SEC Filing - Scholar Rock, Inc.

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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 June 30, 2019


☐	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.)

620 Memorial Drive, 2nd Floor Cambridge, Massachusetts (Address of principal executive offices)		02139 (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 August 1, 2019 was 29,680,330.

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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 SRK-015, including the progress and completion of our Phase 2 clinical trial and any future clinical trials for SRK-015, and the results from these trials;

the success, cost and timing of our other product development activities, preclinical studies and clinical trials, including for SRK-181 for the treatment of cancers resistant to checkpoint blockade therapies (“CBTs”) and the timing of the availability of the results of these studies and trials;

our success in identifying and executing a development program for additional indications for SRK-015, SRK-181 and in identifying product candidates from our other 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 SRK-015, SRK-181 or any of our future product candidates;

the potential for our identified research priorities to advance our proprietary platform, development programs or product candidates;

the timing, scope, or likelihood of our ability to obtain and maintain regulatory approval from the U.S. Food and Drug Administration, European Medicines Agency and other regulatory authorities for SRK-015, SRK-181 and any future product candidates, and any related restrictions, limitations or warnings in the label of any approved product candidate;

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;

our ability to establish or maintain collaborations or strategic relationships, including our collaboration with Gilead Sciences, Inc.;

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;

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developments and projections relating to our competitors and our industry;

our estimates and expectations regarding expenses, future revenue, capital requirements and needs for additional financing, including our expected use of proceeds from our public offerings;

cash and expense levels, future revenues and liquidity sources;

our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act; and

other risks and uncertainties, including those listed under 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 Reports 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, 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.

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SCHOLAR ROCK HOLDING CORPORATION

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	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	5
Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	5
Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	6
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Six Months Ended June 30, 2019 and 2018	7
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	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	30
Item 4. Controls and Procedures	30

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 3. Defaults Upon Senior Securities	84
Item 4. Mine Safety Disclosures	84
Item 5. Other Information	84
Item 6. Exhibits	85
SIGNATURES	86

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	June 30,		December 31,
	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	113,798	$	115,069
Marketable securities		71,333		60,576
Prepaid expenses and other current assets		3,247		2,296
Total current assets		188,378		177,941
Property and equipment, net		3,471		3,190
Operating lease right-of-use asset		4,857		—
Restricted cash		205		205
Total assets	$	196,911	$	181,336
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,863	$	3,303
Accrued expenses		5,584		7,157
Deferred rent		—		16
Operating lease liability		1,063		—
Loan payable		—		424
Deferred revenue		23,524		20,209
Other current liabilities		15		14
Total current liabilities		32,049		31,123
Long-term portion of deferred rent		—		871
Long-term portion of operating lease liability		4,655		—
Other long-term liabilities		17		24
Long-term portion of deferred revenue		31,235		42,695
Total liabilities		67,956		74,713
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2019 and December 31, 2018; no shares issued and outstanding at June 30, 2019 and December 31, 2018		—		—
Common stock, $0.001 par value; 150,000,000 shares authorized and 29,230,330 shares issued and outstanding as of June 30, 2019; 150,000,000 shares authorized and 26,217,701 shares issued and outstanding as of December 31, 2018		29		26
Additional paid-in capital		258,996		213,453
Accumulated other comprehensive income (loss)		58		(8)
Accumulated deficit		(130,128)		(106,848)
Total stockholders’ equity		128,955		106,623
Total liabilities and stockholders’ equity	$	196,911	$	181,336

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

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SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue	$	5,039	$	—	$	8,145	$	—
Operating expenses:
Research and development		13,715		11,424		24,454		18,125
General and administrative		4,710		3,460		8,780		5,775
Total operating expenses		18,425		14,884		33,234		23,900
Loss from operations		(13,386)		(14,884)		(25,089)		(23,900)
Other income (expense), net		861		177		1,809		301
Net loss	$	(12,525)	$	(14,707)	$	(23,280)	$	(23,599)
Net loss per share, basic and diluted	$	(0.48)	$	(1.39)	$	(0.90)	$	(3.51)
Weighted average common shares outstanding, basic and diluted		25,922,833		10,593,987		25,758,658		6,716,283
Comprehensive loss:
Net loss	$	(12,525)	$	(14,707)	$	(23,280)	$	(23,599)
Other comprehensive income:
Unrealized gain on marketable securities		42		2		66		2
Total other comprehensive income		42		2		66		2
Comprehensive loss	$	(12,483)	$	(14,705)	$	(23,214)	$	(23,597)

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

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SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share and per share data)


									Accumulated
	Convertible Preferred						Additional		Other				Total
	Stock			Common Stock			Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balance at December 31, 2018	—	$	—	26,217,701	$	26	$	213,453	$	(8)	$	(106,848)	$	106,623
Unrealized gain on marketable securities	—		—	—		—		—		24		—		24
Restricted shares forfeited during the period	—		—	(2,237)		—		—		—		—		—
Exercise of stock options	—		—	1,983		—		13		—		—		13
Equity-based compensation expense	—		—	—		—		1,618		—		—		1,618
Net Loss	—		—	—		—		—		—		(10,755)		(10,755)
Balance at March 31, 2019	—		—	26,217,447		26		215,084		16		(117,603)		97,523
Unrealized gain on marketable securities	—		—	—		—		—		42		—		42
Sale of common shares, net of issuance costs	—		—	3,000,000		3		42,019		—		—		42,022
Exercise of stock options	—		—	12,883		—		79		—		—		79
Equity-based compensation expense	—		—	—		—		1,814		—		—		1,814
Net Loss	—		—	—		—		—		—		(12,525)		(12,525)
Balance at June 30, 2019	—	$	—	29,230,330	$	29	$	258,996	$	58	$	(130,128)	$	128,955

									Accumulated
	Convertible Preferred						Additional		Other				Total
	Stock			Common Stock			Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity (Deficit)
Balance at December 31, 2017	43,135,911	$	109,232	3,970,586	$	4	$	4,001	$	(2)	$	(57,525)	$	(53,522)
Unrealized gain on marketable securities	—		—	—		—		—		1		—		1
Equity-based compensation expense	—		—	—		—		482		—		—		482
Net loss	—		—	—		—		—		—		(8,892)		(8,892)
Balance at March 31, 2018	43,135,911		109,232	3,970,586		4		4,483		(1)		(66,417)		(61,931)
Unrealized gain on marketable securities	—		—	—		—		—		1		—		1
Reclassification of warrant to stockholders' equity	—		—	—		—		93		—		—		93
Conversion of convertible preferred stock into common stock	(43,135,911)		(109,232)	15,109,950		15		109,217		—		—		109,232
Sale of common shares sold in IPO, net of issuance costs	—		—	6,164,000		6		77,829		—		—		77,835
Restricted shares forfeited during the period	—		—	(852)		—		—		—		—		—
Equity-based compensation expense	—		—	—		—		1,089		—		—		1,089
Net loss	—		—	—		—		—		—		(14,707)		(14,707)
Balance at June 30, 2018	—	$	—	25,243,684	$	25	$	192,711	$	—	$	(81,124)	$	111,612

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

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SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2019		2018
Cash flows from operating activities:
Net loss	$	(23,280)	$	(23,599)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		586		359
Equity-based compensation		3,432		1,571
Amortization of investment securities		(694)		—
Amortization of operating lease right-of-use asset		492		—
Deferred payroll tax credit		—		190
Change in operating assets and liabilities:
Prepaid expenses and other current assets		(1,091)		(753)
Accounts payable		(1,028)		464
Accrued expenses		(1,771)		191
Deferred rent		—		(15)
Operating lease liabilities		(378)		—
Deferred revenue		(8,145)		—
Other liabilities		(59)		82
Net cash used in operating activities		(31,936)		(21,510)
Cash flows from investing activities:
Purchase of property and equipment		(1,279)		(192)
Purchase of marketable securities		(77,297)		—
Sales and maturities of marketable securities		67,300		1,498
Net cash (used in) provided by investing activities		(11,276)		1,306
Cash flows from financing activities:
Principal payments on loan payable		(365)		(333)
Proceeds from sale of common stock, net of issuance costs		42,220		79,137
Proceeds from stock option exercises		92		—
Other		(6)		—
Net cash provided by financing activities		41,941		78,804
Net (decrease) increase in cash and cash equivalents and restricted cash		(1,271)		58,600
Cash and cash equivalents and restricted cash, beginning of period		115,274		56,666
Cash and cash equivalents and restricted cash, end of period	$	114,003	$	115,266
Supplemental disclosure of non-cash items:
Property and equipment purchases in accounts payable	$	27	$	—
Offering costs in accounts payable and accrued expenses	$	198	$	1,302
Operating lease right-of-use asset obtained in exchange for operating lease obligation	$	5,349	$	—
Supplemental cash flow information:
Cash paid for interest	$	6	$	19

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

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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 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 these signaling proteins at the cellular level. The Company’s lead product candidate, SRK-015, 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. SRK-015 is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). In June 2019, the Company presented positive final results from the Phase 1 clinical trial in healthy volunteers, including safety and tolerability, pharmacodynamic, and pharmacokinetic data, at the Cure SMA Annual conference. The Company is currently dosing patients with Type 2 and Type 3 SMA in its TOPAZ Phase 2 clinical trial. The Company’s second product candidate, SRK-181, is being developed for the treatment of cancers resistant to checkpoint blockade therapies (“CBTs”), such as anti-PD1 or anti-PDL 1 antibodies. SRK-181 is a highly selective inhibitor of the activation of transforming growth factor beta-1 (“TGFβ1”). The Company intends to initiate a Phase 1 clinical trial of SRK-181 in patients with solid tumors in mid-2020. Additionally, the Company continues to create a pipeline of novel product candidates with the potential to transform the lives of patients suffering from a wide range of serious diseases, including other neuromuscular disorders, cancer, fibrosis and 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 and debt financings, including the initial public offering of its common stock (the “IPO”) in May 2018 and a secondary offering in June 2019 (Note 6), as well as research and development collaboration agreements.

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. The second agreement, executed in December 2018 was with Gilead Sciences, Inc. (“Gilead”), and the Company began recognizing revenue on the Gilead Collaboration Agreement in 2019. 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 products. 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 and cash equivalents, and marketable securities at June 30, 2019 will be sufficient to allow the Company to fund its current operations through at least a period of one year after the date the 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, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. 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, 2018 are reflected below.

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Leases

Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”), Topic 842, Leases (“ASC 842”), using the modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.) Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

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 of the subsidiaries 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 Adopted Accounting Pronouncements

ASU 2016-02, Leases and ASU 2018-11, Leases, Targeted Improvements

In February 2016, the FASB issued ASU 2016-02, Leases, (“ASU 2016-02”), which superseded the lease accounting requirements in ASC 840, Leases and created a new Topic 842, Leases.

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In adopting the new standard, the Company elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard, which removed the requirement to reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs. The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $6.1 million and $5.3 million, respectively, as of January 1, 2019. There was no cumulative transition adjustment to retained earnings upon adoption of the standard and there was no material effect on the Company’s statements of operations or statement of cash flows as the difference relates to previously recorded deferred rent which was eliminated upon adoption of this standard.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new standard will align the requirements for capitalizing implementation costs for hosting arrangements (services) with costs for internal-use software (assets). As a result, certain implementation costs incurred in hosting arrangements will be deferred and amortized. The new standard will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact that adoption of this standard may have on the Company's financial position and results of operations.

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 June 30, 2019 and December 31, 2018 (in thousands):


	Fair Value Measurements at June 30, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	71,581	$	71,581	$	—	$	—
Marketable securities:
U.S. Treasury obligations		71,333		71,333		—		—
Total assets	$	142,914	$	142,914	$	—	$	—


	Fair Value Measurements at December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	114,593	$	114,593	$	—	$	—
Marketable securities:
U.S. Treasury obligations		60,576		60,576		—		—
Total assets	$	175,169	$	175,169	$	—	$	—

Cash and cash equivalents and marketable securities include investments in money market funds that invest in 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 June 30, 2019 and December 31, 2018. There were no transfers between fair value measurements levels during the three or six months ended June 30, 2019 or 2018.

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 June 30, 2019 and December 31, 2018, due to their short-term nature.

Upon the completion of the IPO, the Company’s outstanding warrant to purchase preferred stock converted into a warrant to purchase common stock and the Company reclassified the fair value of the warrant to additional paid-in capital. As of June 30, 2019, the warrant is currently exercisable for 7,614 shares of the Company’s common stock at an exercise price of $3.94 per share.

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4. Marketable Securities

The following table summarizes the Company’s investments as of June 30, 2019 (in thousands):


			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	71,275	$	58	$	—	$	71,333
Total available-for-sale securities	$	71,275	$	58	$	—	$	71,333

The following table summarizes the Company’s investments as of December 31, 2018 (in thousands):


			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	60,584	$	—	$	(8)	$	60,576
Total available-for-sale securities	$	60,584	$	—	$	(8)	$	60,576

5. Accrued Expenses

As of June 30, 2019 and December 31, 2018, accrued expenses consist of the following (in thousands):


	As of
	June 30,		December 31,
	2019		2018
Accrued external research and development expense	$	2,669	$	3,284
Accrued payroll and related expenses		1,800		2,826
Accrued professional and consulting expense		871		890
Accrued other		244		157
	$	5,584	$	7,157

6. Common Stock and Preferred Stock

During the second quarter of 2018, the Company completed its IPO, in which the Company sold 6,164,000 shares of common stock, including all additional shares available to cover over-allotments, at a price of $14.00 per share. The Company received aggregate net proceeds of approximately $77.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 15,109,950 shares of common stock.

In connection with the consummation of the IPO, on May 29, 2018 the Company filed an amended and restated certificate of incorporation, which increased the number of shares of common stock authorized for issuance thereunder by 90,000,000 shares to 150,000,000 shares and also authorized for issuance 10,000,000 shares of Preferred Stock, par value $0.001. As of June 30, 2019, no shares of the Preferred Stock were issued or outstanding.

In June 2019, the Company sold 3,000,000 shares of its common stock through an underwritten public offering at a price of $15.00 per share. The offering was made pursuant to the Company’s effective shelf registration statement on Form S-3. As a result of the offering, the Company received aggregate net proceeds, after underwriting discounts and commissions and other estimated offering expenses, of approximately $42.0 million. The Company also granted the underwriters an option exercisable for 30 days to purchase up to an additional 450,000 shares of common stock at the same price of $15.00 per share, less underwriting discounts and commissions, which was settled in July 2019 (Note 12).

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7. Equity-Based Compensation

The Company recorded equity-based compensation expense related to all equity-based awards for employees and nonemployees, which was allocated as follows in the consolidated statements of operations (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Research and development expense	$	638	$	542	$	1,217	$	786
General and administrative expense		1,176		548		2,215		785
	$	1,814	$	1,090	$	3,432	$	1,571

Restricted Stock

The following table summarizes restricted common stock activity as of June 30, 2019:


		Weighted
		Average Fair
		Value per Share
	Number of Shares	at Issuance
Restricted common stock as of December 31, 2018	664,174	$	5.77
Granted	—	$	—
Vested	(181,274)	$	5.77
Forfeited	(2,237)	$	5.77
Restricted common stock as of June 30, 2019	480,663	$	5.77

As of June 30, 2019, the Company had unrecognized equity-based compensation expense of $2.1 million related to restricted stock issued to employees and directors, which is expected to be recognized over a period of 1.6 years.

Stock Options

The following table summarizes stock option activity as of June 30, 2019:


				Weighted
		Weighted		Average
	Number of	Average		Remaining	Aggregate
	Shares	Exercise Price		Contractual Term	Intrinsic Value
				(in years)	(in thousands)
Outstanding as of December 31, 2018	1,627,947	$	10.86	9.26	$	19,831
Granted	843,235		16.11
Exercised	(14,866)		6.23
Cancelled	(32,755)		13.91
Outstanding as of June 30, 2019	2,423,561		12.68	9.08	$	10,568
Options exercisable as of June 30, 2019	489,347	$	10.40	8.74	$	2,994

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the six months ended June 30, 2019 was $11.33.

The following assumptions were used in determining the fair value of options granted in the six months ended June 30, 2019:


Risk-free interest rate	2.46	%
Expected dividend yield	0.0	%
Expected term (years to liquidity)	6.19
Expected volatility	80.40	%

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As of June 30, 2019, the Company has unrecognized equity-based compensation expense related to its employee stock options of $17.1 million which the Company expects to recognize over the remaining weighted average vesting period of 2.9 years.

8. Commitments and Contingencies

Operating Leases

Facility Lease

In March 2015, the Company entered into a 5‑year lease for its corporate headquarters (the ‘‘lease’’). The lease was further 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 July 2023. Rent for the facility lease, including the expansion space, increases from $1.4 million per year to $1.7 million per year over the term of the 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.

Other information related to the Company’s lease was as follows (in thousands, except lease term and discount rate):


	For Three Months Ended		For Six Months Ended
	June 30,		June 30,
	2019		2019
Lease Cost:
Operating lease cost	$	343	$	686
Variable lease cost		179		358
Total lease cost	$	522	$	1,044


	For Six Months Ended
	June 30,
	2019
Other information:
Operating cash flows used for operating leases	$	572
Weighted average remaining lease term		4.17 years
Weighted average discount rate		6.47	%

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of June 30, 2019 (in thousands):