SEC Filing | Design Therapeutics, Inc

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dsgn-10q_20210630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40288

Design Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		82-3929248
( State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6005 Hidden Valley Road, Suite 110 Carlsbad, California		92011
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (858) 293-4900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

DSGN

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the registrant’s common stock, $0.0001 par value per share, as of July 31, 2021, was 55,617,322.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•

our plans to research, develop and commercialize our product candidates;

•

the initiation, progress, success, cost and timing of our preclinical studies, clinical trials and product development activities;

•

the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;

•

our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;

•

our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;

•

the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our preclinical studies and clinical trials as well as third-party suppliers and manufacturers;

•

our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;

•

the size and growth of the potential markets for our product candidates and our ability to serve those markets;

•

the potential scope, duration and value of our intellectual property rights;

•

our ability, and the ability of our licensors, to obtain, maintain, defend and enforce intellectual property rights protecting our platform technologies and product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;

•

our ability to recruit and retain key personnel;

•

the effects of the COVID-19 pandemic on our operations; and

•

other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context otherwise indicates, references in this Quarterly Report to the terms “Design”, “the Company”, “we,” “our, and “us” refer to Design Therapeutics, Inc., and references to our “common stock” refers to our voting common stock.

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:

•

We have a limited operating history, have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, may not be able to sustain it.

•

We are early in our development efforts and all of our research programs are still in the preclinical or discovery stage. We have no history of conducting clinical trials to test our product candidates in humans.

•

Preclinical and clinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of earlier studies and trials may not be predictive of future trial results. If development of our development programs is unsuccessful or delayed, we may be unable to obtain required regulatory approvals and be unable to commercialize our product candidates on a timely basis, if at all.

•

Our product candidates are based on novel technologies, which make it difficult to predict the timing, results and cost of product candidate development and likelihood of obtaining regulatory approval.

•

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, cause us to suspend or discontinue planned clinical trials, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

•

The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of our product candidates and adversely impact our ability to generate revenue, our business and our results of operations.

•

The COVID-19 pandemic could adversely impact our business and affect our operations, as well as the business or operations of our manufacturers or other third parties with whom we conduct business.

•

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

•

We may rely on third parties to conduct, supervise, and monitor our planned clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

•

We contract with third parties for the manufacturing and supply of our product candidates for use in preclinical testing and planned clinical trials, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

•

Any approved products may fail to achieve the degree of market acceptance by physicians, patients, hospitals, healthcare payors and others in the medical community necessary for commercial success.

•

If the market opportunities for any of our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

•

If any of our product candidates are approved for marketing and commercialization and we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we will be unable to successfully commercialize our product candidates if and when they are approved.

•

We may not realize the benefits of any acquisitions, in-license or strategic alliances that we enter into.

•

We may wish to form collaborations in the future with respect to our product candidates, but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans.

•

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

•

Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws,

transparency laws and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

•

If we are unable to obtain and maintain sufficient intellectual property protection for our platform technologies and product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

•

We may not be able to protect our intellectual property rights throughout the world.

•

We may rely on trade secrets and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

•

The price of our common stock could be subject to volatility related or unrelated to our operations.

iii

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations	2
	Condensed Statements of Comprehensive Loss	3
	Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	4
	Condensed Statements of Cash Flows	5
	Notes to Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
Signatures		72

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DESIGN THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

	June 30,			December 31,
	2021			2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	370,838		$	2,379
Investment securities		31,998			33,712
Prepaid expense and other current assets (including related party amounts of $60 and $0, respectively)		2,039			142
Total current assets		404,875			36,233
Property and equipment, net		271			71
Deferred offering costs		—			212
Total assets	$	405,146		$	36,516
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable (including related party amounts of $20 and $20, respectively)	$	1,585		$	1,399
Accrued expenses		1,820			931
Total current liabilities		3,405			2,330
Other long-term liabilities		140			145
Total liabilities		3,545			2,475
Commitments and contingencies (See Note 8)
Convertible preferred stock, $0.0001 par value; no shares and 22,500,000 shares authorized, no shares and 22,012,499 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively; liquidation preference of zero and $45,625 as of June 30, 2021 and December 31, 2020, respectively		—			45,356
Stockholders’ equity (deficit):
Common stock, $0.0001 par value; 200,000,000 and 60,000,000 shares authorized, 55,617,322 and 16,604,774 shares issued, 55,114,729 and 15,957,821 shares outstanding at June 30, 2021 and December 31, 2020, respectively		6			1
Additional paid-in capital		426,680			451
Accumulated deficit		(25,073	)		(11,923	)
Accumulated other comprehensive income		(12	)		156
Total stockholders’ equity (deficit)		401,601			(11,315	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	405,146		$	36,516

The accompanying notes are an integral part of these financial statements.

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue:
Grant revenue	$	—		$	31		$	—		$	173
Operating expenses:
Research and development (including related party amounts of $45, $0, $90 and $8, respectively)		5,027			1,061			8,902			1,438
General and administrative (including related party amounts of $60, $60, $120 and $172, respectively)		2,660			433			4,465			821
Total operating expenses		7,687			1,494			13,367			2,259
Loss from operations		(7,687	)		(1,463	)		(13,367	)		(2,086	)
Other income (expense), net (including related party expense amounts of $0, $0, $0, and $30, respectively)		51			21			217			(19	)
Net loss	$	(7,636	)	$	(1,442	)	$	(13,150	)	$	(2,105	)

Net loss per share, basic and diluted	$	(0.14	)	$	(0.06	)	$	(0.36	)	$	(0.08	)
Weighted-average shares of common stock outstanding, basic and diluted		55,081,397			25,597,154			36,459,244			25,558,779

The accompanying notes are an integral part of these financial statements.

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net loss	$	(7,636	)	$	(1,442	)	$	(13,150	)	$	(2,105	)
Other comprehensive gain (loss):
Unrealized (loss) gain on available-for-sale securities		(14	)		13			(168	)		194
Comprehensive loss	$	(7,650	)	$	(1,429	)	$	(13,318	)	$	(1,911	)

The accompanying notes are an integral part of these financial statements.

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(Unaudited)

													Accumulated						Total
	Convertible										Additional		Other						Stockholders’
	Preferred Stock						Common Stock				Paid-in		Comprehensive			Accumulated			Equity
	Shares			Amount			Shares		Amount		Capital		Income			Deficit			(Deficit)
Balance at March 31, 2021		—		$	—			55,042,550	$	6	$	425,435	$	2		$	(17,437	)	$	408,006
Vesting of restricted stock		—			—			72,179		—		2		—			—			2
Stock-based compensation		—			—			—		—		1,243		—			—			1,243
Unrealized loss on investments		—			—			—		—		—		(14	)		—			(14	)
Net loss		—			—			—		—		—		—			(7,636	)		(7,636	)
Balance at June 30, 2021		—		$	—			55,114,729	$	6	$	426,680	$	(12	)	$	(25,073	)	$	401,601

Balance at December 31, 2020		22,012,499		$	45,356			15,957,821	$	1	$	451	$	156		$	(11,923	)	$	(11,315	)
Issuance of Series B convertible preferred stock, net of $288 of issuance costs		19,083,979			124,712			—		—		—		—			—			—
Preferred stock converted into shares of common stock		(41,096,478	)		(170,068	)		25,212,548		4		170,064		—			—			170,068
Initial public offering of common shares, net of $21,728 of issuance costs		—			—			13,800,000		1		254,270		—			—			254,271
Vesting of restricted stock		—			—			144,360		—		5		—			—			5
Stock-based compensation		—			—			—		—		1,890		—			—			1,890
Unrealized loss on investments		—			—			—		—		—		(168	)		—			(168	)
Net loss		—			—			—		—		—		—			(13,150	)		(13,150	)
Balance at June 30, 2021		—		$	—			55,114,729	$	6	$	426,680	$	(12	)	$	(25,073	)	$	401,601

Balance at March 31, 2020		22,012,499		$	45,356			15,690,585	$	1	$	4	$	181		$	(4,306	)	$	(4,120	)
Vesting of restricted stock		—			—					—		—		—			—			—
Stock-based compensation		—			—			—		—		10		—			—			10
Unrealized gain on investments		—			—			—		—		—		13			—			13
Net loss		—			—			—		—		—		—			(1,442	)		(1,442	)
Balance at June 30, 2020		22,012,499		$	45,356			15,690,585	$	1	$	14	$	194		$	(5,748	)	$	(5,539	)

Balance at December 31, 2019		—		$	—			15,640,133	$	1	$	—	$	—		$	(3,643	)	$	(3,642	)
Issuance of Series A convertible preferred stock, net of $270 of issuance costs		21,710,814			44,731			—		—		—		—			—			—
Conversion of convertible debt and interest to Series A convertible preferred stock		301,685			500			—		—		—		—			—			—
Settlement of bifurcated conversion liability		—			125			—		—		—		—			—			—
Vesting of restricted stock		—			—			50,452		—		—		—			—			—
Stock-based compensation		—			—			—		—		14		—			—			14
Unrealized gain on investments		—			—			—		—		—		194			—			194
Net loss		—			—			—		—		—		—			(2,105	)		(2,105	)
Balance at June 30, 2020		22,012,499		$	45,356			15,690,585	$	1	$	14	$	194		$	(5,748	)	$	(5,539	)

The accompanying notes are an integral part of these financial statements.

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(13,150	)	$	(2,105	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation		16			—
Stock-based compensation		1,890			14
Amortization of premiums on investment securities, net		(128	)		(11	)
Non-cash interest expense		—