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 September 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 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

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	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):