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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 March 31, 2024

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 May 2, 2024 was 79,754,065.

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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 (such as our Phase 3 SAPPHIRE clinical trial) and SRK-181, including the progress, completion, timing of results, and actual results of our clinical trials;
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 following completion of our Phase 3 SAPPHIRE clinical trial, and any related restrictions, limitations or warnings in the label of any approval for apitegromab;
our success in identifying and executing a development program for our preclinical product candidates, including SRK-439 and identifying additional product candidates from our preclinical programs and research pipeline;
our success in identifying and executing development programs for additional indications for apitegromab and SRK-181;
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, SRK-439 or any of our future product candidates;
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 and our ability to operate our business without infringing on the intellectual property rights of others;
our ability, through third party manufacturers, to successfully manufacture our product candidates for clinical trials and for commercial use, if approved;
our ability to successfully build a commercial infrastructure to launch and market apitegromab, or otherwise provide access to apitegromab, if and when it is approved or receives pricing or reimbursement approval;
our ability to establish or maintain collaborations or strategic relationships;
our expectations relating to the potential of our proprietary platform technology;
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;

2

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the impact of new laws and regulations or amendments to existing laws and regulations in the United States and foreign countries;
risks associated with the impact of global economic and political developments on our business, including rising inflation and capital market disruptions, economic sanctions and economic slowdowns or recessions or public health pandemics;
developments and projections relating to our competitors and our industry;
our estimates and expectations regarding cash, cash reserves, 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 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

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SCHOLAR ROCK HOLDING CORPORATION

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

5

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

5

Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

6

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

7

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

8

Notes to Consolidated Financial Statements

9

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

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

Item 4. Controls and Procedures

27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

28

Item 1A. Risk Factors

29

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

77

Item 3. Defaults Upon Senior Securities

77

Item 4. Mine Safety Disclosures

77

Item 5. Other Information

77

Item 6. Exhibits

79

SIGNATURES

80

4

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

    

March 31, 

    

December 31, 

    

2024

2023

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

91,979

$

101,855

Marketable securities

 

146,453

 

178,083

Prepaid expenses and other current assets

 

8,501

 

8,256

Total current assets

 

246,933

 

288,194

Property and equipment, net

 

4,038

 

4,600

Operating lease right-of-use asset

9,805

11,417

Restricted cash

 

2,407

 

2,407

Other long-term assets

 

4,102

 

4,417

Total assets

$

267,285

$

311,035

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,868

$

3,465

Accrued expenses

 

21,411

 

20,449

Operating lease liability

7,619

7,408

Short-term debt

5,501

1,334

Other current liabilities

107

85

Total current liabilities

 

37,506

 

32,741

Long-term portion of operating lease liability

2,412

4,392

Long-term debt

44,594

48,684

Total liabilities

 

84,512

 

85,817

Commitments and contingencies (Note 9)

 

  

 

  

Stockholders’ equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; no shares issued and outstanding at March 31, 2024 and December 31, 2023

Common stock, $0.001 par value; 150,000,000 shares authorized; 79,744,654 and 75,979,495 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

80

 

76

Additional paid-in capital

 

916,017

 

901,471

Accumulated other comprehensive income (loss)

 

(50)

 

92

Accumulated deficit

 

(733,274)

 

(676,421)

Total stockholders’ equity

 

182,773

 

225,218

Total liabilities and stockholders’ equity

$

267,285

$

311,035

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

5

Table of Contents

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended March 31, 

    

2024

    

2023

Operating expenses:

 

 

Research and development

$

43,094

$

29,735

General and administrative

 

15,325

10,774

Total operating expenses

 

58,419

 

40,509

Loss from operations

 

(58,419)

 

(40,509)

Other income (expense), net

 

1,566

 

1,130

Net loss

$

(56,853)

$

(39,379)

Net loss per share, basic and diluted

$

(0.59)

$

(0.49)

Weighted average common shares outstanding, basic and diluted

 

95,892,601

 

79,610,059

Comprehensive loss:

 

 

Net loss

$

(56,853)

$

(39,379)

Other comprehensive income (loss):

 

 

Unrealized gain (loss) on marketable securities

 

(142)

 

555

Total other comprehensive income (loss)

 

(142)

 

555

Comprehensive loss

$

(56,995)

$

(38,824)

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

6

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SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

  

Accumulated

Additional

Other

Total

Common Stock

Paidin

Comprehensive

Accumulated

Stockholders’

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Equity

Balance at December 31, 2023

75,979,495

$

76

$

901,471

$

92

$

(676,421)

$

225,218

Unrealized loss on marketable securities

(142)

(142)

Exercise of stock options

47,293

280

280

Issuance of common shares upon RSU vesting

360,373

Exercise of pre-funded and common warrants

3,357,493

4

6,102

6,106

Equity-based compensation expense

8,164

8,164

Net loss

(56,853)

(56,853)

Balance at March 31, 2024

79,744,654

$

80

$

916,017

$

(50)

$

(733,274)

$

182,773

  

Accumulated

Additional

Other

Total

Common Stock

Paidin

Comprehensive

Accumulated

Stockholders’

  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Equity

Balance at December 31, 2022

51,672,579

$

52

$

771,699

$

(884)

$

(510,632)

$

260,235

Unrealized gain on marketable securities

555

555

Sale of common shares, net of issuance costs

68,696

827

827

Exercise of stock options

28,706

243

243

Issuance of common shares upon RSU vesting

219,378

Equity-based compensation expense

6,170

6,170

Other

2

2

Net loss

(39,379)

(39,379)

Balance at March 31, 2023

51,989,359

$

52

$

778,941

$

(329)

$

(550,011)

$

228,653

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

7

Table of Contents

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities:

  

  

Net loss

$

(56,853)

$

(39,379)

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

 

 

Depreciation and amortization

 

598

 

733

Amortization of debt discount and debt issuance costs

77

85

Equity-based compensation

 

8,164

 

6,170

Amortization/accretion of investment securities

(1,919)

(1,363)

Non-cash operating lease expense

1,612

1,812

Change in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

(384)

 

773

Other assets

315

66

Accounts payable

 

(610)

 

(274)

Accrued expenses

 

963

 

(9,591)

Operating lease liabilities

(1,769)

(1,984)

Other liabilities

21

(102)

Net cash used in operating activities

 

(49,785)

(43,054)

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(23)

(30)

Proceeds from sale of property and equipment

13

Purchases of marketable securities

(34,993)

Maturities of marketable securities

 

68,400

90,000

Net cash provided by investing activities

 

33,384

 

89,983

Cash flows from financing activities:

 

 

Proceeds from sale of common shares, net of issuance costs

827

Proceeds from pre-funded and common warrant exercises

6,106

Proceeds from stock option exercises

419

247

Other

2

Net cash provided by financing activities

 

6,525

 

1,076

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

 

(9,876)

 

48,005

Cash, cash equivalents and restricted cash, beginning of period

 

104,262

105,773

Cash, cash equivalents and restricted cash, end of period

$

94,386

$

153,778

Supplemental disclosure for non-cash items:

 

 

Property and equipment purchases in accounts payable & accrued expenses

$

13

$

Supplemental cash flow information:

Cash paid for interest

$

1,656

$

1,491

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

8

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SCHOLAR ROCK HOLDING CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of the Business

Scholar Rock Holding Corporation (the “Company”) is a late-stage biopharmaceutical company focused on the discovery, development, and delivery of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. As a global leader in transforming growth factor beta (“TGFβ”) superfamily biology, 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. By targeting the signaling proteins at the cellular level and acting in the disease microenvironment, the Company believes that it may avoid the historical dose-limiting safety challenges associated with inhibiting growth factors for therapeutic effect.

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-targeted 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 nonambulatory Type 2 and Type 3 SMA. In 2023, the Company completed enrollment for the Phase 3 SAPPHIRE trial and announced data from the Phase 2 TOPAZ trial extension period evaluating patient outcomes at 36 months of treatment with apitegromab. The U.S. Food and Drug Administration (“FDA”) granted Fast Track designation, Rare Pediatric Disease designation and Orphan Drug designation to apitegromab for the treatment of SMA in May 2021, August 2020 and March 2018, respectively. The European Medicines Agency (“EMA”) granted Priority Medicine (“PRIME”) designation in March 2021 and the European Commission (“EC”) granted Orphan Medicinal Product designation in December 2018 to apitegromab for the treatment of SMA.

In October 2023, the Company announced plans to expand into cardiometabolic disorders and advance its anti-myostatin program with SRK-439, a novel, fully human anti-myostatin monoclonal antibody, for evaluation in cardiometabolic disorders, including obesity, towards a potential investigational new drug (“IND”) submission in 2025. To inform the development of SRK-439, the Company plans to initiate a Phase 2 proof-of-concept trial of apitegromab in combination with a GLP-1-receptor agonist in 2024.

The Company’s second product candidate, SRK-181, a highly selective inhibitor of the activation of latent transforming growth factor beta (“TGFβ”), 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 (referred to together as anti-PD-(L)1 antibody therapies). SRK-181 is being evaluated in the Company’s Phase 1 DRAGON proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit resistance to anti-PD-(L)1 antibody therapies. The Phase 1 DRAGON trial completed enrollment in December 2023 and continues to treat patients who remain on study. This two-part clinical trial consists of a dose escalation portion (Part A) and a dose expansion evaluating SRK-181 in combination with an approved anti-PD- (L)1 antibody therapy (Part B). Part B includes the following active cohorts: urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, clear cell renal cell carcinoma, and head and neck squamous cell carcinoma. Safety, efficacy and biomarker data were presented in November 2023 at the Society for Immunotherapy of Cancer 38th Annual Meeting.

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, cardiometabolic disorders, cancer, fibrosis, and iron-restricted anemia. 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 10).

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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 March 31, 2024 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.

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, 2023, 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, 2023.

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 March 31, 

    

2024

    

2023

Cash and cash equivalents

$

91,979

$

151,280

Restricted cash

 

2,407

 

2,498

$

94,386

$

153,778

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.

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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 Adopted 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 previous 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. Therefore, the new standard was effective for the Company on January 1, 2023. The Company established processes and internal controls to comply with the new credit loss standard and related disclosure requirements. The Company’s investment policy has primary objectives of preservation of capital and maintenance of liquidity. As a result, the Company typically invests in money market funds, U.S. treasury obligations and government agency securities. The Company believes that such funds are subject to minimal credit risk. The Company has not experienced any credit losses and does not believe it is exposed to any significant credit risk on these investments. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The standard requires disclosure of incremental segment information on an annual and interim basis and allows for multiple measures of a segment’s profit or loss provided that one of those measures is consistent with GAAP. The amendments in this update do not change how a public company identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments, but rather requires public entities to provide in interim periods all disclosures about a reporting segment’s profit or loss and assets that are currently required annually. ASU 2023-07 becomes effective for the annual period starting on January 1, 2024, and for interim periods starting on January 1, 2025. The option for early adoption is permitted, however, the Company has decided not to early adopt, does not anticipate a material impact to its net financial position, and is still evaluating the impact on its disclosures in future years as a result of the adoption of ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency of income tax disclosures to provide information to investors to better assess how a company’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This requires public entities to disclose additional categories in the rate reconciliation regarding federal and state income taxes, and provide more details surrounding reconciling items if a quantitative threshold is met. The effective date for public companies is for annual periods starting on January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance, however, the Company has decided not to early adopt, does not anticipate a material impact to its net financial position, and is still evaluating the impact on its disclosures will be in future years as a result of the adoption of ASU 2023-09.

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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 March 31, 2024 and December 31, 2023 (in thousands):

Fair Value Measurements at March 31, 2024

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

  

  

  

  

Money market funds, included in cash and cash equivalents

$

70,144

$

70,144

$

$

U.S. treasury obligations, included in cash and cash equivalents

14,976

14,976

Marketable securities:

 

  

 

  

 

  

 

  

U.S. treasury obligations and government agency securities

146,453

146,453

Total assets

$

231,573

$

231,573

$

$

Fair Value Measurements at December 31, 2023

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

  

  

  

  

Money market funds, included in cash and cash equivalents

$

61,764

$

61,764

$

$

U.S. treasury obligations, included in cash and cash equivalents

30,765

30,765

Marketable securities:

 

  

 

  

 

  

 

  

U.S. treasury obligations and government agency securities

 

178,083

178,083

Total assets

$

270,612

$

270,612

$

$

Cash, cash equivalents and marketable securities are Level 1 assets and include investments in money market funds and U.S. treasury obligations and government agency securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1 as of March 31, 2024 and December 31, 2023. There were no transfers of assets between fair value measurement levels during the three months ended March 31, 2024 or 2023.

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 March 31, 2024 and December 31, 2023, 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.

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4. Marketable Securities

The following table summarizes the Company’s investments as of March 31, 2024 (in thousands):

Gross

Amortized

Unrealized

Estimated

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

  

  

  

U.S. treasury obligations and government agency securities

$

146,503

$

6

$

(56)

$

146,453

Total available-for-sale securities

$

146,503

$

6

$

(56)

$

146,453

The following table summarizes the Company’s investments as of December 31, 2023 (in thousands):

Gross

Amortized

Unrealized

Estimated

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

U.S. treasury obligations and government agency securities

$

177,991

$

93

$

(1)

$

178,083

Total available-for-sale securities

$

177,991

$

93

$

(1)

$

178,083

The aggregate fair value of marketable securities with unrealized losses was $113.2 million and $11.9 million at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and December 31, 2023, 38 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.

The Company believes that U.S. treasury obligations and government agency securities are subject to minimal credit risk. As a result, the Company did not record any charges for credit-related impairments for its available-for-sale securities for the three months ended March 31, 2024.

5. Prepaid Expenses and other Assets

As of March 31, 2024 and December 31, 2023, prepaid expenses and other assets consist of the following (in thousands):

As of

March 31, 

    

December 31, 

    

2024

2023

Prepaid external research and development expenses

$

4,471

$

4,059

Prepaid other

2,607

2,486

Receivables

1,122

1,076

Prepaid insurance

301

635

$

8,501

$

8,256

As of March 31, 2024 and December 31, 2023, other long-term assets consist of the following (in thousands):

As of

March 31, 

    

December 31, 

    

2024

2023

Prepaid external research and development expenses

$

3,701

$

4,074

Prepaid other

374

312

Prepaid insurance

27

31

$

4,102

$

4,417

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6. Accrued Expenses

As of March 31, 2024 and December 31, 2023, accrued expenses consist of the following (in thousands):

As of

March 31, 

    

December 31, 

    

2024

2023

Accrued external research and development expense

$

10,473

$

6,825

Accrued payroll and related expenses

6,109

10,591

Accrued professional and consulting expense

3,915

2,267

Accrued other

914

766

$

21,411

$

20,449

7. Common Stock

The Company has had a sales agreement in place during various time periods with Jefferies LLC (“Jefferies”) with respect to an at-the-market (“ATM”) offering program. Under this program, the Company is able to offer and sell, from time to time at its sole discretion, shares of its common stock through Jefferies as its sales agent. In an ATM offering, exchange-listed companies incrementally sell newly issued shares into the secondary trading market through a designated broker-dealer at prevailing market prices. The current ATM agreement, established in November 2022, allows for the sale of shares of common stock having an aggregate offering price of up to $100 million. As of March 31, 2024, the Company has sold 619,290 shares, generating net proceeds of $5.2 million, under the ATM program. No sales were made under the ATM program during the three months ended March 31, 2024.

The Company has issued pre-funded warrants, as well as warrants as part of its financing activities. Both the pre-funded warrants and warrants meet the conditions for equity classification and are recorded as a component of stockholders’ equity within additional paid-in capital. In June 2022 and November 2020, the Company issued 25,510,205 and 2,179,487 pre-funded warrants, respectively. During the three months ended March 31, 2024, 2,526,833 of the Company’s pre-funded warrants were exercised. As of March 31, 2024, the Company has 17,008,164 pre-funded warrants outstanding. In June 2022, the Company also issued 10,459,181 warrants with an exercise price of $7.35. During the three months ended March 31, 2024, 830,660 of the Company’s warrants were exercised. As of March 31, 2024, the Company has 9,157,496 warrants outstanding.

8. 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 months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

March 31, 

    

2024

    

2023

Research and development expense

$

3,531

$

2,645

General and administrative expense

 

4,633

 

3,525

$

8,164

$

6,170

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The following table summarizes the Company’s unrecognized equity-based compensation expense as of March 31, 2024:

As of March 31, 2024

Unrecognized Expense (in thousands)

    

Weighted Average Remaining Period of Recognition (years)

Restricted Stock Units

$

37,202

3.0

Stock Options

47,173

2.6

$

84,375

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, 2023

 

2,089,552

$

11.92

Granted

 

1,392,076

$

15.78

Vested

 

(360,373)

$

16.54

Forfeited

 

(31,566)

$

14.74

Restricted stock units as of March 31, 2024

 

3,089,689

$

13.09

The total fair value of restricted stock units vested during the three months ended March 31, 2024 was $5.8 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, 2023

 

7,300,953

$

15.00

7.90

$

52,299

Granted

 

1,856,108

$

15.78

Exercised

(47,293)

$

5.94

Cancelled

 

(61,630)

$

20.97

Outstanding as of March 31, 2024

 

9,048,138

$

15.17

8.12

$

49,129

Options exercisable as of March 31, 2024

 

3,774,189

$

17.79

6.83

$

19,499

Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the three months ended March 31, 2024 was $12.13.

The following weighted average assumptions were used in determining the fair value of options granted in the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 

2024

    

2023

Risk-free interest rate

4.14

%  

3.86

%

Expected dividend yield

0.0

%  

0.0

%

Expected term (years to liquidity)

6.02

6.25

Expected volatility

91.39

%  

90.17

%

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9. Commitments and Contingencies

Operating 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 lease is as follows (in thousands, except lease term and discount rate):

For Three Months Ended

    

March 31, 

2024

      

Lease Cost:

Operating lease cost

$

1,825

Variable lease cost

360

Total lease cost

$

2,185

For Three Months Ended

March 31, 

2024

      

Other information:

Operating cash flows used for operating leases

$

1,981

Weighted average remaining lease term

1.4

Weighted average incremental borrowing rate

7.6

%

Legal Proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of its business. The Company was not subject to any material legal proceedings during the three months ended March 31, 2024 and 2023.

10. Debt

On October 16, 2020 (the “Closing Date”) the Company entered into a Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) for $50.0 million (the “Loan and Security Agreement”). Tranche 1 of $25.0 million was funded on the Closing Date. The Company had an additional $25.0 million in loan proceeds available under Tranche 2 which was funded in December 2021, in conjunction with the Company entering into the First Amendment to Loan and Security Agreement with Oxford and SVB. The Loan and Security Agreement was to mature on May 1, 2025 and required interest-only payments through November 2022, with principal payments to commence in December 2022. Pursuant to the Loan and Security Agreement, the Company was required to maintain cash in an SVB account equal to the lesser of 100% of the Company’s consolidated cash or 105% of the dollar amount of the outstanding debt.

On November 10, 2022, the Company entered into the Second Amendment to Loan and Security Agreement (the “Amendment 2”) to increase the Company’s borrowing capacity under the Loan and Security Agreement to an amount up to $100.0 million, comprised of the original $50.0 million loan which remains outstanding and two additional $25.0 million tranches. The first $25.0 million tranche available under Amendment 2, was available at the Company’s discretion through December 2023 upon achievement of certain development and business performance milestones. The

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Company did not exercise this tranche. The second $25.0 million tranche available under Amendment 2, may be available upon the Company’s request, at Oxford and SVB’s discretion. Amendment 2 also extended the interest-only payment period for an additional 24 months through November 2024, with principal payments to commence in December 2024. The maturity of the loan was extended to November 2027.

Effective upon Amendment 2, the interest rate on the unpaid principal is the greater of the Wall Street Journal prime rate plus 4.60% or 9.35% per annum. Prepayment is permitted and may include a pre-payment fee ranging from 0% - 3% (of the principal amount being prepaid), depending on when the prepayment is made. The Company is also required to make a final payment equal to 2% of the original principal amount.

In conjunction with Amendment 2, the Company was required to pay $0.9 million for the accrued portion of the final payment on the previous outstanding balance.

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Afterward, the FDIC transferred all deposits of the former Silicon Valley Bank to Silicon Valley Bridge Bank, N.A., as operated by the FDIC. On March 27, 2023, Silicon Valley Bridge Bank was closed by the Office of the Comptroller of the Currency, and the FDIC was appointed as receiver. First Citizens Bank then entered into an agreement with the FDIC to purchase out of FDIC receivership substantially all loans and certain other assets and assume all customer deposits and certain other liabilities of Silicon Valley Bridge Bank. On March 27, 2023, Silicon Valley Bridge Bank and its U.S. branches began operating as Silicon Valley Bank, a division of First Citizens Bank.

On April 18, 2023, the Company entered into Amendment 3 to the Loan and Security Agreement to amend certain provisions relating to the Company’s operating accounts.

11. Net Loss per Share

The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding, excluding restricted common stock. The weighted average number of common shares used in the basic and diluted net loss per share calculation includes the pre-funded warrants issued in connection with the Company’s November 2020 and June 2022 follow-on offerings as the pre-funded warrants are exercisable at any time for nominal cash consideration. As of March 31, 2024, 10,681,528 pre-funded warrants have been exercised and 17,008,164 pre-funded warrants remain outstanding. The Company has generated a net loss in all periods presented, so the basic and diluted net loss per share are the same, as the inclusion of the potentially dilutive securities would be anti-dilutive.

The following table sets forth the outstanding common stock equivalents, presented based on amounts outstanding at each period end, that have been excluded from the calculation of diluted net loss per share for the periods indicated because their inclusion would have been anti-dilutive:

Three Months Ended March 31, 

    

2024

    

2023

Restricted stock units

3,089,689

2,325,346

Stock options

9,048,138

7,539,205

Warrants

9,157,496

10,459,181

21,295,323

20,323,732

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a late-stage biopharmaceutical company focused on the discovery, development, and delivery of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. As a global leader in transforming growth factor beta (“TGFβ”) superfamily biology, our novel understanding of the molecular mechanisms of growth factor activation enabled us to develop a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target the precursor, or latent, forms of growth factors. By targeting the signaling proteins at the cellular level and acting in the disease microenvironment, we believe we may avoid the historical dose-limiting safety challenges associated with inhibiting growth factors for therapeutic effect. We believe our focus on biologically validated growth factors may facilitate a more efficient development path.

Based on this proprietary and scalable technology platform, we are building a growing portfolio of novel product candidates with the aim of transforming the lives of patients suffering from a wide range of serious diseases, including neuromuscular disorders, cardiometabolic disorders, cancer, fibrosis and iron-restricted anemia. We have discovered and progressed the development of:

Apitegromab, an investigational, fully human monoclonal antibody that inhibits myostatin activation by selectively binding the pro- and latent forms of myostatin in skeletal muscle and is being developed for the treatment of SMA. We also believe apitegromab could have potential in the treatment of other neuromuscular disorders where the inhibition of myostatin may be beneficial.
SRK-439, a novel, preclinical, investigational myostatin inhibitor that has high in vitro affinity for pro- and latent myostatin and maintains myostatin specificity and is being developed for the treatment of cardiometabolic disorders.
SRK-181, an inhibitor of the activation of latent TGFβ1, that is being developed for the treatment of cancers that are resistant to anti-PD-(L)1 antibody therapies.
Potent and selective inhibitors of the activation of TGFβ for the treatment of fibrotic diseases. We are advancing multiple antibody profiles toward product candidate selection including antibodies that selectively inhibit the activation of latent TGFβ1 in the context of fibrotic extracellular matrix and that avoid perturbing TGFβ1 presented by cells of the immune system.

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Additional discovery and early preclinical programs related to the selective modulation of growth factor signaling including bone morphogenic protein 6 (“BMP6”) and other growth factors.

Our 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-targeted therapy for the treatment of SMA. We are conducting SAPPHIRE, a pivotal Phase 3 clinical trial to evaluate the efficacy and safety of apitegromab in patients with nonambulatory Type 2 and Type 3 SMA (which is estimated to represent the majority of the current prevalent SMA patient population in the U.S. and Europe). We completed enrollment of SAPPHIRE in 2023, with the top-line data readout expected in the fourth quarter of 2024. If successful and if apitegromab is approved, we expect to initiate a commercial product launch in 2025. 

Apitegromab was evaluated in our Phase 2 TOPAZ proof-of-concept clinical trial for the treatment of patients with Type 2 and Type 3 SMA. Positive 12-month top-line results were initially announced in April 2021. We have subsequently presented data from the TOPAZ trial over 24-months (June 2022) and 36-months (July 2023), which showed that continued treatment with apitegromab over the extended period was associated with substantial and sustained improvement in motor function, and patient-reported outcomes (via caregiver proxy) in patients with nonambulatory Types 2 and 3 SMA receiving an SMN therapy. Additionally, we have a long-term extension study, ONYX, for patients from both the TOPAZ and SAPPHIRE studies, who are receiving apitegromab in conjunction with an approved SMN therapy. The FDA granted Fast Track designation, Rare Pediatric Disease designation and Orphan Drug designation to apitegromab for the treatment of SMA in May 2021, August 2020 and March 2018, respectively. The EMA granted Priority Medicines (“PRIME”) designation in March 2021 and the EC granted Orphan Medicinal Product designation in December 2018 to apitegromab for the treatment of SMA.

In October 2023, we announced an expansion of our therapeutic focus into cardiometabolic disorders by advancing our anti-myostatin program with SRK-439, a novel, fully human anti-myostatin monoclonal antibody, for evaluation in cardiometabolic disorders, including obesity. We are developing SRK-439 towards a potential investigational new drug (“IND”) submission in 2025. To inform the development of SRK-439, we plan to initiate a Phase 2 proof-of-concept trial of apitegromab in combination with a GLP-1 receptor agonist (“GLP-1 RA”) in 2024 with data expected in mid-2025. 

We believe that apitegromab has the potential to be the first muscle-targeted therapy which is aimed at improving motor function in patients with SMA who are receiving an SMN therapy. We have identified multiple other diseases for which the selective inhibition of the activation of myostatin may offer therapeutic benefit, including additional patient populations in SMA (such as patients under the age of two with SMA and ambulatory patients with SMA) and indications for other neuromuscular disorders beyond SMA.

Our second product candidate, SRK-181, a highly selective inhibitor of the activation of latent TGFβ, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies (referred to together as anti-PD-(L)1 antibody therapies). SRK-181 is being evaluated in our Phase 1 DRAGON proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit resistance to anti-PD-(L)1 antibody therapies. We completed enrollment of the DRAGON trial in December 2023 and continue to treat patients who remain on study. This two-part clinical trial consists of a dose escalation portion (Part A) and a dose expansion portion evaluating SRK-181 in combination with an approved anti-PD-(L)1 antibody therapy (Part B). Part B commenced in 2021 and includes the following active cohorts: urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, clear cell renal cell carcinoma (“ccRCC”), and head and neck squamous cell carcinoma. Safety, efficacy and biomarker data were presented in November 2023 at the Society for Immunotherapy of Cancer (“SITC”) 38th Annual Meeting. We believe that the DRAGON trial achieved its study objectives by showing objective, durable clinical responses in patients with ccRCC resistant to PD-1 therapy above what is expected from continuing PD-1 alone. We anticipate that emerging data from the DRAGON trial will be presented at medical meetings in the future.

Using our innovative approach and proprietary platform, we are creating a pipeline of novel product candidates that selectively modulate the activation of growth factors implicated in a variety of serious diseases, including neuromuscular disorders, cardiometabolic disorders, cancer, fibrosis, and iron-restricted anemia. Our proprietary platform is designed to generate highly selective antibodies that target the growth factor’s latent precursor form prior to its activation within the

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disease microenvironment, or tissue where it is localized. Our structural insights and unique antibody discovery capabilities can also be applied to other protein classes beyond growth factors, with an aim of generating differentiated candidates targeting cell surface receptors such as immune cell receptors or G-protein coupled receptors, where selectivity remains challenging.

Since inception, we have incurred significant operating losses. Our net losses were $56.9 million for the three months ended March 31, 2024. As of March 31, 2024, we had an accumulated deficit of $733.3 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future in performing our ongoing activities, as we:

continue development activities for apitegromab, including the conduct of our Phase 3 SAPPHIRE pivotal clinical trial in SMA, ONYX, our long-term extension study for patients from both the TOPAZ and SAPPHIRE studies and the associated drug supply;
continue research and development activities for SRK-181, including the conduct of our Phase 1 DRAGON proof-of-concept clinical trial;
continue research and development activities for our cardiometabolic program, including the proof-of-concept Phase 2 trial with apitegromab and advancing SRK-439 towards a potential IND submission in 2025;
continue to discover, validate and develop additional product candidates through the use of our proprietary platform;
maintain, expand and protect our intellectual property portfolio;
hire additional research, development, commercial and other business personnel; and
continue to build the infrastructure to support our operations as a public company.

To date, we have not generated any revenue from product sales. If we successfully complete clinical development and obtain regulatory approval for apitegromab, SRK-181, SRK-439 or any of our future product candidates, we may generate revenue in the future from product sales. In addition, if we obtain regulatory approval for apitegromab, SRK-181, SRK-439 or any of our future product candidates, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, marketing and distribution activities.

Financial Operations Overview

Operating Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical studies, manufacturing, and clinical trials under our research programs, which include:

employee-related expenses, including salaries, benefits and equity-based compensation expense for our research and development personnel;
expenses incurred under agreements with third parties that conduct research and development and preclinical activities on our behalf;
expenses incurred under agreements related to our clinical trials, including the costs for investigative sites and contract research organizations (“CROs”), that conduct our clinical trials;
manufacturing process-development, manufacturing of clinical supplies and technology-transfer expenses;
consulting and professional fees related to research and development activities;
costs of purchasing laboratory supplies and non-capital equipment used in our internal research and development activities;
costs related to compliance with clinical regulatory requirements; and

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facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies.

Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable advance payments for research and development goods and services to be received in the future from third parties are deferred and capitalized. The capitalized amounts are expensed as the related services are performed.

A significant portion of our research and development costs have been external costs, which we track on a program-by-program basis after a clinical product candidate has been identified. However, we do not allocate our internal research and development expenses, consisting primarily of employee-related costs, depreciation and other indirect costs, on a program-by-program basis as they are deployed across multiple projects.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, as well as the associated clinical trial material requirements. We expect research and development costs for our product candidates to continue to be substantial for the foreseeable future as the development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

The successful development of apitegromab, SRK-181, SRK-439 and any future product candidates is uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of apitegromab, SRK-181, SRK-439 and any future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;
establishing an appropriate safety profile;
successful enrollment in and completion of clinical trials;
whether our product candidates show safety and efficacy in our clinical trials;
receipt of marketing approvals from applicable regulatory authorities, if any;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
significant and changing government regulation;
commercializing the product candidates, if and when approved, whether alone or in collaboration with others; and
continued acceptable safety profile of the products following any regulatory approval.

A change in the outcome of any of these variables with respect to the development of apitegromab, SRK-181, SRK-439 or any of our future product candidates could significantly change the costs and timing associated with the development of that product candidate.

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General and Administrative

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and equity-based compensation expenses for personnel in executive, finance, business development, investor relations, legal, information technology and human resources functions. Other significant general and administrative expenses include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting, consulting services, and corporate expenses.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and marketable securities, partially offset by interest expense incurred on our debt facility, including amortization of debt discount and debt issuance costs.

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

Three Months Ended March 31, 

Change

 

    

2024

    

2023

    

$

    

%

 

Operating expenses:

Research and development

$

43,094

$

29,735

$

13,359

44.9

%

General and administrative

 

15,325

 

10,774

 

4,551

42.2

%

Total operating expenses

 

58,419

 

40,509

 

17,910

44.2

%

Loss from operations

 

(58,419)

 

(40,509)

 

(17,910)

44.2

%

Other income (expense), net

 

1,566

 

1,130

 

436

38.6

%

Net loss

$

(56,853)

$

(39,379)

$

(17,474)

44.4

%

Operating Expenses

Research and Development

Research and development expense was $43.1 million and $29.7 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $13.4 million or 44.9%. The following table summarizes our research and development expense for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

Three Months Ended March 31, 

Change

 

    

2024

    

2023

    

$

    

%

 

External costs by program

Apitegromab

$

18,248

$

9,873

$

8,375

84.8

%

SRK-181

2,747

4,985

(2,238)

(44.9)

%

Other early programs and unallocated costs

 

2,726

 

797

 

1,929

242.0

%

Total external costs

 

23,721

 

15,655

 

8,066

51.5

%

Internal costs:

 

 

 

  

Employee compensation and benefits

 

14,928

10,125

 

4,803

47.4

%

Facility and other

 

4,445

3,955

 

490

12.4

%

Total internal costs

 

19,373

 

14,080

 

5,293

37.6

%

Total research and development expense

$

43,094

$

29,735

$

13,359

44.9

%

The increase in research and development expense was primarily attributable to the following:

An increase in our external research and development costs of $8.1 million, which primarily consisted of:

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o$8.4 million increase in costs associated with apitegromab primarily due to clinical trial costs, particularly the conduct of our Phase 3 SAPPHIRE clinical trial and ONYX, our long-term extension study for patients from both the TOPAZ and SAPPHIRE studies, an increase in clinical drug supply manufacturing driven by future clinical supply needs, as well as purchases of GLP-1 drug to be used in our Phase 2 proof-of-concept trial of apitegromab in cardiometabolic disorders;
o$2.2 million decrease in costs associated with SRK-181 due to purchases of pembrolizumab in 2023 which were used in the Phase 1 DRAGON clinical trial; and
o$1.9 million increase in other early development candidates, including pre-clinical costs and manufacturing development for SRK-439, and unallocated costs.

$5.3 million increase in internal research and development costs, which was primarily driven by an increase in employee compensation and benefits, including salaries, bonus, payroll taxes and non-cash equity-based compensation expense related to increased headcount, as well as an increase in temporary support expense.

Total research and development expenses are expected to continue to be substantial, driven by employee compensation costs and development costs associated with our clinical stage programs as we continue to advance our product candidates, including apitegromab through our Phase 3 SAPPHIRE clinical trial in SMA and ONYX, our long-term extension study for patients from both the TOPAZ and SAPPHIRE studies and costs associated with supporting our cardiometabolic program, including our planned Phase 2 study of apitegromab and our preclinical program, SRK-439. Additionally, we will continue to invest in our pipeline. We expect costs of our SRK-181 program to decrease, as we completed enrollment of the Phase 1 DRAGON clinical trial in December 2023.

General and Administrative

General and administrative expense was $15.3 million and $10.8 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $4.6 million or 42.2%. The increase was primarily associated with employee-related costs including salaries, benefits and non-cash equity-based compensation expense related to increased headcount, in addition to an increase in consulting and professional services. We expect general and administrative expense to increase as we continue to invest in commercial readiness activities.

Other Income (Expense), Net

The change in other income (expense), net was primarily attributable to an increase in interest income earned due to higher interest rates, partially offset by an increase in interest expense related to the Loan and Security Agreement, also due to higher interest rates.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated any product revenue and have incurred significant operating losses and negative cash flows from our operations. We have funded our operations to date primarily with proceeds from the sale of our convertible preferred stock and units in private placements before our initial public offering (“IPO”), and sale of our common stock through our IPO in 2018, to Gilead in an exempt private placement, through multiple secondary public offerings and through at-the-market (“ATM”) sales, as well as payments from our research collaborations and the Loan and Security Agreement entered into in October 2020 and amended in November 2022 and April 2023 (see Note 10).

The following table provides information regarding our total cash, cash equivalents and marketable securities at March 31, 2024 and December 31, 2023 (in thousands):

    

March 31, 

    

December 31, 

2024

2023

Cash and cash equivalents

$

91,979

$

101,855

Marketable securities

 

146,453

 

178,083

Total cash, cash equivalents and marketable securities

$

238,432

$

279,938

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During the three months ended March 31, 2024, our cash, cash equivalents and marketable securities balance decreased by $41.5 million. The change was primarily due to cash used to operate our business, including payments related to, among other things, research and development and general and administrative expenses as we continued to invest in our product candidates and supported our internal research and development efforts and made interest payments on our debt, partially offset by proceeds from the exercises of warrants and stock options.

Our current ATM program, established in November 2022, allows for the sale of shares of our common stock having an aggregate offering price of up to $100 million. As of March 31, 2024, the Company has sold 619,290 shares, generating net proceeds of $5.2 million, under the ATM program. No sales were made under the ATM program during the three months ended March 31, 2024. In October 2021, we sold 500,000 shares of our common stock through a sale in our prior ATM program (in place between March 2021 and June 2022) and received $13.1 million in net proceeds, after deducting commissions and fees.

On October 11, 2023, we entered into the Underwriting Agreement with J.P. Morgan Securities LLC, and Piper Sandler & Co., as representatives of the several underwriters named therein, relating to the issuance and sale of an aggregate of 12,408,760 shares of our common stock at $6.85 per share. Pursuant to the Underwriting Agreement, we also granted the Underwriters a 30-day option to purchase up to 1,861,314 additional shares in an amount equal to 15% of the securities offered in the public offering (the “Option Shares”) of common stock. The Underwriters exercised in full their option to purchase the Option Shares on October 12, 2023. Total proceeds of the transaction, including the Option Shares were approximately $92.4 million, net of underwriting discounts and estimated offering expenses. The offering closed on October 16, 2023.

In June 2022, we entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 16,326,530 shares of our common stock, pre-funded warrants to purchase 25,510,205 shares of our common stock and associated common warrants to purchase 10,459,181 shares of our common stock. Gross proceeds from the transaction were $205.0 million. Upon the offering closing, we received $195.3 million in net proceeds, after deducting placement agent fees and expenses and offering expenses.

In October 2020, we entered into an underwriting agreement relating to the issuance and sale of an aggregate of 3,717,948 shares of our common stock at $39.00 per share and pre-funded warrants to purchase 2,179,487 shares of our common stock. The offering closed in November 2020 and we received $215.9 million in net proceeds, after deducting underwriting discounts and commissions and offering expenses.

In October 2020, we entered into the Loan and Security Agreement with Oxford and SVB, which was amended in November 2022, for $100 million of which $25.0 million from Tranche 1 was received in October 2020 and $25.0 million from Tranche 2 was received in December 2021 (Note 10).

In June and July 2019, we sold 3,450,000 shares of our common stock through an underwritten public offering. As a result of the offering, we received aggregate net proceeds, after underwriting discounts and commissions and other offering expenses, of $48.3 million.

In December 2018, we entered into the Gilead Collaboration Agreement pursuant to which we conducted research and preclinical development activities relating to the diagnosis, treatment, cure, mitigation or prevention of diseases, disorders or conditions, other than in the field of oncology in accordance with a pre-determined research plan. Pursuant to the Gilead Collaboration Agreement, Gilead made non-refundable payments of $80.0 million, including an upfront payment and an equity investment. In December 2019, we achieved a $25.0 million preclinical milestone for the successful demonstration of efficacy in preclinical in vivo proof-of-concept studies, and subsequently received the associated payment in January 2020. Revenue was recognized during the period January 2019 through December 2021, as research and development services were provided. All revenue related to the Gilead Collaboration Agreement had been fully recognized by January 31, 2022, upon the termination of Gilead’s option exercise period.

During the three months ended March 31, 2024, 2,526,833 of the Company’s pre-funded warrants were exercised. As of March 31, 2024, the Company had 17,008,164 pre-funded warrants outstanding.

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During the three months ended March 31, 2024, 830,660 of the Company’s common warrants were exercised. As of March 31, 2024, the Company had 9,157,496 common warrants outstanding.

Cash Flows

The following table provides information regarding our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31, 

    

2024

    

2023

Net cash used in operating activities

$

(49,785)

$

(43,054)

Net cash provided by investing activities

 

33,384

 

89,983

Net cash provided by financing activities

 

6,525

 

1,076

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

$

(9,876)

$

48,005

Net Cash Used in Operating Activities

Net cash used in operating activities was $49.8 million for the three months ended March 31, 2024, and consisted of our net loss of $56.9 million, changes in our assets and liabilities of $1.4 million, partially offset by non-cash adjustments of $8.5 million. The non-cash adjustments are primarily from equity-based compensation.

Net cash used in operating activities was $43.1 million for the three months ended March 31, 2023, and consisted of our net loss of $39.4 million, changes in our assets and liabilities of $11.1 million, partially offset by non-cash adjustments of $7.4 million. The changes in our assets and liabilities includes a $9.6 million change in accrued expenses, mostly related to external research and development and payroll related expenses. The non-cash adjustments are primarily from equity-based compensation.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $33.4 million for the three months ended March 31, 2024 compared to net cash provided by investing activities of $90.0 million for the three months ended March 31, 2023. Net cash provided by investing activities for both periods was primarily associated with transactions involving our marketable securities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $6.5 million for the three months ended March 31, 2024 compared to $1.1 million for the three months ended March 31, 2023. Net cash provided by financing activities for the three months ended March 31, 2024 was primarily attributable to proceeds from the exercise of warrants. Net cash provided by financing activities for the three months ended March 31, 2023 was primarily attributable to proceeds from the sale of common stock through our ATM.

Funding Requirements

We expect our expenses to be substantial as we continue the research and development of apitegromab in SMA. In addition, if we seek marketing approval for apitegromab, or any of our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We expect to continue to incur costs related to SRK-181 as we continue to treat patients who remain on the Phase 1 DRAGON clinical trial. We expect to incur costs to support our cardiometabolic program, including our planned Phase 2 trial of apitegromab and our preclinical program, SRK-439. Additionally, we will support the development of our pipeline and any other preclinical programs. Furthermore, we expect to continue to incur costs associated with operating as a public company.

We expect that our existing cash, cash equivalents, marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2025. However, we will require additional capital in order to complete clinical development and commercialization for each of our current programs. We have based this estimate

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on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

the costs and timing of developing our product candidates and future product candidates, including costs associated with apitegromab in our Phase 3 SAPPHIRE clinical trial in SMA and ONYX, our long-term extension study in SMA for patients from both the TOPAZ and SAPPHIRE studies, our Phase 2 proof-of-concept trial for apitegromab in our cardiometabolic program, our Phase 1 DRAGON clinical trial for SRK-181, and the costs and timing of conducting future preclinical studies and clinical trials for SRK-439 or any other product candidates;
the costs of future manufacturing of apitegromab, SRK-181, SRK-439 and any other future product candidates;
the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;
the costs of identifying and developing, or in-licensing or acquiring, additional product candidates and technologies;
the costs, timing and outcome of regulatory review of our product candidates;
our ability to establish and maintain collaborations on favorable terms, if at all;
the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements, license agreements, or other agreements we might have at such time;
the costs of seeking marketing approvals for our product candidates that successfully complete clinical trials, if any;
the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
the amount of revenue, if any, received from commercial sales of