What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-06 compared with 2022-03-10 · 159 added, 121 removed, 562 unchanged (33% of the section changed)

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Restated Bylaws, as amended.

July 10, 2020

February 3, 2023

Form of Common Stock Certificate.

Amended and Restated Investors’ Rights Agreement, dated October 22, 2018, by and among the Registrant and certain of its stockholders.

Description of Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934.

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March 9, 2021

Filed/Furnished

Lease Agreement, dated as of September 8, 2021, by and between ARE-MA Region No.

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November 8, 2021

Filed/Furnished

Lease Agreement, by and between MIT 139 Main Street Leasehold LLC, and the Registrant., as amended to date.

August 10, 2021

License and Collaboration Agreement, dated as of January 9, 2022, by and between Acadia Pharmaceuticals Inc.

and the Registrant.

Scientific Advisory Board Agreement by and between the Registrant and Adrian Krainer, Ph.D., dated June 1, 2022.

Controlled Equity Offering Sales Agreement, dated as of July 10, 2020, between the Registrant, Cantor Fitzgerald & Co.

and Stifel, Nicolaus & Company, Incorporated.

July 10, 2020

August 8, 2022

Controlled Equity Offering Sales Agreement, dated as of May 20, 2022, between the Registrant and Cantor Fitzgerald & Co..

Subsidiary of the Registrant.

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We have audited the accompanying consolidated balance sheets of Stoke Therapeutics, Inc.

and subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S.

and subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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Marketable securities

Prepaid expenses and other current assets

Prepaid expenses

Other current assets

Deferred financing costs

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Accrued and other current liabilities

Deferred revenue - current portion

Total current liabilities

Long term liabilities

Deferred revenue - net of current portion

Other long term liabilities

Total long term liabilities

Total liabilities

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Balance as of December 31, 2020

Unrealized loss on marketable securities

Stock-based compensation

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Issuance of common stock related to employee stock purchase plan

Issuance of common stock upon follow-on offering, net of underwriting discounts, commissions, and offering costs

Shares sold at the market

Balance as of December 31, 2022

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Accounts payable and accrued liabilities

Deferred revenue

Net cash used in operating activities

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Cash flows from financing activities:

Proceeds from issuance of common stock upon public offerings

Payment of offering costs

Proceeds from issuance of common stock upon exercise of stock options

Proceeds from Employee Stock Purchase Plan

Deferred financing costs

Proceeds from controlled equity offering sales agreement

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash—beginning of year

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Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Right-of-use assets recognized in exchange for operating leases under Topic 842

Right-of-use assets recognized in exchange for operating leases

Property and equipment included in accrued expense and accounts payable

Deferred offering costs not yet paid

The accompanying notes are an integral part of these consolidated financial statements.

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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”).

In July 2020, the Company filed a universal Shelf Registration statement on Form S-3 (the “Prior Registration Statement”) with the Securities and Exchange Commission (the “SEC”).

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

a base prospectus, which covered the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $ 400,000,000 of its common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, subscription rights to purchase 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 the Company of up to a maximum aggregate offering price of $ 150,000,000 of its common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“Prior Sales Agreement”).

On May 31, 2022, the Prior Registration Statement was deactivated upon the effectiveness of the Registration Statement (as defined below).

As of such date, the Company had issued approximately 2.2 million shares of common stock in connection with the Prior Sales Agreement for net proceeds of $ 45.3 million.

In May 2022, the Company filed an additional universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the SEC.

The Registration Statement was declared effective by the SEC on May 31, 2022, 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 its common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, subscription rights to purchase common stock, preferred stock or debt securities and/or units consisting of some or all of these securities;

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 December 31, 2021, the Company had no t issued any securities in connection with the Sales Agreement.

(see note 12 for sales of common stock subsequent to year end)

Follow-on public offering

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

As of December 31, 2022, the Company had not issued any shares pursuant to the Sales Agreement.

Since December 31, 2022, we sold approximately 4.6 million shares of our common stock and received $ 44.7 million after deducting commissions related to the Sales Agreement.

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

Uncertainties

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The Company expects that its operating losses and negative cash flows will continue for the foreseeable future.

As of the issuance date of its consolidated financial statements for the year ended December 31, 2021, the Company expects that its cash and cash equivalents, and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements into 2024.

The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements (see note 12 for license and collaboration agreement entered in to January 2022) .

The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all.

The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders.

If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.

As of the issuance date of these 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 consolidated financial statements.

Summary of significant accounting policies and recent accounting pronouncements

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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 (“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 8).

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 arrangement, 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 consolidated balance sheets.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s 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.

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.

Deferred offering costs

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Amounts incurred are classified as general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

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

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

The Company has also elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not separate lease and non-lease components.

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

Adoption of the standard did no t result in the Company recording a cumulative effect adjustment.

The Company determines whether an arrangement is a lease at inception.

The Company accounts for a lease when it has the right to control the leased asset for a period of time while obtaining substantially all of the assets’ economic benefits.

The Company determined that it held operating leases for office and laboratory space as of January 1, 2020.

Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date.

The discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at lease inception, as the Company does 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 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.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax base.

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however, the Company currently has no interest or penalties related to uncertain income tax benefits.

The Tax Cuts and Jobs Act (the TCJA) was enacted on December 22, 2017.

The TCJA reduced the U.S.

federal corporate tax rate from a top rate of 35 % to a flat rate of 21 %.

The Company continues to monitor for legislative developments, issuance of regulations and technical memorandum to provide further clarification and/or interpretations of the TCJA and will adjust its consolidated financial statements as needed.

Segment and geographic information

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The Company is also a “smaller reporting company,” meaning that in the event of an initial public offering the market value of its stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to the Company as a result of such offering is less than $700 million and its annual revenue is less than $100 million during the most recently completed fiscal year.

completed fiscal year and the market value of its stock held by non-affiliates is less than $700 million.

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.

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Recently issued accounting pronouncements

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

Accounting for Certain Financial Instruments with Down Round Features;

Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception .

Part I of this update addresses the complexity of accounting for certain financial instruments with down round features.

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

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

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

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

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

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

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

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

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

This ASU removed the following disclosure requirements:

(1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

(2) the policy for timing of transfers between levels;

and (3) the valuation processes for Level 3 fair value measurements.

Additionally, this update added the following disclosure requirements:

(1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period;

(2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

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

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

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

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US Government debt securities

There were no marketable securities as of December 31, 2020.

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

Marketable securities:

Corporate bonds

Commercial paper

US Government debt securities

The weighted average maturity of the Company’s marketable securities as of December 31, 2022 ranges from approximately 0.184 years to 0.489 years.

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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.

The expense is included in operating expenses in the consolidated statements of operations and comprehensive loss.

In August 2018, the Company entered into an agreement to lease approximately 23,000 square feet of space for a term of three years .

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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 in April 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 no t recognized as of December 31, 2021.

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 .

In December 2021, the Company recognized a right-of-use asset and operating lease liability of $ 3.5 million for the 23,000 square feet.

On April 1, 2022, the Company recognized a right-of-use asset and operating lease liability of $ 1.8 million for the 15,000 square feet.

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

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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 December 31, 2021, including leases entered into where access has yet to be granted, are as follows (in thousands):

In 2021, 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 December 31, 2022, are as follows (in thousands):

Total lease payments

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In accordance with Topic 842, lease expense incurred under operating leases was approximately $ 2.2 million for the year ended December 31, 2022, and $ 1.4 million for the year ended December 31, 2021.

Consulting Agreement

In October 2014, the Company entered into a consulting agreement with a member of the Company’s board of directors, who is also an employee of Cold Spring Harbor Laboratory (“CSHL”), to provide consulting services related to scientific research related to the development of antisense-based drugs, therapies, diagnostic and research tools, products, services and intellectual property.

The Company recognized expenses of $ 0.02 million for the year ended December 31, 2020.

The initial term of this agreement was five years and the parties mutually agreed not to extend the consulting agreement in April 2020.

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 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.

The Company recognized expense of $ 0.05 million each for the years ended December 31, 2021 and 2020 for such scientific advisory services.

The term of this agreement is 12 months.

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 and a renewal agreement in June 2022, the parties entered into subsequent scientific board agreements on substantially the same terms.

The Company recognized expense of $ 0.02 million for the year ended December 31, 2022 and $ 0.05 million for the year ended December 31, 2021 for such scientific advisory services.

The term of the renewal agreement is 12 months.

License and research agreements

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

In addition, if the Company sublicenses the rights under the CSHL Agreement, the Company is required to pay a maximum of twenty percent of the sublicense revenue to CSHL, which may be reduced to a mid-teens or a mid-single digit percentage upon achievement of certain clinical milestones for the applicable licensed product.

In addition, if the Company sublicenses the rights under the CSHL Agreement, it 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.

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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 years ended December 31, 2022 and 2021.

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

In February 2023, the Company delivered a notice of termination of the CSHL Agreement to CSHL, and the Company expects the CSHL Agreement to be terminated within 90 days of such notice.

The Company does not expect the termination of the CSHL Agreement to have a significant impact on the intellectual property underlying any of its current product candidates, including STK-001 and STK-002, or its continued development of the TANGO platform.

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.

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In addition, if the Company sublicenses its rights under the Southampton Agreement, the Company is required to pay a mid-single digit percentage of the sublicense revenue to the University of Southampton.

The maximum aggregate potential milestone payments payable by the Company total approximately 0.4 million pounds sterling (approximately $ 0.5 million as of December 31, 2021).

As of December 31, 2021, and 2020, the Company has recorded no liabilities under the Southampton Agreement.

For the year ended December 31, 2021 these expenses were $ 0.12 million compared to $ 0.09 million for the year ended December 31, 2020.

As of December 31, 2022, the Company had paid $ 0.7 million under the Southampton Agreement as a result of entering into the Acadia Pharmaceuticals Inc.

license and collaboration agreement in January 2022 (see Note 8).

Additionally, certain licenses under the Southampton Agreement require the Company to reimburse the University of Southampton for certain past and ongoing patent related expenses.

(see note 12 for payments to University of Southampton)

For the year ended December 31, 2022 these expenses were $ 0.02 million compared to $ 0.12 million for the year ended December 31, 2021.

The Company may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which it is focused.

As of December 31, 2021, the Company had no legal proceedings to which it was a party or to which its property was subject.

As of December 31, 2022, the Company had no legal proceedings to which it was a party or to which its property was subject that, in the opinion of management, would have a material adverse effect on its business.

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.

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 $907.5 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.

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.

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.

Payments or reimbursements resulting from the Company’s research and development efforts were recognized as the services are performed.

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 December 31, 2022, the Company had $51.7 million in upfront consideration associated with the Acadia agreement relating to performance obligations that are unsatisfied or partially unsatisfied.

Share-Based Compensation

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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 December 31, 2021 there were no shares available for future issuance under the 2014 Plan and 2,372,006 shares were available under the 2019 Plan.

As of December 31, 2022 there were no shares available for future issuance under the 2014 Plan and 992,231 shares were available for future issuance under the 2019 Plan.

During the years ended December 31, 2022 and December 31, 2021, the Company granted options to purchase 3,459,500 and 1,311,897 shares of common stock to certain of its employees, and directors, respectively.

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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.

Net loss per share attributable to common stockholders

The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company:

Net loss per share

The following table summarizes the computation of basic and diluted net loss per share of the Company:

Year ended December 31,

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Research and development tax credits

R&D capitalized expenses

Accrued compensation and stock compensation

Gross deferred tax assets

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The change in the valuation allowance was an increase of $ 31.8 million and $ 28.8 million in 2022 and 2021, respectively.

The CARES Act temporarily repealed the 80 % taxable income limitation for tax years beginning before January 1, 2021.

Federal NOL carry forwards generated from 2018 or later and Federal NOL carryforwards to taxable years beginning after December 31, 2021 will be subject to the 80 % limitation.

Also, under the CARES Act, federal NOLs arising in 2018, 2019 and 2020 can be carried back 5 years.

New legislation or regulation which could affect our tax burden could be enacted by any governmental authority.

The Company cannot predict the timing or extent of such tax-related developments which could have a negative impact on our financial results.

Additionally, the Company uses its best judgment in attempting to quantify and reserve for these tax obligations.

Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes.

We will continue to monitor any potential changes or further guidance related to this provision.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022.

The Company expects the impact of these provisions to be immaterial.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code) due to ownership changes that have occurred previously or that could occur in the future.

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The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis.

On January 1, 2020, the Company began to make matching contributions up to 4 % of annual salary for those employees who are participating in the 401(k) Plan.

The Company matches contributions up to 4 % of annual salary for those employees who are participating in the 401(k) Plan.

For the year ended December 31, 2022, the Company made matching contributions of $ 0.6 million and for the year ended December 31, 2021, the Company made matching contributions of $ 0.5 million.

Subsequent events

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 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.

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.

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

As a result of and related to the out-license of SYNGAP1, the Company is obligated to make payments to the University of Southampton under certain licensed patents and applications relating to TANGO.

Since December 31, 2021, the Company sold approximately 403,000 shares of our common stock and received $ 7.5 million after deducting commissions related to the Sales Agreement.

The Company has evaluated subsequent events through the issuance date of these consolidated financial statements.

The Company has concluded that no events or transactions other than those described above have occurred that require disclosure in the accompanying consolidated financial statements.

Since December 31, 2022, we sold approximately 4.6 million shares of our common stock and received $ 44.7 million after deducting commissions related to the Sales Agreement.

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

What changed 10-K

Item 9A. Controls and Procedures