Stoke Therapeutics(STOK) - 2025 Q2 - Quarterly Report

Filing Information Form 10-Q Details Stoke Therapeutics, Inc. files this Q2 2025 Form 10-Q, classified as a non-accelerated and smaller reporting company - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - Stoke Therapeutics, Inc. is incorporated in Delaware, with its common stock (STOK) registered on the Nasdaq Global Select Market[2][3] - The company is classified as a non-accelerated filer and a smaller reporting company[3][4] Filer Status Classification | Filer Status | Mark | | :-------------------- | :--- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☐ | - As of July 31, 2025, there were 54,797,418 shares of common stock outstanding[4] Forward-Looking Statements Nature and Risks of Forward-Looking Statements This section outlines forward-looking statements, subject to inherent risks and uncertainties regarding future operations, financial position, and product development - The report contains forward-looking statements concerning future operations, financial position, business strategy, prospective products, clinical trials, regulatory approvals, and research and development costs[9] - These statements are based on management's beliefs and assumptions but are subject to various known and unknown risks and uncertainties[10] - Risks include the ability to become profitable and procure sufficient funding[11] - Impact of inflation, interest rates, foreign currency exchange rates, geopolitical conflict, and macroeconomic conditions on business and operations[11] - Ability to develop, obtain regulatory approval for, and commercialize product candidates like zorevunersen (STK-001) and STK-002[11] - Success in early preclinical/clinical studies may not be indicative of later results[11] - Success of collaborations with Biogen and Acadia Pharmaceuticals[11] - Availability of coverage and adequate reimbursement for approved products[11] - Ability to identify and enroll patients in trials[11] - Success of TANGO technology to expand the 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 competitive developments[11] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with notes Consolidated Balance Sheets The consolidated balance sheets show total assets increased by $112.953 million, driven by marketable securities, and accumulated deficit decreased by $89.396 million Consolidated Balance Sheets (in thousands of US dollars) | Item | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $101,472 | $127,983 | | Marketable securities - current | $146,236 | $88,916 | | Total current assets | $269,970 | $232,756 | | Marketable securities - long-term | $107,256 | $29,824 | | Total assets | $384,508 | $271,555 | | Liabilities | | | | Accounts payable | $4,313 | $2,498 | | Accrued and other current liabilities | $25,616 | $18,567 | | Deferred revenue - current portion | $8,749 | $18,991 | | Total current liabilities | $38,678 | $40,056 | | Deferred revenue - net of current portion | $9,632 | — | | Total liabilities | $49,565 | $42,534 | | Stockholders' Equity | | | | Additional paid-in capital | $736,276 | $719,997 | | Accumulated deficit | $(401,434) | $(490,830) | | Total stockholders' equity | $334,943 | $229,021 | | Total liabilities and stockholders' equity | $384,508 | $271,555 | - Total assets increased by $112.953 million from December 31, 2024, to June 30, 2025, primarily driven by an increase in marketable securities[15] - Accumulated deficit decreased by $89.396 million, reflecting a net income during the period[15] Consolidated Statements of Operations and Comprehensive Income (Loss) Revenue for the six months ended June 30, 2025, surged by $163.338 million, resulting in a net income of $89.397 million, a significant turnaround from a prior-year net loss Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands of US dollars, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $13,817 | $4,831 | $172,386 | $9,048 | | Research and development | $25,855 | $21,136 | $58,531 | $43,504 | | General and administrative | $15,262 | $13,037 | $29,915 | $23,258 | | Total operating expenses | $41,117 | $34,173 | $88,446 | $66,762 | | Income (loss) from operations | $(27,300) | $(29,342) | $83,940 | $(57,714) | | Net income (loss) | $(23,483) | $(25,695) | $89,397 | $(52,069) | | Basic EPS | $(0.40) | $(0.46) | $1.54 | $(1.02) | | Diluted EPS | $(0.40) | $(0.46) | $1.50 | $(1.02) | - Revenue for the three months ended June 30, 2025, increased by $8.986 million (186%) compared to the same period in 2024[18] - Revenue for the six months ended June 30, 2025, increased significantly by $163.338 million (1805%) compared to the same period in 2024, primarily due to the Biogen collaboration[18] - Net loss for the three months ended June 30, 2025, improved by $2.212 million (8.6%) compared to the same period in 2024[18] - Net income for the six months ended June 30, 2025, was $89.397 million, a substantial improvement from a net loss of $52.069 million in the same period in 2024[18] Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $334.943 million by June 30, 2025, primarily due to net income and stock-based compensation, reducing the accumulated deficit Changes in Stockholders' Equity (in thousands of US dollars) | Item | Six Months Ended June 30, 2025 (Change) | Six Months Ended June 30, 2024 (Change) | | :-------------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Total stockholders' equity (Dec 31, 2024/2023) | $229,021 | $159,565 | | Unrealized gain (loss) on marketable securities | $247 | $(15) | | Stock-based compensation | $14,351 | $12,837 | | Issuance of common stock (options/ESPP) | $1,558 | $1,016 | | Issuance of common stock (follow-on offering) | — | $119,884 | | Net income (loss) | $89,397 | $(52,069) | | Total stockholders' equity (June 30, 2025/2024) | $334,943 | $242,709 | - Total stockholders' equity increased from $229.021 million at December 31, 2024, to $334.943 million at June 30, 2025, primarily due to net income and stock-based compensation[21] - Additional paid-in capital increased by $16.279 million during the six months ended June 30, 2025, mainly from stock-based compensation and stock option exercises[21] - Accumulated deficit decreased by $89.396 million due to net income for the six months ended June 30, 2025[21] Consolidated Statements of Cash Flows Operating activities generated $106.405 million in cash for the six months ended June 30, 2025, a significant improvement driven by net income Consolidated Statements of Cash Flows (in thousands of US dollars) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $106,405 | $(42,043) | | Net cash used in investing activities | $(134,845) | $(78,290) | | Net cash provided by financing activities | $1,928 | $122,367 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(26,512) | $2,034 | | Cash, cash equivalents and restricted cash—end of period | $102,268 | $194,045 | - Operating activities provided $106.405 million in cash for the six months ended June 30, 2025, primarily due to net income of $89.4 million and non-cash charges[24] - Investing activities used $134.845 million, mainly from $200.6 million in marketable securities purchases, partially offset by $66.0 million from sales[24] - Financing activities provided $1.928 million, significantly lower than $122.367 million in the prior year, which included proceeds from a follow-on offering[24] Notes to Unaudited Consolidated Financial Statements Note 1. Nature of the Business Stoke Therapeutics, Inc. is a late-stage clinical company developing RNA-based medicines, facing typical biotechnology risks and expecting continued losses, but has sufficient cash for at least 12 months - Stoke Therapeutics, Inc. is a late-stage clinical-stage company developing RNA-based medicines to upregulate protein expression for severe diseases[27] - Filed a universal Shelf Registration statement on Form S-3 in May 2022, declared effective May 31, 2022, for up to $400.0 million in securities, including $150.0 million of common stock under a Sales Agreement; as of June 30, 2025, approximately 7.0 million shares were issued for net proceeds of $61.0 million[28] - Completed an underwritten public offering in April 2024, selling 5,555,557 shares of common stock and pre-funded warrants for approximately $119.9 million net proceeds[29] - Filed an automatic universal Shelf Registration statement on Form S-3 in October 2024, which became ineffective after the 2024 10-K filing; no shares were issued under this statement as of June 30, 2025[30] - Filed a new universal Shelf Registration statement on Form S-3 in July 2025, declared effective July 11, 2025[31] - The company is subject to risks common to early-stage biotechnology companies, including development challenges, dependence on key personnel, intellectual property protection, regulatory compliance, and the need for additional capital[32] - Operating losses and negative cash flows are expected to continue, but current cash, cash equivalents, and marketable securities are projected to fund operations for at least 12 months from the issuance date of the financial statements[33][34] Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements Financial statements are unaudited, prepared under U.S. GAAP, and involve estimates; the company, as a 'smaller reporting company,' follows ASC 606 for revenue recognition - Unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information, including normal recurring adjustments[35][36] - Management uses estimates and assumptions that affect reported financial amounts, which are periodically reviewed[37] - Cash equivalents include highly liquid investments with original maturities of three months or less; restricted cash collateralizes letters of credit for corporate facility leases[38] Cash, Cash Equivalents and Restricted Cash (in thousands of US dollars) | Item | June 30, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $101,472 | $193,476 | | Restricted cash - current | $75 | $75 | | Restricted cash - long-term | $721 | $494 | | Total cash, cash equivalents and restricted cash | $102,268 | $194,045 | - The company qualifies as a 'smaller reporting company' due to market value of stock held by non-affiliates being less than $700.0 million and annual revenue less than $100.0 million, allowing for reduced disclosure obligations[40] - Revenue recognition follows ASC 606, involving a five-step model to identify contracts, performance obligations, transaction price, allocation, and recognition upon satisfaction of obligations[41] - Variable consideration, including pre-commercial milestone payments, is included in the transaction price if a significant revenue reversal is improbable; sales-based royalties are recognized when related sales occur or performance obligations are satisfied[43][44][45] Note 3. Fair Value Measurements Financial assets are measured at fair value, with cash equivalents as Level 1 and marketable securities as Level 2, and no transfers to Level 3 occurred Fair Value Measurements as of June 30, 2025 (in thousands of US dollars) | Item | Level 1 | Level 2 | Level 3 | Total | | :-------------------- | :------- | :--------- | :------ | :--------- | | Cash equivalents: | | | | | | Money market funds | $94,056 | — | — | $94,056 | | Marketable Securities:| | | | | | Corporate bonds | — | $71,076 | — | $71,076 | | Commercial paper | — | $17,092 | — | $17,092 | | US Government debt securities | — | $165,324 | — | $165,324 | | Total | $94,056 | $253,492 | — | $347,548 | Fair Value Measurements as of December 31, 2024 (in thousands of US dollars) | Item | Level 1 | Level 2 | Level 3 | Total | | :-------------------- | :-------- | :--------- | :------ | :--------- | | Cash equivalents: | | | | | | Money market funds | $122,446 | — | — | $122,446 | | Marketable Securities:| | | | | | Corporate bonds | — | $18,668 | — | $18,668 | | Commercial paper | — | $6,944 | — | $6,944 | | US Government debt securities | — | $93,128 | — | $93,128 | | Total | $122,446 | $118,740 | — | $241,186 | - 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 with observable inputs[51][52] - No transfers to Level 3 occurred during the periods presented[53] Note 4. Marketable Securities As of June 30, 2025, the company's marketable securities totaled $253.492 million, primarily consisting of US Government debt securities, corporate bonds, and commercial paper, with a weighted average maturity of 1.01 years Marketable Securities as of June 30, 2025 (in thousands of US dollars) | Item | Amortized Cost | Unrealized Gains | Unrealized Loss | Fair Value | | :---------------------------- | :------------- | :--------------- | :-------------- | :--------- | | Corporate bonds | $71,019 | $96 | $(39) | $71,076 | | Commercial paper | $17,102 | — | $(10) | $17,092 | | US Government debt securities | $165,275 | $144 | $(95) | $165,324 | | Total | $253,396 | $240 | $(144) | $253,492 | Marketable Securities as of December 31, 2024 (in thousands of US dollars) | Item | Amortized Cost | Unrealized Gains | Unrealized Loss | Fair Value | | :---------------------------- | :------------- | :--------------- | :-------------- | :--------- | | Corporate bonds | $18,786 | — | $(118) | $18,668 | | Commercial paper | $6,947 | — | $(3) | $6,944 | | US Government debt securities | $93,158 | $94 | $(124) | $93,128 | | Total | $118,891 | $94 | $(245) | $118,740 | - The weighted average maturity of marketable securities as of June 30, 2025, was 1.01 years[55] - No allowance for credit losses or other-than-temporary impairment losses were recorded for marketable securities[56] Note 5. Accrued and Other Current Liabilities Accrued and other current liabilities increased to $25.616 million as of June 30, 2025, from $18.567 million at December 31, 2024, primarily due to a significant increase in accrued research and development costs Accrued and Other Current Liabilities (in thousands of US dollars) | Item | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Accrued employee compensation costs | $5,115 | $7,686 | | Accrued professional costs | $1,049 | $1,108 | | Accrued research and development costs | $15,406 | $6,698 | | Current portion of operating lease liabilities | $2,296 | $2,322 | | Other current liabilities | $1,750 | $753 | | Total | $25,616 | $18,567 | - Accrued research and development costs increased by $8.708 million (130%) from December 31, 2024, to June 30, 2025[57] - Accrued employee compensation costs decreased by $2.571 million (33.4%) during the same period[57] Note 6. Commitments and Contingencies The company has operating lease agreements totaling $5.827 million and commitments under a license agreement with the University of Southampton, including a $8.2 million sublicense fee liability - The company accounts for operating leases by recognizing right-of-use assets and liabilities based on the present value of future minimum lease payments[58] - Extended a 38,000 square foot lease until December 31, 2026, recognizing a $4.1 million right-of-use asset and operating lease liability in December 2023[61] - A 4,842 square foot lease expired on June 30, 2025[63] - Entered a new lease for 7,581 square feet in January 2025, commencing July 8, 2025, for an initial term of three years and three months, with two three-year renewal options; a right-of-use asset was not recognized as of June 30, 2025, as access had not been granted[64] Future Minimum Lease Payments (in thousands of US dollars) | Year | Amount | | :------------------ | :----- | | 2025 | $1,402 | | 2026 | $3,251 | | 2027 | $701 | | 2028 | $473 | | Total lease payments| $5,827 | | Less imputed interest | $(543) | | Present value of lease liabilities | $5,284 | Lease Balances as of June 30, 2025 (in thousands of US dollars) | Item | Amount | | :--------------------------------- | :----- | | Operating right-of-use assets | $3,218 | | Current Portion of operating lease liabilities | $2,296 | | Non-current portion of operating lease liabilities | $1,255 | | Total operating lease liabilities | $3,551 | - Weighted average remaining lease term is 2.1 years, and the weighted average discount rate is 10.25%[67] - Lease expense was $0.7 million for both the three months ended June 30, 2025 and 2024, and $1.4 million for both the six months ended June 30, 2025 and 2024[68] - Under the Southampton Agreement, the company acquired exclusive worldwide rights to foundational TANGO technology and may owe milestone payments and royalties on future product sales; a liability of $8.2 million was recorded for a sublicense fee due to the Biogen agreement[69] Note 7. License and Collaboration Agreements The company has significant collaboration agreements with Acadia Pharmaceuticals and Biogen, generating $155.6 million and $16.8 million in revenue respectively for the six months ended June 30, 2025 - The Acadia Agreement (January 2022) focuses on RNA-based medicines for SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target, with an upfront payment of $60.0 million and potential milestones up to $907.5 million[70][71] - Acadia elected to discontinue the MECP2 and undisclosed neurodevelopmental target programs in May 2025, leading to $5.7 million in revenue recognized for the three months ended June 30, 2025, related to the upfront fee for these programs[76] - The Biogen Agreement (February 2025) is for joint development and commercialization of zorevunersen and other SCN1A gene compounds, with an upfront payment of $165.0 million and potential development and commercial milestones totaling up to $385.0 million[78][80] - The company leads global development for zorevunersen, sharing 70% of development costs, with Biogen covering 30%[79] - The Biogen agreement's initial transaction price under ASC 606 was $243.4 million, comprising the upfront payment and estimated variable consideration for Global Development Activities[84] Biogen Agreement Revenue Recognition (in thousands of US dollars) | Performance Obligation | Transaction Price Allocated | Revenue Recognized (Three Months Ended June 30, 2025) | Revenue Recognized (Six Months Ended June 30, 2025) | | :-------------------------- | :-------------------------- | :---------------------------------------------------- | :-------------------------------------------------- | | IP License | $150,779 | — | $150,779 | | Global Development Activity | $92,644 | $3,197 | $4,839 | | Total | $243,423 | $3,197 | $155,618 | - As of June 30, 2025, $13.5 million in upfront consideration from the Biogen Agreement relates to unsatisfied or partially unsatisfied performance obligations[90] Note 8. Equity Incentive Plans The company operates under the 2019 Equity Incentive Plan and 2023 Inducement Plan, with 1,855,121 and 2,000,400 shares available respectively, incurring $14.351 million in stock-based compensation for the six months ended June 30, 2025 - The 2019 Equity Incentive Plan automatically increases shares reserved by 4% of outstanding common stock annually[91] - The 2023 Inducement Plan was amended in June 2025 to add 2,000,000 shares for newly hired employees, totaling 3,000,000 shares[92] - As of June 30, 2025, 1,855,121 shares were available under the 2019 Plan and 2,000,400 shares under the 2023 Plan[94] - During the three months ended June 30, 2025, 407,482 stock options were granted, vesting over up to four years[95] Stock-Based Compensation Expense (in thousands of US dollars) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $2,688 | $2,924 | $5,488 | $5,015 | | General and administrative | $4,910 | $4,503 | $8,863 | $7,822 | | Total | $7,598 | $7,427 | $14,351 | $12,837 | - Unrecognized compensation cost for unvested stock options was $36.1 million (weighted average period of 2.7 years), and for RSUs/PSUs was $18.6 million and $0.9 million respectively (weighted average period of 2.7 years) as of June 30, 2025[96] - The 2019 Employee Stock Purchase Plan (ESPP) had 2,065,913 shares available for issuance as of June 30, 2025; ESPP stock-based compensation expense was $0.1 million for the three months and $0.3 million for the six months ended June 30, 2025[98] Note 9. Net Income (Loss) Per Share For the six months ended June 30, 2025, the company reported basic EPS of $1.54 and diluted EPS of $1.50, reflecting net income, while other periods showed net losses with anti-dilutive securities Net Income (Loss) Per Share (in thousands of US dollars, except share and per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(23,483) | $(25,695) | $89,397 | $(52,069) | | Weighted-average common shares, basic | 58,353,855 | 55,765,948 | 58,109,622 | 51,288,222 | | Weighted-average common shares, diluted | 58,353,855 | 55,765,948 | 59,681,472 | 51,288,222 | | Net income (loss) per share, basic | $(0.40) | $(0.46) | $1.54 | $(1.02) | | Net income (loss) per share, diluted | $(0.40) | $(0.46) | $1.50 | $(1.02) | - For periods with net losses (three months ended June 30, 2025 and 2024, and six months ended June 30, 2024), potential dilutive securities were excluded from diluted EPS calculation as their effect would be anti-dilutive[100] Anti-Dilutive Securities Excluded from Diluted EPS (Outstanding at June 30, in thousands of shares) | Item | 2025 (Three Months) | 2024 (Three Months) | 2025 (Six Months) | 2024 (Six Months) | | :--------------------------------- | :------------------ | :------------------ | :---------------- | :---------------- | | Outstanding options to purchase common stock | 9,523,757 | 8,064,604 | 7,408,212 | 8,064,604 |\ | Restricted stock units | 1,797,643 | 2,018,957 | 544,976 | 2,018,957 | | Performance stock units | 219,000 | 372,000 | — | 372,000 | | Total | 11,540,400 | 10,455,561 | 7,953,188 | 10,455,561 | Note 10. Income Taxes For the six months ended June 30, 2025, the company recorded $1.278 million in federal and state tax expense due to Biogen collaboration income, offset by NOLs, with a full valuation allowance maintained - For the six months ended June 30, 2025, the company recorded $1.1 million in federal and $0.1 million in state tax expense, totaling $1.278 million, due to income from the Biogen collaboration[103] - Tax expense was offset by the utilization of net operating loss carryforwards (NOLs)[103] - A full valuation allowance has been provided for net deferred tax assets as of June 30, 2025, and December 31, 2024, indicating that future tax benefits are not considered more likely than not to be realized[103] Note 11. Segment Information The company operates as a single reportable segment, 'Stoke,' focused on RNA-based medicines, with performance assessed by consolidated net income/loss and total assets, having generated no product revenue since inception - The company operates as a single reportable segment, 'Stoke,' focused on discovering and developing RNA-based medicines using the TANGO approach[104][105] - The CODM (Interim Chief Executive Officer) allocates resources and assesses performance based on consolidated net income/loss and total consolidated assets[105][106] - The segment has not generated any product revenue since inception[104] Segment Net Income (Loss) (in thousands of US dollars) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $13,817 | $4,831 | $172,386 | $9,048 | | Total operating expenses | $(41,117) | $(34,173) | $(88,446) | $(66,762) | | Total other segment items | $3,817 | $3,647 | $5,457 | $5,645 | | Segment net income (loss) | $(23,483) | $(25,695) | $89,397 | $(52,069) | Note 12. Subsequent Events In July 2025, the company filed a universal Shelf Registration statement on Form S-3, which was declared effective by the SEC on July 11, 2025 - In July 2025, the company filed a universal Shelf Registration statement on Form S-3 (the '2025 Registration Statement'), which was declared effective by the SEC on July 11, 2025[31][109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operational results, focusing on RNA-based medicines, collaborations, tax impacts, liquidity, and future funding needs Overview Stoke Therapeutics, a late-stage clinical company, focuses on RNA-based medicines like zorevunersen (Phase 3) and STK-002, with $355.0 million in liquidity projected to fund operations until mid-2028, despite expected continued losses - Stoke Therapeutics is a late-stage clinical company focused on RNA-based medicines using its TANGO approach to restore protein levels for severe diseases[112] - Zorevunersen (STK-001) is the lead investigational medicine in Phase 3 clinical testing for Dravet syndrome, with the EMPEROR study initiated in May 2025[113][114] - Open-label extension (OLE) studies for zorevunersen have shown substantial and durable reductions in convulsive seizure frequency and continuous improvements in cognition and behavior through three years[115] - STK-002 is the clinical candidate for autosomal dominant optic atrophy (ADOA), designed to upregulate OPA1 protein expression; a Phase 1 study (OSPREY) is authorized in the UK, with first patient enrollment planned for H2 2025[116] - As of June 30, 2025, the company had $355.0 million in cash, cash equivalents, and marketable securities, projected to fund operations to mid-2028[122][125] - Net losses were $23.5 million for the three months ended June 30, 2025, and $25.7 million for the three months ended June 30, 2024[123] - Net income was $89.4 million for the six months ended June 30, 2025, compared to a net loss of $52.1 million for the six months ended June 30, 2024[123] - Accumulated deficit was $401.4 million as of June 30, 2025[123] - The company expects continued net losses and increased R&D, G&A, and capital expenditures, necessitating future financing through equity offerings, debt, or collaborations[124][125] Program Update Recent Dravet Syndrome program updates for zorevunersen (STK-001) show substantial and durable reductions in convulsive seizure frequency and continued cognitive improvements over three years in OLE studies - New positive findings from long-term open-label extension (OLE) studies of zorevunersen in children and adolescents with Dravet syndrome were announced in August[126] - Substantial and durable reductions in convulsive seizure frequency were observed through three years of zorevunersen treatment, on top of standard-of-care medicines[127] - Continued improvements in cognition and behavior were demonstrated during the 3-year OLE period, as shown in Exhibit 2 (Vineland Adaptive Behavior Scale, Third Edition)[127][115] Financial Operations Overview Operating as a single segment, the company generates revenue from collaborations (Biogen: $155.6 million, Acadia: $16.8 million for H1 2025), with R&D and G&A expenses expected to increase, and other income primarily from interest - The company operates as one reportable segment and has not generated any product revenue since inception[132] - Revenue is generated from collaboration and licensing agreements, primarily with Biogen and Acadia[132][133][136] - Biogen Agreement (February 2025): $165.0 million upfront payment, eligible for up to $50.0 million in development milestones and $335.0 million in commercial milestones, plus tiered double-digit royalties; recognized $155.6 million in revenue for the six months ended June 30, 2025[133][134][135] - Acadia Agreement (January 2022): $60.0 million upfront payment, eligible for up to $907.5 million in potential milestones and tiered royalties; Acadia discontinued two programs (MECP2 and undisclosed neurodevelopmental target) in May 2025, but the SYNGAP1 collaboration continues; recognized $16.8 million in revenue for the six months ended June 30, 2025[136][137][138](index=138&type=chunk] - Research and development expenses are expected to increase substantially due to planned discovery work, preclinical and clinical development activities, and investments in manufacturing[139][141] - General and administrative expenses are expected to increase to support R&D, manufacturing, public company operations, and potential commercialization[146] - Other income (expense) primarily includes interest income from cash reserves and marketable securities[147] Results of Operations for the Three Months Ended June 30, 2025 and 2024 For Q2 2025, revenue increased to $13.8 million from $4.8 million, driven by collaborations, while R&D and G&A expenses rose, leading to an improved net loss of $23.5 million Results of Operations (Three Months Ended June 30, in thousands of US dollars) | Item | 2025 | 2024 | | :---------------------------- | :---------- | :---------- | | Revenue | $13,817 | $4,831 | | Research and development | $25,855 | $21,136 | | General and administrative | $15,262 | $13,037 | | Total operating expenses | $41,117 | $34,173 | | Loss from operations | $(27,300) | $(29,342) | | Net loss | $(23,483) | $(25,695) | - Revenue increased by $9.0 million (186%) to $13.8 million, driven by $3.2 million from Biogen global development activities and $5.8 million from the Acadia Agreement[150][151] - Research and development expenses increased by $4.8 million (22.7%) to $25.9 million, primarily due to a $2.7 million increase in personnel-related expenses and a $2.9 million increase in zorevunersen program expenses[152][153] - General and administrative expenses increased by $2.3 million (17.6%) to $15.3 million, mainly due to a $1.9 million increase in professional fees and $0.3 million in personnel expenses[154] - Other income (expense) increased slightly to $3.8 million from $3.6 million[154] Results of Operations for the Six Months Ended June 30, 2025 and 2024 For H1 2025, revenue surged to $172.4 million from $9.0 million, primarily due to the Biogen IP license, resulting in a net income of $89.4 million, a significant turnaround from a prior-year net loss Results of Operations (Six Months Ended June 30, in thousands of US dollars) | Item | 2025 | 2024 | | :---------------------------- | :---------- | :---------- | | Revenue | $172,386 | $9,048 | | Research and development | $58,531 | $43,504 | | General and administrative | $29,915 | $23,258 | | Total operating expenses | $88,446 | $66,762 | | Income (loss) from operations | $83,940 | $(57,714) | | Net income (loss) | $89,397 | $(52,069) | - Revenue increased by $163.4 million (1805%) to $172.4 million, primarily driven by $150.8 million from the Biogen IP license and $4.9 million for global development activities, and $7.7 million from the Acadia Agreement[156][157] - Research and development expenses increased by $15.0 million (34.5%) to $58.5 million, mainly due to an $11.3 million increase in zorevunersen program expenses and a $5.8 million increase in personnel-related expenses[158][159] - General and administrative expenses increased by $6.6 million (28.4%) to $29.9 million, attributable to a $4.2 million increase in professional fees and $2.2 million in personnel-related expenses[160][161] - Other income (expense) increased to $6.7 million from $5.6 million[161] Impact of Enacted Tax Legislation The 'One Big Beautiful Bill Act' (OBBBA), enacted July 4, 2025, will impact Q3 2025 financial statements by restoring 100% bonus depreciation and immediate R&E expensing, with the full financial effect under assessment - The 'One Big Beautiful Bill Act' (OBBBA) was signed into law on July 4, 2025, and its effects will be reflected in the financial statements for the three months ending September 30, 2025[162][163] - Key corporate tax provisions of the OBBBA include the restoration of 100% bonus depreciation and the introduction of new Section 174A permitting immediate expensing of domestic research and experimental (R&E) expenditures[162] - The company is currently assessing the full financial impact of the OBBBA[163] Liquidity and Capital Resources Since inception, the company has raised $836.6 million, holding $355.0 million in liquidity as of June 30, 2025, projected to fund operations until mid-2028, but anticipates continued losses and future financing needs - Since inception through June 30, 2025, operations have been financed by $836.6 million from convertible notes, preferred stock, public offerings, sales agreements, and upfront payments from Acadia and Biogen[164] - As of June 30, 2025, the company had $355.0 million in cash, cash equivalents, and marketable securities, which is believed to fund operations to mid-2028[122][164][167] - The company has incurred losses since inception, with an accumulated deficit of $401.4 million as of June 30, 2025[166] - Primary cash use is for operating expenses, mainly R&D, and general and administrative expenditures[166] - Substantial additional funding will be required for future preclinical and clinical development, potential commercialization, and ongoing operations, with financing sought through equity offerings, debt, or collaborations[167] - Future funding requirements depend on the scope and costs of R&D, clinical trials, regulatory approvals, manufacturing, strategic collaborations, and commercialization activities[168] - Inability to raise additional funds on favorable terms could lead to delays, reductions, or termination of product development programs[169] Cash Flows For H1 2025, operating activities generated $106.4 million in cash, investing activities used $134.8 million, and financing activities provided $1.9 million, reflecting a significant shift from prior-year trends Summary of Cash Flows (Six Months Ended June 30, in thousands of US dollars) | Activity | 2025 | 2024 | | :------------------------------------------ | :---------- | :---------- | | Net cash provided by (used in) operating activities | $106,405 | $(42,043) | | Net cash used in investing activities | $(134,845) | $(78,290) | | Net cash provided by financing activities | $1,928 | $122,367 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(26,512) | $2,034 | - Operating activities provided $106.4 million in cash for the six months ended June 30, 2025, primarily due to net income of $89.4 million and non-cash charges[171] - Investing activities used $134.8 million, mainly from $200.6 million in marketable securities purchases, partially offset by $66.0 million from sales[173] - Financing activities provided $1.9 million, primarily from stock option exercises and the Employee Stock Purchase Plan (ESPP)[174] Contractual Obligations and Commitments As of June 30, 2025, contractual obligations include $5.827 million in operating lease payments and uncertain milestone/royalty payments under the University of Southampton agreement Contractual Obligations as of June 30, 2025 (in thousands of US dollars) | Obligation | Total | Less Than 1 Year | 1 to 3 Years | 4 to 5 Years | More than 5 Years | | :---------------------- | :------ | :--------------- | :----------- | :----------- | :---------------- | | Operating lease obligations | $5,827 | $1,402 | $4,425 | — | — | | Total | $5,827 | $1,402 | $4,425 | — | — | - Commitments include obligations under the University of Southampton agreement, with future milestone payments and royalties on product sales being contingent and not estimable as of June 30, 2025[182] - Agreements with third-party contract manufacturers and CROs generally provide for termination or cancellation, other than for costs already incurred[183] Off-Balance Sheet Arrangements The company did not have any off-balance sheet arrangements during the periods presented - The company did not have any off-balance sheet arrangements as defined under SEC rules during the periods presented[184] Critical Accounting Policies and Significant Judgments and Estimates No significant changes in critical accounting policies and estimates were reported compared to the Annual Report on Form 10-K filed on March 18, 2025 - No significant changes in critical accounting policies and estimates were reported compared to the Annual Report on Form 10-K filed on March 18, 2025[186] Smaller Reporting Company Status The company maintains its 'smaller reporting company' status, allowing for reduced disclosure obligations, including presenting only two years of audited financial statements and reduced executive compensation disclosures - The company is a 'smaller reporting company' because its market value of stock held by non-affiliates was less than $700.0 million and annual revenue was less than $100.0 million as of the last business day of its most recently completed fiscal year[188] - This status allows for reduced disclosure obligations, such as presenting only two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and reduced executive compensation disclosures[188] Recently Issued Accounting Pronouncements The company will adopt ASU 2023-09 and ASU 2024-03, both effective in future fiscal years, neither of which is expected to have a material financial impact - ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' effective for fiscal years beginning after December 15, 2024, will be adopted January 1, 2025, and is not expected to have a material impact[189] - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' effective for fiscal years beginning after December 15, 2026, is not expected to have a material impact[190] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity, but due to short-term maturities of its $355.0 million in cash and equivalents, a 10% interest rate increase is not expected to significantly impact investment value - The company's primary market risk is interest rate sensitivity, affected by changes in U.S. interest rates[192] - As of June 30, 2025, cash, cash equivalents, and marketable securities totaled $355.0 million[192] - Due to the short-term maturities of cash and cash equivalents, an immediate 10% increase in interest rates is not expected to have a significant impact on investment value[192] - Inflation has not had a material effect on the business, financial condition, or results of operations during the periods ended June 30, 2025 and 2024[193] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting, acknowledging inherent limitations - Management, including the Chief Financial Officer and Interim Chief Executive Officer, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[194] - No material changes in internal control over financial reporting occurred during the period covered by the report[195] - Internal controls, regardless of design, provide only reasonable assurance of achieving objectives, and management applies judgment in evaluating cost-benefit relationships[196] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings deemed to have a material adverse effect, though litigation, regardless of outcome, can negatively impact the business - The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business[198] - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs, diversion of management resources, and negative publicity[198] Item 1A. Risk Factors This section outlines various risks to an investment in the company's common stock, covering product development, regulatory approval, commercialization, financial position, intellectual property, employee matters, growth management, and stock ownership Summary of Risk Factors This summary highlights key risks including early-stage development, clinical trial uncertainty, regulatory approval challenges, market acceptance, funding needs, intellectual property protection, and stock price volatility - Early stage of development; inability to develop, obtain regulatory approval for, and commercialize product candidates (zorevunersen, STK-002) could materially harm the business[199] - Success in early preclinical/clinical trials may not predict later results[199] - Uncertainty of regulatory approval and potential for narrower indications[199] - Difficulty in identifying patients for low-prevalence diseases, leading to trial delays or slower commercial growth[199] - Clinical trial failures could incur additional costs or prevent commercialization[199] - Uncertainty in expanding pipeline using TANGO technology[199] - Extensive post-marketing regulatory requirements and potential for product withdrawal[199] - Failure to obtain international regulatory approval[199] - Undesirable side effects or public perception of unsafety for product candidates[199] - Rare Pediatric Disease, Fast Track, or Breakthrough Therapy designations do not guarantee faster development, review, or approval, or a priority review voucher[199] - Legislation may increase difficulty and cost of approval and affect pricing[199] - Commercial success depends on market acceptance and adequate reimbursement[199] - History of operating losses and need for additional funding[199] - Limited operating history makes future viability assessment difficult[199] - Challenges in obtaining, maintaining, and protecting intellectual property[199] - Volatility of stock price[203] Risks Related to Product Development and Regulatory Approval The company faces significant risks in product development, including early-stage efforts, uncertain clinical trial success, lengthy and costly regulatory approval processes, patient enrollment challenges, potential side effects, and impacts from legislative changes and regulatory disruptions - The company is in early development, with zorevunersen in Phase 3 and STK-002 in preclinical development, and its ability to generate product revenue depends heavily on successful development and commercialization[200][201][202] - Success in early preclinical or clinical trials is not indicative of later results, and product candidates may fail to demonstrate safety and efficacy in later stages[206][209] - Clinical trials are expensive, difficult, and uncertain, with risks of clinical holds, suspensions, or dose limitations due to safety concerns or other deficiencies[210][211][212] - Obtaining regulatory approval is a lengthy, expensive, and uncertain process, with potential for delays, approval for narrower indications, or refusal, influenced by regulatory discretion and evolving policies[213][214][216] - Low prevalence of target diseases (Dravet syndrome, ADOA) may lead to difficulties in patient identification and enrollment, potentially delaying trials or limiting commercial potential[217][219][220] - Product candidates may cause undesirable side effects, leading to trial suspension, termination, or regulatory denial, and could negatively impact commercialization[234][235][236] - Rare Pediatric Disease, Fast Track, and Breakthrough Therapy designations do not guarantee faster development, regulatory review, or approval, nor do they assure a priority review voucher[237][239][240][241][242][243] - Enacted and future legislation, such as the Inflation Reduction Act (IRA), may increase costs, affect pricing, and impose new requirements, significantly impacting the pharmaceutical industry[245][247][252] - Disruptions at the FDA, including staffing changes or government shutdowns, could slow product review and approval, adversely affecting the business[261][262][263] - Operations are subject to anti-kickback, fraud and abuse, and other healthcare laws, with non-compliance potentially leading to significant penalties, criminal sanctions, and reputational harm[264][265][267][268] Risks Related to Commercialization and Manufacturing Commercial success depends on market acceptance, adequate reimbursement, and reliable third-party manufacturing, facing intense competition, manufacturing complexities, and risks from reliance on collaboration partners - Commercial success depends on market acceptance by providers, patients, patient advocacy groups, and third-party payors, which is uncertain for new genetic treatments and administration methods like intrathecal or intravitreal injections[269][271] - Adequate insurance coverage and reimbursement are essential for commercial viability, especially for small patient populations, and failure to obtain these could limit market access and revenue[273][274][275][276][277][279][280] - Reliance on third parties for preclinical studies, clinical trials, and manufacturing introduces risks of non-performance, regulatory non-compliance, missed deadlines, and increased costs, potentially delaying development programs[281][282] - The biotechnology and pharmaceutical industries are highly competitive, with many competitors possessing greater financial and technical resources, potentially leading to faster regulatory approvals or more effective therapies[283][284][285][286] - Manufacturing drugs is complex and susceptible to difficulties like contamination, equipment failure, and scaling issues, which could delay clinical trials, regulatory submissions, or commercial supply[288][289][290][291] - Inability to establish internal sales and marketing capabilities or effective third-party alliances could prevent revenue generation[292][293][294] - Focusing limited resources on specific product candidates or indications may lead to missing more profitable opportunities[295] - Reliance on collaboration agreements (e.g., Acadia, Biogen) carries risks that partners may not dedicate sufficient resources, delay development, or terminate agreements, forcing the company to independently develop candidates or abandon them[296][297][298][300][301] - Difficulty in finding new strategic collaborators on acceptable terms could force the company to curtail development programs or increase expenditures without sufficient capital[302][303][304][305] Risks Related to Our Financial Position The company has a history of operating losses and an accumulated deficit of $401.4 million, requiring substantial additional funding despite current liquidity, with future tax benefits potentially limited by ownership changes and tax reforms - The company has a history of operating losses since inception, with an accumulated deficit of $401.4 million as of June 30, 2025, and expects to continue incurring significant losses[307][308] - Net losses were $23.4 million for the three months ended June 30, 2025, and $25.7 million for the three months ended June 30, 2024[308] - Net income was $89.4 million for the six months ended June 30, 2025,