Design Therapeutics(DSGN) - 2022 Q4 - Annual Report

PART I Business Design Therapeutics is a clinical-stage biopharmaceutical company developing GeneTAC™ molecules for nucleotide repeat expansion diseases, with lead candidate DT-216 for Friedreich ataxia advancing to Phase 2, and other programs in pipeline - The company is pioneering GeneTAC™ (gene targeted chimera) molecules, a novel class of small-molecule therapeutics designed to address the root cause of diseases driven by nucleotide repeat expansions[17] Development Pipeline and Anticipated Milestones | DEVELOPMENT PROGRAMS | NEXT ANTICIPATED MILESTONE | EXPECTED TIMING | | :--- | :--- | :--- | | Friedreich ataxia (GAA) - DT-216 | Data from MAD trial | Mid-2023 | | | Initiate phase 2 | 2H 2023 | | Fuchs endothelial corneal dystrophy (FECD; CTG) - DT-168 | IND Submission | 2H 2023 | | Myotonic dystrophy type 1 (CTG) | IND Submission | 2024 | - Initial data from the Phase 1 single-ascending dose (SAD) trial of DT-216 in FA patients showed it was generally well-tolerated and resulted in a greater than two-fold increase in frataxin (FXN) mRNA in the highest response cohort[18][65] - The company has an exclusive worldwide license agreement with Wisconsin Alumni Research Foundation (WARF) for patents related to its FA program, involving up to $17.5 million in milestone payments and low single-digit royalties on sales[105][106] - As of December 31, 2022, the company's intellectual property portfolio includes 19 pending U.S. patent applications and an exclusive license from WARF for one issued U.S. patent and several pending applications, with expected expirations between 2037 and 2043[110] - The company relies on third-party manufacturers for cGMP production of its product candidates and does not own or operate its own manufacturing facilities[108] Risk Factors The company faces significant risks including limited operating history, substantial net losses of $63.3 million in 2022, high development risks for novel GeneTAC™ technology, reliance on third parties, and intense competition - The company has a limited operating history, has incurred net losses since inception, and expects significant losses to continue. Net loss was $63.3 million for the year ended December 31, 2022[197] - The company is early in its development, with only one product candidate (DT-216) in clinical development and all others in preclinical or discovery stages. The success of the business is highly dependent on the successful development and commercialization of these candidates[207][208] - The approval of Reata Pharmaceuticals' omaveloxolone for FA may impact future enrollment of DT-216 clinical trials, as patients may be ineligible or choose not to enroll due to the availability of an approved product[220] - The company relies on third-party contract manufacturers for the supply of its product candidates and does not have its own manufacturing facilities, creating risks related to supply, quality, and regulatory compliance[271] - The company faces substantial competition from larger, better-funded companies in the FA, FECD, and DM1 spaces, which may develop or commercialize products more successfully[253][254][255] - The company's ability to use its net operating loss (NOL) carryforwards ($54.8 million federal, $10.6 million state as of Dec 31, 2022) may be limited due to "ownership change" rules under Section 382 of the Internal Revenue Code[314][315] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[452] Properties The company leases approximately 17,270 square feet of laboratory and office space in Carlsbad, California, under lease agreements with a related party that expire in August 2027 - The company leases approximately 12,370 sq. ft. of lab and office space and an additional 4,900 sq. ft. of office space in Carlsbad, California. The leases are with a related party and expire in August 2027[453] Legal Proceedings The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business - The company is not presently a party to any material legal proceedings[454] Mine Safety Disclosures This item is not applicable to the company - Not applicable[455] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "DSGN" since its March 2021 IPO, generating $254.3 million in net proceeds, with no cash dividends paid or intended - The company's common stock has been listed on the Nasdaq Global Market under the symbol "DSGN" since March 25, 2021[458] - The company has never declared or paid cash dividends and does not intend to for the foreseeable future, retaining earnings to fund growth and development[460] - The March 2021 IPO generated net proceeds of $254.3 million. As of December 31, 2022, approximately $50.0 million of these proceeds had been used to support operations[461][462] Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss increased to $63.3 million in 2022 due to higher R&D and G&A expenses, with $330.4 million in cash and investments deemed sufficient for over 12 months of operations Comparison of Operating Expenses (in thousands) | | Year Ended December 31, | | Change | | :--- | :--- | :--- | :--- | | | 2022 | 2021 | $ | | Operating expenses: | | | | | Research and development | $48,613 | $24,778 | $23,835 | | General and administrative | $18,980 | $11,053 | $7,927 | | Total operating expenses | $67,593 | $35,831 | $31,762 | - The $23.8 million increase in R&D expenses in 2022 was primarily due to advancing the FA program, including clinical development costs, supporting early-stage programs, and higher personnel costs, which included an additional $3.0 million in stock-based compensation[485] - The $7.9 million increase in G&A expenses in 2022 was mainly due to additional personnel-related costs, including a $3.2 million increase in stock-based compensation, and increased costs of operating as a public company[486] Cash Flow Summary (in thousands) | | Year Ended December 31, | Change | | :--- | :--- | :--- | | | 2022 | 2021 | $ | | Net cash used in operating activities | $(51,317) | $(29,377) | $(21,940) | | Net cash used in investing activities | $(220,987) | $(53,644) | $(167,343) | | Net cash provided by financing activities | $235 | $379,211 | $(378,976) | - As of December 31, 2022, the company had $330.4 million in cash, cash equivalents, and investment securities. Management believes these funds are sufficient to support operations for more than 12 months[488][492] - In April 2022, the company filed a $300.0 million shelf registration statement on Form S-3, which includes a $100.0 million at-the-market (ATM) program. No sales have been made under the ATM program as of December 31, 2022[491][582] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," the company is not required to provide the information for this item - As a "smaller reporting company," the company is not required to provide the information otherwise required by this item[515] Financial Statements and Supplementary Data Audited financial statements show total assets of $341.1 million in 2022, a net loss of $63.3 million, and $51.3 million cash used in operating activities Balance Sheet Highlights (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,500 | $298,569 | | Investment securities | $303,887 | $85,495 | | Total Assets | $341,137 | $390,557 | | Total Liabilities | $13,827 | $8,427 | | Total Stockholders' Equity | $327,310 | $382,130 | Statement of Operations Highlights (in thousands, except per share data) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Research and development | $48,613 | $24,778 | | General and administrative | $18,980 | $11,053 | | Loss from operations | $(67,593) | $(35,831) | | Net loss | $(63,308) | $(35,533) | | Net loss per share, basic and diluted | $(1.14) | $(0.77) | - Stock-based compensation expense totaled $10.9 million in 2022, a significant increase from $4.7 million in 2021[595] - The company has federal and state Net Operating Loss (NOL) carryforwards of $54.8 million and $10.6 million, respectively, as of December 31, 2022. Utilization may be limited due to past and future ownership changes[597][599] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[616] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during Q4 2022 - Based on an evaluation as of December 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[617] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[619] Other Information The company reports no other information for this item - None[621] PART III Directors, Executive Officers and Corporate Governance Information required for this item will be incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Information required by this item will be set forth in the company's definitive Proxy Statement for its 2023 annual meeting of stockholders, to be filed on or before May 1, 2023[624] Executive Compensation Information required for this item will be incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Information required by this item will be incorporated by reference from the Proxy Statement[626] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required for this item will be incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Information required by this item will be incorporated by reference from the Proxy Statement[627] Certain Relationships and Related Transactions, and Director Independence Information required for this item will be incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Information required by this item will be incorporated by reference from the Proxy Statement[628] Principal Accounting Fees and Services Information required for this item will be incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Information required by this item will be incorporated by reference from the Proxy Statement[629] PART IV Exhibits, Financial Statement Schedules This section details financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications - This section lists all financial statements and exhibits filed with the Form 10-K, including the Amended and Restated Certificate of Incorporation, Bylaws, material contracts such as the WARF License Agreement, and various management compensation plans[630][631] Form 10-K Summary The company reports no Form 10-K summary - None[634]