DESIGN THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited financial statements and
notes thereto included in "Item 1. Financial Statements" of this Quarterly
Report on Form 10-Q and the audited financial statements and notes thereto as of
and for the year ended
Overview
We are a preclinical-stage biopharmaceutical company pioneering novel small-molecule therapeutic candidates, called gene targeted chimeras (GeneTACs), that are designed to be disease-modifying and target the underlying cause of inherited nucleotide repeat expansion diseases. Certain nucleotide repeat expansion diseases, such as Friedreich ataxia (FA), can result in reduced expression of specific mRNAs; in other diseases, such as myotonic dystrophy type-1 (DM1), Fuchs endothelial corneal dystrophy (FECD), and Huntington disease, the nucleotide repeat expansions result in the generation of toxic gene products, often associated with pathological nuclear foci. Our GeneTACs are designed to selectively bind to genetic repeat sequences, modulate gene expression either by restoring or blocking mRNA transcription, and restore cellular health. As a platform, we believe that GeneTACs have broad potential applicability across monogenic nucleotide repeat expansion diseases.
In preclinical studies for our lead program, we have observed restoration of
frataxin (FXN) levels in cells from FA patients using our FA GeneTACs. FA
GeneTACs administered to rodents and to non-human primates, at doses that were
observed to be well tolerated, achieved biodistribution to brain and heart, the
key organs affected by FA, at concentrations that exceeded those observed to
restore FXN levels in FA patient cells. Further, and consistent with this
favorable target-organ biodistribution, we observed increased endogenous FXN
expression in the brain and heart in an animal model of FA after treatment with
our FA GeneTACs. Investigational new drug (IND)-enabling studies for two FA
GeneTAC development candidates are underway, in alignment with feedback received
from the
To date, we have incurred net losses and negative cash flows from operations
since our inception and as of
We expect our expenses and operating losses will increase substantially for the foreseeable future as we conduct preclinical studies and clinical trials for our product candidates, nominate additional product candidates from our discovery programs, and as we expand our clinical, regulatory, quality and manufacturing capabilities, incur significant commercialization expenses for marketing, sales, manufacturing and distribution, if we obtain marketing approval for any of our product candidates, and incur additional costs associated with operating as a public company.
We have funded our operations primarily through the sale of our common stock,
convertible preferred stock, grant revenue and the issuance of convertible notes
and debt. For example, in
16
--------------------------------------------------------------------------------
Components of Our Results of Operations
Grant Revenue
To date, we have not generated any revenues from the commercial sale of any
products, and we do not expect to generate revenues from the commercial sale of
any products for the foreseeable future, if ever. Historically, we have derived
revenue from grants awarded by the
Research and Development Expenses
To date, our research and development expenses have consisted primarily of direct and indirect costs incurred in connection with our discovery efforts, and the preclinical and formulation development of our product candidates. In the future, we expect a substantial portion of our research and development expenses will relate to the clinical development and manufacturing of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Direct costs include:
• external research and development expenses incurred under agreements with
contract research organizations, consultants and other vendors that
conduct our preclinical and discovery activities;
• expenses related to manufacturing our product candidates for preclinical
studies;
• laboratory supplies; and
• license fees.
Indirect costs include:
• personnel-related expenses, consisting of employee salaries, payroll
taxes, bonuses, benefits and stock-based compensation charges for those
individuals involved in research and development efforts; and
• facilities and other indirect expenses.
A significant portion of our research and development expenses have been direct costs, which we track by stage of development, preclinical or clinical. However, we do not track our internal research and development expenses on a program specific basis, unless specific to research grants, because these costs are deployed across multiple projects and, as such, are not separately classified.
We expect that our research and development expenses will substantially increase for the foreseeable future as we continue the development of our FA program, DM1 program and our other discovery programs, in particular as we advance our product candidates into clinical development. As of the date of this Quarterly Report, we cannot reasonably determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical programs of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future research and development expenses may vary significantly based on a wide variety of factors such as:
• the number and scope, rate of progress, expense and results of our
discovery and preclinical development activities;
• the number of trials required for approval;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
17
--------------------------------------------------------------------------------
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the phase of development of the product candidate;
• the efficacy and safety profile of the product candidate;
• the timing, receipt, and terms of any approvals from applicable regulatory
authorities including FDA and non-U.S. regulators;
• maintaining a continued acceptable safety profile of our product
candidates following approval, if any, of our product candidates;
• establishing clinical and commercial manufacturing capabilities or making
arrangements with third-party manufacturers in order to ensure that we or
our third-party manufacturers are able to make product successfully;
• significant and changing government regulation and regulatory guidance;
• the impact of any business interruptions to our operations or to those of
the third parties with whom we work, particularly in light of the current
COVID-19 pandemic environment; and
• the extent to which we establish additional strategic collaborations or
other arrangements.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates or any future candidates may be affected by a variety of factors. We may never succeed in achieving regulatory approval for any of our product candidates or any future candidates. Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates' or any future candidates' development, which could increase our research and development expenses.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and stock-based compensation charges, for personnel in executive and administrative functions. Other significant general and administrative expenses include insurance costs, legal fees relating to intellectual property and corporate matters and professional fees for accounting, tax and consulting services.
We anticipate that our general and administrative expenses will substantially increase in the foreseeable future as we add general and administrative personnel to support our expanded research and development activities and infrastructure and, if any of our product candidates or any future candidates receive marketing approval, commercialization activities, as well as to support our operations generally, including facility-related expenses and patent-related costs. We also expect to incur increased expenses related to accounting, audit, legal, regulatory and tax-related services, director and officer insurance premiums, board of director fees, investor and public relations, and other costs associated with operating as a public company.
Other Income (Expense), Net
Other income (expense), net consist primarily of interest income from our cash, cash equivalents and investment securities. Additionally, it includes interest expense we incurred prior to 2021 related to convertible notes and notes payable issued in 2018 and 2019.
18
--------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30,
2021 2020 Change
Revenue:
Grant revenue $ - $ 31 $ (31 )
Operating expenses:
Research and development 5,027 1,061 3,966
General and administrative 2,660 433 2,227
Total operating expenses 7,687 1,494 6,193
Loss from operations (7,687 ) (1,463 ) (6,224 )
Other income, net 51 21 30
Net loss $ (7,636 ) $ (1,442 ) $ (6,194 ) Grant Revenue. During the three months ended
Research and Development Expenses. Research and development expenses were
The following table summarizes our research and development expenses by direct and indirect costs for the three months endedJune 30, 2021 and 2020 (in thousands): Three Months Ended June 30, 2021 2020 Change Direct costs(1)$ 3,110 $ 674$ 2,436 Indirect costs 1,917 387 1,530
Total research and development expenses
(1) In future periods when clinical trial expenses are incurred,
external costs will be broken out between our clinical programs
and our preclinical programs.
General and Administrative Expenses. General and administrative expenses were
Other Income, Net. Other income was less than
19
--------------------------------------------------------------------------------
Comparison of the Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended June 30,
2021 2020 Change
Revenue:
Grant revenue $ - $ 173 $ (173 )
Operating expenses:
Research and development 8,902 1,438 7,464
General and administrative 4,465 821 3,644
Total operating expenses 13,367 2,259 11,108
Loss from operations (13,367 ) (2,086 ) (11,281 )
Other income (expense), net 217 (19 ) 236
Net loss $ (13,150 ) $ (2,105 ) $ (11,045 ) Grant Revenue. During the six months ended
Research and Development Expenses. Research and development expenses were
The following table summarizes our research and development expenses by direct and indirect costs for the six months endedJune 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 Change Direct costs(1)$ 5,898 $ 944 $ 4,954 Indirect costs 3,004 494 2,510
Total research and development expenses
(1) In future periods when clinical trial expenses are incurred,
external costs will be broken out between our clinical programs
and our preclinical programs.
General and Administrative Expenses. General and administrative expenses were
Other Income (Expense), Net. Other income was
20
--------------------------------------------------------------------------------
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. Since our inception, we have funded our operations primarily
through the sale of our common stock, convertible preferred stock, grant income
and the issuance of convertible notes and notes payable. For example, in
As of
Six Months Ended June 30,
2021 2020 Change
Net cash (used in) provided by:
Operating activities $ (11,986 ) $ (3,966 ) $ (8,020 )
Investing activities 1,457 (38,746 ) 40,203
Financing activities 378,988 44,531 334,457
Net increase in cash and cash equivalents
Operating Activities. Net cash used in operating activities was
Investing Activities. Net cash provided by investing activities was
Financing Activities. Net cash provided by financing activities was
Funding Requirements
Based on our current operating plan, we believe that our existing cash, cash equivalents and investment will be sufficient to fund our anticipated operating expenses and capital expenditure requirements for at least the next 12 months following the date of this Quarterly Report. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
21
--------------------------------------------------------------------------------
Our future capital requirements will depend on many factors, including:
• the scope, rate of progress and costs of our drug discovery, preclinical
development activities and clinical trials for any future product
candidates;
• the number and scope of clinical programs we decide to pursue;
• the scope and costs of manufacturing our future product candidates and
commercial manufacturing activities;
• the emergence of competing therapies and other adverse market developments;
• the cost, timing and outcome of seeking FDA, EMA and any other regulatory
approvals for any future product candidates;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
• the terms and timing of establishing and maintaining strategic
collaborations, licenses and other similar arrangements and the financial
terms of such agreements;
• our efforts to enhance operational systems and our ability to attract,
hire and retain qualified personnel, including personnel to support the
development of our product candidates;
• the costs associated with being a public company;
• the timing of any milestone and royalty payments to Wisconsin Alumni
Research Foundation (WARF), or other future licensors;
• the extent to which we acquire or in-license other product candidates and
technologies;
• our need and ability to retain key management and hire scientific,
technical, business, and medical personnel;
• our implementation of additional internal systems and infrastructure,
including operational, financial and management information systems;
• the costs associated with expanding our facilities or building out our
laboratory space;
• the effects of the recent disruptions to and volatility in the credit and
financial markets in the United States and worldwide from the COVID-19
pandemic; and
• the cost associated with commercialization activities for any of our
future product candidates, if approved.
Until such time, if ever, as we can generate substantial revenues from product
sales to support our cost structure, we expect to finance our cash needs through
public or private equity offerings, debt financings, or other capital sources
which may include strategic collaborations, licensing arrangements or other
arrangements with third parties. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the ownership
interest of our stockholders will be or could be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
the rights of our common stockholders. Equity and debt financing, if available,
may involve agreements that include covenants limiting or restricting our
ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends. If we raise funds through strategic
collaborations, or other similar arrangements with third parties, we may have to
relinquish valuable rights to our technologies, future revenue streams, research
programs or product candidates or grant licenses on terms that may not be
favorable to us and/or may reduce the value of our common stock. If we are
unable to raise additional funds through equity or debt financings when needed,
we may be required to delay, limit, reduce or terminate our drug development or
future commercialization efforts. Our ability to raise additional funds may be
adversely impacted by potential worsening global economic conditions and
disruptions to and volatility in the credit and financial markets in
Contractual Obligations and Commitments
In
22
--------------------------------------------------------------------------------
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with
Our critical accounting policies are those that require us to make subjective
estimates and judgments about matters that are uncertain and are likely to have
a material impact on our financial condition and results of operations, as well
as the specific manner in which we apply those principles. For a description of
our critical accounting policies, please see Item 1 of Part I, "Notes to
Condensed Financial Statements - Note 2 - Basis of Presentation and Summary of
Significant Accounting Policies" of this Quarterly Report on Form 10-Q, and Note
2 to our Financial Statements and our Management's Discussion and Analysis of
Financial Condition and Results of Operations included in our Prospectus, dated
Recent Accounting Pronouncements
See Item 1 of Part I, "Notes to Condensed Financial Statements - Note 2 - Basis of Presentation and Summary of Significant Accounting Policies" for a discussion of recent accounting pronouncements.
Other Information
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups Act, as amended (JOBS Act), and we may remain an emerging growth
company until as late as
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We will remain an emerging growth company until the earliest to occur of: (i)
the last day of the fiscal year in which we have at least
23
--------------------------------------------------------------------------------
© Edgar Online, source
