10-Q
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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 March 31, 2022

OR

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.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 May 2, 2022, was 55,782,448.

 

 


 

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 macroeconomic factors and 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.

In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. 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. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

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.

i


 

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.

 

 

 

ii


 

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 we have only one product candidate in clinical development, with all other research programs still in the preclinical or discovery stage. We have a limited 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 preclinical studies and clinical trials may not be predictive of future trial results. If development of our 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 our ongoing or 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 or other health epidemic 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 ongoing and 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 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.

iii


 

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.

 

 

iv


 

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

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 3.

Defaults Upon Senior Securities

69

Item 4.

Mine Safety Disclosures

69

Item 5.

Other Information

69

Item 6.

Exhibits

70

Signatures

71

 

 

 

 

v


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DESIGN THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

287,312

 

 

$

298,569

 

Investment securities

 

 

83,908

 

 

 

85,495

 

Prepaid expense and other current assets

 

 

2,651

 

 

 

1,371

 

Total current assets

 

 

373,871

 

 

 

385,435

 

Property and equipment, net

 

 

1,448

 

 

 

1,508

 

Right-of-use asset, related party

 

 

3,482

 

 

 

3,614

 

Total assets

 

$

378,801

 

 

$

390,557

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,901

 

 

$

1,620

 

Accrued expenses and other current liabilities (including related party amounts of $503 and $504 respectively)

 

 

3,579

 

 

 

3,663

 

Total current liabilities

 

 

5,480

 

 

 

5,283

 

Operating lease liability, net, related party

 

 

3,012

 

 

 

3,144

 

Total liabilities

 

 

8,492

 

 

 

8,427

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 55,781,681 and 55,681,752 shares issued, 55,618,326 and 55,441,926 shares outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

432,346

 

 

 

429,824

 

Accumulated deficit

 

 

(60,721

)

 

 

(47,456

)

Accumulated other comprehensive loss

 

 

(1,322

)

 

 

(244

)

Total stockholders’ equity

 

 

370,309

 

 

 

382,130

 

Total liabilities and stockholders’ equity

 

$

378,801

 

 

$

390,557

 

 

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

1


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development (including related party amounts of $216 and $45, respectively)

 

 

8,759

 

 

 

3,875

 

General and administrative (including related party amounts of $125 and $60, respectively)

 

 

4,611

 

 

 

1,805

 

Total operating expenses

 

 

13,370

 

 

 

5,680

 

Loss from operations

 

 

(13,370

)

 

 

(5,680

)

Other income, net

 

 

105

 

 

 

166

 

Net loss

 

$

(13,265

)

 

$

(5,514

)

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.24

)

 

$

(0.31

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

55,507,338

 

 

 

17,630,178

 

 

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

2


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(13,265

)

 

$

(5,514

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(1,078

)

 

 

(154

)

Comprehensive loss

 

$

(14,343

)

 

$

(5,668

)

 

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

3


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

 

 

$

 

 

 

 

55,441,926

 

 

$

6

 

 

$

429,824

 

 

$

(244

)

 

$

(47,456

)

 

$

382,130

 

Exercises of stock options and vesting of restricted stock

 

 

 

 

 

 

 

 

 

176,400

 

 

 

 

 

 

162

 

 

 

 

 

 

 

 

 

162

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,360

 

 

 

 

 

 

 

 

 

2,360

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,078

)

 

 

 

 

 

(1,078

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,265

)

 

 

(13,265

)

Balance at March 31, 2022

 

 

 

 

$

 

 

 

 

55,618,326

 

 

$

6

 

 

$

432,346

 

 

$

(1,322

)

 

$

(60,721

)

 

$

370,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

72,181

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

647

 

 

 

 

 

 

 

 

 

647

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(154

)

 

 

 

 

 

(154

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,514

)

 

 

(5,514

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

 

55,042,550

 

 

$

6

 

 

$

425,435

 

 

$

2

 

 

$

(17,437

)

 

$

408,006

 

 

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

4


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(13,265

)

 

$

(5,514

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

82

 

 

 

4

 

Stock-based compensation

 

 

2,360

 

 

 

647

 

Amortization of premiums on investment securities, net

 

 

19

 

 

 

(150

)

Non-cash lease expense

 

 

14

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expense and other assets

 

 

(1,237

)

 

 

 

Prepaid expense and other assets—related party

 

 

 

 

 

(60

)

Accounts payable and other liabilities

 

 

215

 

 

 

1,376

 

Accounts payable and other liabilities—related party

 

 

(15

)

 

 

 

Net cash used in operating activities

 

 

(11,827

)

 

 

(3,697

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investment securities

 

 

 

 

 

(5,111

)

Proceeds from maturities of investment securities

 

 

490

 

 

 

28,172

 

Purchases of property and equipment

 

 

(76

)

 

 

(33

)

Net cash provided by investing activities

 

 

414

 

 

 

23,028

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from initial public offering, net of issuance costs

 

 

 

 

 

254,271

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

124,712

 

Proceeds from the exercise of stock options

 

 

156

 

 

 

 

Net cash provided by financing activities

 

 

156

 

 

 

378,983

 

Net (decrease) increase in cash and cash equivalents

 

 

(11,257

)

 

 

398,314

 

Cash and cash equivalents at beginning of period

 

 

298,569

 

 

 

2,379

 

Cash and cash equivalents at end of period

 

$

287,312

 

 

$

400,693

 

Supplemental disclosures

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

19

 

 

$

 

 

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

5


 

DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Organization

Design Therapeutics, Inc. (the “Company”) was incorporated in Delaware in December 2017 and is based in Carlsbad, California. The Company is a biopharmaceutical company pioneering the research and development of GeneTACTM molecules, which are a novel class of small-molecule gene targeted chimera therapeutic candidates designed to be disease-modifying by addressing the underlying cause of diseases caused by inherited nucleotide repeat expansion mutations. The Company’s lead product candidate is in Friedreich ataxia (“FA”), its second GeneTAC™ program is in myotonic dystrophy type-1 (“DM1”), and it is also advancing its GeneTACTM portfolio to address other serious nucleotide repeat-driven monogenic diseases.

Stock Splits

In March 2021, the Company effected a 1-for-1.63 reverse stock split of its issued and outstanding common stock. The par value and the authorized shares of the common stock were not adjusted as a result of these stock splits. The reverse stock split in March 2021 resulted in an adjustment to the convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying financial statements and notes to the financial statements give retroactive effect to the stock splits for all periods presented.

Initial Public Offering

In March 2021, the Company completed its initial public offering (“IPO”) selling 13,800,000 shares of its common stock at $20.00 per share. Proceeds from the Company's IPO, net of underwriting discounts and commissions and other offering costs, were $254.3 million. In connection with the IPO, all 41,096,478 shares of convertible preferred stock outstanding at the time of the IPO converted into 25,212,548 shares of the Company's common stock.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net operating losses since inception and had an accumulated deficit of $60.7 million as of March 31, 2022. The Company had cash, cash equivalents and investment securities of $371.2 million as of March 31, 2022, and has not generated positive cash flow from operations.

Management expects to incur net losses for the foreseeable future. There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved, that they will be sustained on a continuing basis. In addition, the preclinical manufacturing, and clinical development activities as well as the commercialization of the Company's products, if approved, will require significant additional financing. The Company may be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company or the current stockholders. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations. The Company's currently available cash and cash equivalents as of March 31, 2022 are sufficient to meet its anticipated cash requirements for more than 12 months following the date the financial statements are issued.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed financial statements are unaudited. These unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and following the requirements of the United States Securities and Exchange Commission ("SEC") for interim reporting. The Company's financial statements include all adjustments, consisting of only normal recurring adjustments, which in the opinion of management are necessary to present fairly the Company’s financial position as of the reporting date and results of operations for the periods presented.

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses and the valuation of equity-based awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the

6


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS—(Continued)

 

basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.

The full extent to which the novel coronavirus-2019 (“COVID-19”) pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has considered potential impacts arising from the COVID-19 pandemic and is not presently aware of any events or circumstances that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company manages its operations as a single reportable segment for the purposes of assessing performance and making operating decisions.

3. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of convertible preferred stock, restricted common stock subject to repurchase, stock options outstanding under the Company’s equity incentive plans, employee stock purchase rights under the Company’s 2021 Employee Stock Purchase Plan (the "ESPP"), and shares of common stock that are issuable under convertible debt, as applicable. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company's net loss position.

The following table sets forth the outstanding, potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

 

 

 

March 31,
2022

 

 

March 31,
2021

 

Stock options

 

 

5,061,629

 

 

 

1,982,960

 

Shares subject to repurchase

 

 

163,355

 

 

 

574,772

 

Employee stock purchase plan

 

 

22,950

 

 

 

46,257

 

Total

 

$

5,247,934

 

 

$

2,603,989

 

 

4. Fair Value Measurements

Accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying value of the Company’s cash, accounts payable and accrued liabilities are considered to be representative of their respective fair values due to the short-term nature of those instruments. The Company’s investment securities, which may include

7


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS—(Continued)

 

money market accounts, money market funds, certificates of deposits, U.S. Treasury securities, and high quality, marketable debt instruments of corporations and government sponsored enterprises, are measured at fair value in accordance with the fair value hierarchy. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis and no transfers between levels have occurred during the periods presented.

The following table summarize the Company’s financial instruments measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021 (in thousands):

 

 

 

Fair Value Measurement at End of Period Using:

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

 

 

In Active

 

 

 

 

 

 

 

 

 

 

 

 

Markets

 

 

Significant

 

 

 

 

 

 

 

 

 

For

 

 

Other

 

 

Significant

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

As of March 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

284,736

 

 

$

284,736

 

 

$

 

 

$

 

Certificates of deposit

 

 

5,243

 

 

 

5,243

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

78,665

 

 

 

78,665

 

 

 

 

 

 

 

Total

 

$

368,644

 

 

$

368,644

 

 

$

 

 

$

 

As of December 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

298,114

 

 

$

298,114

 

 

$

 

 

$

 

Certificates of deposit

 

 

5,771

 

 

 

5,771

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

79,724

 

 

 

79,724

 

 

 

 

 

 

 

Total

 

$

383,609

 

 

$

383,609

 

 

$

 

 

$

 

 

(1)
Included in cash and cash equivalents on the accompanying balance sheets.

 

Interest bearing money market accounts and certificates of deposit are valued at amortized cost, which approximates fair value.

5. Investment Securities

The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. In accordance with the Company’s investment policy, it has invested funds in marketable securities. The cost, gross unrealized holding gains, gross unrealized holding

8


DESIGN THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS—(Continued)

 

losses, allowances for credit losses and fair value of available-for-sale investments by types, maturities and classes of securities at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

 

 

 

 

 

As of March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance

 

 

Fair

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

for Credit

 

 

Market

 

 

 

Maturity

 

Cost

 

 

Gains

 

 

Losses

 

 

Losses

 

 

Value

 

Certificates of deposits

 

Within 1 year

 

$

3,098

 

 

$

 

 

$

(9

)

 

$

 

 

$

3,089

 

U.S. Treasury securities

 

Within 1 year

 

 

30,083

 

 

 

 

 

 

(254

)

 

 

 

 

 

29,829

 

Certificates of deposits

 

1 year to 2 years

 

 

2,188

 

 

 

 

 

 

(33

)