Stoke Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Stoke is a clinical-stage biotechnology company developing RNA-based medicines using its TANGO platform. It has no approved products and has generated no product-sales revenue; reported revenue is from its Acadia collaboration.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.3m | $2.9m | $6.0m | $9.1m |
| Research and development | $20.3m | $20.1m | $60.5m | $56.8m |
| General and administrative | $10.3m | $9.9m | $30.7m | $29.5m |
| Operating loss | $27.2m | $27.1m | $85.2m | $77.2m |
| Net loss | $24.5m | $26.1m | $77.7m | $75.4m |
| Net loss per share, basic and diluted | $0.55 | $0.66 | $1.78 | $1.95 |
- Cash and liquidity: Cash, cash equivalents and marketable securities totaled $214.7m at September 30, 2023, down from $229.6m at December 31, 2022. This included $190.0m in cash and cash equivalents and $24.7m in marketable securities. Management expects these resources to fund operations and capital expenditures to the end of 2025, based on its current operating plan.
- Cash flow: Nine-month operating cash use was $60.4m, compared with $9.5m in 2022; investing activities provided $91.2m, mainly from sales of marketable securities; financing provided $45.7m, including $44.7m net proceeds from the at-the-market equity program. Cash, cash equivalents and restricted cash increased $76.4m.
- Balance sheet: Total assets were $239.9m and total liabilities $66.9m; stockholders’ equity was $173.0m. The filing reports no credit facility or committed capital source and no borrowings. Liabilities include deferred revenue and lease obligations; operating lease liabilities totaled $3.3m.
- Margins: Product gross margins are not applicable because Stoke has no product sales. Operating expenses substantially exceeded collaboration revenue.
Material changes and unusual items
- Nine-month revenue decreased $3.2m year over year, primarily reflecting a $5.3m cumulative catch-up revenue reversal in Q2 after Stoke raised its estimate of the remaining costs to fulfill Acadia collaboration research obligations. Q3 revenue increased $0.4m year over year.
- Nine-month R&D expense rose $3.7m, chiefly from personnel, facilities and STK-001 spending, partly offset by lower STK-002 and other external program costs. G&A increased $1.2m, largely from personnel costs.
- Higher interest rates and investment balances contributed to nine-month net interest income of $7.3m, versus $1.6m in 2022, moderating the effect of the larger operating loss on net loss.
- Stoke sold approximately 4.6m shares under its ATM program through September 30 for $44.7m net. After quarter-end, it sold approximately 361,000 additional shares for about $1.4m net. Shares outstanding were 44.3m at September 30 and 44.7m as of October 30.
- In May 2023, Stoke terminated its CSHL license agreement, stating it did not expect a significant impact on intellectual property underlying current candidates or continued TANGO development. Its University of Southampton license remains in place.
Outlook, programs and risks
- Management expects continuing operating losses and increases in R&D, G&A and capital expenditures as programs advance. The company may need additional financing; equity financing could dilute shareholders, and funding may not be available on acceptable terms or at all.
- In July, Stoke reported positive interim safety and efficacy observations for STK-001 in Dravet syndrome studies, including reduced convulsive seizure frequency and reported cognitive and behavioral improvements. The company described the findings as suggestive of potential clinical benefit; early-stage results may not predict later trials. Additional clinical and modeling data were expected in Q1 2024, with a Phase 3 planning update expected in the first half of 2024.
- For STK-002 in autosomal dominant optic atrophy, the UK authorized the clinical trial application in April 2023. Stoke planned to initiate a UK Phase 1 study in early 2024.
- The filing describes a continuing partial FDA clinical hold in MONARCH for multiple STK-001 doses above 45mg and single doses above 70mg. It also reports a November 2023 decision to limit chronic dosing in open-label extension studies to 30mg in the U.S. SWALLOWTAIL study and 45mg in the UK LONGWING study, following regulatory interactions and review of interim nonhuman-primate toxicology data.
- The Acadia collaboration covers SYNGAP1, MECP2 and an undisclosed target. Stoke may receive up to $907.5m in contingent milestones and, for certain programs, royalties; no milestone payments were included in the transaction price as of September 30. The company reported $49.5m of Acadia upfront consideration relating to unsatisfied or partially unsatisfied obligations.
- Key risks include clinical safety and efficacy uncertainty, regulatory delays or failure, patient enrollment challenges in rare diseases, manufacturing and third-party dependence, intellectual-property rights, competition, continued funding needs and potential dilution. A hypothetical 100-basis-point interest-rate change would affect the fair value of cash equivalents and marketable securities by approximately $2.2m. Management said inflation had not materially affected results to date.
- Management reported effective disclosure controls as of September 30 and no material legal proceedings.
Important facts for investors to verify
- Whether the reported STK-001 interim benefits are sustained in additional data and support the planned Phase 3 path, considering dose restrictions and the MONARCH partial hold.
- Whether the end-of-2025 cash runway remains achievable as trial, manufacturing and other development costs increase, and whether further ATM or other financing causes material dilution.
- How Acadia research-cost estimates and future collaboration revenue evolve, and whether any contingent milestones become achievable.
- Progress and timing of the planned STK-002 Phase 1 study and the clinical and regulatory milestones for Stoke’s other programs.
- The effects, if any, of the CSHL license termination on intellectual-property coverage and the continued development of TANGO-based candidates.