10-Q 1 srrk-20220930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2022

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 001-38501

______________________________________________

SCHOLAR ROCK HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

82-3750435

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

301 Binney Street, 3rd Floor

Cambridge, Massachusetts

02142

(Address of principal executive offices)

(Zip Code)

(857) 259 3860

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SRRK

The Nasdaq Global Select Market

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, a 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

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

The number of outstanding shares of the Registrant’s Common Stock as of November 8, 2022 was 51,663,391.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”), including the documents incorporated by reference, contains forward-looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

the success, cost and timing of clinical trials for apitegromab and SRK-181, including the progress and completion of clinical trials, and the results, and the timing of results, from these trials;
the success, cost and timing of our other product development activities, preclinical studies and clinical trials, and the results, and timing of results, from these studies and trials;
our success in identifying and executing a development program for additional indications for apitegromab and SRK-181 and in identifying product candidates from our preclinical programs;
the clinical utility of our product candidates and their potential advantages over other therapeutic options;
our ability to obtain, generally or on terms acceptable to us, funding for our operations, including funding necessary to complete further development and, upon successful development, if approved, commercialization of apitegromab, SRK-181 or any of our future product candidates;
timing of and costs associated with our restructuring, and the savings benefits we expect to receive from the restructuring;
risks associated with the COVID-19 pandemic or other public health pandemics, which may adversely impact our workforce, global supply chain, business, preclinical studies, clinical trials and financial results;
the potential for our identified research priorities to advance our proprietary platform by identifying future product candidates;
the timing, scope, or likelihood of our ability to obtain and maintain regulatory approval from the U.S. Food and Drug Administration (“FDA”), the European Commission (“EC”) and other regulatory authorities for apitegromab, SRK-181 and any future product candidates, and any related restrictions, limitations or warnings in the label of any approved product candidate;
our ability to continue to grow our organization, including our personnel, systems and relationships with third parties;
our ability to retain our executives and highly skilled technical and managerial personnel, which could be affected due to any transition in management, or if we fail to recruit additional highly skilled personnel;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and the duration of such protection;
our ability and the potential to successfully manufacture our product candidates for clinical trials and for commercial use, if approved;

2

our ability to establish or maintain collaborations or strategic relationships;
our expectations relating to the potential of our proprietary platform technology;
our ability to obtain additional funding when necessary;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets, either alone or in combination with others;
our expectations related to the use of our cash reserves;
the impact of new laws and regulations or amendments to existing laws and regulations;
developments and projections relating to our competitors and our industry;
our estimates and expectations regarding cash and expense levels, future revenues, capital requirements and needs for additional financing, including our expected use of proceeds from our public offerings, and liquidity sources;
our expectations regarding the period during which we qualify as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act or as a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934; and
other risks and uncertainties, including those listed under the caption Part II, Item 1A “Risk Factors”.

The risks set forth above are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Current Reports on Form 8-K or otherwise, for a discussion of risks and uncertainties that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report.

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry data, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

3

SCHOLAR ROCK HOLDING CORPORATION

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

5

Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

5

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021

6

Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2022 and 2021

7

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

9

Notes to Consolidated Financial Statements

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

31

Item 4. Controls and Procedures

32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

82

Item 3. Defaults Upon Senior Securities

82

Item 4. Mine Safety Disclosures

82

Item 5. Other Information

82

Item 6. Exhibits

83

SIGNATURES

84

4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

    

September 30, 

    

December 31, 

    

2022

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

133,075

$

212,835

Marketable securities

 

210,580

 

40,159

Prepaid expenses and other current assets

 

13,957

 

12,325

Total current assets

 

357,612

 

265,319

Property and equipment, net

 

8,142

 

9,564

Operating lease right-of-use asset

20,319

25,442

Restricted cash

 

2,498

 

2,498

Other long-term assets

 

1,732

 

1,622

Total assets

$

390,303

$

304,445

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,001

$

4,434

Accrued expenses

 

22,866

 

17,456

Operating lease liability

8,064

7,407

Short-term debt

805

1,577

Deferred revenue

33,193

Other current liabilities

230

Total current liabilities

 

33,736

 

64,297

Long-term portion of operating lease liability

13,535

19,652

Long-term debt

49,767

48,422

Total liabilities

 

97,038

 

132,371

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding at September 30, 2022 and December 31, 2021

Common stock, $0.001 par value; 150,000,000 shares authorized; 51,660,854 and 35,209,099 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

 

52

 

35

Additional paid-in capital

 

765,526

 

548,204

Accumulated other comprehensive loss

 

(936)

 

(35)

Accumulated deficit

 

(471,377)

 

(376,130)

Total stockholders’ equity

 

293,265

 

172,074

Total liabilities and stockholders’ equity

$

390,303

$

304,445

The accompanying notes are an integral part of these consolidated financial statements.

5

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Revenue

$

$

5,464

    

$

33,193

    

$

14,767

Operating expenses:

 

 

  

 

 

Research and development

33,392

31,265

94,831

79,417

General and administrative

 

10,470

 

11,276

 

32,304

29,907

Total operating expenses

 

43,862

 

42,541

 

127,135

 

109,324

Loss from operations

 

(43,862)

 

(37,077)

 

(93,942)

 

(94,557)

Other income (expense), net

 

565

 

(430)

 

(1,305)

 

(1,328)

Net loss

$

(43,297)

$

(37,507)

$

(95,247)

$

(95,885)

Net loss per share, basic and diluted

$

(0.55)

$

(1.02)

$

(1.80)

$

(2.62)

Weighted average common shares outstanding, basic and diluted

 

79,336,161

 

36,683,026

 

52,958,447

 

36,549,833

Comprehensive loss:

 

 

 

 

Net loss

$

(43,297)

$

(37,507)

$

(95,247)

$

(95,885)

Other comprehensive income (loss):

 

 

 

 

Unrealized gain (loss) on marketable securities

 

(857)

 

(9)

 

(901)

 

2

Total other comprehensive income (loss)

 

(857)

 

(9)

 

(901)

 

2

Comprehensive loss

$

(44,154)

$

(37,516)

$

(96,148)

$

(95,883)

The accompanying notes are an integral part of these consolidated financial statements.

6

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)

  

Accumulated

Additional

Other

Total

Common Stock

Paidin

Comprehensive

Accumulated

Stockholders’

  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Equity

Balance at December 31, 2021

35,209,099

$

35

$

548,204

$

(35)

$

(376,130)

$

172,074

Unrealized loss on marketable securities

(117)

(117)

Exercise of stock options

42,129

481

481

Issuance of common shares upon RSU vesting

49,595

Equity-based compensation expense

6,828

6,828

Net loss

(7,950)

(7,950)

Balance at March 31, 2022

35,300,823

$

35

$

555,513

$

(152)

$

(384,080)

$

171,316

Unrealized gain on marketable securities

73

73

Sale of common shares, pre-funded warrants and warrants to purchase common shares, net of issuance costs

16,326,530

16

195,309

195,325

Exercise of stock options

263

1

1

2

Issuance of common shares upon RSU vesting

10,631

Equity-based compensation expense

6,791

6,791

Net loss

(44,000)

(44,000)

Balance at June 30, 2022

51,638,247

$

52

$

757,614

$

(79)

$

(428,080)

$

329,507

Unrealized loss on marketable securities

(857)

(857)

Exercise of stock options

920

5

5

Issuance of common shares upon RSU vesting

21,687

Equity-based compensation expense

7,917

7,917

Other

(10)

(10)

Net loss

(43,297)

(43,297)

Balance at September 30, 2022

51,660,854

$

52

$

765,526

$

(936)

$

(471,377)

$

293,265

7

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)

  

Accumulated

Additional

Other

Total

Common Stock

Paidin

Comprehensive

Accumulated

Stockholders’

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Equity

Balance at December 31, 2020

34,152,470

$

34

$

505,069

$

(2)

$

(244,331)

$

260,770

Unrealized gain on marketable securities

25

25

Exercise of stock options

245,920

 

 

2,743

 

 

2,743

Equity-based compensation expense

4,673

4,673

Net loss

(27,671)

(27,671)

Balance at March 31, 2021

34,398,390

$

34

$

512,485

$

23

$

(272,002)

$

240,540

Unrealized loss on marketable securities

(14)

(14)

Exercise of stock options

61,397

611

611

Equity-based compensation expense

6,226

6,226

Net loss

(30,707)

(30,707)

Balance at June 30, 2021

34,459,787

$

34

$

519,322

$

9

$

(302,709)

$

216,656

Unrealized loss on marketable securities

(9)

(9)

Exercise of stock options

139,751

1

1,965

1,966

Equity-based compensation expense

6,154

6,154

Net loss

(37,507)

(37,507)

Balance at September 30, 2021

34,599,538

$

35

$

527,441

$

$

(340,216)

$

187,260

The accompanying notes are an integral part of these consolidated financial statements.

8

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended

September 30, 

    

2022

    

2021

Cash flows from operating activities:

  

  

Net loss

$

(95,247)

$

(95,885)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

2,237

 

1,900

Amortization of debt discount and debt issuance costs

573

248

Loss on disposal of property and equipment

32

24

Equity-based compensation

 

21,536

 

17,053

Amortization/accretion of investment securities

(494)

808

Non-cash operating lease expense

5,122

4,755

Change in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

(1,633)

 

(7,876)

Other assets

(110)

(84)

Accounts payable

 

(2,245)

 

(1,194)

Accrued expenses

 

5,322

 

4,120

Operating lease liabilities

(5,460)

(3,663)

Deferred revenue

(33,193)

(14,767)

Other liabilities

(227)

227

Net cash used in operating activities

 

(103,787)

(94,334)

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(947)

(4,706)

Purchases of marketable securities

(290,828)

(60,437)

Maturities of marketable securities

 

120,000

170,000

Net cash (used in) provided by investing activities

 

(171,775)

 

104,857

Cash flows from financing activities:

 

 

Proceeds from sale of common shares, pre-funded warrants and warrants to purchase common shares, net of issuance costs

195,315

Proceeds from stock option exercises

487

5,269

Other

(19)

Net cash provided by financing activities

 

195,802

 

5,250

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(79,760)

 

15,773

Cash, cash equivalents and restricted cash, beginning of period

 

215,333

162,856

Cash, cash equivalents and restricted cash, end of period

$

135,573

$

178,629

Supplemental disclosure of non-cash items:

 

 

Property and equipment purchases in accounts payable and accrued expenses

$

112

$

10

Supplemental cash flow information:

 

 

Cash paid for interest

$

3,032

$

1,494

The accompanying notes are an integral part of these consolidated financial statements.

9

SCHOLAR ROCK HOLDING CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of the Business

Scholar Rock Holding Corporation (the “Company”) is a biopharmaceutical company focused on the discovery and development of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. The Company’s novel understanding of the molecular mechanisms of growth factor activation enabled the development of a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target the precursor, or latent, forms of growth factors. The Company’s first product candidate, apitegromab, is a highly selective, fully human, monoclonal antibody, with a unique mechanism of action that results in inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). The Company is conducting SAPPHIRE, a pivotal Phase 3 clinical trial to evaluate the efficacy and safety of apitegromab in patients with non-ambulatory Type 2 and Type 3 SMA. In June 2022, the Company announced 24-month efficacy and safety extension data of apitegromab in patients with Type 2 and Type 3 SMA from the Phase 2 TOPAZ proof-of-concept clinical trial. The Company’s second product candidate, SRK-181, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor (“CPI”) therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies. SRK-181 is a highly selective inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”) that is being investigated in the Company’s Phase 1 DRAGON proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. The DRAGON trial consists of two parts: Part A (dose escalation of SRK-181 as a single-agent or in combination with an approved anti-PD-(L)1 therapy) and Part B (dose expansion evaluating SRK-181 in combination with an approved anti-PD- (L)1 antibody therapy). Part B commenced in 2021 and includes the following active cohorts: urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, and clear cell renal cell carcinoma. Additionally, the Company continues to create a pipeline of product candidates to deliver novel therapies to underserved patients suffering from a wide range of serious diseases, including neuromuscular disorders, cancer, and fibrosis. The Company was originally formed in May 2012. Its principal offices are in Cambridge, Massachusetts.

Since its inception, the Company’s operations have focused on research and development of monoclonal antibodies that selectively inhibit activation of growth factors for therapeutic effect, as well as establishing the Company’s intellectual property portfolio and performing research and development activities. The Company has primarily financed its operations through various equity financings, as well as research and development collaboration agreements and the Company’s debt facility (Note 9).

Revenue generation activities have been limited to two collaborations, both containing research services and the issuance of a license. The first agreement, executed in 2013, was with Janssen Biotech, Inc. (“Janssen”), a subsidiary of Johnson & Johnson and was terminated in July 2022. The second agreement, the Gilead Collaboration Agreement with Gilead Sciences, Inc. (“Gilead”), was in effect between December 2018 and January 2022. No revenues have been recorded from the sale of any commercial product.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s product candidates. The Company anticipates that it will continue to incur significant operating losses for the next several years as it continues to develop its product candidates. The Company believes that its existing cash, cash equivalents, and marketable securities at September 30, 2022 will be sufficient to allow the Company to fund its current operations through at least a period of one year after the date these financial statements are issued.

10

2. Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of the unaudited consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. There have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Cash, Cash Equivalents and Restricted Cash

The following table reconciles cash, cash equivalents and restricted cash per the balance sheet to the statement of cash flows (in thousands):

    

As of September 30, 

    

2022

    

2021

Cash and cash equivalents

$

133,075

$

176,131

Restricted cash

 

2,498

 

2,498

$

135,573

$

178,629

Unaudited Interim Financial Information

The consolidated financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited consolidated financial statements include the accounts of Scholar Rock Holding Corporation and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the related reporting of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. Under current GAAP, a company only considered past events and current conditions in measuring an incurred loss. Under ASU 2016-13, the information that a company must consider is broadened in developing an expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss. The guidance is applied using a modified retrospective, or prospective approach, depending on a specific amendment. In November 2019, the FASB deferred the effective date for smaller reporting companies to fiscal years beginning after December 15, 2022. The Company does not anticipate a material impact to its net financial position or disclosures as a result of the adoption of ASU 2016-13.

11

3. Fair Value of Financial Assets and Liabilities

The following tables summarize the assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 (in thousands):

Fair Value Measurements at September 30, 2022

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

  

  

  

  

Money market funds, included in cash and cash equivalents

$

122,040

$

122,040

$

$

Marketable securities:

 

  

 

  

 

  

 

  

U.S. Treasury obligations

210,580

210,580

Total assets

$

332,620

$

332,620

$

$

Fair Value Measurements at December 31, 2021

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

  

  

  

  

Money market funds, included in cash and cash equivalents

$

188,493

$

188,493

$

$

Marketable securities:

 

  

 

  

 

  

 

  

U.S. Treasury obligations

 

40,159

 

40,159

 

 

Total assets

$

228,652

$

228,652

$

$

Cash, cash equivalents and marketable securities are Level 1 assets and include investments in money market funds and U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1 as of September 30, 2022 and December 31, 2021. There were no transfers of assets between fair value measurement levels during the three and nine months ended September 30, 2022 or 2021.

The carrying amounts reflected in the balance sheets for prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at September 30, 2022 and December 31, 2021, due to their short-term nature.

The Company believes the terms of its debt reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company's debt approximates its fair value based on Level 3 of the fair value hierarchy.

4. Marketable Securities

The following table summarizes the Company’s investments as of September 30, 2022 (in thousands):

Gross

Amortized

Unrealized

Estimated

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

  

  

  

U.S. Treasury obligations

$

211,516

(936)

$

210,580

Total available-for-sale securities

$

211,516

$

$

(936)

$

210,580

The following table summarizes the Company’s investments as of December 31, 2021 (in thousands):

Gross

Amortized

Unrealized

Estimated

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

U.S. Treasury obligations

$

40,194

$

$

(35)

$

40,159

Total available-for-sale securities

$

40,194

$

$

(35)

$

40,159

12

The aggregate fair value of marketable securities with unrealized losses was $211.5 million and $30.2 million at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, 23 investments and three investments, respectively, were in an unrealized loss position. All such investments have been in an unrealized loss position for less than a year and these losses are considered temporary. The Company has the ability and intent to hold these investments until a recovery of their amortized cost, which may not occur until maturity.

5. Accrued Expenses

As of September 30, 2022 and December 31, 2021, accrued expenses consist of the following (in thousands):

As of

September 30, 

    

December 31, 

    

2022

2021

Accrued external research and development expense

$

13,954

$

8,428

Accrued payroll and related expenses

6,578

7,147

Accrued professional and consulting expense

1,378

1,421

Accrued other

731

460

Accrued restructuring expense

225

$

22,866

$

17,456

6. Common Stock

On June 17, 2022, the Company entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 16,326,530 shares of its common stock, pre-funded warrants to purchase 25,510,205 shares of its common stock and associated common warrants to purchase 10,459,181 shares of its common stock. The offering price per share and associated common warrant was $4.90 and the offering price per pre-funded warrant and associated common warrant is $4.8999, which equals the per share public offering price for the common shares less the $0.0001 exercise price for each such pre-funded warrant. The pre-funded warrants are exercisable at any time and only expire when exercised in full. Each common warrant has an exercise price per share of $7.35 (150% of the offering price per share of the common stock), is immediately exercisable and will expire on December 31, 2025. Gross proceeds from the transaction were $205.0 million. The offering was made pursuant to a registration statement on Form S-3. The offering closed on June 22, 2022 and the Company received $195.3 million in net proceeds, after deducting placement agent fees and offering expenses. The pre-funded warrants and warrants meet the condition for equity classification and were therefore recorded as a component of stockholders’ equity within additional paid-in capital.

7. Equity-Based Compensation

The Company recorded equity-based compensation expense related to all equity-based awards, which was allocated as follows in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Research and development expense

$

4,144

$

2,482

$

10,667

$

7,440

General and administrative expense

 

3,773

 

3,672

 

10,869

 

9,613

$

7,917

$

6,154

$

21,536

$

17,053

Equity-based compensation during the three and nine months ended September 30, 2022 includes $1.2 million and $1.3 million, respectively, related to the modification of certain equity awards.

13

The following table summarizes the Company’s unrecognized equity-based compensation expense as of September 30, 2022:

As of September 30, 2022

Unrecognized Expense (in thousands)

    

Weighted Average Remaining Period of Recognition (years)

Restricted Stock Units

19,146

2.8

Stock Options

40,638

2.7

$

59,784

Restricted Stock Units

The following table summarizes the Company’s restricted stock unit activity for the current year:

Weighted

Average Grant

    

Number of Units

    

Date Fair Value

Restricted stock units as of December 31, 2021

 

314,901

$

47.38

Granted

 

1,724,256

$

11.00

Vested

 

(81,913)

$

46.48

Forfeited

 

(249,509)

$

22.08

Restricted stock units as of September 30, 2022

 

1,707,735

$

14.39

The total fair value of restricted stock units vested during the nine months ended September 30, 2022 was $1.2 million.

Stock Options

The following table summarizes the Company’s stock option activity for the current year:

Weighted

Weighted

Average

Number of 

Average

Remaining

Aggregate

    

Shares

    

Exercise Price

    

Contractual Term

    

Intrinsic Value

(in years)

(in thousands)

Outstanding as of December 31, 2021

 

3,743,400

$

25.55

8.06

$

26,272

Granted

 

3,157,932

$

10.08

Exercised

(43,312)

$

11.25

Cancelled

 

(715,347)

$

25.60

Outstanding as of September 30, 2022

 

6,142,673

$

17.69

8.26

$

2,591

Options exercisable as of September 30, 2022

 

2,247,725

$

20.54

6.53

$

427

Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the nine months ended September 30, 2022 was $7.42.

The following weighted average assumptions were used in determining the fair value of options granted in the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30, 

2022

    

2021

Risk-free interest rate

2.99

%  

0.77

%

Expected dividend yield

0.0

%  

0.0

%

Expected term (years to liquidity)

5.97

6.21

Expected volatility

88.47

%  

87.79

%

14

8. Commitments and Contingencies

Operating Leases

620 Memorial Facility Lease

In March 2015, the Company entered into a 5-year lease of office and laboratory space for its corporate headquarters (the “Lease”) at 620 Memorial Drive in Cambridge, Massachusetts. The Lease was amended in February 2018, to add an additional space (the “Expansion Space”) at the current location and to extend the Lease term (the “Amended Lease”). The Amended Lease expires in September 2023. Annual rent payments, including the Expansion Space, increase from $1.4 million to $1.7 million over the term of the Amended Lease. Variable lease payments include the Company’s allocated share of costs incurred and expenditures made by the landlord in the operation and management of the building. The Company has the option to extend the term of the Amended Lease for one additional term of 5 years commencing after the Amended Lease expires.

On October 5, 2020, the Company entered into a Sublease Agreement (the “Sublease”) with Orna Therapeutics, Inc. (the “Subtenant”) to sublease the space covered by the Amended Lease at 620 Memorial Drive, Cambridge, Massachusetts. The Sublease term commenced on February 1, 2021 and ends on August 31, 2023, unless terminated earlier. The Sublease provides for initial annual base rent of approximately $1.9 million. The Subtenant is obligated to pay for certain costs, taxes and operating expenses, subject to certain exclusions. The Sublease is subordinate to that certain Indenture of Lease, dated March 5, 2015, by and between 620 Memorial Leasehold LLC and Scholar Rock, Inc., as amended.

301 Binney Facility Lease

In November 2019, the Company entered into a lease of office and laboratory space at 301 Binney Street in Cambridge, Massachusetts to be used as its new corporate headquarters. The expiration date of the lease is in August 2025 and the Company has the option to extend the term by two years. The base rent is $6.9 million per year, subject to an annual increase of 3.5%, and the Company was subject to a free-rent period through mid-August 2020. Variable lease payments include the Company’s allocated share of costs incurred and expenditures made by the landlord in the operation and management of the building. The lease included incentives of $14.1 million in the form of an allowance for tenant improvements related to the design and build out of the space. In connection with the lease, the Company has secured a letter of credit for $2.3 million which renews automatically each year. The lease commencement date, for accounting purposes, was reached in September 2020.

Other information related to the Company’s leases (excluding the Company’s sublease income of $0.7 million and $2.0 million for the three and nine months ended September 30, 2022, respectively) is as follows (in thousands, except lease term and discount rate):

For Three Months Ended

For Nine Months Ended

    

September 30, 

    

September 30, 

2022

2022

Lease Cost:

Operating lease cost

$

2,169

$

6,506

Variable lease cost

504

1,408

Total lease cost

$

2,673

$

7,914

15

For Nine Months Ended

September 30, 

2022

Other information:

Operating cash flows used for operating leases

$