UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 5, 2023, was
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:
i
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.
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.
Trademarks and Service Marks
“Design Therapeutics,” “Design,” “GeneTAC,” the Design logo and other trademarks, trade names or service marks of Design Therapeutics, Inc. appearing in this Quarterly Report on Form 10-Q are the property of Design Therapeutics, Inc. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
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:
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iii
Table of Contents
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PART I. |
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Item 1. |
1 |
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3 |
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4 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. |
22 |
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Item 4. |
22 |
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PART II. |
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Item 1. |
23 |
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Item 1A. |
23 |
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Item 2. |
69 |
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Item 3. |
69 |
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Item 4. |
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Item 5. |
69 |
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Item 6. |
70 |
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iv
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
DESIGN THERAPEUTICS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and par value data)
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March 31, |
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December 31, |
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2023 |
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2022 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Investment securities |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use asset, related party |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities (including related party amounts of $ |
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Total current liabilities |
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Operating lease liability, net, related party |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Operating expenses: |
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Research and development (including related party amounts of $ |
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$ |
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$ |
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General and administrative (including related party amounts of $ |
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Total operating expenses |
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Loss from operations |
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Other income, net |
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Net loss |
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$ |
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$ |
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Net loss per share, basic and diluted |
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$ |
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Weighted-average shares of common stock outstanding, basic and diluted |
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The accompanying notes are an integral part of these financial statements.
2
DESIGN THERAPEUTICS, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Net loss |
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$ |
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$ |
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Other comprehensive loss: |
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Unrealized gain (loss) on available-for-sale securities |
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Comprehensive loss |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these financial statements.
3
DESIGN THERAPEUTICS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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(Loss) Income |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Exercises of stock options and vesting of restricted stock |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Unrealized gain on investments |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Exercises of stock options and vesting of restricted stock |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Unrealized loss on investments |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these financial statements.
4
DESIGN THERAPEUTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Reconciliation of net loss to net cash used in operating activities: |
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Depreciation |
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Stock-based compensation |
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Amortization of premiums on investment securities, net |
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Non-cash lease expense |
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Change in operating assets and liabilities: |
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Prepaid expense and other assets |
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( |
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Accounts payable and other liabilities |
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( |
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Accounts payable and other liabilities—related party |
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— |
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( |
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Net cash used in operating activities |
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( |
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Cash flows from investing activities |
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Purchases of investment securities |
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Proceeds from maturities of investment securities |
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Purchases of property and equipment |
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Net cash provided by investing activities |
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Cash flows from financing activities |
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Proceeds from the exercise of stock options |
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— |
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Net cash provided by financing activities |
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— |
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Net increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosures |
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Purchases of property and equipment included in accounts payable and accrued expenses |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these financial statements.
5
DESIGN THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Organization
Design Therapeutics, Inc. (the “Company”) was incorporated in Delaware in December 2017 and is based in Carlsbad, California. The Company is a clinical-stage 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 product candidate is in Fuchs Endothelial Corneal Dystrophy (“FECD”), and it is also advancing its GeneTACTM program to address other serious nucleotide repeat-driven monogenic diseases.
Initial Public Offering
In March 2021, the Company completed its initial public offering (“IPO”) selling
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 $
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 and cash flows 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. 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 basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.
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.
6
DESIGN THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued)
(unaudited)
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 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”).. 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:
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March 31, |
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March 31, |
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Stock options |
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Shares subject to repurchase |
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Employee stock purchase plan |
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Total |
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$ |
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$ |
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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 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.
7
DESIGN THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued)
(unaudited)
The following table summarizes the Company’s financial instruments measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022 (in thousands):
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Fair Value Measurement at End of Period Using: |
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Quoted Prices |
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In Active |
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Markets |
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Significant |
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For |
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Other |
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Significant |
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Identical |
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Observable |
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Unobservable |
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Assets |
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Inputs |
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Inputs |
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Total |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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As of March 31, 2023: |
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Assets: |
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Money market funds(1) |
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$ |
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$ |
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$ |
— |
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$ |
— |
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Certificates of deposit |
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— |
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— |
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U.S. Treasury securities |
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— |
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— |
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U.S. Government agency securities |
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— |
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— |
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Total |
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$ |
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$ |
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$ |
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$ |
— |
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As of December 31, 2022: |
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Assets: |
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Money market funds(1) |
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$ |
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$ |
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$ |
— |
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$ |
— |
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Certificates of deposit |
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— |
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— |
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U.S. Treasury securities |
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— |
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— |
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U.S. Government agency securities |
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— |
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
Interest bearing money market accounts and certificates of deposit are valued at amortized cost, which approximates fair value. 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 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. The Company obtains the fair value of its available-for-sale debt securities from a professional pricing service. Level II securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data and include our investments in marketable debt instruments of government sponsored enterprises. 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.
8
DESIGN THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued)
(unaudited)
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.
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As of March 31, 2023 |
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|
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|
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|
Estimated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance |
|
|
Fair |
|
|||||
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
for Credit |
|
|
Market |
|
|||||
|
|
Maturity |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Losses |
|
|
Value |
|
|||||
Certificates of deposits |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
U.S. Government agency securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
Certificates of deposits |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|