Stoke Therapeutics(STOK) - 2025 Q1 - Quarterly Report

FORM 10-Q Filing Information Details the company's Form 10-Q filing for Q1 2025, including registrant information and Nasdaq listing Registrant Information Stoke Therapeutics, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2025, incorporated in Delaware and trading on Nasdaq - Stoke Therapeutics, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2025[2] Registrant Details | Detail | Value | | :--- | :--- | | Commission File Number | 001-38938 | | State of Incorporation | Delaware | | Principal Executive Offices | 45 Wiggins Ave, Bedford, Massachusetts 01730 | | Trading Symbol | STOK | | Exchange | Nasdaq Global Select Market | | Filer Status | Non-accelerated filer, Smaller reporting company | | Common Stock Outstanding (as of April 30, 2025) | 54,596,924 shares | Forward-Looking Statements Nature of Forward-Looking Statements This section clarifies that the report contains forward-looking statements regarding future events, subject to known and unknown risks and uncertainties - The report includes forward-looking statements concerning future operations, financial position, business strategy, product candidates, clinical trials, regulatory approvals, and R&D costs[9] - These statements are based on management's beliefs and assumptions but are subject to various known and unknown risks and uncertainties that could cause actual results to differ materially[10] Key Risks and Uncertainties The company highlights several key risks that could impact its future results, including profitability, funding, and clinical trial success - Ability to become profitable and procure sufficient funding[11] - Impact of inflation, interest rates, geopolitical conflicts, and macroeconomic conditions on business and operations[11] - Ability to develop, obtain regulatory approval for, and commercialize zorevunersen, STK-002, and future product candidates[11] - Success of early preclinical/clinical studies may not be indicative of later results[11] - Success of collaborations with Acadia Pharmaceuticals and Biogen[11] - Availability of coverage and adequate reimbursement for approved products[11] - Ability to identify patients and enroll them in trials[11] - Success of TANGO technology to expand pipeline[11] - Ability to obtain, maintain, and protect intellectual property[11] - Reliance on intellectual property licensed from third parties[11] - Ability to identify, recruit, and retain key personnel[11] - Financial performance and industry competition[11] PART I. FINANCIAL INFORMATION Presents the unaudited consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Stoke Therapeutics, Inc. and its subsidiary, along with integral notes Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $375,736 | $232,756 | | Total Assets | $406,888 | $271,555 | | Total Current Liabilities | $44,685 | $40,056 | | Total Liabilities | $56,814 | $42,534 | | Total Stockholders' Equity | $350,074 | $229,021 | - Total current assets increased significantly from $232.8 million at December 31, 2024, to $375.7 million at March 31, 2025, primarily driven by an increase in cash and cash equivalents[15] - Total stockholders' equity increased from $229.0 million to $350.1 million, largely due to net income during the period[15] Consolidated Statements of Operations and Comprehensive Income (Loss) Details the company's financial performance, including revenue, expenses, and net income (loss) for the three months ended March 31, 2025 and 2024 Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $158,569 | $4,216 | | Research and development expenses | $32,676 | $22,368 | | General and administrative expenses | $14,653 | $10,220 | | Total operating expenses | $47,329 | $32,588 | | Income (loss) from operations | $111,240 | $(28,372) | | Net income (loss) | $112,879 | $(26,374) | | Basic net income (loss) per share | $1.95 | $(0.57) | | Diluted net income (loss) per share | $1.90 | $(0.57) | - Revenue dramatically increased to $158.6 million in Q1 2025 from $4.2 million in Q1 2024, primarily due to the Biogen collaboration agreement[18] - The company reported a net income of $112.9 million in Q1 2025, a significant turnaround from a net loss of $26.4 million in Q1 2024[18] - Research and development expenses increased by $10.3 million, and general and administrative expenses increased by $4.4 million, reflecting increased operational activities[18] Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including net income, stock-based compensation, and stock issuances for the period - Total stockholders' equity increased from $229.0 million as of December 31, 2024, to $350.1 million as of March 31, 2025, primarily driven by net income of $112.9 million[21] - Additional paid-in capital increased by $8.1 million, including $6.8 million from stock-based compensation and $1.0 million from stock option exercises[21] Stockholders' Equity Changes (in thousands) | Item | Three Months Ended March 31, 2025 | | :--- | :--- | | Balance as of December 31, 2024 | $229,021 | | Unrealized gain on marketable securities | $47 | | Stock-based compensation | $6,753 | | Issuance of common stock upon exercise of stock options | $1,004 | | Issuance of common stock related to employee stock purchase plan | $370 | | Net income | $112,879 | | Balance as of March 31, 2025 | $350,074 | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2025 and 2024 Consolidated Cash Flow Highlights (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $131,827 | $(24,566) | | Net cash provided by investing activities | $13,632 | $9,988 | | Net cash provided by financing activities | $1,374 | $1,717 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $146,833 | $(12,861) | | Cash, cash equivalents and restricted cash—end of period | $275,613 | $179,150 | - Operating activities generated $131.8 million in cash in Q1 2025, a significant improvement from a cash usage of $24.6 million in Q1 2024, primarily due to net income and changes in deferred revenue[24][157][158] - Investing activities provided $13.6 million in Q1 2025, mainly from sales of marketable securities ($32.8 million) offsetting purchases ($19.0 million)[24][159] Notes to Unaudited Consolidated Financial Statements Provides detailed explanations and disclosures supporting the unaudited consolidated financial statements 1. Nature of the Business Describes Stoke Therapeutics as an early-stage biopharmaceutical company focused on genetic diseases using TANGO technology - Stoke Therapeutics, Inc. is an early-stage biopharmaceutical company focused on treating severe genetic diseases by upregulating protein expression using its proprietary TANGO technology[27] - In April 2024, the company completed an underwritten public offering, selling 5,555,557 shares of common stock and pre-funded warrants for net proceeds of approximately $119.9 million[29] - As of March 31, 2025, the company had issued approximately 7.0 million shares of common stock under a Sales Agreement for net proceeds of $61.0 million[31] - The company expects operating losses and negative cash flows to continue but anticipates current cash, cash equivalents, and marketable securities will fund operations for at least twelve months from the issuance date of the financial statements[32] 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements Outlines the accounting principles and recent pronouncements applied in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly-owned subsidiary[34] Cash, Cash Equivalents and Restricted Cash (in thousands) | Category | As of March 31, 2025 | As of March 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $274,817 | $178,581 | | Restricted cash - current | $75 | $0 | | Restricted cash - long-term | $721 | $569 | | Total | $275,613 | $179,150 | - The company is a 'smaller reporting company' based on market value and annual revenue, which allows for reduced disclosure obligations[39] - Revenue recognition follows ASC 606, involving a five-step model to identify contracts, performance obligations, transaction price, allocation, and recognition[41] 3. Fair Value Measurements Details the valuation methods and classifications for financial instruments measured at fair value Fair Value Measurements as of March 31, 2025 (in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents: | | | | | | Money market funds | $270,159 | $— | $— | $270,159 | | Marketable Securities: | | | | | | Corporate bonds | $— | $24,446 | $— | $24,446 | | Commercial paper | $— | $14,775 | $— | $14,775 | | US Government debt securities | $— | $66,275 | $— | $66,275 | | Total Marketable Securities | $— | $105,496 | $— | $105,496 | - Money market funds are classified as Level 1, while marketable securities (corporate bonds, commercial paper, US Government debt securities) are classified as Level 2, valued using industry-standard models and observable inputs[50][51] 4. Marketable Securities Provides information on the company's marketable securities, including fair value and maturity Marketable Securities as of March 31, 2025 (in thousands) | Category | Amortized Cost | Unrealized Gains | Unrealized Loss | Fair Value | | :--- | :--- | :--- | :--- | :--- | | Corporate bonds | $24,493 | $5 | $(52) | $24,446 | | Commercial paper | $14,776 | $2 | $(3) | $14,775 | | US Government debt securities | $66,330 | $16 | $(71) | $66,275 | | Total | $105,599 | $23 | $(126) | $105,496 | - The weighted average maturity of the company's marketable securities was 0.63 years as of March 31, 2025[54] - No allowance for credit losses was recorded, and no other-than-temporary impairment losses were recognized for marketable securities[55] 5. Accrued and Other Current Liabilities Details the composition and changes in the company's accrued and other current liabilities Accrued and Other Current Liabilities (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued employee compensation costs | $2,938 | $7,686 | | Accrued professional costs | $1,424 | $1,108 | | Accrued research and development costs | $15,548 | $6,698 | | Current portion of operating lease liabilities | $2,351 | $2,322 | | Other current liabilities | $2,074 | $753 | | Total | $24,335 | $18,567 | - Total accrued and other current liabilities increased by $5.8 million from December 31, 2024, to March 31, 2025, primarily due to increases in accrued R&D costs and other current liabilities[56] 6. Commitments and Contingencies Describes the company's operating lease obligations and intellectual property licensing agreements - The company has various operating lease agreements for office and lab space, with lease terms extending through December 31, 2026, and a new lease commencing July 1, 2025[57][60][63] Future Minimum Lease Payments (in thousands) | Year | Amount | | :--- | :--- | | 2025 | $2,167 | | 2026 | $3,250 | | 2027 | $699 | | 2028 | $532 | | Total Lease Payments | $6,648 | | Less imputed interest | $(698) | | Present Value of Lease Liabilities | $5,950 | - The company has an exclusive, worldwide license agreement with the University of Southampton for its TANGO technology, involving potential milestone payments and royalties on future product sales[68] 7. License and Collaboration Agreements Details key collaboration agreements with Acadia Pharmaceuticals and Biogen, including financial terms and program updates - Acadia Pharmaceuticals Inc. Agreement (January 2022): Focuses on RNA-based medicines for neurodevelopmental diseases (SYNGAP1, MECP2, undisclosed target). Received $60.0 million upfront, eligible for up to $907.5 million in milestones and tiered royalties. Company co-develops/co-commercializes SYNGAP1, funding 50% of costs and receiving 50% of profits[69][70] - Subsequent Event (May 2025): Acadia elected to discontinue MECP2 and the undisclosed neurodevelopmental target programs, terminating related licenses and funding, while the SYNGAP1 collaboration continues[107] - Biogen International GmbH Agreement (February 2025): Joint development and commercialization of zorevunersen and other SCN1A gene-targeting compounds. Granted Biogen exclusive license outside U.S., Canada, and Mexico. Received $165.0 million upfront, eligible for up to $50.0 million in development milestones and $335.0 million in commercial milestones, plus tiered double-digit royalties[76][77] - Company leads global development and is responsible for 70% of development costs, with Biogen covering 30%[78] Biogen Agreement Transaction Price Allocation (as of March 31, 2025, in thousands) | Performance Obligation | Transaction Price Allocated | Revenue Recognized | | :--- | :--- | :--- | | IP License | $150,779 | $150,779 | | Global Development Activity | $92,644 | $1,642 | | Total | $243,423 | $152,421 | 8. Equity Incentive Plans Provides an overview of the company's equity incentive plans, stock option grants, and stock-based compensation expense - The company operates under the 2019 Equity Incentive Plan and the 2023 Inducement Plan, with 1,875,367 and 31,800 shares available for future issuance, respectively, as of March 31, 2025[92] - During Q1 2025, 1,959,171 stock options and 1,007,842 Restricted Stock Units (RSUs) were granted[93] - Unrecognized compensation cost for unvested stock options is $38.6 million (weighted average period of 2.8 years)[94] - Unrecognized stock-based compensation for RSUs is $23.7 million and for PSUs is $1.5 million (weighted average period of 2.9 years)[94] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Research and development | $2,799 | $2,091 | | General and administrative | $3,954 | $3,319 | | Total | $6,753 | $5,410 | 9. Net Income (Loss) Per Share Presents the basic and diluted net income (loss) per share calculations for the reporting periods Net Income (Loss) Per Share (in thousands, except per share) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) | $112,879 | $(26,374) | | Weighted-average common shares, basic | 57,862,674 | 46,246,889 | | Weighted-average common shares, diluted | 59,398,600 | 46,246,889 | | Net income (loss) per share, basic | $1.95 | $(0.57) | | Net income (loss) per share, diluted | $1.90 | $(0.57) | - Diluted EPS for Q1 2025 was $1.90, reflecting the dilutive effect of stock options, RSUs, and PSUs due to net income. In Q1 2024, these securities were anti-dilutive due to a net loss[97] 10. Income Taxes Discusses the company's income tax expense, net operating loss carryforwards, and valuation allowance - For Q1 2025, the company recorded federal and state tax expense of $1.1 million and $0.1 million, respectively, due to income from the Biogen collaboration, partially offset by net operating loss carryforwards (NOLs)[100] - A valuation allowance has been provided for the full amount of net deferred tax assets as of March 31, 2025, and December 31, 2024, indicating uncertainty about realizing future tax benefits[100] 11. Segment Information Confirms the company operates as a single reportable segment and outlines how performance is assessed - The company operates as a single reportable segment, 'Stoke,' focused on discovering and developing RNA-based medicines using the TANGO approach[101][102] - The Chief Operating Decision Maker (CODM) assesses performance based on consolidated net income or loss and total consolidated assets[103] Segment Net Income (Loss) Reconciliation (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $158,569 | $4,216 | | Total operating expenses (Subtotal) | $(47,329) | $(32,588) | | Total other segment items | $1,639 | $1,998 | | Segment net income (loss) | $112,879 | $(26,374) | 12. Subsequent Events Reports on significant events occurring after the balance sheet date, specifically Acadia's program discontinuation - In May 2025, Acadia Pharmaceuticals Inc. notified the company of its decision to discontinue two of the three research programs (MECP2 for Rett syndrome and an undisclosed neurodevelopmental target) under the Acadia Agreement[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and future outlook Overview - Stoke Therapeutics is a late-stage clinical company developing RNA-based medicines using its TANGO approach to upregulate protein expression for severe genetic diseases[110] - Zorevunersen (STK-001): Lead investigational medicine in late-stage clinical testing for Dravet syndrome. Phase 3 EMPEROR study expected to begin in Q2 2025, following positive Phase 1/2a and OLE studies showing substantial and durable reductions in convulsive seizures and continuous improvements in cognition and behavior[111][112] - STK-002: Lead clinical candidate for autosomal dominant optic atrophy (ADOA). Received UK authorization for a Phase 1 study (OSPREY), but additional preclinical activities are ongoing to optimize clinical plans[113] - As of March 31, 2025, the company had $380.3 million in cash, cash equivalents, and marketable securities, up from $246.7 million at December 31, 2024[119] - The company reported a net income of $112.9 million for Q1 2025, a significant shift from a net loss of $26.4 million in Q1 2024, with an accumulated deficit of $378.0 million as of March 31, 2025[120] Biogen International GmbH License and Collaboration Agreement - On February 14, 2025, the company entered into a License and Collaboration Agreement with Biogen International GmbH for the joint development and commercialization of zorevunersen and other SCN1A gene-targeting compounds[123] - Biogen received an exclusive, royalty-bearing license for territories outside the U.S., Canada, and Mexico[123] - The company received an upfront payment of $165.0 million and is eligible for up to $50.0 million in development milestones and $335.0 million in commercial milestones, plus tiered double-digit royalties[124] - The company leads global development and is responsible for 70% of development costs, with Biogen covering 30%[125] - For Q1 2025, $152.4 million in revenue was recognized related to the Biogen collaboration[126] Program Update - Dravet Syndrome Program – zorevunersen: - Granted FDA Breakthrough Therapy Designation in December 2024 for Dravet syndrome with SCN1A gene mutation[128] - Aligned with FDA, EMA, and PMDA on Phase 3 EMPEROR study design, expected to initiate in Q2 2025[129] - The EMPEROR study will be a global, randomized, double-blind, sham-controlled trial with 150 children and adolescents (ages 2-18) over 60 weeks[129] - Primary endpoint: percent change from baseline in major motor seizure frequency at 28 weeks. Key secondary endpoints include durability of effect, cognition, and behavior improvements[129] - Pivotal data from the EMPEROR study are anticipated in the second half of 2027[130] Financial Operations Overview - The company has not generated product revenue since inception, relying on collaboration agreements for revenue[131] - Acadia Collaboration: Recognized $6.1 million in revenue for Q1 2025. Acadia discontinued MECP2 and undisclosed neurodevelopmental target programs in May 2025, but SYNGAP1 collaboration continues[132][133] - Biogen Collaboration: Recognized $152.4 million in revenue for Q1 2025[135] - Research and development expenses are expensed as incurred and primarily consist of external costs for preclinical activities, personnel, scientific consulting, and facilities[136][139] - General and administrative expenses include personnel costs, intellectual property maintenance, professional services, and facilities[142] Results of Operations for the Three Months Ended March 31, 2025 and 2024 Key Financial Results (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $158,569 | $4,216 | +$154,353 | | Research and development expenses | $32,676 | $22,368 | +$10,308 | | General and administrative expenses | $14,653 | $10,220 | +$4,433 | | Income (loss) from operations | $111,240 | $(28,372) | +$139,612 | | Net income (loss) | $112,879 | $(26,374) | +$139,253 | - The $154.4 million increase in revenue was primarily driven by $150.8 million related to the IP license performance obligation from the Biogen agreement[146] - R&D expenses increased by $10.3 million, mainly due to a $3.1 million increase in personnel-related expenses and an $8.4 million increase in zorevunersen program expenses[147][148] - G&A expenses increased by $4.5 million, primarily from a $1.9 million increase in personnel expenses and $2.3 million in professional fees[149] Liquidity and Capital Resources - Since inception, operations have been financed by $836.6 million from various equity and debt sales, and upfront payments from Acadia and Biogen[151] - As of March 31, 2025, the company had $380.3 million in cash, cash equivalents, and marketable securities, and an accumulated deficit of $378.0 million[151][152] - Current cash, cash equivalents, and marketable securities are expected to fund operations to mid-2028[122][153] - Future funding requirements depend on R&D costs, regulatory approvals, manufacturing, milestone payments, and commercialization expenses[153] - The company will seek additional financing through equity offerings, debt financings, or collaborations, acknowledging potential dilution or restrictive covenants[154] Cash Flows Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Operating activities | $131,827 | $(24,566) | | Investing activities | $13,632 | $9,988 | | Financing activities | $1,374 | $1,717 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $146,833 | $(12,861) | Contractual Obligations as of March 31, 2025 (in thousands) | Obligation | Total | Less Than 1 Year | 1 to 3 Years | 4 to 5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $5,950 | $2,167 | $3,783 | $— | $— | Critical Accounting Policies and Significant Judgments and Estimates - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, which are periodically reviewed[174] - No significant changes in critical accounting policies and estimates were noted compared to the 2024 Annual Report on Form 10-K, other than revenue recognition[175] Recently Issued Accounting Pronouncements - ASU 2023-09 (Income Taxes): Effective for fiscal years beginning after December 15, 2024. Requires disaggregated disclosure of effective tax rate reconciliation and additional information for reconciling items. Expected to have no material impact on consolidated financial statements[177] - ASU 2024-03 (Income Statement—Expense Disaggregation): Effective for fiscal years beginning after December 15, 2026. Requires disaggregated disclosure of income statement expenses in footnotes. Expected to have no material impact on consolidated financial statements[178] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate sensitivity and inflation risk - The company's primary market risk exposure is interest rate sensitivity, given its cash, cash equivalents, and marketable securities of $380.3 million as of March 31, 2025[179] - Due to the short-term maturities of its cash and cash equivalents, a 10% increase in interest rates is not expected to have a significant impact on the realized value of investments[179] - Inflation generally affects clinical trial costs, but the company does not believe it has had a material effect on its business or financial condition for the periods presented[180] Item 4. Controls and Procedures This section details the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - Management, including the CFO and Interim CEO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2025[181] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the period[182] - Internal controls, no matter how well designed, can only provide reasonable assurance of achieving objectives, and management applies judgment in evaluating cost-benefit relationships[183] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that the company is not currently a party to any legal proceedings that would have a material adverse effect on its business - The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business[185] - Litigation, regardless of outcome, can adversely impact the company due to defense costs, diversion of management resources, and reputational harm[185] Item 1A. Risk Factors This extensive section outlines various risks that could materially harm the company's business, financial condition, and results of operations Summary of Risk Factors - Early development stage; failure to develop, obtain regulatory approval for, and commercialize product candidates (zorevunersen, STK-002) would materially harm the business[186] - Success in early preclinical/clinical trials may not predict later results[186] - Uncertainty of regulatory approval and potential for narrower indications[186] - Difficulty identifying patients for low-prevalence diseases, leading to trial delays or slower commercial growth[186] - Clinical trial failures (safety/efficacy) could incur additional costs or delays[186] - Uncertainty in expanding pipeline using TANGO technology[186] - Extensive post-marketing regulatory requirements and potential penalties for non-compliance[186] - Failure to obtain international regulatory approval[186] - Undesirable side effects of product candidates[186] - Designations (Rare Pediatric Disease, Fast Track, Breakthrough Therapy) do not guarantee faster development, approval, or priority review vouchers[186] - Legislation may increase difficulty/cost of approval and affect pricing[186] - Market acceptance and adequate reimbursement are crucial for commercial success[186] - History of operating losses and need for additional funding[186] - Limited operating history makes future viability assessment difficult[186] - Challenges in obtaining, maintaining, and protecting intellectual property[186] - Volatility of stock price[186] Risks Related to Product Development and Regulatory Approval - The company's ability to generate product revenue depends heavily on the successful development and commercialization of TANGO and its product candidates, which requires extensive preclinical and clinical development, regulatory approval, manufacturing supply, and marketing efforts[189] - Early-stage clinical trial success (e.g., zorevunersen Phase 1/2a) may not be indicative of later-stage results, and product candidates may fail to show desired safety and efficacy in larger trials[193][197] - Clinical trials are expensive, difficult, and uncertain, with potential for delays or termination due to clinical holds, adverse effects, or insufficient data[200][205] - Regulatory approval is a lengthy and uncertain process, with potential for delays, refusals, or approvals for narrower indications, influenced by factors like trial design, data interpretation, and changing regulatory policies[224][225] - Low prevalence of target diseases (Dravet syndrome, ADOA) may hinder patient enrollment, increase development costs, and limit commercial potential[227] - Breakthrough Therapy, Fast Track, and Orphan Drug Designations do not guarantee faster development, approval, or market exclusivity, and benefits may be lost or modified[241] - Changes in FDA policies, government shutdowns, or legislative initiatives (e.g., Inflation Reduction Act) could slow product review, increase costs, and impact drug pricing and reimbursement[202][231][233][248][249][250] - Compliance with anti-kickback, fraud and abuse, and other healthcare laws is critical; violations could lead to significant penalties, reputational harm, and diminished profits[251][252][253] Risks Related to Commercialization and Manufacturing - Commercial success depends on market acceptance by providers, patients, and payors, which is uncertain and influenced by efficacy, safety, cost, and administration methods (e.g., intrathecal injection)[254][256] - Failure to obtain or maintain adequate insurance coverage and reimbursement for approved products, especially for small patient populations, could limit marketability and revenue generation[258][259][260][261][262][263] - Reliance on third-party CROs, CMOs, and consultants for development and manufacturing poses risks of delays, quality issues, and increased costs due to lack of direct control or macroeconomic conditions[265][267] - Significant competition from other biotechnology and pharmaceutical companies, including those developing RNA-based treatments, gene therapies, and existing epilepsy treatments, could reduce market opportunity[272][274][275] - Manufacturing drugs is complex and susceptible to issues like contamination, equipment failure, and scaling difficulties, which could delay clinical trials, regulatory submissions, or commercial supply[279][280] - Inability to establish internal sales and marketing capabilities or effective collaborations could prevent revenue generation and profitability[282] - Strategic collaborations (e.g., with Acadia and Biogen) carry risks such as collaborators not dedicating sufficient resources, delays, disputes, or termination, which could materially affect the business[284][286][287][289][291] Risks Related to our Financial Position - The company has a history of operating losses and an accumulated deficit of $378.0 million as of March 31, 2025, expecting significant expenses and losses for the foreseeable future[292][293] - Additional funding will be required to complete development and commercialization, and failure to obtain it on favorable terms could force delays, reductions, or termination of programs[294][295] - Limited operating history makes it difficult to evaluate future success or viability[299] - Ability to utilize net operating loss carryforwards (NOLs) may be limited by ownership changes under IRC Sections 382 and 383, potentially increasing future tax liability[301][302] - U.S. federal income tax reform (e.g., TCJA) and other tax law changes could adversely affect the company, though the impact on the effective tax rate is not expected to be material due to a valuation allowance[305] Risks Related to our Intellectual Property - Commercial success depends on obtaining, maintaining, and protecting patent, trademark, trade secret, and other intellectual property rights for its technologies and product candidates (TANGO, zorevunersen, STK-002)[306] - The patenting process is expensive, time-consuming, and uncertain; patents may not provide meaningful protection, be challenged, narrowed, or invalidated[306][307][308] - Dependence on in-licensed intellectual property (e.g., from University of Southampton) means failure to comply with obligations or disputes could lead to loss of significant rights[315][320][321][322] - Out-licensed intellectual property (e.g., to Biogen) means reliance on licensees to protect rights, and disputes could impact revenue or rights[326][327] - Owned and in-licensed patents may not sufficiently protect product candidates or provide competitive advantage, with risks of expiration, challenges, or design-arounds[331][332][333][334] - Limited foreign intellectual property rights and varying protection laws globally could hinder enforcement and allow competitors to operate[337][338][339] - Use of open-source software may impose limitations on commercialization or require disclosure of proprietary code[345][346][347] - Risk of third-party claims of intellectual property infringement, misappropriation of trade secrets, or wrongful use of confidential information by employees/consultants, leading to costly litigation, damages, or injunctions[351][353][355][356][357] - Difficulty in obtaining necessary rights to product components and processes through acquisitions or in-licenses due to competition or unfavorable terms[360][362] - Compliance with procedural requirements for patent agencies is crucial; non-compliance can lead to abandonment or lapse of patent rights[363] - Changes in patent law (e.g., America Invents Act, U.S. Supreme Court rulings, Unitary Patent Court in Europe) could diminish patent value and increase prosecution/enforcement costs[364][365][366][367] - Patent terms may be inadequate to protect competitive position due to limited lifespan and time required for development and regulatory review, potentially leading to generic competition[369][370] Risks Related to Employee Matters, Managing Growth and Other Risks Related to our Business - Expected significant growth in employees and operations may lead to difficulties in management, requiring improved systems, expanded facilities, and recruitment/training of qualified personnel[374][375] - Failure to attract and retain highly skilled employees, especially senior management and scientists, could adversely affect business plan execution and product development[376] - Leadership transition may be viewed negatively by stakeholders and could delay business objectives[379] - Future acquisitions or strategic alliances could disrupt business, harm financial condition, and results of operations due to integration challenges, retention issues, and unanticipated liabilities[380][381][382] - Non-compliance with environmental, health, and safety laws could result in fines, penalties, or significant costs[384] - Unfavorable global economic conditions (e.g., fluctuating interest rates, inflation, tariffs, banking instability, geopolitical conflicts) could adversely affect business, financial condition, and stock price[387][388][389][390][391] - Natural disasters or other serious events could severely disrupt operations, and existing business continuity plans may be inadequate[394][395] - Internal computer and information systems, or those of third parties, may fail or suffer security breaches, leading to data loss, operational disruptions, liability, and harm to competitive position[397][398] - Risk of fraud or misconduct by employees, principal investigators, consultants, and commercial partners, including non-compliance with regulatory standards and healthcare fraud laws, potentially leading to sanctions and reputational harm[401] - Significant product liability risk from clinical trials and potential commercialization, with claims potentially resulting in substantial liabilities, regardless of merit[401] Risks Related to Ownership of our Common Stock - The market price of the common stock may be highly volatile due to various factors, including clinical trial results, regulatory developments, competition, financial performance, and general market conditions, potentially leading to loss of investment[403][405][406] - Lack of research coverage or adverse opinions from securities analysts could cause stock price and trading volume to decline[407] - As a 'smaller reporting company,' reduced reporting requirements may make the common stock less attractive to investors, potentially leading to a less active trading market and more volatile share price[408] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult and prevent stockholders from replacing management[410][411] - Exclusive forum provisions may limit stockholders' ability to bring claims in preferred judicial forums, potentially discouraging lawsuits[412][413] - Operating as a public company incurs significant costs, and management must devote substantial time to compliance initiatives and corporate governance[414][417] - Failure to maintain proper and effective internal control over financial reporting could impair accurate and timely financial statements, harming operating results and stock value[418][419] - No cash dividends are anticipated in the foreseeable future, making capital appreciation the sole source of gain for stockholders[420][421] - The company may be subject to expensive securities litigation, diverting management attention and potentially harming the business[422][423] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This section indicates that there were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the reporting period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the period[424] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - No defaults upon senior securities were reported[425] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[426] Item 5. Other Information This section confirms that no directors or officers informed the company of the adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading agreements during the quarter - No directors or officers informed the company of the adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading agreements during Q1 2025[427] Item 6. Exhibits This section lists the exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including compensation policies and collaboration agreements - Exhibit 10.1: 2025 Non-Employee Director Compensation Policy[430] - Exhibit 10.2: License and Collaboration Agreement with Biogen International GmbH, dated February 14, 2025[430] - Exhibits 31.1 and 31.2: Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act[430] - Exhibits 32.1 and 32.2: Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act[430] - Exhibits 101.INS, 101.SCH, 104: Inline XBRL documents[430] Signatures This section contains the signatures of the Interim Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Ian F. Smith, Interim Chief Executive Officer, and Thomas E. Leggett, Chief Financial Officer, on May 13, 2025[436]