Design Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited; amounts below are in U.S. dollars.
Business context
Design Therapeutics is a preclinical-stage biopharmaceutical company developing GeneTAC molecules for inherited nucleotide repeat expansion diseases. Its lead program targets Friedreich ataxia (FA), followed by myotonic dystrophy type-1 (DM1). The company has no approved products, product-sales revenue, or human clinical trials to date.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Grant revenue | $0 | $20,000 | $0 | $193,000 |
| Research and development expense | $8.5 million | $1.9 million | $17.4 million | $3.4 million |
| General and administrative expense | $2.8 million | $0.5 million | $7.3 million | $1.3 million |
| Net loss | $11.3 million | $2.3 million | $24.5 million | $4.4 million |
| Net loss per share | $0.21 | $0.09 | $0.57 | $0.17 |
There is no meaningful product gross margin or operating margin because the company has no product sales. Operating expenses rose substantially as the FA and DM1 programs advanced, staffing expanded, stock-based compensation increased, and public-company costs were incurred. Q3 stock-based compensation was $1.2 million, versus $15,000 a year earlier.
Cash and cash equivalents were $357.7 million and available-for-sale investment securities were $36.1 million at September 30, 2021, totaling $393.7 million. Cash and investments were $393.7 million at September 30, compared with $36.1 million at December 31, 2020. Nine-month operating cash use was $20.2 million; investing cash use was $3.6 million; financing provided $379.0 million. The financing largely reflected $254.3 million of net IPO proceeds and $124.7 million from the January Series B preferred financing.
Total liabilities were $8.8 million, including a $3.3 million operating lease liability; the company reported no outstanding notes payable at period end. Current assets were $395.3 million and current liabilities were $5.5 million. Accumulated deficit was $36.4 million.
Material changes versus comparable periods
- Nine-month net loss increased to $24.5 million from $4.4 million, while operating expenses rose to $24.7 million from $4.7 million.
- Research and development expense increased $14.1 million year over year, driven primarily by FA development and chemistry/manufacturing work, DM1 program costs, and additional personnel.
- General and administrative expense increased $6.0 million, principally from personnel, stock-based compensation, insurance, legal and accounting costs, and public-company operations.
- The company completed its IPO in March 2021, raising $254.3 million net, and issued Series B preferred stock in January, raising approximately $124.7 million net. Preferred stock converted into common stock in connection with the IPO.
Outlook, risks and unusual items
- Management expected existing cash, cash equivalents and investments to fund planned operating expenses and capital needs for at least 12 months following the filing. The filing also states those resources would not fund product candidates through regulatory approval; substantial additional capital will be required. Future financing could dilute shareholders or require the company to give up rights.
- Management anticipated first-in-human dosing for an FA candidate in the first half of 2022, subject to regulatory clearance, with initial topline data expected in 2022. DM1 IND-enabling work and pursuit of trial clearance were expected in 2023; an additional candidate declaration was also planned for 2023. These are forward-looking targets, not assured outcomes.
- The company reported preclinical FA findings, including increased frataxin expression in cells and an animal model, and DM1 findings including reduced nuclear foci in patient cells. These results do not establish clinical safety or efficacy.
- Key risks include the early, preclinical stage of all programs; uncertain development timelines and regulatory outcomes; dependence on third-party research and manufacturing; competition; intellectual-property protection; and potential COVID-19-related operational or supply disruptions.
- A 72-month laboratory and office lease commenced in September 2021 with Crossing Holdings, an entity managed by the executive chairperson and co-founder. The lease liability was $3.7 million; stated annual rent was approximately $0.8 million, subject to 3% annual increases and operating costs. A separate related-party consulting agreement carries a $240,000 termination fee under specified circumstances; no liability was recorded.
- The company disclosed no material litigation, contingent liabilities, or off-balance-sheet arrangements. Disclosure controls were assessed as effective as of September 30, 2021.
Important facts for investors to verify
- Whether FA regulatory clearance, first-patient dosing, and the stated 2022 data timeline were achieved, and how subsequent data compare with the reported preclinical findings.
- Actual cash consumption and updated runway relative to the stated 12-month estimate, including capital needs to advance programs beyond early clinical development.
- Progress and timing for DM1 and additional-program milestones, including any changes to development priorities or costs.
- Terms, related-party governance, and ongoing costs of the laboratory lease and consulting arrangements.
- Potential dilution from future fundraising and equity-plan share increases, as well as the status of intellectual-property rights and third-party manufacturing capacity.