Stoke Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results; company is an early-stage biotechnology business developing antisense oligonucleotide medicines using its TANGO platform. It had no approved products and generated no revenue.
Financial position and performance
| Metric | Q2 2020 / June 30, 2020 | Comparable period / change |
|---|---|---|
| Revenue | $0 | $0 in Q2 2019 |
| Research and development | $8.0 million | Up 32% from $6.0 million |
| General and administrative | $5.0 million | Up 108% from $2.4 million |
| Total operating expenses | $13.0 million | Up 54% from $8.4 million |
| Net loss | $13.0 million; $0.39 per share | Loss of $7.8 million; $1.54 per share in Q2 2019 |
| Six-month net loss | $24.0 million; $0.73 per share | Loss of $13.6 million; $4.57 per share in first half 2019 |
| Cash, cash equivalents and restricted cash | $202.1 million | Down $20.5 million from $222.7 million at December 31, 2019 |
| Six-month operating cash flow | $(20.4) million | $(12.8) million in first half 2019 |
| Total assets / stockholders’ equity | $210.2 million / $203.4 million | $228.8 million / $224.4 million at December 31, 2019 |
There is no product revenue, so operating or net margins are not meaningful. No debt or credit facility is reported. Current assets were $205.5 million against current liabilities of $5.8 million. Recognized operating lease liabilities totaled $1.7 million. First-half investing cash outflow was $0.7 million; financing inflow was $0.6 million, versus $150.6 million in first-half 2019, principally from the IPO.
Material changes and operating developments
- Operating expenses and losses increased as research, clinical-development, staffing, facilities and public-company costs grew. First-half R&D spending on STK-001 was $5.6 million, compared with $4.3 million a year earlier.
- Q2 2019 and 2020 per-share losses are not directly comparable: weighted-average shares rose substantially after the June 2019 IPO and preferred-stock conversion.
- The company adopted lease accounting Topic 842 in January 2020, recognizing right-of-use assets and lease liabilities; it reported no material cumulative adoption adjustment.
- In July 2020, the company’s shelf registration became effective, permitting offerings of up to $400 million of securities, including up to $150 million of common stock under an at-the-market sales agreement. These are offering capacities, not proceeds received.
Outlook, risks and contingencies
- Management’s MD&A says June 30 cash is expected to fund operating and capital needs into 2023, subject to assumptions that may prove wrong. The financial-statement liquidity note separately says cash is expected to cover at least 12 months from issuance; investors should note the difference in wording.
- Management expects continuing losses and rising R&D, G&A and capital spending. Additional financing may be needed; equity financing could dilute shareholders, and financing may not be available on acceptable terms.
- STK-001 is in development for Dravet syndrome. The FDA allowed dosing in the first two cohorts of the Phase 1/2a Monarch study, but placed a partial clinical hold on higher-dose Part B pending additional preclinical safety information. The filing says further nonclinical work was completed and a response was being prepared. It anticipated preliminary clinical data in 2021, subject to FDA clearance and other delays.
- Subsequent to quarter-end, the company reported that the first patient in Part A was dosed on August 5, 2020. It planned to nominate a second preclinical candidate in the second half of 2020.
- COVID-19 had slowed enrollment in the observational study and could affect trial timelines, staffing, suppliers, manufacturing and site availability. The company reported no significant supply disruption or delay in initiating the clinical trial as of the filing, but future effects were uncertain.
- Other major risks include early-stage clinical and regulatory uncertainty, patient recruitment for a rare disease, reliance on third-party manufacturers and research organizations, intellectual-property and licensing dependence, and the need for future capital. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Progress and safety findings from Part A, FDA feedback and conditions for lifting the Part B partial clinical hold.
- Whether enrollment, trial operations or supply chains were materially affected by COVID-19, and whether preliminary-data timing changed.
- Cash burn versus the stated runway into 2023, including the basis for the separate “at least twelve months” liquidity statement.
- Any actual issuance under the shelf or $150 million sales agreement, and resulting dilution.
- Rising operating costs, available funding alternatives, and the development and financing needs of STK-001 and future candidates.