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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-08 · 156 added, 179 removed, 174 unchanged (66% of the section changed)

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

We are a biotechnology company dedicated to addressing the underlying cause of severe diseases by up-regulating protein expression with RNA-based medicines.

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.

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, eye, kidney and liver.

We were incorporated in June 2014.

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

In June 2019, we completed an initial public offering (“IPO”) 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 $149.4 million after deducting underwriting discounts and commissions and offering costs.

In July 2020, we 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 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.

In July 2020, we entered into an “at-the-market” program and sales agreement with Cantor Fitzgerald & Co.

(“Cantor”) and Stifel, Nicolaus & Company, Incorporated (“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 September 30, 2021, no such shares of our common stock had been offered or sold pursuant to this “at-the-market” program with Cantor and Stifel.

We are dedicated to addressing the underlying causes of severe diseases by upregulating protein expression with RNA-based medicines.

Using our proprietary TANGO (Targeted Augmentation of Nuclear Gene Output) approach, we are developing antisense oligonucleotides (“ASOs”) to selectively restore protein levels.

Our initial focus is haploinsufficiencies and diseases of the central nervous system and the eye, although proof of concept has been demonstrated in other organs, tissues, and systems, supporting our belief in the broad potential for our proprietary approach.

Our first compound, STK-001, is in clinical testing for the treatment of Dravet syndrome, a severe and progressive genetic epilepsy.

Dravet syndrome is characterized by frequent, prolonged and refractory seizures beginning within the first year of life.

The disease is classified as a developmental and epileptic encephalopathy due to the developmental delays and cognitive impairment associated with it.

Dravet syndrome is one of many diseases caused by a haploinsufficiency, in which a loss of approximately 50% of normal protein levels leads to disease.

We have two ongoing Phase 1/2a open-label studies of STK-001, MONARCH in the United States and ADMIRAL in the United Kingdom.

We also have SWALLOWTAIL which is an Open Label Extension (OLE) study of STK-001 for children and adolescents with Dravet syndrome in the United States.

Patients who participated in the MONARCH study and meet study entry criteria are eligible to continue treatment in SWALLOWTAIL which is designed to evaluate the long-term safety and tolerability of repeated doses of STK-001.

We are also pursuing treatment for a second haploinsufficient disease, autosomal dominant optic atrophy (“ADOA”), the most common inherited optic nerve disorder.

STK-002 is our lead clinical candidate for the treatment of ADOA.

STK-002 is designed to upregulate OPA1 protein expression by leveraging the non-mutant (wild-type) copy of the OPA1 gene to restore OPA1 protein expression with the aim to stop or slow vision loss in patients with ADOA.

In July 2020, we filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission (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 (“Sales Agreement”), which amount is included in the $400,000,000 base prospectus.

As of March 31, 2022, we had issued approximately 2,086,000 shares of common stock at a weighted average price of $20.77 resulting in net proceeds of $42.2 million under the Sales Agreement.

Since April 1, 2022, we sold approximately 138,000 shares of our common stock and received net proceeds of $3.1 million under the Sales Agreement.

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

In November 2020, we 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 (the “Follow-On Offering”), 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 September 30, 2021 and December 31, 2020 we had $236.9 million and $287.5 million, respectively, in cash, cash equivalents, marketable securities and restricted cash.

As of March 31, 2022 and December 31, 2021 we had $293.8 million and $220.4 million, respectively, in cash, cash equivalents, marketable securities 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 $22.6 million and $13.7 million for the three months ended September 30, 2021 and 2020, respectively and $61.4 million and $37.7 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, we had an accumulated deficit of $171.6 million and as of December 31, 2020 we had an accumulated deficit of $110.3 million.

Our net losses were $24.6 million and $16.8 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had an accumulated deficit of $220.7 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 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.

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities and restricted cash as of September 30, 2021, will enable us to fund our operating expenses and capital expenditure requirements until the end of 2023.

Based upon our current operating plan, we believe that our existing cash, cash equivalents , marketable securities and restricted cash as of March 31, 2022 , will enable us to fund our operating expenses and capital expenditure requirements into 2025 .

To date, we have not had any products approved for sale and have not generated any product sales.

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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 and Collaboration Agreement with Acadia Pharmaceuticals Inc.

In January 2022, we entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc.

(“Acadia”) for the discovery, development and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous system (CNS).

The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest.

In connection with each target, we will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed products.

With respect to SYNGAP1, we have agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection therewith we granted to Acadia worldwide, co-exclusive (with us) licenses for such licensed products.

With respect to MECP2 and the neurodevelopmental target, we granted to Acadia worldwide, exclusive licenses to develop and commercialize licensed products for such targets.

Pursuant to the terms of the agreement, we received an upfront payment of $60 million from Acadia.

Acadia agreed to fund the research to identify potential licensed products for MECP2 and the neurodevelopmental target, and we will equally fund with Acadia the research to identify potential licensed products for SYNGAP1.

We are eligible to receive up to $907,500,000 in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were achieved at least once.

With respect to licensed products for MECP2 and the neurodevelopmental target, we are also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide.

Royalties payable under the agreement are subject to standard royalty reductions.

For SYNGAP1 licensed products that we are co-developing and co-commercializing, we will be responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization.

The Company is provided with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at the Company’s discretion.

Such opt-out would reduce development and commercialization milestones but would provide the Company with royalties on an escalating basis attributable to net sales milestones.

Business Update Regarding COVID-19

The current COVID-19 pandemic continues to present 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.

The current COVID-19 pandemic, including variants thereof, continues to present 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.

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Currently we are monitoring patient enrollment and participation in our clinical trials and 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 clinical trials and our observational study.

While we continue to enroll and dose patients in our clinical trials at sites across the United States and the United Kingdom in the second half of 2021, we take into consideration 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.

While we continue to enroll and dose patients in our clinical trials at sites across the United States and the United Kingdom, we take into consideration 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 trials.

Currently we have not experienced any delays in our clinical trials due to COVID-19.

Currently we have not experienced any significant delays in our clinical trials due to COVID-19.

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 minimizing some physical participation in meetings, events and conferences.

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

Risk Factors included in this quarterly report.

Program Update

Dravet Syndrome 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”) acute, transient 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 of 30mg of the MONARCH study.

In September 2021, we announced the first patient was dosed in the 30mg multiple ascending dose (“MAD”) portion of the study.

At that time, we also announced that the FDA agreed to allow the Company to add an additional higher dose level (45mg) to the MONARCH study.

In addition, a 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.

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

Enrollment and dosing in the 10mg, 20mg and 30mg single ascending dose (“SAD”) portion and the 20mg MAD portion of the study are now complete.

Enrollment and dosing in the MAD portion of the study are ongoing at the 30mg dose level.

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 dose level recommended by the safety Monitoring Committee.

One dose will be administered every four months.

In March 2021, we announced the authorization of our Clinical Trial Application (CTA) by the United Kingdom Medicines and Healthcare products Regulatory Agency (MHRA) to initiate a Phase 1/2a study (ADMIRAL) of STK-001 for the treatment of Dravet syndrome.

ADMIRAL is an open-label, multi-center, Phase 1/2a study designed to assess the safety and tolerability of multiple doses of up to 70mg of STK-001, as well as to characterize human pharmacokinetics.

Secondary endpoints include change in seizure frequency and quality of life measures.

The study is expected to enroll more than 20 children and adolescents with Dravet syndrome across multiple clinical sites in the United Kingdom.

In September 2021, we announced the first patient had been dosed in the ADMIRAL study.

Enrollment and dosing are ongoing at the 30mg dose level.

In September 2021, we announced positive interim safety, pharmacokinetic (PK), and cerebrospinal fluid (CSF) drug exposure data from the MONARCH Study.

The data demonstrated that, as of the time of the interim analysis, single doses of STK-001 up to 30mg

and multiple doses of 20mg were well-tolerated with no safety concerns related to the study drug.

Furthermore, preliminary analyses of daily seizure diaries suggested a trend toward a reduction in convulsive seizure frequency among patients treated with single doses of STK-001.

We also shared modeling of predicted brain exposure that suggests >95% of patients are predicted to have pharmacologically active STK-001 brain levels following three doses of 30mg administered one month apart .

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

Our ability to continue our clinical trials 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 and United Kingdom, 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 preliminary evidence of clinical efficacy, then we would plan to meet with regulatory authorities to discuss expedited regulatory pathways, such as Breakthrough Therapy Designation in the United States

Autosomal Dominant Optic Atrophy Program – STK-002

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.

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%-90% of cases are caused by mutations in one allele of the OPA1 gene, most of which lead to a haploinsufficiency resulting in 50% of OPA1 protein expression 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 a 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 dominant optic atrophy 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 dominant optic atrophy 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 dominant optic atrophy 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 dominant optic atrophy.

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.

In May 2021, we presented new preclinical efficacy data for a TANGO ASO at The Association for Research in Vision and Ophthalmology (ARVO) Annual meeting and The American Society of Gene and Cell Therapy (ASGCT) Annual Meeting demonstrating, for the first time, that in human cells derived from ADOA patients with different OPA1 mutations TANGO ASOs can increase OPA1 protein level and improve mitochondrial function.

In November 2021, we announced the nomination of STK-002 as our lead clinical candidate for the treatment of ADOA.

STK-002, a proprietary ASO, is designed to upregulate OPA1 protein expression by leveraging the non-mutant (wild-type) copy of the OPA1 gene.

Based on preclinical data generated to date, the Company believes that STK-002 has the potential to be a disease-modifying therapy for people living with ADOA.

Risk Factors included in this quarterly report Form 10-Q.

Financial operations overview

We currently do not have any products approved for sale and have not generated any revenue since inception.

We currently do not have any products approved for sale and have not generated any revenue since inception through December 2021.

If we are able to successfully develop, receive regulatory approval for and commercialize any of our current or future product candidates alone or in collaboration with third parties, we may generate revenue from the sales of these product candidates.

In January 2022, the Company entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc.

The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest.

In connection with each target, the Company will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed products.

With respect to SYNGAP1, the Company has agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection therewith the Company granted to Acadia worldwide, co-exclusive (with the Company) licenses for such licensed products.

With respect to MECP2 and the neurodevelopmental target, the Company granted to Acadia worldwide, exclusive licenses to develop and commercialize licensed products for such targets.

Pursuant to the terms of the agreement, the Company received an upfront payment of $60 million from Acadia.

Acadia agreed to fund the research to identify potential licensed products for MECP2 and the neurodevelopmental target, and the Company will equally fund with Acadia the research to identify potential licensed products for SYNGAP1.

The Company is eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were achieved at least once.

With respect to licensed products for MECP2 and the neurodevelopmental target, the Company is also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide.

Royalties payable under the agreement are subject to standard royalty reductions.

For SYNGAP1 licensed products that the Company is co-developing and co-commercializing, the Company will be responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization.

The Company is provided with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at the Company’s discretion.

Such opt-out would reduce development and commercialization milestones but would provide the Company with royalties on an escalating basis attributable to net sales milestones.

See Note 7 License and Collaboration Agreement with Acadia Pharmaceuticals, Inc.

in our unaudited condensed consolidated financial statements included elsewhere in this Form 10Q.

Operating expenses

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The table below summarizes our research and development expenses incurred by development program (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Non-program specific and unallocated research and

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

Results of operations for the three months ended September 30, 2021 and 2020

The following table sets forth our results of operations:

Three Months Ended September 30,

(in thousands)

Condensed consolidated statements of operations:

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income:

Interest income (expense), net

Other income (expense), net

Total other income

Research and development expenses

Research and development expenses were $14.4 million for the three months ended September 30, 2021 as compared to $8.1 million for the three months ended September 30, 2020, an increase of $6.3 million.

The table below summarizes our research and development expenses (in thousands):

Three Months Ended September 30,

Personnel-related expenses

Third-party services

Scientific consulting

Facilities and other research and development expenses

Total research and development expenses

The increase in research and development expenses were primarily attributable to an increase of $2.5 million in personnel costs resulting from an increase in headcount, an increase of $2.3 million in expenses related to our STK-001 program and $1.2 million related to our STK-002 program, which is comprised of third-party services and scientific consulting fees and an increase of $0.4 million in facilities and other costs, partially offset by a decrease of $0.1 million in non-project specific consulting and third-party services, materials and other costs.

The increases in expense reflect the accelerating pace of research and development activities and the increases in personnel, facilities and, third party services to support those activities.

General and administrative expenses

General and administrative expenses were $8.3 million for the three months ended September 30, 2021 as compared to $5.6 million for the three months ended September 30, 2020, an increase of $2.7 million.

The increase in general and administrative expenses were primarily attributable to an increase of $2.3 million in personnel costs resulting from an increase in headcount, and an increase of $0.4 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.

The change in our other income for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 primarily reflects a decrease in cash balances and in market interest rates.

Results of operations for the nine months ended September 30, 2021 and 2020

Results of operations for the three months ended March 31, 2022 and 20 2 1

The following table sets forth our results of operations:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Research and development expenses

Research and development expenses were $38.4 million for the nine months ended September 30, 2021 as compared to $23.3 million for the nine months ended September 30, 2020, an increase of $15.1 million.

Research and development expenses were $18.3 million for the three months ended March 31, 2022 as compared to $9.9 million for the three months ended March 31, 2021, an increase of $8.4 million.

The table below summarizes our research and development expenses (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Personnel-related expenses

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Total research and development expenses

The increase in research and development expenses were primarily attributable to an increase of $7.2 million in personnel costs resulting from an increase in headcount, an increase of $1.3 million in facilities and other costs, an increase of $4.8 million in expenses related to our STK-001 program and $2.2 million related to our STK-002 program, which is comprised of third-party services and scientific consulting fees, partially offset by a decrease of $0.4 million in non-project specific consulting and third-party services, materials and other costs.

The increase in research and development expenses were primarily attributable to an increase of $2.0 million in personnel costs resulting from an increase in headcount, an increase of $3.0 million in expenses related to our STK-001 program and $1.9 million related to our STK-002 program, which is comprised of third-party services and scientific consulting fees and an increase of $1.5 million in external third party expense related to SYNGAP1, MECP2, facilities and other costs and non-project specific consulting and third-party services, materials and other costs.

The increases in expense reflect the accelerating pace of research and development activities and the increases in personnel, facilities and, third party services to support those activities.

General and administrative expenses

General and administrative expenses were $23.2 million for the nine months ended September 30, 2021 as compared to $15.2 million for the nine months ended September 30, 2020, an increase of $8.0 million.

General and administrative expenses were $9.5 million for the three months ended March 31, 2022 as compared to $6.9 million for the three months ended March 31, 2021, an increase of $2.6 million.

The increase in general and administrative expenses were primarily attributable to an increase of $2.1 million in personnel costs resulting from an increase in headcount, 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.

The change in our other income for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily reflects a decrease in cash balances and in market interest rates.

Other income (expense)

The change in our other income (expense) for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily reflects an increase in marketable securities balances.

Liquidity and capital resources

Since our inception through September 30, 2021, our operations have been primarily 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 September 30, 2021, we had $236.9 million in cash, cash equivalents, marketable securities and restricted cash.

Since our inception through March 31, 2022, our operations have been financed by net proceeds of $487.4 million from the sale of convertible notes payable and our convertible preferred stock, our initial public offering, follow-on offering, proceeds from the controlled equity offering sales agreement and the upfront payment from Acadia.

As of March 31, 2022, we had $293.8 million in cash, cash equivalents, marketable securities, 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 September 30, 2021, we had an accumulated deficit of $171.6 million.

We have incurred losses since our inception in June 2014 and, as of March 31, 2022 and 2021, we had accumulated deficits of $220.7 million and $127.1 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.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities and restricted cash as of September 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements until the end of 2023.

Pursuant to our license and collaboration agreement with Acadia, we are eligible to receive up to $907,500,000 in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events.

With respect to certain licensed products, we are also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide.

We are also responsible for 50% of the development and commercialization costs for certain licensed products and will receive 50% of the profits from global commercialization.

Our product candidates may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future.

We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.

As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, costs relating to the build-out of our headquarters and manufacturing facility, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs, manufacturing costs, legal and other regulatory expenses and general overhead costs.

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities, and restricted cash as of March 31, 2022, will enable us to fund our operating expenses and capital expenditure requirements into 2025.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

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

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, and the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, we are unable to estimate the exact amount of our operating capital requirements.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements.

Our future funding requirements will depend on many factors, including, but not limited to:

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The following table summarizes our cash flows:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Net cash (used in) provided by:

Net cash provided by (used in):

Operating activities

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Financing activities

Net decrease in cash, cash equivalents and

restricted cash

Net decrease in cash, cash equivalents and restricted cash

Operating activities

During the nine months ended September 30, 2021, cash used in operating activities was $50.6 million and was primarily attributable to a net loss of $61.4 million, partially offset by non-cash charges of $13.5 million for share-based compensation, depreciation, amortization and accretion of marketable securities, loss on disposal of property and equipment, and reduction in the carrying amount of right of use assets, and a net change of $2.8 million in our net operating assets and liabilities.

During the nine months ended September 30, 2020, cash used in operating activities was $31.3 million and was primarily attributable to a net loss of $37.7 million, partially offset by non-cash charges of $5.6 million for share-based compensation, loss on disposal of property and equipment, depreciation, and reduction in the carrying amount of right of use assets, and a net change of $0.8 million in our net operating assets and liabilities.

During the three months ended March 31, 2022, cash provided by operating activities was $32.5 million.

This was primarily attributable to $58.0 million in deferred revenue received as part of the Acadia collaboration and to non-cash charges of $5.8 million for share-based compensation, depreciation, amortization and accretion of marketable securities, and reduction in the carrying amount of right of use assets, offset by a net loss of $24.6 million and by a net change of $6.7 million in our net operating assets and liabilities.

During the three months ended March 31, 2021, cash used in operating activities was $20.1 million and was primarily attributable to a net loss of $16.8 million, partially offset by non-cash charges of $3.2 million for share-based compensation, depreciation, and reduction in the carrying amount of right of use assets, and a net change of $6.6 million in our net operating assets and liabilities.

Investing activities

Our investing activities during the nine months ended September 30, 2021 consisted of purchases of marketable securities and purchases of property and equipment.

Our investing activities during the nine months ended September 30, 2020 consisted of purchases of property and equipment.

Our investing activities during the three months ended March 31, 2022 and 2021 have consisted of purchases of property and equipment as well as purchases and sales of marketable securities.

Financing activities

Our financing activities during the nine months ended September 30, 2021 consisted of $0.6 million from the exercise of stock options and $0.5 million in proceeds from our Employee Stock Purchase Plan.

Our financing activities during the nine months ended September 30, 2020 consisted of $1.2 million from the exercise of stock options and $0.4 million in proceeds from our Employee Stock Purchase Plan, offset by $0.4 million in deferred financing costs.

Our financing activities during the three months ended March 31, 2022 consisted of $0.1 million from the exercise of stock options and $0.2 million in proceeds from our Employee Stock Purchase Plan and $42.2 million of proceeds from the controlled equity offering sales agreement.

Our financing activities during the three months ended March 31, 2021 consisted of $0.4 million from the exercise of stock options and $0.2 million in proceeds from our Employee Stock Purchase Plan.

Contractual obligations and commitments

The following table summarizes our contractual obligations as of September 30, 2021 and the effects that such obligations are expected to have on our liquidity and cash flows in future fiscal periods:

The following table summarizes our contractual obligations as of March 31, 2022 and the effects that such obligations are expected to have on our liquidity and cash flows in future fiscal periods:

Payments Due by Fiscal Period

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The lease commencement date was December 10, 2018.

In September 2021, we entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years ending December 31, 2024.

In addition, this agreement provides for the lease of an additional 15,000 square feet of rentable space beginning on April 1, 2022 and ending on December 31, 2024.

Initial monthly lease payments are approximately $0.1 million with respect to the 23,000 square feet space, and $0.1 million with respect to the 15,000 square feet space, and in each case subject to annual rent escalations.

In December 2018, we entered into an agreement to lease 2,485 square feet of space for a term of three years.

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Lease terms commence at $0.2 million per year, 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.

We occupied this space in May 2019.

In June 2021, we amended the agreement to extend the initial term of the 2,485 square foot lease for a period of three years ending April 30, 2025.

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The amended lease provides us with the option to extend the term of the lease for an additional two years with a base annual rent increase of 3%.

In September 2021, we entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years ending December 31, 2024.

In addition, this agreement provides for the lease of an additional 15,000 square feet of rentable space beginning in April 2022 and ending on December 31, 2024.

Our commitments primarily consist of obligations under our agreements with CSHL and the University of Southampton.

As of September 30, 2021, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

As of March 31, 2022, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

For additional information regarding our agreements, see Note 6—Commitments and Contingencies of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q .

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We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Annual Report on Form 10-K filed with the SEC on March 9, 2021.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, and financial instruments.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five-step analysis:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step analysis to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

As part of the accounting for these arrangements, the Company must use significant judgment to determine:

(a) the number of performance obligations based on the determination under step (ii) above;

(b) the transaction price under step (iii) above;

and (c) the timing of satisfaction of performance obligations as a measure of progress in step (v) above.

For contracts determined to be within the scope of ASC 606, the Company assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations.

This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship.

Promised goods and services are considered distinct provided that:

(i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace.

In addition, the Company considers whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise.

For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

The licenses of the Company’s intellectual property granted to Acadia was not determined to be distinct from the other promises or performance obligations, i.e., research and development services, identified in the arrangement.

Accordingly, such licenses are therefore combined with research and development services in the arrangement.

Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.

The transaction price (the amount of consideration the Company expects to be entitled to from a customer in exchange for the promised good or services) is determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis.

SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied.

The Company uses significant judgment to determine whether milestone payments or other variable consideration, except for royalties, should be included in the transaction price.

The transaction price is allocated to each performance obligation based on the relative standalone selling prices of each performance obligation in the contract, and the Company recognizes revenue based on those amounts when, or as, the performance obligations under the contract are satisfied.

Any variable consideration is constrained, and therefore, the cumulative revenue associated with this consideration is not recognized until it is deemed not to be at significant risk of reversal.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation(s) when (or as) each performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the appropriate method of measuring progress for purposes of recognizing revenue.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Amounts received prior to being recognized as revenue are recorded as deferred revenue.

Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated

balance sheets.

Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.

Customer options:

If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise.

The Company evaluates the customer options for material rights, that is, the option to acquire additional goods or services for free or at a discount.

If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement.

The Company allocates the transaction price to material rights based on the standalone selling price.

As a practical alternative to estimating the standalone selling price when the goods or services are both (i) similar to the original goods and services in the contract and (ii) provided in accordance with the terms of the original contract, the Company allocates the total amount of consideration expected to be received from the customer to the total goods or services expected to be provided to the customer.

Amounts allocated to any material right are not recognized as revenue until the option is exercised and the performance obligation is satisfied.

No such material rights were identified in the arrangement with Acadia.

If such material rights were identified, then the Company would allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option.

Amounts allocated to a material right are not recognized or begin to be recognized as revenue until, at the earliest, the option is exercised.

Milestone payments:

At the inception of each arrangement that includes milestone payments, the Company evaluates whether a significant reversal of cumulative revenue provided in conjunction with achieving the milestones is probable, and estimates the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

For other milestones, the Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.

There is considerable judgment involved in determining whether it is probable that a significant reversal of cumulative revenue would not occur.

At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

The development milestones in the Acadia arrangement are not considered probable of achievement at the outset of the arrangement.

For additional discussion of accounting for collaboration revenues, see Note 7 of our condensed consolidated financial statements.

Emerging growth company and smaller reporting company status

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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.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial

statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently adopted and recently issued accounting pronouncements

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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-Q

Item 2. Management’s Discussion and Analysis