Stoke Therapeutics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Stoke is a clinical-stage biotechnology company developing RNA-based medicines using its TANGO platform. Its lead programs include STK-001 for Dravet syndrome and STK-002 for autosomal dominant optic atrophy (ADOA). The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $3.0 million | $0; Q1 2022 revenue arose under the Acadia collaboration |
| Research and development expense | $18.3 million | $9.9 million |
| General and administrative expense | $9.5 million | $6.9 million |
| Total operating expenses | $27.8 million | $16.8 million |
| Net loss | $24.6 million; $0.66 per share | $16.8 million; $0.46 per share |
| Comprehensive loss | $25.2 million | $16.8 million |
| Operating cash flow | $32.5 million provided | $20.1 million used |
Operating cash flow was supported by $58.0 million of Acadia-related deferred revenue; it should not be read as evidence that operations were cash-generative absent that receipt. Investing cash flow was a $135.8 million use, primarily reflecting purchases of marketable securities. Financing provided $42.5 million, largely from the at-the-market equity program. Cash, cash equivalents and restricted cash decreased by $60.8 million during the quarter, in part as funds were invested in securities.
At March 31, 2022, cash and cash equivalents were $84.1 million, marketable securities $209.1 million and restricted cash $0.6 million, for total liquidity of $293.8 million, versus $220.4 million at December 31, 2021. Current assets were $305.8 million and current liabilities $22.9 million. The company reported no borrowings or credit facility; the filing does not identify funded debt. Operating lease liabilities totaled $4.7 million, with $7.0 million of future minimum lease payments.
Material changes and notable items
- In January 2022, Stoke entered a collaboration and license agreement with Acadia Pharmaceuticals and received a $60 million upfront payment. It recognized $3.0 million of revenue in the quarter and reported $58.0 million of upfront consideration for obligations that were unsatisfied or partly unsatisfied as of March 31.
- Acadia agreement terms include up to $907.5 million in potential contingent milestones. Stoke is also eligible for tiered royalties on certain programs; for SYNGAP1, it shares development and commercialization costs and profits 50/50. These potential payments and returns are not guaranteed or current revenue.
- R&D expense increased by $8.4 million year over year, reflecting higher personnel costs and increased activity, particularly in STK-001 and STK-002. G&A expense increased by $2.6 million, primarily due to personnel and third-party service costs.
- Stoke sold approximately 2.1 million shares under its controlled equity offering by quarter-end, raising $42.2 million net. After quarter-end through the filing’s stated date, it sold approximately 138,000 additional shares for $3.1 million net.
- Unrealized losses on available-for-sale securities were $0.5 million in Q1, recorded in other comprehensive loss. The company reported a $66.5 million unrecognized stock-based compensation cost, expected to be recognized over a weighted-average 2.96 years.
Outlook, commentary and risks
Management expects ongoing operating losses and rising R&D, G&A and capital expenditures. The MD&A says existing liquidity as of March 31 is expected to fund operating and capital requirements into 2025, subject to assumptions that could prove wrong. The liquidity note separately states funds are expected to be sufficient for at least 12 months from issuance. Stoke has no committed credit sources and may need additional financing; equity financing could dilute shareholders, and funding may not be available on acceptable terms.
STK-001 is being studied in Phase 1/2a trials MONARCH and ADMIRAL, with the SWALLOWTAIL open-label extension. STK-002 is the lead candidate for ADOA. The filing describes a partial clinical hold on STK-001 doses above 45 mg in MONARCH, following a hold on doses above 20 mg based on adverse hind-limb paresis in non-human primates and a requirement for additional preclinical testing. Clinical efficacy and safety remain uncertain, and early-stage results may not predict later outcomes.
Management reported no significant COVID-19-related clinical-trial delays to date, but warned that the pandemic could affect enrollment, sites, suppliers, manufacturing and staffing. Other principal risks include clinical and regulatory failure, rare-disease patient recruitment, reliance on third-party manufacturers and collaborators, intellectual-property protection, competition, and the need for future capital. No legal proceeding was reported as expected by management to have a material adverse effect. Management concluded disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- Clinical-trial progress, safety findings, dosing restrictions and the status of the STK-001 partial hold.
- The basis and assumptions behind the stated runway into 2025, including the difference between the MD&A runway statement and the liquidity note’s “at least 12 months” statement.
- Acadia collaboration revenue recognition, remaining research obligations, cost-sharing responsibilities and the contingent nature of milestones and royalties.
- Further equity issuance under the ATM program and resulting dilution; the share count was 39,044,669 at March 31 and 39,189,720 as of May 2, 2022.
- Changes in operating cash use, marketable-security values and interest-rate exposure; the filing estimates a hypothetical 100-basis-point rate change could affect fair value by approximately $2.9 million.