DESIGN THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and notes thereto included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. In addition to historical information, this Annual Report contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption "Item 1A. Risk Factors."
Overview
We are a clinical-stage biopharmaceutical company pioneering the research and development of GeneTACTM molecules, which are a novel class of small-molecule gene targeted chimera therapeutic candidates designed to be disease-modifying by addressing the underlying cause of diseases caused by inherited nucleotide repeat expansion mutations. Certain diseases caused by inherited nucleotide repeat expansion, such as Friedreich ataxia (FA) and fragile X syndrome, can result in reduced gene expression and deficiency of vital proteins; 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 and broad splicing disruptions. Our GeneTACTM small molecules are designed to selectively target expanded genetic repeat sequences, modulate gene expression either by dialing up or down mRNA transcription, depending on the cause of the disease, and restore cellular health. As a platform, we believe that GeneTACTM molecules have broad potential applicability across currently unaddressed degenerative, monogenic nucleotide repeat expansion diseases affecting millions of individuals worldwide.
In preclinical studies for our lead program in FA, we have observed restoration
of frataxin (FXN) levels in multiple cell types from FA patients and an in vivo
murine model of FA using our FA GeneTACTM molecules. At doses that were observed
to be well tolerated in rodents and non-human primates, FA GeneTACTM molecules
achieved biodistribution to brain and heart, 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 GeneTACTM molecules. In
In
Our third program based on the GeneTACTM platform is DM1. Multiple DM1 GeneTACTM molecules elicited robust reduction of nuclear foci and correction of splicing defects in DM1 patient muscle cells. Preclinical in vivo studies demonstrated distribution of DM1 GeneTACTM molecules to key target tissues including skeletal muscle and heart, achieving tissue concentrations of intact DM1 GeneTACTM molecule that reduced pathogenic nuclear foci to normal levels in our in vitro experiments. We expect to complete IND-enabling studies and submit an IND in 2024.
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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 continue to 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. In
Components of Our Results of Operations
Research and Development Expenses
To date, our research and development expenses have consisted primarily of direct and indirect costs incurred in connection with the clinical development, preclinical development and manufacturing of our product candidates and our discovery efforts. 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 clinical, preclinical and discovery activities;
•
expenses related to manufacturing our product candidates for clinical and 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 expenses which include allocated expenses for amortization of right-of-use (ROU) assets, depreciation and other overhead expenses, costs for general laboratory consumables 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, because these costs are deployed across multiple projects and, as such, are not separately classified.
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We expect that our research and development expenses will substantially increase for the foreseeable future as we continue the development of our FA program, FECD 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 Annual 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;
•
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-
•
maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates;
•
establishing clinical or 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;
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•
the impact of any business interruptions to our operations or to those of the third parties with whom we work; 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.
Results of Operations
Comparison of the Years Ended
The following table summarizes our operating expenses for the years ended
Year Ended December 31,
2022 2021 Change
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 Research and Development Expenses. Research and development expenses were
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The following table summarizes our research and development expenses by direct
and indirect costs for the year ended
Year Ended December 31,
2022 2021 Change
FA DT-216 $ 16,904 $ - $ 16,904
Other direct 8,583 14,683 (6,100 )
Indirect 23,126 10,095 13,031
Total research and development expenses
General and Administrative Expenses. General and administrative expenses were
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. In
As of
Year Ended December 31,
2022 2021 Change
Net cash (used in) provided by:
Operating activities $ (51,317 ) $ (29,377 ) $ (21,940 )
Investing activities (220,987 ) (53,644 ) (167,343 )
Financing activities 235 379,211 (378,976 )
Net (decrease) increase in cash and cash
equivalents $ (272,069 ) $ 296,190 $ (568,259 ) Operating Activities. Net cash used in operating activities was
Investing Activities. Net cash used in investing activities was
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Financing Activities. Net cash provided by financing activities was
Shelf Registration Statement
In
Funding Requirements
Based on our current operating plan, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operating expenses and capital expenditure requirements for more than the next 12 months following the date of this Annual Report.
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.
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 product candidates;
•
the number and scope of clinical programs we decide to pursue;
•
the scope and costs of manufacturing our product candidates and any future 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 product candidates;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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the terms and timing of establishing and maintaining strategic collaborations, licenses and other similar arrangements and the financial terms of such agreements;
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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;
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•
the timing of any milestone and royalty payments to
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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 additional laboratory space;
•
the effects of the recent disruptions to and volatility in the credit and financial markets as a result of macroeconomic factors; and
•
the cost associated with commercialization activities for any of our current or 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
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Contractual Obligations, Commitments and Material Cash Requirements
In
In
In
For the year ended
We are responsible for reimbursing WARF for costs incurred in connection with
prosecuting and maintaining patent rights that are specific to the License
Agreement. Expenses recognized in connection with legal patent fees under this
License Agreement were immaterial for the years ended
We may terminate the License Agreement with 90 days written notice or for
certain breaches of the agreement. WARF may terminate the License Agreement with
90 days written notice if first commercial sale does not occur before
Additionally, we enter into agreements in the normal course of business with third-party vendors for preclinical studies, clinical trial related services, research supplies and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material.
In addition to the contractual obligations above, we also expect to have future material cash requirements related to our ongoing and planned clinical trials, discovery and preclinical programs, personnel and facilities-related expenses, external research and development and product development.
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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
While our significant accounting policies and estimates are described in more detail in Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form 10-K, we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements.
As part of the process of preparing our financial statements as of each balance sheet date, we are required to estimate our accrued expenses resulting from obligations under contracts with third-party vendors, contract research organizations (CROs) and consultants, in connection with research and development activities and conducting clinical trials. This process involves reviewing open contracts and purchase orders, communicating with our personnel and outside vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. The accruals are dependent upon accurate reporting by CROs and other third-party vendors. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities and clinical trials for which we have not yet been invoiced. Since our inception, we have not experienced any material differences between accrued or prepaid costs and actual costs.
We base our expenses related to research and development and clinical trial activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct these activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
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Recent Accounting Pronouncements
See Item 8 of Part II, "Notes to 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
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