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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM TO
Commission File Number 001-38938
Stoke Therapeutics, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
45 Wiggins Ave
Bedford, Massachusetts
(Address of principal executive offices)
47-1144582
(I.R.S. Employer
Identification No.)
01730
(Zip Code)
Registrant’s telephone number, including area code: (781) 430-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 par value per share
Trading
Symbol(s)
STOK
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously
issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during
the relevant recovery period pursuant to §240.10D-1(b). ☐
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market as
of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $290 million. The number of shares of Registrant’s Common Stock outstanding as of March 15,
2024 was 46,303,743.
Accelerated filer
Smaller reporting company
Emerging growth company
☐
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement relating to the 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated
herein. The Definitive Proxy Statement will be filed within 120 days of the Registrant’s fiscal year ended December 31, 2023. Except with respect to information specifically incorporated by reference in this
Form 10-K, the Definitive Proxy Statement is not deemed to be filed as part of this Form 10-K.
Auditor Firm Id: 185 Auditor Name: KPMG LLP Auditor Location: Boston, MA USA
Table of Contents
Special Note Regarding Forward-Looking statements
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the safe harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). All statements other than statements of present and historical facts contained in this Annual Report on Form 10-K, including, but not
limited to, statements regarding the ability of STK-001 to treat the underlying causes of Dravet syndrome and reduce seizures or show improvements in
behavior or cognition at the indicated dosing levels or at all, the timing and expected progress of clinical trials, our future results of operations and financial
position, business strategy, prospective products, planned preclinical studies and clinical or field trials, regulatory approvals, research and development
costs, and timing and likelihood of success, as well as plans and objectives of management for future operations, may be forward-looking statements. In
some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,”
“target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions,
although not all forward-looking statements contain these words.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such statements
are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or
implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part II. Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Part I. Item 1A “Risk Factors.” These risks and uncertainties include, but
are not limited to:
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our ability to become profitable;
our ability to procure sufficient funding;
our limited operating history;
the direct and indirect impact of inflation, interest rates, foreign currency exchange rates, instability in the global banking system,
geopolitical conflict and macroeconomic conditions, including as a result of a potential temporary federal government shutdown, on our
business, financial condition and operations, including on our expenses, supply chain, strategic partners, research and development costs,
clinical trials and employees;
our ability to develop, obtain regulatory approval for and commercialize STK-001, STK-002 and our future product candidates;
our success in early preclinical studies or clinical trials, which may not be indicative of results obtained in later studies or trials;
the success of our collaboration with Acadia Pharmaceuticals and our ability to enter into successful collaborations in the future;
the availability of coverage and adequate reimbursement from third party payors for STK-001, STK-002 and our future product candidates, if
such products are approved;
our ability to identify patients with the diseases treated by STK-001, STK-002 or our future product candidates, and to enroll patients in
trials;
the success of our efforts to use TANGO to expand our pipeline of product candidates and develop marketable products;
our ability to obtain, maintain and protect our intellectual property;
our reliance upon intellectual property licensed from third parties;
our ability to identify, recruit and retain key personnel;
our financial performance; and
developments or projections relating to our competitors or our industry.
You should read this Annual Report on Form 10-K and the documents that we reference herein completely and with the understanding that our
actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of
any new information, future events, changed circumstances or otherwise.
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Item 1. Business.
Overview
PART I
We are a clinical-stage company dedicated to addressing the underlying causes of severe diseases by upregulating protein expression with RNA-
based medicines. Using our proprietary TANGO (Targeted Augmentation of Nuclear Gene Output) approach, we are developing antisense oligonucleotides
(“ASOs”) to selectively restore protein levels. Our first compound, STK-001, is in clinical testing for the treatment of Dravet syndrome, a severe and
progressive genetic epilepsy. Dravet syndrome is characterized by frequent, prolonged and refractory seizures beginning within the first year of life. The
disease is classified as a developmental and epileptic encephalopathy due to the developmental delays and cognitive impairment associated with it.
Dravet syndrome is one of many diseases caused by a haploinsufficiency, in which a loss of approximately 50% of normal protein levels leads to
disease. We are also pursuing treatment for a second haploinsufficient disease, autosomal dominant optic atrophy (“ADOA”), the most common inherited
optic nerve disorder. Our initial focus is on haploinsufficiencies and diseases of the central nervous system and the eye, although proof of concept has been
demonstrated in other organs, tissues, and systems, supporting our belief in the broad potential for our proprietary approach.
Our executive management team has extensive collective expertise in human genetics and modulation of RNA processes using ASOs, as well as a
track record of success in rare disease drug development. Our executive team and co-founders have been previously involved with other companies in the
discovery, development and commercialization of many treatments for rare diseases, including Sarepta’s Exondys 51 (eteplirsen) and Biogen’s
SPINRAZA. Our scientific and clinical advisory boards are comprised of leading experts in the fields of human genetics, pre-mRNA splicing and ASOs,
and neurodevelopmental and neurodegenerative diseases. Their involvement in both academic research and clinical practice allows us to gain proprietary
and early insight into emerging biology and clinical practice that informs our business strategy.
Our strategy
We are using our proprietary RNA therapeutics platform to create ASOs for the treatment of severe diseases. The critical components of our strategy
include the following activities:
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Rapidly advance our lead program, STK-001, to clinical proof-of-concept, approval and commercialization. Following our announcement in
March 2024 of end of study data from our Phase 1/2a open-label studies of STK-001 in the United States (MONARCH) evaluating children
and adolescents ages 2 to 18 with Dravet syndrome and in the United Kingdom (ADMIRAL) evaluating children and adolescents ages 2 to
up to 18 with Dravet syndrome, we plan to meet with global regulatory authorities to discuss late-stage clinical development of STK-001. We
are leveraging previously-validated ASO chemistry, a modality that has been successfully utilized for other diseases, a well-defined patient
population based on routine genetic testing and learnings from approved drugs for the treatment of Dravet syndrome to inform the clinical
and regulatory pathways for STK-001 and minimize potential safety concerns and development risk. We believe STK-001 has the potential to
significantly reduce both the occurrence and frequency of seizures and also non-seizure comorbidities. If approved, we intend to leverage a
lean, targeted internal commercial organization to bring STK-001 to patients.
Advance STK-002 to the clinic, for the potential treatment of ADOA. STK-002 is a proprietary ASO in preclinical development for the
treatment of ADOA, the most common inherited optic nerve disorder. ADOA represents a second haploinsufficiency disease addressed by
TANGO and our first treatment for diseases of the eye. STK-002 is designed to upregulate OPA1 protein expression by leveraging the non-
mutant (wild-type) copy of the OPA1 gene. We have received authorization in the United Kingdom to proceed with a Phase 1 open-label
study (OSPREY) of STK-002 and we expect the study to start in 2024.
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Expand our pipeline through internal discovery and collaboration to fully exploit the potential of our proprietary platform (TANGO). We
have built a target discovery process utilizing proprietary bioinformatics algorithms and extensive in-house expertise in whole transcriptome
RNA sequencing to rapidly and systematically identify diseases that we believe can be addressed using our platform. We are also advancing
additional early programs focused on multiple targets, including haploinsufficiency diseases of the central nervous system (the “CNS”) and
eye. In January 2022, we announced a collaboration with Acadia Pharmaceuticals to pursue RNA-based treatments for severe and rare
genetic neurodevelopmental diseases of the CNS. The collaboration combines our TANGO research platform with Acadia’s expertise in
neurology drug development and commercialization. Longer-term, we believe that our ASOs may have the potential to upregulate non-
mutated genes in biological pathways to treat diseases or conditions that are caused by multiple genes or are multifactorial.
Maintain broad commercial rights to our product candidates where we believe we can realize maximum value. We intend to build a fully
integrated biotechnology company and independently pursue the development and commercialization of our key product candidates, if
approved. We own commercial rights to our technologies and our lead product candidates, STK-001 and STK-002. As we continue to
advance our programs, we expect to pursue strategic collaborations to share risk and upside in programs with higher inherent biology risk,
larger clinical trial sizes or longer or more complex clinical, regulatory or commercial paths. Our current collaboration with Acadia is an
example of where we believe that the development of treatments for severe and rare genetic neurodevelopmental diseases of the CNS is well
served by a strategic collaboration.
Continue to strengthen and expand our intellectual property portfolio. We have an intellectual property estate that includes multi-national
issued and pending claims for the TANGO mechanisms, as well as multi-national issued and pending claims relating to compositions of
matter of oligonucleotides designed to target specific TANGO elements in genes for many genetic diseases that we believe are amenable to
upregulation of target protein expression using TANGO. Our proprietary position is reinforced by additional technical know-how and trade
secrets. We continually assess and refine our intellectual property strategy as we identify new targets amenable to TANGO, and we will file
additional patent applications as appropriate.
Our proprietary RNA therapeutics platform (TANGO)
TANGO (Targeted Augmentation of Nuclear Gene Output) is our proprietary research platform. Our initial applications for this technology are
diseases in which one copy of a gene functions normally and the other is mutated, also called haploinsufficiencies. In these cases, the mutated gene does
not produce its share of protein, so the body does not function normally. Using the TANGO approach and a deep understanding of RNA science, Stoke
researchers design ASOs that bind to pre-mRNA and help the target genes produce more protein. TANGO aims to restore missing proteins by increasing –
or stoking – protein output from healthy genes, thus compensating for the non-functioning copy of the gene.
TANGO exploits unique mechanisms for modulation of splicing to prevent the synthesis of naturally occurring non-productive mRNA and increase
the synthesis of productive mRNA, resulting in increased production of functional protein.
Human cells naturally regulate protein production to maintain health. Pre-mRNA splicing, including alternative splicing, is an important mechanism
used to regulate how much protein and which protein variant is produced. During splicing, introns are removed and exons are joined together to generate
the mRNA template that carries the code to synthesize proteins. More than one third of alternative splicing events in mammals do not produce functional
proteins and lead to mRNA degradation through nonsense-mediated mRNA decay (“NMD”). TANGO ASOs act at the pre-mRNA level and prevent non-
productive alternative splicing so that the body produces more protein-coding mRNA and thus more protein. This approach is particularly applicable to
diseases that are caused by insufficient protein production.
In July 2020, we published data in the journal Nature Communications that support our proprietary approach to precisely upregulate protein
expression using TANGO ASOs. To evaluate the approach broadly, Stoke researchers selected four gene targets that vary in type and abundance of non-
productive splicing events, gene size and protein function: PCCA (propionic acidemia); SYNGAP1 (autosomal dominant mental retardation 5); CD274
(autoimmune diseases, including uveitis); and SCN1A (Dravet syndrome). Stoke researchers designed TANGO ASOs to target the non-productive splicing
events in these genes and their activity was evaluated. Dose-dependent reductions of non-productive mRNA were observed to lead to increases in both
productive mRNA and protein levels for each of the target genes.
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Treatment of autosomal dominant haploinsufficiency diseases with TANGO ASOs
We are initially focused on applying the transformative potential of our platform to developing precision medicines for autosomal dominant
haploinsufficiencies, or disorders in which only one allele of a gene is mutated, resulting in approximately 50% of normal protein expression.
Exhibits 1 and 2 shown below illustrate the TANGO mechanism for increasing protein synthesis in a prospective patient with a haploinsufficiency.
Exhibit 1 illustrates the prospective patient with a haploinsufficiency possessing one wild-type allele and one mutant allele. The mutant allele is translated
into non-functional protein and results in approximately 50% of normal protein expression. Exhibit 2 illustrates treatment with our ASO would prevent the
synthesis of naturally occurring non-productive mRNA and would increase the synthesis of productive mRNA, thereby restoring the target protein to near
normal levels. Our preclinical studies show that any increase in mutant mRNA would have no effect on the net protein level.
Exhibit 1: Haploinsufficiency without TANGO-ASO
Exhibit 2: Haploinsufficiency with TANGO-ASO
TANGO mechanisms of action
Our ASOs are specifically designed to bind to a desired RNA sequence inside the nuclei of patients’ cells to prevent the occurrence of non-
productive splicing. By doing so, our ASOs decrease the amount of non-productive mRNA and increase the level of productive mRNA, leading to the
generation of more protein. TANGO operates in a mutation-independent manner, given it utilizes one wild-type allele, and does not alter protein coding
splicing isoforms. The net effect is increased expression of functional protein from the wild-type allele.
One category of non-productive splicing events amenable to TANGO is alternative splicing that leads to nonsense-mediated mRNA decay, or NMD,
of the resulting mRNA. An example of an NMD event is an NMD exon, which is found in over 25% of gene transcripts. NMD exons are part of the wild-
type sequence of the genes. In some cases, NMD exons are part of normal gene regulation. Non-productive mRNA, which includes these NMD exons, is
degraded in the cytoplasm of the cell by nonsense-mediated mRNA decay and is not translated into protein. Our ASOs bind to the pre-mRNA and redirect
the splicing machinery to prevent inclusion of the NMD exon. This splice-switching decreases non-productive mRNA and increases productive mRNA,
which is translated into increased protein expression from the wild-type allele. In contrast to current exon skipping therapies, which remove a coding exon
and result in a truncated protein, our TANGO mechanism skips out a non-coding NMD exon and yields a full-length functional protein. Our lead product
candidates, STK-001 and STK-002, target an NMD exon and the general mechanism is shown in exhibits 3 and 4 below, with the left panel showing the
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non-productive mRNA failing to be translated into protein and the right panel showing our ASOs binding to the pre-mRNA and redirecting the splicing
machinery.
Exhibit 3: NMD exon without TANGO-ASO
Exhibit 4: NMD exon with TANGO-ASO
Source: Stoke data
Advantages of TANGO
We believe TANGO has the ability to address the underlying genetic cause of disease may have several key advantages versus other genetic
approaches, including:
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Selectively boosts expression only in tissues where the protein is normally expressed. The activities of our ASOs are inherently tissue-
specific. TANGO-mediated upregulation of protein expression only occurs where the gene is being naturally transcribed, limiting the
likelihood of expression in non-native tissues.
No observed unwanted off-target effects. Our ASOs are designed to bind to a specific RNA region to modulate splicing with no observed
activity on global or closely related genes and minimal off-target cross reactivity to the RNAs from other human genes.
Utility across small and large gene targets and mutations. Our ASOs upregulate protein expression regardless of gene size and are not
constrained to smaller gene targets. Our ASOs also upregulate expression of the wild-type allele, meaning the TANGO mechanism does not
rely on targeting a specific mutation. Given this, we believe our therapies are well-suited for diseases caused by multiple mutations in a
single gene, such as many haploinsufficiencies, and provide a single-drug approach that can address the full spectrum of loss-of-function
mutations.
Does not alter DNA. Our ASOs do not create detectable changes at the DNA level and make no detectable irreversible modifications to the
patient’s genome.
Ability to control dose level and duration. Our ASOs provide the ability for dose titration, thereby allowing for dose-dependent and
reversible control of level and duration of protein expression. The ability to titrate dosage provides us with flexibility to address a variety of
tissue types, and potentially enables us to deliver the right dose, at the right location, for each indication.
Simple and scalable manufacturing. Our novel ASOs are synthesized by highly scalable, solid-phase chemical synthesis and we leverage a
well-established contract manufacturing base. We believe the manufacturing requirements for our ASOs are much simpler, more scalable and
more cost-effective than gene therapy and gene editing.
Our approach
We employ a systematic and capital-efficient approach to develop ASOs for genetically defined patient populations. We rely on our proprietary
database to identify novel drug targets and corroborate these findings with existing knowledge to improve our probability of success in the clinic. We
believe that leveraging our proprietary database and focusing on our core competencies of target identification and clinical and regulatory execution will
allow us to reduce the time, cost and risks of drug development.
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Target identification
We continue to make significant investments in our infrastructure to accelerate the pace and scale of target identification. We have built a significant
bioinformatics capability, which includes proprietary bioinformatics algorithms and extensive in-house expertise in whole transcriptome RNA sequencing,
also referred to as RNAseq. RNAseq uses next-generation sequencing to determine the quantity and sequences of RNA in a sample. We leverage large
internal datasets of RNAseq from key tissues known to be addressable with antisense, such as the CNS, eye, liver and kidney, that are purpose-built to
enhance the capture of non-productive events.
We employ machine learning to iteratively refine our search and scoring criteria for the most addressable non-productive mRNA elements based on
internal target validation and hit identification data. Our technology is amenable to a large number of mutations and can thereby potentially provide a
single-drug approach for diseases that are caused by many loss-of-function mutations in a single gene. We have identified approximately 1,200 monogenic,
or single gene, diseases containing at least one NMD-inducing nonproductive event, which we believe may be amenable to TANGO. We believe our
approach is highly predictive and enables rapid and systematic identification of those targets that are most likely to have clinical relevance, thereby
increasing the probability for clinical success and accelerating the expansion of our emerging pipeline.
Hit identification
Once a TANGO target is validated in cells and tissues that are relevant to the disease, we employ cell lines to rapidly screen for hit ASOs that can
increase the target protein expression by specifically preventing the occurrence of the non-productive event in the target mRNA. We have also made
investments in automated equipment to efficiently screen large numbers of ASOs. ASO arrays utilize clinically translatable previously-validated ASO
chemistries, such as 2’ methoxyethyl phosphorothioate and PMO. Hit compounds are evaluated in vivo to identify lead ASOs that possess suitable efficacy
and safety to merit preclinical development. Lead ASOs are subsequently evaluated in animal disease models or ex vivo disease model systems.
Lead evaluation and prioritization
After we have identified lead compounds, we evaluate and prioritize the advancement of new development candidates based on both program-
specific and portfolio-wide considerations. Program-specific criteria include, among other relevant factors, the severity of the unmet medical need, the
likelihood of therapeutic utility, the feasibility of clinical development, the costs of development and the commercial opportunity. Portfolio-wide
considerations include the ability to demonstrate technical success for our platform, thereby increasing the probability of success and learnings for
subsequent programs. We believe that the learnings from our lead Dravet syndrome program will significantly reduce the uncertainty of development of
subsequent programs in our pipeline, particularly those targeting the CNS.
Clinical trial and regulatory execution
We employ a multi-pronged approach to bring new product candidates forward as rapidly as possible. Our approach leverages previously-validated
ASO chemistry and a modality that has been successfully utilized for other diseases, to minimize potential safety concerns and development risk. We have
announced end of study data from two Phase 1/2a open-label studies of STK-001 for Dravet syndrome, MONARCH in the United States and ADMIRAL
in the United Kingdom, each with primary endpoints common to the trials for approved anti-seizure medications (“ASMs”). Additionally, we plan to design
clinical trials with the goal of capturing the potential disease-modifying effects of our TANGO therapies.
Commercialization
We intend to retain broad commercial rights and independently bring our therapies to patients through a lean, targeted internal commercial
organization where we believe we can realize maximum value. To do this, we are focused on ensuring that we can effectively identify and access those
patients who may benefit from our product candidates. We target diseases in which genetic testing is routinely performed, thereby shortening the diagnostic
odyssey and enabling rapid identification of patients who harbor the relevant genetic mutations. We have partnered with Invitae, a leading genetic
information company, to provide genetic testing for pediatric epilepsy at no cost to the patient. Lastly, to maximize patient access, we aim to leverage an
established network of academic and tertiary centers with extensive experience with analogous drug administration.
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Therapeutic focus and product candidates
We believe our ASOs can be applied to treat a wide range of severe diseases, and we have carefully designed and prioritized our pipeline strategy to
maximize this opportunity. We are focused on applying the transformative potential of our TANGO platform to developing medicines for patients with
diseases where the genetic abnormality is known and is found in a single gene. We therefore know for a given disease precisely which gene will need to be
upregulated, thus mitigating against the uncertainty of the disease biology. We are currently focused on developing product candidates to treat autosomal
dominant haploinsufficiency diseases, or disorders in which one copy of a gene is mutated and results in approximately 50% of normal protein expression.
Within haploinsufficiencies, we are prioritizing genetic diseases of the CNS and the eye for our near-term development efforts.
Our Development Programs
Our technology, development experience and scientific knowledge in the field of biologics, RNA splicing, and antisense oligonucleotide chemistry
has enabled us to build a pipeline of programs targeting the underlying cause of severe diseases. Exhibit 5 below represents a summary of our programs,
which are focused on genetic diseases of the CNS and eye.
Exhibit 5: Pipeline
Source: Stoke corporate presentation, March 2024
STK-001 for the treatment of Dravet syndrome
STK-001 is an investigational new medicine for the treatment of Dravet syndrome currently being evaluated in ongoing clinical trials. We believe
that STK-001 has the potential to be the first disease-modifying therapy to address the genetic cause of Dravet syndrome. STK-001 is designed to
upregulate Nav1.1 protein expression by leveraging the non-mutant (wild-type) copy of the SCN1A gene to restore physiological Nav1.1 protein levels,
thereby reducing both occurrence of seizures and significant non-seizure comorbidities.
Disease Overview
Dravet syndrome is one of the most severe genetic epilepsies and affects approximately 6.4 in 100,000 people worldwide, including 5-5.5 in
100,000 people who possess a mutation in the SCN1A gene, according to a 2018 market research report commissioned by us and prepared by Health
Advances, LLC, or the Health Advances Report. The disease is caused by a pathogenic mutation or deletion of the SCN1A gene in approximately 85% of
patients. At least 1,700 different de novo mutations in the SCN1A gene have been identified to date in Dravet syndrome patients, including single
nucleotide substitutions, small insertions or deletions and even whole gene deletions. SCN1A codes for the alpha subunit of the voltage-gated sodium
channel, or Nav1.1 protein, an ion channel that is essential for the generation and propagation of action potentials. More than 95% of the disease-causing
mutations of SCN1A cause loss-of-function, resulting in haploinsufficiency (approximately 50% reduction) of the Nav1.1 protein in select neurons in the
brain. This loss of Nav1.1 channels in inhibitory interneurons and other nerve cells results in Dravet syndrome.
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Dravet syndrome is characterized by multiple seizure types and may progress to status epilepticus or prolonged seizures lasting more than five
minutes that require immediate intervention. Patients typically experience their first seizure before 12 months of age. More than 90% of patients suffer
from at least one non-seizure comorbidity, including severe intellectual and developmental disabilities, motor and speech impairment, autism, attention
deficit hyperactivity disorder and behavioral difficulties. Neurologic function and cognition are usually normal in children with Dravet syndrome up to two
years of age. However, nearly all Dravet syndrome patients exhibit intellectual impairment by the age of four, ranging from minor learning difficulty to
global developmental delay. The time between one year and eight years of age is a critical period for intervention. After eight years of age, nearly all
Dravet syndrome patients exhibit evidence of substantial developmental delay. The symptoms of the disease result in remarkably low quality of life and
shortened life expectancy, and as a result impose an immense burden on individuals and families.
The cognitive impairment in Dravet syndrome is not purely a consequence of seizures. Patients with few seizures have been observed to possess
severe encephalopathy, and conversely patients with frequent seizures have been observed to exhibit relatively minimal cognitive decline. In addition, there
does not appear to be a correlation between cognitive outcome and SCN1A mutation type, whether a missense or nonsense mutation.
Importantly, patients with Dravet syndrome have an increased risk of premature death, primarily due to SUDEP, or Sudden Unexpected Death in
Epilepsy. Dravet syndrome patients have the highest SUDEP rate of any epilepsy. An analysis of mortality in the Epilepsy Genetics Research Program
demonstrated a Dravet syndrome-specific mortality rate of 15.84 per 1,000 patient years. SUDEP was the most common cause of premature death among
Dravet syndrome patients (59%), equating to a Dravet syndrome-specific SUDEP rate of 9.32 per 1,000 patient-years. This is nearly twice the rate for
adults with refractory epilepsy.
Patients with Dravet syndrome are often diagnosed by three years of age, and neither patient gender nor family history of seizures is associated with
risk of Dravet syndrome. Dravet syndrome occurs worldwide and is not concentrated in any particular geographic area or ethnic group. Early diagnosis is
driven by heightened awareness of Dravet syndrome and other genetic epilepsy disorders as well as an emerging consensus amongst epilepsy specialists
that early diagnosis is cost-effective and beneficial for prognosis. Among pediatric Dravet syndrome patients, approximately 90% in North America and
Europe undergo genetic testing as part of their diagnostic work-up, according to a 2021 market research report commissioned by Stoke and prepared by
Recon Strategy.
The incidence of Dravet syndrome is approximately 64 per million births, which translates to an overall prevalence of approximately 35,000 patients
across the United States, Canada, Japan, Germany, France and the United Kingdom, with approximately 16,000 patients in the United States.
Current treatments
Current treatments for Dravet syndrome only address the occurrence of seizures, not the underlying cause, and according to a 2017 study as
published in the Developmental Medicine & Child Neurology Journal, more than 90% of Dravet syndrome patients still report suffering from incomplete
seizure control with existing ASM regimens. As a result, the current treatment strategy involves the use of multiple ASMs, including combinations of
cannabidiol, stiripentol, fenfluramine, clobazam, valproate, topiramate and others. Patients are typically treated with two to four drugs administered
concomitantly, and in most cases the relief provided by polytherapy is insufficient.
Cannabidiol (Epidiolex), fenfluramine (Fintepla) and stiripentol (Diacomit) are currently the only FDA-approved ASMs for the treatment of Dravet
syndrome. None of these approved ASMs address the significant non-seizure comorbidities. Moreover, patients are still likely to be affected by non-seizure
comorbidities and may develop tolerance to these ASMs over time.
Patients with Dravet syndrome need a novel therapeutic that addresses the genetic basis of the disease and treats the large number of seizures and
multiple seizure types that persist despite treatment with existing therapy. Importantly, additional therapy options are needed to address the disabling
comorbidities that occur with Dravet syndrome. If STK-001 is approved by the FDA, we believe our precision medicine approach may have a profound
impact on individuals and families.
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Preclinical data
We have generated compelling preclinical data that demonstrate proof-of-mechanism for STK-001. Our initial target engagement, pharmacology
and efficacy studies were performed in mice, including both wild-type and a Dravet syndrome mouse model. The targeted non-productive splicing event in
SCN1A is highly conserved across multiple species, including mouse, non-human primates and humans. The target sequence for STK-001 is also identical
across species.
We evaluated STK-001 pharmacology and efficacy in transgenic mice with a heterozygous deletion of Scn1a. This model was created by
introducing a targeted deletion in the first coding exon of the Scn1a gene; these mice exhibit many aspects of the Dravet syndrome phenotype including
seizures and premature lethality.
Neonate (postnatal day two) Dravet syndrome mice and wild-type littermate controls were administered a single dose of either placebo (consisting
of a phosphate-buffered solution), or 20 µg of STK-001 (n=~50/group) by intracerebroventricular injection. Animals from each group were monitored
through day 90. Brains were collected from cohorts of these animals at approximately 7 weeks after dosing (placebo: n=11 wild-type mice, n=4 Dravet
syndrome mice; STK-001: n=9 wild-type mice, n=10 Dravet syndrome mice) and 14 weeks after dosing (placebo: n=10 wild-type mice, n=10 Dravet
syndrome mice; STK-001: n=10 wild-type mice, n=10 Dravet syndrome mice). Notably, a single injection of STK-001 restored Nav1.1 protein in Dravet
syndrome mice to levels that are near those of the wild-type mice at both 7 and 14 weeks as shown in exhibit 6. These data demonstrate that STK-001 has
an impact on Nav1.1 protein expression and we believe this may translate to a favorable dosing regimen in humans.
Exhibit 6. Increase of Nav1.1 in Dravet Syndrome (DS) mice after a single dose of STK-001
Source: Han et al., Science Trans Med, 2020
In addition to an increase in the Nav1.1 protein, the administration of a single dose of 20 µg of STK-001 in neonate Dravet syndrome mice (postnatal
day two) resulted in a significant reduction in premature mortality. Treatment with STK-001 resulted in 97% survival of Dravet syndrome mice for the 90-
day post-natal observation period (survival of 33 out of 34 mice was observed in the STK-001 Dravet syndrome mouse group) compared with 23% survival
of placebo-treated mice (survival of 14 out of 62 mice). This is illustrated in exhibit 7.
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Exhibit 7. Reduction in premature mortality in DS mice after administration of STK-001
Source: Han et al., Science Trans Med, 2020
Further preclinical studies of STK-001 have shown significant reductions in seizure frequency in a mouse model of Dravet syndrome (DS). Data
from electroencephalography (EEG) recordings showed 76% (16/21) of DS mice treated with STK-001 were seizure free compared to 48% (10/21) that
were treated with a placebo. An 80% reduction in the average number of spontaneous seizures (3 seizures vs 16 seizures) was also observed among treated
DS mice compared to placebo. EEG is a highly sensitive measure of seizure activity, which enables the detection of seizures that may not be otherwise
visible. These data are published in Han et al., Science Trans. Med, 2020.
Analyses were also performed in silico to understand the specificity of STK-001. We evaluated STK-001 via bioinformatic analysis against all
annotated protein-coding genes to predict potential off-target activities. Results showed no perfect 18- to 16-nucleotide match for STK-001 anywhere in the
transcriptome other than SCN1A pre-mRNA, indicating that STK-001 recognizes a unique sequence in the human transcriptome and should possess
minimal off-target bindings.
Further supporting our specificity analysis, we also evaluated brain samples of wild-type neonate mice to ensure that STK-001 does not alter levels
of other channels in the highly homologous SCN family. Importantly, the mRNA levels of closely related ion channels were not altered in the mouse brain
five days after administration of 10 µg of STK-001 (n=2/group placebo, n=4/group STK-001), as shown in the figure below. Similar analysis was
performed in wild-type and Dravet syndrome mice treated with 20 µg of STK-001 at 7 and 14 weeks after dosing. As illustrated in exhibit 8, STK-001
treated samples showed an increase in expression of the SCN1A gene, but not any of the other SCN family members. These biological studies demonstrate
that STK-001 is highly specific for SCN1A among the highly homologous family of sodium channel genes, limiting the likelihood of off-target activities.
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Exhibit 8. Fold change in mRNA of Scn gene family ion channels
Source: Stoke data.
We also investigated the pharmacology, distribution and tolerability of STK-001 in a study with cynomolgus monkeys. As a pilot experiment, this
study was not required to be performed under Good Laboratory Practices (“GLP”). Pre-pubescent monkeys (age 2-2.5 years old) were administered a
single dose of STK-001 (n=3/group; 4 groups dosed) or control solution (n=2/group; 2 groups dosed) by intrathecal injection at a dose range that we
believe coincides with the estimated therapeutic dose range and stays below the maximum tolerated dose based on tolerability in mice and published data
for molecules of similar chemistry. The animals were sacrificed at 3 days (n=8) and 29 days (n=8) after dosing. An increase in NaV1.1 levels was observed
ranging from 1.1-fold to 2.0-fold, compared to the control group, varying by the anatomical region, dose and day of necropsy, with the greatest changes
observed in the cerebral cortex. The increase in Nav1.1 was also correlated with the presence of STK-001 in brain tissue. Additionally, all doses tested
showed no drug-related toxicities, including no changes in platelet counts or hepatic function, no clinical signs or symptoms over the 28-day period after
administration and no abnormal histopathology.
Single dose GLP toxicology studies in rats and cynomolgus monkeys, that characterized the pharmacology, exposure and tolerability of STK-001
were included in the investigational new drug application (the “IND”) that was submitted to the FDA in late 2019. Additional multiple dose GLP
toxicology data have subsequently been submitted to the FDA and the MHRA (U.K. regulatory agency) to support multiple dosing in the clinic, and the
Company expects to receive data from a second chronic dosing GLP toxicology prior to initiating late-stage clinical development of STK-001.
Clinical program and data
We designed our lead product candidate, STK-001, to treat Dravet syndrome, a severe and progressive genetic epilepsy. This program draws on a
well-defined patient population based on routine genetic testing and learnings from drugs approved for the treatment of Dravet syndrome to inform the
clinical and regulatory pathways for STK-001.
We have announced end of study data from two Phase 1/2a open-label studies of STK-001, MONARCH in the United States and ADMIRAL in the
United Kingdom. The MONARCH study was designed to evaluate single and multiple ascending dose levels of STK-001 administered intrathecally in
children and adolescents with Dravet syndrome. Patients were eligible for the trial if they were between the ages of 2 and 18, had an established diagnosis
of Dravet syndrome and had evidence of a pathogenic genetic mutation in the SCN1A gene. Requiring an SCN1A mutation for trial enrollment allows for a
clear and definitive etiologic diagnosis, a more homogeneous patient population and tailored treatment based on a precision medicine approach. Eligible
patients also failed at least two epilepsy treatments in the past and currently be taking at least one ASM. The protocol called for all medications and
interventions to remain unchanged throughout the trials, which allows for assessment of STK-001 with a variety of ASMs.
The primary objectives were the assessment of the safety and tolerability of STK-001, as well as to characterize blood pharmacokinetics (“PK”) and
cerebrospinal fluid (“CSF”) exposure levels. A secondary objective was to assess the efficacy of STK-001 as an adjunctive ASM treatment with respect to
the percent change from baseline in convulsive seizure frequency over a 12-week treatment period. We also measured non-seizure aspects of the disease,
such as quality of life as secondary endpoints.
These endpoints as well as other exploratory endpoints will be informed based on our two-year observational study (BUTTERFLY). Enrollment in
BUTTERFLY is complete and final 2-year data was presented in December 2023.
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BUTTERFLY was designed to evaluate seizure frequency and non-seizure comorbidities associated with the disease, including motor and speech
impairment, intellectual and developmental disabilities, behavioral deficits and abnormal sleep patterns. Data from the study will support clinical
development plans for STK-001. Data from BUTTERFLY suggest that commonly used cognition assessments, Vineland-III (Vineland Adaptive Behavior
Scale, Third Edition), BSID-III (Bayley Scales of Infant Development, Third Edition), and WPPSI-IV (Wechsler Preschool and Primary Scale of
Intelligence, Fourth Edition) may be useful for clinical studies assessing neurodevelopment and adaptive behavior in patients with Dravet syndrome. While
there was heterogeneity across patient scores on clinical measures at baseline, BUTTERFLY patients did not have statistically significant change from
baseline in the majority of key Vineland-III measures over the 24 months of observation. Additionally, despite treatment of BUTTERFLY patients with the
best available anti-seizure medicines, on average the rate of improvement over 24 months on multiple clinical measures, including the Vineland-III, was
substantially below that of neurotypical peers, and patients continued to experience convulsive seizures over the 24 months at similar frequency to that at
baseline.
In March 2020, we announced the FDA had placed a partial clinical hold on doses of STK-001 above 20mg in the MONARCH study, pending
additional preclinical testing to determine the safety profile of higher doses. When intrathecal doses above what the Company expects to administer in the
clinic were administered to non-human primates (“NHPs”), adverse hind limb paresis was observed. This finding is known to occur following intrathecal
delivery of ASOs to NHPs and is not known to translate to the human experience. When extremely high dose levels were administered, acute convulsions
were observed immediately following STK-001 administration. The dose levels were well above the range of corresponding human doses that would ever
be administered in the clinic and were delivered in a formulation that was at a higher concentration than would be administered in the clinic. There is no
apparent correlation of these acute adverse events with the mechanism of action of STK-001.
Since March 2020, the FDA has agreed to allow us to add additional higher dose levels in the United States. Additionally, the Company announced
in March 2024 that the FDA provided clearance for the evaluation of three doses of 70mg in the MONARCH study and continued dosing of 45mg in our
SWALLOWTAIL Open Label Extension (“OLE”) study. The FDA partial clinical hold remains in place and limits dosing in the United States to these
levels.
The ADMIRAL study was a Phase 1/2a open-label study of children and adolescents ages 2 to <18 who have an established diagnosis of Dravet
syndrome and have evidence of a genetic mutation in the SCN1A gene. The primary objectives for the study were to assess the safety and tolerability of
multiple doses of STK-001 up to 70mg, as well as to determine the pharmacokinetics in plasma and exposure in cerebrospinal fluid. A secondary objective
was to assess the effect of multiple doses of STK-001 as an adjunctive antiepileptic treatment with respect to the percentage change from baseline in
convulsive seizure frequency over a 24-week treatment period. Non-seizure aspects of the disease, such as overall clinical status and quality of life, were
also measured as secondary endpoints.
Patients who participated in the MONARCH study in the United States or the ADMIRAL study in the United Kingdom and met study entry criteria
are eligible to continue treatment in SWALLOWTAIL or LONGWING, respectively, both of which are designed to evaluate the long-term safety and
tolerability of repeated doses of STK-001. SWALLOWTAIL and LONGWING are also providing information on the preliminary effects of STK-001 on
both seizures and non-seizure aspects of the Dravet syndrome, such as behavior, cognition, and overall quality of life. Patients in LONGWING currently
receive chronic dosing of 45mg of STK-001, and in March 2024, we announced that the FDA will allow chronic dosing in SWALLOWTAIL in the United
States to increase to 45mg as well.
In March 2024, we announced end of study data from the Phase 1/2a open-label studies of STK-001. The pooled data from these studies
demonstrated that STK-001 was generally well tolerated. 30% (24/81) of the patients experienced a treatment-emergent adverse event that was related to
study drug, with the most common being CSF protein elevations and procedural vomiting. 22% (18/81) of the patients had a treatment-emergent serious
adverse event, which were all assessed as unrelated to study drug except for the previously reported case of one patient who experienced Suspected
Unexpected Serious Adverse Reactions.
One of several secondary endpoints for these studies was a comparison of the percent change in convulsive seizure frequency as measured by daily
seizure diaries and calculated over 4-week periods: between baseline and 12 weeks after treatment; and between baseline and end of study. Data from
patients treated with multiple doses of 70mg of STK-001 demonstrated the most substantial reductions in convulsive seizures on top of the standard of care,
as illustrated in Exhibit 9 below.
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Exhibit 9. Median reductions in convulsive seizure frequency over time
Patients who were treated with one, two or three doses of 70mg demonstrated substantial reductions in convulsive seizure frequency at three months
and at six months after the last dose, as shown in Exhibit 10 below.
Exhibit 10. Reductions in convulsive seizure frequency among patients treated with 70mg doses
*Seizure data excluded from month 5-6 for 1 patient because >50% seizure diary was missing
†Seizure data excluded for 2 patients (1 patient prior to 3m after last dose, 1 prior to 6m after last dose) following a change in
background antiseizure
medicines
Additional data from patients who received cumulative doses of at least 30mg of STK-001 in the Phase 1/2a studies and then continued treatment
with 30mg or 45mg doses of STK-001 every four months in one of the two OLEs demonstrated durable reductions in convulsive seizure frequency
throughout the course of treatment, as shown in Exhibit 11 below.
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Exhibit 11. Durable reductions in convulsive seizure frequence in OLE studies
Data from a mixed-effects model for repeated measures analysis of these patients also indicated clinically meaningful improvements from baseline
over 12 months in the OLEs in multiple measures of cognition and behavior, including multiple sub-domains of the Vineland-III.
We plan to meet with regulatory authorities to discuss a registrational study design that includes initial doses of 70mg followed by continued dosing
at 45mg of STK-001 and anticipate providing an update later in 2024.
STK-002 for the treatment of Autosomal Dominant Optic Atrophy (ADOA)
STK-002 is our lead clinical candidate for the treatment of ADOA. STK-002 is designed to upregulate OPA1 protein expression by leveraging the
non-mutant (wild-type) copy of the OPA1 gene to restore OPA1 protein expression with the aim to stop or slow vision loss in patients with ADOA. To date,
we have generated preclinical data demonstrating proof-of-mechanism and proof-of-concept for STK-002.
Disease Overview
ADOA is the most common inherited optic nerve disorder seen in clinical practice. ADOA causes progressive and irreversible vision loss in both
eyes starting in the first decade of life. Many children and adults progress to blindness. Roughly half of people with ADOA fail driving standards and up to
46% are registered as legally blind. The disease affects one in 30,000 people globally with a higher incidence of approximately one in 10,000 in Denmark
due to a founder effect. 65% to 90% of ADOA is caused by mutations in one allele of the OPA1 gene, most of which lead to haploinsufficiency and disease
manifestation. More than 400 different OPA1 mutations have been reported in people diagnosed with ADOA. Most mutations result in a severe decrease –
up to 50% – of the normal amount of the OPA1 protein. There is no strong genotype-phenotype correlation.
OPA1 is a dynamin-related GTPase that plays a key role in maintaining mitochondria structure and dynamics. The OPA1 protein is imported into the
mitochondria and is the crucial molecule that mediates inner mitochondria membrane fusion and cristae morphogenesis and is critical for oxidative
phosphorylation and Adenosine triphosphate (“ATP”) synthesis. Insufficient OPA1 activity causes mitochondria dysfunction with consequent insufficient
ATP production, excess reactive oxygen species production and eventual cell death. High energy demanding cells such as neurons and cardiomyocytes are
particularly susceptible to mitochondria dysfunction, and retinal ganglion cells (“RGCs”) are a neuronal cell type most susceptible to loss of OPA1 protein
as evidenced by RGC death in ADOA caused by OPA1 haploinsufficiency.
A clinical diagnosis of ADOA is made when a patient meets some or all of the following criteria: pathogenic variant of the OPA1 gene identified in
the patient or a family member; reduced visual acuity; temporal disc pallor; visual field defect; color vision defect (acquired blue-yellow loss); thinning of
retinal nerve fiber layer and abnormal visual evoked potentials. Clinical findings are based on: intraocular pressure measurement; visual field assessment;
color discrimination; dilated slit lamp biomicroscopy; optical coherence tomography; or visual electrophysiology. Patients suspected of having ADOA are
recommended to receive genetic testing to confirm the clinical diagnosis, help identify other family members who are
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affected and ensure patients avoid stressors that could increase disease progression (e.g. smoking, alcohol). The prognosis for many patients with ADOA is
poor and the rate of visual loss can be difficult to predict given significant inter- and intra-familial variability.
Current Treatments
There are currently no available treatments for ADOA. Because ADOA causes deterioration of the optic nerves, corrective aids such as glasses or
contacts do not help to improve vision lost to the disease. Supportive services and low-vision aids are offered for patients with severely decreased visual
acuity. Our ASOs are designed to target the underlying cause of ADOA, which is OPA1 haploinsufficiency, by decreasing a non-productive mRNA splicing
event in the OPA1 gene to increase productive OPA1 mRNA and OPA1 protein in the retinal ganglion cells.
Preclinical data
We previously identified a novel exon inclusion event (“Exon X”) in OPA1 that leads to non-productive mRNA due to introduction of a premature
termination codon (“PTC”) (Exhibit 12 below). Our preclinical studies showed that our ASOs blocked the incorporation of Exon X with consequent dose-
dependent increase in productive OPA1 mRNA and protein due to reduction of Exon X-directed NMD of OPA1 mRNA (Exhibit 13 below). We have now
demonstrated that a single injection of ASO-14 surrogate in the rabbit eye leads to a dose-dependent increase in ASO accumulation in the retina that
correlated with an increase in target engagement (removal of Exon X) and an increase in OPA1 protein (Exhibit 14 below). The study was conducted using
female New Zealand white rabbits that were injected with a single dose of vehicle alone or vehicle containing ASO (n=3/group). On Days 15 and 29, the
retinal tissue was collected and analyzed. Retinal exposure of ASO-14 surrogate (ST-1102) was elevated with increased dosing, dose-dependent target
engagement was seen at all three time-points examined, and protein increase of OPA1 protein was observed at both Day 15 and Day 29 of the study. We
further showed that in OPA1 haploinsufficient human cells, ASO-14-mediated increase in OPA1 protein translates to improved mitochondrial function as
measured by the substantial restoration of ATP levels in the treated cells (Exhibit 15 below). ATP is produced by the mitochondria and is the key energy
carrying molecule in cells. We observed a 20% ATP deficit in OPA1 +/- HEK293. Treatment with ASO-14 restored ATP levels to ~90% of control cells.
Exhibit 12: A representation of the non-productive mRNA splicing event in OPA1
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Exhibit 13: Inhibition of NMD with cycloheximide allows for evaluation of the abundance of this event in vitro
Exhibit 14: Rabbit ASO demonstrates dose-dependent OPA1 protein increase in rabbit retina
Source: Venkatesh A, et al. Antisense oligonucleotide mediated increase of OPA1 expression using TANGO technology for treatment of autosomal dominant optic atrophy. Presented at The
Association for Research in Vision and Ophthalmology; May 3-7, 2020; Baltimore, MD.
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Exhibit 15: Human ASO demonstrates ATP upregulation in OPA1 haploinsufficient HEK293 cells
Source: Stoke data
In May 2021, we presented new preclinical efficacy data at the Association for Research in Vision and Ophthalmology (ARVO) Annual Meeting
demonstrating that our TANGO ASOs can increase OPA1 protein levels and improve mitochondrial function in human cells derived from ADOA patients
with different OPA1 mutations. Exhibit 16 below demonstrates that our TANGO ASO increases OPA1 protein and ATP linked mitochondrial respiration in
ADOA patient cells.
Exhibit 16: TANGO ASO increases OPA1 protein and ATP linked mitochondrial respiration in ADOA patient cells
Source (left graph): Stoke data Source (right graph): Venkatesh A, et al. Antisense oligonucleotide mediated increase in OPA1 improves mitochondrial function in fibroblasts derived from
patients with autosomal dominant optic atrophy (ADOA). Presented at The Association for Research in Vision and Ophthalmology; May 1-7, 2021.
In May 2022, we presented further preclinical data for STK-002 demonstrating in-vivo, dose-related target engagement and OPA1 protein
upregulation with sustained effect in NHP retinal tissue following administration of STK-002 (Exhibit 17). Additionally, a dose-related increase in OPA1
protein was detected in retinal ganglion cells of NHPs treated with STK-002.
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Exhibit 17. Dose-related target engagement and OPA1 protein upregulation in retinal tissue of NHPs following IVT administration of STK-002
Source Venkatesh A, et al. STK-002, an Antisense Oligonucleotide (ASO) for the Treatment of Autosomal Dominant Optic Atrophy (ADOA), is Taken Up by Retinal Ganglion Cells (RGC) and
Upregulates OPA-1 Protein Expression After Intravitreal Administration to Non-human Primates (NHPs). ASGCT; May 16-19, 2022.
Clinical Plans
We have completed enrolled (n=48) across 10 sites in the United States, United Kingdom, Italy and Denmark in our two-year prospective natural
history study of people ages 8 to 60 who have a confirmed diagnosis of ADOA that is caused by an OPA1 mutation (FALCON study). The FALCON study
is designed to evaluate the rate of change in structural and functional ophthalmic assessments. Data collected from the FALCON study will support the
clinical development of STK-002.
We have also received authorization in the United Kingdom to proceed with a Phase 1 open-label study (OSPREY) of children and adults ages 6 to
55 who have an established diagnosis of ADOA and have evidence of a genetic mutation in the OPA1 gene. The primary objectives for the study are to
assess the safety and tolerability of single ascending doses of STK-002, as well as to determine the exposure in blood. A secondary objective is to assess
efficacy following intravitreal administration of STK-002 in one eye of each patient as measured by changes in visual function and ocular structure as well
as quality of life in patients with ADOA. We expect the OSPREY study to start in 2024.
Additional product opportunities
We are also advancing additional programs focused on multiple targets, including haploinsufficiency diseases of the CNS and eye. These tissues are
affected in many severe genetic diseases.
Longer-term, we believe that ASOs designed using TANGO may have the potential to upregulate non-mutated genes in biological pathways to treat
both rare and non-rare diseases or conditions that are caused by multiple genes or that are multifactorial. For these diseases, we intend to opportunistically
secure partnerships with biopharmaceutical partners whose scientific, development or commercial capabilities complement our own.
Acadia License and Collaboration Agreement
In January 2022, we entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc. (“Acadia”) for the discovery, development
and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the CNS. The
agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest. In connection
with each target, we will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed products. With
respect to SYNGAP1, we have agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection
therewith we granted to Acadia worldwide, co-exclusive (with us) licenses for such
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licensed products. With respect to MECP2 and the neurodevelopmental target, we granted to Acadia worldwide, exclusive licenses to develop and
commercialize licensed products for such targets.
Pursuant to the terms of the agreement, we received an upfront payment of $60.0 million from Acadia. Acadia agreed to fund the research to
identify potential licensed products for MECP2 and the neurodevelopmental target, and we will equally fund with Acadia the research to identify potential
licensed products for SYNGAP1. We are eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of
certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were
achieved at least once. With respect to licensed products for MECP2 and the neurodevelopmental target, we are also eligible to receive tiered royalties at
percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide. Royalties payable under the
agreement are subject to standard royalty reductions. For SYNGAP1 licensed products that we are co-developing and co-commercializing, we will be
responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization.
With respect to each SYNGAP1 licensed product being co-developed or co-commercialized, the agreement will remain in effect, unless earlier
terminated, until the parties have agreed to permanently abandon the further development and commercialization of such licensed product. With respect to
licensed products for MECP2 and the neurodevelopmental target, the agreement will remain in effect, unless earlier terminated, until the expiration, on a
country-by-country and licensed product-by-licensed product basis, of the applicable royalty term, at which point the license for such licensed product shall
become fully paid-up, royalty-free, perpetual and irrevocable in such country.
The agreement also contains customary provisions for termination by Acadia for convenience and by either party for cause, including for material
breach (subject to cure). We have standard reversion rights in connection with certain early termination events.
SYNGAP1 syndrome is a rare neurological disorder characterized by moderate to severe intellectual disability that is evident in early childhood.
Mutations in the SYNGAP1 gene (which produces the SynGAP protein) were first identified in 2009 and since then, an increasing number of children with
SYNGAP1 syndrome have been identified. Normal levels of SynGAP protein are essential for proper brain function and development. Mutations in the
SYNGAP1 gene also play an important role in the development of epileptic encephalopathies (DEEs). The severity and onset of symptoms can vary from
patient to patient. SYNGAP1 syndrome is characterized by developmental delay or intellectual disability, generalized epilepsy, and autism spectrum
disorder (ASD) and other behavioral abnormalities. More than 80% of cases of SYNGAP1 syndrome are caused by a haploinsufficiency of the SYNGAP1
gene. SYNGAP1 syndrome is estimated to account for 1% to 2% of all intellectual disability cases. There are currently no approved treatments for
SYNGAP1 syndrome.
Rett syndrome is a rare, debilitating neurological disorder that occurs primarily in females following apparently normal development for the first six
months of life. Rett syndrome is often misdiagnosed as autism, cerebral palsy, or non-specific developmental delay. Rett syndrome is caused by mutations
on the X chromosome on a gene called MECP2. There are more than 200 different mutations found on the MECP2 gene that interfere with its ability to
generate a normal gene product. Rett syndrome occurs worldwide in approximately one of every 10,000 to 15,000 female births and in the United States
impacts 6,000 to 9,000 patients. Rett syndrome causes problems in brain function that are responsible for cognitive, sensory, emotional, motor and
autonomic function. Typically, with symptoms presenting between 6 to 18 months of age, patients experience a period of rapid decline with loss of
purposeful hand use (fine motor skills), development of hand stereotypies, absent or impaired mobility (gross motor skills), loss of communication skills
(including eye contact) and inability to independently conduct activities of daily living. Symptoms also include seizures, disorganized breathing patterns, an
abnormal side-to-side curvature of the spine (scoliosis), and sleep disturbances. Currently, there are no FDA-approved medicines for the treatment of Rett
syndrome.
Manufacturing
We currently contract with third parties to manufacture our products undergoing late-preclinical and clinical testing and anticipate using third parties
for all commercial manufacturing. We do not own or operate facilities for product manufacturing, packaging, storage and distribution, or testing. We have
personnel with extensive technical, manufacturing, analytical and quality experience and good project management to oversee contract manufacturing and
testing activities. We will continue to expand and strengthen our network of third-party providers but may also consider investing in additional internal
manufacturing capabilities in the future if there is a technical need, or a strategic or financial benefit.
Manufacturing is subject to extensive regulations that impose procedural and documentation requirements. At a minimum these regulations govern
record keeping, manufacturing processes and controls, personnel, quality control and quality assurance. Our systems, procedures and contractors are
required to be in compliance with these regulations and are assessed through regular monitoring and formal audits.
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Drug substance
Oligonucleotide drug substance requirements for our most advanced programs can be readily met by a variety of domestic and international
contractors. Many of these contractors are also able to source all the required raw materials, which allows us to consolidate raw material procurement and
drug substance manufacturing activities with a single supplier. To ensure supply chain continuity, we plan to establish supply agreements with alternative
suppliers as appropriate. As part of each development program, efforts will be made to invest in process changes to improve purity and yield as warranted.
Future drug substance compositions may require different manufacturing capabilities, which will be addressed through either expanded capability
with existing contractors or establishing manufacturing supply relationships with new contractors. These changes in composition may also require new
supply chain agreements with contractors that specialize in raw material manufacturing. Our internal personnel will work to identify and establish
relationships with contractors that may be ideally suited to meeting these new manufacturing requirements.
Drug product
For the near future, we expect all our oligonucleotide drug products to consist of drug substance formulated in either saline, buffered saline, or some
other diluent appropriate for intrathecal, intravitreal, subcutaneous, or intravenous injection. These types of formulations can be manufactured using
common processes and readily available materials. We are establishing agreements with a variety of contractors that are suitably equipped to manufacture,
package, and test these types of oligonucleotide drug product formulations for subsequent shipment to clinical sites. Several of these manufacturers would
also be capable of formulation and packaging for commercial use.
Competition
The biotechnology and biopharmaceutical industries, and the genetic medicines fields, are characterized by rapid evolution of technologies, fierce
competition and strong defense of intellectual property. Any product candidates that we successfully develop and commercialize will have to compete with
existing therapies and new therapies that may become available in the future. While we believe that our technology, development experience and scientific
knowledge in the field of biologics, RNA splicing, and antisense oligonucleotide chemistry provide us with competitive advantages, we face potential
competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions
and governmental agencies, and public and private research institutions that conduct research, seek patent protection, and establish collaborative
arrangements for research, development, manufacturing and commercialization.
While therapeutic modalities, including gene therapy, gene editing, modified RNA and protein-based drugs, are currently being developed to address
monogenic diseases, most of these approaches are focused on autosomal recessive or autosomal dominant gain-of-function diseases. The nature and
fundamental limitations of these approaches make them less suited for addressing the underlying cause of autosomal dominant haploinsufficiencies. Other
next generation antisense oligonucleotides have also generally had limited success in upregulating gene expression of haploinsufficiencies, due to a focus
on indirectly and weakly validated mechanisms of action such as targeting microRNAs or long non-coding RNAs that are associated with a gene transcript.
We are pioneers in developing disease-modifying therapies to treat haploinsufficiencies and are uniquely positioned to exploit this significant opportunity
with our TANGO platform.
If our current product candidate, STK-001, is approved for the treatment of Dravet syndrome, it may compete with other products currently
marketed or in development. Currently marketed ASMs range from cannabidiols, such as Jazz Pharmaceuticals’ Epidiolex, Fintepla® (fenfluramine) from
UCB, to GABA receptor agonists, such as clobazam and stiripentol, to glutamate blockers, such as topiramate. Companies such as Ovid
Therapeutics/Takeda, Xenon Pharmaceuticals, Eisai Pharmaceuticals, Epygenix, Longboard Pharmaceuticals, CAMP4, Encoded Therapeutics and others
are also developing treatments for Dravet syndrome. Many of the currently marketed ASMs are available as generics. In addition, numerous compounds are
in clinical development for treatment of epilepsy. To our knowledge, the clinical development pipeline for non-disease modifying therapies includes
cannabinoids, 5-HT release stimulants, cholesterol 24-hydroxylase inhibitors, potassium channel openers, and sodium channel antagonists from a variety of
companies. Importantly, we believe none of the drugs in clinical development address the underlying genetic cause of Dravet syndrome. However, one
company (Encoded Therapeutics) has announced a clinical development plan for a gene regulation therapy program in Dravet syndrome that may address
the underlying genetic cause of Dravet syndrome.
Our second product candidate, STK-002, is in development for treatment of ADOA. There are no products currently marketed or in clinical
development for treatment of ADOA. To our knowledge, there are also very limited preclinical
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development efforts beyond our product candidate. We believe that PYC Therapeutics is developing a cell penetrating peptide PMO conjugated to ASO for
the treatment of ADOA.
Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical, and human resources than we do.
Accordingly, our competitors may be more successful than us in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Merger and
acquisition activity in the biotechnology and biopharmaceutical industries may result in even more resources being concentrated among a smaller number
of our competitors. These companies also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our
commercial opportunity could be substantially limited if our competitors develop and commercialize products that are more effective, safer, less toxic,
more convenient or less expensive than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain
regulatory approvals before us, resulting in our competitors building a strong market position in advance of the entry of our products. In addition, our
ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of other drugs. The key competitive
factors affecting the success of all of our programs are likely to be their efficacy, safety, convenience and availability of reimbursement.
Reimbursement
The regulations that govern pricing and reimbursement for new drugs vary widely from country to country. Some countries require approval of the
sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign
markets, prescription biopharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, a
drug company can obtain regulatory approval for a product in a country, but then be subject to price regulations that delay commercial launch of that
product.
A drug company’s ability to commercialize any products successfully will also depend in part on the extent to which coverage and adequate
reimbursement for these products and related treatments will be available from third-party payors, including government authorities, such as Medicare and
Medicaid, private health insurers and other organizations. Patients who are provided medical treatment for their conditions generally rely on third-party
payors to reimburse all or part of the costs associated with their treatment. Coverage and adequate reimbursement from third-party payors are critical to
new product acceptance. Even if one or more products are successfully brought to the market, these products may not be considered cost effective, and the
amount reimbursed for such products may be insufficient to allow them to be sold on a competitive basis. Third-party payors who reimburse patients or
healthcare providers, such as government plans, are requiring that drug companies provide them with predetermined discounts from list prices and are
seeking to reduce the prices charged or the amounts reimbursed for biopharmaceutical products.
Significant delays can occur in obtaining reimbursement for newly-approved drugs or therapeutic biologics, and coverage may be more limited than
the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities. Moreover, eligibility for
reimbursement does not imply that any drug will be reimbursed in all cases or at a rate that covers a drug company’s costs, including research,
development, manufacture, sale and distribution.
Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover a drug company’s costs and may not be made
permanent. Reimbursement rates may be based on payments allowed for lower cost drugs or therapeutic biologics that are already reimbursed, may be
incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs or
therapeutic biologics may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future
relaxation of laws that presently restrict imports of drugs or therapeutic biologics from countries where they may be sold at lower prices than in the United
States. Further, no uniform policy for coverage and reimbursement exists in the United States. Third-party payors often rely upon Medicare coverage policy
and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare
determinations. Therefore, coverage and reimbursement can differ significantly from payor to payor.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business,
including obtaining, maintaining and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect
our proprietary position by, among, other methods, pursuing and
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obtaining patent protection in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions,
improvements, platforms and product candidates that are important to the development and implementation of our business. Our patent portfolio, including
in-licensed patents and patent applications, is intended to cover, but is not limited to, our technology platforms, product candidates and components thereof,
their methods of use and processes for their manufacture, and any other inventions that are commercially important to our business. We also rely on trade
secret protection of our confidential information and know-how relating to our proprietary technology, platforms and product candidates, continuing
innovation, and in-licensing opportunities to develop, strengthen, and maintain our position in our TANGO platform and product candidates. Our
commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions and
improvements; to preserve the confidentiality of our trade secrets; to maintain our licenses to use intellectual property owned or controlled by third parties;
to defend and enforce our proprietary rights, including our patents; to defend against challenges and assertions by third parties of their purported
intellectual property rights; and to operate without infringement of valid and enforceable patents and other proprietary rights of third parties.
With respect to our TANGO platform, we have exclusively licensed intellectual property for our TANGO technology from the University of
Southampton, which includes issued U.S. and foreign patents and pending U.S. and foreign patent applications that cover the TANGO mechanisms. As of
December 31, 2023, the issued U.S. patents, issued foreign patents, pending U.S. patent applications and pending foreign patent applications that we have
licensed from the University of Southampton are anticipated to expire between 2035 and 2036, absent any patent term adjustments or extensions.
Separately, we have obtained patents and filed patent applications with claims that are intended to cover compositions of matter of oligonucleotides
designed to target specific elements in genes for many genetic diseases that we believe are amenable to upregulation of target protein expression using our
TANGO platform. As of December 31, 2023, the issued U.S. patents, the issued foreign patents and any patents that may issue from the currently pending
patent applications, including PCT international applications, U.S. patent applications, and foreign patent applications, are expected to expire between 2036
and 2044, absent any patent term adjustments or extensions.
With respect to STK-001, as of December 31, 2023, we have exclusively licensed U.S. patents that cover the mechanism of action of STK-001, as
well as foreign patents and pending foreign patent applications. The issued patents and any patents that may issue from these pending patent applications
are expected to expire between 2035 and 2036, absent any patent term adjustments or extensions. As of December 31, 2023, we also own U.S. patents, a
pending PCT international application, pending U.S. patent applications, foreign patents and pending foreign patent applications relating to STK-001, and
the U.S. patents any patents that may issue from these pending patent applications are expected to expire between 2038 and 2044, absent any patent term
adjustments or extensions.
With respect to STK-002, as of December 31, 2023, we have exclusively licensed U.S. patents that cover the mechanism of action of STK-002, as
well as foreign patents and pending foreign patent applications. The issued patents and any patents that may issue from these pending patent applications
are expected to expire between 2035 and 2036, absent any patent term adjustments or extensions. As of December 31, 2023, we also own issued U.S. and
foreign patents, a pending PCT international application, pending U.S. patent applications, and pending foreign patent applications relating to STK-002,
and any patents that may issue from these pending patent applications are expected to expire between 2038 and 2044, absent any patent term adjustments or
extensions.
The term of individual patents depends upon the laws of the countries in which they are obtained. In most countries in which we file, the patent term
is 20 years from the earliest date of filing of a non-provisional patent application. However, the term of United States patents may be extended for delays
incurred due to compliance with the FDA requirements or by delays encountered during prosecution that are caused by the United States Patent and
Trademark Office (the “USPTO”). For example, for drugs that are regulated by the FDA under the Hatch-Waxman Act, it is permitted to extend the term of
a patent that covers such drug for up to five years beyond the normal expiration date of the patent. For more information on patent term extensions, see
“Business—Government regulation: The Hatch-Waxman Act—Patent term extension”. In the future, if and when our biopharmaceutical product candidates
receive FDA approval, we expect to apply for patent term extensions on patents covering those product candidates. We intend to seek patent term
extensions to any of our issued patents in any jurisdiction where these are available; however, there is no guarantee that the applicable authorities, including
the USPTO and FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. Our
currently issued patents will likely expire on dates ranging from 2035 to 2041, unless we receive patent term extension or patent term adjustment, or both.
If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2036 to 2044, unless we receive
patent term extension or patent term adjustment, or both. However, the actual protection afforded by a patent varies on a product-by-product basis, from
country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions,
the availability of legal remedies in a particular country and the validity and enforceability of the patent.
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The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding
the scope of claims allowable in patents in the field of genetic therapy has emerged in the United States. The patent situation outside of the United States is
even more uncertain. Changes in the patent laws and rules, either by legislation, judicial decisions, or regulatory interpretation in the United States and
other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of
our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, importing or otherwise commercializing
any of our patented inventions, either directly or indirectly, will depend in part on our success in obtaining, defending and enforcing patent claims that
cover our technology, inventions, and improvements. With respect to both licensed and company-owned intellectual property, we cannot be sure that
patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we
be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our platform and
product candidates and the methods used to manufacture them. Moreover, our issued patents and those that may issue in the future may not guarantee us the
right to practice our technology in relation to the commercialization of our platform’s product candidates. The area of patent and other intellectual property
rights in biotechnology is an evolving one with many risks and uncertainties, and third parties may have blocking patents that could be used to prevent us
from commercializing our TANGO platform and product candidates and practicing our proprietary technology. Our issued patents and those that may issue
in the future may be challenged, narrowed, circumvented or invalidated, which could limit our ability to stop competitors from marketing related platforms
or product candidates or limit the length of the term of patent protection that we may have for our TANGO platform and product candidates. In addition,
the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology.
Furthermore, our competitors may independently develop similar technologies. For these reasons, we expect to have competition for our TANGO platform
and product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is
possible that before any product candidate can be commercialized, any related patent may expire or remain in force for only a short period following
commercialization, thereby reducing any advantage of the patent. For this and other risks related to our proprietary technology, inventions, improvements,
platforms and product candidates, please see the section entitled “Risk Factors—Risks Related to our Intellectual Property.”
We have filed for trademark protection of the “Stoke Therapeutics” mark with the United States Patent and Trademark Office and foreign trademark
organizations. We have registered, and intend to maintain, the trademark “Stoke Therapeutics” in the United States Patent and Trademark Office and in
numerous other jurisdictions, including but not limited to the European Union, China, India, and Canada.
We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our confidential and
proprietary information as trade secrets, including through contractual means with our employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain
access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our
employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements under the
commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or
financial affairs developed or made known to the individual during the individual’s relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and which are
related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or
proprietary information, are our exclusive property. In many cases our confidentiality and other agreements with consultants, outside scientific
collaborators, sponsored researchers and other advisors require them to assign or grant us licenses to inventions they invent as a result of the work or
services they render under such agreements or grant us an option to negotiate a license to use such inventions. Despite these efforts, we cannot provide any
assurances that all such agreements have been duly executed, and any of these parties may breach the agreements and disclose our proprietary information,
and we may not be able to obtain adequate remedies for such breaches.
We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our
premises and physical and electronic security of our information technology systems. Although we have confidence in these individuals, organizations and
systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. To the extent that our employees,
contractors, consultants, collaborators and advisors use intellectual property owned by others in their work for us, disputes may arise as to the rights in
relation to the resulting know-how or inventions. For more information, please see the section entitled “Risk Factors – Risks Related to our Intellectual
Property.”
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License and research agreements
In July 2015, the Company entered into a worldwide license agreement with CSHL (the “CSHL Agreement”), with respect to TANGO patents.
Under the CSHL Agreement, the Company received an exclusive (except with respect to certain government rights and non-exclusive licenses), worldwide
license under certain patents and applications relating to TANGO. The CSHL Agreement obligated the Company to make payments that are contingent
upon certain milestones being achieved. The Company was also required to pay royalties, tiered based on the scope of patent coverage for each licensed
product, ranging from a low-single digit percentage to a mid-single digit percentage on annual net sales. These royalty obligations applied on a licensed
product-by-licensed product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a CSHL patent covering the
applicable licensed product or (ii) the expiration of any regulatory exclusivity for the applicable licensed product. In addition, if the Company sublicensed
the rights under the CSHL Agreement, it was required to pay a maximum of twenty percent of the sublicense revenue to CSHL, which may have been
reduced to a mid-teens or a mid-single digit percentage upon achievement of certain clinical milestones for the applicable licensed product. Finally, the
Company was required to pay an annual license maintenance fee of $0.01 million, which amount is creditable against any owed royalty or milestone
payments. The maximum aggregate potential milestone payments payable totaled approximately $0.90 million. Additionally, certain licenses under the
CSHL Agreement required the Company to reimburse CSHL for certain past and ongoing patent related expenses, however there were no expenses related
to these reimbursable patent costs during the years ended December 31, 2023 and 2022. After the completion of a 90-day waiting period, in May 2023 the
Company terminated the CSHL Agreement. The Company does not expect the termination of the CSHL Agreement to have a significant impact on the
intellectual property underlying any of its current product candidates, including STK-001 and STK-002, or its continued development of the TANGO
platform.
In April 2016, the Company entered into an exclusive, worldwide license agreement with the University of Southampton (the “Southampton
Agreement”), whereby the Company acquired rights to foundational technologies related to the Company’s TANGO technology. Under the Southampton
Agreement, the Company receives an exclusive, worldwide license under certain licensed patents and applications relating to TANGO. Under the
Southampton Agreement, the Company may be obligated to make additional payments that are contingent upon certain milestones being achieved, as well
as royalties on future product sales. These royalty obligations survive until the latest of (i) the expiration of the last valid claim of a licensed patent covering
a subject product or (ii) the expiration of any regulatory exclusivity for the subject product in a country. In addition, if the Company sublicenses its rights
under the Southampton Agreement, the Company is required to pay a mid-single digit percentage of the sublicense revenue to the University of
Southampton. As of December 31, 2023, the Company had paid $0.7 million under the Southampton Agreement as a result of entering into the Acadia
Pharmaceuticals Inc. license and collaboration agreement in January 2022 (see Note 8). Additionally, certain licenses under the Southampton Agreement
require the Company to reimburse the University of Southampton for certain past and ongoing patent related expenses. For the year ended December 31,
2023 these expenses were $0.2 million compared to $0.02 million for the year ended December 31, 2022.
Government Regulation
FDA approval process
In the United States, pharmaceutical products are subject to extensive regulation by FDA. The Federal Food, Drug, and Cosmetic Act (the “FDCA”)
and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical
products. Failure to comply with applicable U.S. regulations may subject a company to a variety of administrative or judicial sanctions, such as a clinical
hold, FDA refusal to approve pending new drug applications, or NDAs, warning or untitled letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the U.S. typically involves preclinical
laboratory and animal testing followed by submission to the FDA of an IND which must become effective before clinical testing may commence. Data
from adequate and well-controlled clinical trials are required to demonstrate the safety and effectiveness of the drug for each indication for which FDA
approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially
based upon the type, complexity and novelty of the product or disease.
Preclinical requirements include laboratory evaluation of product chemistry, formulation, pharmacology and toxicity studies in animal trials to
assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and
requirements, including GLP. The results of preclinical testing are submitted to FDA as part of an IND along with other information, including information
about product chemistry,
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manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and
carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. The clinical trial
proposed in the IND may begin after a safe to proceed communication is received from the FDA.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified
investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice (“GCP”), an
international standard designed to protect the rights and health of patients and to define the roles, qualifications and responsibilities of clinical trial
sponsors, administrators and monitors; as well as (iii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in
monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must
be submitted to the FDA as part of the IND.
The FDA may order a clinical hold, which is the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if
it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial
patients. If FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized
by the FDA. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board
(“IRB”), for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the
IRB’s requirements, or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1,
the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological
actions, side effects associated with increasing doses, and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a limited patient
population to determine the effectiveness of the drug generally for a specific indication, dosage tolerance and optimum dosage, and to identify common
adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3
trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically
dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling
of the drug. In most cases FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3
trial with other confirmatory evidence may be sufficient in rare instances, including (1) where the study is a large multicenter trial demonstrating internal
consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a
potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible or (2) when in conjunction with
other confirmatory evidence.
After completion of the required clinical testing, an NDA is prepared and submitted to FDA. FDA approval of the NDA is required before
marketing of the product may begin in the U.S. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data
relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission
of most NDAs is additionally subject to a substantial application user fee, currently $4,048,695 for fiscal year 2024, and the applicant under an approved
NDA is also subject to an annual program fee, currently $416,429 for each prescription drug product. These fees are typically increased annually. Sponsors
of applications for drugs granted Orphan Drug Designation are exempt from these user fees.
FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold
determination that it is sufficiently complete to permit substantive review. FDA may request additional information rather than file an NDA. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before FDA files it. Once the
submission is accepted for filing, FDA begins an in-depth review. FDA has agreed to certain performance goals in the review of new drug applications to
encourage timeliness. Most applications for standard review drug products are reviewed within ten to twelve months of the date of submission of the new
drug application to FDA; the target review period for priority review drugs is six months from the date of filing (accepted for review by the FDA) of the
new drug application. Priority review can be applied to an application for a drug that treats a serious condition and if approved would provide a significant
improvement in safety or effectiveness over existing treatments or provide a treatment where no adequate therapy exists. The review process for both
standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended
to clarify information already provided in the submission.
FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an external drug
advisory committee—typically a panel that includes clinicians, statisticians, patient representatives and other experts—for review, evaluation and a
recommendation as to whether the application should be
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approved. FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before approving an NDA, FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, FDA will inspect the
facility or the facilities at which the drug substance and drug product are manufactured. FDA will not approve the product unless compliance with current
good manufacturing practices (“cGMPs”) is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in
the indication studied.
After FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response
letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for FDA to reconsider the
application. Even after an applicant submits additional information, FDA ultimately may decide that the application does not satisfy the regulatory criteria
for approval. If, or when, those deficiencies have been addressed to FDA’s satisfaction in a resubmission of the NDA, FDA will issue an approval letter.
FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of
NDA approval, FDA may require a risk evaluation and mitigation strategy (“REMS”) to help ensure that the benefits of the drug outweigh the potential
risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use (“ETASU”). ETASU can
include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special
monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. FDA may
also require a REMS for a drug that is already on the market if it determines, based on new safety information, that a REMS plan is necessary to ensure that
the products benefits outweigh its risks.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or
facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new
indication typically requires clinical data similar to that in the original application, and FDA uses the same procedures and actions in reviewing NDA
supplements as it does in reviewing NDAs.
Fast Track Designation, Breakthrough Designation, Accelerated Approval, and Priority Review
The following four FDA programs are intended to facilitate and expedite development and review of new drugs to address unmet medical need in
the treatment of a serious or life-threatening condition: fast track designation, breakthrough therapy designation, accelerated approval, and priority review.
Under the Fast Track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a
Fast Track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for Fast Track
Designation within 60 days of receipt of the sponsor’s request. Fast Track Designation is intended to facilitate development and expedite review of drugs to
treat serious and life-threatening conditions so that an approved product can reach the market expeditiously. If a submission is granted Fast Track
Designation, the sponsor may engage in more frequent interactions with FDA, and FDA may review sections of the NDA before the full application is
complete. This rolling review is available if, in agreement with the FDA, the applicant provides, a schedule for the submission of the remaining
information. However, the FDA does not start the review clock for the application until the last section of the NDA is submitted. Fast Track Designation
may be withdrawn by FDA if they believe that the designation is no longer supported by data emerging data in the development process.
Breakthrough Therapy Designation may be granted by the FDA to the development of a new drug and also for a new use or indication of an
approved drug. This designation requires preliminary clinical evidence of a treatment effect that may represent substantial improvement over available
therapies for the treatment of a serious condition. FDA expects that such evidence generally would be derived from early phase trials such as phase 1 or 2
trials. For purposes of Breakthrough Therapy Designation, preliminary clinical evidence refers to evidence that is sufficient to indicate that the drug may
demonstrate substantial improvement in effectiveness or safety over available therapies. A Breakthrough Therapy Designation conveys more intensive
FDA guidance on an efficient drug development program. FDA also has an organizational commitment to involve senior management in such guidance.
Such guidance may include holding meetings with the sponsor and review team throughout the development of the drug, providing timely advice to, and
interactive communication with, the sponsor regarding the development of the drug to ensure that the development program to gather the non-clinical and
clinical data necessary for approval is as efficient as possible, and taking steps to ensure that the design of the clinical trials is as efficient as practicable,
when scientifically appropriate, such as by minimizing the number of patients exposed to a potentially less efficacious treatment.
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The FDA’s accelerated approval pathway is available under FDA’s accelerated approval regulations and under the FDCA for drugs that have been
granted Fast Track designation. FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients
over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured
earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit,
taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct
measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints.
A drug candidate approved on this basis is subject to rigorous and mandatory post-marketing compliance requirements, including the completion of Phase
4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical
benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug
candidates approved under accelerated regulations are subject to priority review by FDA. The Food and Drug Omnibus Reform Act (“FDORA”) was
recently enacted, which included provisions related to the accelerated approval pathway. Pursuant to FDORA, the FDA is authorized to require a post-
approval study to be underway prior to approval or within a specified time period following approval. FDORA also requires the FDA to specify conditions
of any required post-approval study, which may include milestones such as a target date of study completion and requires sponsors to submit progress
reports for required post-approval studies and any conditions required by the FDA not later than 180 days following approval and not less frequently than
every 180 days thereafter until completion or termination of the study. FDORA enables the FDA to initiate enforcement action for the failure to conduct
with due diligence a required post-approval study, including a failure to meet any required conditions specified by the FDA or to submit timely reports.
A drug candidate is eligible for priority review, or review within a six-month time frame from the time an NDA is filed by FDA, if the drug
candidate is intended for the treatment, diagnosis or prevention of a serious or life-threatening condition, demonstrates the potential to address an unmet
medical need, or provides a significant improvement compared to marketed drugs.
Orphan Drugs
Under the Orphan Drug Act, FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition—generally a disease or
condition that affects fewer than 200,000 individuals in the U.S. Orphan Drug designation must be requested before submitting an NDA. After FDA grants
Orphan Drug Designation, the generic identity of the drug and its potential orphan use are disclosed publicly by FDA. Orphan Drug Designation does not
convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a
particular active ingredient to treat a particular disease with FDA Orphan Drug Designation is entitled to a seven-year exclusive marketing period in the
U.S. for that product, for that indication. During the seven-year exclusivity period, FDA may not approve any other applications to market the same drug
for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug
exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.
Among the other benefits of Orphan Drug Designation are tax credits for certain research and an exemption from the NDA user fee.
Rare Pediatric Disease Priority Review Voucher program
Under the Rare Pediatric Disease Priority Review Voucher program, FDA may award a priority review voucher to the sponsor of an approved
marketing application for a product that treats or prevents a rare pediatric disease. The voucher entitles the sponsor to priority review of one subsequent
marketing application.
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A voucher may be awarded only for an approved rare pediatric disease product application. A rare pediatric disease product application is an NDA
or a Biologics License Application (“BLA”) for a product that treats or prevents a serious or life-threatening disease in which the serious or life-threatening
manifestations primarily affect individuals aged from birth to 18 years; in general, the disease must affect fewer than 200,000 such individuals in the U.S.;
the NDA must be deemed eligible for priority review; the NDA must not seek approval for a different adult indication (i.e., for a different
disease/condition); the product must not contain an active ingredient that has been previously approved by FDA; and the NDA must rely on clinical data
derived from studies examining a pediatric population such that the approved product can be adequately labeled for the pediatric population. Before NDA
approval, FDA may designate a product in development as a product for a rare pediatric disease, but such designation is not required to receive a voucher.
To receive a rare pediatric disease priority review voucher, a sponsor must notify FDA, upon submission of the NDA, of its intent to request a
voucher. If FDA determines that the NDA is a rare pediatric disease product application, and if the NDA is approved, FDA will award the sponsor of the
NDA a voucher upon approval of the NDA. FDA may revoke a rare pediatric disease priority review voucher if the product for which it was awarded is not
marketed in the U.S. within 365 days of the product’s approval.
The voucher, which is transferable to another sponsor, may be submitted with a subsequent NDA or biologics license application, or BLA, and
entitles the holder to priority review of the accompanying NDA or BLA. The sponsor submitting the priority review voucher must notify FDA of is intent
to submit the voucher with the NDA or BLA at least 90 days prior to submission of the NDA or BLA and must pay a priority review user fee in addition to
any other required user fee. FDA must take action on an NDA or BLA under priority review within six months of filing the NDA or BLA by FDA.
On December 27, 2020, the Rare Pediatric Disease Priority Review Voucher Program was extended. Under the current statutory sunset provisions,
after September 30, 2024, FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor has rare pediatric
disease designation for the drug, and that designation was granted by September 30, 2024. Without further statutory amendments, after September 30,
2026, the FDA may not award any rare pediatric disease priority review vouchers.
Post-approval requirements
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, FDA closely regulates the post-approval
marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored
scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in
accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports are required following FDA approval of an NDA. FDA also may require post-marketing
testing or studies, known as Phase 4 commitments, REMS and surveillance to monitor the effects of an approved product, or FDA may place conditions on
an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging and labeling procedures must
continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with
FDA and certain state agencies. Registration with FDA subjects entities to periodic unannounced inspections by FDA, during which the Agency inspects
manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of
production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a
company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are
subsequently discovered.
Pediatric information
Under the Pediatric Research Equity Act (the “PREA”), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of
the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for
which the drug is safe and effective. FDA may grant full or partial waivers, or deferrals, for submission of data. With certain exceptions, the PREA does
not apply to any drug for an indication for which orphan designation has been granted.
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The Best Pharmaceuticals for Children Act (the “BPCA”) provides NDA holders a six-month extension of any exclusivity—patent or nonpatent—
for a drug if certain conditions are met. Conditions for exclusivity include FDA’s determination that information relating to the use of a new drug in the
pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to
perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all
of the benefits that designation confers.
Disclosure of clinical trial information
Sponsors of clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information.
Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then
made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of
these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available
information to gain knowledge regarding the progress of development programs. The government recently released a regulation and policy to expand and
enhance the requirements related to registering and reporting the results of clinical trials, which may result in greater enforcement of these requirements in
the future.
The Hatch-Waxman Act
Orange Book listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product.
Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in
support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active
ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to
the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or
clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the
listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.
Specifically, the applicant must certify that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has
not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by
the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carve
out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed
patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. A certification that the new
product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA
applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent
holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response
to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification
automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision
in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product
has expired.
Exclusivity
Upon NDA approval of a new chemical entity (“NCE”), which is a drug that contains no active moiety that has been approved by FDA in any other
NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that
drug. An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange
Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period. Certain changes to a
drug, such as the addition of a new indication to the package insert, can be the subject of a three-year period if the application
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contains reports of new clinical investigations (other than bioavailability studies) conducted or sponsored by the sponsor that were essential to the approval
of the application. FDA cannot approve an ANDA for a generic drug that includes the change during the exclusivity period.
Patent term extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is
calculated as half of the drug’s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA
submission and approval up to a maximum of five years). The time can be shortened if FDA determines that the applicant did not pursue approval with due
diligence. The total patent term after the extension may not exceed 14 years from the date of product approval. Only one patent applicable to an approved
drug is eligible for extension and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended
and the application for the extension must be submitted prior to the expiration of the patent. For patents that might expire during the application phase, the
patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four
times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and
Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent
extensions are not available for a drug for which an NDA has not been submitted.
Other healthcare laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict
certain general business and marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes, false claims
statutes and other healthcare laws and regulations.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to
induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under
Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act as amended by the Health Care and
Education Reconciliation Act, collectively, the ACA, amended the intent element of the federal statute so that a person or entity no longer needs to have
actual knowledge of the statute or specific intent to violate it in order to commit a violation. This statute has been interpreted to apply to arrangements
between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of
statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and
safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to
scrutiny if they do not qualify for an exception or safe harbor.
Federal civil and criminal false claims laws, including the federal civil False Claims Act, prohibit any person or entity from knowingly presenting,
or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a
false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal
government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Recently, several pharmaceutical and other healthcare
companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the
government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the
customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims
laws. Additionally, the ACA amended the federal Anti-Kickback Statute such that a violation of that statute can serve as a basis for liability under the
federal False Claims Act. Most states also have statutes or regulations similar to the federal Anti-Kickback Statute and False Claims Act, which apply to
items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the
offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is likely to influence the
beneficiary to order a receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”), which prohibits, among other things, knowingly and willfully executing or attempting to
execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or
property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or
services.
In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their
respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, impose obligations on certain healthcare providers,
health plans, and healthcare clearinghouses, known as covered
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entities, as well as their business associates that perform certain services involving the storage, use or disclosure of individually identifiable health
information, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health
information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health
information. HITECH increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other
persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws
and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, and often are not pre-
empted by HIPAA. For example, the California Consumer Privacy Act of 2018 (“CCPA”), imposes obligations on businesses to which it applies, including,
but not limited to, providing specific disclosures in privacy notices and affording California residents certain rights related to their personal data, although it
exempts some data processed in the context of clinical trials. In addition, the California Privacy Rights Act of 2020 (“CPRA”), which went into effect on
January 1, 2023, imposes additional obligations on companies covered by the legislation and significantly modifies the CCPA, including by expanding
consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that is vested with authority to
implement and enforce the CCPA and CPRA. Virginia’s Consumer Data Protection Act, which took effect on January 1, 2023, requires businesses subject
to the legislation to conduct data protection assessments in certain circumstances and requires opt-in consent from consumers to acquire and process their
sensitive personal information, which includes information revealing a consumer’s physical and mental health diagnosis and genetic and biometric
information that can identify a consumer. In addition, Colorado enacted the Colorado Privacy Act, and Connecticut enacted the Connecticut Data Privacy
Act, each of which took effect on July 1, 2023, and Utah enacted the Consumer Privacy Act, which became effective on December 31, 2023, and each of
these laws may increase the complexity, variation in requirements, restrictions and potential legal risks, and could require increased compliance costs and
changes in business practices and policies. Other states have also enacted, proposed, or are considering proposing, data privacy laws, which could further
complicate compliance efforts, increase our potential liability and adversely affect our business.
Further, pursuant to the federal Physician Payments Sunshine Act, enacted as part of the ACA, the Centers for Medicare & Medicaid Services (the
“CMS”) has issued a final rule that requires manufacturers of approved prescription drugs that are reimbursable under Medicare, Medicaid, or the
Children’s Health Insurance Program, with certain exceptions, to collect and report annually information on certain payments or transfers of value to
physicians, physician assistants, certain types of advance practice nurses and teaching hospitals, or to entities or individuals at the request of, or designated
on behalf of, such providers, and to report annually certain ownership and investment interests held by physicians and their immediate family members.
The reported data is made available in searchable form on a public website on an annual basis. Failure to submit required information may result in civil
monetary penalties.
In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug
products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities,
such as the provision of certain kinds of gifts or meals. Still other states require the posting of information relating to clinical studies and their outcomes. A
growing number of states require the reporting of certain pricing information, including information pertaining to and justifying price increases and the
prices of newly launched drugs, or prohibit prescription drug price gouging. In addition, certain states require pharmaceutical companies to implement
compliance programs and/or marketing codes. Certain states and local jurisdictions also require the registration of pharmaceutical sales representatives.
Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.
Efforts to ensure that business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. If a
drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and
administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain
approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government healthcare
programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm. Although effective
compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any
action for an alleged or suspected violation can cause a drug company to incur significant legal expenses and divert management’s attention from the
operation of the business, even if such action is successfully defended.
Possible change in law or policy
Healthcare reforms that have been adopted, and that may be adopted in the future, could result in further reductions in coverage and levels of
reimbursement for pharmaceutical products, increases in rebates payable under U.S. government
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rebate programs and additional downward pressure on pharmaceutical product prices. Several healthcare reform proposals recently culminated in the
enactment of the Inflation Reduction Act (the “IRA”), which, among other things, allows the U.S. Department of Health and Human Services (“HHS”) to
directly negotiate the selling price of a statutorily specified number of drugs and biologics each year that CMS reimburses under Medicare Part B and Part
D. Only high-expenditure single-source drugs that have been approved for at least 7 years (11 years for single-source biologics) are eligible to be selected
by CMS for negotiation, with the negotiated price taking effect two years after the selection year. Negotiations for Medicare Part D products take place in
2024 with the negotiated price taking effect in 2026, and negotiations for Medicare Part B products will begin in 2026 with the negotiated price taking
effect in 2028. In August 2023, HHS announced the ten Medicare Part D drugs and biologics that it selected for negotiations. HHS will announce the
negotiated maximum fair prices by September 1, 2024, and this price cap, which cannot exceed a statutory ceiling price, will go into effect on January 1,
2026. A drug or biological product that has an orphan drug designation for only one rare disease or condition will be excluded from the IRA’s price
negotiation requirements, but will lose that exclusion if it receives designations for more than one rare disease or condition, or if is approved for an
indication that is not within that single designated rare disease or condition, unless such additional designation or such disqualifying approvals are
withdrawn by the time CMS evaluates the drug for selection for negotiation. The IRA also imposes rebates on Medicare Part D and Part B drugs whose
prices have increased at a rate greater than the rate of inflation. In addition, the IRA will eliminate, beginning in 2025, the coverage gap under Medicare
Part D by significantly lowering the enrollee maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established
manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum, and 20% once the out-of-
pocket maximum has been reached. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces
through plan year 2025. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the
initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including significant civil monetary penalties. These
provisions have been and may continue to be subject to legal challenges. For example, the provisions related to the negotiation of selling prices of high-
expenditure single-source drugs and biologics have been challenged in multiple lawsuits brought by pharmaceutical manufacturers. Thus, while it is
unclear how the IRA will be implemented, it will likely have a significant impact on the biopharmaceutical industry and the pricing of prescription drug
products. It is unclear to what extent other statutory, regulatory, and administrative initiatives will be enacted and implemented.
Foreign regulation
Clinical trials
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales
and distribution of our product candidates to the extent we choose to sell any products outside of the United States. For clinical trials, many countries
outside of the United States have a similar process that requires the submission of a clinical study application similar to the process in the United States.
However, the specific requirements governing the conduct of clinical trials vary greatly from country to country. In the European Union, for example,
clinical trials are governed by the new EU Regulation on Clinical Trials (Reg. EU No. 536/2014) (the “CTR”) that has become applicable on January 31,
2022. The CTR stipulates the process of obtaining competent authority approval for clinical trials. Under the CTR, trial sponsors submit their application
for approval via an EU Portal. While the procedure for approval is conducted in a coordinated manner among the concerned EU Member States as provided
under the CTR, the approvals will still have to be granted by the competent authorities of the EU Member States where a trial takes place. The CTR has
streamlined the process for the application and granting of the approvals in comparison with the predecessor legislation, Directive 2001/20/EC on clinical
trials (the “CTD”). However, the process of obtaining clinical trial approval in the EU is still complex and can significantly delay the start of a
multinational clinical trial.
Following the United Kingdom’s exit from the European Union on December 31, 2020, different rules apply in the United Kingdom from the
European Union. In the United Kingdom, clinical trials are governed by the Medicines for Human Use (Clinical Trials) Regulations 2004. These
regulations are based on the predecessor EU regulations to the CTR. The CTR have not been adopted in the United Kingdom. Under the U.K. regulations,
an approval is required from the MHRA together with a positive ethics committee opinion. Clinical trials which take place in the U.K. and on NHS hospital
sites, typically do so on the basis of standardized documentation which set out indemnification provisions. In the UK, there are proposals to replace the
current U.K. regulations with revised legislation, which will include changes with respect to transparency, approval pathways and regulatory requirements.
Approval and reimbursement
Whether or not we obtain FDA approval for a product, we must obtain approval or licensing of a product by regulatory authorities of foreign
countries before we can commence marketing of the product in those countries. The approval processes
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for both approval and marketing of commercial drugs vary from country to country and the time may be longer or shorter than that required for FDA
approval.
The requirements governing the product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-
approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any product that is approved
outside the United States.
To obtain regulatory approval of a medicinal product under EU regulatory systems, a sponsor must submit a marketing authorization application.
The grant of marketing authorization in the EU is governed by Directive 2001/83/EC of the European Parliament and of the Council, commonly known as
the Community Code and Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community
procedures for the authorization and supervision of medicinal products for human and veterinary use and establishing the European Medicines Agency (the
“EMA”), commonly referred to as the EMA Regulation. In addition, Regulation 1394/2007/EC on advanced therapy medicinal products (“ATMP”) lays
down specific rules concerning the authorization, supervision and pharmacovigilance of gene therapy medicinal products, somatic cell therapy medicinal
products and tissue engineered products. The EMA’s Committee for Advanced Therapies (“CAT”) is responsible for assessing the quality, safety and
efficacy of ATMP. The role of CAT is to prepare a draft opinion on an application for marketing authorization for an ATMP candidate. EMA then provides
a final opinion regarding the application for marketing authorization. The European Commission grants or refuses marketing authorization after the EMA
has delivered its opinion.
Innovative medicinal products are authorized in the EU on the basis of a full marketing authorization application (as opposed to an application for
marketing authorization that relies, in whole or in part, on data in the marketing authorization dossier for another, previously approved medicinal product).
Applications for marketing authorization for innovative medicinal products must contain the results of pharmaceutical tests, preclinical tests and clinical
trials conducted with the medicinal product for which marketing authorization is sought.
EU legislation provides for a system of regulatory data and market exclusivity. According to Article 14(11) of the EMA Regulation, and Article
10(1) of the Community Code, upon receiving marketing authorization, new chemical entities approved on the basis of complete independent data package
benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the
European Union from referencing the innovator’s data to assess a generic (abbreviated) application. During the additional two-year period of market
exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be
marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight
years of those ten years, the marketing authorization holder, or MAH, obtains an authorization for one or more new therapeutic indications which, during
the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a
compound is considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could
also market another version of the drug if such company obtained marketing authorization based on an application with a complete independent data
package of pharmaceutical tests, preclinical tests and clinical trials. Depending upon the timing and duration of the EU marketing authorization process,
products may be eligible for up to five years’ supplementary protection certificates, or SPC, pursuant to Regulation (EC) No 469/2009. Such SPC extend
the rights under the basic patent for the drug.
Products authorized as “orphan medicinal products” in the EU are entitled to benefits additional to those granted in relation to innovative medicinal
products. In accordance with Article 3 of Regulation (EC) No. 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan
medicinal products, a medicinal product may be designated as an orphan medicinal product if (1) it is intended for the diagnosis, prevention or treatment of
a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the
application is made, or (b) the product, without the incentives derived from orphan medicinal product status, would not generate sufficient return in the EU
to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the
EU, or if such a method exists, the product will be of significant benefit to those affected by the condition. Further guidance on such criteria is provided in
European Commission Regulation (EC) No. 847/2000 of 27 April 2000 laying down the provisions for implementation of the criteria for designation of a
medicinal product as an orphan medicinal product and definitions of the concepts “similar medicinal product” and “clinical superiority”. Orphan medicinal
products are eligible for financial incentives such as reduction of fees or fee waivers and following grant of a marketing authorization, EMA and the EU
Member States’ competent authorities are not permitted to accept another application for a marketing authorization, or grant a marketing authorization or
accept an application to extend an existing marketing authorization, for the same therapeutic indication of a similar medicinal product for ten years
following grant or authorization. The application for orphan drug designation must be submitted before the application for marketing authorization. The
applicant may receive a fee reduction for the marketing authorization application if the orphan drug designation has been granted, but not if the designation
is still pending at the time the marketing authorization is
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submitted. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The 10-year market exclusivity that an orphan drug enjoys may be reduced to six years if, at the end of the fifth year, it is established that the
product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market
exclusivity. Additionally, marketing authorization may be granted to a similar product during the 10-year period of market exclusivity for the same
therapeutic indication at any time if:
•
•
•
The second applicant can establish in its application that its product, although similar to the orphan medicinal product already authorized, is
safer, more effective or otherwise clinically superior;
The holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product
application; or
The holder of the marketing authorization for the original orphan medicinal product cannot supply enough orphan medicinal product.
Similar to obligations imposed in the United States, medicinal products authorized in the EU may be subject to post-authorization obligations,
including the obligation to conduct Post Marketing Safety Studies (“PASS”) or Post Marketing Efficacy Studies (“PAES”).
In April 2023, the European Commission adopted a proposal for a new Directive and a new Regulation, which revise and replace the existing
general pharmaceutical legislation. The proposed changes include the proposal to recast Directive 2001/83/EC, i.e., the Community Code and the creation
of a new Regulation laying down EU marketing authorization of medicinal products that will replace Regulation (EC) No 726/2004, Regulation (EC) No
141/2000 on orphan drugs and Regulation (EC) No 1901/2006 on pediatric medicines, and amend Regulation (EC) No 1394/2007 on ATMP and
Regulation 536/2014, i.e., the CTR. The proposals include significant changes, in particular with regard to the document protection and market exclusivity
periods for medicinal products. In October 2023, the European Parliament proposed revisions to the European Commission proposals with diverging views
on various topics. Further changes may be expected while the legislative process continues.
Reimbursement for medicinal products is still an area that is not harmonized in the EU, but largely governed by EU Member States’ laws. However,
there are some EU level legal frameworks that must be taken into account, including Council Directive 89/105/EEC (the “Price Transparency Directive”).
The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in EU Member States are transparent and
objective, do not hinder the free movement and trade of medicinal products in the EU and do not hinder, prevent or distort competition on the market. The
Price Transparency Directive does not, however, provide any guidance concerning the specific criteria based on which pricing and reimbursement decisions
are to be made in individual EU Member States. Neither does it have any direct consequence for pricing or levels of reimbursement in individual EU
Member States. The national authorities of the individual EU Member States are free to restrict the range of medicinal products for which their national
health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. Individual EU
Member States adopt policies according to which a specific price or level of reimbursement is approved for the medicinal product. Other EU Member
States adopt a system of reference pricing, basing the price or reimbursement level in their territory either, on the pricing and reimbursement levels in other
countries, or on the pricing and reimbursement levels of medicinal products intended for the same therapeutic indication. Furthermore, some EU Member
States impose direct or indirect controls on the profitability of the company placing the medicinal product on the market.
Health Technology Assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement
procedures in some EU Member States. HTA is the procedure according to which the assessment of the public health impact, therapeutic impact and the
economic and societal impact of the use of a given medicinal product in the national healthcare systems of the individual country is conducted. HTA
generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of individual medicinal products as well as their potential
implications for the national healthcare system. Those elements of medicinal products are compared with other treatment options available on the market.
The outcome of HTA may influence the pricing and reimbursement status for specific medicinal products within individual EU member states. The
extent to which pricing and reimbursement decisions are influenced by the HTA of a specific medicinal product vary between the EU Member States.
A new EU Regulation on HTA was adopted on December 13, 2021, Regulation (EU) 2021/2282 of the European Parliament and of the Council of
15 December 2021 on health technology assessment and amending Directive 2011/24/EU (“HTA Regulation”). It will become applicable on January 12,
2025. The HTA Regulation covers new medicines and certain new medical devices, “providing the basis for permanent and sustainable cooperation at the
EU level for joint clinical
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assessments in these areas.” Member states will be able to use common HTA tools, methodologies and procedures across the EU, working together in four
main areas: 1) joint clinical assessments focusing on the most innovative health technologies with the most potential impact for patients; 2) joint scientific
consultations whereby developers can seek advice from HTA authorities; 3) identification of emerging health technologies to identify promising
technologies early; and 4) continuing voluntary cooperation in other areas. Individual member states will continue to be responsible for assessing non-
clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
In the United Kingdom and following the United Kingdom’s exit from the European Union, EU medicines regulation has been adopted as
standalone United Kingdom legislation with some amendments to reflect procedural and other requirements with respect to marketing authorizations and
other regulatory provisions.
In order to market a medicinal product in the United Kingdom, a license or marketing authorization must be obtained from the United Kingdom
Medicines and Healthcare Products Regulatory Agency (the “MHRA”). The United Kingdom legislation includes multiple assessment routes for
applications for medicinal products, including a 150-day national assessment or a rolling review application. Further, and until December 31, 2023, the
MHRA could rely on a decision taken by the European Commission on the approval of a new marketing authorization in the centralized procedure
(“ECDRP”) and had the power to have regard to marketing authorizations approved in EU member states (“MRDCRP”). After January 1, 2024, both of
those recognition procedures (the ECDRP and the MRDCRP) have been replaced by a new international recognition framework.
The MHRA reviews applications for orphan designation at the time of a marketing authorization application or as part of a subsequent variation to
that authorization. To qualify for orphan designation, a medicine must meet certain criteria in the United Kingdom including that the medicine for the
treatment, prevention or diagnosis of a disease that is life-threatening or chronically debilitating, the prevalence of the condition must not be more than 5 in
10,000 or it must be unlikely that the marketing would generate sufficient returns to justify investment and no satisfactory method of diagnosis, prevention
or treatment must exist in Great Britain or, if such a method exists the medicine must be of significant benefit to those affected by the condition. On grant
of a marketing authorization with orphan status, the medicinal product will benefit from up to 10 years of market exclusivity from similar products in the
approved orphan indication starting from the date of first approval of the product in Great Britain.
The United Kingdom has adopted new legislation, the Medicines and Medical Devices Act 2021 and may make changes to the licensing or
authorization of medicines in the future. The separate U.K. authorization system, albeit with international recognition procedures in the UK, may lead to
additional regulatory costs. In addition, even though at the moment the United Kingdom retains acceptance of batch testing and EU certification, further
regulatory costs may be incurred with respect to the lack of mutual recognition of batch testing and related regulatory measures between the European
Union and the United Kingdom.
Reimbursement in the United Kingdom for use by public payors (National Health Service) organizations may depend on a positive technology
assessment by the National Institute for Health and Care Excellence (“NICE”). A positive recommendation by NICE would lead to an obligation to fund,
subject to terms of that approval, by NHS organizations. In assessing any new medicinal product, NICE will take into account clinical as well as the
economic value of the product.
Failure to obtain positive reimbursement recommendations or failure to obtain government and third-party payor reimbursement coverage in foreign
countries may affect the marketability and commercial sales of any product candidates for which regulatory approval is received.
Employees and Human Capital Resources
As of December 31, 2023, we had 110 employees, 37 of whom have an M.D. or Ph.D. We have not experienced any work stoppages. None of our
employees is represented by a labor union or covered by collective bargaining agreements, and we consider our relationship with our employees to be
good.
We seek to attract, hire and retain individuals of diverse backgrounds and of all ages, genders, ethnicities, religions, home countries and sexual
orientation. As of December 31, 2023, approximately 59% of our employees are female, and approximately 47% of our management team (which we
define as at the vice president level and above) are female. More than 36% of our employees self-identify as racially or ethnically diverse as of December
31, 2023.
Our human capital resources objectives include, as applicable, identifying, recruiting, integrating, motivating, developing, and retaining our existing
and additional employees. The principal purposes of our equity incentive and cash-based performance bonus plans are to attract, retain and motivate
selected employees, consultants and directors through the granting of stock-based compensation awards.
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Available Information
Stoke Therapeutics, Inc. was founded in June 2014 and was incorporated under the laws of the State of Delaware. Our principal executive offices
are located at 45 Wiggins Ave, Bedford, Massachusetts 01730, and our telephone number is (781) 430-8200. Our website address is
www.stoketherapeutics.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated by reference
into, this Annual Report.
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission, or SEC, under
the Securities Exchange Act of 1934, as amended, or Exchange Act. The SEC maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file
with the SEC at www.sec.gov. Copies of each of our filings with the SEC can also be viewed and downloaded free of charge at our website, www.
stoketherapeutics.com, after the reports and amendments are electronically filed with or furnished to the SEC.
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Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should
carefully consider the risks described below, together with the other information contained in this annual report, including our consolidated financial
statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not
material, may also become important factors that affect us. We cannot assure you that any of the events discussed below will not occur. These events could
have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were to happen, the trading price of
our common stock could decline, and you could lose all or part of your investment.
Summary of Risk Factors
An investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed in the
section titled “Risk Factors” prior to making an investment in our common stock. These risks include, but are not limited to, the following:
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We are early in our development efforts. If we or our collaborators are unable to develop, obtain regulatory approval for and commercialize
STK-001, STK-002 and our future product candidates, or if we experience significant delays in doing so, our business will be materially
harmed.
Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials,
including in our Dravet syndrome program or our ADOA program.
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict when, or if, we will obtain regulatory approval to
commercialize a product candidate and the approval may be for a narrower indication than we seek.
Certain of the diseases we seek to treat have low prevalence, and it may be difficult to identify patients with these diseases, which may lead
to delays in enrollment for our trials or slower commercial revenue growth if STK-001, STK-002 or our future product candidates are
approved.
If clinical trials of STK-001, STK-002 or any other product candidate that we develop fail to demonstrate safety and efficacy to the
satisfaction of FDA or foreign regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or
experience delays in completing, or ultimately may be unable to complete, the development and commercialization of such product
candidate.
We may not be successful in our efforts to use TANGO to expand our pipeline of product candidates and develop marketable products.
Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and
could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with
regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidates outside the
United States.
STK-001, STK-002 or our future product candidates may cause undesirable and unforeseen side effects or be perceived by the public as
unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in
significant negative consequences.
A Rare Pediatric Disease designation by the FDA does not guarantee that the new drug application (“NDA”) for the product will qualify for a
priority review voucher upon approval, and it does not lead to a faster development or regulatory review process, or increase the likelihood
that STK-001, STK-002 or our future product candidates will receive marketing approval.
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A Fast Track Designation by the FDA, even if granted for STK-001, STK-002 or our future product candidates, may not lead to a faster
development or regulatory review or approval process, and would not increase the likelihood that our product candidates will receive
marketing approval.
A Breakthrough Therapy Designation by the FDA, even if granted for STK-001, STK-002 or our future product candidates may not lead to a
faster development or regulatory review or approval process, and it would not increase the likelihood that the product candidates will receive
marketing approval.
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product
candidates and may affect the prices we may set.
The commercial success of our product candidates, including STK-001 and STK-002 will depend upon their degree of market acceptance by
providers, patients, patient advocacy groups, third-party payors and the general medical community.
The pricing, insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate
coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability
to generate product revenue.
Current and potential future healthcare reforms may adversely impact pricing, insurance coverage and reimbursement status of newly
approved products.
We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for
the foreseeable future. If we fail to obtain additional funding to conduct our planned research and development effort, we could be forced to
delay, reduce or eliminate our product development programs or commercial development efforts.
We expect that we will need to raise additional funding before we can expect to become profitable from any potential future sales of STK-
001, STK-002 or our future product candidates. This additional financing may not be available on acceptable terms or at all. Failure to obtain
this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our success depends in part on our ability to obtain, maintain and protect our intellectual property. It is difficult and costly to protect our
proprietary rights and technology, and we may not be able to ensure their protection.
The market price of our stock may be volatile, and you could lose all or part of your investment.
Risks Related to Product Development and Regulatory Approval
We are early in our development efforts. If we are unable to develop, obtain regulatory approval for and commercialize STK-001, STK-002 and our
future product candidates, or if we experience significant delays in doing so, our business will be materially harmed.
We have invested substantially all of our efforts and financial resources in the development of our Targeted Augmentation of Nuclear Gene Output
(“TANGO”) technology and our current lead product candidate, STK-001, for the treatment of Dravet syndrome. We submitted an investigational new drug
application (“IND”) for STK-001 to the U.S. Food and Drug Administration (the “FDA”) in late 2019. In August 2020, we dosed the first patient with
STK-001 in the single ascending dose portion of the MONARCH Phase 1/2a Study at the 10mg dose level.
In addition, in November 2020, we announced the nomination of OPA1 as our next target for preclinical development to treat Autosomal Dominant
Optic Atrophy (“ADOA”). In November 2021, we announced the nomination of STK-002 as the lead product candidate for the treatment of ADOA and
intend to invest significant efforts and financial resources in its development. We submitted a Clinical Trial Authorization (“CTA”) application for STK-
002 to the United Kingdom Medicines and Healthcare Products Regulatory Agency (the “MHRA”) in early 2023, and the MHRA authorized such CTA in
April 2023, but enrollment and dosing of patients has not yet commenced. Our ability to generate product revenue, which we do not expect will occur for
many years, if ever, will depend heavily on the successful development and eventual commercialization of TANGO and our product candidates, which may
never occur. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
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Each of our programs and product candidates will require preclinical and clinical development, regulatory approval in multiple jurisdictions,
obtaining preclinical, clinical and commercial manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment
and significant marketing efforts before we generate any revenue from product sales. STK-001, STK-002 and our future product candidates must be
authorized for marketing by the FDA or certain other foreign regulatory agencies, such as the European Medicines Agency (the “EMA”) or the MHRA,
before we may commercialize any of our product candidates.
The success of STK-001, STK-002 and our future product candidates depends on multiple factors, including:
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effective INDs and CTAs that allow commencement of our planned clinical trials or future clinical trials for our product candidates in
relevant territories;
our ability to obtain approval from institutional review boards (“IRBs”) or ethics committees to conduct clinical trials at their respective sites;
potential delays in enrollment, site visits, evaluations, or dosing of patients participating in clinical trials as hospitals face staffing shortages,
whether due to labor relations or otherwise, or patients decide not to enroll in the study as a result of such staffing shortages;
the direct and indirect impact of general economic, industry and market conditions, including fluctuating interest rates, inflation, market
volatility, potential recessions, a potential federal government shutdown, and any health pandemic on our business and operations, third party
vendors, supply chain, and regulatory approvals;
successful completion of preclinical studies, including those compliant with Good Laboratory Practices (“GLP”) toxicology studies,
biodistribution studies and minimum effective dose studies in animals;
our ability to reach agreements on acceptable terms with prospective third-party contract research organizations (“CROs”) and trial sites, the
terms of which can be subject to extensive negotiation and may vary significantly among CROs and trial sites;
successful enrollment and completion of clinical trials compliant with current Good Clinical Practices (“GCPs”);
positive results from our clinical programs that demonstrate safety and efficacy and provide an acceptable risk-benefit profile for our product
candidates in the intended patient populations;
receipt of regulatory approvals from applicable regulatory authorities;
establishment of arrangements with third-party contract manufacturing organizations (“CMOs”) for key materials used in our manufacturing
processes and to establish backup sources for clinical and large-scale commercial supply;
establishment and maintenance of patent and trade secret protection and regulatory exclusivity for our product candidates;
commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others;
acceptance of our product candidates, if and when approved, by patients, patient advocacy groups, third-party payors and the general medical
community;
our effective competition against other therapies available in the market;
establishment and maintenance of adequate reimbursement from third-party payors for our product candidates;
our ability to acquire or in-license additional product candidates;
prosecution, maintenance, enforcement and defense of intellectual property rights and claims; and
maintenance of a continued acceptable safety profile of our product candidates following approval.
If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to
successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for our product
candidates, we may not be able to continue our operations.
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Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials, including in
our Dravet syndrome program or our ADOA program.
STK-001 is currently being evaluated in human clinical trials, and we may experience unexpected or negative results in the future. We will be
required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and effective, with a favorable benefit-risk
profile, for use in their target indications before we can seek regulatory approvals for their commercial sale. The positive results we have observed for our
product candidates in preclinical animal models may not be predictive of our future clinical trials in humans, as mouse models carry inherent limitations
relevant to all preclinical studies. In particular, the Dravet syndrome mouse model is more severe than the human disease and provides a shorter post-
symptomatic observation period. Trial designs and results from early-phase trials are not necessarily predictive of future clinical trial designs or results, and
initial positive results we may observe may not be confirmed in later-phase clinical trials. For example, although we recently reported end of study data
from our Phase 1/2a open-label studies of STK-001 demonstrating a reduction in median convulsive seizure frequency compared to baseline, these results
were based on pooling data from the Phase 1/2a open-label studies of STK-001 in the United States (MONARCH) and in the United Kingdom
(ADMIRAL) and additional trials may not confirm these results. Our product candidates may also fail to show the desired safety and efficacy in later stages
of clinical development even if they successfully advance through initial clinical trials, and preliminary interim data readouts of ongoing trials may show
results that change when such trials are completed. We may not be able to demonstrate a disease-modifying effect of STK-001 in our clinical trials in
Dravet syndrome patients, even if we are able to demonstrate efficacy on seizure reduction, and we may be similarly unable to demonstrate the efficacy of
STK-002 in our ADOA program or other future programs. In addition, our clinical trials to date have necessarily involved relatively small numbers of
participants. Therefore, conclusions we draw based upon trial results to date may not be repeatable across larger cohorts of participants or patients with
different characteristics. Moreover, even if our clinical trials demonstrate acceptable safety and efficacy of STK-001, STK-002 or our future product
candidates, the labeling we obtain through negotiations with the FDA or foreign regulatory authorities may not include data on secondary endpoints and
may not provide us with a competitive advantage over other products approved for the same or similar indications.
Many companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-
stage development and there is a high failure rate for product candidates proceeding through clinical trials. In addition, different methodologies,
assumptions and applications we utilize to assess particular safety or efficacy parameters may yield different statistical results. Even if we believe the data
collected from clinical trials of our product candidates are promising, these data may not be sufficient to support approval by the FDA or foreign regulatory
authorities. Preclinical and clinical data can be interpreted in different ways. Accordingly, the FDA or foreign regulatory authorities could interpret these
data in different ways from us or our partners, which could delay, limit or prevent regulatory approval. If our study data do not consistently or sufficiently
demonstrate the safety or efficacy of any of our product candidates, including STK-001 for Dravet syndrome or STK-002 for ADOA, then the regulatory
approvals for such product candidates could be significantly delayed as we work to meet approval requirements, or, if we are not able to meet these
requirements, such approvals could be withheld or withdrawn. Regulatory delays or rejections may be encountered as a result of many factors, including
changes in regulatory policy during the period of product development. We cannot be certain that we will not face similar setbacks.
If clinical trials of STK-001, STK-002 or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of FDA
or foreign regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or
ultimately may be unable to complete, the development and commercialization of such product candidate.
Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, including STK-001 and STK-002, we must
complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more
clinical trials can occur at any stage of testing.
Clinical trials may be placed on a full or partial clinical hold by the FDA, foreign regulatory authorities, or us for various reasons, including but not
limited to: deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or
clinical protocols; deficiencies in the clinical trial operations or trial sites; deficiencies in the trial designs necessary to demonstrate efficacy; fatalities or
other adverse effects arising during a clinical trial due to medical problems that may or may not be related to clinical trial treatments; the product
candidates may not appear to be more effective than current therapies; the quality or stability of the product candidates may fall below acceptable
standards; or the data from animal studies are not sufficient to support the anticipated exposure (dose, route of administration, and duration) for the
proposed clinical trial. For example, in March 2020, we announced that the FDA had placed a partial clinical hold on doses of STK-001 above 20mg in the
MONARCH study based on observations of adverse
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hind limb paresis in non-human primates, pending additional preclinical testing. The partial clinical hold remains in place in the MONARCH study for
single and multiple doses above 70mg, and in the SWALLOWTAIL open-label extension study for chronic doses above 45mg. Although we have now
announced end of study data from the MONARCH study, if the partial clinical hold is not lifted, our ability to successfully conclude other studies related to
STK-001, and our business, results of operations and financial condition, may be adversely affected.
In addition, we, the FDA, foreign regulatory authorities, or an IRB or similar foreign review board or committee, may delay initiation of, suspend or
limit dose escalation of clinical trials of a product candidate at any time for various reasons, including if we or they believe the healthy volunteer subjects
or patients participating in such trials are being exposed to unacceptable health risks. Among other reasons, adverse side effects of a product candidate or a
related product in preclinical trials or on healthy volunteer subjects or patients in a clinical trial could result in such a decision. For example, in November
2022, we announced our decision to limit chronic dosing in the open-label extension studies to 30mg in SWALLOWTAIL in the U.S. and 45mg in
LONGWING in the U.K. Our decision at that time was based on interactions with regulatory agencies and a review of interim chronic toxicology data from
a study in NHPs in which the total drug administered to NHPs over a 1-year period was substantially higher than what we would anticipate giving to
participants in clinical trials.
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict when, or if, we will obtain regulatory approval to
commercialize a product candidate and the approval may be for a narrower indication than we seek.
Prior to commercialization, STK-001, STK-002, and our other future product candidates must be approved by the FDA pursuant to an NDA in the
United States and pursuant to similar marketing applications by the EMA and similar regulatory authorities outside the United States. The process of
obtaining marketing approvals, both in the United States and abroad, is expensive and takes many years, if approval is obtained at all, and can vary
substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Failure to obtain marketing
approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market STK-001, STK-002
or any of our other future product candidates from regulatory authorities in any jurisdiction. We have no experience in submitting and supporting the
applications necessary to gain marketing approvals, and, in the event regulatory authorities indicate that we may submit such applications, we may be
unable to do so as quickly and efficiently as desired. Securing marketing approval requires the submission of extensive preclinical and clinical data and
supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing
approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the
regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. Regulatory authorities
have substantial discretion in the approval process and may refuse to accept or file any application or may decide that our data are insufficient for approval
and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing
could delay, limit or prevent marketing approval of a product candidate.
Approval of STK-001, STK-002 and our other future product candidates may be delayed or refused for many reasons, including:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
we may be unable to demonstrate, to the satisfaction of the FDA or comparable foreign regulatory authorities, that our product candidates are
safe and effective for any of their proposed indications;
the results of clinical trials may not meet the level of statistical significance or clinical meaningfulness required by the FDA or comparable
foreign regulatory authorities for approval;
we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical programs or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other
comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
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the facilities of third-party manufacturers with which we contract or procure certain service or raw materials may not be adequate to support
approval of our product candidates;
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering
our clinical data insufficient for approval; and
potential delays in enrollment, site visits, evaluations, or dosing of patients participating in the clinical trial as hospitals face staffing
shortages, whether due to labor relations or otherwise, or patients decide to not enroll in the study as a result of or such staffing shortages.
Even if our product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review
processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other
regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional
government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development,
clinical trials, a potential temporary federal government shutdown and the review process.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations
in the form of narrow indications, warnings or a risk evaluation and mitigation strategy (“REMS”). These regulatory authorities may require precautions or
contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials. In
addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product
candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and adversely affect our business,
financial condition, results of operations and prospects. While currently we are not experiencing any significant delays or disruptions to our clinical trials as
a result of hospital staffing shortages or global macroeconomic conditions, we take into consideration such shortages and conditions may directly or
indirectly impact our clinical trial enrollment, dosing, and regulatory approval timelines.
Certain of the diseases we seek to treat have low prevalence, and it may be difficult to identify patients with these diseases, which may lead to delays in
enrollment for our trials or slower commercial revenue growth if STK-001, STK-002 or our future product candidates are approved.
Genetically defined diseases generally, and especially those for which our product candidates are targeted, have low incidence and prevalence. We
estimate that the worldwide incidence of Dravet syndrome is approximately one in 16,000 births, and the incidence of ADOA is approximately one in
30,000 births. This could pose obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into our trials or limit a product
candidate’s commercial potential. Patient enrollment may be affected by other factors including:
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the severity of the disease under investigation;
design of the study protocol;
the perceived risks, benefits and convenience of administration of the product candidate being studied;
the patient referral practices of providers; and
the proximity and availability of clinical trial sites to prospective patients.
Any inability to enroll a sufficient number of patients with these diseases for our planned clinical trials would result in significant delays and could
cause us to not initiate or abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs
for our product candidate, which would cause the value of our company to decline and limit our ability to obtain additional financing.
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Additionally, our projections of both the number of people who have Dravet syndrome or ADOA, as well as the people with this disease who have
the potential to benefit from treatment with our product candidates, are based on estimates derived from a market research study that we commissioned,
which may not accurately identify the size of the market for our product candidates. The total addressable market opportunity for STK-001, STK-002 and
our future product candidates will ultimately depend upon, among other things, the final labeling for our product candidates, if our product candidates are
approved for sale in our target indications, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of
patients globally may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our product candidates, or new patients
may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business.
Moreover, in light of the limited number of potential patients impacted by Dravet syndrome and ADOA, our per-patient therapy pricing of STK-001,
STK-002 and our future product candidates, if approved, must be high in order to recover our development and manufacturing costs, fund additional
research and achieve profitability. We may also need to fund patient support programs upon the marketing of a product candidate, which would negatively
affect our product revenue. We may be unable to maintain or obtain sufficient therapy sales volumes at a price high enough to justify our development
efforts and our sales, marketing and manufacturing expenses.
We may not be successful in our efforts to use TANGO to expand our pipeline of product candidates and develop marketable products.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific
indications. Our business depends on our successful development and commercialization of the limited number of internal product candidates we are
researching or have in preclinical development. Even if we are successful in continuing to build our pipeline, development of the potential product
candidates that we identify will require substantial investment in additional clinical development, management of clinical, preclinical and manufacturing
activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply capability, building a commercial organization, and significant
marketing efforts before we generate any revenue from product sales. Furthermore, such product candidates may not be suitable for clinical development,
including as a result of their harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive
marketing approval and achieve market acceptance. If we cannot validate TANGO by successfully developing and commercializing product candidates
based upon our technological approach, we may not be able to obtain product revenue in future periods, which would adversely affect our business,
prospects, financial condition and results of operations.
In November 2021, we announced the nomination of STK-002 as our lead product candidate for in the treatment of ADOA; however, we are
primarily focused on our lead product candidate for Dravet syndrome, STK-001, and we may forego or delay pursuit of opportunities with other product
candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize
on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product
candidates for specific indications may not yield any commercially viable products. Our understanding and evaluation of biological targets for the
discovery and development of new product candidates may fail to identify challenges encountered in subsequent preclinical and clinical development. If we
do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product
candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole
development and commercialization rights.
Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be
subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory
requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Our product candidates and the activities associated with their development and potential commercialization, including their testing, manufacturing,
recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other
U.S. and international regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports,
registration and listing requirements, requirements relating to manufacturing, including current Good Manufacturing Practices (“GMPs”), quality control,
quality assurance and corresponding maintenance of records and documents, including periodic inspections by the FDA and other regulatory authorities
and requirements regarding the distribution of samples to providers and recordkeeping.
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The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of any
approved product. The FDA closely regulates the post-approval marketing and promotion of drugs and biologics to ensure they are marketed only for the
approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’
communications regarding use of their products. If we promote our product candidates in a manner inconsistent with FDA-approved labeling or otherwise
not in compliance with FDA regulations, we may be subject to enforcement action. Moreover, while we believe our product candidates may provide
improved safety profiles over existing products, unless we conduct head-to-head studies, we will not be able to make comparative claims for products, if
approved. Violations of the Federal Food, Drug, and Cosmetic Act (the “FDCA”) relating to the promotion of prescription drugs may lead to investigations
alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws and similar laws in international
jurisdictions.
In addition, later discovery of previously unknown adverse events or other problems with our product candidates, manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such product candidates, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning or untitled letters;
withdrawal of any approved product from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of product candidates;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our product candidates;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
Non-compliance with European requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development
of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with Europe’s requirements regarding
the protection of personal information can also lead to significant penalties and sanctions.
Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidates outside the United
States.
To market and sell STK-001, STK-002 and our future product candidates, we must obtain separate marketing approvals and comply with numerous
and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain
approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes
all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, we must secure product reimbursement
approvals before regulatory authorities will approve the product for sale in that country. Failure to obtain foreign regulatory approvals or non-compliance
with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our
product candidates in certain countries. The United Kingdom’s exit from the European Union (the “EU”), which is referred to as “Brexit,” became fully
effective on December 31, 2020. Brexit continues to create political and economic uncertainty, particularly in the United Kingdom and the EU. Prior to
Brexit, a significant proportion of the regulatory framework in the United Kingdom was derived from EU directives and regulations. Following Brexit, the
United Kingdom retained the EU regulatory regime with certain modifications as standalone U.K. legislation. Therefore, the U.K. regulatory regime is
currently similar to EU regulations, but the United Kingdom has enacted new legislation, the Medicines and Medical Devices Act. Under this legislation,
the U.K. may adopt changed regulations that may diverge from the EU legislative regime for medicines, including their research, development and
commercialization and has issued a consultation document with respect to future changes. Brexit may lead to additional regulatory costs and could
materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or the EU.
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If we fail to comply with the regulatory requirements in international markets and receive applicable marketing approvals, our target market will be
reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected. We may
not obtain foreign regulatory approvals on a timely basis, if at all. Our failure to obtain approval of any of our product candidates by regulatory authorities
in another country may significantly diminish the commercial prospects of that product candidate and our business prospects could decline.
STK-001, STK-002 or our future product candidates may cause undesirable and unforeseen side effects or be perceived by the public as unsafe, which
could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative
consequences.
Although other ASOs have received regulatory approval, our method of seeking to upregulate protein expression by targeting the underlying genetic
causes of haploinsufficiencies presents a new approach to disease treatment, which means there is uncertainty associated with the safety profile of STK-
001, STK-002 or our future product candidates and drugs in the antisense oligonucleotide class.
In addition to side effects caused by our product candidates, the intrathecal or intravitreal administration process or related procedures also can cause
adverse side effects. If any such adverse events occur, our clinical trials could be suspended or terminated. If we are unable to demonstrate that any adverse
events were caused by the administration process or related procedures, the FDA, the European Commission, the EMA, the U.K. MHRA or other
regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Even if
we can demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled
patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our product
candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product
candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may adversely affect our
business, financial condition, results of operations and prospects significantly. Finally, SPINRAZA, which is produced by Biogen Inc., is an ASO therapy
utilizing intrathecal delivery, and if SPINRAZA is found to cause undesirable side effects or to be unsafe due to a potential class effect, it may adversely
affect demand for STK-001 and our other future product candidates. Other ASOs in clinical development utilizing intrathecal delivery could also generate
data that could adversely affect the clinical, regulatory or commercial perception of STK-001 and our other future product candidates.
Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of
the product outweigh its risks, which may include, for example, a Medication Guide outlining the risks of the product for distribution to patients and a
communication plan to health care practitioners, or other elements to assure safe use of the product. Furthermore, if we or others later identify undesirable
side effects caused by our product candidate, several potentially significant negative consequences could result, including:
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regulatory authorities may suspend or withdraw approvals of such product candidate;
regulatory authorities may require additional warnings in the labeling;
we may be required to change the way a product candidate is administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these occurrences may harm our business, financial condition, results of operations and prospects significantly.
A Rare Pediatric Disease designation by the FDA does not guarantee that the NDA for the product will qualify for a priority review voucher upon
approval, and it does not lead to a faster development or regulatory review process, or increase the likelihood that STK-001, STK-002 or our future
product candidates will receive marketing approval.
Under the Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying NDA for the treatment of a rare pediatric
disease, the sponsor of such an application would be eligible for a rare pediatric disease priority review voucher that can be used to obtain priority review
for a subsequent Biologics License Application or NDA. As part of our business strategy for STK-001, we received Rare Pediatric Disease Designation in
October 2022. We may also seek Rare Pediatric Disease designations for any other future product candidates. If a product candidate is designated before
September 30, 2024, it is eligible to receive a voucher if it is approved before September 30, 2026. However, there is no expectation that STK-001, STK-
002 or our future product candidates will be designated, other than STK-001, or approved by those dates, or at all, or that the program will be further
extended, and, therefore, we may not be in a position to obtain any priority review vouchers. Additionally, designation of a drug for a rare pediatric disease
does not guarantee that an NDA will meet the
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eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Finally, a Rare Pediatric Disease Designation
does not lead to faster development or regulatory review of the product or increase the likelihood that it will receive marketing approval.
A Fast Track Designation by the FDA, even if granted for STK-001, STK-002 or any of our future product candidates, or any use of the accelerated
approval pathway, may not lead to a faster development or regulatory review or approval process, and would not increase the likelihood that our
product candidates will receive marketing approval.
If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical
needs for this condition, the drug sponsor may apply to the FDA for Fast Track Designation. The FDA has broad discretion whether to grant this
designation. Even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it.
Even if we do receive Fast Track Designation for any of our product candidates, we may not experience a faster development process, review or approval
compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by
data from our clinical development program. Many drugs that have received Fast Track Designation have failed to obtain approval.
We may also seek accelerated approval for our product candidates. Under the FDA’s accelerated approval program, the FDA may approve a drug for
a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is
reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably
likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the
condition and the availability or lack of alternative treatments. Full approval of another product for the same indication as any of our product candidates for
which we are seeking accelerated approval may make accelerated approval of our product candidates more difficult. For drugs granted accelerated
approval, post-marketing confirmatory trials are required to describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit.
These confirmatory trials must be completed with due diligence and in general the FDA may require that the trial be designed and/or initiated prior to
approval. The Food and Drug Omnibus Reform Act (“FDORA”) was recently enacted, which included provisions related to the accelerated approval
pathway. Pursuant to FDORA, the FDA is authorized to require a post-approval study to be underway prior to approval or within a specified time period
following approval. FDORA also requires the FDA to specify conditions of any required post-approval study, which may include milestones and requires
sponsors to submit progress reports for required post-approval studies and any conditions required by the FDA. FDORA enables the FDA to initiate
enforcement action for the failure to conduct with due diligence a required post-approval study, including a failure to meet any required conditions
specified by the FDA or to submit timely reports. All promotional materials for product candidates approved via accelerated approval are subject to prior
review by the FDA. Moreover, the FDA may withdraw approval of any product candidate or indication approved under the accelerated approval pathway
if, for example:
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the trial or trials required to verify the predicted clinical benefit of the product candidate fail to verify such benefit or do not demonstrate
sufficient clinical benefit to justify the risks associated with the drug;
other evidence demonstrates that the product candidate is not shown to be safe or effective under the conditions of use;
we fail to conduct any required post-approval trial of the product candidate with due diligence; or
we disseminate false or misleading promotional materials relating to the product candidate.
A Breakthrough Therapy Designation by the FDA, even if granted for STK-001, STK-002 or any of our future product candidates, may not lead to a
faster development or regulatory review or approval process, and it would not increase the likelihood that the product candidate will receive marketing
approval.
We may seek a Breakthrough Therapy Designation for STK-001, STK-002 or one or more of our future product candidates. A breakthrough therapy
is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and
preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant
endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies,
interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while
minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for
priority review if supported by clinical data at the time of the submission of the NDA.
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Designation as a breakthrough therapy is at the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the
criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a
Breakthrough Therapy Designation for a drug may not result in a faster development process, review, or approval compared to drugs considered for
approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. In addition, even if one or more of our product
candidates qualify as breakthrough therapies, the FDA may later decide that the product candidate no longer meets the conditions for qualification or it may
decide that the time period for FDA review or approval will not be shortened.
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates
and may affect the prices we may set.
Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain regulatory compliance, we may not obtain or may lose any marketing approval that we may have
obtained and we may not achieve or sustain profitability.
In addition, in the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. The
pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. Previously, in March
2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”)
was enacted, which was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and
impose additional health policy reforms.
Healthcare reform initiatives recently culminated in the enactment of the Inflation Reduction Act (“IRA”) in August 2022, which, among other
things, allows U.S. Department of Health and Human Services (“HHS”) to directly negotiate the selling price of a statutorily specified number of drugs and
biologics each year that the Centers for Medicare & Medicaid Services (“CMS”) reimburses under Medicare Part B and Part D. Only high-expenditure
single-source drugs that have been approved for at least 7 years (11 years for single-source biologics) are eligible be selected by CMS for negotiation, with
the negotiated price taking effect two years after the selection year. Negotiations for Medicare Part D products take place in 2024 with the negotiated price
taking effect in 2026, and negotiations for Medicare Part B products will begin in 2026 with the negotiated price taking effect in 2028. In August 2023,
HHS announced the ten Medicare Part D drugs and biologics that it selected for negotiations. HHS will announce the negotiated maximum fair prices by
September 1, 2024, and this price cap, which cannot exceed a statutory ceiling price, will go into effect on January 1, 2026. A drug or biological product
that has an orphan drug designation for only one rare disease or condition will be excluded from the IRA’s price negotiation requirements, but will lose that
exclusion if it receives designations for more than one rare disease or condition, or if is approved for an indication that is not within that single designated
rare disease or condition, unless such additional designation or such disqualifying approvals are withdrawn by the time CMS evaluates the drug for
selection for negotiation. The negotiated prices will represent a significant discount from average prices to wholesalers and direct purchasers. The law also
imposes rebates on Medicare Part D and Part B drugs whose prices have increased at a rate greater than the rate of inflation. In addition, the law eliminates
the “donut hole” under Medicare Part D beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost through a newly
established manufacturer discount program which requires manufacturers to subsidize 10% of Part D enrollees’ prescription costs for brand drugs below
the out-of-pocket maximum, and 20% once the out-of-pocket maximum has been reached. The IRA also extends enhanced subsidies for individuals
purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA permits the Secretary of HHS to implement many of these
provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various
penalties, including civil monetary penalties. These provisions may be subject to legal challenges. For example, the provisions related to the negotiation of
selling prices of high-expenditure single-source drugs and biologics have been challenged in multiple lawsuits brought by pharmaceutical manufacturers.
Thus, while it is unclear how the IRA will be implemented, it will likely have a significant impact on the pharmaceutical industry.
In addition, other legislative changes have been proposed and adopted. These changes included aggregate reductions of Medicare payments to
providers of up to 2% per fiscal year, which went into effect in 2013, and will remain in effect through 2031, with the exception of a temporary suspension
implemented under various COVID-19 relief legislation from May 1, 2020 through March 31, 2022, unless additional Congressional action is taken. In
January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers,
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result
in additional reductions in Medicare and other healthcare funding, which could have a material
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adverse effect on customers for our drugs, if approved, and accordingly, our financial operations. Additionally, on May 30, 2018, the Trickett Wendler,
Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signed into law. The law, among other things, provides a federal
framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing
investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining
FDA authorization under an FDA expanded access program; however, manufacturers are not obligated to provide investigational new drug products under
the current federal right to try law. We may choose to seek an expanded access program for our product candidates, or to utilize comparable rules in other
countries that allow the use of a drug, on a named patient basis or under a compassionate use program.
Furthermore, there have been, and continue to be, a number of other initiatives at the United States federal and state levels that seek to reduce
healthcare costs. For example, in December 2020, CMS issued a final rule implementing significant manufacturer price reporting changes under the
Medicaid Drug Rebate Program, including an alternative rebate calculation for line extensions that is tied to the price increases of the original drug, and
Best Price reporting related to certain value-based purchasing arrangements. Additionally, under the American Rescue Plan Act of 2021, effective January
1, 2024, the statutory cap on Medicaid Drug Rebate Program rebates that manufacturers pay to state Medicaid programs on a unit of drug is eliminated.
Elimination of this cap may, in some cases, require pharmaceutical manufacturers to pay more in rebates than they receive on the sale of products. Further,
the Infrastructure Investment and Jobs Act added a requirement, effective January 1, 2023, for manufacturers of certain single-source drugs separately paid
for under Medicare Part B for at least 18 months and marketed in single-dose containers or packages (known as refundable single-dose containers or single-
use package drugs) to provide annual refunds for any portions of the dispensed drug that are unused and discarded if those unused or discarded portions
exceed an applicable percentage defined by statute or regulation. Manufacturers are subject to periodic audits and those that fail to pay refunds for their
refundable single-dose containers or single-use package drugs shall be subject to civil monetary penalties. Healthcare reforms that have been adopted, and
that may be adopted in the future, could result in further reductions in coverage and levels of reimbursement for pharmaceutical products, increases in
rebates payable under U.S. government rebate programs and additional downward pressure on pharmaceutical product prices.
We expect that the ACA, the IRA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from
Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment
measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates.
At the state level in the United States, legislatures are increasingly enacting laws and implementing regulations designed to control pharmaceutical
and biologic product pricing, including price constraints, restrictions on certain product access, reporting on price increases and the introduction of high-
cost drugs.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or
interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,
increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more
stringent product labeling and post-marketing testing and other requirements.
We may be unsuccessful in obtaining Orphan Drug Designation or transfer of designations obtained by others for future product candidates. And, even
if we obtain such designation, we may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market
exclusivity, for STK-001, STK-002 or our future product candidates.
As part of our business strategy for STK-001, we received Orphan Drug Designation for the treatment of Dravet syndrome in the United States in
2019 and also in the EU in 2022. As part of our business strategy for STK-002, we received Orphan Drug Designation for the treatment of autosomal
dominant optic atrophy (ADOA) in the United States in 2022. We may seek such designations for our product candidates in other countries as well.
However, Orphan Drug Designation does not guarantee future orphan drug marketing exclusivity, and there is no guarantee that we will be successful in
obtaining such designation for our future product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs intended to treat relatively small patient
populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or
condition, which is defined as a patient population of fewer than 200,000 individuals in the United States. In the United States, Orphan Drug Designation
entitles a party to financial incentives such as opportunities for tax credits for qualified clinical research costs and exemption from prescription drug user
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fees. Similarly, in the EU, the European Commission grants Orphan Drug Designation after receiving the opinion of the EMA’s Committee for Orphan
Medicinal Products on an Orphan Drug Designation application. In the EU, Orphan Drug Designation is intended to promote the development of drug that
are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000
persons in the EU and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or the product would be a significant
benefit to those affected). In the EU, Orphan Drug Designation entitles a party to financial incentives such as reduction of fees or fee waivers.
Generally, if a drug with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such
designation, the drug is entitled to a period of marketing exclusivity, which precludes EMA or the FDA from approving another marketing application for
the same drug and indication for that time period, except in limited circumstances. If a competitor is able to obtain orphan drug exclusivity prior to us for a
product that constitutes the same active moiety and treats the same indications as our product candidates, we may not be able to obtain approval of our drug
by the applicable regulatory authority for a significant period of time unless we are able to show that our drug is clinically superior to the approved drug.
The applicable period is seven years in the United States and ten years in the EU. The EU exclusivity period can be reduced to six years if a drug no longer
meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.
Even after an orphan drug is approved, the FDA can also subsequently approve a later application for the same drug for the same condition if the
FDA concludes that the later drug is clinically superior in that it is shown to be safer in a substantial portion of the target populations, more effective or
makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is
broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if
the FDA later determines that the request for designation was materially defective or if we are unable to manufacture sufficient quantities of the product to
meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of
a drug nor gives the drug any advantage in the regulatory review or approval process.
The orphan drug exclusivity contained in the Orphan Drug Act has been the subject of recent scrutiny from the press, from some members of
Congress and from some in the medical community. Furthermore, the FDA’s interpretations of the Orphan Drug Act have not been successfully challenged
in court and future court decisions could continue that trend. There can be no assurances that the exclusivity granted to orphan drugs approved by the FDA
will not be modified in the future, or as to how any such changes might affect our products, if approved.
The FDA’s and the MHRA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding levels,
government shutdowns, ability to hire and retain key personnel, and statutory, regulatory and policy changes.
The ability of the FDA and the MHRA to review and approve new products can be affected by a variety of factors, including budget and funding
levels, government shutdowns, ability to hire and retain key personnel, and statutory, regulatory, and policy changes. In addition, government funding of
other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
The ability of the FDA, the MHRA and other government agencies to properly administer their functions is highly dependent on the levels of
government funding and the ability to fill key leadership appointments, among various factors. Delays in filling or replacing key positions could
significantly impact the ability of the FDA, the MHRA and other agencies to fulfill their functions and could greatly impact healthcare and the
pharmaceutical industry.
In December 2016, the 21st Century Cures Act was signed into law, and was designed to advance medical innovation and empower the FDA with
the authority to directly hire positions related to drug and device development and review. In the past, the FDA was often unable to offer key leadership
candidates (including scientists) competitive compensation packages as compared to those offered by private industry. The 21st Century Cures Act is
designed to streamline the agency’s hiring process and enable the FDA to compete for leadership talent by expanding the narrow ranges that are provided in
the existing compensation structures.
Disruptions at the FDA, the MHRA and other governmental agencies may also slow the time necessary for new drugs to be reviewed or approved
by necessary government agencies, which would adversely affect our operating results and business.
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Our operations and relationships with future customers, providers and third-party payors will be subject to applicable anti-kickback, fraud and abuse
and other healthcare laws and regulations, which could expose us to penalties including criminal sanctions, civil penalties, contractual damages,
reputational harm and diminished profits and future earnings.
Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we
obtain marketing approval. Our future arrangements with providers, third-party payors and customers will subject us to broadly applicable fraud and abuse
and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and
distribute any product candidates for which we obtain marketing approval.
Restrictions under applicable U.S. federal and state healthcare laws and regulations include the following:
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the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an
individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under government
healthcare programs such as Medicare and Medicaid, and a person or entity does not need to have actual knowledge of the statute or specific
intent to violate it in order to have committed a violation;
federal false claims laws, including the federal False Claims Act, imposes criminal and civil penalties, including through civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent (including claims for items and services resulting from a violation of the federal Anti-Kickback Statute)
or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government, and certain marketing
practices, including off-label promotion, may also violate false claims laws;
the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) imposes criminal and civil liability for, among other
things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or making false
statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and its implementing
regulations, also imposes obligations, including mandatory contractual terms, on certain types of people and entities with respect to
safeguarding the privacy, security and transmission of individually identifiable health information;
the federal Physician Payment Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics, and medical supplies for
which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report
annually payments and other transfers of value to physicians, physician assistants, certain types of advance practice nurses and teaching
hospitals, or to entities or individuals at the request of, or designated on behalf of, such providers, and to report annually certain ownership
and investment interests held by physicians and their immediate family, which includes annual data collection and reporting obligations; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private
insurers.
Some state and local laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and
other transfers of value to physicians and other healthcare providers. Other state laws require pharmaceutical companies to report marketing expenditures
or price increases that exceed a statutory threshold, as well as information on the reasons for the price increase, or to report the introduction into the market
of costly drugs. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any
of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, imprisonment, exclusion of product candidates from government-funded healthcare programs, such as Medicare and Medicaid,
disgorgement, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment
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or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in
compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded
healthcare programs.
Risks Related to Commercialization and Manufacturing
The commercial success of our product candidates, including STK-001 and STK-002, will depend upon their degree of market acceptance by providers,
patients, patient advocacy groups, third-party payors and the general medical community.
Ethical, social and legal concerns about genetic treatments generally could result in additional regulations restricting or prohibiting our product
candidates. Even with the requisite approvals from the FDA, the MHRA, the EMA and other regulatory authorities internationally, the commercial success
of our product candidates will depend, in part, on the acceptance of providers, patients and third-party payors of drugs designed to increase protein
expression in general, and our product candidates in particular, as medically necessary, cost-effective and safe. In addition, we may face challenges in
seeking to establish and grow sales of STK-001, STK-002 and any future product candidates, including acceptance of intravitreal injection, the lumbar
puncture and intrathecal administration, which carries risks of infection or other complications. Any product that we commercialize may not gain
acceptance by providers, patients, patient advocacy groups, third-party payors and the general medical community. If these products do not achieve an
adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of genetic
medicines and, in particular, STK-001, STK-002 and our future product candidates, if approved for commercial sale, will depend on several factors,
including:
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the efficacy, durability and safety of such product candidates as demonstrated in clinical trials;
the potential and perceived advantages of product candidates over alternative treatments;
the cost of treatment relative to alternative treatments;
the clinical indications for which the product candidate is approved by the FDA, the MHRA or the European Commission;
the willingness of providers to prescribe new therapies;
the willingness of the target patient population to try new therapies;
the prevalence and severity of any side effects;
product labeling or product insert requirements of the FDA, MHRA, EMA or other regulatory authorities, including any limitations or
warnings contained in a product’s approved labeling;
the willingness of providers to prescribe, and of patients to receive, intrathecal injections;
the strength of marketing and distribution support;
the timing of market introduction of competitive products;
the quality of our relationships with patient advocacy groups;
publicity concerning our product candidates or competing products and treatments; and
sufficient third-party payor coverage and adequate reimbursement.
Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product
will not be fully known until after it is launched.
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The pricing, insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage
and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate
product revenue.
Our target indications, including Dravet syndrome and ADOA, are indications with small patient populations. For product candidates that are
designed to treat smaller patient populations to be commercially viable, the reimbursement for such product candidates must be higher, on a relative basis,
to account for the lack of volume. Accordingly, we will need to implement a coverage and reimbursement strategy for any approved product candidate that
accounts for the smaller potential market size. If we are unable to establish or sustain coverage and adequate reimbursement for any future product
candidates from third-party payors, the adoption of those product candidates and sales revenue will be adversely affected, which, in turn, could adversely
affect the ability to market or sell those product candidates, if approved.
We expect that coverage and reimbursement by third-party payors will be essential for most patients to be able to afford these treatments.
Accordingly, sales of STK-001, STK-002 and our future product candidates will depend substantially, both domestically and internationally, on the extent
to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management
organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors. Even if coverage is provided,
the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our
investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal
decisions about reimbursement by government authorities for new products are typically made by the CMS since it decides whether and to what extent a
new product will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. However, one payor’s
determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. Further, a payor’s
decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement agencies in Europe
may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not
been approved for reimbursement in certain European countries.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and
we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the
pricing and usage of therapeutics such as our product candidates. In many countries, particularly the countries of the EU, the prices of medical products are
subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can
take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be
required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general, the prices of
products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but
monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to
charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced
compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may
cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide
adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to
the trend toward managed healthcare, the increasing influence of certain third-party payors, such as health maintenance organizations, and additional
legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has
become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market. Recently there have
been instances in which third-party payors have refused to reimburse treatments for patients for whom the treatment is indicated in the FDA-approved
product label. Even if we are successful in obtaining FDA approvals to commercialize our product candidates, we cannot guarantee that we will be able to
secure reimbursement for all patients for whom treatment with our product candidates is indicated.
In addition to CMS and private payors, professional organizations such as the American Medical Association can influence decisions about
reimbursement for new products by determining standards for care. In addition, many private payors contract with commercial vendors who sell software
that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit to existing
alternatives. Such organizations may set guidelines that limit reimbursement or utilization of our product candidates. Even if favorable coverage and
reimbursement status is attained for one or more product candidates for which we or our collaborators receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the future.
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If third parties on which we depend to conduct our planned preclinical studies, any future clinical trials, or manufacturing of our product candidates
do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be
delayed with adverse effects on our business, financial condition, results of operations and prospects.
We rely on third parties for genetic testing, and on third-party CROs, CMOs, consultants and others to design, conduct, supervise and monitor key
activities relating to, discovery, manufacturing, preclinical studies and clinical trials of our product candidates, and we intend to do the same for future
activities relating to existing and future programs. Because we rely on third parties and do not have the ability to conduct all required testing, discovery,
manufacturing, preclinical studies or clinical trials independently, we have less control over the timing, quality and other aspects of discovery,
manufacturing, preclinical studies and clinical trials than we would if we conducted them on our own. These investigators, CROs, CMOs and consultants
are not our employees and we have limited control over the amount of time and resources that they dedicate to our programs. These third parties may have
contractual relationships with other entities, some of which may be our competitors, which may draw time and resources from our programs. The third
parties we contract with might not be diligent, careful or timely in conducting our discovery, manufacturing, preclinical studies or clinical trials, resulting in
testing, discovery, manufacturing, preclinical studies or clinical trials being delayed or unsuccessful, in whole or in part. In addition, these third parties may
be subject to macroeconomic conditions, such as staffing shortages and supply chain or inflationary pressures that limit their ability to achieve anticipated
timelines or result in a greater cost to us. For example, we are aware of a shortage of NHPs available for preclinical studies and although that is not
expected to impact our current business, if we begin new product development programs we could be subject to longer development times or difficulty
completing necessary research.
If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their
contractual duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical
development programs could be delayed and otherwise adversely affected. In all events, we are responsible for ensuring that each of our preclinical studies
and clinical trials is conducted in accordance with the general investigational plan and protocols for the trial as well as regulatory requirements. Our
reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Any such event could have an adverse effect
on our business, financial condition, results of operations and prospects.
We face significant competition in an environment of rapid technological change and it is possible that our competitors may achieve regulatory
approval before us or develop therapies that are more advanced or effective than ours, which may harm our business, financial condition and our
ability to successfully market or commercialize STK-001, STK-002 and our future product candidates.
The biotechnology and pharmaceutical industries, including the genetic medicine and antisense oligonucleotide fields, are characterized by rapidly
changing technologies, competition and a strong emphasis on intellectual property. We are aware of several companies focused on developing RNA-based
treatments in various indications as well as several companies addressing other methods for modifying genes and regulating protein expression. We also
expect to face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and
public and private research institutions.
Numerous treatments for epilepsy exist, including 5-HT agonists, such as UCB’s Fintepla, cannabidiols, such as Jazz Pharmaceuticals’ Epidiolex,
GABA receptor agonists, such as clobazam and stiripentol, and glutamate blockers, which is one of the mechanisms of action of topiramate. In addition,
numerous compounds are in clinical development for treatment of epilepsy. We believe the clinical development pipeline includes cannabinoids, 5-HT
release stimulants, cholesterol 24-hydroxylase inhibitors, potassium channel openers, and sodium channel agonists from a variety of companies. In addition
to competition from these small molecule drugs, any products we may develop may also face competition from other types of therapies, such as gene
therapy, gene editing, tRNA therapies, modified mRNA therapies or other ASO approaches. For example, one company (Encoded Therapeutics) has
announced a clinical development plan for a gene regulation therapy in Dravet syndrome that may address the underlying genetic cause of the disease.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other resources than we
do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity
could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are
more convenient or are less expensive than any product candidates that we may develop. Competitors also may obtain FDA or other regulatory approval for
their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are
able to enter the market, if ever. Additionally,
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new or advanced technologies developed by our competitors may render our current or future product candidates uneconomical or obsolete, and we may
not be successful in marketing our product candidates against competitors.
To become and remain profitable, we must develop and eventually commercialize product candidates with significant market potential, which will
require us to be successful in a range of challenging activities. These activities include, among other things, completing preclinical studies and initiating
and completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling
those products that are approved and satisfying any post marketing requirements. We may never succeed in any or all of these activities and, even if we do,
we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could
impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of
our company also could cause you to lose all or part of your investment.
The manufacture of drugs is complex and our third-party manufacturers may encounter difficulties in production. If any of our third-party
manufacturers encounter such difficulties, our ability to provide supply of STK-001, STK-002 or our future product candidates for clinical trials, our
ability to obtain marketing approval, or our ability to provide supply of our product candidates for patients, if approved, could be delayed or stopped.
We have established manufacturing relationships with a limited number of suppliers to manufacture raw materials and the drug substance of any
product candidate for which we are responsible for preclinical or clinical development. Each supplier may require licenses to manufacture such components
if such processes are not owned by the supplier or in the public domain. As part of any marketing approval, a manufacturer and its processes are required to
be qualified by the FDA prior to commercialization. If supply from the approved vendor is interrupted, there could be a significant disruption in
commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other
regulatory agencies outside of the United States may also require additional studies if a new supplier is relied upon for the manufacture of clinical trial
materials or commercial production. Switching vendors may involve substantial costs and is likely to result in a delay in our desired clinical and
commercial timelines.
The process of manufacturing drugs is complex, highly-regulated and subject to multiple risks. Manufacturing drugs is highly susceptible to product
loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability
in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in
reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered at the facilities of our
manufacturers, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical
trials and adversely harm our business. Moreover, if the FDA determines that our manufacturers are not in compliance with FDA laws and regulations,
including those governing CGMPs, the FDA may deny NDA approval until the deficiencies are corrected or we replace the manufacturer in our NDA with
a manufacturer that is in compliance.
In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns,
potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing practices, lot consistency and
timely availability of raw materials. Even if we or our collaborators obtain regulatory approval for any of our product candidates, there is no assurance that
manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in
sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturers are unable to
produce sufficient quantities for clinical trials or for commercialization, research and commercialization efforts would be impaired, which would have an
adverse effect on our business, financial condition, results of operations and prospects.
Our reliance on a limited number of manufacturers, the complexity of drug manufacturing and the difficulty of scaling up a manufacturing process
could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher
costs and prevent us from commercializing our product candidates successfully. Furthermore, if our suppliers fail to deliver the required commercial
quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable of
production in a timely manner at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
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If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell STK-001, STK-002 and our
future product candidates, we may be unable to generate any revenues.
We currently do not have an organization for the sales, marketing and distribution of STK-001, STK-002 and our future product candidates and the
cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. To market any products that may be approved, we
must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. With
respect to certain of our current programs as well as future programs, we may rely completely on an alliance partner for sales and marketing. In addition,
although we intend to establish a sales organization if we are able to obtain approval to market any product candidates, we may enter into strategic alliances
with third parties to develop and commercialize STK-001, STK-002 and other future product candidates, including in markets outside of the United States
or for other large markets that are beyond our resources. This will reduce the revenue generated from the sales of these products.
Any future strategic alliance partners may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise fail
in their commercialization due to factors beyond our control. If we are unable to establish effective alliances to enable the sale of our product candidates to
healthcare professionals and in geographical regions, including the United States, that will not be covered by our own marketing and sales force, or if our
potential future strategic alliance partners do not successfully commercialize the product candidates, our ability to generate revenues from product sales
will be adversely affected.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able
to generate sufficient product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-
funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable
to compete successfully against these more established companies.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications
that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific
indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any
commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been
more advantageous for us to retain sole development and commercialization rights to such product candidate.
We have entered into a collaboration with Acadia Pharmaceuticals and may, in the future, seek to enter into collaborations with other third parties for
the discovery, development and commercialization of our product candidates. If our collaborators cease development efforts under our collaboration
agreements, or if any of those agreements are terminated, these collaborations may fail to lead to commercial products and we may never receive
milestone payments or future royalties under these agreements.
We have entered into a collaboration with Acadia Pharmaceuticals to discover or develop certain novel RNA-based medicines for the potential
treatment of severe and rare genetic neurodevelopmental diseases of the central nervous system (“CNS”). The collaboration includes SYNGAP1 syndrome,
Rett syndrome (MECP2), and an undisclosed neurodevelopmental target of mutual interest, and such collaboration could represent a significant portion of
our product pipeline. We may derive a significant portion of our future revenue from these agreements or other similar agreements into which we may enter
in the future. Revenue from research and development collaborations depends upon continuation of the collaborations, payments for research and
development services and resulting options to acquire any licenses of successful product candidates, and the achievement of milestones, contingent
payments and royalties, if any, derived from future products developed from our research.
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Collaborations involving our product candidates currently pose, and will continue to pose, the following risks to us:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew
development or commercialization programs based on preclinical studies or clinical trial results, changes in the collaborators’ strategic focus
or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under
terms that are more economically attractive than ours;
collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and
distribution of such product or products;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential
liability;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization
of our product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates.
As a result of the foregoing, our current and any future collaboration agreements may not lead to development or commercialization of our product
candidates in the most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis
on our product development or commercialization program could be delayed, diminished or terminated. Any failure to successfully develop or
commercialize our product candidates pursuant to our current or any future collaboration agreements could have a material and adverse effect on our
business, financial condition, results of operations and prospects.
Moreover, to the extent that any of our existing or future collaborators were to terminate a collaboration agreement, we may be forced to
independently develop these product candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costs and
defending intellectual property rights, or, in certain instances, abandon product candidates altogether, any of which could result in a change to our business
plan and have a material adverse effect on our business, financial condition, results of operations and prospects.
We may not be successful in finding strategic collaborators for continuing development of certain of our future product candidates or successfully
commercializing or competing in the market for certain indications.
In the future, we may decide to collaborate with non-profit organizations, universities, pharmaceutical and biotechnology companies for the
development and potential commercialization of existing and new product candidates. We face significant competition in seeking appropriate collaborators.
Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and
expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may
include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential
market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of
competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without
regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or
technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us
for our product candidate. The terms of any additional collaborations or other arrangements
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that we may establish may not be favorable to us. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been
a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future
collaborators.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the
development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other
development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and
undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do
not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
The success of any potential collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators
generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to
a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some cases, termination of such collaboration arrangements. These disagreements can be difficult
to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third
parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could
harm our business reputation.
Risks Related to our Financial Position
We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the
foreseeable future. If we fail to obtain additional funding to conduct our planned research and development effort, we could be forced to delay, reduce
or eliminate our product development programs or commercial development efforts.
We are an early-stage biotechnology company with a limited operating history on which to base your investment decision. Biotechnology product
development is a highly speculative undertaking and involves a substantial degree of risk. Our operations to date have been limited primarily to organizing
and staffing our company, business planning, raising capital, acquiring and developing product and technology rights, manufacturing, and conducting
research and development activities for our product candidates. We have never generated any revenue from product sales. We have not obtained regulatory
approvals for any of our product candidates, and have funded our operations to date through proceeds from sales of our preferred stock and common stock.
We have incurred net losses in each year since our inception. We incurred net losses of $104.7 million and $101.1 million, for the years ended
December 31, 2023 and 2022, respectively. As of December 31, 2023, we had accumulated deficits of $401.8 million. Substantially all of our operating
losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated
with our operations. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future as
we intend to continue to conduct research and development, clinical testing, regulatory compliance activities, manufacturing activities, and, if any of our
product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in us
incurring significant losses for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an
adverse effect on our stockholders’ equity and working capital.
We expect that we will need to raise additional funding before we can expect to become profitable from any potential future sales of STK-001, STK-002
or our future product candidates. This additional financing may not be available on acceptable terms or at all. Failure to obtain this necessary capital
when needed may force us to delay, limit or terminate our product development efforts or other operations.
We will require substantial future capital in order to complete planned and future preclinical and clinical development for STK-001, STK-002 and
other future product candidates, if any, and potentially commercialize these product candidates. Based upon our current operating plan, we believe that our
cash, cash equivalents and marketable securities of $201.4 million as of December 31, 2023 will enable us to fund our operating expenses and capital
expenditure requirements to the end of 2025. We expect our spending levels to increase in connection with our preclinical studies and clinical trials of our
product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant expenses related to
commercial launch, product sales, medical affairs, marketing, manufacturing and distribution.
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Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional
funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay,
reduce or eliminate certain of our licensing activities, our research and development programs or other operations.
Additional capital might not be available when we need it and our actual cash requirements might be greater than anticipated. If we require
additional capital at a time when investment in our industry or in the marketplace in general is limited, we might not be able to raise funding on favorable
terms if at all. If we are not able to obtain financing on terms favorable to us, we may need to cease or reduce development or commercialization activities,
sell some or all of our assets or merge with another entity, which could result in a loss of all or part of your investment.
Our future capital requirements will depend on many factors, including:
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the costs associated with the scope, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our
product candidates;
the costs associated with the development of our internal manufacturing facility and processes;
the costs related to the extent to which we enter into partnerships or other arrangements with third parties to further develop our product
candidates;
the costs and fees associated with the discovery, acquisition or in-license of product candidates or technologies;
our ability to establish collaborations on favorable terms, if at all;
the costs of future commercialization activities, if any, including product sales, marketing, manufacturing and distribution, for any of our
product candidates for which we receive marketing approval;
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
and
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims.
Our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product
candidates that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional
financing to achieve our business objectives, which may not be available to us on acceptable terms, or at all.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We are a clinical stage biotechnology company formed in June 2014. Our operations to date have been limited to organizing and staffing our
company, business planning, raising capital, acquiring our technology, identifying potential product candidates, undertaking research, preclinical and
clinical development of our product candidates, manufacturing, and establishing licensing arrangements. We have not yet demonstrated the ability to
complete clinical trials of our product candidates, obtain marketing approvals, manufacture a commercial scale product or conduct sales and marketing
activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate
as they could be if we had a longer operating history.
In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
We will need to transition from a company with a licensing and research focus to a company that is also capable of supporting clinical development and
commercial activities. We may not be successful in such a transition.
Our ability to utilize our net operating loss carryforwards may be subject to limitations.
We have incurred substantial losses during our history. We do not expect to be profitable soon and may never achieve profitability. As of December
31, 2023, we had federal and state net operating loss carryforwards, or NOLs, of approximately $189.5 million and $199.4 million, respectively, and as of
December 31, 2022, we had federal and state NOLs of approximately $210.9 million and $212.8 million, respectively. Our pre-2018 NOLs expire at
various dates beginning in 2034. In general, NOLs generated in and after 2018 have no expiration. To the extent that we continue to generate NOLs, unused
NOLs carry forward to offset future taxable income until such NOLs expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986 ("IRC"), as
amended, or the Code, if a corporation undergoes an “ownership change,”
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generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change
NOLs and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. The Company recently performed
an IRC 382 study and identified ownership changes in prior years. Based on existing Section 382 limitations, $0.9 million of the existing federal NOL will
not be utilizable due to restrictive limitations. We may experience additional ownership changes in the future because of subsequent shifts in our stock
ownership. As a result, our ability to use our pre-change NOLs to offset U.S. federal taxable income, if any, is subject to limitations, which could
potentially result in increased future tax liability. In addition, at the state level, there may be periods during which the use of NOLs is suspended or
otherwise limited, which could accelerate or permanently increase state taxes owed.
U.S. federal income tax reform and changes in other tax laws could adversely affect us.
In December 2017, U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law, significantly
reforming the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the
deductibility of business interest, allows for the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a
partial “territorial” system, and modifies or repeals many business deductions and credits. Beginning in 2022, the TCJA also eliminated the option to
immediately deduct research and development expenditures and required taxpayers to amortize domestic expenditures over five years and foreign
expenditures over fifteen years.
We continue to examine the impact the TCJA may have on our business. The TCJA is a far-reaching and complex revision to the U.S. federal
income tax laws with disparate and, in some cases, countervailing impacts on different categories of taxpayers and industries, and will require subsequent
rulemaking and interpretation in a number of areas. The long-term impact of the TCJA on the overall economy, the industries in which we operate and our
and our partners’ businesses cannot be reliably predicted at this early stage of the new law’s implementation. There can be no assurance that the TCJA will
not negatively impact our operating results, financial condition, and future business operations. The estimated impact of the TCJA is based on our
management’s current knowledge and assumptions, following consultation with our tax advisors.
Because of our valuation allowance in the U.S., ongoing tax effects of the Act are not expected to materially change our effective tax rate in future
periods.
Risks Related to our Intellectual Property
Our success depends in part on our ability to obtain, maintain and protect our intellectual property. It is difficult and costly to protect our proprietary
rights and technology, and we may not be able to ensure their protection.
Our commercial success will depend in large part on obtaining and maintaining patent, trademark, trade secret and other intellectual property
protection of our proprietary technologies and product candidates, which include TANGO, STK-001, STK-002 and the additional gene targets identified by
TANGO, their respective components, formulations, combination therapies, methods used to manufacture them and methods of treatment, as well as
successfully defending our patents and other intellectual property rights against third-party challenges. Our ability to stop unauthorized third parties from
making, using, selling, offering to sell, importing or otherwise commercializing our product candidates is dependent upon the extent to which we have
rights under valid and enforceable patents or trade secrets that cover these activities. If we are unable to secure and maintain patent protection for any
product or technology we develop, or if the scope of the patent protection secured is not sufficiently broad, our competitors could develop and
commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop may be
adversely affected. The patenting process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. It is also possible
that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some
circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology that we license from or license to third parties and are reliant on our licensors or licensees to do so. Our pending and future patent applications
may not result in issued patents. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that
will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any
competitive advantage. Any patents that we hold or in-license may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently,
we do not know whether any of our platform advances and product candidates will be protectable or remain protected by valid and enforceable patents. In
addition, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from
developing competing products and technologies.
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We depend on intellectual property licensed from third parties, and our licensors may not always act in our best interest. If we fail to comply with our
obligations under our intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, we could lose significant
rights that are important to our business.
We are dependent on patents, know-how and proprietary technology licensed from others. Our licenses to such patents, know-how and proprietary
technology may not provide exclusive rights in all relevant fields of use and in all territories in which we may wish to develop or commercialize our
products in the future. The agreements under which we license patents, know-how and proprietary technology from others are complex, and certain
provisions in such agreements may be susceptible to multiple interpretations.
For example, we are a party to a license agreement with the University of Southampton, pursuant to which we in-license key patents and patent
applications for our TANGO platform, STK-001, STK-002 and our future product candidates. For more information regarding the agreement, please see
“Business—License and research agreements.” The agreement imposes various diligence, milestone payment, royalty, insurance and other obligations on
us. If we fail to comply with these obligations, our licensor may have the right to terminate our license, in which event we would not be able to develop or
market our TANGO platform, STK-001, STK-002 or any other technology or product candidates covered by the intellectual property licensed under the
agreement. In addition, we may need to obtain additional licenses from our existing licensor and others to advance our research or allow commercialization
of product candidates we may develop. It is possible that we may be unable to obtain any additional licenses at a reasonable cost or on reasonable terms, if
at all. In either event, we may be required to expend significant time and resources to redesign our technology, product candidates, or the methods for
manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable
to do so, we may be unable to develop or commercialize the affected technology or product candidates.
If we or our existing or future licensors fail to adequately protect our licensed intellectual property, our ability to commercialize product candidates
could suffer. We do not have complete control over the maintenance, prosecution and litigation of our in-licensed patents and patent applications and may
have limited control over future intellectual property that may be in-licensed. For example, we cannot be certain that activities such as the maintenance and
prosecution by our existing or future licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and
enforceable patents and other intellectual property rights. It is possible that our existing or future licensors’ infringement proceedings or defense activities
may be less vigorous than had we conducted them ourselves, or may not be conducted in accordance with our best interests.
Furthermore, inventions contained within some of our existing or future in-licensed patents and patent applications may be made using U.S.
government funding or other non-governmental funding. We rely on our existing or future licensors to ensure compliance with applicable obligations
arising from such funding, such as timely reporting, an obligation associated with in-licensed patents and patent applications. The failure of our existing or
future licensors to meet their obligations may lead to a loss of rights or the unenforceability of relevant patents. For example, the government could have
certain rights in such in-licensed patents, including a non-exclusive license authorizing the government to use the invention or to have others use the
invention on its behalf for non-commercial purposes. If the U.S. government then decides to exercise these rights, it is not required to engage us as its
contractor in connection with doing so. These rights may also permit the government to exercise march-in rights to use or allow third parties to use the
technology covered by such in-licensed patents. The government may also exercise its march-in rights if it determines that action is necessary because we
or our licensors failed to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs,
to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such in-licensed government-funded inventions
may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any of the foregoing could harm our
business, financial condition, results of operations, and prospects significantly.
In addition, the resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to
the relevant patents, know-how and proprietary technology, or increase what we believe to be our financial or other obligations under the relevant
agreement. Disputes that may arise between us and our existing or future licensors regarding intellectual property subject to a license agreement could
include disputes regarding:
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the scope of rights granted under the license agreement and other interpretation-related issues;
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
our right to sublicense patent and other rights to third parties under collaborative development relationships;
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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our
product candidates and what activities satisfy those diligence obligations; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
acceptable terms, we may be unable to successfully develop and commercialize the affected technology or product candidates. As a result, any termination
of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize our TANGO platform, STK-001, or
STK-002, or we could lose other significant rights, any of which could have a material adverse effect on our business, financial condition, results of
operations, and prospects.
Moreover, our agreements with certain of our third-party research partners provide that improvements developed in the course of our relationship
may be owned solely by either us or our third-party research partner, or jointly between us and the third party. If we determine that rights to such
improvements owned solely by a research partner or other third party with whom we collaborate are necessary to commercialize our drug candidates or
maintain our competitive advantage, we may need to obtain a license from such third party in order to use the improvements and continue developing,
manufacturing or marketing our drug candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or
at all, which could prevent us from commercializing our drug candidates or allow our competitors or others the chance to access technology that is
important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to enforce such intellectual property
against third parties, and such cooperation may not be provided to us.
Our owned and in-licensed patents and patent applications may not provide sufficient protection of our TANGO platform, our STK-001 and STK-002
product candidates, and our future product candidates or result in any competitive advantage.
We own an issued U.S. patent covering STK-001 and related compositions, an issued U.S. patent covering the mechanism of action of STK-001 and
use of STK-001 for treating diseases, and a pending PCT international application and five pending U.S. patent applications covering STK-001 and related
compositions, and use of STK-001 for treating diseases. We have also in-licensed two issued U.S. patents and at least six issued foreign patents that cover
the mechanism of action of STK-001, use of the mechanism for treating diseases, and related compositions. We have obtained at least fifteen issued foreign
patents covering STK-001, related compositions and its uses and are currently pursuing patent protection for STK-001, related compositions, and its uses in
several economically significant countries. With respect to STK-002, we have applied for and are currently pursuing patent protection for the mechanism of
action, compositions related to STK-002, and uses of those compositions in several economically significant countries. We own an issued U.S. patent and
an issued foreign patent covering STK-002 and related compositions. We also own a pending PCT international application and numerous pending U.S.
and foreign patent applications covering STK-002 and related compositions, mechanism of action and use of STK-002 for treating diseases. Furthermore,
our in-licensed issued U.S. patents and foreign patents (mentioned above) cover the mechanism of action of STK-002. We cannot be certain that any of
these pending patent applications will issue as patents, and if they do, that such patents will cover or adequately protect STK-001, STK-002 and other
programs or that such patents will not be challenged, narrowed, circumvented, invalidated or held unenforceable.
In addition to claims directed toward the technology underlying our TANGO platform, our owned and in-licensed patents and patent applications
contain claims directed to compositions of matter on the active pharmaceutical ingredients (“APIs”) in our product candidates, as well as methods-of-use
directed to the use of an API for a specified treatment. Composition-of-matter patents on the active pharmaceutical ingredient in prescription drug products
provide protection without regard to any particular method of use of the API used. Method-of-use patents do not prevent a competitor or other third party
from developing or marketing an identical product for an indication that is outside the scope of the patented method. Moreover, with respect to method-of-
use patents, even if competitors or other third parties do not actively promote their product for our targeted indications or uses for which we may obtain
patents, providers may recommend that patients use these products off-label, or patients may do so themselves. Although off-label use may infringe or
contribute to the infringement of method-of-use patents, the practice is common and this type of infringement is difficult to prevent or prosecute.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The
patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United
States or in other foreign countries. For example, while our patent applications are pending, we may be subject to a third party preissuance submission of
prior art to the United States Patent and Trademark Office (the “USPTO”) or become involved in interference or derivation proceedings, or equivalent
proceedings in foreign jurisdictions. Even if patents do successfully issue, third parties may challenge their inventorship,
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validity, enforceability or scope, including through opposition, revocation, reexamination, post-grant and inter partes review proceedings. An adverse
determination in any such submission, proceeding or litigation may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed,
invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products,
or limit the duration of the patent protection of our technology and product candidates. Furthermore, even if they are unchallenged, our patents and patent
applications may not adequately protect our intellectual property or prevent others from designing around our claims. Moreover, some of our owned and in-
licensed patents and patent applications may be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-
owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors,
and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in
order to enforce such patents against third parties, and such cooperation may not be provided to us. If the breadth or strength of protection provided by the
patent applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and
threaten our ability to commercialize, our product candidates. Further, if we encounter delays in development, testing, and regulatory review of new
product candidates, the period of time during which we could market our product candidates under patent protection would be reduced.
Since patent applications in the United States and other countries are confidential for a period of time after filing, at any moment in time, we cannot
be certain that we were in the past or will be in the future the first to file any patent application related to our product candidates. In addition, some patent
applications in the United States may be maintained in secrecy until the patents are issued. As a result, there may be prior art of which we are not aware
that may affect the validity or enforceability of a patent claim, and we may be subject to priority disputes. We may be required to disclaim part or all of the
term of certain patents or all of the term of certain patent applications. There may be prior art of which we are not aware that may affect the validity or
enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a
claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that, if challenged, our
patents would be declared by a court, patent office or other governmental authority to be valid or enforceable or that even if found valid and enforceable, a
competitor’s technology or product would be found by a court to infringe our patents. We may analyze patents or patent applications of our competitors that
we believe are relevant to our activities, and consider that we are free to operate in relation to our product candidates, but our competitors may achieve
issued claims, including in patents we consider to be unrelated, that block our efforts or potentially result in our product candidates or our activities
infringing such claims. It is possible that our competitors may have filed, and may in the future file, patent applications covering our products or
technology similar to ours. Those patent applications may have priority over our owned and in-licensed patent applications or patents, which could require
us to obtain rights to issued patents covering such technologies. The possibility also exists that others will develop products that have the same effect as our
product candidates on an independent basis that do not infringe our patents or other intellectual property rights, or will design around the claims of patents
that we have had issued that cover our product candidates.
Likewise, our currently owned and in-licensed patents and patent applications, if issued as patents, directed to our proprietary technologies and our
product candidates are expected to expire from 2035 through 2044, without taking into account any possible patent term adjustments or extensions. Our
earliest in-licensed patents may expire before, or soon after, our first product achieves marketing approval in the United States or foreign jurisdictions.
Additionally, we cannot be assured that the USPTO or relevant foreign patent offices will grant any of the pending patent applications we own or in-license
currently or in the future. Upon the expiration of our current patents, we may lose the right to exclude others from practicing these inventions. The
expiration of these patents could also have a similar material adverse effect on our business, financial condition, results of operations and prospects.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to make or use compounds that are similar to the active compositions of our product candidates but that are not covered
by the claims of our patents;
the active pharmaceutical ingredients in our current product candidates will eventually become commercially available in generic drug
products, and no patent protection may be available with regard to formulation or method of use;
we or our licensors, as the case may be, may fail to meet our obligations to the U.S. government regarding any in-licensed patents and patent
applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights;
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we or our licensors, as the case may be, might not have been the first to file patent applications for certain inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies;
it is possible that our pending patent applications will not result in issued patents;
it is possible that there are prior public disclosures that could invalidate our owned or in-licensed patents, as the case may be, or parts of our
owned or in-licensed patents;
it is possible that others may circumvent our owned or in-licensed patents;
it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our
product candidates or technology similar to ours;
the laws of foreign countries may not protect our or our licensors’, as the case may be, proprietary rights to the same extent as the laws of the
United States;
the claims of our owned or in-licensed issued patents or patent applications, if and when issued, may not cover our product candidates;
our owned or in-licensed issued patents may not provide us with any competitive advantages, may be narrowed in scope, or be held invalid or
unenforceable as a result of legal challenges by third parties;
the inventors of our owned or in-licensed patents or patent applications may become involved with competitors, develop products or
processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors;
it is possible that our owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or include
individual(s) that should not be listed as inventor(s), which may cause these patents or patents issuing from these patent applications to be
held invalid or unenforceable;
we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or
competing products that are outside the scope of our patents;
we may not develop additional proprietary technologies for which we can obtain patent protection;
it is possible that product candidates or diagnostic tests we develop may be covered by third parties’ patents or other exclusive rights; or
the patents of others may have an adverse effect on our business.
Any of the foregoing could have a material adverse effect on our business, financial conditions, results of operations and prospects.
Our strategy of obtaining rights to key technologies through in-licenses may not be successful.
We seek to expand our product candidate pipeline in part by in-licensing the rights to key technologies, including those related to specific gene
targets which may be upregulated by TANGO. The future growth of our business will depend in part on our ability to in-license or otherwise acquire the
rights to additional product candidates and technologies. Although we have succeeded in licensing technologies from the University of Southampton in the
past, we cannot assure you that we will be able to in-license or acquire the rights to any product candidates or technologies from third parties on acceptable
terms or at all.
For example, our agreements with certain of our third-party research partners provide that improvements developed in the course of our relationship
may be owned solely by either us or our third-party research partner, or jointly between us and the third party. If we determine that exclusive rights to such
improvements owned solely by a research partner or other third party with whom we collaborate are necessary to commercialize our drug candidates or
maintain our competitive advantage, we may need to obtain an exclusive license from such third party in order to use the improvements and continue
developing, manufacturing or marketing our drug candidates. We may not be able to obtain such a license on an exclusive basis, on commercially
reasonable terms, or at all, which could prevent us from commercializing our drug candidates or allow our competitors or others the opportunity to access
technology that is important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to enforce such
intellectual property against third parties, and such cooperation may not be provided to us.
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In addition, the in-licensing and acquisition of these technologies is a highly competitive area, and a number of more established companies are also
pursuing strategies to license or acquire product candidates or technologies that we may consider attractive. These established companies may have a
competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies
that perceive us to be a competitor may be unwilling to license rights to us. Furthermore, we may be unable to identify suitable product candidates or
technologies within our area of focus. If we are unable to successfully obtain rights to suitable product candidates or technologies, our business and
prospects could be materially and adversely affected.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, we rely upon know-how and trade secret protection, as well as non-disclosure agreements and invention assignment
agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information, especially where we do not believe
patent protection is appropriate or obtainable.
It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential
information concerning our business or financial affairs developed or made known to the individual or entity during the course of the party’s relationship
with us is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual, and that are related to our current or planned business or research and development or made during
normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In the case of consultants and other
third parties, the agreements provide that all inventions conceived in connection with the services provided are our exclusive property. However, we cannot
guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and
processes. We have also adopted policies and conduct training that provides guidance on our expectations, and our advice for best practices, in protecting
our trade secrets. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets,
and we may not be able to obtain adequate remedies for such breaches.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information through other appropriate precautions,
such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect. These measures may not, for
example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our
proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a
competitor, and any recourse we might take against this type of misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a
claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In
addition, trade secrets may be independently developed by others in a manner that could prevent us from receiving legal recourse. If any of our confidential
or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any of that information was independently developed by
a competitor, our competitive position could be harmed.
In addition, courts outside the United States are sometimes less willing to protect trade secrets. If we choose to go to court to stop a third party from
using any of our trade secrets, we may incur substantial costs. Even if we are successful, these types of lawsuits may consume our time and other resources.
Although we take steps to protect our proprietary information and trade secrets, third parties may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. As a result, we may not be able to
meaningfully protect our trade secrets. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Third-party claims of intellectual property infringement may prevent, delay or otherwise interfere with our product discovery and development efforts.
Our commercial success depends in part on our ability to develop, manufacture, market and sell our product candidates and use our proprietary
technologies without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties. There is a substantial
amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative
proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the
USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or threatened with, future litigation by third
parties having patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies infringe, misappropriate or
otherwise violate their intellectual property rights. Numerous U.S. and
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foreign issued patents and pending patent applications that are owned by third parties, such as Ionis Pharmaceuticals, exist in the fields in which we are
developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our
product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including
us, which patents cover various types of drugs, products or their methods of use or manufacture. Thus, because of the large number of patents issued and
patent applications filed in our field, third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
If a third party claims that we infringe, misappropriate or otherwise violate its intellectual property rights, we may face a number of issues,
including, but not limited to:
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infringement and other intellectual property claims that, regardless of merit, may be expensive and time-consuming to litigate and may divert
our management’s attention from our core business;
substantial damages for infringement, which we may have to pay if a court decides that the product candidate or technology at issue infringes
on or violates the third party’s rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble damages plus
the patent owner’s attorneys’ fees;
a court prohibiting us from developing, manufacturing, marketing or selling our product candidates, or from using our proprietary
technologies, unless the third party licenses its product rights to us, which it is not required to do, on commercially reasonable terms or at all;
if a license is available from a third party, we may have to pay substantial royalties, upfront fees and other amounts, and/or grant cross-
licenses to intellectual property rights for our product candidates;
the requirement that we redesign our product candidates or processes so they do not infringe, which may not be possible or may require
substantial monetary expenditures and time; and
there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially
greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our
ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, financial condition, results
of operations and prospects.
Third parties may assert that we are employing their proprietary technology without authorization, including by enforcing its patents against us by
filing a patent infringement lawsuit against us. In this regard, patents issued in the United States by law enjoy a presumption of validity that can be rebutted
only with evidence that is “clear and convincing,” a heightened standard of proof.
There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for
treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently
pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in
the future and claim that use of our technologies infringes upon these patents.
If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, or materials
used in or formed during the manufacturing process, or any final product itself, the holders of those patents may be able to block our ability to
commercialize our product candidate unless we obtain a license under the applicable patents, or until those patents were to expire or those patents are
finally determined to be invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our
formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of that patent may be
able to block our ability to develop and commercialize the product candidate unless we obtain a license or until such patent expires or is finally determined
to be invalid or unenforceable. In either case, a license may not be available on commercially reasonable terms, or at all, particularly if such patent is
owned or controlled by one of our primary competitors. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable
terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could significantly harm our business. Even if we
obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, if the breadth or
strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license,
develop or commercialize current or future product candidates.
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Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and
would be a substantial diversion of employee time and resources from our business. In the event of a successful claim of infringement against us, we may
have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay
royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether
any license of this nature would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of
litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates and we may fail
to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize
our product candidates, which could significantly harm our business.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and
unsuccessful and could result in a finding that such patents are unenforceable or invalid.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our
patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover
the technology in question.
In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are
numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before
administrative bodies in the United States or abroad, even outside the context of litigation. These types of mechanisms include re-examination, post-grant
review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition
proceedings). These types of proceedings could result in revocation or amendment to our patents such that they no longer cover our product candidates.
The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question,
for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during
prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our
rights, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Defense of these types of claims, regardless of their
merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
Conversely, we may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review the patent
claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign
jurisdictions (e.g., opposition proceedings), or we may choose to challenge a third party’s patent in patent opposition proceedings in the European Patent
Office (the “EPO”) or another foreign patent office. Even if successful, the costs of these opposition proceedings could be substantial, and may consume
our time or other resources. If we fail to obtain a favorable result at the USPTO, the EPO or other patent office then we may be exposed to litigation by a
third party alleging that the patent may be infringed by our product candidates or proprietary technologies.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the
results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, that
perception could have a substantial adverse effect on the price of our common stock. Any of the foregoing could have a material adverse effect on our
business financial condition, results of operations and prospects.
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We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on product candidates in all
countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as
federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside
the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use
our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing
products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete
with our product candidates in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be
effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or
marketing of competing products against third parties in violation of our proprietary rights generally. The initiation of proceedings by third parties to
challenge the scope or validity of our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other
aspects of our business. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention
from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not
issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies
awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Geopolitical actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or
maintenance of our patent applications or those of any current or future licensors and the maintenance, enforcement or defense of our issued patents or
those of any current or future licensors. For example, the United States and foreign government actions related to Russia’s invasion of Ukraine may limit or
prevent filing, prosecution and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in
Russia. These actions could result in abandonment or lapse of our patents or patent applications, resulting in partial or complete loss of patent rights in
Russia. In addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions
owned by patentees that have citizenship or nationality in, are registered in, or have predominately primary place of business or profit-making activities in
the United States and other countries that Russia has deemed unfriendly without consent or compensation. Consequently, we would not be able to prevent
third parties from practicing our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Similarly, the
ongoing conflict in Israel could result in regulatory delays or the inability to secure intellectual property or commercialize our products there. Accordingly,
our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Our use of open source software could impose limitations on our ability to commercialize our product candidates.
Our use of open source software could impose limitations on our ability to commercialize our product candidates. Our technology utilizes open
source software that contains modules licensed for use from third-party authors under open source licenses. In particular, some of the software that powers
TANGO may be provided under license arrangements that allow use of the software for research or other non-commercial purposes. As a result, in the
future, as we seek to use our platform in connection with commercially available products, we may be required to license that software under different
license terms, which may not be possible on commercially reasonable terms, if at all. If we are unable to license software components on terms that permit
its use for commercial purposes, we may be required to replace those software components, which could result in delays, additional cost and additional
regulatory approvals.
Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally
do not provide warranties or other contractual protections regarding infringement claims or the quality of the software code. Some open source licenses
contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we
use. If we combine our proprietary software with open source software in a certain manner, we could, under certain of the open source licenses, be required
to release the source code of our proprietary software to the public. This could allow our competitors to create similar products with lower development
effort and time, and ultimately could result in a loss of product sales for us. Although we monitor our use of open source software, the terms of many open
source licenses have not been interpreted by
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U.S. courts, and there is a risk that those licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to
commercialize our product candidates. We could be required to seek licenses from third parties in order to continue offering our product candidates, to re-
engineer our product candidates or to discontinue the sale of our product candidates in the event re-engineering cannot be accomplished on a timely basis,
any of which could materially and adversely affect our business, financial condition, results of operations and prospects.
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade
secrets.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at universities or other
biopharmaceutical or pharmaceutical companies, including our competitors or potential competitors. Although no misappropriation or improper disclosure
claims against us are currently pending, and although we try to ensure that our employees and consultants do not use the proprietary information or know-
how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or
otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. We
may then have to pursue litigation to defend against these claims. If we fail in defending any claims of this nature in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against these types of claims, litigation or other legal
proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel
from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or
developments, and, if securities analysts or investors perceive these results to be negative, that perception could have a substantial adverse effect on the
price of our common stock. This type of litigation or proceeding could substantially increase our operating losses and reduce our resources available for
development activities, and we may not have sufficient financial or other resources to adequately conduct this type of litigation or proceedings. For
example, some of our competitors may be able to sustain the costs of this type of litigation or proceedings more effectively than we can because of their
substantially greater financial resources. In any case, uncertainties resulting from the initiation and continuation of intellectual property litigation or other
intellectual property related proceedings could adversely affect our ability to compete in the marketplace.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through
acquisitions and in-licenses.
The growth of our business may depend in part on our ability to acquire, in-license or use third-party proprietary rights. For example, our product
candidates may require specific formulations to work effectively and efficiently, we may develop product candidates containing our compounds and pre-
existing pharmaceutical compounds, or we may be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic
test or tests with our product candidates, any of which could require us to obtain rights to use intellectual property held by third parties. In addition, with
respect to any patents we may co-own with third parties, we may require licenses to such co-owners interest to such patents. We may be unable to acquire
or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary or
important to our business operations. In addition, we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. Were that
to happen, we may need to cease use of the compositions or methods covered by those third-party intellectual property rights, and may need to seek to
develop alternative approaches that do not infringe on those intellectual property rights, which may entail additional costs and development delays, even if
we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, which means that
our competitors may also receive access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources
to develop or license replacement technology.
Additionally, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements
with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology
resulting from the collaboration. Even if we hold such an option, we may be unable to negotiate a license from the institution within the specified
timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentially
blocking our ability to pursue our program.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established or have
greater resources than we do may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or
attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash
resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling
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to assign or license rights to us. There can be no assurance that we will be able to successfully complete these types of negotiations and ultimately acquire
the rights to the intellectual property surrounding the additional product candidates that we may seek to develop or market. If we are unable to successfully
obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon
development of certain programs and our business financial condition, results of operations and prospects could suffer.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign patent agencies also require compliance with a number of procedural, documentary, fee payment and other
provisions during the patent application process and following the issuance of a patent. While an inadvertent lapse can in many cases be cured by payment
of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of
the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in
abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits,
non-payment of fees and failure to properly legalize and submit formal documents. Were a noncompliance event to occur, our competitors might be able to
enter the market, which would have a material adverse effect on our business financial condition, results of operations and prospects.
Changes in patent law in the United States and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing our ability to
protect our product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and
enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently
uncertain.
Past or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents. For example, in March 2013, under the Leahy-Smith America Invents Act (the “America Invents Act”) the
United States moved from a “first to invent” to a “first-to-file” patent system. Under a “first-to-file” system, assuming the other requirements for
patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another
inventor had made the invention earlier. The America Invents Act includes a number of other significant changes to U.S. patent law, including provisions
that affect the way patent applications are prosecuted, redefine prior art and establish a new post-grant review system. The effects of these changes are
currently unclear as the USPTO continues to promulgate new regulations and procedures in connection with the America Invents Act and many of the
substantive changes to patent law, including the “first-to-file” provisions, only became effective in March 2013. In addition, the courts have yet to address
many of these provisions and the applicability of the act and new regulations on the specific patents discussed in this filing have not been determined and
would need to be reviewed. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents.
Additionally, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the
rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination
of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and
the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to
enforce our existing patents and patents that we might obtain in the future. For example, in the case, Assoc. for Molecular Pathology v. Myriad Genetics,
Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patentable. While we do not believe that any of our owned or in-licensed
patents will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the
value of our patents. Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on our business,
financial condition, results of operations and prospects.
Additionally, starting from June 1, 2023, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which will be
subject to the jurisdiction of the Unitary Patent Court (“UPC”). This is a significant change in European patent practice. As the UPC is a new court system,
there is no precedent for the court, increasing the uncertainty of any litigation.
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Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years
from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even
if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products,
including generics. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting our
product candidates might expire before or shortly after we or our partners commercialize those candidates. As a result, our owned and licensed patent
portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If we do not obtain patent term extension for any product candidates we may develop, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our
U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-
Waxman Amendments”). The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during
the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of
product approval, only one patent per product may be extended and only those claims covering the approved drug, a method for using it, or a method for
manufacturing it may be extended. However, even if we were to seek a patent term extension, it may not be granted because of, for example, the failure to
exercise due diligence during the testing phase or regulatory review process, the failure to apply within applicable deadlines, the failure to apply prior to
expiration of relevant patents, or any other failure to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection
afforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, our
competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations, and
prospects could be materially harmed.
We are subject to a variety of privacy and data security laws, and our failure to comply with them could harm our business.
We maintain a large quantity of sensitive information, including confidential business and patient health information in connection with our
preclinical studies, and are subject to laws and regulations governing the privacy and security of such information. In the United States, there are numerous
federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including
federal and state health information privacy laws, federal and state security breach notification laws, and federal and state consumer protection laws. Each
of these laws is subject to varying interpretations and constantly evolving. In May 2018, a new privacy regime, the General Data Protection Regulation (the
“GDPR”) took effect in the European Economic Area (the “EEA”) and the United Kingdom. The GDPR governs the collection, use, disclosure, transfer or
other processing of personal data of European and United Kingdom persons. The GDPR continues to form part of law in the United Kingdom with some
amendments following Brexit (“UK GDPR”), although there is a risk of divergence in the future which may increase our overall data protection
compliance cost. Among other things, the GDPR and UK GDPR impose new requirements regarding the security of personal data and notification of data
processing obligations to the competent national data processing authorities, changes the lawful bases on which personal data can be processed, expands
the definition of personal data and requires changes to informed consent practices, as well as more detailed notices for clinical trial subjects and
investigators. In addition, the GDPR and UK GDPR increase the scrutiny of transfers of personal data from clinical trial sites located in the EEA and the
United Kingdom to the United States and other jurisdictions that the European Commission or the United Kingdom do not recognize as having “adequate”
data protection laws, and imposes substantial fines for breaches and violations (up to the greater of €20 million or 4% of our consolidated annual
worldwide gross revenue). The GDPR and UK GDPR also confer a private right of action on data subjects and consumer associations to lodge complaints
with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR or UK GDPR.
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More recently, the SEC has enacted regulations requiring companies to disclose or otherwise provide notifications regarding data security breaches.
For example, the SEC recently adopted cybersecurity risk management and disclosure rules, which require the disclosure of information pertaining to
cybersecurity incidents and cybersecurity risk management, strategy and governance. Compliance with these and any other applicable privacy and data
security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance
with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely
affect our business, financial condition and results of operations. Compliance with these and any other applicable privacy and data security laws and
regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data
protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business,
financial condition and results of operations.
Risks Related to Employee Matters, Managing Growth and Other Risks Related to our Business
We expect to expand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could
disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product
candidate development and growing our capability to conduct clinical trials. To manage our anticipated future growth, we must continue to implement and
improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our
limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able
to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to
significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our
business plans or disrupt our operations.
We must attract and retain highly skilled employees to succeed.
To succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and we face significant
competition for experienced personnel. If we do not succeed in attracting and retaining qualified personnel, particularly at the management level, it could
adversely affect our ability to execute our business plan, harm our results of operations and increase our capabilities to successfully commercialize STK-
001, STK-002 and our future product candidates. In particular, we believe that our future success is highly dependent upon the contributions of our senior
management, including Edward M. Kaye, our Chief Executive Officer, as well as our senior scientists and other members of our senior management team.
The loss of services of one or more of these individuals, who all have at-will employment arrangements with us, could delay or prevent the successful
development of our product pipeline, completion of our planned clinical trials or the commercialization of our product candidates, if approved. The
competition for qualified personnel in the biotechnology field is intense and as a result, we may be unable to continue to attract and retain qualified
personnel necessary for the development of our business or to recruit suitable replacement personnel.
Many of the other biotechnology companies that we compete against for qualified personnel have greater financial and other resources, different risk
profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement.
Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and
retain high-quality personnel, the rate and success at which we can discover and develop product candidates and our business will be limited.
Future acquisitions or strategic alliances could disrupt our business and harm our financial condition and results of operations.
We may acquire additional businesses or drugs, form strategic alliances or create joint ventures with third parties that we believe will complement or
augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such
businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in
developing, manufacturing and marketing any new drugs resulting from a strategic alliance or acquisition that delay or prevent us from realizing their
expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify
the transaction. The risks we face in connection with acquisitions, include:
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diversion of management time and focus from operating our business to addressing acquisition integration challenges;
coordination of research and development efforts;
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retention of key employees from the acquired company;
changes in relationships with strategic partners as a result of product acquisitions or strategic positioning resulting from the acquisition;
cultural challenges associated with integrating employees from the acquired company into our organization;
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked sufficiently
effective controls, procedures and policies;
liability for activities of the acquired company before the acquisition, including intellectual property infringement claims, violation of laws,
commercial disputes, tax liabilities, and other known liabilities;
unanticipated write-offs or charges; and
litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former
stockholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions or strategic alliances could cause
us to fail to realize the anticipated benefits of these transactions, cause us to incur unanticipated liabilities and harm the business generally. There is also a
risk that future acquisitions will result in the incurrence of debt, contingent liabilities, amortization expenses or incremental operating expenses, any of
which could harm our financial condition or results of operations.
If we fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
harm our business.
We will become subject to numerous environmental, health, and safety laws and regulations, including those governing laboratory procedures and
the handling, use, storage, treatment, and disposal of hazardous materials and wastes. Our operations will involve the use of hazardous and flammable
materials, including chemicals and biological materials. Our operations also may produce hazardous waste products. We generally anticipate contracting
with third parties for the disposal of these materials and wastes. We will not be able to eliminate the risk of contamination or injury from these materials. In
the event of contamination or injury resulting from any use by us of hazardous materials, we could be held liable for any resulting damages, and any
liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with
such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting
from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities.
In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws and regulations. These
current or future laws and regulations may impair our research, development, or production efforts. Our failure to comply with these laws and regulations
also may result in substantial fines, penalties or other sanctions.
Unfavorable global economic conditions could adversely affect our business, financial condition, stock price and results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example,
the global financial crisis of 2008 caused extreme volatility and disruptions in the capital and credit markets. Similarly, the global economy has been
impacted by fluctuating interest rates and inflation, as well as the possibility of a recession or further economic downturn. Moreover, adverse developments
that affect financial institutions, such as events involving liquidity that are rumored or actual, have in the past and may in the future lead to market-wide
liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”), one of our banking partners, was closed by the California Department
of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (the “FDIC”) as receiver. While we only had a minimal
amount of our cash directly at SVB and, since that date, the FDIC has stated that all depositors of SVB will be made whole, there is no guarantee that the
federal government would guarantee all depositors in the event of future bank closures, and continued instability in the banking system may adversely
impact our business and financial condition. Likewise, the capital and credit markets may be adversely affected by the ongoing conflicts in Israel and
Ukraine, and the possibility of a wider Middle Eastern, European or global conflict, global sanctions imposed in response thereto, an energy crisis and
potential recessions. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay
making payments for our services. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more
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difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse
effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there
is a risk that one or more of our current service providers, manufacturers and other partners may not survive such difficult economic times, which could
directly affect our ability to attain our operating goals on schedule and on budget. Also, hospitals and other medical facilitates face staffing shortages,
whether due to labor relations or otherwise, which could potentially cause delays in enrollment, site visits, evaluations or other activities important to our
research and development efforts. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic
climate and financial market conditions could adversely impact our business. Furthermore, our stock price may decline due in part to the volatility of the
stock market and any general economic downturn.
We or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and disaster recovery plans
may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition
and prospects. If a natural disaster, fire, hurricane, power outage or other event occurred that prevented us from using all or a significant portion of our
headquarters, that damaged critical infrastructure, such as our suppliers’ manufacturing facilities, or that otherwise disrupted operations, it may be difficult
or, in certain cases, impossible for us to continue our business for a substantial period of time.
The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We
may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse
effect on our business.
Our internal computer and information systems, or those used by our CROs, CMOs or other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our development programs.
Despite the implementation of appropriate security measures, our internal computer and information systems and those of our current and any future
CROs, CMOs and other contractors or consultants may become vulnerable to damage from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, or accident, and are unaware
of any security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our
development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions.
For example, the loss of data from completed or future preclinical studies or clinical trials could result in significant delays in our regulatory approval
efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or
damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position
could be harmed and the further development and commercialization of our product candidates could be significantly delayed.
A breakdown or breach of our technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon technology systems and data to operate our business. In particular, the COVID-19 pandemic caused us to
modify our business practices, including increasing the prevalence of employees working remotely. As a result, we are increasingly dependent upon our
technology systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our
technology systems and data, which includes use of cloud technologies, including Software as a Service (SaaS), Platform as a Service (PaaS) and
Infrastructure as a Service (IaaS). A breakdown, invasion, corruption, destruction or breach of our technology systems, including the cloud technologies
that we utilize, and/or unauthorized access to our data and information could subject us to liability or negatively impact the operation of our business. Our
technology systems, including the cloud technologies that we utilize, continue to increase in multitude and complexity, making them potentially vulnerable
to breakdown, malicious intrusion and random attack. Likewise, data privacy or security breaches by individuals authorized to access our technology
systems, including the cloud technologies that we utilize, may pose a risk that sensitive data, including intellectual property, trade secrets or personal
information belonging to us, our patients or other business partners, may be exposed to unauthorized persons or to the public.
Cyber-attacks and other cybersecurity incidents are increasing in their frequency, sophistication and intensity, and have become increasingly difficult
to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups,
“hacktivists” and employees or contractors acting with malicious intent. Cyber-attacks could include the deployment of harmful malware and key loggers,
ransomware, a denial-of-service attack, a
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malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data.
Cyber-attacks could also include supply chain attacks, which could cause a delay in the manufacturing of our products or products produced for contract
manufacturing. Our key business partners face similar risks and any security breach of their systems could adversely affect our security posture. Cyber-
attacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of
harmful malware, denial-of-service, social engineering fraud or other means to threaten data confidentiality, integrity and availability. A successful cyber-
attack could cause serious negative consequences for us, including, without limitation, the disruption of operations, the misappropriation of confidential
business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. To date, we have not
experienced a material compromise of our data or information systems. However, although we devote resources to protect our information systems, we
realize that cyber-attacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business,
legal, financial or reputational harm to us, or would have a material adverse effect on our results of operations and financial condition.
In addition, the computer systems of various third parties on which we rely, including our CROs, CMOs and other contractors, consultants and law
and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals, natural disasters
(including hurricanes and earthquakes), terrorism, war and telecommunication and electrical failures. We rely on our third-party providers to implement
effective security measures and identify and correct for any such failures, deficiencies or breaches.
Moreover, our increased use of cloud technologies and remote working arrangements could heighten these and other operational risks, and any
failure by cloud technology service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations and result in
misappropriation, corruption or loss of confidential or propriety information. Despite the implementation of appropriate security measures, our internal
computer and information systems and those of our current and any future CROs, CMOs and other contractors or consultants may become vulnerable to
damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not
experienced any such material system failure, or accident, and are unaware of any security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of
our trade secrets or other proprietary information or other similar disruptions. For example, the loss of data from completed or future preclinical studies or
clinical trials could result in significant delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the
extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or
proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our
product candidates could be significantly delayed. While we continue to build and improve our systems and infrastructure, including our business
continuity plans, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business and
operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business, operational or reputational harm to
us, or loss of competitive advantage. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to
security breaches, cyber-attacks and other related breaches.
Our employees, principal investigators, CROs, CMOs and consultants may engage in misconduct or other improper activities, including non-
compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct
by these parties could include intentional failures to comply with the regulations of FDA and non-U.S. regulators, provide accurate information to the FDA
and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data
accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to
extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in
regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always
possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply
with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
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Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material and adverse
effect on our business, financial condition, results of operations and prospects.
We will face an inherent risk of product liability exposure related to the testing of STK-001, STK-002 and our future product candidates in clinical
trials and will face an even greater risk if we commercialize any of our product candidates. If we cannot successfully defend ourselves against claims that
our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for any product candidates that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
significant time and costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any product candidates that we may develop.
While we currently have product liability insurance that we believe is appropriate for our stage of development, we may need to obtain higher levels
prior to clinical development or marketing STK-001, STK-002 or any of our future product candidates. Any insurance we have or may obtain may not
provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a
result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a
material and adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to Ownership of our Common Stock
The market price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock may be highly volatile and subject to wide fluctuations in response to various factors, some of which we
cannot control. The market price for our common stock may be influenced by many factors, including the other risks described in this section and
elsewhere in this report and the following:
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results of preclinical studies and clinical trials of our product candidates, or those of our competitors or our existing or future collaborators;
regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our product
candidates;
the success of competitive products or technologies;
introductions and announcements of new products by us, our future commercialization partners, or our competitors, and the timing of these
introductions or announcements;
actions taken by regulatory agencies with respect to our product candidates, clinical studies, manufacturing process or sales and marketing
terms;
actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us;
the success of our efforts to acquire or in-license additional technologies, products or product candidates;
developments concerning any future collaborations, including but not limited to those with our sources of manufacturing supply and our
commercialization partners;
market conditions in the pharmaceutical and biotechnology sectors;
announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments;
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our product candidates and products;
our ability or inability to raise additional capital and the terms on which we raise it;
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the recruitment or departure of key personnel;
changes in the structure of healthcare payment systems;
actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other
comparable companies or our industry generally;
our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
announcement and expectation of additional financing efforts;
speculation in the press or investment community;
trading volume of our common stock;
sales of our common stock by us or our stockholders;
the concentrated ownership of our common stock;
changes in accounting principles;
terrorist acts, acts of war or periods of widespread civil unrest, including the conflict in Ukraine and actions taken by third parties in response
to such conflict;
natural disasters and other calamities; and
general economic, industry and market conditions including interest rate increases and inflation.
In addition, the stock market in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have
experienced extreme price and volume fluctuations that have been often unrelated or disproportionate to the operating performance of the issuer, including
as a result of general economic conditions. These broad market and industry factors may seriously harm the market price of our common stock, regardless
of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk
factors” section, could have a dramatic and adverse impact on the market price of our common stock.
Our principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder
approval.
As of December 31, 2023 entities affiliated with Skorpios Trust beneficially owned 31.46% of the voting power of all outstanding shares of our
common stock. As a result, these entities will have considerable influence over the outcome of corporate actions requiring stockholder approval, including
the election of directors, amendment of our organizational documents, any merger, consolidation or sale of all or substantially all of our assets and any
other significant corporate transaction. The interests of such entities may not be the same as or may even conflict with your interests. For example, these
entities could potentially delay or prevent a change of control of our company, even if such a change of control would benefit our other stockholders, which
could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might
affect the prevailing market price of our common stock.
In addition, Skorpios Trust received its shares from Apple Tree Partners, which previously controlled a majority of the voting power of our common
stock. Seth L. Harrison, the chairman of our board of directors, serves as Managing Partner of Apple Tree Partners.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our
stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our
business. We do not have any control over the analysts, or the content and opinions included in their reports. If any of the analysts who cover us issue an
adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our preclinical studies and clinical
trials and results of operations fail to meet the expectations of analysts, our stock price would likely decline. If one or more of such analysts cease coverage
of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause a decline in our stock price or
trading volume.
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We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable
to emerging growth companies or smaller reporting companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we continue
to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of
the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), (ii) reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements and (iii) exemptions from the requirements of holding nonbinding advisory stockholder votes on executive
compensation and stockholder approval of any golden parachute payments not approved previously.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) in which we have total annual gross revenue of
at least $1.235 billion or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-
affiliates exceeds $700.0 million as of the prior June 30th, (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the
prior three-year period and (iii) December 31, 2024. We anticipate ceasing to be an emerging growth company as of December 31, 2024, which is the last
day of our fiscal year following the fifth anniversary of the completion of our IPO.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may
therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an
“emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act, upon issuance
of a new or revised accounting standard that applies to our consolidated financial statements and that has a different effective date for public and private
companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently
issued accounting standard.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates was less than $700.0 million and our
annual revenue was less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company as long as
either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the
most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting
company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are
available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of
audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced
disclosure obligations regarding executive compensation. We cannot predict if investors will find our common stock less attractive because we may rely on
these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and
our share price may be more volatile.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation and our restated bylaws contain provisions that could delay or prevent a change in control of our company.
These provisions could also make it difficult for stockholders to elect directors who are not nominated by current members of our board of directors or take
other corporate actions, including effecting changes in our management. These provisions:
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establish a classified board of directors so that not all members of our board are elected at one time;
permit only the board of directors to establish the number of directors and fill vacancies on the board;
provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders;
require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws;
authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan;
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eliminate the ability of our stockholders to call special meetings of stockholders;
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
prohibit cumulative voting; and
establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by
stockholders at annual stockholder meetings.
The exclusive forum provision in our restated certificate of incorporation may limit a stockholder’s ability to bring a claim in a judicial forum that it
finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
Our restated certificate of incorporation, to the fullest extent permitted by law, provides that the Court of Chancery of the State of Delaware is the
exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim
against us arising pursuant to the Delaware General Corporation Law (the “DGCL”), our restated certificate of incorporation, or our restated bylaws; or any
action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to
enforce a duty or liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the categories enumerated in the
exclusive forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for
federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rule and regulations thereunder. There is
uncertainty as to whether a court would enforce such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to
have waived our compliance with the federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the
choice of forum provisions contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
In addition, Section 203 of the DGCL may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions
on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability
created by the Securities Act or the rules and regulations thereunder. In April 2020, we amended and restated our restated bylaws to provide that the federal
district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action
arising under the Securities Act (such provision, a “Federal Forum Provision”). Our decision to adopt a Federal Forum Provision followed a decision by the
Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or
state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case,
application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must
be brought in federal court and cannot be brought in state court.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange
Act or the rules and regulations thereunder. In addition, neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to
enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange
Act or the rules and regulations thereunder must be brought in federal court.
Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and
consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholder’s ability to bring a claim in
a judicial forum of their choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our
directors, officers, and other employees.
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We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new
compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other
expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
listing requirements of the Nasdaq Global Select Market (“Nasdaq”) and other applicable securities rules and regulations impose various requirements on
public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our
management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and
regulations to substantially increase our legal and financial compliance costs and to make some activities more time consuming and costly. We cannot
predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also
make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Moreover, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their
application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial
statements could be impaired, which could harm our operating results, investors’ views of us and, as a result, the value of our common stock.
We previously were not required to independently comply with Section 404(a) of the Sarbanes-Oxley Act. Section 404(a) of the Sarbanes-Oxley Act
requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we
file with the SEC. We were required to meet these standards in the course of preparing our financial statements as of and for the year ended December 31,
2023, and our management is required to report on the effectiveness of our internal control over financial reporting for such year and annually thereafter.
Additionally, once we are no longer an “emerging growth company,” our independent registered public accounting firm will be required pursuant to Section
404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the
standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation,
testing, and possible remediation.
To achieve compliance with Section 404(b) within the prescribed period, we will be engaged in a process to document and evaluate our internal
control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially
engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps
to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and
improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the
prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material
weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial
statements. In addition, if we are not able to continue to meet these requirements, we may not be able to remain listed on Nasdaq.
As we grow, we expect to hire additional personnel and may utilize external temporary resources to implement, document and modify policies and
procedures to maintain effective internal controls. However, it is possible that we may identify deficiencies and weaknesses in our internal controls. If
material weaknesses or deficiencies in our internal controls exist and go undetected or unremediated, our consolidated financial statements could contain
material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and cause the price of our
common stock to decline.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole
source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the
growth and development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable
future.
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We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock
have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result
in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity
We recognize the critical importance of maintaining the trust and confidence of our all of our stakeholders. Our business increasingly depends on the
efficient and uninterrupted operation of our information technology systems and those of our third-party contract research organizations, contract
manufacturing organizations, or other vendors, contractors or consultants. Our board of directors and our management team are actively involved in the
oversight of risk management, and cybersecurity represents an important component of our overall approach to compliance and risk management. Our
cybersecurity policies, standards, processes and practices are integrated into our approach to compliance and risk management and follow recognized
industry best practices. In general, we seek to address cybersecurity risks through a cross-functional approach that is focused on preserving the
confidentiality, integrity, and availability of the information that we collect, process, and store by identifying, preventing and mitigating cybersecurity
threats and effectively responding to cybersecurity incidents when they occur.
Cybersecurity Risk Mitigation
As one of the critical elements of our overall approach to compliance and risk management, our cybersecurity program is focused on the following
key areas:
Confidentiality and Integrity: To ensure the confidentiality and integrity of data and systems, we leverage encryption of data during transfer and at
rest whenever possible and as necessary, least privileged access when granting access, strong passwords and two-factor authentication, and version-
controlled file systems.
Availability: To preserve the availability of data and systems, we perform daily backups with some occurring multiple times a day. Additionally, to
mitigate ransomware, data is stored in version-controlled file systems. When implementing systems, architectural patterns for redundancy and failover are
used.
Other Technical Safeguards: Additional technical safeguards that are designed to protect our information systems from cybersecurity threats
include endpoint tools that detect and prevent threats on a computer and monitor for vulnerabilities, next generation firewalls, intrusion prevention and
detection systems, and cybersecurity testing of our systems.
Monitoring: We maintain a security operations center that monitors our systems and networks for anomalous activity. Additionally, our information
technology (“IT”) team actively monitors different cybersecurity threat intelligence sources and responds accordingly based on risk.
Education and Awareness: We provide regular, mandatory security awareness training for personnel to educate our employees on cybersecurity
threats and to communicate our evolving information security policies, standards, processes, and practices. In addition to the training, we periodically test
employees with phishing emails.
Collaborative Approach: We have implemented a cross-functional approach to identifying, preventing, and mitigating cybersecurity threats and
incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions
regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.
Incident Response and Recovery Planning: We have established and maintain comprehensive incident response and recovery plans to address our
response to a cybersecurity incident.
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Third-Party Risk Management: We maintain a risk-based approach to identifying cybersecurity risks presented by third parties, including vendors,
service providers and other external users of our systems, as well as the systems of third parties that could adversely impact our business in the event of a
cybersecurity incident affecting those third-party systems.
Policies and Processes: We engage in the periodic assessment of our policies, standards, processes, and practices that are designed to address
cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, penetration testing and other exercises focused on
evaluating the effectiveness of our cybersecurity measures. The results of such exercises, if material, are reported to the audit committee of our board and
our board of directors, and we adjust our cybersecurity policies, standards, processes and practices as necessary based on the information provided by these
assessments, audits and reviews.
Governance
Our board of directors, in coordination with our audit committee, oversees our risk management process. Our audit committee receives presentations
and reports on cybersecurity risks, which address a wide range of topics including recent developments, evolving standards, vulnerability assessments, the
threat environment, technological trends and information security considerations arising with respect to our peers and third parties. Our board of directors
and audit committee also receive prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as
ongoing updates regarding any such incident until it has been addressed. On a periodic basis, our board of directors and audit committee discuss our
approach to cybersecurity risk management with our head of IT.
Our head of IT, in coordination and with support from our executive management team, works collaboratively across the company to implement a
program designed to protect our information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with
our incident response and recovery plans. Through ongoing communications with our entire employee basis and appropriate third-party contractors, the
head of IT and the management team monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and
report such threats and incidents to our audit committee when appropriate.
Our head of IT has over 20 years of experience building and managing information systems with cybersecurity principles, such as least privileged
access, patching and vulnerability management, encryption, etc., as part of a foundation to ensure confidentiality, integrity, and availability. Our head of IT
has also served in consulting and architecture roles for cybersecurity and compliance projects ranging from design and auditing systems, red team testing,
to compliance audits and remediation for the Sarbanes-Oxley Act of 2002, as amended, and the payment card industry data security standards.
No cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to affect us,
including our business strategy, results of operations or financial condition
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Item 2. Properties.
We currently occupy approximately 38,000 square feet of office and laboratory space in Bedford, Massachusetts, under a lease that expires
December 31, 2026. We also occupy 4,842 square feet of office space in Cambridge, Massachusetts under a lease that expires on April 30, 2025. We
believe that our facilities suffice to meet our current and near-term needs and that suitable additional space will be available as and when needed.
Item 3. Legal Proceedings.
From time to time we may be subject to various claims, complaints and legal actions that arise in the normal course of business. We are not
presently party to any legal proceedings that, in the opinion of management, the outcome of which could have a material adverse effect on our business.
Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative
publicity and reputation harm, and other factors. There can be no assurance that future legal proceedings arising in the ordinary course of business or
otherwise will not have a material adverse effect on our business, financial condition, or results of operations.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
PART II
None.
Use of Proceeds
None.
Holders of Record
As of December 31, 2023, there were 6 holders of record of our common stock. The actual number of stockholders is greater than this number of
record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number
of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have not declared or paid any cash dividends on our common stock since our inception. We do not plan to pay dividends in the foreseeable
future. We currently intend to retain all available funds and any future earnings, if any, for use in the operation of our business. Any future determination to
declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition,
results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant, and subject to the
restrictions contained in future financing instruments. Consequently, stockholders will need to sell shares of our common stock to realize a return on their
investment, if any.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and consolidated results of operations together with our
consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our
business and related financing, includes forward-looking statements that involve risks and uncertainties. You should carefully read the sections entitled
“Risk Factors” and “Special Note Regarding Forward-Looking Statements” to gain an understanding of the important factors that could cause actual
results to differ materially from our forward-looking statements.
Overview
We are dedicated to addressing the underlying causes of severe diseases by upregulating protein expression with RNA-based medicines. Using our
proprietary TANGO (Targeted Augmentation of Nuclear Gene Output) approach, we are developing antisense oligonucleotides (“ASOs”) to selectively
restore protein levels.
Our first compound, STK-001, is in clinical testing for the treatment of Dravet syndrome, a severe and progressive genetic epilepsy. Dravet
syndrome is characterized by frequent, prolonged and refractory seizures beginning within the first year of life. The disease is classified as a developmental
and epileptic encephalopathy due to the developmental delays and cognitive impairment associated with it. Dravet syndrome is one of many diseases
caused by a haploinsufficiency, in which a loss of approximately 50% of normal protein levels leads to disease. We have announced end of study data from
our two Phase 1/2a open-label studies of STK-001, MONARCH in the United States and ADMIRAL in the United Kingdom. We also have
SWALLOWTAIL in the U.S. and LONGWING in the U.K., which are Open Label Extension (“OLE”) studies of STK-001 for children and adolescents
with Dravet syndrome. Patients who participated in the MONARCH study in the United States or the ADMIRAL study in the United Kingdom and met
study entry criteria are eligible to continue treatment in SWALLOWTAIL or LONGWING, respectively, both of which are designed to evaluate the long-
term safety and tolerability of repeat doses of STK-001.
We are also pursuing treatment for a second haploinsufficient disease, autosomal dominant optic atrophy (“ADOA”), the most common inherited
optic nerve disorder. STK-002 is our lead clinical candidate for the treatment of ADOA. STK-002 is designed to upregulate OPA1 protein expression by
leveraging the non-mutant (wild-type) copy of the OPA1 gene to restore OPA1 protein expression with the aim to stop or slow vision loss in patients with
ADOA. We have received authorization in the United Kingdom to proceed with a Phase 1 open-label study (OSPREY) of STK-002, and we expect the
study to start in 2024.
In May 2022, we filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the SEC. The Registration
Statement was declared effective by the SEC on May 31, 2022, and contains two prospectuses: a base prospectus, which covers the offering, issuance and
sale by us of up to a maximum aggregate offering price of $400.0 million of our common stock, preferred stock, debt securities, warrants to purchase
common stock, preferred stock or debt securities, subscription rights to purchase common stock, preferred stock or debt securities and/or units consisting of
some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price
of $150.0 million of common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“Sales Agreement”). The specific
terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus. The $150.0 million
of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400.0 million of securities that may be
offered, issued and sold by us under the base prospectus. As of December 31, 2023, we had issued approximately 6.3 million shares of common stock
pursuant to the Sales Agreement for net proceeds of $52.1 million. We may terminate this at-the-market program at any time, pursuant to its terms.
As of December 31, 2023 and 2022 we had $201.4 million and $229.6 million, respectively, in cash, cash equivalents and marketable securities.
Since inception, we have had operating losses, the majority of which are attributable to research and development activities. Our net losses were
$104.7 million and $101.1 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit
of $401.8 million and as of December 31, 2022, we had an accumulated deficit of $297.2 million.
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent,
general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the
change in our outstanding accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our
research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular,
83
we expect our expenses and losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to
commercialize any approved products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and
accountants, and incur increased costs associated with being a public company such as expenses related to services associated with maintaining compliance
with Nasdaq listing rules and SEC requirements, insurance and investor relations costs. Our net losses may fluctuate significantly from quarter-to-quarter
and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
Based upon our current operating plan, we believe that our cash, cash equivalents and marketable securities of $201.4 million as of December 31,
2023, together with the proceeds since December 31, 2023 from the Sales Agreement of $1.3 million, will enable us to fund our operating expenses and
capital expenditure requirements to the end of 2025. To date, we have not had any products approved for sale and have not generated any product sales. We
do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or
more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect
to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, as
we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources,
including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other
arrangements when needed on favorable terms or at all. Any failure to raise capital as and when needed could have a negative impact on our financial
condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned
activities to reduce costs.
License and Collaboration Agreement with Acadia Pharmaceuticals Inc.
In January 2022, we entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc. (“Acadia”) for the discovery, development
and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous
system. The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest. In
connection with each target, we will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed
products. With respect to SYNGAP1, we have agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in
connection therewith we granted to Acadia worldwide, co-exclusive (with us) licenses for such licensed products. With respect to MECP2 and the
neurodevelopmental target, we granted to Acadia worldwide, exclusive licenses to develop and commercialize licensed products for such targets.
Pursuant to the terms of the agreement, we received an upfront payment of $60.0 million from Acadia. Acadia agreed to fund the research to
identify potential licensed products for MECP2 and the neurodevelopmental target, and we will equally fund with Acadia the research to identify potential
licensed products for SYNGAP1. We are eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of
certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were
achieved at least once. With respect to licensed products for MECP2 and the neurodevelopmental target, we are also eligible to receive tiered royalties at
percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide. Royalties payable under the
agreement are subject to standard royalty reductions. For SYNGAP1 licensed products that we are co-developing and co-commercializing, we will be
responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization. We are provided
with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at our discretion. Such opt-out would reduce
development and commercialization milestones but would provide us with royalties on an escalating basis attributable to net sales milestones.
Financial Operations Overview
Revenue
We currently do not have any products approved for sale and have not generated any revenue since inception through December 31, 2023. If we are
able to successfully develop, receive regulatory approval for and commercialize any of our current or future product candidates alone or in collaboration
with third parties, we may generate revenue from the sales of these product candidates.
In January 2022, we entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc. (“Acadia”) for the discovery, development
and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous
system (the “CNS”). The agreement focuses on the targets
84
SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest. In connection with each target, we will collaborate
with Acadia to identify potential treatments for further development and commercialization as licensed products. With respect to SYNGAP1, we have
agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection therewith we granted to Acadia
worldwide, co-exclusive (with us) licenses for such licensed products. With respect to MECP2 and the neurodevelopmental target, we granted to Acadia
worldwide, exclusive licenses to develop and commercialize licensed products for such targets.
Pursuant to the terms of the agreement, we received an upfront payment of $60.0 million from Acadia. Acadia agreed to fund the research to
identify potential licensed products for MECP2 and the neurodevelopmental target, and we will equally fund with Acadia the research to identify potential
licensed products for SYNGAP1. We are eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of
certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were
achieved at least once. With respect to licensed products for MECP2 and the neurodevelopmental target, we are also eligible to receive tiered royalties at
percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide. Royalties payable under the
agreement are subject to standard royalty reductions. For SYNGAP1 licensed products that we are co-developing and co-commercializing, we will be
responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization. We are provided
with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at our discretion. Such opt-out would reduce
development and commercialization milestones but would provide us with royalties on an escalating basis attributable to net sales milestones.
For the year ended, December 31, 2023, we recognized revenue related to the Acadia collaboration of $8.8 million and for the year ended,
December 31, 2022, we recognized revenue related to the Acadia collaboration of $12.4 million.
See Note 8—License and Collaboration Agreement with Acadia Pharmaceuticals, Inc. of the notes to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
Research and development
Research and development expenses consist primarily of costs incurred for the development of our discovery work and preclinical programs, which
include:
•
•
•
•
•
personnel costs, which include salaries, benefits and stock-based compensation expense;
expenses incurred under agreements with consultants, third-party contract organizations that conduct research and development activities on
our behalf, costs related to production of preclinical material and laboratory and vendor expenses related to the execution of preclinical
studies;
scientific consulting, collaboration and licensing fees;
laboratory supplies; and
facilities costs, depreciation and other expenses related to internal research and development activities.
We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing
product candidates. Our direct research and development expenses are tracked on a program-by-program basis from the point a program becomes a clinical
candidate for us and consists primarily of external costs, such as fees paid to consultants, central laboratories and contractors in connection with our
preclinical activities. We do not allocate employee costs, costs associated with our technology or facility expenses, including depreciation or other indirect
costs, to specific programs because these costs are currently deployed across multiple product development programs and, as such, are not separately
classified. We use internal resources to manage our development activities and our employees work across multiple development programs and, therefore,
we do not track their costs by program.
85
The table below summarizes our research and development expenses incurred by development program:
STK-001
STK-002
SYNGAP1
MECP2
Non-program specific and unallocated research
and development expenses
Total research and development expenses
Year ended December 31,
2023
2022
(in thousands)
27,078 $
7,997
554
994
45,608
82,231 $
25,327
9,087
405
745
42,273
77,837
$
$
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized
based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service
providers.
We expect that our expenses will increase substantially in connection with our planned discovery work, preclinical and clinical development
activities in the near term and our planned clinical trials in the future. At this time, we cannot reasonably estimate the costs for completing the preclinical
and clinical development of any of our other product candidates. We expect our research and development expenses to increase substantially for the
foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in
manufacturing, as our programs advance into later stages of development and we conduct clinical trials. The process of conducting the necessary clinical
research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a
result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate
revenue from the commercialization and sale of any of our product candidates.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and
completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the
commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration,
costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
•
•
•
•
•
•
•
•
•
•
•
successful completion of preclinical studies and investigational new drug-enabling studies;
successful enrollment in, and completion of, clinical trials;
receipt of regulatory approvals from applicable regulatory authorities;
furthering our commercial manufacturing capabilities and arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies and treatment options;
a continued acceptable safety profile following approval;
enforcing and defending intellectual property and proprietary rights and claims; and
achieving desirable medicinal properties for the intended indications.
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A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our
current and future preclinical and clinical product candidates. For example, if the FDA, or another regulatory authority were to require us to conduct
clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in
execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and
time on the completion of preclinical and clinical development. We expect our research and development expenses to increase for the foreseeable future as
we continue the development of product candidates.
General and administrative expenses
General and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property, expenses
for outside professional services, including legal, human resources, information technology, audit and accounting services, and facilities and other
expenses. Personnel costs consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to
increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of operating as a
public company and the potential commercialization of our product candidates. These increases are anticipated to include increased costs related to the
hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated
with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements,
insurance and investor relations costs.
Other income (expense)
Our other income (expense), includes (i) interest income earned on cash reserves in our operating money market fund, investment accounts and on
our marketable securities investments and (ii) other items of income (expense), net.
Results of Operations for the Years Ended December 31, 2023 and 2022
The following table sets forth our results of operations:
Consolidated statements of operations
Revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest income (expense), net
Other income (expense), net
Total other income (expense)
Net loss
87
Year ended December 31,
2022
2023
(in thousands)
$
8,780
$
12,405
82,231
41,322
123,553
(114,773 )
9,908
166
10,074
(104,699 ) $
77,837
38,924
116,761
(104,356 )
3,122
167
3,289
(101,067 )
$
Research and development expenses
Research and development expenses were $82.2 million for the year ended December 31, 2023 as compared to $77.8 million for the year ended
December 31, 2022, an increase of $4.4 million. The table below summarizes our research and development expenses:
STK-001
STK-002
SYNGAP1
MECP2
Personnel-related expenses
Third-party services
Scientific consulting
Facilities and other research and
development expenses
Total research and development expenses
Year Ended December 31,
2023
2022
(in thousands)
27,078 $
7,997
554
994
31,485
2,085
1,093
10,945
82,231 $
25,327
9,087
405
745
29,028
3,409
794
9,042
77,837
$
$
The increase in research and development expenses were primarily attributable to an increase of $2.5 million in personnel costs resulting from
annual compensation increases and increases in stock-based compensation expense, $1.9 million in facilities and other research and development costs, an
increase of $1.8 million in expenses related to our STK-001 program, which is comprised of third-party services and scientific consulting fees, offset by a
decrease of $1.1 million in expenses related to our STK-002 program, which is comprised of third-party services and scientific consulting fees, and a
decrease of $0.7 million in external third-party expenses related to SYNGAP1, MECP2, and non-project specific consulting and third-party services. The
increase in expenses reflects the accelerating pace of research and development activities and the increases in personnel needed to support those activities.
General and administrative expenses
General and administrative expenses were $41.3 million for the year ended December 31, 2023 as compared to $38.9 million for the year ended
December 31, 2022, an increase of $2.4 million.
The increases in general and administrative expenses were primarily attributable to an increase of $2.2 million in personnel costs, including
increases in stock-based compensation expense, from increases in headcount and the annual options award and an increase of $0.2 million in third-party
services to support our in-house personnel in various aspects of developing and supporting the business including human resources, information
technology, audit, tax, public relations, communications and other general and administrative activities.
Other income (expense)
The change in our other income (expense) for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily
reflects an increase in cash balances throughout the year as well as increased interest rates.
Liquidity and Capital Resources
Since our inception through December 31, 2023, our operations have been financed by net proceeds of $542.6 million from the sale of convertible
notes payable and our convertible preferred stock, our initial public offering, follow-on offering, proceeds from the controlled equity offering sales
agreements and the upfront payment from Acadia. As of December 31, 2023, we had $201.4 million in cash, cash equivalents and marketable securities.
Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.
We have incurred losses since our inception in June 2014 and, as of December 31, 2023 and 2022, we had accumulated deficits of $401.8 million
and $297.2 million, respectively. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures,
and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these
expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
88
Our product candidates may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We
expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result,
until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt
financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we
expect will continue to be, compensation and related expenses, third-party clinical research and development services, costs relating to the build-out of our
headquarters and manufacturing facility, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs,
manufacturing costs, legal and other regulatory expenses and general overhead costs.
Based upon our current operating plan, we believe that our cash, cash equivalents and marketable securities of $201.4 million as of December 31,
2023, together with the proceeds since December 31, 2023 from the Sales Agreement of $1.3 million, will enable us to fund our operating expenses and
capital expenditure requirements to the end of 2025. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our
available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates
through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will
continue to seek funds through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar
arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we
do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of
these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt
financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our
ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce
costs.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are
unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not
limited to:
•
•
•
•
•
•
•
•
•
the scope, progress, results and costs of researching and developing our lead product candidates or any future product candidates, and
conducting nonclinical studies and clinical trials;
the timing of, and the costs involved in, obtaining regulatory approvals or clearances for our lead product candidates or any future product
candidates;
the number and characteristics of any additional product candidates we develop or acquire;
the timing of any cash milestone payments if we successfully achieve certain predetermined milestones;
the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize,
including costs associated with building-out our manufacturing capabilities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements
that we may enter into;
the expenses needed to attract and retain skilled personnel;
the costs associated with being a public company; and
the timing, receipt and amount of sales of any future approved or cleared products, if any.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and
other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and
uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with our current and anticipated product development programs.
89
Cash flows
The following table summarizes our cash flows:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
$
Net increase (decrease) in cash, cash equivalents and restricted
cash
$
Year ended December 31,
2023
2022
(in thousands)
(81,067 ) $
105,946
53,007
77,886 $
(31,866 )
(45,882 )
46,409
(31,339 )
Operating activities
During the year ended December 31, 2023, cash used in operating activities was $81.1 million. This was primarily attributable to a net loss of
$104.7 million and by a net change of $6.0 million in our net operating assets and liabilities, offset by non-cash charges of $29.6 million for stock-based
compensation, depreciation, amortization and accretion of marketable securities, and reduction in the carrying amount of right of use assets.
During the year ended December 31, 2022, cash used in operating activities was $31.9 million. This was primarily attributable to a net loss of
$101.1 million and by a net change of $8.7 million in our net operating assets and liabilities, offset by $51.7 million in deferred revenue received as part of
the Acadia collaboration and to non-cash charges of $26.2 million for share-based compensation, depreciation, amortization and accretion of marketable
securities, and reduction in the carrying amount of right of use assets.
Investing activities
Our investing activities during the years ended December 31, 2023 and 2022 have consisted of purchases of property and equipment and purchases
and sales of marketable securities.
Financing activities
Our financing activities during year ended December 31, 2023 consisted of $0.4 million from the exercise of stock options, $0.6 million in proceeds
from our Employee Stock Purchase Plan and $52.1 million of net proceeds from the controlled equity offering sales agreements.
Our financing activities during year ended December 31, 2022 consisted of $0.5 million from the exercise of stock options, $0.6 million in proceeds
from our Employee Stock Purchase Plan and $45.3 million of net proceeds from the controlled equity offering sales agreements.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2023 and the effects that such obligations are expected to have on
our liquidity and cash flows in future periods:
Operating lease obligations
Total
Total
Less Than
1 Year
Payments Due by Period
1 to 3
Years
(in thousands)
4 to 5
Years
More than
5 Years
$
$
7,833 $
7,833 $
2,608 $
2,608 $
5,225 $
5,225 $
— $
— $
—
—
In August 2018, we entered into an agreement to lease approximately 23,000 square feet of space for a term of three years. Lease terms are triple net
lease commencing at $0.9 million per year, then with 3% annual base rent increases plus operating expenses, real estate taxes, utilities and janitorial fees.
The lease commencement date was December 10, 2018.
90
In September 2021, we entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years ending
December 31, 2024. In addition, this agreement provides for the lease of an additional 15,000 square feet of rentable space beginning on April 1, 2022 and
ending on December 31, 2024. Initial monthly lease payments are approximately $0.1 million with respect to the 23,000 square feet space, and $0.1 million
with respect to the 15,000 square feet space, and in each case subject to annual rent escalations.
In December 2023, we entered into an agreement to extend the term of the 38,000 square foot lease for a period of two years commencing on
January 1, 2025 and ending on December 31, 2026. In December 2023, we recognized a right-of-use asset and operating lease liability of $4.1 million.
In December 2018, we entered into an agreement to lease 2,485 square feet of space for a term of three years. The lease includes one renewal option
for an additional two years. Lease terms commence at $0.2 million per year, with 2.5% annual base rent increases plus operating expenses, real estate taxes,
utilities and janitorial fees. We occupied this space in May 2019.
In June 2021, we amended the agreement to extend the initial term of the 2,485 square foot lease for a period of three years ending April 30, 2025.
In addition, the amendment provided for the lease of an additional 2,357 square feet of rentable space beginning on July 6, 2021 and ending on April 30,
2025. The amended lease provides us with the option to extend the term of the lease for an additional two years with a base annual rent increase of 3%.
Commitments
Our commitments primarily consist of obligations under our agreement with the University of Southampton. As of December 31, 2023, we were
unable to estimate the timing or likelihood of achieving the milestones or making future product sales. For additional information regarding our
agreements, see “Business—License and research agreements.”
Additionally, we have entered into agreements with third-party contract manufacturers for the manufacture and processing of certain of our product
candidates for preclinical testing purposes, and we have entered and will enter into other contracts in the normal course of business with contract research
organizations for clinical trials and other vendors for other services and products for operating purposes. These agreements generally provide for
termination or cancellation, other than for costs already incurred.
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 SEC rules.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,
which have been prepared in accordance with generally accepted accounting principles, or GAAP. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are
based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and
future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K, we believe that the following accounting policies are the most critical in order to fully understand and evaluate our financial
condition and results of operations.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC
606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, and
financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that
reflects the
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consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity
determines are within the scope of ASC 606, the entity performs the following five-step analysis: (i) identify the contract(s) with a customer; (ii) identify
the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the
contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step analysis to contracts when it is
probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. As part of the
accounting for these arrangements, we must use significant judgment to determine: (a) the number of performance obligations based on the determination
under step (ii) above; (b) the transaction price under step (iii) above; and (c) the timing of satisfaction of performance obligations as a measure of progress
in step (v) above.
For contracts determined to be within the scope of ASC 606, we assess whether the goods or services promised within each contract are distinct to
identify those that are performance obligations. This assessment involves subjective determinations and requires management to make judgments about the
individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services
are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily
available to the customer, and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the
contract. In assessing whether a promise or performance obligation is distinct from the other promises, we consider factors such as the research,
development, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace.
In addition, we consider whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether
the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it
is separately identifiable from the remaining promise. For licenses that are combined with other promises, we utilize judgment to assess the nature of the
combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time,
the appropriate method of measuring progress for purposes of recognizing revenue.
The licenses of our intellectual property granted to Acadia were not determined to be distinct from the other promises or performance obligations,
i.e., research and development services, identified in the arrangement. Accordingly, such licenses are therefore combined with research and development
services in the arrangement. Payments or reimbursements resulting from our research and development efforts are recognized as the services are performed
and presented on a gross basis because we are the principal for such efforts.
The transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised good or services) is
determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. SSP is
determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied.
We use significant judgment to determine whether milestone payments or other variable consideration, except for royalties, should be included in
the transaction price. The transaction price is allocated to each performance obligation based on the relative standalone selling prices of each performance
obligation in the contract, and we recognize revenue based on those amounts when, or as, the performance obligations under the contract are satisfied. Any
variable consideration is constrained, and therefore, the cumulative revenue associated with this consideration is not recognized until it is deemed not to be
at significant risk of reversal.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation(s) when (or as) each
performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the appropriate method of measuring
progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of
performance and related revenue recognition. Amounts received prior to being recognized as revenue are recorded as deferred revenue. Amounts expected
to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying
consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as
deferred revenue, net of current portion.
Customer options: If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the
goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are
contingent upon option exercise. We evaluate the customer options for material rights, that is, the option to acquire additional goods or services for free or
at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at
the outset of the arrangement. We allocate the transaction price to material rights based on the standalone selling price. As a practical alternative to
estimating the standalone selling price when the goods or services are both (i) similar to the original goods and services in the contract and (ii) provided in
accordance with the terms of the original contract, we allocate the total amount of
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consideration expected to be received from the customer to the total goods or services expected to be provided to the customer. Amounts allocated to any
material right are not recognized as revenue until the option is exercised and the performance obligation is satisfied.
No such material rights were identified in the arrangement with Acadia. If such material rights were identified, then we would allocate the
transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability
that the customer will exercise the option. Amounts allocated to a material right are not recognized or begin to be recognized as revenue until, at the
earliest, the option is exercised.
Milestone payments: At the inception of each arrangement that includes milestone payments, we evaluate whether a significant reversal of
cumulative revenue provided in conjunction with achieving the milestones is probable and estimate the amount to be included in the transaction price using
the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is
included in the transaction price. Milestone payments that are not within the control of us or the licensee, such as regulatory approvals, are not considered
probable of being achieved until those approvals are received. For other milestones, we evaluate factors such as the scientific, clinical, regulatory,
commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved
in determining whether it is probable that a significant reversal of cumulative revenue would not occur. At the end of each subsequent reporting period, we
reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any
such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Accrued research and development expenses
As part of the process of preparing financial statements, we are required to estimate and accrue research and development expenses. This process
involves the following:
•
•
•
communicating with our applicable personnel 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 actual cost;
estimating and accruing expenses in our consolidated financial statements as of each balance sheet date based on facts and circumstances
known to us at the time; and
periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.
Examples of estimated research and development expenses that we accrue include:
•
•
•
fees paid to investigative sites in connection with clinical studies;
fees paid to contract manufacturing organizations in connection with non-clinical development, preclinical research, and the production of
clinical study materials; and
professional service fees for consulting and related services.
We base our expense accruals related to non-clinical development, preclinical studies, and clinical trials on our estimates of the services received
and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf. The financial terms of
these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts may depend on many
factors, such as the successful enrollment of patients, site initiation, and the completion of clinical study milestones.
Our service providers invoice us monthly in arrears for services performed. 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 we do not identify costs that we have begun to incur, or if we underestimate or
overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. To date, we have not
experienced significant changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of
estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status
or conduct of our clinical trials and other research activities.
93
Stock-Based Compensation
Stock options
We recognize compensation costs related to awards granted to employees and directors, based on the estimated fair value of the awards on the date
of grant. For stock options, we estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option-pricing
model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the
vesting period of the respective awards.
The Black-Scholes option-pricing model requires the use of subjective assumptions to determine the fair value of stock options. These key
subjective assumptions include:
•
•
Expected term—The expected term represents the period that stock options are expected to be outstanding. The expected term is determined
using the simplified method. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual
life of the stock options.
Expected volatility— We completed our IPO in June 2019 and accordingly, we lack sufficient company-specific historical and implied
volatility information for our shares traded in the public markets commensurate with the expected term of our stock options. Therefore, we
estimate our expected share price volatility based on a blend of our historical volatility and the historical volatility of publicly traded peer
companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share
price. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.
The following table presents the weighted-average assumptions used to estimate the fair value of share-based awards granted:
Risk-free interest rate
Expected dividend yield
Expected life
Expected volatility
Year ended December 31,
2023
3.57-3.94%
0%
5.5-6.25 years
70-73%
2022
1.82-4.15%
0%
5.5-6.25 years
70-71%
We will continue to use judgment in evaluating the assumptions utilized for the grant-date fair value of our stock options on a prospective basis.
Other Information
Net operating loss carryforwards
As of December 31, 2023, and 2022, the Company had federal NOL carryforwards of $189.5 million and $210.9 million, respectively, which may
be available to reduce future taxable income. Federal NOLs generated prior to December 31, 2018 expire at various dates beginning in 2035 and NOLs
generated after December 31, 2018 carryforward indefinitely. As of December 31, 2023, and 2022, the Company had state NOLs of $199.4 million and
$212.8 million, respectively, which may be available to reduce future taxable income. The state NOLs expire at various dates beginning in 2035.
In accordance with ASC 740, Accounting for Income Taxes, management of the Company has evaluated the positive and negative evidence bearing
upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the net benefits of
federal and state deferred tax assets. A full valuation allowance of $133.3 million and $97.9 million was established at December 31, 2023 and 2022,
respectively. The change in the valuation allowance was an increase of $35.4 million and $31.8 million in 2023 and 2022, respectively.
As of December 31, 2023 and 2022, the Company had federal research and development tax credit (“R&D Credit”) carryforwards of $12.8 million
and $9.2 million, respectively, and state R&D Credit carryforwards of $5.9 million and $4.3 million, respectively. Both federal and state R&D Credit
carryforwards may be available to reduce future tax liabilities and expire at various dates beginning in 2034.
94
The Internal Revenue Code of 1986, as amended (“IRC”), provides for a limitation of the annual use of NOLs, R&D Credits, and other tax attributes
following certain ownership changes that could limit our ability to utilize NOL and R&D Credit carryforwards. Under IRC Sections 382 and 383 an
ownership change is generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period. The Company has
experienced ownership changes in the past and based on the existing Section 382 limitations, $0.9 million and $0.02 million of existing Federal NOLs and
R&D credits, respectively, will not be utilizable. The Company may experience additional ownership changes in the future because of subsequent shifts in
our stock ownership. As a result, our ability to use our pre-change NOLs to offset taxable income, if any, is subject to limitations, which could potentially
result in increased future tax liability. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited,
which could accelerate or permanently increase state taxes owed.
Emerging Growth Company and Smaller Reporting Company Status
We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. 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 elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for
public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of
the extended transition period provided in the JOBS Act.
As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements
as of public company effective dates.
We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year (a) following the fifth anniversary of the
completion of our IPO, (b) in which we have total annual gross revenues of at least $1.235 billion, or (c) when we are deemed to be a large accelerated
filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on
which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We anticipate ceasing to be an emerging
growth company as of December 31, 2024, which is the last day of our fiscal year following the fifth anniversary of the completion of our IPO.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates was less than $700.0 million and our
annual revenue is less than $100.0 million during the most recently completed fiscal year. We will continue to be a smaller reporting company for so long
as either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the
most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting
company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are
available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of
audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced
disclosure obligations regarding executive compensation.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU
2023-07”), which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s
expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in
assessing segment performance and allocating resources. The standard is effective for annual reporting periods beginning after December 15, 2023, and
interim periods within years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact that the
adoption will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU
2023-09 requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling
items that meet a quantitative threshold and certain disclosures of state versus federal income tax expenses and taxes paid. ASC 2023-09 is effective for
fiscal years beginning after December 15, 2024. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated
financial statements and will adopt the standard effective January 1, 2025.
95
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
We are exposed to market risks in the ordinary course, primarily including interest sensitivities. As of December 31, 2023, we had cash, cash
equivalents and marketable securities of $201.4 million and $229.6 million as of December 31, 2022. Our primary exposure to market risk is interest rate
sensitivity, which is affected by changes in the general level of U.S. interest rates. Because of the short-term maturities of our cash and cash equivalents, we
do not believe that an immediate 10% increase in interest rates would have any significant impact on the realized value of our investments. Accordingly, we
do not believe we are exposed to material market risk with respect to our cash and cash equivalents.
Inflation risk
Inflation generally affects us by increasing our clinical trial costs. We do not believe that inflation has had a material effect on our business, financial
condition or results of operations during the years ended December 31, 2023 and 2022.
Item 8. Financial Statements and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in
Item 15 of Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Financial Officer (Our principal accounting officer) and
Chief Executive Officer (Our principal executive officer), we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of December 31,
2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and
principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our management’s evaluation (with the
participation of our Chief Executive Officer and our Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer
and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of
the Exchange Act. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control—Integrated Framework issued in 2013. Based upon the assessments, management has concluded that as of December 31, 2023 our internal control
over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with GAAP.
96
This Annual Report on Form 10-K does not include an attestation report from our independent registered public accounting firm due to a transition
period established by the rules of the Securities and Exchange Commission for newly public companies. Additionally, for so long as we remain an
“emerging growth company” under the JOBS Act or a “smaller reporting company,” our independent registered public accounting firm is not required to
attest to the effectiveness of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during
three months ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting may not prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Item 9B. Other Information.
Trading Arrangements
During the three months ended December 31, 2023, none of our directors or officers, as defined in Rule 16a-1(f), informed us of the adoption,
modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-
K, Item 408, except as described in the table below:
Name
Title
Action
Date
Rule
10b5-1*
Non Rule
10b5-1**
Total Shares to
be Sold
Expiration
Date
(1)
Jonathan Allan
Jonathan Allan
Edward Kaye
Huw Nash
Huw Nash
General Counsel and Corporate
Secretary
General Counsel and Corporate
Secretary
Chief Executive Officer
Chief Operating Officer & Chief
Business Officer
Chief Operating Officer & Chief
Business Officer
Termination(2)
12/6/2023 X
43,896
3/20/2024
Adoption
Adoption
12/15/2023 X
12/26/2023 X
16,065
45,000
12/15/2024
3/20/2025
Termination(3)
12/29/2023 X
631,450
6/1/2024
Adoption
12/29/2023 X
670,338
4/1/2025
* Intended to satisfy the affirmative defense of Rule 10b5-1(c) Act.
** Not intended to satisfy the affirmative defense of Rule 10b5-1(c) Act.
(1) Except as indicated by footnote, each trading arrangement permitted or permits transactions through and including the earlier to occur of (a) the
completion of all purchases or sales or (b) the date listed in the table.
(2) On December 6, 2023, Jonathan Allan, General Counsel and Corporate Secretary, terminated a trading arrangement that was intended to satisfy the
affirmative defense of Rule 10b5-1 (the “Allan 10b5-1 Plan”). The Allan 10b5-1 Plan was entered into on March 22, 2023, with an expiration date of
March 20, 2024.
(3) On December 29, 2023, Huw Nash, COO and CBO, terminated a trading arrangement that was intended to satisfy the affirmative defense of Rule 10b5-
1 (the “Nash 10b5-1 Plan”). The Nash 10b5-1 Plan was entered into on March 28, 2022, with an expiration date of June 1, 2024.
Each new Rule 10b5-1 Plan that was adopted in the above table includes a representation from Messrs. Allan, Kaye and Nash, respectively, to the
broker administering the plan that he was not in possession of any material nonpublic information regarding the Company or the securities subject to the
Rule 10b5-1 Plan at the time the Rule 10b5-1 Plan was entered into. A similar representation was made to us in connection with the adoption of the Rule
10b5-1 Plan under our insider trading policy. Those representations were made as of the Adoption Date set forth above, and speak only as of that date. In
making those representations, there is no assurance with respect to any material nonpublic information of which the
97
directors and officers was unaware, or with respect to any material nonpublic information acquired by the above directors and officers or passage after the
date of the representation.
Once executed, transactions under a Rule 10b5-1 Plan adopted during the period described above will be disclosed publicly through Form 4 and/or
Form 144 filings with the SEC in accordance with applicable securities laws, rules, and regulations. Except as may be required by law, we do not undertake
any obligation to update or report any modification, termination, or other activity under current or future Rule 10b5-1 plans that may be adopted by Messrs.
Allan, Kaye or Nash, respectively, or other officers or directors of the Company.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
None.
98
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item 10 will be included in our Definitive Proxy Statement to be filed with the Securities and Exchange
Commission, or SEC, with respect to our 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
We have adopted a Code of Conduct that applies to all of our officers, directors, and employees, including our principal executive officer, principal
financial officer, principal accounting officer, and controller, or persons performing similar functions, which is posted on our website. Our Code of Conduct
is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. We will make any legally required disclosures regarding amendments to, or waivers of,
provisions of our Code of Conduct on our website. The information contained on, or accessible from, our website is not part of this Annual Report on Form
10-K by reference or otherwise.
Item 11. Executive Compensation.
The information required by this Item 11 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2024
Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2024
Annual Meeting of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2024
Annual Meeting of Stockholders and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2024
Annual Meeting of Stockholders and is incorporated herein by reference.
99
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as a part of this Form 10-K:
Financial Statements
Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Form 10-K.
Financial Statement Schedules
Financial statement schedules not listed have been omitted because they are not applicable, or the required information is shown in the consolidated
financial statements or notes thereto.
Exhibits
Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Exhibit
No.
Filed/Furnished
Herewith
3.1
Restated Certificate of Incorporation, as amended.
3.2
Restated Bylaws, as amended.
8-K
001-38938
February 3,
2023
3.1
4.1
Form of Common Stock Certificate.
S-1
333-231700
June 7, 2019
4.1
4.2
Description of Common Stock Registered Under Section 12 of
the Securities Exchange Act of 1934.
#
4.3
Registration Rights Agreement, by and among the Registrant,
Blue Horizon Enterprise Ltd. and Ezbon International Limited,
dated May 3, 2023.
10Q
001-38938
May 4, 2023
4.1
X
X
10.1*
Form of Indemnification Agreement with directors and officers.
S-1
333-231700
June 7, 2019
10.1
10.2*
2014 Equity Incentive Plan, as amended, and forms of award
S-1
333-231700 May 23, 2019
10.2
agreements.
10.3*
2019 Equity Incentive Plan, and forms of award agreements.
10-K
001-38938
March 6, 2023
10.3
10.4*
2019 Employee Stock Purchase Plan, and forms of award
S-1
333-231700
June 7, 2019
10.5
agreements.
10.5*
2023 Inducement Plan, and forms of award agreements.
S-8
333-271273 April 13, 2023
99.1
10.6*
Amended and Restated Executive Employment Agreement, by
10-Q
001-38938
and between the Registrant and Edward M. Kaye, effective as of
October 21, 2020.
10.7*
Amended and Restated Executive Employment Agreement, by
10-Q
001-38938
and between the Registrant and Stephen J. Tulipano, effective as
of October 21, 2020.
November 12,
2020
10.1
November 12,
2020
10.2
10.8*
Amended and Restated Executive Employment Agreement, by
and between the Registrant and Barry Ticho, effective as of
October 21, 2020.
10-K
001-38938
March 9, 2021
10.7
100
Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Exhibit
No.
Filed/Furnished
Herewith
10.9*
Change of Control and Severance Agreement, by and between
10-Q
001-38938
the Registrant and Edward M. Kaye, effective as of October 21,
2020.
November 12,
2020
10.4
10.10*
Change of Control and Severance Agreement, by and between
the Registrant and Stephen J. Tulipano, effective as of October
21, 2020.
10-Q
001-38938
November 12,
2020
10.5
10.11* Change of Control and Severance Agreement, by and between
10-K
001-38938
March 9, 2021 10.10
the Registrant and Barry Ticho, effective as of October 21, 2020.
10.12
Lease Agreement, dated as of September 8, 2021, by and
between ARE-MA Region No. 24, LLC and the Registrant, as
amended to date.
10.13
10.14
10.15†
Lease Agreement, by and between MIT 139 Main Street
Leasehold LLC, and the Registrant., as amended to date.
Scientific Advisory Board Agreement by and between the
Registrant and Adrian Krainer, Ph.D., dated June 1, 2022.
License and Collaboration Agreement, dated as of January 9,
2022, by and between Acadia Pharmaceuticals Inc. and the
Registrant.
10-Q
001-38938
August 10, 2021
10.1
10-Q
001-38938
August 8, 2022
10.1
10-Q
001-38938
May 10, 2022
10.1
10.16
Controlled Equity Offering Sales Agreement, dated as of May
20, 2022, between the Registrant and Cantor Fitzgerald & Co..
S-3
333-265107 May 20, 2022
1.2
21.1
Subsidiary of the Registrant.
S-1
333-231700 May 23, 2019
21.1
23.1
Consent of independent registered public accounting firm.
31.1
31.2
Certification of Principal Executive Officer Pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Executive Officer Pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1** Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
97
Compensation Recovery Policy
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101
X
X
X
X
X
X
X
X
X
Exhibit
Number
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
Description
Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
Document.
104
Inline Cover Page Interactive Data File (formatted as inline
XBRL and contained in Exhibit 101).
Form
File No.
Exhibit
Filing Date
Exhibit
No.
Filed/Furnished
Herewith
X
X
X
X
X
† Registrant has omitted certain portions of the exhibit pursuant to Item 601(b)(10) of Regulation S-K.
* Indicates a management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
** The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and are not deemed “filed” for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under
the Securities Act or the Exchange Act.
# Registrant has omitted schedules and exhibits pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of
the omitted schedules and exhibits to the SEC upon request.
Item 16. Form 10-K Summary
None.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 25, 2024
By:
/s/ Edward M. Kaye, M.D.
Edward M. Kaye, M.D.
Chief Executive Officer
STOKE THERAPEUTICS, INC.
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Edward M. Kaye and Stephen J. Tulipano, and each of them,
with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in
his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and
all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
103
Name
/s/ Edward M. Kaye
Edward M. Kaye, M.D.
/s/ Stephen J. Tulipano
Stephen J. Tulipano
/s/ Julie A. Smith
Julie A. Smith
/s/ Seth L. Harrison
Seth L. Harrison, M.D.
/s/ Adrian R. Krainer
Adrian R. Krainer, Ph.D.
/s/ Arthur A. Levin
Arthur A. Levin, Ph.D.
/s/ Arthur O. Tzianabos
Arthur O. Tzianabos, Ph.D.
/s/ Jennifer C. Burstein
Jennifer C. Burstein
/s/ Garry E. Menzel
Garry E. Menzel
/s/ Ian F. Smith
Ian F. Smith
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
104
Date
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
STOKE THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent registered public accounting firm
Consolidated balance sheets
Consolidated statements of operations and comprehensive loss
Consolidated statements of stockholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
105
Page
106
107
108
109
110
111
Report of independent registered public accounting firm
To the Stockholders and the Board of Directors
Stoke Therapeutics, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Stoke Therapeutics, Inc. and subsidiary (the Company) as of December 31, 2023 and
2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then
ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain
an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion
/s/ KPMG LLP
We have served as the Company’s auditor since 2019.
Boston, Massachusetts
March 25, 2024
106
Stoke Therapeutics, Inc. and subsidiary
Consolidated balance sheets
(in thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Prepaid expenses
Other current assets
Interest receivable
Total current assets
Restricted cash
Operating lease right-of-use assets
Property and equipment, net
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued and other current liabilities
Deferred revenue - current portion
Total current liabilities
Deferred revenue - net of current portion
Other long term liabilities
Total long term liabilities
Total liabilities
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, par value of $0.0001 per share; 300,000,000 shares authorized, 45,918,233 and
39,439,575 shares issued and outstanding as of December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
107
As of December 31,
2023
2022
191,442 $
9,952
11,320
2,561
64
215,339 $
569
6,611
5,823
228,342 $
1,695 $
13,815
15,309
30,819 $
33,074
4,884
37,958 $
68,777 $
5
561,433
(24 )
(401,849 )
159,565 $
228,342 $
113,556
116,039
10,932
2,955
588
244,070
569
4,753
6,675
256,067
766
15,748
14,880
31,394
36,856
2,968
39,824
71,218
4
483,170
(1,175 )
(297,150 )
184,849
256,067
$
$
$
$
$
$
$
$
$
Stoke Therapeutics, Inc. and subsidiary
Consolidated statements of operations and comprehensive loss
(in thousands, except share and per share amounts)
Revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest income (expense), net
Other income (expense), net
Total other income (expense)
Net loss
Net loss per share—basic and diluted
Weighted average common shares outstanding—basic and diluted
Comprehensive loss:
Net loss
Other comprehensive loss:
Unrealized gain (loss) on marketable securities
Total other comprehensive gain (loss)
Comprehensive loss
The accompanying notes are an integral part of these consolidated financial statements.
108
Year Ended
December 31,
2023
2022
$
8,780 $
12,405
82,231
41,322
123,553
(114,773 )
9,908
166
10,074
(104,699 ) $
(2.38 ) $
43,994,862
77,837
38,924
116,761
(104,356 )
3,122
167
3,289
(101,067 )
(2.60 )
38,897,442
(104,699 ) $
(101,067 )
1,151
1,151 $
(103,548 ) $
(1,007 )
(1,007 )
(102,074 )
$
$
$
$
$
Stoke Therapeutics, Inc. and subsidiary
Consolidated statements of stockholders’ equity
(in thousands, except share and per share amounts)
Balance as of December 31, 2021
Unrealized loss on marketable securities
Stock-based compensation
Issuance of common stock upon exercise of stock
options
Issuance of common stock related to employee
stock purchase plan
Shares sold as part of controlled equity offering
sales agreement
Net loss
Balance as of December 31, 2022
Unrealized gain on marketable securities
Stock-based compensation
Issuance of common stock upon exercise of stock
options
Issuance of common stock related to employee
stock purchase plan
Shares sold as part of controlled equity offering
sales agreement
Net loss
Balance as of December 31, 2023
Common Stock
Shares
36,902,499
—
—
$
269,288
44,002
2,223,786
—
39,439,575
$
—
—
148,211
71,471
6,258,976
—
45,918,233
$
Additional
paid-in
Accumulated Other
Comprehensive
Accumulated
Amount
capital
Gain (Loss)
deficit
Total
Stockholders’
equity
4
—
—
—
—
—
—
4
—
—
—
—
1
—
5
$
414,024
$
—
22,854
(168 ) $
(1,007 )
—
(196,083 ) $
—
—
217,777
(1,007 )
22,854
$
494
570
45,228
—
483,170 $
—
25,257
371
555
52,080
—
561,433 $
$
—
—
—
—
494
570
—
—
(1,175 ) $
1,151
—
—
(101,067 )
(297,150 ) $
—
—
45,228
(101,067 )
184,849
1,151
25,257
—
—
—
—
(24 ) $
—
—
371
555
—
(104,699 )
(401,849 ) $
52,081
(104,699 )
159,565
The accompanying notes are an integral part of these consolidated financial statements.
109
Stoke Therapeutics, Inc. and subsidiary
Consolidated statements of cash flows
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Amortization and accretion of marketable securities
Stock-based compensation
Loss on disposal of property and equipment
Reduction in the carrying amount of right of use assets
Changes in assets and liabilities:
Prepaid expenses and other current assets
Accounts payable, accrued liabilities, and operating leases
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of marketable securities
Sales of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options
Proceeds from Employee Stock Purchase Plan
Proceeds from controlled equity offering sales agreement
Other
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash—beginning of year
Cash, cash equivalents and restricted cash—end of year
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Right-of-use assets recognized in exchange for operating leases
Property and equipment included in accrued expense and accounts payable
The accompanying notes are an integral part of these consolidated financial statements.
110
Year Ended December 31,
2023
2022
$
(104,699 ) $
(101,067 )
2,469
(325 )
25,257
1
2,260
529
(3,208 )
(3,351 )
(81,067 )
(1,616 )
—
107,562
105,946
371
555
52,081
—
53,007
77,886
114,125
192,011 $
1,546
(211 )
22,854
—
1,989
(5,183 )
(3,530 )
51,736
(31,866 )
(3,962 )
(201,320 )
159,400
(45,882 )
494
570
45,344
1
46,409
(31,339 )
145,464
114,125
4,118
—
$
$
1,802
121
$
$
$
Stoke Therapeutics, Inc. and subsidiary
Notes to consolidated financial statements
(in thousands, except share and per share amounts)
1. Nature of the business and basis of presentation
Organization
Stoke Therapeutics, Inc. (the Company) was founded in June 2014 and was incorporated under the laws of the State of Delaware. The Company is
an early-stage biopharmaceutical company pioneering a new way to treat the underlying causes of severe genetic diseases by precisely upregulating protein
expression.
Shelf Registration
In May 2022, the Company filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the SEC. The
Registration Statement was declared effective by the SEC on May 31, 2022, and contains two prospectuses: a base prospectus, which covers the offering,
issuance and sale by the Company of up to a maximum aggregate offering price of $400.0 million of its common stock, preferred stock, debt securities,
warrants to purchase common stock, preferred stock or debt securities, subscription rights to purchase common stock, preferred stock or debt securities
and/or units consisting of some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by the Company of up to
a maximum aggregate offering price of $150.0 million of its common stock that may be issued and sold under a Controlled Equity Offering Sales
Agreement (“Sales Agreement”). The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus
supplement to the base prospectus. The $150.0 million of common stock that may be offered, issued and sold under the sales agreement prospectus is
included in the $400.0 million of securities that may be offered, issued and sold by the Company under the base prospectus. As of December 31, 2023, the
Company had issued approximately 6.3 million shares of common stock pursuant to the Sales Agreement for net proceeds of $52.1 million. Since
December 31, 2023, through the date of the issuance of these consolidated financial statements, the Company sold approximately 0.2 million shares of
common stock and received $1.3 million after deducting commissions related to the Sales Agreement. The Company may terminate this at-the-market
program at any time, pursuant to its terms.
Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to,
development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with
government regulations and ability to secure additional capital to fund operations. Product candidates currently under development will require significant
additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These
efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the
Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Liquidity
The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of the issuance date of these
consolidated financial statements, the Company expects that its cash, cash equivalents, marketable securities and restricted cash will be sufficient to fund its
operating expenses and capital expenditure requirements through at least twelve months from the issuance date of these consolidated financial statements.
2. Summary of significant accounting policies and recent accounting pronouncements
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP),
and include the accounts of Stoke Therapeutics, Inc. and its wholly-owned subsidiary. Any reference in these notes to applicable guidance is meant to refer
to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards
Board (“FASB”). All intercompany transactions between and among the Company and its consolidated subsidiary have been eliminated.
111
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, equity, expenses and disclosure of contingent assets and liabilities. Estimates are periodically reviewed in light of
changes in circumstances, facts and experience. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.
The Company deposits its cash in checking, sweep and money market accounts.
Restricted cash
At December 31, 2023, restricted cash consisted of money market accounts collateralizing letters of credit issued as security deposits in connection
with the Company’s leases of its corporate facilities.
The following table reconciles cash and cash equivalents and restricted cash per the consolidated balance sheets to the statements of cash flows:
Cash and cash equivalents
Restricted cash
As of December 31,
2023
2022
$
$
191,442 $
569
192,011 $
113,556
569
114,125
Marketable Securities
Marketable securities consist of government securities and obligations, corporate bonds and commercial paper with original maturities of more than
90 days at the purchase date. Investments are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or
losses reported as a separate component of other comprehensive income/(loss). Management determines the appropriate classification of its investments at
the time of purchase and reevaluates such determination at each balance sheet date.
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash, cash equivalents and marketable
securities. The Company maintains its cash, cash equivalents and marketable securities at accredited financial institutions in amounts that exceed federally
insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking
relationships.
Fair value of financial instruments
ASC Topic 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes
between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are those
that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable
inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are
developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering
market participant assumptions in fair value measurements, ASC 820 establishes a three-tier value hierarchy that distinguishes between the following:
Level 1—Quoted market prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield
curves.
Level 3—Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant
would use.
112
To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values
requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as
Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement.
Revenue recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard applies
to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its
customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for
those goods or services.
In January 2022, the Company entered into a license and collaboration agreement with Acadia Pharmaceuticals, Inc. (“Acadia”) which is within the
scope of ASC 606 (see Note 8). In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under this agreement, the
Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised
goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price,
including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue
when (or as) the Company satisfies each performance obligation. As part of the accounting for this agreement, the Company must use its judgment to
determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c)
the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and (d) the
contract term and pattern of satisfaction of the performance obligations under step (v) above. The Company uses judgment to determine whether milestones
or other variable consideration, except for royalties, should be included in the transaction price. The transaction price is allocated to each performance
obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the
contract are satisfied.
Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration
agreement are recorded as accounts receivable in the Company’s consolidated balance sheets. Amounts received prior to satisfying the revenue recognition
criteria are recorded as deferred revenue in the Company’s consolidated balance sheets. Amounts expected to be recognized as revenue within the 12
months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within the 12 months
following the balance sheet date are classified as deferred revenue, net of current portion.
Upfront license fees
The licenses of the Company’s intellectual property granted to Acadia was not determined to be distinct from the other promises or performance
obligations identified in the agreement. Accordingly, such licenses are therefore combined with other promises in the agreement. The Company exercises
judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or
at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the
measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Customer options
If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services
underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option
exercise. The Company evaluates the customer options for material rights or options to acquire additional goods or services for free or at a discount. If the
customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the
arrangement. No such material rights were identified in the arrangement with Acadia. If such material rights were identified, then the Company would
allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the
probability that the customer will exercise the option. Amounts allocated to a material right are not recognized or begin to be recognized as revenue until, at
the earliest, the option is exercised.
113
Research and development services
The promises under the Company’s collaboration agreement with Acadia includes research and development services to be performed by the
Company for or on behalf of the customer. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as
the services are performed and presented on a gross basis because the Company is the principal for such efforts.
Milestone payments
At the inception of the Acadia arrangement that includes development milestone payments, the Company evaluates whether the milestones are
considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are
not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are
received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the
particular milestone in making this assessment. There is judgment involved in determining whether it is probable that a significant revenue reversal would
not occur. At the end of each reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if
necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect
revenues and earnings in the period of adjustment. The development milestones in the Acadia arrangement were not considered probable of achievement at
the outset of the arrangement and as of December 31, 2023.
Deferred offering costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity
financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in the
consolidated statement of stockholders’ equity as a reduction of additional paid-in capital.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Cost includes the acquisition costs and all costs necessary to bring the
asset to the location and working condition necessary for its intended use. Depreciation expense is recognized using the straight-line method over the
estimated useful life of each asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the accompanying consolidated statements of operations and comprehensive loss. Expenditures for
normal, recurring or periodic repairs and maintenance related to property and equipment are charged to expense as incurred. The cost for planned major
maintenance activities, including the related acquisition or construction of assets, is capitalized if it will result in future economic benefits.
Estimated useful lives for property and equipment are as follows:
Property and equipment
Computer and office equipment
Laboratory equipment and Furniture and fixtures
Leasehold improvements
Estimated useful life
3-5 years
5-7 years
Lesser of estimated useful life or remaining lease term
Impairment of long-lived assets
The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value
of the assets may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the assets from the
expected future cash flows (undiscounted) of the related operations. If these cash flows are less than the carrying value of such assets, an impairment loss
for the difference between the estimated fair value and carrying value is recorded. There were no impairment losses recognized during the years ended
December 31, 2023 and 2022.
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Research and development costs
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing
research and development activities, including salaries and benefits, facilities costs, depreciation, third-party license fees, and costs related to third parties
engaged to conduct preclinical research development activities.
The Company has entered into various research and development contracts with research institutions and other companies to conduct research on its
behalf. These agreements are generally cancellable. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of
the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs.
Significant judgments and estimates may be required in determining the accrued balances at the end of any reporting period. Actual results could differ
from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.
Stock-based compensation
The Company measures its stock-based awards granted based on the estimated fair values of the awards and recognizes the compensation expense
for employees and nonemployees over the requisite service period.
Stock options
The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock options.
The Company has elected the practical expedient to use the midpoint between vesting date and the contractual term as the expected term for certain
awards with service or performance conditions. Stock-based compensation is recognized using the straight-line method. Forfeitures of unvested stock-
based awards are accounted for when they occur.
Restricted stock units ("RSUs")
For RSUs issued to employees, the Company recognizes the grant date fair value of the RSUs on a straight-line basis over the requisite service
period, which is generally the vesting period of the respective awards. RSUs granted typically vest annually over a four-year period but may be granted
with different vesting terms.
Patent costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about
the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the accompanying consolidated statements of
operations and comprehensive loss.
Income taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for
the estimated future tax consequences attributable to temporary differences between the consolidated financial statement carrying amounts of existing
assets and liabilities and their respective tax base. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated
financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to be
settled or recovered. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that
its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence that it is more
likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax
expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax
planning strategies. At December 31, 2023 and 2022, the Company has recorded a full valuation allowance.
Reserves are provided for tax benefits for which realization is uncertain. Such benefits are only recognized when the underlying tax position is
considered more-likely-than-not to be sustained on examination by a taxing authority, assuming they possess full knowledge of the position and facts.
Interest and penalties related to uncertain tax positions are recognized in the provision of income taxes; however, the Company currently has no interest or
penalties related to uncertain income tax benefits.
115
Segment and geographic information
Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief
operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates in one
segment in the United States. The Company’s chief executive officer, as the chief operating decision-maker, manages and allocates resources to the
operations of the Company on a total company basis using consolidated financial information.
Emerging growth company and smaller reporting company status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). 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.
The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective
dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably
opt out of the extended transition period provided in the JOBS Act. As a result, the Company’s consolidated financial statements may not be comparable to
companies that comply with the new or revised accounting pronouncements as of public company effective dates.
The Company will remain an emerging growth company until the earliest of (i) the last day of the first fiscal year (a) following the fifth anniversary
of the completion of our IPO, (b) in which the Company has total annual gross revenue of at least $1.235 billion or (c) in which the Company is deemed to
be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the
prior June 30th, and (ii) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three- year
period. The Company anticipates ceasing to be an emerging growth company as of December 31, 2024, which is the last day of our fiscal year following
the fifth anniversary of the completion of our IPO.
The Company is also a “smaller reporting company,” meaning that in the event of an initial public offering the market value of its stock held by non-
affiliates plus the proposed aggregate amount of gross proceeds to the Company as a result of such offering is less than $700.0 million and its annual
revenue is less than $100.0 million during the most recently completed fiscal year. The Company may continue to be a smaller reporting company as long
as either (i) the market value of its stock held by non-affiliates is less than $250.0 million or (ii) its annual revenue is less than $100.0 million during the
most recently completed fiscal year and the market value of its stock held by non-affiliates is less than $700.0 million. If the Company is a smaller
reporting company at the time it ceases to be an emerging growth company, the Company may continue to rely on exemptions from certain disclosure
requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, the Company may choose to present only the
two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, similar to emerging growth companies, smaller
reporting companies have reduced disclosure obligations regarding executive compensation.
Recently issued accounting pronouncements
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU
2023-07”), which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s
expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in
assessing segment performance and allocating resources. The standard is effective for annual reporting periods beginning after December 15, 2023, and
interim periods within years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact that the
adoption will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU
2023-09 requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling
items that meet a quantitative threshold and certain disclosures of state versus federal income tax expenses and taxes paid. ASC 2023-09 is effective for
fiscal years beginning after December 15, 2024. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated
financial statements and will adopt the standard effective January 1, 2025.
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3. Fair value measurements
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of
the fair value hierarchy utilized to determine such fair values:
Cash equivalents:
Money market funds
Total
Marketable Securities:
US Government debt securities
Total
Cash equivalents:
Money market funds
Total
Marketable Securities:
Corporate bonds
Commercial paper
US Government debt securities
Total
Fair value measurements as of
December 31, 2023
Level 1
Level 2
Level 3
Total
186,186 $
186,186 $
— $
— $
— $
— $
186,186
186,186
— $
— $
9,952 $
9,952 $
— $
— $
9,952
9,952
Fair value measurements as of
December 31, 2022
Level 1
Level 2
Level 3
Total
111,927 $
111,927 $
— $
— $
— $
— $
111,927
111,927
— $
—
—
— $
34,527 $
7,978
73,534
116,039 $
— $
—
—
— $
34,527
7,978
73,534
116,039
$
$
$
$
$
$
$
$
The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described
above and in Note 2. The carrying value of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term
nature of these liabilities.
The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are
publicly traded mutual funds and are presented as cash equivalents on the consolidated balance sheets as of December 31, 2023 and 2022.
The Company measures its marketable securities at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value
hierarchy. Marketable securities are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-
standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices
for the underlying financial instruments, as well as other economic measures. Substantially all of these assumptions are observable in the marketplace, can
be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
There were no transfers to Level 3 in the periods presented.
4. Marketable Securities
The following table summarizes the Company’s marketable securities as of December 31, 2023 (in thousands):
Marketable securities:
US Government debt securities
Total
As of December 31, 2023
Amortized
Cost
Unrealized
Gains
Unrealized
Loss
Fair Value
$
$
9,976 $
9,976 $
— $
— $
(24 )
(24 ) $
9,952
9,952
117
The following table summarizes the Company’s marketable securities as of December 31, 2022 (in thousands):
Marketable securities:
Corporate bonds
Commercial paper
US Government debt securities
Total
As of December 31, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Loss
Fair Value
$
$
34,662 $
8,019
74,533
117,214 $
— $
—
—
— $
(135 ) $
(41 )
(999 )
34,527
7,978
73,534
(1,175 ) $ 116,039
The weighted average maturity of the Company’s marketable securities as of December 31, 2023 ranges from approximately 0.09 years to 0.16
years.
The Company did not record an allowance for credit losses as of December 31, 2023 related to our marketable securities. Further, given the lack of
significant change in the credit risk of these investments, the Company did not recognize any other-than-temporary impairment losses.
5. Property and equipment, net
Property and equipment, net consisted of the following:
Laboratory equipment
Furniture and fixtures
Leasehold improvements
Office equipment
Construction in progress
Less accumulated depreciation
As of December 31,
2023
2022
9,383 $
312
2,294
440
65
12,494
(6,671 )
5,823 $
7,903
312
1,867
353
447
10,882
(4,207 )
6,675
$
$
Depreciation expense was $2.5 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively.
6. Accrued and other current liabilities
Accrued and other current liabilities consisted of the following:
Accrued employee compensation costs
Accrued professional
Accrued research and development costs
Current portion of operating lease liabilities
Other current liabilities
As of December 31,
2023
2022
5,611 $
651
4,634
2,062
857
13,815 $
5,754
525
6,601
2,359
509
15,748
$
$
7. Commitments and contingencies
Operating leases
The Company determines whether an arrangement is a lease at inception. The Company accounts for a lease when it has the right to control the
leased asset for a period of time while obtaining substantially all of the assets’ economic benefits. Operating lease right-of-use assets and operating lease
liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. The
discount rate used to determine the present value of the lease payments is the Company’s incremental borrowing rate based on the information available at
lease inception, as the Company did not have information to determine the rate implicit in the leases. Lease expense for operating
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leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments (which include initial direct costs and
lease incentives). Lease expense is included in operating expenses in the consolidated statements of operations and comprehensive loss. The Company’s
lease agreements also contain variable payments, primarily maintenance-related costs, which are expensed as incurred and not included in the measurement
of the right-of-use assets and lease liabilities.
In August 2018, the Company entered into an agreement to lease approximately 23,000 square feet of space for a term of three years. Lease terms
are triple net lease commencing at $0.9 million per year, then with 3% annual base rent increases plus operating expenses, real estate taxes, utilities and
janitorial fees. The lease commencement date was December 10, 2018.
In September 2021, the Company entered into an agreement to extend the initial term of the 23,000 square foot lease for a period of three years
commencing on December 15, 2021 and ending December 31, 2024. In addition, this lease provides for the lease of an additional 15,000 square feet of
rentable space beginning on April 1, 2022 and ending on December 31, 2024. In December 2021, the Company recognized a right-of-use asset and
operating lease liability of $3.5 million for the 23,000 square feet. On April 1, 2022, the Company recognized a right-of-use asset and operating lease
liability of $1.8 million for the 15,000 square feet.
In December 2023, the Company entered into an agreement to extend the term of the 38,000 square foot lease for a period of two years commencing
on January 1, 2025 and ending on December 31, 2026. In December 2023, the Company recognized a right-of-use asset and operating lease liability of $4.1
million.
In December 2018, the Company entered into an agreement to lease 2,485 square feet of space for an initial term of three years. The lease includes
one renewal option for an additional two years, however, any time after the initial term the landlord may relocate the Company from the premises to a
space reasonably comparable in size and utility. As the Company does not have the right to control the use of the identified asset after the initial term, the
renewal option was excluded from the lease liability calculation. Lease terms commence at $0.2 million per annum, with 2.5% annual base rent increases
plus operating expenses, real estate taxes, utilities and janitorial fees. The lease commencement date was May 1, 2019.
In June 2021, the Company amended the agreement to extend the initial term of the 2,485 square foot lease for a period of three years commencing
May 1, 2022 and ending April 30, 2025. In addition, the amendment provided for the lease of an additional 2,357 square feet of rentable space beginning
on July 6, 2021 and ending on April 30, 2025. The amended lease provides the Company with the option to extend the term of the lease for an additional
two years. In 2021, the Company recognized a right-of-use asset and operating lease liabilities of $0.7 million for the extension of the lease to April 30,
2025 and a right-of-use asset and operating lease liabilities of $0.8 million for the additional 2,357 square feet of rentable space.
Future minimum lease payments under non-cancellable leases as of December 31, 2023, are as follows (in thousands):
2024
2025
2026
Total lease payments
Less imputed interest
Present value of lease liabilities
$
$
2,608
2,661
2,564
7,833
(998 )
6,835
Lease balances as of December 31, 2023 and December 31, 2022 are as follows (in thousands):
Operating right-of-use assets
Current portion of operating lease liabilities
Non-current portion of operating lease liabilities
Total operating lease liabilities
As of December 31,
2023
2022
6,611 $
2,062 $
4,773
6,835 $
4,753
2,359
2,717
5,076
$
$
$
The weighted average remaining lease term and weighted average discount rate of our operating leases as of December 31, 2023 are as follows:
Weighted average remaining lease term in years
Weighted average discount rate
2.9
9.92 %
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In accordance with Topic 842, lease expense incurred under operating leases was $2.4 million for the year ended December 31, 2023, and $2.2
million for the year ended December 31, 2022.
Scientific Advisory Board Agreement
In June 2020, the Company entered into a scientific advisory board agreement with a member of the Company’s board of directors, who is also an
employee of Cold Spring Harbor Laboratory (“CSHL”), to provide scientific advisory services related to the Company’s Targeted Augmentation of Nuclear
Gene Output (“TANGO”) antisense oligonucleotide technology and other antisense oligonucleotide technologies, as well as current and future therapeutic
targets and programs. Following the expiration of the initial scientific agreement in June 2021 and a renewal agreement in June 2022, the parties entered
into subsequent scientific board agreements on substantially the same terms. The Company did not recognize any expense in the year ending December 31,
2023 compared to expense of $0.02 million for the year ended December 31, 2022. The agreement has expired with no renewal put in place.
License and research agreements
In July 2015, the Company entered into a worldwide license agreement with CSHL (the “CSHL Agreement”), with respect to TANGO patents.
Under the CSHL Agreement, the Company received an exclusive (except with respect to certain government rights and non-exclusive licenses), worldwide
license under certain patents and applications relating to TANGO. The CSHL Agreement obligated the Company to make payments that are contingent
upon certain milestones being achieved. The Company was also required to pay royalties, tiered based on the scope of patent coverage for each licensed
product, ranging from a low-single digit percentage to a mid-single digit percentage on annual net sales. These royalty obligations applied on a licensed
product-by-licensed product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a CSHL patent covering the
applicable licensed product or (ii) the expiration of any regulatory exclusivity for the applicable licensed product. In addition, if the Company sublicensed
the rights under the CSHL Agreement, it was required to pay a maximum of twenty percent of the sublicense revenue to CSHL, which may have been
reduced to a mid-teens or a mid-single digit percentage upon achievement of certain clinical milestones for the applicable licensed product. Finally, the
Company was required to pay an annual license maintenance fee of $0.01 million, which amount is creditable against any owed royalty or milestone
payments. The maximum aggregate potential milestone payments payable totaled approximately $0.90 million. Additionally, certain licenses under the
CSHL Agreement required the Company to reimburse CSHL for certain past and ongoing patent related expenses, however there were no expenses related
to these reimbursable patent costs during the years ended December 31, 2023 and 2022. After the completion of a 90-day waiting period, in May 2023 the
Company terminated the CSHL Agreement. The Company does not expect the termination of the CSHL Agreement to have a significant impact on the
intellectual property underlying any of its current product candidates, including STK-001 and STK-002, or its continued development of the TANGO
platform.
In April 2016, the Company entered into an exclusive, worldwide license agreement with the University of Southampton (the “Southampton
Agreement”), whereby the Company acquired rights to foundational technologies related to the Company’s TANGO technology. Under the Southampton
Agreement, the Company receives an exclusive, worldwide license under certain licensed patents and applications relating to TANGO. Under the
Southampton Agreement, the Company may be obligated to make additional payments that are contingent upon certain milestones being achieved, as well
as royalties on future product sales. These royalty obligations survive until the latest of (i) the expiration of the last valid claim of a licensed patent covering
a subject product or (ii) the expiration of any regulatory exclusivity for the subject product in a country. In addition, if the Company sublicenses its rights
under the Southampton Agreement, the Company is required to pay a mid-single digit percentage of the sublicense revenue to the University of
Southampton. As of December 31, 2023, the Company had paid $0.7 million under the Southampton Agreement as a result of entering into the Acadia
Pharmaceuticals Inc. license and collaboration agreement in January 2022 (see Note 8). Additionally, certain licenses under the Southampton Agreement
require the Company to reimburse the University of Southampton for certain past and ongoing patent related expenses. For the year ended December 31,
2023 these expenses were $0.2 million compared to $0.02 million for the year ended December 31, 2022.
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Litigation
The Company may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities, including
claims or disputes related to patents that have been issued or that are pending in the field of research on which it is focused. As of December 31, 2023, the
Company had no legal proceedings to which it was a party or to which its property was subject that, in the opinion of management, would have a material
adverse effect on its business.
8. License and Collaboration Agreement with Acadia Pharmaceuticals Inc.
In January 2022, the Company entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc. for the discovery, development
and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous
system. The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest. In
connection with each target, the Company will collaborate with Acadia to identify potential treatments for further development and commercialization as
licensed products. With respect to SYNGAP1, the Company has agreed with Acadia to co-develop and co-commercialize licensed products for such target
globally, and in connection therewith the Company granted to Acadia worldwide, co-exclusive (with Stoke) licenses for such licensed products. With
respect to MECP2 and the neurodevelopmental target, the Company granted to Acadia worldwide, exclusive licenses to develop and commercialize
licensed products for such targets.
Pursuant to the terms of the agreement, the Company received an upfront payment of $60.0 million from Acadia. Acadia agreed to fund the research
to identify potential licensed products for MECP2 and the neurodevelopmental target, and the Company will equally fund with Acadia the research to
identify potential licensed products for SYNGAP1. The Company is eligible to receive up to $907.5 million in potential total milestone payments based
upon the achievement of certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets,
assuming each milestone were achieved at least once. With respect to licensed products for MECP2 and the neurodevelopmental target, the Company is
also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products
worldwide. Royalties payable under the agreement are subject to standard royalty reductions. For SYNGAP1 licensed products that the Company is co-
developing and co-commercializing, the Company will be responsible for 50% of the development and commercialization costs and will receive 50% of the
profits from global commercialization. The Company is provided with a co-development and co-commercialization opt out option relating to the
SYNGAP1 target indication at the Company’s discretion. Such opt-out would reduce development and commercialization milestones but would provide the
Company with royalties on an escalating basis attributable to net sales milestones.
Acadia Agreement Accounting
At the commencement of the Acadia agreement the Company identified three performance obligations consisting of pre-clinical research activities
for each of the three targets, SYNGAP1, MECP2, and the undisclosed neurodevelopmental target. The exclusive or co-exclusive licenses granted to Acadia
to conduct pre-clinical research activities on each of the three targets, and participation on each of the respective joint research committees were identified
as promised services. However, the licenses granted to Acadia and the research activities were determined to be not distinct from each other, and therefore
are considered a combined performance obligation for each of the three targets. Participation on each of the joint research committees was determined to be
quantitatively and qualitatively immaterial in the context of the arrangement with Acadia.
The Company is recognizing the transaction price for the pre-clinical research activities for each of the three targets over time as the research
services are provided. The transfer of control to Acadia occurs over this time period, and in management’s judgment, is the best measure of progress
towards satisfying the performance obligation. An input method is used that measures the cost incurred to date in satisfying each of the three research
activities in relation to the estimated total projected cost of each of the research activities to fulfill the respective obligations. The cumulative effect of
revisions to estimated costs and/or the transaction price to complete the research performance obligations will be recorded in the period in which changes
are identified and amounts can be reasonably estimated. Payments or reimbursements resulting from the Company’s research and development efforts were
recognized as the services are performed.
Milestone payments that are not within the control of the Company, such as regulatory approvals, are not considered probable of being achieved
until those approvals are received. For other milestones, the Company evaluated factors such as the scientific, clinical, regulatory, commercial, and other
risks that must be overcome to achieve the particular milestone in making this assessment. Milestones that are outside of the Company’s or Acadia’s
control will not be recognized until such milestones are achieved. As to the other milestones, to date, no milestone payments have been included in the
transaction price due the uncertainty as to whether these milestones will be achieved. The Company will at the end of each reporting period reevaluate the
probability of achievement of all milestones subject to constraint and, if necessary, adjust its estimate of
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the overall transaction price for each of the research activities on the three targets. Any such adjustments will be recorded on a cumulative catch-up basis.
As of December 31, 2023, the Company had $48.4 million in upfront consideration associated with the Acadia agreement relating to performance
obligations that are unsatisfied or partially unsatisfied.
9. Stock-Based Compensation
In June 2019, the Company’s board of directors and stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) which became
effective on June 17, 2019 and replaced the Company’s 2014 Equity Incentive Plan (the “2014 Plan”). In addition to the shares of common stock reserved
for future issuance under the 2014 Plan that were added to the 2019 Plan upon its effective date, the Company initially reserved 2,200,000 shares of
common stock for issuance under the 2019 Plan. The number of shares reserved for issuance under the Company’s 2019 Plan will increase automatically
on January 1 of each of 2020 through 2029 by the number of shares equal to 4% of the aggregate number of outstanding shares of the Company’s common
stock as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s board of directors.
In April 2023, the Company’s board of directors adopted the Stoke Therapeutics, Inc. 2023 Inducement Plan (the “2023 Plan”). As permitted by
Nasdaq stock market rules, the Company’s stockholders were not required to approve the Inducement Plan. The Inducement Plan provides for up to
1,000,000 shares of the Company’s common stock under awards granted to newly hired employees. An “award” is any right to receive common stock of
the Company through nonstatutory stock options or restricted stock units.
As of December 31, 2023 there were no shares available for future issuance under the 2014 Plan, 2,767,209 shares were available for future issuance
under the 2019 Plan and 940,300 shares were available under the 2023 Plan.
During the years ended December 31, 2023 and 2022, the Company granted options to purchase 1,599,227 and 3,459,500 shares of common stock
to certain of its employees, and directors, respectively. The options vest over a period of up to four years. During the year ended December 31, 2023, the
Company granted 1,538,302 restricted stock units to its employees. The restricted stock units vest over a period of up to four years.
In December 2023, the Company offered employees with outstanding option grants that had an exercise price of greater than $14.00 per share the
opportunity to exchange those options for a number of restricted stock units with a fair value equal to the then fair value of the options surrendered. As a
result, there was no material incremental compensation expense associated with those RSUs issued in exchange for options. The RSUs vest annually over a
period of one to two years. In the aggregate, 2,907,127 options were exchanged for 730,602 RSUs.
A summary of stock option activity for awards is presented below:
Outstanding as of December 31, 2022
Granted
Exercised
Forfeitures
(2)
Expired
(2)
Outstanding as of December 31, 2023
Exercisable as of December 31, 2023
Number of
shares
8,274,647 $
1,599,227
(145,877 )
(1,449,164 )
(1,800,770 )
6,478,063 $
4,034,517 $
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life (years)
18.28
9.32
2.55
28.00
34.88
9.64
8.88
Aggregate
intrinsic
(1)
value
7.6 $
20,598
6.9 $
5.7 $
8,435
8,439
(1)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common
stock for the options that were in the money at December 31, 2023 and 2022.
(2)
Options exchanged are classified as either forfeitures or expired based on vesting status at the time of Exchange Offer.
The weighted average grant date fair value for stock options granted during the years ended December 31, 2023 and 2022 was $6.13 and $10.32,
respectively. The aggregate grant date fair value of stock options granted during the years ended
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December 31, 2023 and 2022 was $9.8 million and $35.7 million, respectively. The aggregate intrinsic value of stock options exercised during the year
ended December 31, 2023 and 2022 was $0.9 million and $3.5 million, respectively.
A summary of restricted stock unit activity is presented below:
Outstanding as of December 31, 2022
Awarded
RSUs in exchange for options as part of option exchange
Vested
Forfeitures
Outstanding as of December 31, 2023
Vested or expected to vest as of December 31, 2023
For the year ended December 31, 2023, there were no vested RSUs.
Stock-based compensation
Number of
shares
Aggregate
intrinsic
value
Weighted average grant
date fair value
— $
807,700
730,602
—
(25,200 )
1,513,102 $
1,513,102 $
— $
7,959 $
7,959 $
—
9.04
3.95
—
9.15
6.58
6.58
The Company recorded stock-based compensation expense of $25.3 million and $22.9 million during the years ended December 31, 2023 and 2022,
respectively. Of the total stock-based compensation recorded during the year ending December 31, 2023, $2.3 million is related to restricted stock units.
There were no grants of restricted stock units prior to 2023.
As of December 31, 2023, there was $16.1 million of unrecognized compensation cost related to unvested stock options granted under the 2019 and
the 2023 Plans. Compensation expense is expected to be recognized over a weighted average period of 2.6 years as of December 31, 2023. As of December
31, 2023, there was $26.5 million of unrecognized stock-based compensation related to restricted stock units and it is expected to be recognized over a
weighted average period of 2.5 years.
Stock-based compensation expense recorded as research and development and general and administrative expenses in the accompanying
consolidated statements of operations and comprehensive loss is as follows:
Research and development
General and administrative
Year ended December 31,
2023
2022
$
$
9,925 $
15,332
25,257 $
8,901
13,953
22,854
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of stock options. The fair values of the options
granted to employees and directors were calculated using the following assumptions for the years ended December 31, 2023 and 2022:
Risk-free interest rate
Expected dividend yield
Expected life
Expected volatility
2019 Employee stock purchase plan
Year ended December 31,
2023
3.57-3.94%
0%
5.5-6.25 years
70-73%
2022
1.82-4.15%
0%
5.5-6.25 years
70-71%
In June 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 18, 2019. The Company
initially reserved 315,000 shares of common stock for sale under the ESPP. At December 31, 2023, the Company had 1,704,168 shares available for
issuance under the plan. The average grant date fair value per share under the plan was $9.88 for 2023. The total ESPP stock-based compensation expense
for the year ended December 31, 2023 was $0.3 million and for the year ended December 31, 2022 was $0.3 million. The number of shares reserved for
issuance under the ESPP will increase automatically on January 1st of each of the first ten calendar years following the first offering
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date by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding
December 31 or a lower amount determined by the Company’s board of directors. The aggregate number of shares issued over the term of the ESPP will
not exceed 3,150,000 shares of the Company’s common stock.
10. Net loss per share
The following table summarizes the computation of basic and diluted net loss per share of the Company:
Numerator:
Net loss
Denominator:
Weighted-average number of common shares, basic
and diluted
Net loss per share, basic and diluted
Year ended December 31,
2022
2023
$
(104,699 ) $
(101,067 )
43,994,862
$
(2.38 ) $
38,897,442
(2.60 )
The Company’s potential dilutive securities, which include common stock, RSUs, and ESPP purchase rights, have been excluded from the
computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used
to calculate both basic and diluted net loss per share is the same.
The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of
diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
Outstanding options to purchase common stock
Restricted stock units
Total
As of December 31,
2023
6,478,063
1,513,102
7,991,165
2022
8,274,647
—
8,274,647
11. Income taxes
A reconciliation of the expected income tax expense (benefit) computed using the federal statutory income tax rate the Company’s effective income
tax rate is as follows:
Expected income tax benefit at the federal statutory rate
State income taxes, net of federal benefit
Non-deductible items
Research and development credit, net
Other
Change in valuation allowance
Total
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Year ended December 31,
2023
2022
21.0 %
7.7
(1.1 )
3.5
2.4
(33.5 )
0.0 %
21.0 %
7.4
(0.9 )
3.9
0.1
(31.5 )
0.0 %
The principal components of the Company’s deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Federal and state net operating loss carryforwards
Research and development tax credits
Research and development capitalized expenses
Accrued compensation and stock-based compensation
Deferred revenue/other
Gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
As of December 31,
2023
2022
$
$
52,643 $
17,444
32,290
17,912
13,017
133,306
(133,306 )
— $
57,746
12,613
17,148
10,274
142
97,923
(97,923 )
—
From inception through December 31, 2022, the Company has incurred net operating losses (“NOL”). During 2023, for income tax purposes, the
Company was required to fully recognize any unamortized advanced payments from the Acadia Collaboration Agreement as income, which in addition to
capitalizing Section 174 research expenses resulted in taxable income that was fully offset by the use of existing net operating losses and tax credits. The
Company does not expect future taxable income and should incur substantial future losses.
In accordance with ASC 740, Accounting for Income Taxes, management of the Company has evaluated the positive and negative evidence bearing
upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the net benefits of
federal and state deferred tax assets. A full valuation allowance of $133.3 million and $97.9 million was established at December 31, 2023 and 2022,
respectively. The change in the valuation allowance was an increase of $35.4 million and $31.8 million in 2023 and 2022, respectively.
As of December 31, 2023, and 2022, the Company had federal NOL carryforwards of $189.5 million and $210.9 million, respectively, which may
be available to reduce future taxable income. Federal NOLs generated prior to December 31, 2018 expire at various dates beginning in 2035 and NOLs
generated after December 31, 2018 carryforward indefinitely. As of December 31, 2023, and 2022, the Company had state NOLs of $199.4 million and
$212.8 million, respectively, which may be available to reduce future taxable income. The state NOLs expire at various dates beginning in 2035.
As of December 31, 2023 and 2022, the Company had federal research and development tax credit (“R&D Credit”) carryforwards of $12.8 million
and $9.2 million, respectively, and state R&D Credit carryforwards of $5.9 million and $4.3 million, respectively. Both federal and state R&D Credit
carryforwards may be available to reduce future tax liabilities and expire at various dates beginning in 2034.
The Internal Revenue Code of 1986, as amended (“IRC”), provides for a limitation of the annual use of NOLs, R&D Credits, and other tax attributes
following certain ownership changes that could limit our ability to utilize NOL and R&D Credit carryforwards. Under IRC Sections 382 and 383 an
ownership change is generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period. The Company has
experienced ownership changes in the past and based on the existing Section 382 limitations, $0.9 million and $0.02 million of existing Federal NOLs and
R&D credits, respectively, will not be utilizable. The Company may experience additional ownership changes in the future because of subsequent shifts in
its stock ownership. As a result, the Company's ability to use its pre-change NOLs to offset taxable income, if any, is subject to limitations, which could
potentially result in increased future tax liability. In addition, at the state level, there may be periods during which the use of NOLs is suspended or
otherwise limited, which could accelerate or permanently increase state taxes owed.
The Company applies ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to income taxes are based on
a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized
following resolution of any potential contingencies present related to the tax benefit. At December 31, 2023, and 2022 the Company had no unrecognized
tax benefits. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying
consolidated statements of operations and comprehensive loss.
125
12. Employee benefits
In 2016, the Company established a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The
401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual
compensation on a pretax basis. The Company matches contributions up to 4% of annual salary for those employees who are participating in the 401(k)
Plan. For the year ended December 31, 2023, the Company made matching contributions of $0.7 million and for the year ended December 31, 2022, the
Company made matching contributions of $0.6 million.
13. Subsequent events
Since December 31, 2023, through the date of the issuance of these consolidated financial statements, the Company sold 0.2 million shares of our
common stock and received $1.3 million after deducting commissions related to the Sales Agreement.
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STOKE THERAPEUTICS, INC.
RESTATED CERTIFICATE OF INCORPORATION
Exhibit 3.1
Stoke Therapeutics, Inc., a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is “Stoke Therapeutics, Inc.” The date of the filing of its original Certificate of
Incorporation with the Secretary of State was June 13, 2014 under the name ASOthera Pharmaceuticals, Inc.
2. The Restated Certificate of Incorporation of the corporation attached hereto as Exhibit “A”, which is incorporated
herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of
this corporation as previously amended and/or restated, has been duly adopted by this corporation’s Board of Directors and by the
stockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, with the
approval of the corporation’s stockholders having been given by written consent without a meeting in accordance with Section
228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this corporation has caused this Restated Certificate of Incorporation to be signed by its duly
authorized officer and the foregoing facts stated herein are true and correct.
Dated: June 21, 2019
STOKE THERAPEUTICS, INC.
By: /s/ Edward M. Kaye
Name: Edward M. Kaye
Title: Chief Executive Officer
EXHIBIT “A”
STOKE THERAPEUTICS, INC.
RESTATED CERTIFICATE OF INCORPORATION
ARTICLE I: NAME
The name of the corporation is Stoke Therapeutics, Inc. (the “Corporation”).
ARTICLE II: AGENT FOR SERVICE OF PROCESS
The address of the Corporation’s registered office in the State of Delaware is 3500 South Dupont Highway, in the City of
Dover, County of Kent 19901. The name of the registered agent of the Corporation at that address is Incorporating Services, Ltd.
ARTICLE III: PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under
the General Corporation Law of the State of Delaware (the “General Corporation Law”).
ARTICLE IV: AUTHORIZED STOCK
1. Total Authorized. The total number of shares of all classes of stock that the Corporation has authority to issue is
310,000,000 shares, consisting of two classes: 300,000,000 shares of Common Stock, $0.0001 par value per share (“Common
Stock”), and 10,000,000 shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”).
2. Designation of Additional Series.
2.1. The Board of Directors of the Corporation (the “ Board”) is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series,
and, by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware (“Certificate of Designation”),
to establish from time to time the number of shares to be included in each such series, to fix the designation, powers (including
voting powers), preferences and relative, participating, optional or other special rights, if any, of the shares of each such series
and any qualifications, limitations or restrictions thereof, and, except where otherwise provided in the applicable Certificate of
Designation, to thereafter increase (but not above the total number of authorized shares of the Preferred Stock) or decrease (but
not below the number of shares of such series then outstanding) the number of shares of any such series. The number of
authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of two-thirds of the voting power of all of the then-outstanding shares of
capital stock of the Corporation entitled to vote thereon, without a separate vote of the holders of the
2
Preferred Stock, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law, unless a separate vote of the
holders of one or more series is required pursuant to the terms of any Certificate of Designation; provided, however, that if two-
thirds of the Whole Board (as defined below) has approved such increase or decrease of the number of authorized shares of
Preferred Stock, then only the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single
class, without a separate vote of the holders of the Preferred Stock (unless a separate vote of the holders of one or more series is
required pursuant to the terms of any Certificate of Designation), shall be required to effect such increase or decrease. For
purposes of this Restated Certificate of Incorporation (as the same may be amended and/or restated from time to time, including
pursuant the terms of any Certificate of Designation designating a series of Preferred Stock, this “Certificate of Incorporation”),
the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in
previously authorized directorships.
2.2 Except as otherwise expressly provided in any Certificate of Designation designating any series of
Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated,
fixed and determined as provided herein by the Board without approval of the holders of Common Stock or the holders of
Pre(cid:0)ferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without
limitation, voting powers, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, any series of Preferred Stock or any future class or series of capital stock of the
Corporation.
2.3 Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter
properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by
law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates
solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either
separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of
Incorporation.
ARTICLE V: AMENDMENT OF BYLAWS
The Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation (as the same may be amended
and/or restated from time to time, the “Bylaws”). Any adoption, amendment or repeal of the Bylaws by the Board shall require
the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws;
provided, however, that notwithstanding any other provision of this Certificate of Incorporation or any provision of law that
might otherwise permit a lesser or no vote, but in addition to any vote of the holders of any class or series of stock of the
Corporation required by applicable law or by this Certificate of Incorporation, the affirmative vote of the holders of at least two-
thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal any
provision of the Bylaws; provided further, that, in the case of any proposed adoption, amendment or repeal of any provisions of
the Bylaws that is approved by the Board and submitted to the stockholders for adoption thereby, if two-thirds of the Whole
Board has approved such adoption, amendment or repeal of any provisions of the Bylaws,
3
then only the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required
to adopt, amend or repeal any provision of the Bylaws.
ARTICLE VI: MATTERS RELATING TO THE BOARD OF DIRECTORS
1. Director Powers. Except as otherwise provided by the General Corporation Law or this Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board.
2. Number of Directors. Subject to the special rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, the total number of directors constituting the Whole Board shall be fixed from
time to time exclusively by resolution adopted by a majority of the Whole Board.
3. Classified Board. Subject to the special rights of the holders of one or more series of Preferred Stock to elect
additional directors under specified circumstances, the directors shall be divided, with respect to the time for which they severally
hold office, into three classes designated as Class I, Class II and Class III, respectively (the “Classified Board”). The Board may
assign members of the Board already in office to the Classified Board. The number of directors in each class shall be as nearly
equal as is practicable. The initial term of office of the Class I directors shall expire at the Corporation’s first annual meeting of
stockholders following the closing of the Corporation’s initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, relating to the offer and sale of Common Stock to the public (the “Initial Public
Offering”), the initial term of office of the Class II directors shall expire at the Corporation’s second annual meeting of
stockholders following the closing of the Initial Pub(cid:0)lic Offering and the initial term of office of the Class III directors shall
expire at the Corporation’s third annual meeting of stockholders following the closing of the Initial Public Offering. At each
annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of
the class whose terms then expire shall be elected for a term of office expiring at the third succeeding annual meeting of
stockholders after their election.
4. Term and Removal. Each director shall hold office until the annual meeting at which such director’s term expires
and until such director’s succes(cid:0)sor is duly elected and qualified, or until such director’s earlier death, resignation,
disqualification or removal. Any director may resign by delivering a resignation in writing or by electronic transmission to the
Corporation at its principal office or to the Chairperson of the Board, the Chief Executive Officer, or the Secretary. Subject to the
special rights of the holders of any series of Preferred Stock, no director may be removed from the Board except for cause and
only by the affirmative vote of the holders of at least two-thirds of the voting power of the then-outstanding shares of capital
stock of the Corporation entitled to vote thereon, voting together as a single class. In the event of any increase or decrease in the
authorized number of directors, (a) each director then serving as such shall nevertheless continue as a director of the class of
which he or she is a member and (b) the newly created or eliminated directorships resulting from such increase or decrease shall
be apportioned by the Board among the classes of directors so as to make all classes as nearly equal in number as is practicable,
4
provided that no decrease in the number of directors constituting the Board shall shorten the term of any director.
5. Board Vacancies and Newly Created Directorships. Subject to the special rights of the holders of any series of
Preferred Stock, any vacancy occurring in the Board for any cause, and any newly created directorship resulting from any
increase in the authorized number of directors, shall be filled only by the affirmative vote of a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director, and shall not be filled by the stockholders. Any director
elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which the director has been assigned expires and until such director’s successor shall have
been duly elected and qualified, or until such director’s earlier death, resignation, disqualification or removal.
6. Vote by Ballot. Election of directors need not be by written ballot unless the Bylaws shall so provide.
7. Preferred Directors. If and for so long as the holders of any series of Preferred Stock have the special right to
elect additional directors, then upon commencement and for the duration of the period during which such right continues: (i) the
then otherwise total authorized number of directors of the Corporation shall automatically be increased by such specified number
of directors, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixed
pursuant to said provisions, and (ii) each such additional director shall serve until such director’s successor shall have been duly
elected and qualified, or until such director’s right to hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to his or her earlier death, resignation, retirement, disqualification or removal. Except as otherwise provided by
the Board in the resolution or resolutions establishing such series, whenever the holders of any series of Preferred Stock having
such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the terms of office of all
such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death,
resignation, disqualification or removal of such additional directors, shall forthwith terminate and the total authorized number of
directors of the Corporation shall be reduced accordingly.
ARTICLE VII: DIRECTOR LIABILITY
1. Limitation of Liability. To the fullest extent permitted by law, no director of the Corporation shall be personally
liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if
the General Corpo(cid:0)ration Law is hereafter amended to authorize the further elimination or limitation of the liability of a director,
then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
2. Change in Rights. Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation
on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an
inconsistent provision.
5
ARTICLE VIII: MATTERS RELATING TO STOCKHOLDERS
1. No Action by Written Consent of Stockholders. Subject to the rights of any series of Preferred Stock then
outstanding, no action shall be taken by the stockholders of the Corporation except at a duly called annual or special meeting of
stockholders and no action shall be taken by the stockholders of the Corporation by written consent in lieu of a meeting.
2. Special Meeting of Stockholders. Special meetings of the stockholders of the Corporation may be called only by
the Chairperson of the Board, the Chief Executive Officer, the Lead Independent Director (as defined in the Bylaws), the
President, or the Board acting pursuant to a resolution adopted by a majority of the Whole Board and may not be called by the
stockholders or any other person or persons.
3. Advance Notice of Stockholder Nominations and Business Transacted at Spe(cid:0)cial Meetings. Advance notice
of stockholder nominations for the election of directors of the Corporation and of business to be brought by stockholders before
any meeting of stockholders of the Corporation shall be given in the manner provided in the Bylaws. Business transacted at
special meetings of stockholders shall be limited to the purpose or purposes stated in the notice of meeting.
ARTICLE IX: CHOICE OF FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of
Delaware, to the fullest extent permitted by law, shall be the sole and exclusive forum for: (a) any derivative action or proceeding
brought on behalf of the Corporation; (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing
by, any director, officer, stockholder, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders;
(c) any action asserting a claim against the Corporation arising pursuant to any provision of the General Corporation Law, this
Certificate of Incorporation or the Bylaws or as to which the General Corporation Law confers jurisdiction on the Court of
Chancery of the State of Delaware; (d) any action to interpret, apply, enforce or determine the validity of this Certificate of
Incorporation or the Bylaws; or (e) any action asserting a claim against the Corporation governed by the internal affairs doctrine.
Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the
Corporation shall be deemed to have notice of and to have consented to the provisions of this Article IX.
ARTICLE X: AMENDMENT OF CERTIFICATE OF INCORPORATION
If any provision of this Certificate of Incorporation shall be held to be invalid, illegal, or unenforceable, then such
provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining
provisions of this Certificate of Incorporation (including without limitation, all portions of any section of this Certificate of
Incorporation containing any such provision held to be invalid, illegal, or unenforceable, which is not invalid, illegal, or
unenforceable) shall remain in full force and effect.
The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all
6
rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any provision
of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote (but subject to
Section 2 of Article IV hereof), but in addition to any vote of the holders of any class or series of the stock of the Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the voting
power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or repeal any provision of this Certificate of Incorporation;
provided, further, that if two-thirds of the Whole Board has approved such amendment or repeal of any provisions of this
Certificate of Incorporation, then only the affirmative vote of the holders of at least a majority of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together
as a single class (in addition to any other vote of the holders of any class or series of stock of the Corporation required by law of
by this Certificate of Incorporation), shall be required to amend or repeal such provisions of this Certificate of Incorporation.
* * * * * * * * * * *
7
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
STOKE THERAPEUTICS, INC.
Stoke Therapeutics, Inc. (hereinafter called the “Corporation”), a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the “General Corporation Law”), does hereby certify as
follows:
1. That the name of this Corporation is Stoke Therapeutics, Inc., and that this Corporation was originally incorporated
pursuant to the General Corporation Law on June 13, 2014 under the name ASOthera Pharmaceuticals, Inc. The Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 21, 2019, as
amended (the “Restated Charter”).
2. Amendment to Article VII.
(a) Article VII of the Restated Charter is hereby amended and restated in its entirety as follows:
“ARTICLE VII: LIMITATION OF LIABILITY
1. Limitation of Liability. To the fullest extent permitted by law, neither a director of the
Corporation nor an officer of the corporation shall be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director or officer, as applicable. Without limiting the effect
of the preceding sentence, if the General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director or officer, then the liability of a director or officer of the
Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so
amended.
2. Change in Rights. Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Restated Certificate of Incorporation inconsistent with this Article VII, shall eliminate,
reduce or otherwise adversely affect any limitation on the personal liability of a director or officer of the
Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision.”
3. That the foregoing amendment was duly adopted by the Board of Directors of the Corporation in accordance with
Sections 141 and 242 of the General Corporation Law and was approved by the holders of the requisite number of shares of
capital stock of the Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this 20th day of June, 2023.
By: /s/ Edward M. Kaye___________
Name: Edward M. Kaye
Title: Chief Executive Officer
Exhibit 4.2
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
As of December 31, 2020, Stoke Therapeutics, Inc. (the “Company,” “we,” or “our”) had one class of securities registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”): our common stock.
The following description summarizes the most important terms of our capital stock and certain provisions of our restated certificate of
incorporation and restated bylaws. Because it is only a summary, it does not contain all of the information that may be important to you. For a
complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are incorporated by reference as
an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.3 is a part, and to the provisions of applicable Delaware law.
Authorized Capital Stock
Our authorized capital stock consists of 300,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value per share.
Common stock
Dividend rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled
to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the
times and in the amounts that our board of directors may determine.
Voting rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not
provided for cumulative voting for the election of directors in our restated certificate of incorporation, which means that holders of a majority
of the shares of our common stock are able to elect all of our directors. Our restated certificate of incorporation established a classified board
of directors, divided into three classes with staggered three-year terms. Only one class of directors is elected at each annual meeting of our
stockholders, with the other classes continuing for the remainder of their respective three-year terms.
No preemptive or similar rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to receive liquidation distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably
among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all
outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of
preferred stock.
Preferred stock
Our board of directors is authorized, subject to limitations prescribed by Delaware law, to issue up to 10,000,000 shares of preferred stock in
one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers,
preferences and rights of the shares of each series and any of their qualifications, limitations or restrictions, in each case without further vote
or action by our stockholders. Our board of directors is also able to increase or decrease the number of shares of any series of preferred
stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of
directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other
rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our
company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common
stock. We have no current plan to issue any shares of preferred stock.
Registration rights
Pursuant to the terms of a registration rights agreement to which we are party, certain of our investors are entitled to rights with respect to the
registration of these shares under the Securities Act of 1933, as amended, or the Securities Act, as described below. We refer to these
shares collectively as registrable securities.
Form S-3 registration rights
Any holder or group of holders of at least 20% of then-outstanding registrable securities can request that we register all or part of their shares
on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at
least $1.0 million. The stockholders may only require us to effect two registration statements on Form S-3 in a 12-month period. We may
postpone taking action with respect to such filing not more than once during any 12-month period for a total period of not more than 120
days, if after receiving a request for registration, we furnish to the holders requesting such registration a certificate signed by our Chief
Executive Officer stating that, in the good faith judgment of our board of directors, it would be materially detrimental to us and our
stockholders for such registration statement to be effected at such time.
The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine
that marketing factors require limitation, in which case the number of shares to be registered will be apportioned, in proportion (as nearly as
practicable), to the number of registrable securities owned by each holder or in such other proportion as shall mutually be agreed to by all
such selling Holders. However, the number of shares to be registered by these holders cannot be reduced unless all other securities are first
entirely excluded from the underwriting.
Expenses of registration rights
We generally will pay all expenses, other than underwriting discounts and commissions.
Expiration of registration rights
The registration rights described above will expire, with respect to any particular holder of these rights, on the earlier of the fifth anniversary
of our initial public offering or with respect to each holder, such time as all registrable securities of such holder may be sold within a three-
month period pursuant to Rule 144.
Anti-takeover provisions
Certain provisions of Delaware General Corporation Law, or DGCL, our restated certificate of incorporation and our restated bylaws could
have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are
summarized below, may have the effect of
2
discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our
board of directors.
Delaware law
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the
date on which the person became an interested stockholder unless:
•
•
•
prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested
stockholder, (i) shares owned by persons who are directors and also officers and (ii) shares owned by employee stock plans in which
employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66.67% of the
outstanding voting stock that is not owned by the interested stockholder.
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a
financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or,
within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting
stock.
Restated certificate of incorporation and restated bylaw provisions
Our restated certificate of incorporation and our restated bylaws include a number of provisions that could deter hostile takeovers or delay or
prevent changes in control of our company, including the following:
•
•
•
Board of directors vacancies. Our restated certificate of incorporation and restated bylaws authorize only our board of directors to fill
vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors is permitted to
be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder
from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with
its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of
management.
Classified board. Our restated certificate of incorporation and restated bylaws provide that our board of directors is classified into three
classes of directors, each with staggered three-year terms. A third party may be discouraged from making a tender offer or otherwise
attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a
classified board of directors.
Stockholder action; special meetings of stockholders. Our restated certificate of incorporation provides that our stockholders may not
take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder
controlling a majority of our capital stock would not be able to amend our restated bylaws or remove directors without holding a meeting
of our stockholders called in accordance with our restated bylaws. Further, our restated bylaws provide that
3
•
•
•
•
•
•
special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors,
our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay
the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take
any action, including the removal of directors.
Advance notice requirements for stockholder proposals and director nominations. Our restated bylaws provide advance notice
procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election
as directors at our annual meeting of stockholders. Our restated bylaws also specify certain requirements regarding the form and
content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of
stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed.
We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the
acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
No cumulative voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors
unless a corporation’s certificate of incorporation provides otherwise. Our restated certificate of incorporation and restated bylaws do not
provide for cumulative voting.
Directors removed only for cause. Our restated certificate of incorporation provides that stockholders may remove directors only for
cause and only by the affirmative vote of the holders of at least two-thirds of our outstanding common stock.
Amendment of charter provisions. Any amendment of the above expected provisions in our restated certificate of incorporation requires
approval by holders of at least two-thirds of our outstanding common stock.
Issuance of undesignated preferred stock. Our board of directors has the authority, without further action by the stockholders, to issue
up to 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to
time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to
render more difficult or to discourage an attempt to obtain control of us by merger, tender offer, proxy contest or other means.
Choice of forum. Our restated certificate of incorporation provides that, to the fullest extent permitted by law, the Court of Chancery of
the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a
breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation or
our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The enforceability of
similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is
possible that a court could find these types of provisions to be inapplicable or unenforceable. This exclusive forum provision does not
apply to suits brought to enforce a duty or liability created by the Exchange Act. In addition, our restated bylaws provide that unless we
consent in writing to the selection of an alternate forum, the federal district courts of the United States are the exclusive forum for the
resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Nothing in our restated
certificate of incorporation or restated bylaws precludes stockholders from asserting claims to enforce any liability or duty created by the
Exchange Act, or any other claim for which the federal courts of the United States have exclusive jurisdiction.
Transfer agent and registrar
The transfer agent and registrar for our common stock is Equiniti Trust Company, LLC.
4
Nasdaq Global Select Market listing
Our common stock is traded on the Nasdaq Global Select Market under the symbol “STOK.”
5
Exhibit 10.12
LEASE AGREEMENT
THIS LEASE AGREEMENT (this “Lease”) is made this 8 day of September, 2021, between ARE‑MA REGION NO. 24, LLC, a
Delaware limited liability company (“Landlord”), and STOKE THERAPEUTICS, INC., a Delaware corporation (“Tenant”).
Building:
45-47 Wiggins Avenue, Bedford, MA 01730
Premises:
That portion of (i) the Building known as Suite 200, containing approximately 23,000 rentable square feet (the “45 Wiggins
Premises”), and (ii) the Building known as Suite 100, containing approximately 15,000 rentable square feet (the “47
Wiggins Premises”), all as determined by Landlord, as shown on Exhibit A.
Project: The real property on which the Building is located, together with all improvements thereon and appurtenances thereto as described
on Exhibit B.
Base Rent:
$52.00 per rentable square foot of the Premises per year
Rentable Area of 45 Wiggins Premises: 23,000 sq. ft.
Rentable Area of 47 Wiggins Premises: 15,000 sq. ft.
Rentable Area of Building: 38,000 sq. ft.
Rentable Area of Project: 171,154 sq. ft.
Tenant’s Share of Operating Expenses of Building: 100% (60.53% with respect to the 45 Wiggins Premises and 39.47% with respect to
the 47 Wiggins Premises)
Building’s Share of Operating Expenses of Project: 13.44%
Security Deposit: $494,000.00
Rent Adjustment Percentage: 3%
Base Term: Beginning on the Commencement Date with respect to the 45 Wiggins Premises and on the 47 Wiggins Premises
Commencement Date with respect to the 47 Wiggins Premises, and ending with respect to the entire on December
31, 2024.
Permitted Use:
Research and development laboratory, related office and other related uses consistent with the character of the Project
and otherwise in compliance with the provisions of Section 7 hereof.
Address for Rent Payment: Landlord’s Notice Address:
P.O. Box 37526
Baltimore, MD 21297-3526 Pasadena, CA 91101
26 North Euclid Avenue
Attention: Corporate Secretary
Tenant’s Notice Address
45 Wiggins Avenue, Suite 200
Bedford, MA 01730
Attention: Lease Administrator
45/47 Wiggins – Suites 100 & 200/Stoke - Page 2
The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:
[X] EXHIBIT A - PREMISES DESCRIPTION
[ ] EXHIBIT C - INTENTIONALLY OMITTED
[X] EXHIBIT E - RULES AND REGULATIONS
[X] EXHIBIT B - DESCRIPTION OF PROJECT
[X] EXHIBIT D - COMMENCEMENT DATE
[X] EXHIBIT F - TENANT’S PERSONAL PROPERTY
1. Lease of Premises. Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant
and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the
Project are collectively referred to herein as the “Common Areas.” Landlord reserves the right to modify Common Areas, provided that such
modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use. Landlord shall endeavor to provide
Tenant with at least 30 days’ advance written notice of such modifications. From and after the Commencement Date with respect to the 45
Wiggins Premises and from and after the 47 Wiggins Premises Commencement Date with respect to the 47 Wiggins Premises, through the
expiration of the Term, Tenant shall have access to the Building and the Premises 24 hours a day, 7 days a week, subject to the terms of this
Lease.
2. Delivery; Acceptance of Premises; Commencement Date; 47 Wiggins Commencement Date.
(a) 45 Wiggins Premises. The “Commencement Date” shall be the day immediately following the expiration of the Homology
Lease (as defined below), which is schedule to occur on December 14, 2021. Landlord and Tenant acknowledge that Tenant occupied the
45 Wiggins Premises prior to the Commencement Date pursuant to that certain sublease agreement between Homology Medicines, Inc.
(“Homology”), the current tenant of the 45 Wiggins Premises, pursuant to a sublease agreement between Tenant and Homology.
Except as otherwise expressly set forth in this Lease: (i) Tenant shall accept the 45 Wiggins Premises in their “as-is” condition as of
the Commencement Date; (ii) Landlord shall have no obligation for any defects in the 45 Wiggins Premises; and (iii) Tenant’s taking
possession of the 45 Wiggins Premises shall be conclusive evidence that Tenant accepts the 45 Wiggins Premises.
(b) 47 Wiggins Premises. Landlord shall use reasonable efforts to deliver the 47 Wiggins Premises to Tenant on or before April 1,
2022. If Landlord fails to timely deliver the 47 Wiggins Premises, Landlord shall not be liable to Tenant for any loss or damage resulting
therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not deliver the 47 Wiggins Premises to
Tenant by October 1, 2022 for any reason other than Force Majeure (as defined in Section 34), this Lease with respect to the 47 Wiggins
Premises may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant, neither Landlord nor Tenant shall have
any further rights, duties or obligations under this Lease with respect to the 47 Wiggins Premises, except with respect to provisions which
expressly survive termination of this Lease. If Tenant does not elect to terminate this Lease with respect to the 47 Wiggins Premises by
October 15, 2022, such right to terminate this Lease with respect to the 47 Wiggins Premises shall be waived and this Lease shall remain in
full force and effect. For the avoidance of doubt, if this Lease with respect to the 47 Wiggins Premises is terminated pursuant to this
paragraph, this Lease shall remain in effect with respect to the 45 Wiggins Premises and the parties shall enter into an amendment to this
Lease to reflect the termination of this Lease with respect to the 47 Wiggins Premises.
The “47 Wiggins Premises Commencement Date” shall be the date Landlord delivers the 47 Wiggins Premises to Tenant. The
“47 Wiggins Premises Rent Commencement Date” shall be the later of: (i) the date that is 30 days after the 47 Wiggins Premises
Commencement Date, and (ii) the date on which Landlord’s Work has been substantially completed. The period commencing on the 47
Wiggins Premises Commencement Date through the day immediately preceding the 47 Wiggins Premises Rent Commencement Date may
be referred to herein as the “47 Wiggins Abatement Period.” As used herein, “Landlord’s Work” shall mean (i) the replacement of two
RTUs serving the office portion of the 47 Wiggins Premises with new “like for kind” units, and (ii) the replacement of three MUAs serving the
laboratory portion
45/47 Wiggins – Suites 100 & 200/Stoke - Page 3
of the 47 Wiggins Premises with new “like for kind” units. Landlord shall perform Landlord’s Work at Landlord’s cost and in accordance with
applicable Legal Requirements (as defined in Section 7).
Except as otherwise expressly set forth in this Lease: (i) Tenant shall accept the 47 Wiggins Premises in their “as-is” condition as of
the 47 Wiggins Premises Commencement Date; (ii) Landlord shall have no obligation for any defects in the 47 Wiggins Premises; and (iii)
Tenant’s taking possession of the 47 Wiggins Premises shall be conclusive evidence that Tenant accepts the 47 Wiggins Premises.
For the period of 30 consecutive days after the 47 Wiggins Premises Commencement Date, Landlord shall, at its sole cost and
expense (which shall not constitute an Operating Expense), be responsible for any repairs that are required to be made to the Building
Systems (as defined in Section 13) solely serving the 47 Wiggins Premises, unless Tenant or any Tenant Party was responsible for the cause
of such repair, in which case Tenant shall pay the cost.
(c) General. Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Commencement Date,
the 47 Wiggins Premises Commencement Date, the 47 Wiggins Premises Rent Commencement Date and the expiration date of the Term
when such are established in the form of the “Acknowledgement of Commencement Date” attached to this Lease as Exhibit D; provided,
however, Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder. The “Term” of this Lease
shall be the Base Term, as defined above on the first page of this Lease and the Extension Term which Tenant may elect pursuant to Section
39 hereof.
Upon the execution and delivery of this Lease by Landlord and Tenant, Landlord shall make available to Tenant a tenant
improvement allowance of up to $5.00 per rentable square foot of the Premises (the “Improvement Allowance”). The Improvement
Allowance may be applied to hard and soft costs incurred in connection with the design and construction of fixed and permanent
improvements in the Premises desired by Tenant and reasonably acceptable to Landlord (the “Premises Improvements”). Tenant shall
engage directly with architects and contractors to plan and construct the Premises Improvements and the design, construction and
completion of the Premises Improvements shall be Tenant’s responsibility. Tenant acknowledges that upon the expiration of the Term of the
Lease, the Premises Improvements shall become the property of Landlord and may not be removed by Tenant. Tenant shall pay to Landlord
an administration fee equal to 1% of the cost of the Premises Improvements for monitoring and inspecting the Premises Improvements,
which administration fee shall be payable out of the Improvement Allowance. Except for the Improvement Allowance, Tenant shall be solely
responsible for all of the costs of the Premises Improvements. During the course of design and construction of the Premises Improvements,
Landlord shall reimburse Tenant for the cost of the Tenant Improvements not more than once a month against a draw request in Landlord’s
standard form, containing evidence of payment of the applicable costs and lien waivers (including a conditional lien release for each progress
payment and unconditional lien releases for the prior month’s progress payments), to the extent of Landlord’s approval thereof for payment,
no later than 30 days following receipt of such draw request. Upon completion of the Premises Improvements (and prior to any final
disbursement of the Improvement Allowance) Tenant shall deliver to Landlord the following items: (i) statements setting forth the names of all
contractors and subcontractors who did work on the Premises Improvements and final lien waivers from all such contractors; and (ii) “as built”
plans or marked-up construction drawings for the Premises Improvements. Landlord shall be entitled to receive the benefit of all construction
warranties and manufacturer’s equipment warranties relating to equipment installed in the Premises as part of the Premises Improvements.
Notwithstanding the foregoing, if the cost of the Premises Improvements exceeds the Improvement Allowance, Tenant shall be required to
pay such excess prior to the distribution of the then-remaining unpaid TI Allowance. Tenant shall have no right to any portion of the
Improvement Allowance that is not requested for disbursement by Tenant pursuant to the terms set forth above for the payment of Premises
Improvements costs prior to the date that is 12 months after the 47 Wiggins Premises Commencement Date, provided that to the extent that,
following the 47 Wiggins Premises Commencement Date, there exists a Force Majeure event that restricts construction activities in the
Bedford, Massachusetts area, which precludes the construction of the Premises Improvements, then such 12-month period shall be delayed
1 day for each day that such Force Majeure event preclude Tenant’s construction of the Premises Improvements.
45/47 Wiggins – Suites 100 & 200/Stoke - Page 4
Tenant acknowledges that Landlord shall require access to (i) portions of the 47 Wiggins Premises after the 47 Wiggins Premises
Commencement Date in order to complete Landlord’s Work, and (ii) to portions of the Premises in order to perform the Premises
Improvements. Landlord and its contractors and agents shall, upon reasonable prior notice to Tenant, have the right to enter the 47 Wiggins
Premises to perform Landlord’s Work and the Premises to perform the Premises Improvements, and Tenant shall reasonably cooperate with
Landlord in connection with the same, at no cost or liability to Tenant. Tenant acknowledges that Landlord’s performance of Landlord’s Work
and/or the Premises Improvements may adversely affect Tenant’s use and occupancy of the Premises. Tenant waives all claims against
Landlord for rent abatement in connection with Landlord’s Work and the Premises Improvements.
Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with
respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct
of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This
Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior
representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in
executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein.
3. Rent.
(a) Base Rent. Base Rent for the month in which the Commencement Date occurs (or, if the Commencement Date does not occur
on the first day of a calendar month, Base Rent for the first full calendar month following the Commencement Date) and the Security Deposit
shall be due and payable concurrently with Tenant’s delivery of an executed copy of this Lease to Landlord. Base Rent for the month in which
the 47 Wiggins Premises Rent Commencement Date occurs (or, if the 47 Wiggins Premises Rent Commencement Date does not occur on
the first day of a calendar month, Base Rent for the first full calendar month following the 47 Wiggins Premises Rent Commencement Date)
shall be due and payable on the 47 Wiggin Premises Commencement Date. Tenant shall pay to Landlord in advance, without demand,
abatement, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof
after the Commencement Date with respect to the 45 Wiggins Premises and after the 47 Wiggins Premises Rent Commencement Date with
respect to the 47 Wiggins Premises, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth
above, or to such other person or at such other place as Landlord may from time to time designate in writing, or via federally insured wire
transfer (including ACH) pursuant to the wire instructions provided by Landlord. Payments of Base Rent for any fractional calendar month
shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease
are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5) due
hereunder except for any abatement as may be expressly provided in this Lease.
(b) Additional Rent. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“Additional Rent”): (i)
commencing on the Commencement Date with respect to the 45 Wiggins Premises and on the 47 Wiggins Premises Commencement Date
with respect to the 47 Wiggins Premises, Tenant’s Share of “Operating Expenses” (as defined in Section 5), and (ii) any and all other
amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may
become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be
performed by Tenant, after any applicable notice and cure period.
4. Base Rent Adjustments. Base Rent shall be increased on each annual anniversary of the Commencement Date (provided,
however, that if the Commencement Date occurs on a day other than the first day of a calendar month, then Base Rent shall be increased on
each annual anniversary of the first day of the first full calendar month immediately following the Commencement Date) (each an
“Adjustment Date”) by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage
and adding the resulting amount to the Base Rent payable immediately before such
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Adjustment Date. Base Rent, as so adjusted, shall thereafter be due as provided herein. Base Rent adjustments for any fractional calendar
month shall be prorated.
5. Operating Expense Payments. Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar
year during the Term (the “Annual Estimate”), which may be revised by Landlord from time to time during such calendar year. Commencing
on the Commencement Date with respect to the 45 Wiggins Premises and on the 47 Wiggins Premises Commencement Date with respect to
the 47 Wiggins Premises, and continuing thereafter on the first day of each month during the Term, Tenant shall pay Landlord an amount
equal to 1/12th of Tenant’s Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.
The term “Operating Expenses” means all costs and expenses of any kind or description whatsoever incurred or accrued each
calendar year by Landlord with respect to the Building (including the Building’s Share of all costs and expenses of any kind or description
incurred or accrued by Landlord with respect to the Project which are not specific to the Building or any building at the Project not containing
Project Amenities) including, without duplication, (i) Taxes (as defined in Section 9), (ii) the cost (including, without limitation, any
commercially reasonable subsidies which Landlord may provide in connection with the Project Amenities) of the common area amenities (the
“Project Amenities”) now or hereafter located at the Project after revenues from the Project Amenities realized by Landlord or its affiliates, if
any, are applied against such costs, (iii) transportation services (including the Shuttle Service Costs (as defined in Section 41(o))), (iv) capital
repairs, improvements and replacements amortized over the lesser of 10 years and the useful life of such capital repairs, improvements and
replacements, and (v) the costs of Landlord’s third party property manager or, if there is no third party property manager, administration rent
in the amount of 3% of Base Rent (provided that during the 47 Wiggins Abatement Period, Tenant shall nonetheless be required to pay
administration rent each month equal to the amount of the administration rent that Tenant would have been required to pay in the absence of
there being an 47 Wiggins Abatement Period), excluding only:
(a) the original construction costs of the Project and renovation prior to the date of this Lease and costs of correcting defects in such
original construction or renovation;
(b) capital expenditures for expansion of the Project;
(c) interest, principal payments of Mortgage (as defined in Section 27) debts of Landlord, financing costs and amortization of funds
borrowed by Landlord, whether secured or unsecured;
(d) depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses);
(e) advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring
and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for
tenants;
(f) legal and other expenses incurred in the negotiation or enforcement of leases;
(g) completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other
tenants within their premises, and costs of correcting defects in such work;
(h) costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project,
whether or not actually paid;
(i) salaries, wages, benefits and other compensation paid to (i) personnel of Landlord or its agents or contractors above the
position of the person, regardless of title, who has day-to-day management responsibility for the Project or (ii) officers and employees of
Landlord or its affiliates who are not assigned
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in whole or in part to the operation, management, maintenance or repair of the Project; provided, however, that with respect to any such
person who does not devote substantially all of his or her employed time to the Project, the salaries, wages, benefits and other compensation
of such person shall be prorated to reflect time spent on matters related to operating, managing, maintaining or repairing the Project in
comparison to the time spent on matters unrelated to operating, managing, maintaining or repairing the Project;
(j) general organizational, administrative and overhead costs relating to maintaining Landlord’s existence, either as a corporation,
partnership, or other entity, including general corporate, legal and accounting expenses;
(k) costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with
disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with
negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;
(l) costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and
conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7);
(m)penalties, fines or interest incurred as a result of Landlord’s inability or failure to make payment of Taxes and/or to file any tax or
informational returns when due, or from Landlord’s failure to make any payment of Taxes required to be made by Landlord hereunder before
delinquency;
(n) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the
Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;
(o) costs of Landlord’s charitable or political contributions, or of fine art maintained at the Project;
(p) costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project
and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project,
whether or not such other tenant or occupant is specifically charged therefor by Landlord;
(q) costs incurred in the sale or refinancing of the Project;
(r) net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes
or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein; and
(s) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants
of the Project under leases for space in the Project.
In addition, notwithstanding anything to the contrary contained in this Lease, Operating Expenses incurred or accrued by Landlord with
respect to any capital improvements which are reasonably expected by Landlord to reduce overall Operating Expenses (for example, without
limitation, by reducing energy usage at the Project) (the “Energy Savings Costs”) shall be amortized over a period of years equal to the
least of (A) 10 years, (B) the useful life of such capital items, or (C) the quotient of (i) the Energy Savings Costs, divided by (ii) the annual
amount of Operating Expenses reasonably expected by Landlord to be saved as a result of such capital improvements.
Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to
Tenant a statement (an “Annual Statement”) showing in reasonable detail: (a) the total and Tenant’s Share of actual Operating Expenses
for the previous calendar year, and
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(b) the total of Tenant’s payments in respect of Operating Expenses for such year. If Tenant’s Share of actual Operating Expenses for such
year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30
days after delivery of such Annual Statement to Tenant. If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of
actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement,
except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the
excess to Tenant after deducting all other amounts due Landlord. Landlord’s and Tenant’s obligations to pay any overpayments or
deficiencies due pursuant to this paragraph shall survive the expiration or earlier termination of this Lease.
The Annual Statement shall be final and binding upon Tenant unless Tenant, within 120 days after Tenant’s receipt thereof, shall
contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. If, during such 120 day
period, Tenant reasonably and in good faith questions or contests the accuracy of Landlord’s statement of Tenant’s Share of Operating
Expenses, Landlord will provide Tenant with access to Landlord’s books and records relating to the operation of the Project and such
information as Landlord reasonably determines to be responsive to Tenant’s questions (the “Expense Information”). If after Tenant’s review
of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenant’s Share of Operating Expenses, then Tenant
shall have the right to have an independent regionally or nationally recognized public accounting firm selected by Tenant and approved by
Landlord (which approval shall not be unreasonably withheld or delayed), working pursuant to a fee arrangement other than a contingent fee
(at Tenant’s sole cost and expense), audit and/or review the Expense Information for the year in question (the “Independent Review”). The
results of any such Independent Review shall be binding on Landlord and Tenant. If the Independent Review shows that the payments
actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenant’s Share of Operating
Expenses for such calendar year, Landlord shall at Landlord’s option either (i) credit the excess amount to the next succeeding installments
of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the
expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant
after deducting all other amounts due Landlord. If the Independent Review shows that Tenant’s payments with respect to Operating
Expenses for such calendar year were less than Tenant’s Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency
to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to
Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review.
Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated. Notwithstanding
anything set forth herein to the contrary, if the Building is not at least 95% occupied on average during any year of the Term, Tenant’s Share
of Operating Expenses for such year shall be computed as though the Building had been 95% occupied on average during such year.
“Tenant’s Share” shall be the percentage set forth on the first page of this Lease as Tenant’s Share of Operating Expenses of
Building, and “Building’s Share” shall be the percentage set forth on page 1 as the Building’s Share of Operating Expenses of Project, each
as may be reasonably adjusted by Landlord for changes in the physical size of the Premises, Building or the Project occurring thereafter.
Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement,
or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use.
Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred
to herein as “Rent.”
6. Security Deposit. Tenant shall deposit with Landlord, upon delivery of an executed copy of this Lease to Landlord, a security
deposit (the “Security Deposit”) for the performance of all of Tenant’s obligations hereunder in the amount set forth on page 1 of this Lease,
which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the “Letter of Credit”): (i) in form and
substance satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time
to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution
satisfactory to Landlord, and (v) redeemable by presentation of a sight draft in the state of Landlord’s choice. If Tenant does not provide
Landlord with a
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substitute Letter of Credit complying with all of the requirements hereof at least 5 days before the stated expiration date of any then current
Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without
obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of
Tenant’s obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of
Tenant’s default. Upon each occurrence of a Default (as defined in Section 20), Landlord may use all or any part of the Security Deposit to
pay delinquent payments due under this Lease, future rent damages, and the cost of any damage, injury, expense or liability caused by such
Default, without prejudice to any other remedy provided herein or provided by law. Landlord’s right to use the Security Deposit under this
Section 6 includes the right to use the Security Deposit to pay future rent damages following the termination of this Lease pursuant to Section
21(c) below. Upon any use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the
Security Deposit to the amount set forth on Page 1 of this Lease. Tenant hereby waives the provisions of any law, now or hereafter in force
which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of
Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums
reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of
Tenant or any officer, employee, agent or invitee of Tenant. Upon bankruptcy or other debtor-creditor proceedings against Tenant, the
Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for periods prior to the filing of
such proceedings. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance
thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to
Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within 90 days after the expiration or earlier termination
of this Lease.
If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by
Landlord to a person or entity assuming Landlord’s obligations under this Section 6, or (b) return to Tenant any Security Deposit then held by
Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to
Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenant’s right to the return of the Security Deposit
shall apply solely against Landlord’s transferee. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages
in case of Tenant’s default. Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall
accrue thereon.
7. Use. The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease,
and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions
now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With
Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, “ADA”) (collectively, “Legal
Requirements” and each, a “Legal Requirement”). Tenant shall, upon 5 days’ written notice from Landlord, discontinue any use of the
Premises which is declared by any Governmental Authority (as defined in Section 9) having jurisdiction to be a violation of a Legal
Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s
insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the
Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement. Tenant shall reimburse
Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply
with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises. Tenant will use the Premises in a
careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to
use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including
conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be
used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent
sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not
45/47 Wiggins – Suites 100 & 200/Stoke - Page 9
place any machinery or equipment which would overload the floor in or upon the Premises or transport or move such items through the
Common Areas of the Project or in the Project elevators without the prior written consent of Landlord. Tenant shall not, without the prior
written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or
water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually
furnished for the Permitted Use.
Landlord shall be responsible, at Landlord’s cost, for the compliance of the Common Areas of the Project with Legal Requirements
(including the ADA) as of the Commencement Date. Following the Commencement Date, Landlord shall, as an Operating Expense (to the
extent such Legal Requirement is generally applicable to similar buildings in the area in which the Project is located) and at Tenant’s expense
(to the extent such Legal Requirement is triggered by reason of Tenant’s, as compared to other tenants of the Project, particular use of the
Premises, the Premises Improvements or Tenant’s Alterations) make any alterations or modifications to the Common Areas or the exterior of
the Building that are required by Legal Requirements. Except as otherwise expressly provided in the 2 immediately preceding sentences,
Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal
Requirements (including, without limitation, compliance of the Premises with the ADA) related to Tenant’s use or occupancy of the Premises.
Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses,
costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the
same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “Claims”) arising
out of or in connection with Legal Requirements related to Tenant’s particular use or occupancy of the Premises, the Premises Improvements
or Tenant’s Alterations, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out
of or in connection with any failure of the Premises to comply with any Legal Requirement related to Tenant’s particular use or occupancy of
the Premises or Tenant’s Alterations.
Tenant acknowledges that Landlord may, but shall not be obligated to, seek to obtain Leadership in Energy and Environmental
Design (LEED), WELL Building Standard, or other similar “green” certification with respect to the Project and/or the Premises, and Tenant
agrees, at no material cost to Tenant, to reasonably cooperate with Landlord, and to provide such information and/or documentation as
Landlord may reasonably request, in connection therewith.
8. Holding Over. If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of
the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any
time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4
hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover
period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease
or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion, in such written consent, and (iv) all other
payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier
termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of
this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) if Tenant’s
holding over continues in excess of 30 days, Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned
by Tenant’s holding over, including consequential damages; provided, however, that if Tenant delivers a written inquiry to Landlord within 30
days prior to the expiration or earlier termination of the Term, Landlord will notify Tenant whether the potential exists for consequential
damages. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise
expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by
Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this
Lease.
9. Taxes. Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of
any kind, existing as of the Commencement Date or thereafter
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enacted (collectively referred to as “Taxes”), imposed by any federal, state, regional, municipal, local or other governmental authority or
agency, including, without limitation, quasi-public agencies (collectively, “Governmental Authority”) during the Term, including, without
limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to (or gross receipts received by) Landlord
under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value
or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance
of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal
Requirements, or interpretations thereof, promulgated by any Governmental Authority, or (v) imposed as a license or other fee, charge, tax,
or assessment on Landlord’s business or occupation of leasing space in the Project. Landlord may contest by appropriate legal proceedings
the amount, validity, or application of any Taxes or liens securing Taxes. Taxes shall not include any net income taxes imposed on Landlord
except to the extent such net income taxes are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly
against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall
require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by
Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant’s personal property or trade fixtures
are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to
improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to
become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project,
Landlord shall have the right, but not the obligation, to pay such Taxes. Landlord’s determination of any excess assessed valuation shall be
binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from
Tenant to Landlord immediately upon demand.
10. Parking. Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by
Landlord of its rights hereunder, Tenant shall have the right, at no additional cost during the Term (including the Extension Term), in common
with other tenants of the Project pro rata in accordance with the rentable area of the Premises and the rentable areas of the Project occupied
by such other tenants, to park in those areas designated for non-reserved parking on a first come first served basis, subject in each case to
Landlord’s rules and regulations. Tenant’s pro rata share of parking spaces is equal to 2.5 parking spaces per 1,000 rentable square feet of
the Premises. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the
Project. Landlord shall have the right, exercisable by notice to Tenant given at any time during the Term, to relocate all or a portion of the
parking spaces made available to Tenant hereunder to another location within an approximately 2-minute walk of the Project; provided,
however, that any reallocation shall be applied equitably and proportionately among Tenant and the other tenants of the Project.
11. Utilities, Services.
(a) General. Landlord shall provide, subject to the terms of this Section 11, water, electricity, heat, light, power, sewer, and other
utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), and, with respect to the Common Areas of
the Project, refuse and trash collection and janitorial services (collectively, “Utilities”). Landlord shall pay, as Operating Expenses or subject
to Tenant’s reimbursement obligation, for all Utilities used on the Premises, Tenant’s Share of all maintenance charges for Utilities, and any
storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and Tenant’s Share of
any taxes, penalties, surcharges or similar charges thereon. Tenant shall pay directly to the Utility provider, prior to delinquency, any
separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of
Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord.
No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s gross negligence or willful misconduct, shall result in
eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer
with respect to Common Areas to normal restroom use. Utilities shall be available to the Premises 24 hours per day, 7 days per week,
except in the case of emergencies, as the
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result of Legal Requirements, the failure of any Utility provider to provide such Utilities, the performance by Landlord or any Utility provider of
any installation, maintenance or repairs, or any other temporary interruptions. Tenant shall be responsible for obtaining and paying for its
own janitorial services for the Premises.
Tenant agrees to provide Landlord with access to Tenant’s water and/or energy usage data on a monthly basis, either by providing
Tenant’s applicable utility login credentials to Landlord’s Measurabl online portal, or by another delivery method reasonably agreed to by
Landlord and Tenant. The costs and expenses incurred by Landlord in connection with receiving and analyzing such water and/or energy
usage data (including, without limitation, as may be required pursuant to applicable Legal Requirements) shall be included as part of
Operating Expenses.
(b) Generator. Landlord’s sole obligation for either providing emergency generators or providing emergency back-up power to
Tenant shall be: (i) to provide emergency generators with not less than the capacity of the emergency generators located in the Building as of
the Commencement Date, and (ii) to contract with a third party to maintain the emergency generators as per the manufacturer’s standard
maintenance guidelines. Landlord shall have no obligation to provide Tenant with operational emergency generators or back-up power or to
supervise, oversee or confirm that the third party maintaining the emergency generators is maintaining the generators as per the
manufacturer’s standard guidelines or otherwise. During any period of replacement, repair or maintenance of the emergency generators
when the emergency generators are not operational, including any delays thereto due to the inability to obtain parts or replacement
equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of
back-up power. Tenant expressly acknowledges and agrees that Landlord does not guaranty that such emergency generators will be
operational at all times or that emergency power will be available to the Premises when needed.
(c) Loading Dock. Tenant may use the loading dock exclusively serving the Premises 24 hours per day, 7 days per week, subject
to downtime to maintenance and repairs.
12. Alterations and Tenant’s Property. Any alterations, additions, or improvements made to the Premises by or on behalf of
Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation,
removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any
modifications to the structure or connections (other than by ordinary plugs or jacks) to Building Systems (as defined in Section 13)
(“Alterations”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such
Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld, conditioned or delayed. Tenant may
construct nonstructural Alterations in the Premises without Landlord’s prior approval if the aggregate cost of all such work in any 12 month
period does not exceed $30,000.00 (a “Notice-Only Alteration”), provided Tenant notifies Landlord in writing of such intended Notice-Only
Alteration, and such notice shall be accompanied by plans, specifications, work contracts and such other information concerning the nature
and cost of the Notice-Only Alteration as may be reasonably requested by Landlord, which notice and accompanying materials shall be
delivered to Landlord not less than 15 business days in advance of any proposed construction. If Landlord approves any Alterations,
Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as
Landlord may deem appropriate in Landlord’s sole and absolute discretion. Any request for approval shall be in writing, delivered not less
than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts
and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the
identities and mailing addresses of all persons performing work or supplying materials. Landlord’s right to review plans and specifications
and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or
construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with
insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification
required by Legal Requirements as a result of any Alterations. Tenant shall pay to Landlord, as Additional Rent, on demand, an amount
equal to the reasonable out-of-pocket costs incurred by Landlord with respect to each Alteration.
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Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law.
Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty
work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.
Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all
Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for
workers’ compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against
liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i)
sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such
contractors and subcontractors; and (ii) “as built” plans for any such Alteration.
Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the
property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any
time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof. Notwithstanding the foregoing,
Landlord may, at the time its approval of any such Installation is requested, or at the time it receives notice of a Notice-Only Alteration or at
the time it receives notice of a Notice-Only Alteration,, notify Tenant that Landlord requires that Tenant remove such Installation upon the
expiration or earlier termination of the Term, in which event Tenant shall remove such Installation in accordance with the immediately
succeeding sentence. Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment
which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given
Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenant’s Property (as hereinafter defined),
and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping
off all such connections behind the walls of the Premises and repairing any holes. During any restoration period beyond the expiration or
earlier termination of the Term, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. If
Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenant’s Property to waive any
lien Landlord may have against any of Tenant’s Property, and Landlord consents to such waiver, then Landlord shall be entitled to
reimbursement from Tenant for its actual, reasonable out-of-pocket costs incurred in connection with the preparation and negotiation of each
such waiver of lien.
For purposes of this Lease, (x) “Removable Installations” means any items listed on Exhibit F attached hereto and any items agreed
by Landlord in writing to be included on Exhibit F in the future, (y) ”Tenant’s Property” means Removable Installations and, other than
Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z)
”Installations” means all property of any kind paid for by Landlord, all Alterations, all fixtures, and all partitions, hardware, built-in machinery,
built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an
integral part of the Premises, including, without limitation, fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in
warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in
plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.
13. Landlord’s Repairs. Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other
Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and
other portions of the Project (“Building Systems”), in good repair, reasonable wear and tear and uninsured losses and damages caused by
Tenant, or by any of Tenant’s assignees, sublessees, licensees, agents, servants, employees, invitees and contractors (or any of Tenant’s
assignees, sublessees and/or licensees respective agents, servants, employees, invitees and contractors) (collectively, “Tenant Parties”)
excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance,
at Tenant’s sole cost and expense. Landlord reserves the right to stop Building Systems
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services when necessary (i) by reason of accident or emergency, or (ii) for planned repairs, alterations or improvements, which are, in the
judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed.
Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption;
provided, however, that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 48 hours
advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements.
Landlord shall use reasonable efforts to minimize interference with Tenant’s operations in the Premises during such planned stoppages of
Building Systems. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which
Landlord shall make a commercially reasonable effort to effect such repair within a reasonable period (taking into account the nature of the
repairs or maintenance). Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure
shall persist for an unreasonable time (taking into account the nature of the repairs or maintenance) after Tenant’s written notice of the need
for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at
Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein. Repairs
required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18.
14. Tenant’s Repairs. Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all
portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising
walls. Such repair and replacement may include capital expenditures and repairs whose benefit may extend beyond the Term. Should
Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If
Tenant fails to commence cure of such failure within 10 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion,
Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such
failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be
entitled to recover the costs of such cure from Tenant. Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost of any repair
or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the
Premises.
15. Mechanic’s Liens. Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the
Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after the filing thereof,
at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not
the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and
the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment,
furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that
any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or
by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the
Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien
only to removable personal property, located in an identified suite held by Tenant.
16. Indemnification. Tenant hereby indemnifies and agrees to defend, save and hold Landlord, its officers, directors, employees,
managers, agents, sub-agents, constituent entities and lease signators (collectively, “Landlord Indemnified Parties”) harmless from and
against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises or the Project arising
directly or indirectly out of use or occupancy of the Premises or the Project by Tenant or any Tenant Parties (including, without limitation, any
act, omission or neglect by Tenant or any Tenant’s Parties in or about the Premises or at the Project) or a breach or default by Tenant in the
performance of any of its obligations hereunder, except to the extent caused by the willful misconduct or negligence of Landlord
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Indemnified Parties. Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including,
without limitation, loss of records kept within the Premises). Tenant further waives any and all Claims for injury to Tenant’s business or loss
of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records). Landlord
Indemnified Parties shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other
third party or Tenant Parties. Notwithstanding the foregoing, in no event shall Tenant be required to indemnify any Landlord Indemnified
Parties for Claims to the extent caused by the negligence or willful misconduct of any of the Landlord Indemnified Parties.
17. Insurance. Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement
cost of the Project. Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than
$2,000,000 for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other
insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss
or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers’ compensation insurance
and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in
addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the
Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which
case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations). Tenant
shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of
Tenant’s use of the Premises.
Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra
expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at
Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with
employers liability limits of $1,000,000 bodily injury by accident – each accident, $1,000,000 bodily injury by disease – policy limit, and
$1,000,000 bodily injury by disease – each employee; and commercial general liability insurance, with a minimum limit of not less than
$3,000,000 per occurrence for bodily injury and property damage with respect to the Premises. The commercial general liability insurance
maintained by Tenant shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers, agents,
sub-agents, constituent entities and lease signators (collectively, “Landlord Insured Parties”), as additional insureds; insure on an
occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A and
financial category rating of at least Class X in “Best’s Insurance Guide”; shall not be cancelable for nonpayment of premium unless 10 days
prior written notice shall have been given to Landlord from the insurer; not contain a hostile fire exclusion; contain a contractual liability
endorsement; and provide primary coverage to Landlord Insured Parties (any policy issued to Landlord Insured Parties providing duplicate or
similar coverage shall be deemed excess over Tenant’s policies, regardless of limits). Certificates of insurance showing the limits of
coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums
for the applicable period, shall be delivered to Landlord by Tenant (i) concurrent with Tenant’s delivery to Landlord of a copy of this Lease
executed by Tenant, and (ii) prior to each renewal of said insurance. Tenant’s policy may be a “blanket policy” with an aggregate per location
endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant
shall, at least 5 days prior to the expiration of such policies, furnish Landlord with renewal certificates.
In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also
designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the
Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located,
if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or
(iii) any management company retained by Landlord to manage the Project.
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The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based
upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents,
invitees and contractors (“Related Parties”), in connection with any loss or damage thereby insured against. Neither party nor its respective
Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be
maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage.
The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and
Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any
person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever.
If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed
not released but shall be secondary to the other’s insurer.
Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring
coverage limits to levels then being generally required of new tenants within the Project; provided, however, that the increased amount of
coverage is consistent with coverage amounts then being required by institutional owners of similar projects with tenants occupying similar
size premises in the geographical area in which the Project is located.
18. Restoration. If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other casualty,
Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will
take to restore the Project or the Premises, as applicable (the “Restoration Period”). If the Restoration Period is estimated to exceed 12
months (the “Maximum Restoration Period”), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after
the date of discovery of such damage or destruction; provided, however, that notwithstanding Landlord’s election to restore, Tenant may elect
to terminate this Lease by written notice to Landlord delivered within 5 business days of receipt of a notice from Landlord (i) estimating a
Restoration Period for the Premises longer than the Maximum Restoration Period or (ii) indicating that the Maximum Restoration Period
would end during the final 9 months of the Term. Unless either Landlord or Tenant so elects to terminate this Lease, Landlord shall, subject
to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises
(excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of
insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to
enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment,
generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30) in, on or about the Premises
(collectively referred to herein as “Hazardous Materials Clearances”); provided, however, that if repair or restoration of the Premises is not
substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and
absolute discretion, elect not to proceed with such repair and restoration, or Tenant may by written notice to Landlord delivered within 5
business days of the expiration of the Maximum Restoration Period or, if longer, the Restoration Period, elect to terminate this Lease, in
which event Landlord shall be relieved of its obligation to make such repairs or restoration and this Lease shall terminate as of the date that
is 75 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are
obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.
Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force
Majeure (as defined in Section 34) events or to obtain Hazardous Material Clearances, all repairs or restoration not required to be done by
Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the
foregoing, either Landlord or Tenant may terminate this Lease upon written notice to the other if the Premises are damaged during the last
year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage; provided, however, that such
notice is delivered within 10 business days after the date that Landlord provides Tenant with written notice of the estimated Restoration
Period.
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Notwithstanding anything to the contrary contained herein, Landlord shall also have the right to terminate this Lease if insurance proceeds
are not available for such restoration. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the
Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total
area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable for the temporary conduct
of Tenant’s business. Such abatement shall be the sole remedy of Tenant, and except as otherwise provided in this Section 18, Tenant
waives any right to terminate the Lease by reason of damage or casualty loss.
The provisions of this Lease, including this Section 18, constitute an express agreement between Landlord and Tenant with respect
to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation
which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the
Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding
and agreement with respect to such matters.
19. Condemnation. If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under
governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken”), and
the Taking would in Landlord’s reasonable judgment, materially interfere with or impair Landlord’s ownership or operation of the Project or
would in the reasonable judgment of Landlord and Tenant either prevent or materially interfere with Tenant’s use of the Premises (as
resolved, if the parties are unable to agree, by arbitration by a single arbitrator with the qualifications and experience appropriate to resolve
the matter and appointed pursuant to and acting in accordance with the rules of the American Arbitration Association and using expedited
procedures and timelines established by such single arbitrator), then upon written notice by Landlord or Tenant to the other this Lease shall
terminate and Rent shall be apportioned as of the date of such termination. Landlord and Tenant agree that a Taking of more than 50% of
the Premises would constitute a material interference of Tenant’s use of the Premises. If part of the Premises shall be Taken, and this Lease
is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable
under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square
footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced
to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the
entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in
such award. Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the
condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving
expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to Tenant. Tenant hereby waives any and all
rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the
Project.
20. Events of Default. Each of the following events shall be a default (“Default”) by Tenant under this Lease:
(a) Payment Defaults. Tenant shall fail to pay any installment of Rent or any other payment hereunder when due; provided,
however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 5 days of any such notice not more
than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any
notice required by law.
(b) Insurance. Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall
expire or shall be reduced or materially changed, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail
to obtain replacement insurance before the expiration of the current coverage.
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(c) Abandonment. Tenant shall abandon the Premises. Tenant shall not be deemed to have abandoned the Premises if Tenant
provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, (i) Tenant completes Tenant’s
obligations under the Decommissioning and HazMat Closure Plan in compliance with Section 28, (ii) Tenant has obtained the release of the
Premises of all Hazardous Materials Clearances and the Premises are free from any residual impact from the Tenant HazMat Operations and
provides reasonably detailed documentation to Landlord confirming such matters, (iii) Tenant has made reasonable arrangements with
Landlord for the security of the Premises for the balance of the Term, and (iv) Tenant continues during the balance of the Term to satisfy and
perform all of Tenant’s obligations under this Lease as they come due.
(d) Improper Transfer. Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s
interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed
upon, or otherwise judicially seized and such action is not released within 90 days of the action.
(e) Liens. Tenant shall fail to discharge (by bond other otherwise) or otherwise obtain the release of any lien placed upon the
Premises in violation of this Lease within 10 days after Tenant receives notice that any such lien is filed against the Premises.
(f) Insolvency Events. Tenant or any guarantor or surety of Tenant’s obligations hereunder shall: (A) make a general assignment
for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a
debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its
property (collectively a “Proceeding for Relief”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days
of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to
maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).
(g) Estoppel Certificate or Subordination Agreement. Tenant fails to execute any document required from Tenant under
Sections 23 or 27 within 10 days after a second notice requesting such document.
(h) Other Defaults. Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this
Section 20, and, except as otherwise expressly provided herein, such failure shall continue for a period of 30 days after written notice thereof
from Landlord to Tenant.
Any notice given under Section 20(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of,
and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a
forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default
pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 30 days to cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within said 30 day period and thereafter diligently prosecutes the
same to completion; provided, however, that such cure shall be completed no later than 45 days from the date of Landlord’s notice.
21. Landlord’s Remedies.
(a) Payment By Landlord; Interest. Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any
obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest
thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the
“Default Rate”), whichever is less, shall be payable to Landlord on demand as additional Rent.
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(b)
Late Payment Rent. Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage
covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such
payment is due, Tenant shall pay to Landlord an additional sum of 6% of the overdue Rent as a late charge. Notwithstanding the foregoing,
before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will
waive the right if Tenant pays such delinquency within 5 days thereafter. The parties agree that this late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when
due shall bear interest at the Default Rate from the 5th day after the date due until paid.
(c)
Remedies. Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant,
shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever (except as
otherwise expressly provided in Section 21(c)(v) with respect to Landlord’s Lump Sum Election). No cure in whole or in part of such Default
by Tenant after Landlord has taken any action beyond giving Tenant notice of such Default to pursue any remedy provided for herein
(including retaining counsel to file an action or otherwise pursue any remedies) shall in any way affect Landlord’s right to pursue such remedy
or any other remedy provided Landlord herein or under law or in equity, unless Landlord, in its sole discretion, elects to waive such Default.
(i)
This Lease and the Term and estate hereby granted are subject to the limitation that whenever a Default shall have
happened and be continuing, Landlord shall have the right, at its election, then or thereafter while any such Default shall continue
and notwithstanding the fact that Landlord may have some other remedy hereunder or at law or in equity, to give Tenant written
notice of Landlord’s intention to terminate this Lease on a date specified in such notice, which date shall be not less than 5 days
after the giving of such notice, and upon the date so specified, this Lease and the estate hereby granted shall expire and terminate
with the same force and effect as if the date specified in such notice were the date hereinbefore fixed for the expiration of this
Lease, and all rights of Tenant hereunder shall expire and terminate, and Tenant shall be liable as hereinafter in this Section 21(c)
provided. If any such notice is given, Landlord shall have, on such date so specified, the right of re-entry and possession of the
Premises and the right to remove all persons and property therefrom and to store such property in a warehouse or elsewhere at the
risk and expense, and for the account, of Tenant. Should Landlord elect to re-enter as herein provided or should Landlord take
possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may, subject to Section 21(c)(ii)
from time to time re-let the Premises or any part thereof for such term or terms and at such rental or rentals and upon such terms
and conditions as Landlord may deem advisable, with the right to make commercially reasonable alterations in and repairs to the
Premises.
(ii)
Landlord shall be deemed to have satisfied any obligation to mitigate its damages by hiring an experienced
commercial real estate broker to market the Premises and directing such broker to advertise and show the Premises to prospective
tenants.
(iii)
In the event of any termination of this Lease as in this Section 21 provided or as required or permitted by law or in
equity, Tenant shall forthwith quit and surrender the Premises to Landlord, and Landlord may, without further notice, enter upon, re-
enter, possess and repossess the same by summary proceedings, ejectment or otherwise, and again have, repossess and enjoy
the same free of any rights of Tenant, and in any such event Tenant and no person claiming through or under Tenant by virtue of
any law or an order of any court shall be entitled to possession or to remain in possession of the Premises.
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(iv)
If this Lease is terminated or if Landlord shall re-enter the Premises as aforesaid, or in the event of the termination
of this Lease, or of re-entry, by or under any proceeding or action or any provision of law by reason of a Default by Tenant, Tenant
covenants and agrees forthwith to pay and be liable for, on the days originally fixed in this Lease for the payment thereof, amounts
equal to the installments of Base Rent and all Additional Rent as they would, under the terms of this Lease become due if this
Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or
remain vacant, in whole or in part, or for a period less than the remainder of the Term, or for the whole thereof, but in the event that
the Premises be relet by Landlord, Tenant shall be entitled to a credit in the net amount of rent and other charges received by
Landlord in reletting, after deduction of all of Landlord’s expenses incurred in reletting the Premises (including, without limitation,
tenant improvement, demising and remodeling costs, brokerage fees and the like), and in collecting the rent in connection
therewith, in the following manner: Amounts received by Landlord after reletting, if any, shall first be applied against such
Landlord’s expenses, until the same are recovered, and until such recovery, Tenant shall pay, as of each day when a payment
would fall due under this Lease, the amount which Tenant is obligated to pay under the terms of this Lease (Tenant’s liability prior to
any such reletting and such recovery by Landlord no in any way to be diminished as a result of the fact that such reletting might be
for a rent higher than the rent provided for in this Lease); when and if such expenses have been completely recovered by Landlord,
the amounts received from reletting by Landlord as have not previously been applied shall be credited against Tenant’s obligations
as of each day when a payment would fall due under this Lease, and only the net amount thereof shall be payable by Tenant.
Further, Tenant shall not be entitled to any credit of any kind for any period after the date when the Term of this Lease is scheduled
to expire according to its terms.
Actions, proceedings or suits for the recovery of damages, whether liquidated or other damages, under this Lease, or any
installments thereof, may be brought by Landlord from time to time at its election, and nothing contained herein shall be deemed to
require Landlord to postpone suit until the date when the Term of this Lease would have expired if it had not been terminated
hereunder.
(v)
In addition, Landlord, at its election, notwithstanding any other provision of this Lease, by written notice to Tenant
(the “Lump Sum Election”), shall be entitled to recover from Tenant, as and for liquidated damages, at any time following any
termination of this Lease, a lump sum payment representing, at the time of Landlord’s written notice of its Lump Sum Election, the
sum of:
(A) the then present value (calculated in accordance with accepted financial practice using as the discount rate
the yield to maturity on United States Treasury Notes as set forth below) of the amount of unpaid Base Rent and
Additional Rent that would have been payable pursuant to this Lease for the remainder of the Term following Landlord’s
Lump Sum Election if this Lease had not been terminated, and
(B) all other damages and expenses (including attorneys’ fees and expenses), if any, which Landlord shall have
sustained by reason of the breach of any provision of this Lease; less
(C) the then present value (calculated in accordance with accepted financial practice using as the discount rate
the yield to maturity on United States Treasury Notes as set forth below) of the aggregate net fair market rent plus
additional charges payable for the Premises (if less than the then present value of Base Rent and Additional Rent that
would have been payable pursuant to this Lease) for the remainder of the Term following Landlord’s Lump Sum Election,
calculated as of the date of Landlord’s Lump Sum Election, and taking into account reasonable estimates of the future
costs to relet any then vacant portions of the Premises (except to the extent that Tenant has actually paid such costs
pursuant to this Section 21) in order to calculate the net rental revenue that Landlord may expect to obtain for the
Premises for the balance of the Term.
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Landlord’s recovery under its Lump Sum Election shall be in addition to Tenant’s obligations to pay Base Rent and
Additional Rent due and costs incurred prior to the date of Landlord’s Lump Sum Election, and in lieu of any Base Rent and
Additional Rent which would otherwise have been due under this Section from and after the date of Landlord’s Lump Sum Election.
The yield to maturity on United States Treasury Notes having a maturity date that is nearest the date that would have been the last
day of the Term of this Lease, as reported in the Wall Street Journal or a comparable publication if it ceases to publish such yields,
shall be used in calculating present values for purposes of Landlord’s Lump Sum Election. For the purposes of this Section, if
Landlord makes the Lump Sum Election to recover liquidated damages in accordance with this Section, the total Additional Rent
shall be computed based upon Landlord’s reasonable estimate of Tenant’s Share of Operating Expenses and other Additional Rent
for each 12-month period in what would have been the remainder of the Term of this Lease and any part thereof at the end of such
remainder of the Term, but in no event less than the amounts therefor payable for the twelve (12) calendar months (or if less than
twelve (12) calendar months have elapsed since the date hereof, the partial year) immediately preceding the date of Landlord’s
Lump Sum Election. Amounts of Tenant’s Share of Operating Expenses and any other Additional Rent for any partial year at the
beginning of the Term or at the end of what would have been the remainder of the Term shall be prorated.
(vi)
Nothing herein contained shall limit or prejudice the right of Landlord, in any bankruptcy or insolvency proceeding,
to prove for and obtain as liquidated damages by reason of such termination an amount equal to the maximum allowed by any
bankruptcy or insolvency proceedings, or to prove for and obtain as liquidated damages by reason of such termination, an amount
equal to the maximum allowed by any statute or rule of law, whether such amount shall be greater or less than the excess referred
to above.
(vii) Nothing in this Section 21 shall be deemed to affect the right of either party to indemnifications pursuant to this
Lease.
(viii)
If Landlord terminates this Lease upon the occurrence of a Default, Tenant will quit and surrender the Premises to
Landlord or its agents, and Landlord may, without further notice, enter upon, re-enter and repossess the Premises by summary
proceedings, ejectment or otherwise. The words “enter”, “re-enter”, and “re-entry” are not restricted to their technical legal
meanings.
(ix)
If either party shall be in default in the observance or performance of any provision of this Lease, and an action
shall be brought for the enforcement thereof in which it shall be determined that such party was in default, the party in default shall
pay to the other party all reasonable, out of pocket fees, costs and other expenses which may become payable as a result thereof
or in connection therewith, including reasonable attorneys’ fees and expenses.
(x)
If a Default by Tenant shall occur in the keeping, observance or performance of any covenant, agreement, term,
provision or condition herein contained, Landlord, without thereby waiving such Default, may perform the same for the account and
at the expense of Tenant (a) immediately or at any time thereafter and with only such notice, if any, as may be practicable under the
circumstances in the case of an emergency or in case such Default will result in a violation of any legal or insurance requirements,
or in the imposition of any lien against all or any portion of the Premises or the Project not discharged, released or bonded over to
Landlord’s satisfaction by Tenant within the time period required pursuant to Section 15 of this Lease, and (b) in any other case if
such Default continues after any applicable notice and cure period provided in Section 20. All reasonable costs and expenses
incurred by Landlord in connection with any such performance by it for the account of Tenant and also all reasonable costs and
expenses, including attorneys’ fees and disbursements incurred by Landlord in any action or proceeding (including any summary
dispossess proceeding) brought by Landlord to enforce any obligation of Tenant under this Lease and/or right of Landlord in or to
the Premises, shall be paid by Tenant to Landlord within 10 days after demand.
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(xi)
Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may
conduct an environmental test of the Premises as generally described in Section 30(d).
(xii)
In the event that Tenant is in breach or Default under this Lease, whether or not Landlord exercises its right to
terminate or any other remedy, Tenant shall reimburse Landlord upon demand for any out of pocket costs and expenses that
Landlord may incur in connection with any such breach or Default, as provided in this Section 21(c). Such costs shall include legal
fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Tenant shall also indemnify Landlord
against and hold Landlord harmless from all costs, expenses, demands and liability, including without limitation, legal fees and costs
Landlord shall incur if Landlord shall become or be made a party to any claim or action instituted by Tenant against any third party,
by any third party against Tenant or by or against any person holding any interest under or using the Premises by license of or
agreement with Tenant.
Except as otherwise provided in this Section 21, no right or remedy herein conferred upon or reserved to Landlord is intended to be
exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other legal or
equitable right or remedy given hereunder, or now or hereafter existing. No waiver by Landlord of any provision of this Lease shall
be deemed to have been made unless expressly so made in writing by Landlord expressly waiving such provision. Landlord shall
be entitled, to the extent permitted by law, to seek injunctive relief in case of the violation, or attempted or threatened violation, of
any provision of this Lease, or to seek a decree compelling observance or performance of any provision of this Lease, or to seek
any other legal or equitable remedy.
22. Assignment and Subletting.
(a) General Prohibition. Without Landlord’s prior written consent subject to and on the conditions described in this Section 22,
Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or
mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of
the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership
interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers
whereby 50% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is,
transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners
thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the
corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring
the consent of Landlord as provided in this Section 22.
(b) Permitted Transfers. If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the
Premises other than pursuant to a Permitted Assignment (as defined below), then at least 15 business days, but not more than 45 business
days, before the date Tenant desires the assignment or sublease to be effective (the “Assignment Date”), Tenant shall give Landlord a
notice (the “Assignment Notice”) containing such information about the proposed assignee or sublessee, including the proposed use of the
Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the
Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and
conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such
other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord
may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent (provided that
Landlord shall further have the right to review and approve or disapprove the proposed form of sublease prior to the effective date of any
such subletting), (ii) refuse such consent, in its reasonable discretion; or (iii) terminate this Lease with respect to the space described in the
Assignment Notice as of the Assignment Date (an
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“Assignment Termination”). Among other reasons, it shall be reasonable for Landlord to withhold its consent in any of these instances: (1)
the proposed assignee or subtenant is a governmental agency; (2) in Landlord’s reasonable judgment, the use of the Premises by the
proposed assignee or subtenant would entail any alterations that would lessen the value of the leasehold improvements in the Premises, or
would require increased services by Landlord; (3) in Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in
areas of scientific research or other business concerns that are controversial; (4) in Landlord’s reasonable judgment, the proposed assignee
or subtenant lacks the creditworthiness to support the financial obligations it will incur under the proposed assignment or sublease; (5) in
Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is inconsistent with the desired
tenant-mix or the quality of other tenancies in the Project or is inconsistent with the type and quality of the nature of the Building; (6) Landlord
has received from any prior landlord to the proposed assignee or subtenant a negative report concerning such prior landlord’s experience
with the proposed assignee or subtenant; (7) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or
subtenant; (8) the use of the Premises by the proposed assignee or subtenant will violate any applicable Legal Requirement; (9) the
proposed assignee or subtenant, or any entity that, directly or indirectly, controls, is controlled by, or is under common control with the
proposed assignee or subtenant, is then an occupant of the Project; (10) the proposed assignee or subtenant is an entity with whom
Landlord is negotiating to lease space in the Project; or (11) the assignment or sublease is prohibited by Landlord’s lender. If Landlord
delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by
written notice to Landlord of such election within 5 business days after Landlord’s notice electing to exercise the Assignment Termination. If
Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment
Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in
such Assignment Notice. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response
to the Assignment Notice, shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer. Tenant shall
pay to Landlord a fee equal to Two Thousand Five Hundred Dollars ($2,500) in connection with its consideration of any Assignment Notice
and/or its preparation or review of any consent documents. Notwithstanding the foregoing, Landlord’s consent to an assignment of this
Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant (a “Control
Permitted Assignment”) shall not be required, provided that Landlord shall have the right to approve the form of any such sublease or
assignment. In addition, Tenant shall have the right to assign this Lease, upon 10 days prior written notice to Landlord but without obtaining
Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or
corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such
merger or consolidation, or such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the
purpose of transferring this Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles
(“GAAP”)) of the assignee is not less than the greater of the net worth (as determined in accordance with GAAP) of Tenant as of (A) the
Commencement Date, or (B) as of the date of Tenant’s most current quarterly or annual financial statements, and (iii) such assignee shall
agree in writing to assume all of the terms, covenants and conditions of this Lease (a “Corporate Permitted Assignment”). Control
Permitted Assignments and Corporate Permitted Assignments are hereinafter referred to as “Permitted Assignments.”
(c) Additional Conditions. As a condition to any such assignment or subletting, whether or not Landlord’s consent is required,
Landlord may require:
(i)
that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives
such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant
directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those
due under this Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be
terminated for any reason; provided, however, in no event shall Landlord or its successors or assigns be obligated to accept such
attornment; and
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(ii)
A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the
proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises,
together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of
Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or
subletting, including, without limitation: permits; approvals; reports and correspondence; storage and management plans; plans
relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only
be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute
discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities
for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed
assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of
a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.
(d) No Release of Tenant, Sharing of Excess Rents. Notwithstanding any assignment or subletting, Tenant and any guarantor or
surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and
for compliance with all of Tenant’s other obligations under this Lease. If the rent due and payable by a sublessee or assignee (or a
combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in
any form) exceeds the sum of the rental payable under this Lease with respect to the applicable portion of the Premises (excluding however,
any Rent payable under this Section) and actual and reasonable brokerage fees, legal costs and any design or construction fees directly
related to and required pursuant to the terms of any such sublease (“Excess Rent”), then Tenant shall be bound and obligated to pay
Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. If Tenant shall sublet
the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under
this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed
on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of
a Default, Tenant shall have the right to collect such rent.
(e) No Waiver. The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or
any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or
any assignee or sublessee of Tenant from full and primary liability under this Lease. The acceptance of Rent hereunder, or the acceptance of
performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of
the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.
(f) Prior Conduct of Proposed Transferee. Notwithstanding any other provision of this Section 22, if (i) the proposed assignee or
sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with
Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question,
(ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use,
storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the
failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition
in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation
of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by
such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any
such party.
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23. Estoppel Certificate. Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver
a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and
effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured
defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with
respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant’s failure to deliver
such statement within 5 days after Tenant’s receipt of a second written notice from Landlord (such second written notice not to be delivered
prior to 10 business days after the date of the initial notice) shall, at the option of Landlord, constitute a Default under this Lease, and, in any
event, shall be conclusive upon Tenant that this Lease is in full force and effect and without modification except as may be represented by
Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.
24. Quiet Enjoyment. So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all
times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.
25. Prorations. All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day
months.
26. Rules and Regulations. Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules
and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. Such rules and
regulations may include, without limitation, rules and regulations relating to the use of the Project Amenities and/or rules and regulations with
respect to the Common Areas of the Project which are intended to encourage social distancing, promote and protect health and physical
well-being at the Project and/or intended to limit the spread of communicable diseases and/or viruses of any kind or nature that are more
virulent than the seasonal flu (collectively, “Infectious Conditions”). The current rules and regulations are attached hereto as Exhibit E. If
there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall
control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall
not enforce such rules and regulations in a discriminatory manner.
27. Subordination. This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate
at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments,
restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further
instrument or act on the part of Tenant; provided, however that so long as there is no Default hereunder, Tenant’s right to possession of the
Premises shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to
attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such
subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain
appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof. Notwithstanding
the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to
Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or
recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior
to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term “Mortgage” whenever used in
this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “Holder”
of a Mortgage shall be deemed to include the beneficiary under a deed of trust.
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28. Surrender. Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the
Premises to Landlord in the same condition in the condition following the substantial completion of the Premises Improvements, subject to
any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used,
stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than Landlord or any Landlord’s
employees, agents and contractors (collectively, “Tenant HazMat Operations”) and released of all Hazardous Materials Clearances, broom
clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 3 months prior to the
surrender of the Premises or such earlier date as Tenant may elect to cease operations at the Premises, Tenant shall deliver to Landlord a
narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the
Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term,
free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the
“Decommissioning and HazMat Closure Plan”). Such Decommissioning and HazMat Closure Plan shall be accompanied by a current
listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all
Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the
review and approval of Landlord’s environmental consultant. In connection with the review and approval of the Decommissioning and
HazMat Closure Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary
information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord
evidence that the approved Decommissioning and HazMat Closure Plan shall have been satisfactorily completed and Landlord shall have the
right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises
and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date
of such surrender or early termination of this Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse
Landlord, as Additional Rent, for the actual out-of-pocket expense incurred by Landlord for Landlord’s environmental consultant to review and
approve the Decommissioning and HazMat Closure Plan and to visit the Premises and verify satisfactory completion of the same, which cost
shall not exceed $5,000. Landlord shall have the unrestricted right to deliver such Decommissioning and HazMat Closure Plan and any
report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.
If Tenant shall fail to prepare or submit a Decommissioning and HazMat Closure Plan approved by Landlord, or if Tenant shall fail to
complete the approved Decommissioning and HazMat Closure Plan, or if such Decommissioning and HazMat Closure Plan, whether or not
approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises,
Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the
Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by
Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28.
Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the
Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s
election, either the reasonable cost of replacing such lost access card or key or the reasonable cost of reprogramming the access security
system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenant’s Property, Alterations and
property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed
of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention
and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the
obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation,
indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.
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29. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY
JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
30. Environmental Requirements.
(a) Prohibition/Compliance/Indemnity. Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be
brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises, Building or Project
in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the
obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term, any holding over or
any other period during which Tenant occupied the Premises results in contamination of the Premises, Building or Project or any adjacent
property or if contamination of the Premises, Building or Project or any adjacent property by Hazardous Materials brought into, kept, used,
stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s
employees, agents and contractors otherwise occurs during the Term, any holding over any holding over or any other period during which
Tenant occupied the Premises, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and
contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or
judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation,
punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the
Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and
amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other
relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water
tables or natural resources), liabilities or losses which arise during or after the Term as a result of such contamination or breach by Tenant of
its obligations under this Section 30. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with
any related investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or
local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises.
Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Building, Project or any adjacent property
caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, Building, Project or any adjacent property,
Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to
return the Premises, Building, Project or any adjacent property to the condition existing prior to the time of such contamination, provided that
Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld, conditioned or delayed so long
as such actions would not potentially have any material adverse long-term or short-term effect on the Premises, Building or the Project.
Notwithstanding anything to the contrary contained in this Section 30, Tenant shall not be responsible for, and the indemnification and hold
harmless obligation set forth in this paragraph shall not apply to, (i) contamination in the Premises which Tenant can prove to Landlord’s
reasonable satisfaction existed in the Premises prior to Tenant’s occupancy of the Premises, or (ii) the presence of any Hazardous Materials
in the Premises which Tenant can prove to Landlord’s reasonable satisfaction migrated from outside of the Premises into the Premises,
unless in either case, the presence of such Hazardous Materials (x) is the result of a breach by Tenant of any of its obligations under this
Lease, or (y) was caused, contributed to or exacerbated by Tenant or any Tenant Party.
(b) Business. Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the
Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous
Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to
Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to
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deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used,
stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals
or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous
Materials on or from the Premises (“Hazardous Materials List”). Upon Landlord’s request, or any time that Tenant is required to deliver a
Hazardous Materials List to any Governmental Authority (e.g., the fire department) in connection with Tenant’s use or occupancy of the
Premises, Tenant shall deliver to Landlord a copy of such Hazardous Materials List. Tenant shall deliver to Landlord true and correct copies
of the following documents (the “Haz Mat Documents”) relating to the use, storage, handling, treatment, generation, release or disposal of
Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a
Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal
Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks
shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and
absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for
any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Decommissioning and HazMat Closure Plan
(to the extent surrender in accordance with Section 28 cannot be accomplished in 3 months). Tenant is not required, however, to provide
Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not
contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with information
which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.
(c) Tenant Representation and Warranty. Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its
legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in
connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted
from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued
by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous
Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If
Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate
this Lease in Landlord’s sole and absolute discretion.
(d) Testing. Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the
Premises or the Project has occurred as a result of Tenant’s use. Tenant shall be required to pay the cost of such annual test of the
Premises if there is violation of this Section 30 or if contamination for which Tenant is responsible under this Section 30 is identified; provided,
however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures reasonably acceptable to
Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant. In
addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct
appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenant’s use of the Premises. In
connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information
concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which
Tenant is liable under this Section 30, Tenant shall pay all costs to conduct such tests. If no such contamination is found, Landlord shall pay
the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-
confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and
subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental
conditions identified by such testing in accordance with all Environmental Requirements. Landlord’s receipt of or satisfaction with any
environmental assessment in no way waives any rights which Landlord may have against Tenant.
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(e) Control Areas. Tenant shall be allowed to utilize up to its pro rata share of the Hazardous Materials inventory within any control
area or zone (located within the Premises), as designated by the applicable building code, for chemical use or storage. As used in the
preceding sentence, Tenant’s pro rata share of any control areas or zones located within the Premises shall be determined based on the
rentable square footage that Tenant leases within the applicable control area or zone. For purposes of example only, if a control area or zone
contains 10,000 rentable square feet and 2,000 rentable square feet of a tenant’s premises are located within such control area or zone
(while such premises as a whole contains 5,000 rentable square feet), the applicable tenant’s pro rata share of such control area would be
20%.
(f) Storage Tanks. If storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are
hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such
storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any
storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements,
as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation,
upgrading and closure of such storage tanks. Notwithstanding anything to the contrary contained herein, Tenant shall have no right to use or
install any underground storage tanks at the Project. Tenant shall have no right to use or install any underground or other storage tanks at
the Project.
(g) Tenant’s Obligations. Tenant’s obligations under this Section 30 shall survive the expiration or earlier termination of the Lease.
During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from
the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the
use of the Premises and the completion of the approved Decommissioning and HazMat Closure Plan), Tenant shall continue to pay the full
Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole discretion, which Rent shall be
prorated daily.
(h) Definitions. As used herein, the term “Environmental Requirements” means all applicable present and future statutes,
regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to
health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation,
the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act;
and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term
“Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or
toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental
Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be
deemed to be the “operator” of Tenant’s “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant or any
Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.
31. Tenant’s Remedies/Limitation of Liability. Landlord shall not be in default hereunder unless Landlord fails to perform any of
its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the
nature of the obligation, require a period of time in excess of 30 days, then, so long as Landlord continues to use reasonable efforts to
perform, after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or
certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are
located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of
the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to
Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall
be construed as covenants, not conditions;
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and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations
hereunder.
All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and
not thereafter. The term “Landlord” in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such
owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.
32. Inspection and Access. Subject to the terms and conditions of this Section 32, Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or
permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord’s representatives may enter the Premises
during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice
shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the
Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord
may erect a suitable sign (i) on the Premises stating the Premises are available to let during the last 9 months of the Term and (ii) at the
Project stating that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and
create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely
affects Tenant’s use or occupancy of the Premises for the Permitted Use. At Landlord’s request, Tenant shall execute such instruments as
may be necessary for such easements, dedications or restrictions. Tenant shall at all times, except in the case of emergencies, have the
right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does
not materially and adversely affect Landlord’s access rights hereunder. During Landlord’s access of the Premises, Landlord shall use
reasonable efforts to comply with Tenant’s reasonable safety and security requirements; provided, however, that Tenant has notified Landlord
of such safety and security requirements prior to Landlord’s entry into the Premises.
33. Security. Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in
given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises.
Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft
or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of
security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents,
contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenant’s cost
obtain insurance coverage to the extent Tenant desires protection against such criminal acts.
34. Force Majeure. Except for the payment of Rent, neither Landlord nor Tenant shall be held responsible or liable for delays in the
performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts,
or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain
labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for
performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, local, regional or national epidemic
or pandemic, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance
or commotion, fire or other casualty, and other causes or events beyond their reasonable control (“Force Majeure”).
35. Brokers. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person
(collectively, “Broker”) in connection with this transaction and that no Broker brought about this transaction, other than Jones Lang LaSalle
and CBRE. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker,
other
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than Jones Lang LaSalle and CBRE, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord,
as applicable, with regard to this leasing transaction.
36. Limitation on Landlord’s Liability. NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER
AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR
ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY,
WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION,
INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT,
INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC
EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND
OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR
DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN,
ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD
AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE
STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION
THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN
CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST
LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF
LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO
CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.
Tenant acknowledges and agrees that measures and/or services implemented at the Project, if any, intended to encourage social
distancing, promote and protect health and physical well-being and/or intended to limit the spread of Infectious Conditions, may not prevent
the spread of such Infectious Conditions. Neither Landlord nor any Landlord Indemnified Parties shall have any liability and Tenant waives
any claims against Landlord and the Landlord Indemnified Parties with respect to any loss, damage or injury in connection with (x) the
implementation, or failure of Landlord or any Landlord Indemnified Parties to implement, any measures and/or services at the Project
intended to encourage social distancing, promote and protect health and physical well-being and/or intended to limit the spread of Infectious
Conditions, or (y) the failure of any measures and/or services implemented at the Project, if any, to limit the spread of any Infectious
Conditions.
37. Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in
that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of
this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and
enforceable.
38. Signs; Exterior Appearance. Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld
in Landlord’s sole discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other
projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings,
(iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v)
place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the
Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be
viewed from the exterior of the Premises. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by
Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on
the exterior of corridor walls or
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corridor doors other than Landlord’s standard lettering. The directory tablet shall be provided exclusively for the display of the name and
location of tenants.
Tenant shall have the exclusive right to display, at Tenant’s cost and expense, one (1) sign bearing Tenant’s name and/or logo
(each, a “Building Sign”) at one (1) location on the building façade reasonably acceptable to Landlord and Tenant. Notwithstanding the
foregoing, Tenant acknowledges and agrees that the Building Sign including, without limitation, the size, color and type, shall be subject to
Landlord’s prior written approval, which shall not be unreasonably withheld, conditioned or delayed, shall be consistent with Landlord’s
signage program at the Project and shall be subject to any and all other required approvals and applicable Legal Requirements. Landlord
shall cooperate with Tenant, at no cost or expense to Landlord, in Tenant’s efforts to obtain approvals for Tenant’s Building Sign from the
applicable Governmental Authorities. Tenant shall be responsible, at Tenant’s sole cost and expense, for the maintenance of the Building
Sign, for the removal of the Building Sign at the expiration or earlier termination of this Lease and for the repair of all damage resulting from
such removal. The Building Sign shall be personal to Stoke Therapeutics, Inc., except that such right may be assigned in connection with
any Permitted Assignment.
Tenant shall have the non-exclusive right to display, at Landlord’s cost and expense, Tenant’s name on the monument sign at the
Project serving the Building (“Monument Sign”). Tenant acknowledges and agrees that Tenant’s signage on the Monument Sign including,
without limitation, the location, size, color and type, shall be subject to Landlord’s prior written approval, which shall not be unreasonably
withheld and shall be consistent with Landlord’s signage program at the Project and applicable Legal Requirements. Tenant shall be
responsible, at Tenant’s sole cost and expense, for the maintenance of Tenant’s signage on the Monument Sign, for the removal of Tenant’s
signage from the Monument Sign at the expiration or earlier termination of this Lease and for the repair of all damage resulting from such
removal. Landlord agrees that the corporate logo, graphics and colors which are registered and in use by Tenant as of the date of this Lease
have been approved by Landlord for use on Tenant’s signage at the Project.
39. Right to Extend Term. Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:
(a) Extension Right. Subject to the terms of Section 39(g) below, Tenant shall have 1 right (the “Extension Right”) to extend the
term of this Lease for 2 years (the “Extension Term”) on the same terms and conditions as this Lease (other than with respect to Base Rent)
by giving Landlord written notice of its election to exercise the Extension Right at least 15 months prior and not more than 18 months prior to
the expiration of the Base Term of the Lease.
Upon the commencement of the Extension Term, Base Rent shall be payable at the Market Rate (as defined below). Base Rent shall
thereafter be adjusted on each annual anniversary of the commencement of such Extension Term by a percentage as agreed upon by
Landlord and Tenant at the time the Market Rate is determined. As used herein, “Market Rate” shall mean the rate that comparable
landlords of comparable buildings have accepted in current transactions from non-equity (i.e., not being offered equity in the buildings) and
nonaffiliated tenants of similar financial strength for space of comparable size, quality (including Alterations and other improvements) and
floor height in laboratory/office buildings in the Bedford area for a comparable term, with the determination of the Market Rate to take into
account all relevant factors, including tenant inducements, percentage of laboratory and office space, views, project amenities, parking costs,
leasing commissions, allowances or concessions, if any. Notwithstanding anything to the contrary contained herein, in no event shall the
Market Rate for the first year of the Extension Term be less than the Base Rent payable as of the date immediately preceding the
commencement of the Extension Term.
If, on or before the date which is 240 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with
Landlord’s determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall
be deemed to have elected arbitration as described in Section 39(b). Tenant acknowledges and agrees that, if Tenant has elected to
exercise the
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Extension Right by delivering notice to Landlord as required in this Section 39(a), Tenant shall have no right thereafter to rescind or elect not
to extend the term of the Lease for the Extension Term.
(b) Arbitration.
(i)
Within 10 days of Tenant’s notice to Landlord of its election (or deemed election) to arbitrate Market Rate and
escalations, each party shall deliver to the other a proposal containing the Market Rate and escalations that the submitting party
believes to be correct (“Extension Proposal”). If either party fails to timely submit an Extension Proposal, the other party’s
submitted proposal shall determine the Base Rent and escalations for the Extension Term. If both parties submit Extension
Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith
attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market Rate and escalations. If Landlord and
Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the
meeting, select an Arbitrator. If either party fails to timely give notice of its selection for an Arbitrator, the other party’s submitted
proposal shall determine the Base Rent for the Extension Term. The 2 Arbitrators so appointed shall, within 5 business days after
their appointment, appoint a third Arbitrator. If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator
within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator
by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior
written notice to the other party of such intent.
(ii)
The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the
third Arbitrator, as applicable. The decision of the single Arbitrator shall be final and binding upon the parties. The average of the
two closest Arbitrators in a three Arbitrator panel shall be final and binding upon the parties. Each party shall pay the fees and
expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne
equally by both parties. If the Market Rate and escalations are not determined by the first day of the Extension Term, then Tenant
shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased
by the Rent Adjustment Percentage until such determination is made. After the determination of the Market Rate and escalations,
the parties shall make any necessary adjustments to such payments made by Tenant. Landlord and Tenant shall then execute an
amendment recognizing the Market Rate and escalations for the Extension Term.
(iii)
An “Arbitrator” shall be any person appointed by or on behalf of either party or appointed pursuant to the
provisions hereof and: (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of
experience in the appraisal of improved office and high tech industrial real estate in the greater Lexington, Bedford and Waltham
metropolitan area, or (B) a licensed commercial real estate broker with not less than 15 years’ experience representing landlords
and/or tenants in the leasing of high tech or life sciences space in the greater Lexington, Bedford and Waltham metropolitan area,
(ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and
(iii) be in all respects impartial and disinterested. Any Arbitrator who has worked in any capacity for either Landlord or Tenant in the
preceding five (5) years shall be disqualified from serving as an Arbitrator under this Section 39(b).
(c) Rights Personal. The Extension Right is personal to Tenant and is not assignable without Landlord’s consent, which may be
granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in
the Lease, except that they may be assigned in connection with any Permitted Assignment of this Lease.
(d) Exceptions. Notwithstanding anything set forth above to the contrary, the Extension Right shall, at Landlord’s option, not be in
effect and Tenant may not exercise the Extension Right:
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(i)
during any period of time that Tenant is in Default under any provision of this Lease; or
(ii)
if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are
cured, during the 12-month period immediately prior to the date that Tenant intends to exercise the Extension Right, whether or not
the Defaults are cured.
(e) No Extensions. The period of time within which the Extension Right may be exercised shall not be extended or enlarged by
reason of Tenant’s inability to exercise the Extension Right.
(f) Termination. The Extension Right shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s
due and timely exercise of the Extension Right, if, after such exercise, but prior to the commencement date of the Extension Term, (i) Tenant
fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the
exercise of the Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.
(g) Subordinate. Tenant’s Extension Right granted pursuant to Section 39(a) above is and shall remain subject and subordinate to
the right of Homology to lease the Premises pursuant to a separate agreement between Landlord and Homology.
40. Early Termination Right. Subject to the provisions of this Section 40, only if Tenant has entered into a new lease with Landlord
or an affiliate of Landlord (“Affiliate”) pursuant to which Tenant shall lease space from Landlord or Landlord’s Affiliate in Massachusetts
containing no less than 40,000 rentable square feet (the “New Premises”) upon terms and conditions acceptable to Landlord (or Landlord’s
Affiliate) and Tenant, each in their respective sole discretion (“New Lease”), then Tenant shall have the right to terminate this Lease as of the
Early Termination Date without the payment of a termination fee, by delivery of written notice to Landlord (“Termination Notice”) concurrently
with or prior to the date that Landlord (or Landlord’s Affiliate) and Tenant enter into a New Lease. If Tenant and Landlord (or Landlord’s
Affiliate) enter into a New Lease and Tenant delivers a Termination Notice, as provided above, to Landlord, then Landlord and Tenant shall,
concurrently with the execution of the New Lease, enter into an amendment to this Lease providing for the early termination of this Lease as
of the date agreed upon by Landlord and Tenant is such amendment (the “Early Termination Date”). Tenant acknowledges that nothing
contained herein shall obligate Landlord or Landlord’s Affiliate in any way to enter into a New Lease nor shall anything contained herein be
construed to grant to Tenant any option or right to lease any space at another property owned by Landlord or any Landlord’s Affiliate.
41. Miscellaneous.
(a) Notices. All notices or other communications between the parties shall be in writing and shall be deemed duly given upon
delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight
guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written
notice to the other designate another address for receipt of future notices.
(b) Joint and Several Liability. If and when included within the term “Tenant,” as used in this instrument, there is more than one
person or entity, each shall be jointly and severally liable for the obligations of Tenant.
(c) Financial Information. Tenant shall furnish to Landlord with true and complete copies of (i) upon Landlord’s written request on
an annual basis, Tenant’s most recent audited annual financial statements, provided, however, that Tenant shall not be required to deliver to
Landlord such annual financial statements for any particular year sooner than the date that is 90 days after the end of each of Tenant’s fiscal
years during the Term, (ii) upon Landlord’s written request on a quarterly basis, Tenant’s most recent unaudited quarterly financial
statements; provided, however, that Tenant shall not be required to deliver to
45/47 Wiggins – Suites 100 & 200/Stoke - Page 34
Landlord such quarterly financial statements for any particular quarter sooner that the date that is 45 days after the end of each of Tenant’s
fiscal quarters during the Term, (iii) upon Landlord’s written request from time to time, updated business plans, including cash flow projections
and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to
Tenant, (iv) upon Landlord’s written request from time to time, corporate brochures and/or profiles prepared by Tenant for prospective
investors, and (v) upon Landlord’s written request from time to time, any other financial information or summaries that Tenant typically
provides to its lenders or shareholders. Notwithstanding anything to the contrary contained in this Lease, Landlord’s written request for
financial information pursuant to this Section 41(c) may delivered to Tenant via email. So long as Tenant is a “public company” and its
financial information is publicly available, then the foregoing delivery requirements of this Section 41(c) shall not apply.
Landlord agrees to hold the financial statements and other financial information provided under this section in confidence using at
least the same degree of care that Landlord uses to protect its own confidential information of a similar nature; provided, however, that
Landlord may disclose such information to Landlord’s auditors, attorneys, consultants, lenders, affiliates, prospective purchasers and
investors and other third parties as reasonably required in the ordinary course of Landlord’s operations, provided that Landlord shall request
that such parties treat the information as confidential. The obligations of confidentiality hereunder shall not apply to information that was in
the public domain at the time it was disclosed to Landlord, entered into the public domain subsequent to the time it was disclosed to Landlord
through no fault of Landlord, or was disclosed by Tenant to a third party without any confidentiality restrictions. In addition, Landlord may
disclose such information without violating this section to the extent that disclosure is reasonably necessary (x) for Landlord to enforce its
rights or defend itself under this Lease; (y) for required submissions to any state or federal regulatory body; or (z) for compliance with a valid
order of a court or other governmental body having jurisdiction, or any law, statute, or regulation, provided that, other than in an emergency,
before disclosing such information, Landlord shall give Tenant 5 business days’ prior notice of the same to allow Tenant to obtain a protective
order or such other judicial relief.
(d) Recordation. Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record.
Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.
(e) Interpretation. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall
be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context
otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope
or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.
(f) Not Binding Until Executed. The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall
not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this
Lease by both parties.
(g) Limitations on Interest. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing
the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as
to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease,
then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable
obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately
shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.
45/47 Wiggins – Suites 100 & 200/Stoke - Page 35
(h) Choice of Law. Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the
Premises are located, excluding any principles of conflicts of laws.
(i) Time. Time is of the essence as to the performance of Tenant’s obligations under this Lease.
(j) OFAC. Tenant and all beneficial owners of Tenant are currently (a) in compliance with and shall at all times during the Term of
this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury
and any statute, executive order, or regulation relating thereto (collectively, the “OFAC Rules”), (b) not listed on, and shall not during the term
of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List, or the Sectoral
Sanctions Identification List, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental
authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is
prohibited from conducting business under the OFAC Rules.
(k) Incorporation by Reference. All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a
part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.
(l) Entire Agreement. This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and
Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent,
negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements,
express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.
(m)No Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of
Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any
endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and
satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to
pursue any other remedy provided in this Lease.
(n) Hazardous Activities. Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and
contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant’s routine
safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety
glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such
repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such
repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.
(o) Shuttle Services. Landlord and affiliates of Landlord plan to provide a campus shuttle service for the Project and other
buildings in the vicinity of the Project that are owned by affiliates of Landlord (the “Shuttle Service”); provided, however, that neither
Landlord nor any affiliate of Landlord shall be obligated to provide the Shuttle Service (or, once the Shuttle Service has commenced, to
continue providing the Shuttle Service for any specific period of time) or to cause the Shuttle Service to follow any specific route, make any
specific stops, or adhere to any specific schedule or hours of operation. If Landlord and affiliates of Landlord actually commence operation of
the Shuttle Service, (i) Landlord shall give Tenant written notice of the date such operation will commence (“Shuttle Services
Commencement Date”) and the planned route, stops, schedule, and hours of operation, (ii) Landlord shall permit Tenant’s employees
actually employed at the Project to use the Shuttle Service, and (iii) regardless of whether Tenant’s employees use the Shuttle Services,
commencing on later to occur of (x) the Shuttle Services Commencement Date, or the Commencement Date, through the earlier of the
expiration of the Term or the date that Landlord permanently ceases to provide Shuttle Service, Operating Expenses shall include the
45/47 Wiggins – Suites 100 & 200/Stoke - Page 36
cost of provision the Shuttle Service (the “Shuttle Service Costs”). Tenant acknowledges and agrees that Landlord has not made any
representations or warranties regarding the commencement or continued availability of the Shuttle Service and that Tenant is not entering
into this Lease with an expectation that the Shuttle Service shall commence or continue to be available to Tenant throughout the Term.
(p) Counterparts. This Lease may be executed in 2 or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or
any electronic signature process complying with the U.S. federal ESIGN Act of 2000) or other transmission method and any counterpart so
delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. Electronic signatures shall be
deemed original signatures for purposes of this Lease and all matters related thereto, with such electronic signatures having the same legal
effect as original signatures.
[ Signatures on next page ]
45/47 Wiggins – Suites 100 & 200/Stoke - Page 37
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.
TENANT:
STOKE THERAPEUTICS, INC.,
a Delaware corporation
By: /s/ Edward M. Kaye
Name: Edward M. Kaye
Its: Chief Executive Officer
By: /s/ Huw M. Nash
Name: Huw M. Nash
Its: COO & CBO
LANDLORD:
ARE-MA REGION NO. 24, LLC,
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
a Delaware limited partnership,
managing member
By: ARE-QRS CORP.,
a Maryland corporation,
general partner
By: /s/ Allison Grochola
Its: SVP – Real Estate Legal Affairs
THIS FIRST AMENDMENT TO LEASE (this “Amendment”) dated as of this 12th day of December, 2023 (the “Effective Date”), is
entered into by and between XENON PROPERTY, LLC, a Delaware limited liability company (“Landlord”), as successor in interest to ARE-
MA Region No. 24, LLC, and STOKE THERAPEUTICS, INC., a Delaware corporation (“Tenant”).
FIRST AMENDMENT TO LEASE
WITNESSETH:
A. Reference is made to that certain Lease Agreement dated as of September 8, 2021 (the “Lease”), by and between ARE-MA
Region No. 43, LLC (hereinafter, “Original Landlord”), as landlord, and Tenant, as tenant, with respect to certain premises
containing approximately 38,000 rentable square feet (the “Premises”), consisting of the entire building known and numbered
as 45-47 Wiggins Avenue, Bedford, Massachusetts (the “Building”).
B.
Landlord is the current owner of the Building and the current holder of the Landlord’s interest under the Lease.
C. The Term of the Lease is currently scheduled to expire on December 31, 2024.
D. The parties desire to: (i) extend the Term of the Lease for an additional period of two (2) years, commencing on January 1,
2025 and expiring on December 31, 2026, and (ii) amend the Lease in certain other respects, all as hereinafter set forth.
Capitalized terms not defined herein shall have the same meaning ascribed to such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
Agreements
1. Additional Base Term. The Term of the Lease is hereby extended beyond December 31, 2024, for a period of two (2) years,
commencing on January 1, 2025 (the “Additional Base Term Commencement Date”) and ending on December 31, 2026 (the “Additional
Base Term”). All references to the “Term” under the Lease shall mean the Base Term and the Additional Base Term, as may be further
extended by the Extension Term pursuant to the Extension Right (as defined below) in accordance with the terms of the Lease, as amended
hereby. All terms and provisions of the Lease, as amended hereby, shall apply to Tenant’s leasing of the Premises for and during the
Additional Base Term, except to the extent expressly provided otherwise herein.
2. Condition of Premises. The Premises are being leased to Tenant for the Additional Base Term in their then current “as-is,
where-is” condition, without representation or warranty by Landlord and without any obligation to provide any construction or tenant
improvement allowances, or to perform any construction therein or otherwise prepare the same for Tenant’s occupancy; provided, however,
that, effective as of the Effective Date the Landlord agrees to meet with Tenant at least once per month to confer and address any repair and
maintenance items related to the Building and/or Premises, and, if requested, such meeting shall include both a Landlord representative and
a representative from the management company retained by Landlord to manage the Project. Additionally, effective as of the Effective Date
and for so long as Tenant is the sole tenant of the Building, Landlord shall allow and provide to Tenant access to the Building’s HVAC controls
systems for the purpose of adjusting temperature set points within the Premises. The HVAC control system to which Tenant will have access
will include all FPs, VAVs and CAVs and RTUs specific to the 45 and 47 office areas only. Landlord shall have no responsibility or liability
whatsoever with respect to the temperature set points within the office areas (including as a result of any of Tenant’s adjustments to the
temperature set points within the office
areas), nor any responsibility or liability with respect to any impact thereof on Tenant’s laboratory operations. For the avoidance of doubt, the
foregoing shall not alter, amend or impact the Landlord’s responsibility for normal repair and maintenance of the Building Systems under the
Lease, subject to inclusion of the costs thereof in Operating Expenses, and subject to the other terms and provisions of the Lease.
3. Amendments. The Lease is hereby amended as follows:
(q) Landlord. Effective as of the Effective Date, the term “Landlord” is hereby amended to mean and refer to
“Xenon Property, LLC, a Delaware limited liability company”.
(r) Landlord’s Notice Address. Effective as of the Effective Date, in the introductory section of the Lease, the
subsection thereof in which the term “Landlord’s Notice Address” is defined is hereby amended to read in its entirety as
follows:
Landlord’s Notice Address:
Xenon Property, LLC
c/o TPG Real Estate
345 California Street, Suite 300
San Francisco, CA 94104
Attn: Jacob Muller, Principal
With copies of any notices to Landlord sent to:
c/o Anchor Line Partners, LLC
One Post Office Square, Floor 36
Boston, MA 02109
Attn: Andrew J. Maher
And to:
Nutter, McClennen & Fish, LLP
Seaport West
155 Seaport Boulevard
Boston, MA 02210
Attn: Michael F. Burke, Esq.
(s) Address for Rent Payment. Effective as of the Effective Date, in the introductory section of the Lease, the
subsection thereof in which the term “Address for Rent Payment” is defined is hereby amended to read in its entirety as
follows:
Address for Rent Payment:
P.O. Box:
Xenon Property, LLC
P.O. Box 411343
Boston, MA 02241-1343
or
Bank Wire Transfer:
Bank Of America N.A.
ABA#: 026009593
Account#: 4451719182
Account Name: Xenon Property, LLC
2
(t) Base Rent. Effective as of the Additional Base Term Commencement Date, in the introductory section of the
Lease, the subsection thereof in which the term “Base Rent” is defined, is hereby amended for the Additional Base Term
as follows:
Period
From
1/1/25
1/1/26
Through
12/31/25
12/31/26
Annual Base Rent
Monthly Installment of Base Rent
$2,489,000.00
$2,563,670.00
$207,416.67
$213,639.17
For the avoidance of doubt, effective as of the Additional Base Term Commencement Date, Section 4 (Base Rent Adjustments) of the
Lease is inapplicable and the adjustments to Base Rent shall be governed by this Section 3(d) of this Amendment.
(u) Additional Rent. For and during the Additional Base Term, Tenant shall continue to be obligated to pay all
Additional Rent, including, without limitation, Operating Expenses and Utilities, all as provided in the Lease.
(v) Extension Option. Effective as of the Effective Date, Section 39 (Right to Extend Term) of the Lease shall be
deleted and shall have no further force or effect. Tenant shall have the right to extend the Term of the Lease beyond the
Additional Base Term for an additional period of five (5) years, pursuant and subject to the terms and conditions set forth
in Exhibit A attached hereto.
4. Miscellaneous. Tenant hereby acknowledges that, as of the Effective Date, (a) Landlord has no undischarged obligations under
the Lease to perform any work or improvements to the Premises or to provide any tenant improvement allowance under the Lease, (b) there
are no offsets or defenses that Tenant has against the full enforcement of the Lease by Landlord, (c) Tenant has not assigned, transferred or
hypothecated the Lease or any interest therein and is not currently subleasing all or any portion of the Premises, and (d) to the best of
Tenant’s knowledge, Landlord is not in default under the Lease.
5. Brokers. Landlord and Tenant hereby represent and warrant to each other that neither has dealt with any real estate broker or
agent in connection with the procurement of this Amendment, except for Jones Lang LaSalle (the “Broker”). Each party agrees to indemnify
and hold harmless the other from any costs, expense or liability (including costs of suit and reasonable attorneys’ fees) for any
compensation, commission or fees claimed by any real estate broker or agent in connection with the procurement of this Amendment (other
than the Broker) because of any act or statement by the indemnifying party. Landlord shall be responsible for paying any commission due to
the Broker related to this First Amendment to Lease per a separate agreement.
6. OFAC. Tenant and Landlord are currently (a) in compliance with and shall at all times during the Term of the Lease remain in
compliance with the regulations of the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury and any statute,
executive order, or regulation relating thereto (collectively, the “OFAC Rules”), (b) not listed on, and shall not during the Term of the Lease be
listed on, the Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List, or the Sectoral Sanctions
Identification List, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority
pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from
conducting business under the OFAC Rules.
7. Effective Date. The parties agree that this Amendment shall be effective from and after the Effective Date and not to any period
of time prior thereto. To the extent this Amendment contains
3
language which purports to amend the Lease with respect to periods of time prior to the Effective Date, such language is for clarification
purposes only and shall not be deemed to change the obligations of the parties with respect thereto. In no event shall this Amendment be
construed to impose any liability on Landlord for any period of time preceding its ownership of the Property.
8. Ratification of Lease Provisions. Except as otherwise expressly amended, modified and provided for in this Amendment, Tenant
hereby ratifies all of the provisions, covenants and conditions of the Lease, and such provisions, covenants and conditions shall be deemed
to be incorporated herein and made a part hereof and shall continue in full force and effect.
9. Entire Amendment. This Amendment contains all the agreements of the parties with respect to the subject matter hereof and
supersedes all prior dealings between the parties with respect to such subject matter.
10.Binding Amendment. This Amendment shall be binding upon, and shall inure to the benefit of, the parties hereto, and their
respective successors and assigns.
11.Governing Law. This Amendment shall be governed by the laws of the Commonwealth of Massachusetts.
12.Authority. Landlord and Tenant each warrants to the other that the person or persons executing this Amendment on its behalf
has or have authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this
Amendment.
13.Severability. If any clause or provision of this Amendment is or should ever be held to be illegal, invalid or unenforceable under
any present or future law applicable to the terms hereof, then and in that event, it is the intention of the parties hereto that the remainder of
this Amendment shall not be affected thereby, and that in lieu of each such clause or provision of this Amendment that is illegal, invalid or
unenforceable, such clause or provision shall be judicially construed and interpreted to be as similar in substance and content to such illegal,
invalid or unenforceable clause or provision, as the context thereof would reasonably suggest, so as to thereafter be legal, valid and
enforceable.
14.No Reservation. Submission of this Amendment for examination or signature is without prejudice and does not constitute a
reservation, option or offer, and this Amendment shall not be effective until execution and delivery by all parties.
15.Counterparts. This Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same instrument. Additionally, e-mailed signatures may be used in place of
original signatures on this Amendment. Landlord and Tenant intend to be bound by the signatures on the e-mailed document, are aware that
the other party will rely on the e-mailed signatures, and hereby waive any defenses to the enforcement of the terms of this Amendment
based on the form of signature.
[SIGNATURES ON FOLLOWING PAGE]
4
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first written above.
LANDLORD:
XENON PROPERTY, LLC, a Delaware limited liability company
By: ALP TPG II Manager, LLC, a Massachusetts limited liability company, its appointed
representative
By: _/s/ Brian Chaisson_
Name:
Title:
_Brian Chaisson___
Authorized Signatory
_____________
_____________
TENANT:
STOKE THERAPEUTICS, INC., a Delaware corporation
By: _/s/ Edward M. Kaye______________
Name: Edward M. Kaye
Title:
Chief Executive Officer
By: _/s/ Huw M. Nash________________
Name: Huw M. Nash
COO & CBO
Title:
5
EXHIBIT A
Extension Option
Tenant shall have one (1) option (the “Extension Option”) to extend the Term for one (1) extension term of five (5) years
commencing at the expiration of the Additional Base Term (the “Extension Term”). Any extension of the Term for the Extension Term shall be
applicable to the entire Premises. If Tenant fails timely to exercise the Extension Option, Tenant shall have no further extension rights
hereunder. If Tenant timely exercises the Extension Option as provided below, the Term shall be extended for the Extension Term, and
Tenant shall pay Base Rent for the Premises during the Extension Term, in accordance with the terms and conditions of Section 3 of the
Lease, at a Base Rent rate equal to 95% of the Fair Market Rent Rate (as defined below) for the Premises for the Extension Term as
determined in accordance with the provisions of this Section set forth below. Time is of the essence with respect to Tenant’s timely exercise
of the Extension Option as provided herein. Any notice exercising the Extension Option must be unconditional and irrevocable in order to be
effective. Except as set forth herein, Tenant’s lease of the Premises during the Extension Term shall be on all of the terms and conditions in
effect for the Premises immediately prior to such extension, except that Tenant shall have no further option to extend the Term after the end
of the Extension Term.
The procedures for Tenant to exercise the Extension Option, and for the Extension Rent Rate (as defined below) applicable to the
Extension Term to be determined, are as follows:
Tenant’s Exercise Notice. If Tenant wishes to exercise the Extension Option, Tenant shall so notify
Landlord no less than nine (9) months, prior to the date the Additional Base Term is scheduled to expire. Failure by Tenant
timely to send a notice under this subparagraph (a) shall constitute an irrevocable waiver of Tenant’s right to extend the Term.
(a)
(b)
Landlord’s Response. If Tenant timely delivers a notice under subparagraph (a) above, Landlord shall
furnish Tenant with Landlord’s estimate of the Base Rent rate equal to 95% of the Fair Market Rent Rate for the Premises for the
Extension Term (once determined pursuant to the terms and provisions set forth below, the “Extension Rent Rate”) no later than
thirty (30) days following Landlord’s receipt of such notice. Within thirty (30) days after Landlord furnishes its estimate of the
Extension Rent Rate to Tenant under the preceding sentence, Tenant shall, by written notice delivered to Landlord, either (i) give
Landlord notice accepting Landlord’s estimate of the Extension Rent Rate for the applicable Extension Term, or (ii) give
Landlord notice disputing Landlord’s estimate of such applicable Extension Rent Rate, which notice under clause (ii) shall state
Tenant’s estimate of such applicable Extension Rent Rate. Failure timely to give a notice disputing Landlord’s estimate of such
applicable Extension Rent Rate shall constitute an acceptance of Landlord’s determination of such applicable Extension Rent
Rate.
(c) Arbitration. If Tenant disputes Landlord’s determination of the Extension Rent Rate under subparagraph
(b)(ii) above, the parties shall use good faith efforts to resolve such dispute for a period of thirty (30) days after such dispute
notice is delivered. If, after such thirty (30) day period, the dispute over such Extension Rent Rate is not resolved, then either
party may cause the matter of the Fair Market Rent Rate to be submitted to arbitration as set forth below, by giving notice of such
submission to the other party. Each of Landlord and Tenant, within twenty
6
(20) days after notice of such submission to arbitration, shall appoint as an arbitrator a commercial real estate broker with at least
ten (10) years’ experience as a broker for lab space in the Greater Boston Suburban lab markets, including Bedford,
Massachusetts, and shall give notice of such appointment to the other party. If either Landlord or Tenant shall fail timely to
appoint an arbitrator, the other may apply to the Boston Office of the American Arbitration Association (“AAA”) for
appointment of such an arbitrator five (5) Business Days after notice of such failure to the delinquent party if such arbitrator has
not then been appointed. The two arbitrators shall, within five (5) Business Days after appointment of the second arbitrator,
appoint a third arbitrator who shall be similarly qualified. If the two arbitrators are unable to agree timely on the selection of the
third arbitrator, then either arbitrator on behalf of both may request such appointment from the Boston office of the AAA. The
arbitration shall be conducted in accordance with the commercial arbitration rules of the AAA insofar as such rules are not
inconsistent with the provisions of this Lease (in which case the provisions of this Lease shall govern). The arbitrators shall be
charged to reach a majority written decision in accordance with the standards for Fair Market Rent Rate, within thirty (30) days
after the third arbitrator is appointed; provided however, (i) the arbitrators shall not establish a Fair Market Rent Rate that is
higher than the Extension Rent Rate proposed by Landlord or lower than Tenant’s counterproposal to Landlord’s Extension Rent
Rate offered by Tenant prior to the initiation of arbitration, and (ii) if the arbitrators are unable to reach such a majority decision,
subject to the preceding subsection 1(c)(i), the Fair Market Rent Rate shall be deemed to be the average of the two closest
determinations made and simultaneously issued by the three arbitrators. The arbitrators shall have no authority or jurisdiction to
make any other determination of such amount. Each party shall bear the costs of its appointed arbitrator; otherwise, the cost of
the arbitration (exclusive of each party’s witness and attorneys’ fees, which shall be paid by such party) shall be borne equally by
the parties. If the AAA shall cease to provide arbitration for commercial disputes in Boston, the second or third arbitrator, as the
case may be, shall be appointed by any successor organization providing substantially the same services, and in the absence of
such an organization, by a court of competent jurisdiction under the arbitration act of The Commonwealth of Massachusetts. For
any period during which the applicable Extension Rent Rate is in dispute hereunder, Tenant shall make payment on account of
the applicable Extension Rent Rate at the rate in place in the final year of the Additional Base Term, and the parties shall adjust
for overpayments or underpayments within thirty (30) days after the decision of the arbitrators is announced.
(d)
Fair Market Rent Rate. The “Fair Market Rent Rate” for the Extension Term shall mean the annual fair
market rent per square foot for the Premises for a term coterminous with the applicable Extension Term under the terms of this
Lease, as though the Premises were in the condition then existing or in such better condition as such space is required to be
maintained hereunder. In making such determination, reference shall be made to lease transactions for comparable lab space in
comparable lab buildings in Bedford, Massachusetts, and appropriate adjustments to the rent rates in such comparable
transactions shall be made for any relevant factors, including, without limitation, the timing of the transaction, the location and
condition of the space, the quality of the Building, and any free rent, tenant improvements or other tenant concessions (or the lack
thereof).
7
(e)
Confirmatory Instrument. If Tenant shall exercise the Extension Option in accordance with this Section,
the provisions of this Section shall be self-operative, but upon request by either party after determination of the Extension Rent
Rate for the Extension Term, the parties shall execute an agreement specifying the Extension Rent Rate for the Extension Term
and acknowledging the extension of the Term.
(f)
General. Notwithstanding any provision of this Section to the contrary, the Extension Option shall be
void, at Landlord’s election, if (i) Tenant is in default under the Lease, after any applicable notice and cure periods have expired,
at the time Tenant elects to extend the Term or at the time the Term would expire but for such extension, or (ii) at the time of
Tenant’s exercise of the Extension Option more than fifty percent (50%) of the Premises is subleased (other than pursuant to a
Permitted Transfer), or an assignment of the Lease (other than in connection with a Permitted Transfer) is then in full force and
effect.
DOCPROPERTY "CUS_DocIDChunk0" 6185347.10
8
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-232191, 333-237345, 333-254499, 333-263531, 333-
270744, and 333-271237) on Form S-8 and (No. 333-265107) on Form S-3 of our report dated March 25, 2024, with respect to the
consolidated financial statements of Stoke Therapeutics, Inc..
/s/ KPMG LLP
Exhibit 23.1
Boston, Massachusetts
March 25, 2024
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Edward M. Kaye, certify that:
1.
I have reviewed this Form 10-K of Stoke Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 25, 2024
/s/ Edward M. Kaye, M.D.
Edward M. Kaye, M.D.
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Stephen J. Tulipano, certify that:
1.
I have reviewed this Form 10-K of Stoke Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 25, 2024
/s/ Stephen J. Tulipano, CPA
Stephen J. Tulipano, CPA
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Edward M. Kaye, Chief Executive Officer of Stoke Therapeutics, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
the Annual Report on Form 10-K of the Company for the year ended December 31, 2023 (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 25, 2024
By:
/s/ Edward M. Kaye, M.D.
Edward M. Kaye, M.D.
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Stephen J. Tulipano, Chief Financial Officer of Stoke Therapeutics, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
the Annual Report on Form 10-K of the Company for the year ended December 31, 2023 (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 25, 2024
By:
/s/ Stephen J. Tulipano, CPA
Stephen J. Tulipano
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
STOKE THERAPEUTICS, INC.
COMPENSATION RECOVERY POLICY
Exhibit 97
(Adopted September 19, 2023)
The Board has determined that it is in the best interests of the Company and its stockholders to adopt this Policy enabling the
Company to recover from specified current and former Company executives certain incentive-based compensation in the event of
an accounting restatement resulting from material noncompliance with any financial reporting requirements under the federal
securities laws. Capitalized terms are defined in Section 14.
This Policy is designed to comply with Rule 10D-1 of the Exchange Act and shall become effective on the Effective Date and
shall apply to Incentive-Based Compensation Received by Covered Persons on or after the Listing Rule Effective Date.
1.
Administration
This Policy shall be administered by the Administrator. The Administrator is authorized to interpret and construe this Policy and
to make all determinations necessary, appropriate, or advisable for the administration of this Policy. The Administrator may
retain, at the Company’s expense, outside legal counsel and such compensation, tax or other consultants as it may determine are
advisable for purposes of administering this Policy.
2.
Covered Persons and Applicable Compensation
This Policy applies to any Incentive-Based Compensation Received by a person (a) after beginning service as a Covered Person;
(b) who served as a Covered Person at any time during the performance period for that Incentive-Based Compensation; and (c)
was a Covered Person during the Clawback Period.
However, recovery is not required with respect to:
i.
Incentive-Based Compensation Received prior to an individual becoming a Covered Person, even if the individual
served as a Covered Person during the Clawback Period.
ii.
Incentive-Based Compensation Received prior to the Listing Rule Effective Date.
iii. Incentive-Based Compensation Received prior to the Clawback Period.
iv.
Incentive-Based Compensation Received while the Company did not have a class of listed securities on a national
securities exchange or a national securities association, including the Exchange.
The Administrator will not consider the Covered Person’s responsibility or fault or lack thereof in enforcing this Policy with
respect to recoupment under the Final Rules.
3.
Triggering Event
Subject to and in accordance with the provisions of this Policy, if there is a Triggering Event, the Administrator shall require a
Covered Person to reimburse or forfeit to the Company the Recoupment Amount applicable to such Covered Person. A
Company’s obligation to recover the Recoupment Amount is not dependent on if or when the restated financial statements are
filed.
4.
Calculation of Recoupment Amount
The Recoupment Amount will be calculated in accordance with the Final Rules, as provided in the Calculation Guidelines
attached hereto as Exhibit B.
5.
Method of Recoupment
Subject to compliance with the Final Rules and applicable law, the Administrator will determine, in its sole discretion, the
method for recouping the Recoupment Amount hereunder which may include, without limitation:
i. Requiring reimbursement or forfeiture of the pre-tax amount of cash Incentive-Based Compensation previously paid;
ii. Offsetting the Recoupment Amount from any compensation otherwise owed by the Company to the Covered Person,
including without limitation, any prior cash incentive payments, executive retirement benefits, wages, equity grants or
other amounts payable by the Company to the Covered Person in the future;
iii. Seeking recovery of any gain realized on the vesting, exercise, settlement, cash sale, transfer, or other disposition of any
equity-based awards; and/or
iv. Taking any other remedial and recovery action permitted by law, as determined by the Administrator.
6.
Recovery Process; Impracticability
Actions by the Administrator to recover the Recoupment Amount will be reasonably prompt.
The Administrator must cause the Company to recover the Recoupment Amount unless the Administrator shall have previously
determined that recovery is impracticable and one of the following conditions is met:
i.
The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered;
before concluding that it would be impracticable to recover any amount of erroneously awarded Incentive-Based
Compensation based on expense of enforcement, the Company must make a reasonable attempt to recover such
2
erroneously awarded Incentive-Based Compensation, document such reasonable attempt(s) to recover, and provide
that documentation to the Exchange;
Recovery would violate home country law where that law was adopted prior to November 28, 2022; before
concluding that it would be impracticable to recover any amount of erroneously awarded Incentive-Based
Compensation based on violation of home country law, the Company must obtain an opinion of home country
counsel, acceptable to the Exchange, that recovery would result in such a violation, and must provide such opinion
to the Exchange; or
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available
to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and
regulations thereunder.
ii.
iii.
7.
Non-Exclusivity
The Administrator intends that this Policy will be applied to the fullest extent of the law. Without limitation to any broader or
alternate clawback authorized in any written document with a Covered Person, (i) the Administrator may require that any
employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a
condition to the grant of any benefit thereunder, require a Covered Person to agree to abide by the terms of this Policy, and (ii)
this Policy will nonetheless apply to Incentive-Based Compensation as required by the Final Rules, whether or not specifically
referenced in those arrangements. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other
remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any
employment agreement, equity award agreement, or similar agreement and any other legal remedies or regulations available or
applicable to the Company (including SOX 304). If recovery is required under both SOX 304 and this Policy, any amounts
recovered pursuant to SOX 304 may be credited toward the amount recovered under this Policy, or vice versa.
8.
No Indemnification
The Company shall not indemnify any Covered Persons against (i) the loss of erroneously awarded Incentive-Based
Compensation or any adverse tax consequences associated with any incorrectly awarded Incentive-Based Compensation or any
recoupment hereunder, or (ii) any claims relating to the Company enforcement of its rights under this Policy. For the avoidance
of doubt, this prohibition on indemnification will also prohibit the Company from reimbursing or paying any premium or
payment of any third-party insurance policy to fund potential recovery obligations obtained by the Covered Person directly. No
Covered Person will seek or retain any such prohibited indemnification or reimbursement.
3
Further, the Company shall not enter into any agreement that exempts any Incentive-Based Compensation from the application of
this Policy or that waives the Company’s right to recovery of any erroneously awarded Incentive-Based Compensation and this
Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date).
9.
Covered Person Acknowledgement and Agreement
All Covered Persons subject to this Policy must acknowledge their understanding of, and agreement to comply with, the Policy
by executing the certification attached hereto as Exhibit A. Notwithstanding the foregoing, this Policy will apply to Covered
Persons whether or not they execute such certification.
10.
Successors
This Policy shall be binding and enforceable against all Covered Persons and their beneficiaries, heirs, executors, administrators
or other legal representatives and shall inure to the benefit of any successor to the Company.
11.
Governing Law; Interpretation of Policy
This Policy will be governed by and construed in accordance with the laws of the State of Delaware (excluding its conflict of
laws rules).
To the extent there is any ambiguity between this Policy and the Final Rules, this Policy shall be interpreted so that it complies
with the Final Rules. If any provision of this Policy, or the application of such provision to any Covered Person or circumstance,
shall be held invalid, the remainder of this Policy, or the application of such provision to Covered Persons or circumstances other
than those as to which it is held invalid, shall not be affected thereby.
In the event any provision of this Policy is inconsistent with any requirement of any Final Rules, the Administrator, in its sole
discretion, shall amend and administer this Policy and bring it into compliance with such rules.
Any determination under this Policy by the Administrator shall be conclusive and binding on the applicable Covered Person.
Determinations of the Administrator need not be uniform with respect to Covered Persons or from one payment or grant to
another.
12.
Amendments; Termination
The Administrator may make any amendments to this Policy as required under applicable law, rules and regulations, or as
otherwise determined by the Administrator in its sole discretion.
The Administrator may terminate this Policy at any time.
4
13.
Definitions
“Administrator” means the Compensation Committee of the Board, or in the absence of a committee of independent directors
responsible for executive compensation decisions, a majority of the independent directors serving on the Board.
“Board” means the Board of Directors of the Company.
“Clawback Measurement Date” is the earlier to occur of:
i. The date the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if
Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare
an accounting restatement as described in this Policy; or
ii. The date a court, regulator, or other legally authorized body directs the Company to prepare an accounting restatement as
described in this Policy.
“Clawback Period” means the three (3) completed fiscal years immediately prior to the Clawback Measurement Date and any
transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year (that
results from a change in the Company’s fiscal year) within or immediately following such three (3)-year period; provided that
any transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that
comprises a period of 9 to 12 months will be deemed a completed fiscal year.
“Company” means Stoke Therapeutics, a Delaware corporation, or any successor corporation.
“Covered Person” means any Executive Officer (as defined in the Final Rules), including, but not limited to, those persons who
are or have been determined to be “officers” of the Company within the meaning of Section 16 of Rule 16a‑1(f) of the rules
promulgated under the Exchange Act, and “executive officers” of the Company within the meaning of Item 401(b) of Regulation
S-K, Rule 3b‑7 promulgated under the Exchange Act, and Rule 405 promulgated under the Securities Act of 1933, as amended;
provided that the Administrator may identify additional employees who shall be treated as Covered Persons for the purposes of
this Policy with prospective effect, in accordance with the Final Rules.
“Effective Date” means September 19, 2023, the date the Policy was adopted by the Board.
“Exchange” means the Nasdaq Global Select Market or any other national securities exchange or national securities association
in the United States on which the Company has listed its securities for trading.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Final Rules” means the final rules promulgated by the SEC under Section 954 of the Dodd-Frank Act, Rule 10D-1 and
Exchange listing standards, as may be amended from time to time.
5
“Financial Reporting Measure” are measures that are determined and presented in accordance with the accounting principles
used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures.
Stock price and TSR are also financial reporting measures. A financial reporting measure need not be presented within the
financial statements or included in a filing with the SEC.
“Incentive-Based Compensation” means compensation that is granted, earned or vested based wholly or in part on the attainment
of any Financial Reporting Measure. Examples of “Incentive-Based Compensation” include, but are not limited to: non-equity
incentive plan awards that are earned based wholly or in part on satisfying a Financial Reporting Measure performance goal;
bonuses paid from a “bonus pool,” the size of which is determined based wholly or in part on satisfying a Financial Reporting
Measure performance goal; other cash awards based on satisfaction of a Financial Reporting Measure performance goal;
restricted stock, restricted stock units, performance share units, stock options, and SARs that are granted or become vested based
wholly or in part on satisfying a Financial Reporting Measure goal; and proceeds received upon the sale of shares acquired
through an incentive plan that were granted or vested based wholly or in part on satisfying a Financial Reporting Measure goal.
“Incentive-Based Compensation” excludes, for example, time-based awards such as stock options or restricted stock units that are
granted or vest solely upon completion of a service period; awards based on non-financial strategic or operating metrics such as
the consummation of a merger or achievement of non-financial business goals; service-based retention bonuses; discretionary
compensation; and salary.
“Listing Rule Effective Date” means the effective date of the listing standards of the Exchange on which the Company’s
securities are listed.
“Policy” means this Compensation Recovery Policy.
Incentive-Based Compensation is deemed “Received” in the Company’s fiscal period during which the relevant Financial
Reporting Measure specified in the Incentive-Based Compensation award is attained, irrespective of whether the payment or
grant occurs on a later date or if there are additional vesting or payment requirements, such as time-based vesting or certification
or approval by the Compensation Committee or Board, that have not yet been satisfied.
“Recoupment Amount” means the amount of Incentive-Based Compensation Received by the Covered Person based on the
financial statements prior to the restatement that exceeds the amount such Covered Person would have received had the
Incentive-Based Compensation been determined based on the financial restatement, computed without regard to any taxes paid
(i.e., gross of taxes withheld).
“SARs” means stock appreciation rights.
“SEC” means the U.S. Securities and Exchange Commission.
“SOX 304” means Section 304 of the Sarbanes-Oxley Act of 2002.
“Triggering Event” means any event in which the Company is required to prepare an accounting restatement due to the material
noncompliance of the Company with any financial reporting requirement under the securities laws, including any required
accounting restatement to correct an
6
error in previously issued financial statements that is material to the previously issued financial statements, or that would result in
a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“TSR” means total stockholder return.
7
EXHIBIT A
Certification
I certify that:
1.
2.
3.
4.
I have read and understand the Company’s Compensation Recovery Policy (the “Policy”). I understand that the Company is
available to answer any questions I have regarding the Policy.
I understand that the Policy applies to all of my existing and future compensation-related agreements with the Company,
whether or not explicitly stated therein.
I agree that notwithstanding the Company’s certificate of incorporation, bylaws, and any agreement I have with the
Company, including any indemnity agreement I have with the Company, I will not be entitled to, and will not seek
indemnification from the Company for, any amounts recovered or recoverable by the Company in accordance with the
Policy.
I understand and agree that in the event of a conflict between the Policy and the foregoing agreements and understandings on
the one hand, and any prior, existing or future agreement, arrangement or understanding, whether oral or written, with respect
to the subject matter of the Policy and this Certification, on the other hand, the terms of the Policy and this Certification shall
control, and the terms of this Certification shall supersede any provision of such an agreement, arrangement or understanding
to the extent of such conflict with respect to the subject matter of the Policy and this Certification.
5.
I agree to abide by the terms of the Policy, including, without limitation, by returning any erroneously awarded Incentive-
Based Compensation to the Company to the extent required by, and in a manner permitted by, the Policy.
Signature:
Name:
Title:
Date:
8
EXHIBIT B
Calculation Guidelines
For purposes of calculating the Recoupment Amount:
i.
For cash awards not paid from bonus pools, the erroneously awarded compensation is the difference between the
amount of the cash award (whether payable as a lump sum or over time) that was received and the amount that
should have been received applying the restated Financial Reporting Measure.
ii. For cash awards paid from bonus pools, the erroneously awarded compensation is the pro rata portion of any
deficiency that results from the aggregate bonus pool that is reduced based on applying the restated Financial
Reporting Measure.
iii. For equity awards, if the shares, options, restricted stock units, or SARs are still held at the time of recovery, the
erroneously awarded compensation is the number of such securities received in excess of the number that should
have been received applying the restated Financial Reporting Measure (or the value of that excess number). If the
options or SARs have been exercised, but the underlying shares have not been sold, the erroneously awarded
compensation is the number of shares underlying the excess options or SARs (or the value thereof). If the
underlying shares have been sold, the Company may recoup proceeds received from the sale of shares.
iv. For Incentive-Based Compensation based on stock price or TSR, where the amount of erroneously awarded
compensation is not subject to mathematical recalculation directly from the information in an accounting
restatement:
a. The amount must be based on a reasonable estimate of the effect of the accounting restatement on the stock
price or TSR upon which the Incentive-Based Compensation was Received; and
b. The Company must maintain documentation of the determination of that reasonable estimate and the Company
must provide such documentation to the Exchange in all cases.
9