srrk_Current_Folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


 

 

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

 

FOR THE QUARTERLY PERIOD ENDED September 30, 2019

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.)

 

 

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 November 1, 2019 was 29,678,422.

 

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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, and the timing of 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 results, and timing of results, from 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;

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·

the impact of new laws and regulations or amendments to existing laws and regulations;

·

developments and projections relating to our competitors and our industry;

·

our estimates and expectations regarding 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 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, 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

TABLE OF CONTENTS

 

Page

PART I - FINANCIAL INFORMATION 

 

Item 1. Financial Statements (Unaudited) 

5

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 

5

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018 

6

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2019 and 2018 

7

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 

9

Notes to Consolidated Financial Statements 

10

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

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

32

Item 4. Controls and Procedures 

32

 

 

PART II. OTHER INFORMATION 

 

Item 1. Legal Proceedings 

33

Item 1A. Risk Factors 

34

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

85

Item 3. Defaults Upon Senior Securities 

85

Item 4. Mine Safety Disclosures 

85

Item 5. Other Information 

86

Item 6. Exhibits 

87

SIGNATURES 

89

 

 

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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)

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

    

2019

 

2018

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

32,641

 

$

115,069

Marketable securities

 

 

143,441

 

 

60,576

Prepaid expenses and other current assets

 

 

3,157

 

 

2,296

Total current assets

 

 

179,239

 

 

177,941

Property and equipment, net

 

 

4,311

 

 

3,190

Operating lease right-of-use asset

 

 

4,702

 

 

 —

Restricted cash

 

 

205

 

 

205

Other long-term assets

 

 

85

 

 

 —

Total assets

 

$

188,542

 

$

181,336

Liabilities and Stockholders’ Equity

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

3,032

 

$

3,303

Accrued expenses

 

 

8,141

 

 

7,157

Deferred rent

 

 

 —

 

 

16

Operating lease liability

 

 

1,082

 

 

 —

Loan payable

 

 

 —

 

 

424

Deferred revenue

 

 

20,252

 

 

20,209

Other current liabilities

 

 

15

 

 

14

Total current liabilities

 

 

32,522

 

 

31,123

Long-term portion of deferred rent

 

 

 —

 

 

871

Long-term portion of operating lease liability

 

 

4,484

 

 

 —

Other long-term liabilities

 

 

13

 

 

24

Long-term portion of deferred revenue

 

 

29,733

 

 

42,695

Total liabilities

 

 

66,752

 

 

74,713

Commitments and contingencies (Note 8)

 

 

  

 

 

  

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2019 and December 31, 2018; no shares issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, $0.001 par value; 150,000,000 shares authorized and 29,678,422 shares issued and outstanding as of September 30, 2019; 150,000,000 shares authorized and 26,217,701 shares issued and outstanding as of December 31, 2018

 

 

30

 

 

26

Additional paid-in capital

 

 

268,009

 

 

213,453

Accumulated other comprehensive income (loss)

 

 

26

 

 

(8)

Accumulated deficit

 

 

(146,275)

 

 

(106,848)

Total stockholders’ equity

 

 

121,790

 

 

106,623

Total liabilities and stockholders’ equity

 

$

188,542

 

$

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 September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenue

 

$

4,774

 

$

 —

    

$

12,919

    

$

 —

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Research and development

 

 

15,699

 

 

8,061

 

 

40,153

 

 

26,185

General and administrative

 

 

6,181

 

 

3,173

 

 

14,961

 

 

8,947

Total operating expenses

 

 

21,880

 

 

11,234

 

 

55,114

 

 

35,132

Loss from operations

 

 

(17,106)

 

 

(11,234)

 

 

(42,195)

 

 

(35,132)

Other income (expense), net

 

 

959

 

 

472

 

 

2,768

 

 

772

Net loss

 

$

(16,147)

 

$

(10,762)

 

$

(39,427)

 

$

(34,360)

Net loss per share, basic and diluted

 

$

(0.55)

 

$

(0.44)

 

$

(1.46)

 

$

(2.72)

Weighted average common shares outstanding, basic and diluted

 

 

29,232,158

 

 

24,310,681

 

 

26,929,215

 

 

12,647,032


Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(16,147)

 

$

(10,762)

 

$

(39,427)

 

$

(34,360)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

(32)

 

 

 —

 

 

34

 

 

 2

Total other comprehensive income (loss)

 

 

(32)

 

 

 —

 

 

34

 

 

 2

Comprehensive loss

 

$

(16,179)

 

$

(10,762)

 

$

(39,393)

 

$

(34,358)

 

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

(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

Unrealized loss on marketable securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(32)

 

 

 —

 

 

(32)

Restricted shares forfeited during the period

 

 —

 

 

 —

 

 

(1,973)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Sale of common shares, net of issuance costs

 

 —

 

 

 —

 

 

450,000

 

 

 1

 

 

6,325

 

 

 —

 

 

 —

 

 

6,326

Exercise of stock options

 

 —

 

 

 —

 

 

65

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Equity-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,688

 

 

 —

 

 

 —

 

 

2,688

Net Loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(16,147)

 

 

(16,147)

Balance at September 30, 2019

 

 —

 

$

 —

 

 

29,678,422

 

$

30

 

$

268,009

 

$

26

 

$

(146,275)

 

$

121,790

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

  

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

Sale of common shares sold in IPO, net of issuance costs

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 4

 

 

 —

 

 

 —

 

 

 4

Restricted shares forfeited during the period

 

 —

 

 

 —

 

 

(2,367)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Exercise of stock options

 

 —

 

 

 —

 

 

449

 

 

 —

 

 

 3

 

 

 —

 

 

 —

 

 

 3

Equity-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,486

 

 

 —

 

 

 —

 

 

1,486

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,762)

 

 

(10,762)

Balance at September 30, 2018

 

 —

 

$

 —

 

 

25,241,766

 

$

25

 

$

194,204

 

$

 —

 

$

(91,886)

 

$

102,343

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)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net loss

 

$

(39,427)

 

$

(34,360)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

917

 

 

567

Gain or loss on sale of property and equipment

 

 

(8)

 

 

 —

Equity-based compensation

 

 

6,120

 

 

3,057

Amortization/accretion of investment securities

 

 

(1,023)

 

 

 —

Non-cash operating lease expense

 

 

742

 

 

 —

Deferred payroll tax credit

 

 

 —

 

 

199

Change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,001)

 

 

(1,108)

Other assets

 

 

(85)

 

 

 —

Accounts payable

 

 

(664)

 

 

294

Accrued expenses

 

 

984

 

 

543

Deferred rent

 

 

 —

 

 

190

Operating lease liabilities

 

 

(625)

 

 

 —

Deferred revenue

 

 

(12,919)

 

 

 —

Other liabilities

 

 

(59)

 

 

95

Net cash used in operating activities

 

 

(47,048)

 

 

(30,523)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,645)

 

 

(791)

Purchase of marketable securities

 

 

(194,608)

 

 

 —

Proceeds from sale of property and equipment

 

 

 8

 

 

 —

Sales and maturities of marketable securities

 

 

112,800

 

 

1,499

Net cash (used in) provided by investing activities

 

 

(83,445)

 

 

708

Cash flows from financing activities:

 

 

 

 

 

 

Principal payments on loan payable

 

 

(365)

 

 

(500)

Proceeds from sale of common stock, net of issuance costs

 

 

48,348

 

 

77,839

Proceeds from stock option exercises

 

 

92

 

 

 3

Other

 

 

(10)

 

 

(2)

Net cash provided by financing activities

 

 

48,065

 

 

77,340

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

 

 

(82,428)

 

 

47,525

Cash and cash equivalents and restricted cash, beginning of period

 

 

115,274

 

 

56,666

Cash and cash equivalents and restricted cash, end of period

 

$

32,846

 

$

104,191

Supplemental disclosure of non-cash items:

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued expenses

 

$

832

 

$

177

Operating lease right-of-use asset obtained in exchange for operating lease obligation

 

$

5,444

 

$

 —

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

 7

 

$

27

 

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”). The Company is currently dosing patients with Type 2 and Type 3 SMA in its SRK-015 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”). Subject to regulatory feedback, the Company intends to initiate a Phase 1 clinical trial of SRK-181 in the first quarter of 2020 in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD(L)1 antibodies. 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 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”). 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 September 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 Topic 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 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.

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

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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 $6.2 million and $5.4 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 does not anticipate a material impact to its net financial position or disclosures as a result of the adoption of ASU 2018-15.

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

 

3. Fair Value of Financial Assets and Liabilities

The following tables summarize the assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 30, 2019

 

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds, included in cash and cash equivalents

 

$

30,868

 

$

30,868

 

$

 —

 

$

 —

Marketable securities:

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury obligations

 

 

143,441

 

 

143,441

 

 

 —

 

 

 —

Total assets

 

$

174,309

 

$

174,309

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 and U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1 as of September 30, 2019 and December 31, 2018. There were no transfers between fair value measurements levels during the three or nine months ended September 30, 2019 or 2018.

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The carrying amounts reflected in the balance sheets for prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at September 30, 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 September 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.

4. Marketable Securities

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Estimated

 

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

 

 

  

 

 

 

 

 

  

 

 

  

U.S. Treasury obligations

 

$

143,415

 

$

35

 

$

(9)

 

$

143,441

Total available-for-sale securities

 

$

143,415

 

$

35

 

$

(9)

 

$

143,441

 

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

 

 

 

 

 

 

 

 

 

As of

 

 

September 30, 

    

December 31, 

 

    

2019

 

2018

Accrued external research and development expense

 

$

3,860

 

$

3,284

Accrued payroll and related expenses

 

 

2,781

 

 

2,826

Accrued professional and consulting expense

 

 

1,309

 

 

890

Accrued other

 

 

191

 

 

157

 

 

$

8,141

 

$

7,157

 

 

 

6. Common Stock and Preferred Stock

Upon the closing of the IPO during the second quarter of 2018, 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 September 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

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S‑3.  In July 2019, the exercise of the overallotment was settled, resulting in the sale of an additional 450,000 shares at a price of $15.00 per share. As a result of the offering, including the exercise of the overallotment option, the Company received aggregate net proceeds, after underwriting discounts and commissions and other offering expenses, of approximately $48.3 million. 

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):