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) March 31, December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 84,111 $ 144,895 Marketable Securities 209,105 74,915 Prepaid expenses and other current assets 12,290 9,159 Deferred financing costs — 117 Interest receivable 265 132 Total current assets $ 305,771 $ 229,218 Restricted cash 569 569 Operating lease right-of-use assets 4,563 4,939 Property and equipment, net 5,035 4,139 Total assets $ 315,938 $ 238,865 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 3,328 $ 2,385 Accrued and other current liabilities 11,108 14,754 Deferred revenue - current portion 8,469 — Total current liabilities $ 22,905 $ 17,139 Deferred revenue - net of current portion 49,545 — Other long term liabilities 3,511 3,949 Total long term liabilities 53,056 3,949 Total liabilities $ 75,961 $ 21,088 Commitments and contingencies (Note 6) Stockholders’ equity Common stock, par value of $ 0.0001 per share; 300,000,000 shares authorized, 39,044,669 and 36,902,499 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively 4 4 Additional paid-in capital 461,389 414,024 Accumulated other comprehensive loss ( 684 ) ( 168 ) Accumulated deficit ( 220,732 ) ( 196,083 ) Total stockholders’ equity $ 239,977 $ 217,777 Total liabilities and stockholders’ equity $ 315,938 $ 238,865 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 March 31, 2022 2021 Revenue $ 3,000 $ — Operating expenses: Research and development 18,309 9,913 General and administrative 9,486 6,914 Total operating expenses 27,795 16,827 Loss from operations ( 24,795 ) ( 16,827 ) Other income: Interest income (expense), net 104 6 Other income (expense), net 42 28 Total other income 146 34 Net loss $ ( 24,649 ) $ ( 16,793 ) Net loss per share, basic and diluted $ ( 0.66 ) $ ( 0.46 ) Weighted-average common shares outstanding, basic and diluted 37,448,301 36,643,205 Comprehensive loss: Net loss $ ( 24,649 ) $ ( 16,793 ) Other comprehensive loss: Unrealized gain (loss) on marketable securities ( 516 ) — Total other comprehensive loss $ ( 516 ) $ — Comprehensive loss $ ( 25,165 ) $ ( 16,793 ) 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, 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 Balance as of December 31, 2021 36,902,499 $ 4 $ 414,024 $ ( 168 ) $ ( 196,083 ) $ 217,777 Net loss — — — — ( 24,649 ) ( 24,649 ) Stock-based compensation — — 4,975 — — 4,975 Unrealized loss on marketable securities — — — ( 516 ) — ( 516 ) Issuance of common stock upon exercise of stock options 53,377 — 93 — — 93 Shares sold as part of controlled equity offering sales agreement 2,080,486 — 42,128 — — 42,128 Issuance of common stock related to employee stock purchase plan 8,307 — 169 — — 169 Balance as of March 31, 2022 39,044,669 $ 4 $ 461,389 $ ( 684 ) $ ( 220,732 ) $ 239,977 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) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 24,649 ) $ ( 16,793 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 247 236 Amortization and accretion of marketable securities 235 — Stock-based compensation 4,975 2,698 Loss on disposal of property and equipment — 29 Reduction in the carrying amount of right of use assets 377 271 Changes in assets and liabilities: Prepaid expenses and other current assets ( 3,265 ) ( 1,078 ) Accounts payable and accrued liabilities ( 3,443 ) ( 5,499 ) Deferred revenue 58,014 — Net cash provided by (used in) operating activities $ 32,491 $ ( 20,136 ) Cash flows from investing activities: Purchases of marketable securities ( 143,941 ) — Purchases of property and equipment ( 841 ) ( 204 ) Sales of marketable securities 9,000 — Net cash used in investing activities $ ( 135,782 ) $ ( 204 ) Cash flows from financing activities: Proceeds from Employee Stock Purchase Plan 169 175 Proceeds from issuance of common stock upon exercise of stock options 93 371 Proceeds from controlled equity offering sales agreement 42,245 — Net cash provided by financing activities $ 42,507 $ 546 Net decrease in cash, cash equivalents and restricted cash $ ( 60,784 ) $ ( 19,794 ) Cash, cash equivalents and restricted cash—beginning of period $ 145,464 $ 287,513 Cash, cash equivalents and restricted cash—end of period $ 84,680 $ 267,719 Property and equipment included in accrued expense and accounts payable $ 301 $ 97 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 upregulating 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 (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 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 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”). The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus. The $ 150,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $ 400,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. As of March 31, 2022, the Company had issued approximately 2.1 million shares in connection with the Sales Agreement for net proceeds of $ 42.2 million. Since April 1, 2022, the Company sold approximately 138,000 shares of our common stock and received $ 3.1 million after deducting commissions related to the Sales Agreement. 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. 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, 2021, which was filed with the SEC on March 10, 2022. The Company’s financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 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 8 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, 20 2 1 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 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 nine 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 March 31, 2022, 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 March 31, 2022 2021 Cash and cash equivalents $ 84,111 $ 267,514 Restricted cash - short-term $ — $ 147 Restricted cash - long-term $ 569 $ 58 Total cash, cash equivalents and restricted cash $ 84,680 $ 267,719 Marketable Securities Marketable securities consist of government securities and obligations, corporate bonds and commercial paper with original maturities of more than 90 days. Investments are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of other comprehensive income/(loss). Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determination at each balance sheet date. Concentration of credit risk Financial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash and cash equivalents. The Company maintains its cash and cash equivalents at an accredited financial institution in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. 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. Revenue recognition The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers , or ASC 606. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In January 2022, the Company entered into a collaboration and licensing agreement with Acadia Pharmaceuticals, Inc. (“Acadia”) which is within the scope of ASC 606 (see Note 7). In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under this agreement, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for this arrangements, the Company must use its 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; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and (d) the contract term and pattern of satisfaction of the performance obligations under step (v) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as accounts receivable in the Company’s condensed consolidated balance sheets. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue. 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. Upfront license fees The licenses of the Company’s intellectual property granted to Acadia was not determined to be distinct from the other promises or performance obligations identified in the arrangement. Accordingly, such licenses are therefore combined with other promises in the arrangement. The Company exercises 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 Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. 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 or options 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. 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. Research and development services The promises under the Company’s collaboration agreement with Acadia includes research and development services to be performed by the Company for or on behalf of the customer. 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. 10 Milestone payments At the inception of the Acadia arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal 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. 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 judgment involved in determining whether it is probable that a significant revenue reversal 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. 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 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 condensed consolidated financial statements. 11 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 March 31, 2022 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 84,111 $ — $ — $ 84,111 Total $ 84,111 $ — $ — $ 84,111 Marketable Securities: Corporate bonds $ — $ 17,277 $ — $ 17,277 Commercial paper — 22,479 — 22,479 US Government debt securities — 169,349 — 169,349 Total $ — $ 209,105 $ — $ 209,105 Fair value measurements as of December 31, 2021 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 144,897 $ — $ — $ 144,897 Total $ 144,897 $ — $ — $ 144,897 Marketable Securities: Corporate bonds $ — $ 17,524 $ — $ 17,524 Commercial paper — 27,487 — 27,487 US Government debt securities — 29,904 — 29,904 Total $ — $ 74,915 $ — $ 74,915 The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described 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 March 31, 2022 and December 31, 2021. 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 no transfers to Level 3 in the periods presented. 4. Marketable Securities The following table summarizes the Company’s marketable securities as of March 31, 2022 (in thousands): March 31, 2022 Amortized Cost Unrealized Gains Unrealized Loss Fair Value Marketable securities: Corporate bonds $ 17,524 $ — $ ( 247 ) $ 17,277 Commercial paper 22,479 — — 22,479 US Government debt securities 169,786 — ( 437 ) 169,349 Total $ 209,789 $ — $ ( 684 ) $ 209,105 12 The following table summarizes the Company’s marketable securities as of December 31, 2021 (in thousands): December 31, 2021 Amortized Cost Unrealized Gains Unrealized Loss Fair Value Marketable securities: Corporate bonds $ 17,598 $ — $ ( 74 ) $ 17,524 Commercial paper 27,487 — — 27,487 US Government debt securities 29,998 — ( 94 ) 29,904 Total $ 75,083 $ — $ ( 168 ) $ 74,915 The weighted average maturity of the Company’s marketable securities as of March 31, 2022 ranged from approximately 0.3 years to 0.9 years. As of December 31, 2021 the weighted average maturity of the Company’s marketable securities ranged from approximately 0.2 years to 1.1 years. The Company did no t record an allowance for credit losses as of March 31, 2022 related to its marketable securities. Further, given the lack of significant change in the credit risk of these investments, the Company did not recognize any other-than-temporary impairment losses. 5. Accrued and other current liabilities Accrued and other current liabilities consisted of the following (in thousands): March 31, December 31, 2022 2021 Accrued employee compensation costs $ 1,345 $ 5,383 Accrued professional costs 1,450 523 Accrued research and development costs 6,255 6,801 Current portion of operating lease liabilities 1,535 1,507 Other current liabilities 523 540 $ 11,108 $ 14,754 6. Commitments and contingencies Operating lease 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. 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 and comprehensive loss. 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 September 2021, the Company entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years commencing on December 15, 2021 and ending December 31, 2024 . In addition, this lease 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 . The Company recognized a right-of-use asset and operating lease liability of $ 3.5 million for the 23,000 square feet. As the Company did not have access to the additional 15,000 square feet of space, a right of use asset was not recognized as of March 31, 2022. 13 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 and a right-of-use asset and operating lease liabilities of $ 0.8 million for the additional 2,357 square feet of rentable space. Future minimum lease payments under non-cancellable leases as of March 31, 2022, including leases entered into where access has yet to be granted, were as follows (in thousands): 2022 $ 1,707 2023 2,532 2024 2,608 2025 173 Total lease payments $ 7,020 Less imputed interest ( 437 ) Present value of lease liabilities $ 6,583 Lease balances as of March 31, 2022 were as follows (in thousands): Operating right-of-use assets $ 4,563 Current Portion of operating lease liabilities $ 1,535 Non-current portion of operating lease liabilities 3,135 Total operating lease liabilities $ 4,670 The weighted average remaining lease term and weighted average discount rate of our operating leases as of March 31, 2022 were as follows: Weighted average remaining lease term in years 2.9 Weighted average discount rate 4.15 % In accordance with Topic 842, lease expense incurred under operating leases was approximately $ 0.4 million for the three months ended March 31, 2022, and $ 0.3 million for three months ended March 31, 2021. 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 technology and other antisense oligonucleotide technologies, as well as current and future therapeutic targets and programs. Following the expiration of the initial scientific agreement in June 2021, the parties entered into a subsequent scientific board agreement on substantially the same terms. The Company recognized expense of $ 0.01 million each for the three months ended March 31, 2022 and 2021 for such scientific advisory services. The term of this agreement is 12 months. License and research agreements In July 2015, the Company entered into a worldwide license agreement with CSHL (the “CSHL Agreement”) 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. The CSHL Agreement obligates the Company to make 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 14 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 three month s ende d March 31, 2022 a nd 20 2 1 . 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. 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. As of March 31, 2022, the Company has recorded a liability of $ 0.5 million under the Southampton Agreement due to the Acadia Pharmaceuticals Inc. license and collaboration agreement (see Note 7) and had no recorded liability as of March 31, 2021. 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 March 31, 2022 these expenses were $ 0.08 million compared to $ 0.01 million for the three months ended March 31, 2021. 7. License and Collaboration Agreement with Acadia Pharmaceuticals Inc. In January 2022, the Company 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, 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 Stoke) 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 $ 907,500,000 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, 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. Acadia Agreement Accounting At the commencement of the Acadia agreement the Company identified three performance obligations consisting of pre-clinical research activities for each of the three targets, SYNGAP1, MECP2, and the undisclosed neurodevelopmental target. The exclusive or co-exclusive licenses granted to Acadia to conduct pre-clinical research activities on each of the three targets, and participation on each of the respective joint research committees were identified as promised services. However, the licenses granted to Acadia and the research activities were determined to be not distinct from each other, and therefore are considered a combined performance obligation for each of the three targets. Participation on each of the joint research committees was determined to be quantitatively and qualitatively immaterial in the context of the arrangement with Acadia. 15 The Company is recognizing the transaction price for the pre-clinical research activities for each of the three targets over time as the research services are provided. The transfer of control to Acadia occurs over this time period , and in management’s judgment, is the best measure of progress towards satisfying the performance obligation. An input method is used that measures the cost incurred to date in satisfying each of the three research activities in relation to the estimated total projected cost of each of the research activities to fulfill the respective obligations. The cumulative effect of revisions to estimated costs and/or the transaction price to complete the research performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. Milestone payments that are not within the control of the Company, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. For other milestones, the Company evaluated factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. Milestones that are outside of the Company’s or Acadia’s control will not be recognized until such milestones are achieved. As to the other milestones, to date, no milestone payments have been included in the transaction price due the uncertainty as to whether these milestones will be achieved. The Company will at the end of each reporting period reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust its estimate of the overall transaction price for each of the research activities on the three targets. Any such adjustments will be recorded on a cumulative catch-up basis. As of March 31, 2022, the Company had $ 58.0 million in upfront consideration associated with the Acadia agreement relating to performance obligations that are unsatisfied or partially unsatisfied. 8. 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 March 31, 2022, there were no shares available for future issuance under the 2014 Plan and 2,076,273 shares were available under the 2019 Plan. During the three months ended March 31, 2022, the Company granted options to purchase 2,061,975 shares of common stock to certain of its employees. The options vest up to 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 March 31, 2022, there was $ 66.5 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 2.96 years as of March 31, 2022. 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 March 31, 2022 2021 Research and development $ 1,895 $ 1,034 General and administrative 3,080 1,664 $ 4,975 $ 2,698 2019 Employee stock purchase plan In June 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 18, 2019. The Company initially reserved 315,000 shares of common stock for sale under the ESPP. At March 31, 2022, the Company had 995,298 shares available for issuance under the plan. The average grant date fair value per share under the plan was $ 23.01 for 2022. The total ESPP stock-based compensation expense for the three months ended March 31, 2022 was $ 0.1 million and for the three months ended March 31, 2021 was $ 0.1 million. The number of shares reserved for issuance under the ESPP will increase 16 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. 9. 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 March 31, 2022 2021 Numerator: Net loss $ ( 24,649 ) $ ( 16,793 ) Denominator: Weighted-average number of common shares, basic and diluted 37,448,301 36,643,205 Net loss per share, basic and diluted $ ( 0.66 ) $ ( 0.46 ) 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: March 31, 2022 2021 Outstanding options to purchase common stock 7,408,942 5,375,811 10. 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 months ended March 31, 2022 and 2021 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 $ 66.0 million at December 31, 2021. The Company has provided a valuation allowance for the full amount of its net deferred tax assets and liabilities as of March 31, 2022 and December 31, 2021, 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. The Company did no t record any amounts for unrecognized tax benefits as of March 31, 2022 or December 31, 2021. 11. Subsequent events Since April 1, 2022, the Company sold approximately 138,000 shares of our common stock and received $ 3.1 million after deducting commissions related to the Sales Agreement. 17