other expense in Q1 2020, which included interest and convertible-note-related expense.
- Operating cash use increased $1.038 million. Cash rose from $2.379 million at year-end 2020, mainly due to financing proceeds; investing cash inflow reflected investment maturities.
- In January 2021, the company raised approximately $124.7 million net from Series B preferred stock. Its March 2021 IPO raised $254.3 million net. Preferred shares converted into common stock in connection with the IPO.
Liquidity, outlook and management commentary
Management stated that existing cash, cash equivalents and investments were expected to fund anticipated operating expenses and capital needs for at least the next 12 months following the filing. The company cautioned that this estimate depends on assumptions and that its resources would not be sufficient to fund candidates through regulatory approval; additional capital will be needed. It expects losses and expenses to increase as programs advance, clinical and manufacturing capabilities expand, and public-company costs continue. No revenue or profitability guidance was provided.
- Management reported preclinical observations for FA GeneTACs, including restored frataxin levels in patient cells and increased expression in an animal model, with reported distribution to brain and heart at tolerated doses. First-in-human dosing was anticipated in the first half of 2022, subject to regulatory clearance.
- For DM1, the company reported reduced nuclear foci in patient muscle cells and expected to complete IND-enabling studies and seek clearance for a first-in-human trial in 2023. It intended to declare an additional candidate in 2023.
- These are forward-looking development targets, not clinical outcomes. All programs remained in discovery or preclinical development, and the company had no experience conducting human clinical trials.
- Key risks include uncertain preclinical translation and regulatory outcomes, reliance on third-party research and single-source manufacturing, competition, intellectual-property challenges, future financing needs and potential COVID-19 disruption. Management said it was not then aware of COVID-19 effects requiring changes to financial estimates, while noting continuing uncertainty.
- A related-party lease for approximately 12,370 square feet of laboratory and office space is expected to begin in September 2021 for 72 months. Minimum scheduled payments total $4.696 million; the executive chairperson is the landlord entity’s sole member and manager. A related-party consulting agreement also carries a $240,000 termination fee if the company terminates unilaterally without cause.
Important facts for investors to verify
- Whether the reported preclinical findings are reproducible and support the stated FA and DM1 development timelines; first-in-human timing depends on regulatory clearance.
- Cash use and updated runway as R&D, clinical preparation, manufacturing and public-company expenses grow; the stated runway is based on management’s assumptions and does not extend through approval.
- Progress on IND-enabling work, regulatory interactions, manufacturing supply and third-party execution, including any delays or changes to program milestones.
- Terms, governance and ongoing costs of the related-party lease and consulting arrangements, as well as future license milestones, royalties and financing needs.
- Potential dilution and share supply: IPO-related lock-ups were scheduled to expire in September 2021, and equity plans provide for future share grants and automatic reserve increases.