Stoke Therapeutics, Inc. — Q3 2022 Form 10-Q
Business context and period: Biotechnology company developing RNA-based medicines using its TANGO approach. This unaudited quarterly report covers the three and nine months ended September 30, 2022. Its lead candidate, STK-001, is in clinical testing for Dravet syndrome; STK-002 is being developed for autosomal dominant optic atrophy (ADOA). The company had no approved products or product-sale revenue.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.9 million | None | $9.1 million | None |
| Research and development | $20.1 million | $14.4 million | $56.8 million | $38.4 million |
| General and administrative | $9.9 million | $8.3 million | $29.5 million | $23.2 million |
| Operating loss | $(27.1) million | $(22.7) million | $(77.2) million | $(61.5) million |
| Net loss | $(26.1) million | $(22.6) million | $(75.4) million | $(61.4) million |
| Basic and diluted loss per share | $(0.66) | $(0.61) | $(1.95) | $(1.67) |
Revenue arose from the Acadia collaboration, not product sales. Operating and net margins are not meaningful measures of product economics at this development stage. Net interest income was $1.0 million for Q3 and $1.6 million year to date, versus $0.04 million and $0.08 million, respectively, in the comparable periods.
- Liquidity: At September 30, cash and cash equivalents were $113.4 million, marketable securities $138.3 million and restricted cash $0.6 million, totaling $252.2 million. Current assets were $264.6 million and current liabilities $28.8 million. Management said this funding was expected to support operating expenses and capital expenditures into 2025, subject to assumptions that could prove incorrect.
- Cash flow: Nine-month operating cash use was $9.5 million, compared with $50.6 million in 2021. The 2022 figure benefited substantially from $53.9 million of Acadia-related deferred revenue, so it does not represent operating cash burn absent that receipt. Investing cash use was $68.4 million, primarily securities purchases net of sales and property and equipment; financing provided $46.4 million, including $45.3 million net proceeds from controlled equity sales.
- Debt and obligations: The filing reports no credit facility or committed capital source and no material debt balance. Operating lease payments totaled $5.9 million, including $0.6 million due within one year. Total liabilities were $73.5 million, including $53.9 million of deferred revenue.
- Other metrics: Accumulated deficit was $271.5 million. Nine-month unrealized losses on marketable securities were $1.5 million. A hypothetical 100-basis-point interest-rate change was estimated to affect the fair value of cash equivalents and marketable securities by approximately $2.5 million.
Material changes versus prior periods
- Q3 revenue rose from zero to $2.9 million, and nine-month revenue reached $9.1 million, following the January 2022 Acadia agreement and recognition of collaboration research revenue.
- Q3 operating expenses increased 32% to $30.1 million; nine-month expenses increased 40% to $86.3 million. Higher R&D spending reflected increased activity and headcount, particularly for STK-001 and STK-002; higher G&A mainly reflected personnel and outside services.
- Q3 net loss widened by $3.5 million to $26.1 million; nine-month net loss widened by $14.1 million to $75.4 million.
- Cash, cash equivalents and restricted cash declined $31.5 million from year-end 2021, while marketable securities increased; combined cash, securities and restricted cash increased to $252.2 million from $220.4 million. The company raised $45.3 million net through controlled equity sales during the first nine months, issuing approximately 2.2 million shares.
Outlook, developments and risks
- Management expects continuing losses and increasing R&D, G&A and capital expenditures. The company does not expect product-sale revenue unless and until a candidate is developed, approved and commercialized, a process expected to take years, if successful.
- Acadia paid a $60 million upfront fee and funds research for MECP2 and an undisclosed target; Stoke and Acadia share SYNGAP1 research costs equally. Stoke may receive up to $907.5 million in potential milestones, plus specified royalties or, for SYNGAP1, a 50% share of development/commercialization costs and global profits. Milestones were not included in the recognized transaction price because achievement was uncertain. At quarter end, $53.9 million of upfront consideration remained deferred for unsatisfied or partially unsatisfied obligations.
- Clinical updates included in the filing after quarter end: In October 2022, FDA granted STK-001 Rare Pediatric Disease Designation. In November, the company reported preliminary pooled MONARCH/ADMIRAL data: among 27 patients receiving multiple doses of 20, 30 or 45 mg and followed for at least three months after their last dose, 20 had reduced convulsive seizure frequency from baseline. These results were interim, from small cohorts, and are not proof of efficacy. The company also reported that doses up to 45 mg were well tolerated in the analysis; dosing continued at 45 mg in MONARCH and 70 mg in ADMIRAL. Following regulatory discussions, chronic dosing was limited to 30 mg in SWALLOWTAIL and 45 mg in LONGWING.
- Clinical development risks include uncertain safety and efficacy, small trial populations, enrollment and regulatory delays, and a partial FDA clinical hold on MONARCH doses above 45 mg. COVID-19, inflation, interest rates, supply availability, dependence on third parties and collaborators, intellectual-property protection, and the need for future financing are additional disclosed risks.
- Management reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of September 30, 2022. No material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether later, complete clinical data confirm the preliminary STK-001 seizure findings and clarify safety, dose limits and clinical significance.
- Whether the stated funding runway into 2025 remains achievable as trial, manufacturing and personnel costs rise; assess cash burn excluding collaboration receipts.
- How quickly Acadia collaboration revenue is recognized, how much deferred revenue remains, and whether research obligations or milestone estimates change.
- Potential dilution and financing needs, including use of the new shelf registration and controlled equity sales agreement; no shares had been sold under the new sales agreement as of the filing.
- Progress and costs for STK-002 and the Acadia programs, and the effect of collaboration terms, regulatory requirements and third-party supply on development timelines.