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Item 7. Management’s Discussion and Analysis

2021-03-09 compared with 2020-03-23 · 166 added, 95 removed, 258 unchanged (50% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

You should carefully read the section entitled “Risk factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

You should carefully read the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

We are pioneering a new way to treat the underlying causes of severe genetic diseases by precisely upregulating protein expression.

We are developing novel antisense oligonucleotide, or ASO, medicines that target ribonucleic acid, or RNA, and modulate precursor-messenger RNA, or pre-mRNA, splicing to upregulate protein expression where needed and with appropriate specificity to near normal levels.

We utilize our proprietary technology platform, Targeted Augmentation of Nuclear Gene Output, or TANGO, to design ASOs to upregulate the expression of protein by individual genes in a patient.

Our approach is designed to allow us to deliver in a highly precise, durable and controlled manner disease-modifying therapies to a wide range of relevant tissues, including the central nervous system, or CNS, eye, kidney and liver.

We designed our lead product candidate, STK-001, to treat Dravet syndrome, a severe and progressive genetic epilepsy.

With a well-defined patient population based on routine genetic testing and learnings from drugs approved for the treatment of Dravet syndrome to inform the clinical and regulatory pathways for STK-001, we anticipate an efficient clinical program for STK-001.

We submitted an investigational new drug application, or IND, for STK-001 to U.S.

Food and Drug Administration, or the FDA, in late 2019.

In the first quarter of 2020, we received communication from the FDA confirming that we may proceed with clinical dosing in the planned Phase 1/2a clinical trial called Monarch.

The single ascending dose portion of this trial is in two parts, A and B, and is designed to evaluate STK-001 in children and adolescents ages 2 to 18 years of age with Dravet syndrome.

Part A allows dosing of two cohorts.

We expect to enroll and begin dosing patients in Part A of the study in the second half of 2020.

Part B of the study will evaluate the higher doses of STK-001.

The FDA has placed a partial clinical hold for the doses planned in Part B of the study.

The partial clinical hold was not due to any identified manufacturing or safety issue, but rather was because additional safety information is needed from preclinical testing to determine the safety profile of doses higher than the current no observed adverse effect level or NOAEL.

The NOAEL was determined using data from a pivotal non-human primate study that evaluated intrathecal delivery of single dose levels of STK-001.

The highest dose administered in this study was equivalent to a human dose that is higher than what we plan to administer in Part B of our Phase 1/2a clinical study and did not demonstrate effects that were considered adverse.

It is the FDA’s position that in order to support administration of STK-001 doses above those planned in Part A, additional nonclinical data to identify any potential safety issues of STK-001 at higher doses will need to be provided.

We have initiated single-dose toxicology studies to more fully characterize the safety profile at higher doses, in order to facilitate the removal of the partial clinical hold and proceed to Part B of the study.

Upon FDA clearance, we will plan to proceed with the higher dosing cohorts planned in Part B of the study.

We are working to minimize any potential delay to continued clinical testing of STK-001.

We still anticipate preliminary data from the study in 2021.

We intend to nominate a second candidate for preclinical development in the second half of 2020.

We are developing novel antisense oligonucleotide (“ASO”), medicines that target ribonucleic acid (“RNA”), and modulate precursor-messenger RNA, splicing to upregulate protein expression where needed and with appropriate specificity to near normal levels.

We utilize our proprietary RNA therapeutics platform, Targeted Augmentation of Nuclear Gene Output (“TANGO”), to design ASOs to upregulate the expression of protein by individual genes in a patient.

We were incorporated in June 2014.

In July 2015 and April 2016, we entered into worldwide license agreements with Cold Spring Harbor Laboratory, or CSHL, and the University of Southampton, respectively, with respect to certain licensed patents and applications relating to TANGO.

In July 2015 and April 2016, we entered into worldwide license agreements with Cold Spring Harbor Laboratory (“CSHL”), and the University of Southampton, respectively, with respect to certain licensed patents and applications relating to TANGO.

TANGO exploits non-productive splicing events to effect targeted enhancement of protein expression.

Since our inception through December 31, 2019, our operations have been financed by net proceeds of $280.4 million from the sale of convertible notes payable and our convertible preferred stock as well as our IPO.

As of December 31, 2019, we had $222.7 million in cash, cash equivalents and restricted cash.

Since our inception through June 21, 2019, our operations had been financed primarily from the sale of convertible notes payable and our convertible preferred stock.

On June 21, 2019, we completed an initial public offering (“IPO”), of our common stock and issued and sold 9,074,776 shares of common stock at a public offering price of $18.00 per share, which included 1,183,666 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock resulting in net proceeds of $151.9 million after deducting underwriting discounts and commissions but before deducting offering costs of approximately $2.5 million.

In July 2020, we filed a universal shelf registration statement on Form S-3 (the “Registration Statement”) with the SEC.

The Registration Statement was declared effective by the SEC on July 20, 2020, and covers the offering, issuance and sale by us of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities.

On July 10, 2020, we entered into an “at-the-market” program and sales agreement with Cantor Fitzgerald & Co., or Cantor, and Stifel, Nicolaus & Company, Incorporated, or Stifel, under which we may, from time to time, offer and sell common stock having an aggregate offering value of up to $150.0 million, referred to as our “at-the-market” offering with Cantor and Stifel.

As of December 31, 2020, no such shares of our common stock had been offered or sold pursuant to this “at-the-market” program with Cantor and Stifel.

We may terminate this at-the-market program at any time, pursuant to its terms.

On November 24, 2020, we completed an underwritten public offering, of our common stock and issued and sold 2,875,000 shares of common stock at a public offering price of $39.00 per share, which included 375,000 shares sold upon full exercise of the underwriters’ option to purchase additional shares of common stock resulting in net proceeds of $104.9 million after deducting underwriting discounts and commissions and estimated offering expenses.

As of December 31, 2020 and December 31, 2019, we had $287.5 million and $222.7 million, respectively, in cash, cash equivalents and restricted cash.

Since inception, we have had operating losses, the majority of which are attributable to research and development activities.

Our net losses were $32.3 million and $12.5 million for the years ended December 31, 2019 and 2018, respectively, and as of December 31, 2019, we had an accumulated deficit of $58.0 million.

Our net losses were $52.3 million and $32.3 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, we had an accumulated deficit of $110.3 million and as of December 31, 2019, we had an accumulated deficit of $58.0 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

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We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.

In particular, we expect our expenses and losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and accountants, and incur increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.

In particular, we expect our expenses and losses to increase as we continue our development of, and seek regulatory approvals for, our

product candidates, and begin to commercialize any approved products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and accountants, and incur increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and Securities and Exchange Commission (“SEC”) requirements, insurance and investor relations costs.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

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If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

License agreements

Cold Spring Harbor Laboratory

In July 2015, we entered into a worldwide license agreement with CSHL, or the CSHL Agreement, with respect to the TANGO patents.

Under the CSHL Agreement, we receive an exclusive (except with respect to certain government rights and non-exclusive licenses), worldwide license under certain patents and applications relating to TANGO.

As part of the CSHL Agreement, we granted CSHL 164,927 shares of common stock.

The CSHL Agreement obligates us to make additional payments that are contingent upon certain milestones being achieved as well as royalties on future product sales.

These royalty obligations last on a product-by-product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a patent covering a subject product or (ii) the expiration of any regulatory exclusivity for the subject product in a country.

In addition, if we sublicense rights under the CSHL Agreement, we are required to pay a percentage of the sublicense revenue to CSHL, which may be reduced upon achievement of certain milestones for the applicable subject product.

The maximum aggregate potential milestone payments payable total approximately $900,000.

Additionally, certain licenses under the CSHL Agreement require us to reimburse CSHL for certain past and ongoing patent related expenses, however there were no expenses related to these reimbursable patent costs during the years ended December 31, 2019 and 2018.

For more information, please see “Business—License agreements.”

University of Southampton

In April 2016, we entered into an exclusive, worldwide license agreement with the University of Southampton, or the Southampton Agreement, whereby we acquired rights to foundational technologies related to our TANGO technology.

Under the Southampton Agreement, we receive an exclusive, worldwide license under certain licensed patents and applications relating to TANGO.

As part of the Southampton Agreement, we paid 55,000 pounds sterling (approximately $73,000 as of the date thereof) as an up-front license fee.

Under the Southampton Agreement, we may be obligated to make additional payments that are contingent upon certain milestones being achieved, as well as royalties on future product sales.

royalty o bligations survive until the latest of (i) the expiration of the last valid claim of a licensed patent covering a subject product or (ii) the expiration of any regulatory exclusivity for the subject product in a country.

In addition, if we sublicense our r ights under the Southampton Agreement, we are required to pay a percentage of the sublicense revenue to the University of Southampton.

The maximum aggregate potential milestone payments payable by us total approximately 400,000 pounds sterling (approximate ly $5 30 ,000 as of December 31, 201 9 ).

As of December 31, 201 9 , and 201 8 , we have recorded no liabilities under the Southampton Agreement.

For more information, please see “Business—License agreements.”

In July 2020, we filed a universal shelf registration statement on Form S-3 (the “Registration Statement”) with the SEC.

The Registration Statement was declared effective by the SEC on July 20, 2020, and contains two prospectuses:

a base prospectus, which covers the offering, issuance and sale by us of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities;

and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $150,000,000 of our common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement.

The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus.

The $150,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400,000,000 of securities that may be offered, issued and sold by us under the base prospectus.

Business Update Regarding COVID-19

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S.

economy and financial markets.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, liquidity and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, our third party contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other third party vendors have been able to continue to provide services and supply reagents, materials, and products and currently do not anticipate any significant disruption in services or interruptions in supply.

We have pursued mitigation strategies to keep key research activities on track.

Our third-party CMOs continue to operate their manufacturing facilities at or near normal levels.

While we currently do not anticipate any significant interruptions in our manufacturing processes, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and CMO’s ability to manufacture reagents, materials, or products that we need to use in our research and clinical trial.

However, we are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, our observational study, our clinical trial, and our ability to hire and retain employees.

Our ability to continue our observational study may be adversely affected, directly or indirectly, by the COVID-19 pandemic.

Currently we are monitoring patient enrollment in our observational study, including the duration and degree to which we may see declines in enrollment, delays in conducting in-person follow-ups, and disruptions in our ability to monitor patients due to hospitals closing sites or diverting the resources that are necessary to conduct our observational study.

Despite a slowdown in new patient enrollment due to the impact of COVID-19 on sites, we believe we have achieved sufficient participation in the study to provide informative data about the natural progression of Dravet syndrome.

While we continue to enroll and dose patients in our Phase 1/2a clinical trial at sites across the United States, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trial activities due to hospitals closing sites and/or diverting the resources that are necessary to conduct clinical trials.

We are pursuing approaches to help mitigate the impact to our clinical trial.

Currently we have not experienced any substantial delay in initiating our clinical trial.

The COVID-19 pandemic has caused us to modify our business practices (including but not limited to curtailing or modifying employee travel, moving to partial remote work, and cancelling physical participation in meetings, events and conferences) and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, patients and business partners.

Our office-based employees have been working from home since early March 2020, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our laboratories.

For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A.

Risk Factors included in this report.

Program Update

Dravet syndrome clinical program—STK-001

We designed our lead product candidate, STK-001, to treat Dravet syndrome, a severe and progressive genetic epilepsy.

This program draws on a well-defined patient population based on routine genetic testing and learnings from drugs approved for the treatment of Dravet syndrome to inform the clinical and regulatory pathways for STK-001.

We submitted an investigational new drug application (“IND”) for STK-001 to the U.S.

Food and Drug Administration (the “FDA”) in late 2019.

In August 2020, we dosed the first patient with STK-001 in the single ascending dose portion of the MONARCH Phase 1/2a Study at the 10mg dose level.

The MONARCH Study is designed to evaluate single and multiple ascending dose levels of STK-001 in children and adolescents with Dravet syndrome.

Patients are eligible for the trial if they are between the ages of 2 to 18, have an established diagnosis of Dravet syndrome and have evidence of a pathogenic genetic mutation in the SCN1A gene.

Requiring an SCN1A mutation (of which more than 1,700 SCN1A mutations have been identified) for trial enrollment allows for a clear and definitive etiologic diagnosis, a more homogeneous patient population and tailored treatment based on a precision medicine approach.

Eligible patients will also have failed at least two epilepsy treatments in the past and currently be taking at least one antiepileptic drug.

All medications and interventions will remain unchanged throughout the trial, which will allow for assessment of STK-001 with a variety of antiepileptic therapies.

The primary objectives are the assessment of the safety and tolerability of STK-001, as well as to characterize human pharmacokinetics.

A secondary objective is to assess the efficacy as an adjunctive antiepileptic treatment with respect to the percentage change from baseline in convulsive seizure frequency over a 12-week treatment period.

We are measuring non-seizure aspects of the disease, such as quality of life as secondary endpoints.

These endpoints as well as other exploratory endpoints will be informed based on our two-year observational study (BUTTERFLY).

Enrollment in BUTTERFLY is complete and the study is ongoing.

BUTTERFLY is designed to evaluate seizure frequency and non-seizure comorbidities associated with the disease, including motor and speech impairment, intellectual and developmental disabilities, behavioral deficits and abnormal sleep patterns.

Data from the study will support clinical development plans for STK-001.

In March 2020, we announced the FDA had placed a partial clinical hold on doses of STK-001 above 20mg in the MONARCH Study, pending additional preclinical testing to determine the safety profile of doses higher than the current no observed adverse effect level (“NOAEL”).

When intrathecal doses above the NOAEL were administered to non-human primates (“NHPs”) adverse hind limb paresis was observed.

This finding is known to occur following intrathecal delivery of ASOs to NHPs and is not known to translate to the human experience.

When extremely high dose levels were administered, acute convulsions were observed immediately following STK-001 administration.

The dose levels were well above the range of corresponding human doses that would ever be administered in the clinic and were delivered in a formulation that was at a higher concentration than would be administered in the clinic.

There is no apparent correlation of these acute adverse events with the mechanism of action of STK-001.

Following interactions with the FDA, in October 2020, we announced that the FDA agreed to allow us to add an additional higher dose level to the SAD portion of the study such that a total of three dose levels will be evaluated:

10 mg, 20 mg, and 30mg.

Dosing above 30mg in this study remains on FDA partial clinical hold.

In addition, a multiple ascending dose (“MAD”) portion was added to the MONARCH Study based on preclinical repeat-dose toxicology data, which were reviewed by the FDA.

There were no adverse effects observed in the NHP repeat dose study.

Enrollment and dosing in the first two cohorts (10mg and 20mg) of the single ascending dose portion of the study are now complete.

Enrollment and dosing of patients in the 30mg single ascending dose cohort is now underway.

2021, the first patient in the MAD portion of the study was dosed with STK-001 at the 20mg level.

We expect to announce initial safety and pharmacokinetic data from the SAD portion of the MONARCH Study in the second half of 2021.

In January 2021, we initiated enrollment and dosing in our SWALLOWTAIL Open Label Extension (OLE) study of STK-001 for children and adolescents with Dravet syndrome.

SWALLOWTAIL is designed to evaluate the long-term safety and tolerability of repeated doses of STK-001 in patients with Dravet syndrome who previously participated in studies of STK-001.

In this study, patients will initially be administered the same dose level they received in the previous study and will receive a maximum of three doses.

One dose will be administered every four months.

While we continue working to minimize any potential delay to continued clinical testing of STK-001, we expect that the COVID-19 pandemic may directly or indirectly impact the timeline.

Our ability to continue the clinical trial or initiate the MAD portion of the clinical trial may be adversely affected, directly or indirectly, by the COVID-19 pandemic.

For example, although our Phase 1/2a study of STK-001 for the treatment of Dravet syndrome has not been delayed, we plan to have clinical trial sites in various parts of the United States, some of which have had high incident rates of COVID-19 patients.

Restrictions on travel and/or transport of clinical materials, as well as diversion of hospital staff and resources to COVID-19 infected patients, could disrupt trial operations as well as recruitment, possibly resulting in a slowdown in enrollment and/or deviations from or disruptions in key clinical trial activities, such as clinical trial site monitoring.

These challenges may lead to difficulties in meeting protocol-specified procedures.

We have not yet discussed with regulatory authorities the evidence necessary for approval of STK-001.

However, in addition to requesting Fast Track Designation, if we see evidence of clinical efficacy, then we would plan to meet with regulatory authorities to discuss expedited regulatory pathways, such as Breakthrough Therapy Designation.

Autosomal Dominant Optic Atrophy Program

In November 2020, we announced the nomination of OPA1 as our next target for preclinical development to treat Autosomal Dominant Optic Atrophy (“ADOA”).

ADOA is the most common inherited optic nerve disorder seen in clinical practice and causes progressive and irreversible vision loss in both eyes starting in the first decade of life.

Many children progress to blindness.

Roughly half of people with ADOA fail driving standards and up to 46% are registered as legally blind.

The disease affects one in 30,000 people globally with a higher incidence of approximately one in 10,000 in Denmark due to a founder effect.

65% to 90% of ADOA is caused by mutations in one allele of the OPA1 gene, most of which leads to haploinsufficiency and disease manifestation.

More than 400 different OPA1 mutations have been reported in people diagnosed with ADOA.

Most mutations result in a severe decrease – up to 50% – of the normal amount of the OPA1 protein.

There is no strong genotype-phenotype correlation.

OPA1 is a dynamin-related GTPase that plays a key role in maintaining mitochondria structure and dynamics.

The OPA1 protein is imported into the mitochondria and is the crucial molecule that mediates inner mitochondria membrane fusion and cristae morphogenesis and is critical for oxidative phosphorylation and ATP synthesis.

Insufficient OPA1 activity causes mitochondria dysfunction with consequent insufficient ATP production, excess reactive oxygen species production and eventual cell death.

High energy demanding cells such as neurons and cardiomyocytes are particularly susceptible to mitochondria dysfunction, and retinal ganglion cells (“RGCs”) are a neuronal cell type most susceptible to loss of OPA1 protein as evidenced by RGC death in ADOA caused by OPA1 haploinsufficiency.

A clinical diagnosis of ADOA is made when a patient meets some or all of the following criteria:

pathogenic variant of the OPA1 gene identified in the patient or a family member;

reduced visual acuity;

temporal disc pallor;

visual field defect;

color vision defect (acquired blue-yellow loss);

thinning of retinal nerve fiber layer and abnormal visual evoked potentials.

Clinical findings are based on:

intraocular pressure measurement;

visual field assessment;

color discrimination;

dilated slit lamp biomicroscopy;

optical coherence tomography;

or visual electrophysiology.

Patients suspected of ADOA are recommended to receive genetic testing to confirm the clinical diagnosis, help identify other family members who are affected and ensure patients avoid stressors that could increase disease progression (e.g.

smoking, alcohol).

The prognosis for many patients with ADOA is poor and the rate of visual loss can be difficult to predict given significant inter- and intra-familial variability.

There are currently no available treatments for ADOA.

Because ADOA causes deterioration of the optic nerves, corrective aids such as glasses or contacts do not help to improve vision lost to the disease.

Supportive services and low-vision aids are offered for patients with severely decreased visual acuity.

Our ASOs are designed to target the underlying cause of ADOA, which is OPA1 haploinsufficiency, by decreasing a non-productive mRNA splicing event in the OPA1 gene to increase productive OPA1 mRNA and OPA1 protein in the retinal ganglion cells.

Financial operations overview

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scientific consulting, collaboration and licensing fees;

laboratory equipment and supplies;

laboratory supplies;

facilities costs, depreciation and other expenses related to internal research and development activities.

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(in thousands)

Non-program specific and unallocated research and development expenses

Non-program specific and unallocated research

and development expenses

Total research and development expenses

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We expect that our expenses will increase substantially in connection with our planned discovery work, preclinical and clinical development activities in the near term and our planned clinical trials in the future.

At this time, we cannot reasonably estima te the costs for completing the preclinical and clinical development of any of our other product candidates.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and devel opment activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we conduct clinical trials.

The process of conducting the necessary clinical research to ob tain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate the costs for completing the preclinical and clinical development of any of our other product candidates.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we conduct clinical trials.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.

As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

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These increases are anticipated to include increased costs related to the hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.

Interest Income

Interest income consists primarily of interest received on our invested fund s.

Other income (expense)

Our other income (expense), includes (i) interest income earned on cash reserves in our operating money-market fund investment accounts and (ii) other items of income (expense), net.

The decrease in our other income (expense) for the year ended December 31, 2020 as compared to the year ended December 31, 2019 principally reflects decreased interest income due to overall decreased market interest rates.

Results of operations for the years ended December 31, 20 20 and 201 9

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(in thousands)

Consolidated statements of operations and comprehensive loss:

Consolidated statements of operations and

comprehensive loss:

Operating expenses:

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Scientific consulting

Facilities and other research and development expenses

Facilities and other research and

development expenses

Total research and development expenses

The increases in research and development expenses were primarily attributable to an increase of $8.8 million on our STK-001 program, comprised primarily of third-party services and scientific consulting fees, an increase of $3.2 million in personnel costs resulting from an increase in headcount, and an increase of $3.4 million in facilities and other costs resulting from the growth in our research and development personnel.

The increases in research and development expenses were primarily attributable to the increase of $7.4 million in personnel-related expenses, stock compensation expense and facilities costs resulting from increased growth in our research and development personnel.

Increases of $0.7 million in our STK-001 and OPA 1 programs were comprised primarily of third party services and scientific consulting fees.

General and administrative expenses

General and administrative expenses were $20.8 million for the year ended December 31, 2020 as compared to $11.9 million for the year ended December 31, 2019, an increase of $8.9 million.

T he increases in general and administrative expenses were primarily attributable to an increase of $ 1.8 million in personnel costs resulting from an increase in headcount, an increase of $ 1 .6 million in third-party services to support our in-house personnel in various aspects of developing and supporting the business including human resources, information technology, audit, tax, public relations, communications and other general and administrative activities and an increase of $ 4.1 million in facilities and other costs resulting from the growth in our general and administrative personnel.

The increases in general and administrative expenses were primarily attributable to an increase of $3.4 million in personnel costs and $2.5 million in stock compensation expense resulting from an increase in headcount, an increase of $1.2 million in D&O insurance expense due to increased premiums, an increase of $0.8 million in IP legal fees due to current phases of patents, and an increase of $0.5 million in third-party services to support our in-house personnel in various aspects of developing and supporting the business including human resources, information technology, audit, tax, public relations, communications and other general and administrative activities.

Other income (expense)

The change in our other income (expense) for the year ended December 31, 2019 as compared to the year ended December 31, 2018 principally reflects returns on higher levels of cash reserves.

Liquidity and capital resources

Since our inception through December 31, 2020, our operations have been financed by net proceeds of $385.3 million from the sale of convertible notes payable and our convertible preferred stock as well as our IPO and follow-on offering.

As of December 31, 2020, we had $287.5 million in cash, cash equivalents and restricted cash.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

We have incurred losses since our inception in June 2014 and, as of December 31, 2019, we had an accumulated deficit of $58.0 million.

We have incurred losses since our inception in June 2014 and, as of December 31, 2020 and 2019, we had accumulated deficits of $110.3 million and $58.0 million, respectively.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

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the number and characteristics of any additional product candidates we develop or acquire;

the timing of any cash milestone payments if we successfully achieve certain p redetermined milestones;

the timing of any cash milestone payments if we successfully achieve certain predetermined milestones;

the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize, including costs associated with building-out our manufacturing capabilities;

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During the year ended December 31, 2020, cash used in operating activities was $42.2 million and was attributable to a net loss of $52.2 million, a net change of $3.4 million in our operating assets and liabilities, partially offset by non-cash charges of $6.7 million for share-based compensation and depreciation.

During the year ended December 31, 2018, cash used in operating activities was $11.0 million and was attributable to a net loss of $12.5 million, partially offset by non-cash charges of $0.5 million and a net change of $1.0 million in our net operating assets and liabilities.

During the year ended December 31, 2019, cash used in operating activities was $31.1 million and was attributable to a net loss of $32.3 million, a net change of $1.1 million in our operating assets and liabilities, partially offset by non-cash charges of $2.3 million for share-based compensation and depreciation.

Investing activities

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Financing activities

Our financing activities during the year ended December 31, 2019 included primarily net proceeds of $149.4 million from our Initial Public Offering in June 2019.

Our financing activities during the year ended December 31, 2018 included net proceeds of $115.6 million from closings on our Series A-2 convertible preferred stock financing in January and September 2018 and the sale of Series B convertible preferred stock in October 2018.

Our financing activities during the year ended December 31, 2020 primarily included net proceeds of $104.9 million attributed to an underwritten public offering of our common stock, $2.8 million in proceeds from the issuance of common stock upon exercise of stock options, and $0.4 million in proceeds from our Employee Stock Purchase Plan.

Our financing activities during the year ended December 31, 2019 primarily included net proceeds of $149.4 million from our Initial Public Offering in June 2019.

Contractual obligations and commitments

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While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this annual report on Form 10-K, we believe that the following accounting policies are the most critical in order to fully understand and evaluate our financial condition and results of operations.

Accrued Rese arch and Development Expenses

Accrued Research and Development Expenses

As part of the process of preparing financial statements, we are required to estimate and accrue research and development expenses.

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Stock-based compensation

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and vesting restricted stock, based on the estimated fair value of the awards on the date of grant.

Stock Options

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options, based on the estimated fair value of the awards on the date of grant.

We estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option-pricing model.

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The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards.

Expected volatility — As a privately held company we did not have any trading history for our common stock;

accordingly the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a p eriod equal to the expected term of the stock option grants.

Expected volatility — We completed our IPO in June 2019 and accordingly, we lack sufficient company-specific historical and implied volatility information for our shares traded in the public markets.

Therefore, we estimate our expected share price volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price.

The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty .

As a public company we have computed the historical volatility of our own stock pri ce and will continue to use the historical volatility data of our common stock.

Expected term — The expected term of our stock options has been determined utilizing the "simplified" method for awards.

Risk-free interest rate —The risk-free interest rate is based on the U.S.

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We have not conducted a formal study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

If we have experienced a change of control, as defined for purposes of Section 382 and 383 of the Code, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards may be subject to an annual limitation under Section 382 and 383 of the Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

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At December 31, 2020, and 2019 we had no unrecognized tax benefits.

Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying consolidated statements of operations and comprehensive loss.

Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the consolidated statements of operations and comprehensive loss.

Emerging growth company and smaller reporting company status

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We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) when we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30 th and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of our IPO was less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year.

We may continue to be a smaller reporting company after our IPO if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates was less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year.

We will continue to be a smaller reporting company for so long as either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

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Recently issued accounting pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) No.

2016-02, Leases (Topic 842).

This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements.

For Income Statement purposes, a dual model was retained requiring leases to be classified as either operating or finance.

Operating leases result in straight line expense while finance leases results in a front-loaded expense pattern.

In July 2018, the FASB issues ASU 2018-11, which provided for an alternative transition method by allowing entities to apply Topic 842 as of the adoption date.

We adopted Topic 842 on January 1, 2020 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize a cumulative-effect adjustment to retained earnings (accumulated deficit) on the date of adoption.

We have also elected the package of practical expedients to not reassess our prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components

Upon adoption of Topic 842 on January 1, 2020, we recorded right-of-use assets of $2.2 million, operating lease liabilities of $2.2 million and the elimination of deferred rent of $0.03 million.

Adoption of the standard did not result in us recording a cumulative effect adjustment to retained earnings (accumulated deficit).

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815):

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Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings.

Curre nt accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option.

Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option.

Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification.

This pending content is the result of the inde finite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests.

The amendments in Part II of this update do not have an accounting effe ct.

This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests.

The amendments in Part II of this update do not have an accounting effect.

For public business entities, the amendments in Part I of ASU-2017-11 are effective for fiscal years and interim periods within those years beginning after December 15, 2018.

For all other entities, the amendments in Part I of this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

We intend to adopt Part I of this update on January 1, 2020.

Early adoption is permitted for all entities, including adoption in an interim period.

We are currently assessing the potential impact of adopting ASU 2017-11 on its consolidated financial statements and financial statement disclosures and do not expect that the adoption of this update will have a material impact on our c onsolidated financial statements.

Part I of this update on January 1, 2020 , and the adoption did not have a material impact on our consolidated financial statements .

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”.

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ASU 2018-13 will be effective for all entities, for fiscal years beginning after December 15, 2019 with early adoption permitted.

We intend to adopt this standard on January 1, 2020 and we do not expect that the adoption of this update will have a material impact on our consolidated financial statements.

We adopted this standard on January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This guidance removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

This ASU is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Quantitative and Qualitative disclosures about market risk

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An immediate 100 basis point change in interest would affect the fair market value of our cash equivalents by approximately $2.9 million.

Financial Statement s and Supplementary Data.

Financial Statements and Supplementary Data.

The financial statements required to be filed pursuant to this Item 8 are appended to this report.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis