UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
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
______________________________________________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
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(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 |
The |
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.
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).
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 | ☐ |
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☒ | Smaller reporting company | ||
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| 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
The number of outstanding shares of the Registrant’s Common Stock as of November 4, 2021 was
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”), including the documents incorporated by reference, contains forward-looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
● | the success, cost and timing of clinical trials for apitegromab (SRK-015), including the results, progress and completion of clinical trials, and the results, and the timing of results, from these trials; |
● | the success, cost and timing of clinical trials for SRK-181, including the results, progress and completion of our DRAGON Phase 1 clinical trial for SRK-181 and any future clinical trials for SRK-181, and the results, and the timing of results, from these trials; |
● | the success, cost and timing of our other product development activities, preclinical studies and clinical trials, and the results, and timing of results, from these studies and trials; |
● | our success in identifying and executing a development program for additional indications for apitegromab, 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 apitegromab, SRK-181 or any of our future product candidates; |
● | risks associated with the COVID-19 pandemic, which may adversely impact our business, preclinical studies, clinical trials and financial results; |
● | 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 (“FDA”), the European Commission (“EC”) and other regulatory authorities for apitegromab, SRK-181 and any future product candidates, and any related restrictions, limitations or warnings in the label of any approved product candidate; |
● | our ability to continue to grow our organization, including our personnel, systems and relationships with third parties; |
● | our ability to retain our executives and highly skilled technical and managerial personnel, which could be affected due to any transition in management, or if we fail to recruit additional highly skilled personnel; |
● | our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and the duration of such protection; |
● | our ability and the potential to successfully manufacture our product candidates for clinical trials and for commercial use, if approved; |
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● | our ability to establish or maintain collaborations or strategic relationships, including our collaboration with Gilead Sciences, Inc. (“Gilead”); |
● | our expectations relating to the potential of our proprietary platform technology; |
● | our ability to obtain additional funding when necessary; |
● | the size and growth potential of the markets for our product candidates, and our ability to serve those markets, either alone or in combination with others; |
● | our expectations related to the use of our cash reserves; |
● | the impact of new laws and regulations or amendments to existing laws and regulations; |
● | developments and projections relating to our competitors and our industry; |
● | our estimates and expectations regarding cash and expense levels, future revenue, capital requirements and needs for additional financing, including our expected use of proceeds from our public offerings, and liquidity sources; |
● | our expectations regarding the period during which we qualify as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act; and |
● | other risks and uncertainties, including those listed under the caption Part II, Item 1A “Risk Factors”. |
The risks set forth above are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Current Reports on Form 8-K or otherwise, for a discussion of risks and uncertainties that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report.
We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry, 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
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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, | |||
| 2021 | 2020 | ||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Marketable securities |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use asset | | | ||||
Restricted cash |
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Other long-term assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Operating lease liability | | | ||||
Deferred revenue | | | ||||
Other current liabilities | | | ||||
Total current liabilities |
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Long-term portion of operating lease liability | | | ||||
Long-term debt | | | ||||
Other long-term liabilities |
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Long-term portion of deferred revenue | — | | ||||
Total liabilities |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity: | ||||||
Preferred stock, $ | ||||||
Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
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, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Revenue | $ | | $ | |
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Operating expenses: |
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Research and development | | | | | ||||||||
General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense), net |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average common shares outstanding, basic and diluted |
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Comprehensive loss: |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss): |
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Unrealized gain (loss) on marketable securities |
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Total other comprehensive income (loss) |
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Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
6
SCHOLAR ROCK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share and per share data)
| Accumulated | ||||||||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid‑in | Comprehensive | Accumulated | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | ||||||
Balance at December 31, 2020 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Unrealized gain on marketable securities | — | — | — | | — | | |||||||||||
Exercise of stock options | | — | | — | — | | |||||||||||
Equity-based compensation expense | — | — | | — | — | | |||||||||||
Net Loss | — | — | — | — | ( | ( | |||||||||||
Balance at March 31, 2021 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Unrealized loss on marketable securities | — | — | — | ( | — | ( | |||||||||||
Exercise of stock options | | — | | — | — | | |||||||||||
Equity-based compensation expense | — | — | | — | — | | |||||||||||
Net Loss | — | — | — | — | ( | ( | |||||||||||
Balance at June 30, 2021 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Unrealized loss on marketable securities | — | — | — | ( | — | ( | |||||||||||
Exercise of stock options | | | | — | — | | |||||||||||
Equity-based compensation expense | — | — | | — | — | | |||||||||||
Net Loss | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2021 | | $ | | $ | | $ | — | $ | ( | $ | | ||||||
| Accumulated | ||||||||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid‑in | Comprehensive | Accumulated | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | ||||||
Balance at December 31, 2019 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Unrealized gain on marketable securities | — | — | — | | — | | |||||||||||
Exercise of stock options | |
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Equity-based compensation expense | — | — | | — | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balance at March 31, 2020 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Unrealized loss on marketable securities | — | — | — | ( | — | ( | |||||||||||
Restricted shares forfeited during the period | ( | — | — | — | — | — | |||||||||||
Exercise of stock options | | — | | — | — | | |||||||||||
Equity-based compensation expense | — | — | | — | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balance at June 30, 2020 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Unrealized loss on marketable securities | — | — | — | ( | — | ( | |||||||||||
Exercise of stock options | | — | | — | — | | |||||||||||
Equity-based compensation expense | — | — | | — | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2020 | | $ | | $ | | $ | | $ | ( | $ | |
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, | ||||||
| 2021 |
| 2020 | |||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of debt discount and debt issuance costs | | — | ||||
Loss on disposal of property and equipment | | — | ||||
Equity-based compensation |
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Amortization/accretion of investment securities | | ( | ||||
Non-cash operating lease expense | | | ||||
Change in operating assets and liabilities: |
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Accounts receivable | — | | ||||
Prepaid expenses and other current assets |
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Other assets | ( | ( | ||||
Accounts payable |
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Accrued expenses |
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Operating lease liabilities | ( | ( | ||||
Deferred revenue | ( | ( | ||||
Other liabilities | | — | ||||
Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Purchases of marketable securities | ( | ( | ||||
Maturities of marketable securities |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from stock option exercises | | | ||||
Other | ( | ( | ||||
Net cash provided by financing activities |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period | $ | | $ | | ||
Supplemental disclosure of non-cash items: |
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Property and equipment purchases in accounts payable and accrued expenses | $ | | $ | | ||
Operating lease right-of-use asset obtained in exchange for operating lease obligation | $ | — | $ | | ||
Supplemental cash flow information: |
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Cash paid for interest | $ | | $ | — |
The accompanying notes are an integral part of these consolidated financial statements.
8
SCHOLAR ROCK HOLDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of the Business
Scholar Rock Holding Corporation and its subsidiaries (collectively, 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 first product candidate, apitegromab (formerly SRK-015), is a selective, fully human, monoclonal antibody, with a unique mechanism of action that results in the inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). Apitegromab was evaluated in the Company’s TOPAZ Phase 2 proof-of-concept trial for the treatment of patients with Type 2 and Type 3 SMA and positive 12-month top-line results were announced in April 2021 demonstrating apitegromab’s transformative potential. A randomized, double-blind, placebo-controlled Phase 3 trial in patients with non-ambulatory Type 2 and 3 SMA is anticipated to initiate by year-end 2021. The Company’s second product candidate, SRK-181, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor (“CPI”) therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies. SRK-181 is a selective inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”) that is being investigated in the DRAGON Phase 1 proof-of-concept trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. The Company continues to progress the Part A dose escalation portion of the DRAGON trial and has initiated the Part B dose expansion portion of the trial to evaluate SRK-181 in combination with approved anti-PD-(L)1 therapies in multiple solid tumors, including non-small cell lung cancer, urothelial carcinoma, and cutaneous melanoma. 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 neuromuscular disorders, cancer, and fibrosis. The Company was originally formed in May 2012. Its principal offices are in Cambridge, Massachusetts.
Since its inception, the Company’s operations have focused on research and development of monoclonal antibodies that selectively inhibit activation of growth factors for therapeutic effect, as well as establishing the Company’s intellectual property portfolio and performing research and development activities. The Company has primarily financed its operations through various equity financings, including the initial public offering of its common stock (the “IPO”) in May 2018, a secondary offering of common stock in June 2019, and a follow-on offering of common stock and pre-funded warrants completed in November 2020, as well as research and development collaboration agreements.
Revenue generation activities have been limited to
The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s product candidates. The Company anticipates that it will continue to incur significant operating losses for the next several years as it continues to develop its product candidates. The Company believes that its existing cash, cash equivalents and marketable securities at September 30, 2021 will be sufficient to allow the Company to fund its current operations through at least a period of one year after the date these financial statements are issued.
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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, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. There have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Cash, Cash Equivalents and Restricted Cash
The following table reconciles cash, cash equivalents and restricted cash per the balance sheet to the statement of cash flows (in thousands):
| As of September 30, | |||||
| 2021 |
| 2020 | |||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash |
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$ | | $ | |
Unaudited Interim Financial Information
The consolidated financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited consolidated financial statements include the accounts of Scholar Rock Holding Corporation and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the related reporting of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. Under current GAAP, a company only considered past events and current conditions in measuring an incurred loss. Under ASU 2016-13, the information that a company must consider is broadened in developing an expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss. The guidance is applied using a modified retrospective, or prospective approach, depending on a specific amendment. In November 2019, the FASB deferred the effective date for smaller reporting companies to fiscal years beginning after December 15, 2022. The Company does not anticipate a material impact to its net financial position or disclosures as a result of the adoption of ASU 2016-13.
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3. Fair Value of Financial Assets and Liabilities
The following tables summarize the assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 (in thousands):
Fair Value Measurements at September 30, 2021 | ||||||||||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets: |
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Money market funds, included in cash and cash equivalents | $ | | $ | | $ | — | $ | — | ||||
Marketable securities: |
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U.S. Treasury obligations | | | — | — | ||||||||
Total assets | $ | | $ | | $ | — | $ | — |
Fair Value Measurements at December 31, 2020 | ||||||||||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets: |
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Money market funds, included in cash and cash equivalents | $ | | $ | | $ | — | $ | — | ||||
U.S. Treasury obligations, included in cash and cash equivalents | | | — | — | ||||||||
Marketable securities: |
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U.S. Treasury obligations |
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Total assets | $ | | $ | | $ | — | $ | — |
Cash, cash equivalents and marketable securities are Level 1 assets and include investments in money market funds and U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1 as of September 30, 2021 and December 31, 2020. There were no transfers of assets between fair value measurement levels during the three and nine months ended September 30, 2021 or 2020.
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, 2021 and December 31, 2020, due to their short-term nature.
The Company believes the terms of its debt reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company's debt approximates its fair value based on Level 3 of the fair value hierarchy.
4. Marketable Securities
The following table summarizes the Company’s investments as of September 30, 2021 (in thousands):
Gross | ||||||||||||
Amortized | Unrealized | Estimated | ||||||||||
| Cost |
| Gains |
| Losses |
| Fair Value | |||||
Marketable securities available-for-sale: |
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U.S. Treasury obligations | $ | | $ | | $ | ( | $ | | ||||
Total available-for-sale securities | $ | | $ | | $ | ( | $ | |
The following table summarizes the Company’s investments as of December 31, 2020 (in thousands):
Gross | ||||||||||||
Amortized | Unrealized | Estimated | ||||||||||
| Cost |
| Gains |
| Losses |
| Fair Value | |||||
Marketable securities available-for-sale: | ||||||||||||
U.S. Treasury obligations | $ | | $ | | $ | ( | $ | | ||||
Total available-for-sale securities | $ | | $ | | $ | ( | $ | |
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5. Accrued Expenses
As of September 30, 2021 and December 31, 2020, accrued expenses consist of the following (in thousands):
As of | ||||||
September 30, |
| December 31, | ||||
| 2021 | 2020 | ||||
Accrued external research and development expense | $ | | $ | | ||
Accrued payroll and related expenses | | | ||||
Accrued professional and consulting expense | | | ||||
Accrued other | | | ||||
Accrued payable for property and equipment |
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$ | | $ | |
6. Equity-Based Compensation
The Company recorded equity-based compensation expense related to all equity-based awards, which was allocated as follows in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Research and development expense | $ | | $ | | $ | | $ | | ||||
General and administrative expense |
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$ | | $ | | $ | | $ | |
Equity-based compensation during the three and nine months ended September 30, 2020 includes $
The following table summarizes the Company’s unrecognized equity-based compensation expense as of September 30, 2021:
As of September 30, 2021 | ||||
Unrecognized Expense (in thousands) |
| Weighted Average Remaining Period of Recognition (years) | ||
Restricted Stock Awards | $ | | ||
Restricted Stock Units | | |||
Stock Options | | |||
$ | |
Restricted Stock Awards
The following table summarizes the Company’s restricted stock award activity for the current year:
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| Weighted | |||
Average Fair | |||||
Value per Share | |||||
| Number of Shares |
| at Issuance | ||
Restricted stock awards as of December 31, 2020 |
| | $ | | |
Vested |
| ( | $ | | |
Restricted stock awards as of September 30, 2021 |
| | $ | |
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Restricted Stock Units
The following table summarizes the Company’s restricted stock unit activity for the current year:
Weighted | |||||
Average Grant | |||||
| Number of Units |
| Date Fair Value | ||
Restricted stock units as of December 31, 2020 |
| — | $ | — | |
Granted |
| | $ | | |
Forfeited |
| ( | $ | | |
Restricted stock units as of September 30, 2021 |
| | $ | |
Stock Options
The following table summarizes the Company’s stock option activity for the current year:
Weighted | ||||||||||
Weighted | Average | |||||||||
Number of | Average | Remaining | Aggregate | |||||||
| Shares |
| Exercise Price |
| Contractual Term |
| Intrinsic Value | |||
(in years) | (in thousands) | |||||||||
Outstanding as of December 31, 2020 |
| | $ | | $ | | ||||
Granted |
| | $ | | ||||||
Exercised | ( | $ | | |||||||
Cancelled |
| ( | $ | | ||||||
Outstanding as of September 30, 2021 |
| | $ | | $ | | ||||
Options exercisable as of September 30, 2021 |
| | $ | | $ | |
Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the nine months ended September 30, 2021 was $
The following weighted average assumptions were used in determining the fair value of options granted in the nine months ended September 30, 2021 and 2020:
Nine Months Ended | ||||
September 30, | ||||
2021 |
| 2020 | ||
Risk-free interest rate | % | % | ||
Expected dividend yield | % | % | ||
Expected term (years to liquidity) | ||||
Expected volatility | % | % |
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7. Commitments and Contingencies
Operating Leases
620 Memorial Facility Lease
In March 2015, the Company entered into a
On October 5, 2020, the Company entered into a Sublease Agreement (the “Sublease”) with Orna Therapeutics, Inc. (the “Subtenant”) to sublease the space covered by the Amended Lease at 620 Memorial Drive, Cambridge, Massachusetts. The Sublease term commenced on February 1, 2021 and ends on August 31, 2023, unless terminated earlier. The Sublease provides for initial annual base rent of approximately $
301 Binney Facility Lease
In November 2019, the Company entered into a lease of office and laboratory space at 301 Binney Street in Cambridge, Massachusetts to be used as its new corporate headquarters. The expiration date of the lease is in August 2025 and the Company has the
Other information related to the Company’s leases (excluding the Company’s sublease income of $
For Three Months Ended | For Nine Months Ended | |||||
| September 30, |
| September 30, | |||
2021 | 2021 | |||||
Lease Cost: | ||||||
Operating lease cost | $ | | $ | | ||
Variable lease cost | | | ||||
Total lease cost | $ | | $ | |
For Nine Months Ended | |||
September 30, | |||
2021 | |||
Other information: | |||
Operating cash flows used for operating leases | $ | | |
Weighted average remaining lease term | |||
Weighted average incremental borrowing rate | | % |
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Specifica Antibody Library
On December 20, 2019 (the “Effective Date”), the Company entered into a Library Development and Transfer Agreement with Specifica Inc. (“Specifica”), whereby Specifica is responsible for developing and delivering a customized antibody display library (the “Library”) for the Company to use to identify antibodies for further research, development, and commercialization. As of September 30, 2021 the Company has paid $
Legal Proceedings
The Company, from time to time, may be party to litigation arising in the ordinary course of its business. The Company was not subject to any material legal proceedings during the nine months ended September 30, 2021 and 2020.
8. Debt
On October 16, 2020 (the “Closing Date”) the Company entered into a Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank for $
9. Agreements
Collaboration with Gilead
On December 19, 2018 (the “Effective Date”), the Company entered into a Master Collaboration Agreement (the “Gilead Collaboration Agreement”) with Gilead to discover and develop specific inhibitors of transforming growth factor beta (“TGFβ”) activation focused on the treatment of fibrotic diseases. Under the collaboration, Gilead has exclusive options to license worldwide rights to product candidates that emerge from three of the Company’s TGFβ programs (each a “Gilead Program”). Pursuant to the Gilead Collaboration Agreement, the Company is responsible for antibody discovery and preclinical research through product candidate nomination, after which, upon exercising the option for a Gilead Program, Gilead will be responsible for the program’s preclinical and clinical development and commercialization. Such option may be exercised by Gilead at any time from the Effective Date through a date that is 90 days following the expiration of the Research Collaboration Term for a given Gilead Program (no later than March 19, 2022), or until termination of the Gilead Program, whichever is earlier (the “Option Exercise Period”).
Prior to Gilead’s exercise of an option, the Company has the lead responsibility for drug discovery and pre-clinical development of all Gilead Programs through to Development Candidate Nomination. Within a certain period of time after receiving a data package for a Development Candidate Nomination, Gilead may exercise its option to enter into a Form of License Agreement for exclusive rights to develop, manufacture and commercialize the licensed antibodies and licensed products of such Gilead Program.
Revenue associated with the research and development and license performance obligations relating to the Gilead Programs is recognized as revenue as the research and development services are provided using an input method, according to the costs incurred on each Gilead Program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over time. In management’s judgment, this input method is the best measure of progress towards satisfying the performance obligation. The amounts allocated to the three material rights will be recognized when Gilead exercises each respective option and delivers the underlying license and transfer of know-how, or immediately as each option expires unexercised. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s consolidated balance sheet.
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None of the performance obligations have been fully satisfied as of Sepember 30, 2021. A $
In the three and nine months ended September 30, 2021, the Company recognized $
10. Net Loss per Share
The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding, excluding restricted common stock. The weighted average number of common shares used in the basic and diluted net loss per share calculation include the pre-funded warrants issued in connection with the Company’s November 2, 2020 follow-on offering as the warrants are exercisable at any time for nominal cash consideration. As of September 30, 2021 no pre-funded warrants have been exercised and
The following table sets forth the outstanding common stock equivalents, presented based on amounts outstanding at each period end, that have been excluded from the calculation of diluted net loss per share for the periods indicated because their inclusion would have been anti-dilutive:
Nine Months Ended September 30, | ||||
| 2021 |
| 2020 | |
Restricted stock awards | | | ||
Restricted stock units | | — | ||
Warrant | — | | ||
Stock options | | | ||
| |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a 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. Our novel understanding of the molecular mechanisms of growth factor activation enabled us to develop a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target the precursor, or latent, forms of growth factors. By targeting the signaling proteins at the cellular level and acting in the disease microenvironment, we believe we may avoid the historical dose-limiting safety challenges associated with inhibiting growth factors for therapeutic effect. We believe our focus on biologically validated growth factors may facilitate a more efficient development path.
We have a productive scientific platform and are building our portfolio of novel product candidates with the aim of transforming the lives of patients suffering from a wide range of serious diseases, including neuromuscular disorders, cancer, and fibrosis. We have discovered and progressed the development of:
● | Apitegromab, an inhibitor of the activation of myostatin, for the treatment of spinal muscular atrophy (“SMA”). We also believe apitegromab could have potential in the treatment of other myostatin-related disorders. |
● | SRK-181, an inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”), for the treatment of cancers that are resistant to anti-PD-(L)1 antibody therapies. |
● | Potent and selective inhibitors of the activation of transforming growth factor beta (“TGFβ”) in collaboration with Gilead, for the treatment of fibrotic diseases. We are advancing multiple collaboration programs toward product candidate selection. |
● | Additional discovery and early preclinical programs related to the selective modulation of growth factor signaling. |
Our first product candidate, apitegromab (formerly SRK-015), is a selective, fully human, monoclonal antibody that specifically binds to proforms of myostatin, which include promyostatin and latent myostatin, thereby inhibiting activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy to address the motor function impairment affecting patients with SMA. In May 2021, the U.S. Food and Drug Administration (“FDA”) granted Fast Track designation for apitegromab for the treatment of SMA. The
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FDA granted Rare Pediatric Disease designation and Orphan Drug designation to apitegromab for the treatment of SMA in August 2020 and March 2018, respectively. The European Medicines Agency (“EMA”) granted Priority Medicines (“PRIME”) designation in March 2021 and Orphan Medicinal Product designation in December 2018 to apitegromab for the treatment of SMA.
In April 2021, we announced positive top-line data for the 12-month treatment period of our TOPAZ Phase 2 proof-of-concept clinical. The TOPAZ trial enrolled 58 patients with Type 2 and Type 3 SMA across three cohorts and evaluated the safety and efficacy of intravenous apitegromab dosed every four weeks (Q4W) over a 12-month treatment period.
● | Majority (74%, 23/31) of non-ambulatory patients showed a clinical improvement (defined as ≥1-point increase) in Hammersmith Functional Motor Scale Expanded (“HFMSE”). |
● | In the non-ambulatory cohort of patients (mean age 3.8 years) on background nusinersen started earlier in life (<5 years of age), treatment with apitegromab 20 mg/kg led to sizeable increases in HFMSE. |
o | Mean increase from baseline was +7.1 points. |
o | 88% (7/8) of patients improved (attained a ≥1-point increase). |
o | 63% (5/8) of patients attained a ≥5-point increase. |
o | 38% (3/8) of patients attained a >10-point increase. |
o | Patients had received approximately two years of prior nusinersen treatment at the time of enrollment (5.4 mean maintenance doses) and were in the chronic maintenance phase of nusinersen therapy during the TOPAZ trial. |
● | In the non-ambulatory cohort of patients (mean age 11.7 years) on background nusinersen started later in life (≥5 years of age), treatment with apitegromab 20 mg/kg led to an increase in HFMSE, contrasting with declines experienced on average by this patient population without treatment. |
o | Mean increase from baseline was +0.6 points by intent-to-treat analysis and +1.2 points by per-protocol analysis. |
o | 64% (9/14) of patients improved (attained a ≥1-point increase). |
o | 29% (4/14) of patients attained a ≥3-point increase. |
o | Patients had received approximately two years of prior nusinersen treatment at the time of enrollment (5.1 mean maintenance doses) and were in the chronic maintenance phase of nusinersen therapy during the TOPAZ trial. |
● | A post-hoc analysis across all non-ambulatory patients showed no correlation between change in HFMSE score at 12 months and duration of prior nusinersen therapy, providing further evidence that improvements in motor function may be attributed to apitegromab. |
● | WHO Motor Development Milestones, a high bar assessment representing major functional achievements, were gained by seven of 35 non-ambulatory patients treated with apitegromab and nusinersen, including three patients who initiated background nusinersen therapy later in life (≥5 years of age). |
o | Five patients achieved one new WHO motor milestone, including one patient gaining the ability to walk independently and one patient gaining the ability to stand independently. |
o | One patient achieved two new WHO motor milestones (hands and knees crawling and standing with assistance). |
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o | One patient achieved three new WHO motor milestones (hands and knees crawling, standing with assistance, and walking with assistance). |
● | In the ambulatory cohort of patients (mean age 12.6 years), treatment with apitegromab 20 mg/kg as add-on to nusinersen led to a 0.3-point decline from baseline in Revised Hammersmith Scale (RHS) and treatment with apitegromab 20 mg/kg as a monotherapy led to a 0.4-point decline in RHS. Motor function declines are common in patients with ambulatory Type 3 and can be severe in a subset of patients. |
The five most frequently reported treatment-emergent adverse events (“AEs”) included headache, pyrexia, upper respiratory tract infection, cough, and nasopharyngitis. Incidence and severity of AEs were consistent with the underlying patient population and background therapy.
From June to October 2021, we announced supportive data from additional exploratory analyses from the TOPAZ Phase 2 clinical trial at various medical congresses, including the Cure SMA virtual conference, the World Muscle Society virtual congress, the Child Neurology Society annual meeting, and the World Congress of Neurology. These exploratory analyses further demonstrated the potential of apitegromab in patients with SMA:
● | Time to achieving various thresholds of improvement in HFMSE scores further supported the dose response in clinical efficacy. |
● | Increases in RULM were also observed in both non-ambulatory cohorts. |
● | Greater increases in HFMSE (non-ambulatory) and RHS (ambulatory) scores were seen in patients who were not limited by scoliosis or joint contractures. |
Subject to feedback from regulatory agencies, a randomized, double-blind, placebo-controlled Phase 3 trial is anticipated to initiate by the end of 2021 and is expected to evaluate apitegromab as an add-on to nusinersen or risdiplam in patients with non-ambulatory Type 2 and Type 3 SMA. The non-ambulatory Type 2 and Type 3 patient population is where apitegromab demonstrated the largest increases in motor function (HFMSE scores) as an add-on to nusinersen in the TOPAZ trial. Patients with non-ambulatory Type 2 and Type 3 SMA represent approximately two-thirds of the overall prevalent SMA patient population.
We have identified multiple other diseases for which the selective inhibition of the activation of myostatin may offer therapeutic benefit, including additional patient populations in SMA (such as Type 1 SMA and ambulatory Type 3 SMA) and indications outside of SMA.
Our second product candidate, SRK-181, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor (“CPI”) therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies. SRK-181 is a selective inhibitor of the activation of latent TGFβ1 that is being investigated in our DRAGON Phase 1 proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. This two-part trial consists of a dose escalation portion (Part A) and a dose expansion portion (Part B). Part A is evaluating SRK-181 as a single-agent and in combination with an approved anti-PD-(L)1 therapy and Part B will evaluate SRK-181 in combination with an approved anti-PD-(L)1 therapy across multiple solid tumor types, including urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, and other solid tumors. We are enrolling patients and have progressed dose escalation in Part A2 of the trial (SRK-181 in combination with an approved anti-PD-(L)1 therapy). Initial clinical response and safety data from Part A are being presented in November 2021 at the Society for Immunotherapy of Cancer (“SITC”) 36th Annual Meeting. The Part B dose expansion portion of the trial has been initiated and will evaluate SRK-181 in combination with an approved anti-PD-(L)1 therapy across multiple cohorts, including urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, and other solid tumors.
Utilizing our proprietary platform, we have multiple early stage and preclinical programs directed against targets that are known to be important in serious diseases, including neuromuscular disorders, cancer and fibrosis. We are discovering and generating selective and differentiated monoclonal antibodies against difficult targets by 1) applying our structural insights and antibody discovery expertise, 2) prioritizing human biology, and 3) embedding translational thinking early in the research and development process.
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Since inception, we have incurred significant operating losses. Our net losses were $95.9 million for the nine months ended September 30, 2021. As of September 30, 2021, we had an accumulated deficit of $340.2 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. In addition, we anticipate that our expenses will increase in connection with our ongoing activities, as we:
● | continue development activities for apitegromab, including the ongoing extension phase of our TOPAZ Phase 2 clinical trial and preparations and conduct of our Phase 3 clinical trial program in SMA, and associated drug supply; |
● | continue research and development activities for SRK-181, including the conduct of our DRAGON Phase 1 clinical trial; |
● | continue research and development activities to support our collaboration with Gilead; |
● | continue to discover, validate and develop additional product candidates through the use of our proprietary platform; |
● |