Stoke Therapeutics, Inc. 10-Q

Item 1. Financial Statements. Stoke Therapeutics, Inc. Condensed consolidated balance sheets (in thousands, except share and per share amounts) (unaudited) June 30, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 169,070 $ 287,308 Marketable Securities 82,156 — Prepaid expenses and other current assets 8,612 6,435 Restricted cash - short-term 147 — Deferred financing costs 117 181 Interest receivable 131 6 Total current assets $ 260,233 $ 293,930 Restricted cash 75 205 Operating lease right-of-use assets 1,258 1,115 Property and equipment, net 2,884 2,675 Total assets $ 264,450 $ 297,925 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 963 $ 1,495 Accrued and other current liabilities 7,234 9,930 Total current liabilities $ 8,197 $ 11,425 Long term liabilities 1,184 422 Total liabilities $ 9,381 $ 11,847 Commitments and contingencies (Note 6) Stockholders’ equity Common stock, par value of $ 0.0001 per share; 300,000,000 shares authorized, 36,722,669 and 36,577,149 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 4 4 Additional paid-in capital 404,145 396,352 Accumulated other comprehensive loss ( 42 ) — Accumulated deficit ( 149,038 ) ( 110,278 ) Total stockholders’ equity $ 255,069 $ 286,078 Total liabilities and stockholders’ equity $ 264,450 $ 297,925 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Stoke Therapeutics, Inc. Condensed consolidated statements of operations and comprehensive loss (in thousands, except share and per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue $ — $ — $ — $ — Operating expenses: Research and development 14,095 7,968 24,008 15,183 General and administrative 7,934 5,044 14,848 9,563 Total operating expenses 22,029 13,012 38,856 24,746 Loss from operations ( 22,029 ) ( 13,012 ) ( 38,856 ) ( 24,746 ) Other income: Interest income (expense), net 34 39 40 704 Other income (expense), net 28 14 56 44 Total other income 62 53 96 748 Net loss $ ( 21,967 ) $ ( 12,959 ) $ ( 38,760 ) $ ( 23,998 ) Net loss per share, basic and diluted $ ( 0.60 ) $ ( 0.39 ) $ ( 1.06 ) $ ( 0.73 ) Weighted-average common shares outstanding, basic and diluted 36,708,188 33,054,656 36,675,876 32,976,026 Comprehensive loss: Net loss $ ( 21,967 ) $ ( 12,959 ) $ ( 38,760 ) $ ( 23,998 ) Other comprehensive loss: Unrealized loss on marketable securities ( 42 ) — ( 42 ) — Total other comprehensive loss $ ( 42 ) $ — $ ( 42 ) $ — Comprehensive loss $ ( 21,925 ) $ ( 12,959 ) $ ( 38,718 ) $ ( 23,998 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Stoke Therapeutics, Inc. Condensed consolidated statements of stockholders’ equity (in thousands, except share and per share amounts) (unaudited) Common Stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Stockholders’ equity Shares Amount Amount Amount Amount Amount Balance as of December 31, 2019 32,861,842 $ 3 $ 282,460 $ — $ ( 58,035 ) $ 224,428 Net Loss — — - — ( 11,039 ) ( 11,039 ) Stock-based compensation — — 754 — — 754 Issuance of common stock upon exercise of stock options 105,508 — 199 — — 199 Balance as of March 31, 2020 32,967,350 $ 3 $ 283,413 $ - $ ( 69,074 ) $ 214,342 Net loss — — - — ( 12,959 ) ( 12,959 ) Stock-based compensation — — 1,649 — — 1,649 Issuance of common stock upon exercise of stock options 245,194 — 368 — — 368 Balance as of June 30, 2020 33,212,544 $ 3 $ 285,430 $ — $ ( 82,033 ) $ 203,400 Balance as of December 31, 2020 36,577,149 $ 4 $ 396,352 $ — $ ( 110,278 ) $ 286,078 Net loss — — - — ( 16,793 ) ( 16,793 ) Stock-based compensation — — 2,698 — — 2,698 Issuance of common stock upon exercise of stock options 111,858 — 371 — — 371 Issuance of common stock upon follow-on offering, net of underwriting discounts and offering costs — — ( 64 ) — — ( 64 ) Issuance of common stock related to employee stock purchase plan 8,801 — 175 — — 175 Balance as of March 31, 2021 36,697,808 $ 4 $ 399,532 $ — $ ( 127,071 ) $ 272,465 Net loss — — — ( 21,967 ) ( 21,967 ) Unrealized loss on marketable securities — — — ( 42 ) — ( 42 ) Stock-based compensation — — 4,452 — — 4,452 Issuance of common stock upon exercise of stock options 24,861 — 161 — — 161 Balance as of June 30, 2021 36,722,669 $ 4 $ 404,145 $ ( 42 ) $ ( 149,038 ) $ 255,069 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Stoke Therapeutics, Inc. Condensed consolidated statements of cash flows (in thousands) (unaudited) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 38,760 ) $ ( 23,998 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 485 417 Amortization and accretion of marketable securities 37 - Stock-based compensation 7,150 2,403 Loss on disposal of property and equipment 29 3 Reduction in the carrying amount of right of use assets 548 510 Changes in assets and liabilities: Prepaid expenses and other current assets ( 2,301 ) 25 Accounts payable and accrued liabilities ( 3,155 ) 223 Net cash used in operating activities $ ( 35,967 ) $ ( 20,417 ) Cash flows from investing activities: Purchases of marketable securities ( 82,235 ) - Purchases of property and equipment ( 724 ) ( 691 ) Net cash used in investing activities $ ( 82,959 ) $ ( 691 ) Cash flows from financing activities: Proceeds from Employee Stock Purchase Plan 175 — Proceeds from issuance of common stock upon exercise of stock options 532 567 Payments of follow-on offering costs ( 2 ) — Net cash provided by financing activities $ 705 $ 567 Net decrease in cash, cash equivalents and restricted cash $ ( 118,221 ) $ ( 20,541 ) Cash, cash equivalents and restricted cash—beginning of period $ 287,513 $ 222,676 Cash, cash equivalents and restricted cash—end of period $ 169,292 $ 202,135 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Property and equipment included in accrued expense and accounts payable $ — $ 40 Right-of-use asset recognized upon entering into amended lease $ 690 $ — Right-of-use assets recognized in exchange for operating leases upon adoption of Topic 842 $ — $ 2,153 Deferred offering costs not yet paid $ — $ 77 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Stoke Therapeutics, Inc. and subsidiaries Notes to condensed consolidated financial statements—(unaudited) 1. Nature of the business and basis of presentation Organization Stoke Therapeutics, Inc. (the “Company”) was founded in June 2014 and was incorporated under the laws of the State of Delaware . The Company is a biotechnology company dedicated to addressing the underlying cause of severe diseases by up-regulating protein expression with RNA-based medicines. Shelf Registration In July 2020, the Company filed a universal shelf registration statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission (“SEC”). The Registration Statement was declared effective by the SEC in July 2020, and covers the offering, issuance, and sale by the Company of up to a maximum aggregate offering price of $ 400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase the Company’s common stock, preferred stock or debt securities, subscription rights to purchase the Company’s common stock, preferred stock or debt securities and/or units consisting of some or all of these securities. In July 2020, the Company entered into an “at-the-market” program and sales agreement with Cantor Fitzgerald & Co. (“Cantor”) and Stifel, Nicolaus & Company, Incorporated, (“Stifel”), under which the Company 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 June 30, 2021, no such shares of the Company’s common stock had been offered or sold pursuant to this “at-the-market” program with Cantor and Stifel. The Company may terminate this at-the-market program at any time, pursuant to its terms. Follow-on public offering In November 2020, the Company completed an underwritten public offering 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 offering expenses. Uncertainties The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. Liquidity The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of the issuance date of these unaudited condensed consolidated financial statements the Company expects that its cash, cash equivalents, marketable securities and restricted cash will be sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the issuance date of these unaudited condensed consolidated financial statements. 2. Summary of significant accounting policies and recent accounting pronouncements Basis of presentation and consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiary. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All intercompany transactions between and among its consolidated subsidiary have been eliminated. 8 Unaudited interim financial information The accompanying interim unaudited condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and related footnotes as of and for the year ended December 31, 2020, which was filed with the SEC on March 9, 2021. The Company’s financial information as of June 30, 2021, and for the six months ended June 30, 2021 and 2020 is unaudited, but in the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented of the results of these interim periods have been included. The balance sheet information as of December 31, 2020 was derived from audited financial statements. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year. Use of estimates The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, expenses and disclosure of contingent assets and liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates. Cash, cash equivalents and restricted cash The Company considers all highly liquid investments with an original maturity of six months or less at the date of purchase to be cash equivalents. The Company deposits its cash in checking, sweep and money market accounts. At June 30, 2021, restricted cash consisted of money market accounts collateralizing letters of credit issued as security deposits in connection with the Company’s leases of its corporate facilities. Cash and cash equivalents, and restricted cash in the condensed consolidated statements of cash flows consists of the following (in thousands): As of June 30, 2021 2020 Cash and cash equivalents $ 169,070 $ 201,930 Restricted cash - short-term $ 147 $ — Restricted cash - long-term $ 75 $ 205 Total cash, cash equivalents and restricted cash $ 169,292 $ 202,135 Fair value of financial instruments ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (“observable inputs”) and the Company’s own assumptions (“unobservable inputs”). Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or 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 a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier value hierarchy that distinguishes between the following: Level 1—Quoted market prices in active markets for identical assets or liabilities. Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves. Level 3—Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use. 9 To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Deferred offering costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in the condensed consolidated statement of stockholders’ equity as a reduction of additional paid-in capital. Emerging growth company and smaller reporting company status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the Company’s unaudited condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company will remain an emerging growth company until the earliest of (1) the last day of its first fiscal year (a) in which the Company has total annual gross revenues of at least $1.07 billion, or (b) in which the Company is deemed to be a large accelerated filer, which means the market value of its common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30 th , (2) the date on which it has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2024. The Company is also a “smaller reporting company,” meaning that, the market value of its stock held by non-affiliates is less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. The Company may continue to be a smaller reporting company as long as either (i) the market value of its stock held by non-affiliates is less than $250 million or (ii) its annual revenue is less than $100 million during the most recently completed fiscal year and the market value of its stock held by non-affiliates is less than $700 million. If the Company is a smaller reporting company at the time it ceases to be an emerging growth company, the Company may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, the Company may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Recently adopted accounting pronouncements In February 2016, the FASB issued 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. The Company 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 the balance sheet on the date of adoption. The Company elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components. 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): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception . Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. 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. 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 10 FASB Accounting Standards Codification. 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 were 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. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted Part 1 of this standard on January 1, 2020 and the adoption of this update did not have a material impact on its consolidated financial statements and financial statement disclosures. 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”. This ASU removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for all entities, for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company adopted this standard on January 1, 2020 and the adoption of this update did not have a material impact on its 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 adopted this standard on January 1, 2021 and the adoption of this update did not have a material impact on its consolidated financial statements. 3. Fair value measurements The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands): Fair value measurements as of June 30, 2021 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 169,070 $ — $ — $ 169,070 Total $ 169,070 $ — $ — $ 169,070 Marketable Securities: Corporate bonds $ — $ 17,729 $ — $ 17,729 Commercial paper $ — $ 39,448 $ — $ 39,448 US Government debt securities $ — $ 24,979 $ — $ 24,979 Total $ — $ 82,156 $ — $ 82,156 Fair value measurements as of December 31, 2020 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 287,308 $ — $ — $ 287,308 Total $ 287,308 $ — $ — $ 287,308 Marketable Securities: Corporate bonds $ — $ — $ — $ — Commercial paper $ — $ — $ — $ — US Government debt securities $ — $ — $ — $ — Total $ — $ — $ — $ — 11 The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above and in Note 2. The carrying value of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020. The Company measures its marketable securities at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. Marketable securities are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. There were transfers among the Level 1 to Level 2 category in the June 30, 2021 period presented. There were no transfers to Level 3 in the periods presented. 4. Marketable Securities The following table summarizes the Company’s marketable securities as of June 30, 2021 (in thousands): June 30, 2021 Amortized Cost Unrealized Gains Unrealized Loss Fair Value Marketable securities: Corporate bonds $ 17,749 $ — $ ( 20 ) $ 17,729 Commercial paper $ 39,448 $ — $ — $ 39,448 US Government debt securities $ 25,001 $ — $ ( 22 ) $ 24,979 Total $ 82,198 $ — $ ( 42 ) $ 82,156 There were no marketable securities as of December 31, 2020. 5. Accrued and other current liabilities Accrued and other current liabilities consisted of the following (in thousands): June 30, December 31, 2021 2020 Accrued employee compensation costs $ 2,348 $ 4,123 Accrued professional 505 593 Accrued research and development costs 3,188 3,689 Current portion of operating lease liabilities 592 — Accrued other 15 82 Other current liabilities 586 1,443 $ 7,234 $ 9,930 6. Commitments and contingencies Operating lease In February 2016, the FASB issued 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. The Company 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 the balance sheet on the date of adoption. The Company elected the 12 package of practical expedients to not reassess its 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, the Company 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 no t result in the Company recording a cumulative effect adjustment. The Company determines whether an arrangement is a lease at inception. The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. The Company determined that it held operating leases for office and laboratory space as of January 1, 2020. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as the Company did not have information to determine the rate implicit in the leases. Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments (which include initial direct costs and lease incentives). The expense is included in operating expenses in the condensed consolidated statements of operations. The Company’s lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement of the right-of-use assets and lease liabilities. In August 2018, the Company entered into an agreement to lease approximately 23,000 square feet of space for a term of three years . Lease terms are triple net lease commencing at $ 0.9 million per year, then with 3 % annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees. The lease commencement date was December 10, 2018 . In December 2018, the Company entered into an agreement to lease 2,485 square feet of space for an initial term of three years . The lease includes one renewal option for an additional two years , however, any time after the initial term the landlord may relocate the Company from the premises to a space reasonably comparable in size and utility. As the Company does not have the right to control the use of the identified asset after the initial term, the renewal option was excluded from the lease liability calculation. Lease terms commence at $ 0.2 million per annum, with 2.5 % annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees. The lease commencement date was May 1, 2019 . In June 2021, the Company amended the agreement to extend the Initial Term of the 2,485 square foot lease for a period of three years commencing May 1, 2022 and ending April 30, 2025 . In addition, the amendment provided for the lease of an additional 2,357 square feet of rentable space beginning on July 6, 2021 and ending on April 30, 2025 . The amended lease provides the Company with the option to extend the term of the lease for an additional two years . The Company recognized a right-of-use asset and operating lease liabilities of $ 0.7 million for the extension of the lease to April 30, 2025 . As the Company did not have access to the additional 2,357 square feet of space, a right of use asset and liability was not recognized as of June 30, 2021. Future minimum lease payments under non-cancellable leases as of June 30, 2021 are as follows (in thousands): 2021 625 2022 483 2023 497 2024 512 2025 172 Total lease payments 2,289 Less imputed interest ( 174 ) Present value of lease liabilities $ 2,115 Future minimum lease payments under non-cancellable leases as of December 31, 2020 are as follows (in thousands): 2021 1,102 2022 81 Total lease payments 1,183 Less imputed interest ( 37 ) Present value of lease liabilities $ 1,146 13 Lease balances as of June 30, 2021 are as follows (in thousands): Operating right-of-use assets $ 1,258 Current Portion of operating lease liabilities $ 592 Non-current portion of operating lease liabilities 683 Total operating lease liabilities $ 1,275 The weighted average remaining lease term and weighted average discount rate of our operating leases as of June 30, 2021 are as follows: Weighted average remaining lease term in years 2.8 Weighted average discount rate 5.74 % Scientific Advisory Board Agreement In June 2020, the Company entered into a scientific advisory board agreement with a member of the Company’s board of directors, who is also an employee of Cold Spring Harbor Laboratory (“CSHL”), to provide scientific advisory services related to the Company’s Targeted Augmentation of Nuclear Gene Output (“TANGO”) antisense oligonucleotide (“ASO”) technology and other ASO technologies, as well as current and future therapeutic targets and programs. The Company recognized expense of $ 0.01 million in the three-month period ended June 30, 2021, and $ 0.02 million for the six-month period ended June 30, 2021, compared to $ 0.01 million for the three and six-month periods ended June 30, 2020 for such scientific advisory services. The initial term of this agreement was for 12 months. This agreement was renewed in June 2021 . License and research agreements In July 2015, the Company entered into a worldwide license agreement (the “CSHL Agreement”), with CSHL, with respect to TANGO patents. Under the CSHL Agreement, the Company receives 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, the Company granted CSHL 164,927 shares of common stock valued based on an independent appraisal at approximately $ 0.07 million. The CSHL Agreement obligates the Company to make additional payments that are contingent upon certain milestones being achieved. The Company is also required to pay royalties, tiered based on the scope of patent coverage for each licensed product, ranging from a low-single digit percentage to a mid-single digit percentage on annual net sales. These royalty obligations apply on a licensed product-by-licensed product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a CSHL patent covering the applicable licensed product or (ii) the expiration of any regulatory exclusivity for the applicable licensed product. In addition, if the Company sublicenses the rights under the CSHL Agreement, the Company is required to pay a maximum of twenty percent of the sublicense revenue to CSHL, which may be reduced to a mid-teens or a mid-single digit percentage upon achievement of certain clinical milestones for the applicable licensed product. Finally, the Company is required to pay an annual license maintenance fee of $ 0.01 million, which amount is creditable against any owed royalty or milestone payments. The maximum aggregate potential milestone payments payable total approximately $ 0.9 million. Additionally, certain licenses under the CSHL Agreement require the Company to reimburse CSHL for certain past and ongoing patent related expenses, however, there were no expenses related to these reimbursable patent costs during the six months ended June 30, 2021 and 2020. In April 2016, the Company entered into an exclusive, worldwide license agreement with the University of Southampton, (the “Southampton Agreement”), whereby the Company acquired rights to foundational technologies related to the Company’s TANGO technology. Under the Southampton Agreement, the Company receives an exclusive, worldwide license under certain licensed patents and applications relating to TANGO. As part of the Southampton Agreement, the Company paid 0.06 million pounds sterling (approximately $ 0.08 million as of the date thereof) as an up-front license fee. Under the Southampton Agreement, the Company may be obligated to make additional payments that are contingent upon certain milestones being achieved, as well as royalties on future product sales. These royalty obligations 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 the Company sublicenses its rights under the Southampton Agreement, the Company is required to pay a mid-single digit percentage of the sublicense revenue to the University of Southampton. The maximum aggregate potential milestone payments payable by the Company totaled approximately 0.4 million pounds sterling (approximately $ 0.6 million as of June 30, 2021). As of June 30, 2021, and December 31, 2020, the Company had recorded no liabilities under the Southampton Agreement. Additionally, certain licenses under the Southampton Agreement require the Company to reimburse the University of Southampton for certain past and ongoing patent related expenses. For the three months ended June 30, 2021 these expenses were $ 0.05 million compared to $ 0.01 million for three months ended June 30, 2020 and for the six months ended June 30, 2021 these expenses were $ 0.06 million compared to $ 0.02 million for the six months ended June 30, 2020. 14 7. Equity incentive plans In June 2019, the Company’s board of directors and stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) which became effective on June 17, 2019, and replaced the Company’s 2014 Equity Incentive Plan (the “2014 Plan”). In addition to the shares of common stock reserved for future issuance under the 2014 Plan that were added to the 2019 Plan upon its effective date, the Company initially reserved 2,200,000 shares of common stock for issuance under the 2019 Plan. The number of shares reserved for issuance under the Company’s 2019 Plan will increase automatically on January 1 of each of 2020 through 2029 by the number of shares equal to 4 % of the aggregate number of outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s board of directors. As of June 30, 2021, there were no shares available for future issuance under the 2014 Plan and 2,447,012 shares were available under the 2019 Plan. During the six-months ended June 30, 2021, the Company granted options to purchase 1,188,047 shares of common stock to certain of its employees. The options vest over four years and are exercisable at a per share price equal to the fair value of the common stock on the grant date. Stock-based compensation As of June 30, 2021, there was $ 52.9 million of unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the 2014 and 2019 Plans. The compensation is expected to be recognized over a weighted average period of 3.24 years as of June 30, 2021. Stock-based compensation expense recorded as research and development and general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Research and development $ 1,728 $ 534 $ 2,762 $ 738 General and administrative 2,724 1,115 4,388 1,665 $ 4,452 $ 1,649 $ 7,150 $ 2,403 2019 Employee stock purchase plan In June 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective on June 18, 2019. The Company initially reserved 315,000 shares of common stock for sale under the ESPP. At June 30, 2021, the Company had 654,579 shares available for issuance under the plan. The average grant date fair value per share under the plan was $ 58.07 for 2021. The total ESPP stock-based compensation expense for the three and six months ended June 30, 2021 was $ 0.08 million and $ 0.16 million, respectively, and for the three and six months ended June 30, 2020 was $ 0.2 million. The number of shares reserved for issuance under the ESPP will increase automatically on January 1st of each of the first ten calendar years following the first offering date by the number of shares equal to the lesser of 1 % of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 or a lower amount determined by the Company’s board of directors. The aggregate number of shares issued over the term of the ESPP will not exceed 3,150,000 shares of the Company’s common stock. 8. Net loss per share The following table summarizes the computation of basic and diluted net loss per share of the Company (in thousands except share and per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerator: Net loss $ ( 21,967 ) $ ( 12,959 ) $ ( 38,760 ) $ ( 23,998 ) Denominator: Weighted-average number of common shares, basic and diluted 36,708,188 33,054,656 36,675,876 32,976,026 Net loss per share, basic and diluted $ ( 0.60 ) $ ( 0.39 ) $ ( 1.06 ) $ ( 0.73 ) 15 The Company’s potential dilutive securities, which include common stock options and ESPP purchase rights, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share indicated because including them would have had an anti-dilutive effect: June 30, 2021 2020 Outstanding options to purchase common stock 5,514,338 4,857,247 9. Income taxes The Company did no t record an income tax benefit in its condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020 as it is more likely than not that the Company will not recognize the federal and state deferred tax benefits generated by its losses. The Company had net deferred tax assets and liabilities of $ 37.2 million at December 31, 2020. The Company has provided a valuation allowance for the full amount of its net deferred tax assets and liabilities as of June 30, 2021 and December 31, 2020, as management has determined it is more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100 % of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the impact of the CARES Act, and at present, the Company does no t expect that the NOL carryback provision of the CARES Act would result in a cash benefit to us. The Company did no t record any amounts for unrecognized tax benefits as of June 30, 2021 or December 31, 2020. 10. Subsequent events The Company has evaluated subsequent events through the issuance date of these interim unaudited condensed consolidated financial statements. 16