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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2022

OR

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

FOR THE TRANSITION PERIOD FROM _ TO _

COMMISSION FILE NUMBER 001-38501

______________________________________________

SCHOLAR ROCK HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

82-3750435

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

301 Binney Street, 3rd Floor

Cambridge, Massachusetts

02142

(Address of principal executive offices)

(Zip Code)

(857) 259 3860

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SRRK

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

The number of outstanding shares of the Registrant’s Common Stock as of August 3, 2022 was 51,640,650.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”), including the documents incorporated by reference, contains forward-looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

the success, cost and timing of clinical trials for apitegromab, including the progress and completion of clinical trials, and the results, and the timing of results, from these trials;
the success, cost and timing of preclinical studies and clinical trials for SRK-181, including, but not limited to, the progress and completion of our Phase 1 DRAGON clinical trial for SRK-181, any preclinical studies 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;
timing of and costs associated with our restructuring, and the savings benefits we expect to receive from the restructuring;
risks associated with the COVID-19 pandemic, which may adversely impact our workforce, global supply chain, 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;

2

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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;
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 revenues, capital requirements and needs for additional financing, including our expected use of proceeds from our public offerings, and liquidity sources;
our expectations regarding the period during which we qualify as 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 data, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

3

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SCHOLAR ROCK HOLDING CORPORATION

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

5

Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

5

Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021

6

Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2022 and 2021

7

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021

8

Notes to Consolidated Financial Statements

9

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

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

31

Item 4. Controls and Procedures

31

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

83

Item 3. Defaults Upon Senior Securities

83

Item 4. Mine Safety Disclosures

83

Item 5. Other Information

83

Item 6. Exhibits

84

SIGNATURES

85

4

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

    

June 30, 

    

December 31, 

    

2022

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

305,730

$

212,835

Marketable securities

 

64,958

 

40,159

Prepaid expenses and other current assets

 

18,451

 

12,325

Total current assets

 

389,139

 

265,319

Property and equipment, net

 

8,747

 

9,564

Operating lease right-of-use asset

22,060

25,442

Restricted cash

 

2,498

 

2,498

Other long-term assets

 

1,684

 

1,622

Total assets

$

424,128

$

304,445

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,851

$

4,434

Accrued expenses

 

17,894

 

17,456

Operating lease liability

7,840

7,407

Short-term debt

11,577

1,577

Deferred revenue

33,193

Other current liabilities

230

Total current liabilities

 

40,162

 

64,297

Long-term portion of operating lease liability

15,648

19,652

Long-term debt

38,811

48,422

Total liabilities

 

94,621

 

132,371

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2022 and December 31, 2021; no shares issued and outstanding at June 30, 2022 and December 31, 2021

Common stock, $0.001 par value; 150,000,000 shares authorized; 51,638,247 and 35,209,099 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

52

 

35

Additional paid-in capital

 

757,614

 

548,204

Accumulated other comprehensive loss

 

(79)

 

(35)

Accumulated deficit

 

(428,080)

 

(376,130)

Total stockholders’ equity

 

329,507

 

172,074

Total liabilities and stockholders’ equity

$

424,128

$

304,445

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

5

Table of Contents

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Revenue

$

$

4,595

    

$

33,193

    

$

9,303

Operating expenses:

 

 

  

 

 

  

Research and development

32,073

25,603

61,439

48,152

General and administrative

 

11,074

 

9,265

 

21,834

18,631

Total operating expenses

 

43,147

 

34,868

 

83,273

 

66,783

Loss from operations

 

(43,147)

 

(30,273)

 

(50,080)

 

(57,480)

Other income (expense), net

 

(853)

 

(434)

 

(1,870)

 

(898)

Net loss

$

(44,000)

$

(30,707)

$

(51,950)

$

(58,378)

Net loss per share, basic and diluted

$

(1.06)

$

(0.84)

$

(1.31)

$

(1.60)

Weighted average common shares outstanding, basic and diluted

 

41,622,392

 

36,582,708

 

39,550,991

 

36,482,132

Comprehensive loss:

 

 

 

 

Net loss

$

(44,000)

$

(30,707)

$

(51,950)

$

(58,378)

Other comprehensive income (loss):

 

 

 

 

Unrealized gain (loss) on marketable securities

 

73

 

(14)

 

(44)

 

11

Total other comprehensive income (loss)

 

73

 

(14)

 

(44)

 

11

Comprehensive loss

$

(43,927)

$

(30,721)

$

(51,994)

$

(58,367)

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

6

Table of Contents

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share and per share data)

  

Accumulated

Additional

Other

Total

Common Stock

Paidin

Comprehensive

Accumulated

Stockholders’

  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Equity

Balance at December 31, 2021

35,209,099

$

35

$

548,204

$

(35)

$

(376,130)

$

172,074

Unrealized loss on marketable securities

(117)

(117)

Exercise of stock options

42,129

481

481

Issuance of common shares upon RSU vesting

49,595

Equity-based compensation expense

6,828

6,828

Net loss

(7,950)

(7,950)

Balance at March 31, 2022

35,300,823

$

35

$

555,513

$

(152)

$

(384,080)

$

171,316

Unrealized gain on marketable securities

73

73

Sale of common shares, pre-funded warrants and warrants to purchase common shares, net of issuance costs

16,326,530

16

195,309

195,325

Exercise of stock options

263

1

1

2

Issuance of common shares upon RSU vesting

10,631

Equity-based compensation expense

6,791

6,791

Net loss

(44,000)

(44,000)

Balance at June 30, 2022

51,638,247

$

52

$

757,614

$

(79)

$

(428,080)

$

329,507

  

Accumulated

Additional

Other

Total

Common Stock

Paidin

Comprehensive

Accumulated

Stockholders’

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Equity

Balance at December 31, 2020

34,152,470

$

34

$

505,069

$

(2)

$

(244,331)

$

260,770

Unrealized gain on marketable securities

25

25

Exercise of stock options

245,920

 

 

2,743

 

 

2,743

Equity-based compensation expense

4,673

4,673

Net loss

(27,671)

(27,671)

Balance at March 31, 2021

34,398,390

$

34

$

512,485

$

23

$

(272,002)

$

240,540

Unrealized loss on marketable securities

(14)

(14)

Exercise of stock options

61,397

611

611

Equity-based compensation expense

6,226

6,226

Net loss

(30,707)

(30,707)

Balance at June 30, 2021

34,459,787

$

34

$

519,322

$

9

$

(302,709)

$

216,656

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

7

Table of Contents

SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended

June 30, 

    

2022

    

2021

Cash flows from operating activities:

  

  

Net loss

$

(51,950)

$

(58,378)

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

 

 

Depreciation and amortization

 

1,493

 

1,227

Amortization of debt discount and debt issuance costs

389

167

Loss on disposal of property and equipment

32

24

Equity-based compensation

 

13,619

 

10,899

Amortization/accretion of investment securities

291

517

Non-cash operating lease expense

3,382

3,107

Change in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

(6,126)

 

(4,355)

Other assets

(62)

Accounts payable

 

(1,394)

 

(1,779)

Accrued expenses

 

17

 

1,227

Operating lease liabilities

(3,571)

(1,937)

Deferred revenue

(33,193)

(9,303)

Other liabilities

(231)

227

Net cash used in operating activities

 

(77,304)

(58,357)

Cash flows from investing activities:

 

 

Purchases of property and equipment

 

(920)

(3,295)

Purchases of marketable securities

(80,134)

(30,131)

Maturities of marketable securities

 

55,000

135,000

Net cash (used in) provided by investing activities

 

(26,054)

 

101,574

Cash flows from financing activities:

 

 

Proceeds from sale of common shares, pre-funded warrants and warrants to purchase common shares, net of issuance costs

195,770

Proceeds from stock option exercises

483

3,354

Other

(10)

Net cash provided by financing activities

 

196,253

 

3,344

Net increase in cash, cash equivalents and restricted cash

 

92,895

 

46,561

Cash, cash equivalents and restricted cash, beginning of period

 

215,333

162,856

Cash, cash equivalents and restricted cash, end of period

$

308,228

$

209,417

Supplemental disclosure of non-cash items:

 

 

Property and equipment purchases in accounts payable and accrued expenses

$

$

635

Offering costs in accrued expenses

$

445

Supplemental cash flow information:

 

 

Cash paid for interest

$

1,836

$

992

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 the precursor, or latent, forms of growth factors. The Company’s first product candidate, apitegromab, is a highly selective, fully human, monoclonal antibody, with a unique mechanism of action that results in inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). The Company is conducting SAPPHIRE, a pivotal Phase 3 clinical trial to evaluate the efficacy and safety of apitegromab in patients with non-ambulatory Type 2 and Type 3 SMA. In June 2022, the Company announced 24-month efficacy and safety extension data of apitegromab in patients with Type 2 and Type 3 SMA from the Phase 2 TOPAZ proof-of-concept clinical trial. 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 highly selective inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”) that is being investigated in the Company’s Phase 1 DRAGON proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. The DRAGON trial consists of two parts: Part A (dose escalation of SRK-181 as a single-agent or in combination with an approved anti-PD-(L)1 therapy) and Part B (dose expansion evaluating SRK-181 in combination with an approved anti-PD- (L)1 antibody therapy). Part B encompasses five cohorts, including urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, clear cell renal cell carcinoma and other solid tumors and commenced in 2021. Additionally, the Company continues to create a pipeline of product candidates to deliver novel therapies to underserved patients suffering from a wide range of serious diseases, including neuromuscular disorders, 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 sale of common stock, common warrants and pre-funded warrants in June 2022 (Note 6), as well as research and development collaboration agreements and the Company’s debt facility (Note 9).

Revenue generation activities have been limited to two collaborations, both containing research services and the issuance of a license. The first agreement, executed in 2013, was with Janssen Biotech, Inc. (“Janssen”), a subsidiary of Johnson & Johnson and was terminated in July 2022. The second agreement, the Gilead Collaboration Agreement with Gilead Sciences, Inc. (“Gilead”), was in effect between December 2018 and January 2022. No revenues have been recorded from the sale of any commercial product.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s product candidates. The Company anticipates that it will continue to incur significant operating losses for the next several years as it continues to develop its product candidates. The Company believes that its existing cash, cash equivalents, and marketable securities at June 30, 2022 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, 2021, 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, 2021.

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 June 30, 

    

2022

    

2021

Cash and cash equivalents

$

305,730

$

206,919

Restricted cash

 

2,498

 

2,498

$

308,228

$

209,417

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 June 30, 2022 and December 31, 2021 (in thousands):

Fair Value Measurements at June 30, 2022

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

  

  

  

  

Money market funds, included in cash and cash equivalents

$

101,816

$

101,816

$

$

Marketable securities:

 

  

 

  

 

  

 

  

U.S. Treasury obligations

64,958

64,958

Total assets

$

166,774

$

166,774

$

$

Fair Value Measurements at December 31, 2021

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

  

  

  

  

Money market funds, included in cash and cash equivalents

$

188,493

$

188,493

$

$

Marketable securities:

 

  

 

  

 

  

 

  

U.S. Treasury obligations

 

40,159

 

40,159

 

 

Total assets

$

228,652

$

228,652

$

$

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 June30, 2022 and December 31, 2021. There were no transfers of assets between fair value measurement levels during the three and six months ended June 30, 2022 or 2021.

The carrying amounts reflected in the balance sheets for prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at June 30, 2022 and December 31, 2021, 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 June 30, 2022 (in thousands):

Gross

Amortized

Unrealized

Estimated

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

  

  

  

U.S. Treasury obligations

$

65,037

(79)

$

64,958

Total available-for-sale securities

$

65,037

$

$

(79)

$

64,958

The following table summarizes the Company’s investments as of December 31, 2021 (in thousands):

Gross

Amortized

Unrealized

Estimated

    

Cost

    

Gains

    

Losses

    

Fair Value

Marketable securities available-for-sale:

U.S. Treasury obligations

$

40,194

$

$

(35)

$

40,159

Total available-for-sale securities

$

40,194

$

$

(35)

$

40,159

The aggregate fair value of marketable securities with unrealized losses was $65.0 million and $30.2 million at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, five investments

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and three investments, respectively, were in an unrealized loss position. All such investments have been in an unrealized loss position for less than a year and these losses are considered temporary. The Company has the ability and intent to hold these investments until a recovery of their amortized cost, which may not occur until maturity.

5. Accrued Expenses

As of June 30, 2022 and December 31, 2021, accrued expenses consist of the following (in thousands):

As of

June 30, 

    

December 31, 

    

2022

2021

Accrued external research and development expense

$

8,978

$

8,428

Accrued payroll and related expenses

4,982

7,147

Accrued professional and consulting expense

1,988

1,421

Accrued restructuring expense

1,363

Accrued other

583

460

$

17,894

$

17,456

6. Common Stock

On June 17, 2022, the Company entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 16,326,530 shares of its common stock, pre-funded warrants to purchase 25,510,205 shares of its common stock and associated common warrants to purchase 10,459,181 shares of its common stock. The offering price per share and associated common warrant was $4.90 and the offering price per pre-funded warrant and associated common warrant is $4.8999, which equals the per share public offering price for the common shares less the $0.0001 exercise price for each such pre-funded warrant. The pre-funded warrants are exercisable at any time and only expire when exercised in full. Each common warrant has an exercise price per share of $7.35 (150% of the offering price per share of the common stock), is immediately exercisable and will expire on December 31, 2025. Total gross proceeds of the transaction was approximately $205.0 million. The offering was made pursuant to a registration statement on Form S-3. The offering closed on June 22, 2022 and the Company received approximately $195.3 million in net proceeds, after deducting placement agent fees and estimated offering expenses. The pre-funded warrants and warrants meet the condition for equity classification and were therefore recorded as a component of stockholders’ equity within additional paid-in capital. No pre-funded warrants or warrants have been exercised as of June 30, 2022.

7. 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 six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Research and development expense

$

3,116

$

2,847

$

6,523

$

4,958

General and administrative expense

 

3,675

 

3,379

 

7,096

 

5,941

$

6,791

$

6,226

$

13,619

$

10,899

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The following table summarizes the Company’s unrecognized equity-based compensation expense as of June 30, 2022:

As of June 30, 2022

Unrecognized Expense (in thousands)

    

Weighted Average Remaining Period of Recognition (years)

Restricted Stock Units

23,719

3.1

Stock Options

43,158

2.5

$

66,877

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, 2021

 

314,901

$

47.38

Granted

 

1,704,282

$

11.03

Vested

 

(60,226)

$

52.39

Forfeited

 

(144,330)

$

25.67

Restricted stock units as of June 30, 2022

 

1,814,627

$

14.81

The total fair value of restricted stock units vested during the six months ended June 30, 2022 was $1.0 million.

Stock Options

The following table summarizes the Company’s stock option activity for the current year:

Weighted

Weighted

Average

Number of 

Average

Remaining

Aggregate

    

Shares

    

Exercise Price

    

Contractual Term

    

Intrinsic Value

(in years)

(in thousands)

Outstanding as of December 31, 2021

 

3,743,400

$

25.55

8.06

$

26,272

Granted

 

2,081,968

$

10.71

Exercised

(42,392)

$

11.37

Cancelled

 

(383,749)

$

30.01

Outstanding as of June 30, 2022

 

5,399,227

$

19.62

8.06

$

748

Options exercisable as of June 30, 2022

 

2,050,517

$

20.17

6.28

$

Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the six months ended June 30, 2022 was $7.74.

The following weighted average assumptions were used in determining the fair value of options granted in the six months ended June 30, 2022 and 2021:

Six Months Ended

June 30, 

2022

    

2021

Risk-free interest rate

2.63

%  

0.74

%

Expected dividend yield

0.0

%  

0.0

%

Expected term (years to liquidity)

5.83

6.21

Expected volatility

87.51

%  

87.89

%

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2022 Inducement Plan

In June 2022, the Board of Directors of the Company approved the Scholar Rock Holding Corporation 2022 Inducement Equity Plan (the “2022 Inducement Plan”). Pursuant to the terms of the 2022 Inducement Plan, the Company may grant non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards and dividend equivalent rights for up to a total of 1,000,000 shares of common stock to individuals that were not previously an employee or director of the Company or individuals returning to employment after a bona fide period of non-employment with the Company. As of June 30, 2022, no awards have been granted from the 2022 Inducement Plan.

8. Commitments and Contingencies

Operating Leases

620 Memorial Facility Lease

In March 2015, the Company entered into a 5-year lease of office and laboratory space for its corporate headquarters (the “Lease”) at 620 Memorial Drive in Cambridge, Massachusetts. The Lease was amended in February 2018, to add an additional space (the “Expansion Space”) at the current location and to extend the Lease term (the “Amended Lease”). The Amended Lease expires in September 2023. Annual rent payments, including the Expansion Space, increase from $1.4 million to $1.7 million over the term of the Amended Lease. Variable lease payments include the Company’s allocated share of costs incurred and expenditures made by the landlord in the operation and management of the building. The Company has the option to extend the term of the Amended Lease for one additional term of 5 years commencing after the Amended Lease expires.

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 $1.9 million. The Subtenant is obligated to pay for certain costs, taxes and operating expenses, subject to certain exclusions. The Sublease is subordinate to that certain Indenture of Lease, dated March 5, 2015, by and between 620 Memorial Leasehold LLC and Scholar Rock, Inc., as amended.

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 option to extend the term by two years. The base rent is $6.9 million per year, subject to an annual increase of 3.5%, and the Company was subject to a free-rent period through mid-August 2020. Variable lease payments include the Company’s allocated share of costs incurred and expenditures made by the landlord in the operation and management of the building. The lease included incentives of $14.1 million in the form of an allowance for tenant improvements related to the design and build out of the space. In connection with the lease, the Company has secured a letter of credit for $2.3 million which renews automatically each year. The lease commencement date, for accounting purposes, was reached in September 2020.

Other information related to the Company’s leases (excluding the Company’s sublease income of $0.7 million and $1.4 million for the three and six months ended June 30, 2022, respectively) is as follows (in thousands, except lease term and discount rate):

For Three Months Ended

For Six Months Ended

    

June 30, 

    

June 30, 

2022

2022

Lease Cost:

Operating lease cost

$

2,169

$

4,337

Variable lease cost

528

903

Total lease cost

$

2,697

$

5,240

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For Six Months Ended

June 30, 

2022

Other information:

Operating cash flows used for operating leases

$

4,527

Weighted average remaining lease term

3.0

Weighted average incremental borrowing rate

7.5

%

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 six months ended June 30, 2022 and 2021.

9. 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 (“SVB”) for $50.0 million (the “Loan and Security Agreement”). Tranche 1 of $25.0 million was funded on the Closing Date. The Company had an additional $25.0 million in loan proceeds available through December 31, 2021 if certain criteria were met under Tranche 2. On November 16, 2021, the Company entered into Amendment No. 1 (the “Amendment”) to the Loan and Security Agreement to revise the Tranche 2 milestones to be when the Company has: (i) publicly announced the Phase 3 SAPPHIRE clinical trial design for apitegromab and registered such clinical trial with clinicaltrials.gov; and (ii) initiated Part B of the Phase 1 DRAGON clinical trial for SRK-181. Pursuant to the Amendment, Tranche 2 of $25.0 million was funded in December 2021. The Loan and Security Agreement will mature on May 1, 2025 and requires interest only payments through November 2022, with principal payments commencing in December 2022. The interest rate on the unpaid principal will be the greater of the Wall Street Journal prime rate plus 4.60% or 7.85% per annum. Prepayment is permitted and may include either a 2% or 3% fee (of the principal amount being prepaid), depending on when the prepayment is made. The Company is also required to make a final payment equal to 4% of the original principal amount. The Company shall maintain cash in an SVB account equal to the lesser of 100% of the Company’s consolidated cash or 105% of the dollar amount of the outstanding debt.

10. Agreements

Collaboration with Gilead

On December 19, 2018 (the “Effective Date”), the Company entered into a three-year 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 had 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 was responsible for antibody discovery and preclinical research through product candidate nomination, after which, upon exercising the option for a Gilead Program, Gilead would be responsible for the program’s preclinical and clinical development and commercialization. Such option could have been 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”). On January 6, 2022, Gilead agreed to terminate its option exercise period for all programs.

Revenue associated with the research and development and license performance obligations relating to the Gilead Programs was recognized as revenue as the research and development services were provided using an input method, according to the costs that were incurred on each Gilead Program and the costs that were expected to be incurred to satisfy the performance obligation. The transfer of control occurred over time. In management’s judgment, this input method was the best measure of progress towards satisfying the performance obligation. The amounts allocated to the

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three material rights provided by the options (“Material Rights”) was to be deferred on the Company’s consolidated balance sheet until either exercise or termination of the respective options.

A $25.0 million preclinical milestone was achieved in December 2019 for the successful demonstration of efficacy in preclinical in vivo proof-of-concept studies. As a result, the associated $25.0 million was included in the consideration transferred and proportionally allocated to the performance obligations, as it was probable that a future material reversal would not occur.

The Company recognized the revenue related to the research and development services based on a cost input method over the research term for each respective Gilead Program, which spanned from January 2019 through December 2021. In January 2022, upon Gilead’s termination of its option exercise period for all programs, the Company recognized revenue of $33.2 million attributable to the Material Rights in the Company’s consolidated statements of operations and comprehensive loss, after which all revenue related to the Gilead Collaboration Agreement had been fully recoginzed.

11. Net Loss per Share

The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding, excluding restricted common stock. The weighted average number of common shares used in the basic and diluted net loss per share calculation include the pre-funded warrants issued in connection with the Company’s November 2020 and June 2022 follow-on offerings as the pre-funded warrants are exercisable at any time for nominal cash consideration. As of June 30, 2022 no pre-funded warrants have been exercised and 27,689,692 pre-funded warrants are outstanding. The Company has generated a net loss in all periods presented, so the basic and diluted net loss per share are the same, as the inclusion of the potentially dilutive securities would be anti-dilutive.

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

Six Months Ended June 30, 

    

2022

    

2021

Restricted stock awards

9,387

Restricted stock units

1,814,627

267,481

Stock options

5,399,227

4,323,010

Warrants

10,459,181

17,673,035

4,599,878

12. Restructuring

On May 16, 2022, the Company announced a reduction in workforce in connection with the restructuring of its business to prioritize and focus on its clinical stage assets. The restructuring resulted in a reduction of the Company’s workforce by 39 positions, or approximately 25%, and occurred during the second quarter of 2022. As a result, the Company recorded restructuring costs of $1.9 million related to severance benefits for the affected employees, including salary continuation, coverage of medical insurance premiums and outplacement services, of which $1.4 million was recorded to research and development expense and $0.5 million was recorded to general and administrative expenses in the three and six months ended June 30, 2022. As of June 30, 2022, $1.4 million of the total $1.9 million remains accrued, the majority of which is expected to be paid by the end of 2022. The Company also incurred $0.1 million of non-cash expense related to equity modifications associated with the extension of the post-termination option exercise period for the vested portion of the affected employees’ outstanding stock options, as well as modifications of certain restricted stock units.

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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, 2021.

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 latent 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”) for the treatment of fibrotic diseases. We are advancing multiple antibody profiles toward product candidate selection including antibodies that selectively inhibit the activation of latent TGFβ1 in the context of fibrotic extracellular matrix and that avoid perturbing TGFβ1 presented by cells of the immune system.
Additional discovery and early preclinical programs related to the selective modulation of growth factor signaling, including BMP6 and other growth factors.

Our first product candidate, apitegromab, is a highly selective, fully human, monoclonal antibody with a unique mechanism of action that results in inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of SMA. We are

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conducting SAPPHIRE, a pivotal Phase 3 clinical trial to evaluate the efficacy and safety of apitegromab in patients with non-ambulatory Type 2 and Type 3 SMA (which is estimated to represent the majority of the current prevalent SMA patient population in the U.S. and Europe). Apitegromab was evaluated in our Phase 2 TOPAZ proof-of-concept clinical trial for the treatment of patients with Type 2 and Type 3 SMA. In June 2022, we announced 24-month efficacy and safety extension data of apitegromab from TOPAZ, and presented at the Cure SMA Research & Clinical Care Meeting (see Recent Developments). Additionally, positive 12-month top-line results were announced in April 2021, and presented at Cure SMA Virtual Conference in June 2021, showing apitegromab’s transformative potential. From June 2021 to June 2022, we announced supportive data from additional exploratory analyses from the Phase 2 TOPAZ clinical trial at various medical congresses, including those of the World Muscle Society and the Muscular Dystrophy Association, among others. The U.S. Food and Drug Administration (“FDA”) granted Fast Track designation, Rare Pediatric Disease designation and Orphan Drug Designation to apitegromab for the treatment of SMA in May 2021, August 2020 and March 2018, respectively. The European Medicines Agency (“EMA”) granted PRIority MEdicines (“PRIME”) designation in March 2021 and the European Commission (“EC”) granted Orphan Medicinal Product designation in December 2018 to apitegromab for the treatment of SMA.

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 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 highly selective inhibitor of the activation of latent TGFβ1 that is being investigated in our Phase 1 DRAGON 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 clinical trial consists of a dose escalation portion (Part A) and a dose expansion portion evaluating SRK-181 in combination with an approved anti-PD-(L)1 antibody therapy (Part B). Part B encompasses five cohorts, including urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, clear cell renal cell carcinoma and other solid tumors and commenced in 2021. Initial clinical data from Part A were presented in November 2021 at the Society for Immunotherapy of Cancer (“SITC”) 36th Annual Meeting.

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.

Since inception, we have incurred significant operating losses. Our net losses were $52.0 million for the six months ended June 30, 2022. As of June 30, 2022, we had an accumulated deficit of $428.1 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future in performing our ongoing activities, as we:

continue development activities for apitegromab, including the ongoing extension phase of our Phase 2 TOPAZ clinical trial and conduct of our Phase 3 SAPPHIRE pivotal clinical trial in SMA and open-label extension study of apitegromab and associated drug supply;
continue research and development activities for SRK-181, including the conduct of our Phase 1 DRAGON proof of concept clinical trial;
continue to discover, validate and develop additional product candidates through the use of our proprietary platform;
maintain, expand and protect our intellectual property portfolio;
hire additional research, development and business personnel; and
continue to build the infrastructure to support our operations as a public company.

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If we successfully complete clinical development and obtain regulatory approval for apitegromab, SRK-181 or any of our future product candidates, we may generate revenue in the future from product sales. In addition, if we obtain regulatory approval for apitegromab, SRK-181 or any of our future product candidates,

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we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution activities.

Recent Developments

TOPAZ 24-month analysis

On June 17, 2022, we announced new data from the Phase 2 TOPAZ trial extension period evaluating patient outcomes after 24-months of treatment, which support sustained and continued improvement with apitegromab for non-ambulatory patients with Types 2 and 3 SMA receiving an SMN therapy.

TOPAZ evaluated apitegromab across a broad age range (2-21 years) of patients with Types 2 and 3 SMA. All 35 non-ambulatory patients (Cohorts 2 and 3) and 12 of 23 ambulatory patients (Cohort 1) were receiving nusinersen maintenance therapy. The primary efficacy endpoint for the non-ambulatory population was mean change from baseline in Hammersmith Functional Motor Scale Expanded (HFMSE). Additional endpoints included mean change from baseline in Revised Upper Limb Module (RULM), an assessment specifically designed for upper limb function in patients with SMA. The HFMSE is a validated measure for the assessment of gross motor function in SMA, while the RULM is validated to evaluate upper limb motor performance by evaluating tasks which correspond to the ability to perform various everyday activities with their hands and arms.

For this 24-month evaluation, an observed case analysis was conducted, which pooled all the non-ambulatory patients (Cohorts 2 and 3) and was based upon the available data for given timepoints. This analysis population included patients receiving either low dose (2 mg/kg) or high dose (20 mg/kg) apitegromab (inclusive of patients in Cohort 3 who switched from 2 mg/kg to 20 mg/kg in Year 2) and did not exclude any patients who had missed apitegromab doses due to study site access restrictions from COVID-19.

Non-ambulatory patients (age range of 2 to 21 years old) with valid HFMSE assessments had sizable, sustained gains in HFMSE scores at 24 months from baseline (prior to first dose of apitegromab), while RULM scores continued to increase at 24 months. The mean change from baseline results for non-ambulatory patients showed:

Graphic

* Three patients in the non-ambulatory group underwent scoliosis surgery in year 2, which has been reported to negatively impact HFMSE scores for a considerable period afterwards. This analysis excluded post-surgery data of these patients.

Dose response continued to be observed across the 24 months of apitegromab administration based upon HFMSE scores and pharmacodynamic data (target engagement as measured by serum latent myostatin concentrations), with signs that that there may be further HFMSE increases as non-ambulatory patients originally receiving the low dose switched to the high dose treatment.

Data at 24-months for ambulatory patients with Type 3 SMA (Cohort 1) suggest stability of Revised Hammersmith Scale (RHS) scores in patients receiving 20 mg/kg of apitegromab and nusinersen. The mean RHS change from baseline at 24-months was -0.7 points (95% CI: -3.1, 1.7) for the apitegromab and nusinersen subgroup (n=10) and -2.8 points (95% CI: -8.4, 2.8) for the apitegromab monotherapy subgroup (n=11). A subset of individuals in Cohort 1 (n=21) had RHS improvements, as reflected by 42.9% (9/21) and 23.8% (5/21) of patients having 1-point and 3-point RHS increases from baseline at 24 months respectively. 

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Of the 55 patients who completed the 24-month TOPAZ extension period, 54 have opted to continue treatment in the 36-month extension period.

Consistent with the 12-month safety data, no serious safety risks were identified as part of the analysis of the cumulative 24-month data. The incidence and severity of adverse events were consistent with the underlying patient population and background therapy. The five most common treatment-emergent adverse events (TEAEs) were headache, pyrexia, upper respiratory tract infection, cough, and nasopharyngitis. No deaths or serious adverse reactions have been observed with apitegromab. A total of 14 serious TEAEs have been reported over the 24-month treatment period, all assessed by the respective trial investigator as unrelated to apitegromab.

Overall safety and tolerability profile over 24 months of apitegromab treatment:

The incidence and types of treatment-emergent adverse events (AEs) were consistent with the underlying disease or nusinersen therapy
​The five most common treatment-emergent AEs were headache, pyrexia, upper respiratory tract infection, cough, and nasopharyngitis
​No deaths or suspected unexpected serious adverse reactions (SUSARs) reported
​Adverse events continue to be reported as mostly mild to moderate in severity, as observed in the 12-month analysis
​No serious safety risks identified to date
​Fourteen patients experienced a serious TEAE, all assessed by the respective trial investigator as unrelated to apitegromab:
One patient treated with 2 mg/kg dose (Cohort 3) was hospitalized due to adenoidal hypertrophy and tonsillar hypertrophy to perform scheduled adenotonsillectomy (Grade 2). Events resolved without sequelae.
Two patients treated with 20 mg/kg dose (both Cohort 1) presented with gait inability considered a significant disability (both Grade 3). Events remain ongoing.
One patient treated with 20 mg/kg dose (Cohort 1) was hospitalized with post lumbar puncture syndrome (Grade 2). Event resolved without sequelae.
One patient treated with 20 mg/kg dose (Cohort 1) was hospitalized due to viral upper respiratory tract infection (Grade 2). Event resolved without sequelae.
Five patients treated with 20 mg/kg dose (one from Cohort 1, three from Cohort 2, and one from Cohort 3) were hospitalized for spinal fusion surgery/ scoliosis/ scoliosis surgery (all Grade 3). All events resolved without sequelae.
One patient treated with 20 mg/kg dose (Cohort 1) was hospitalized due to bilateral developmental hip dysplasia and left hip dislocation (both Grade 3). Events resolved without sequelae.
One patient treated with 2 mg/kg dose (Cohort 3) was hospitalized due to hip dislocation (Grade 3). Event resolved with sequelae (anxiety and post-operative pain).
One patient treated with 20 mg/kg dose (Cohort 3) was hospitalized due to respiratory syncytial virus infection (Grade 2). Events resolved without sequelae.
One patient treated with 2 mg/kg dose (Cohort 3) was hospitalized due to vomiting and pneumonia (Grade 3). Events resolved without sequelae.
​Four patients presented with non-serious Grade 3 events, all assessed by the respective trial investigator as unrelated to apitegromab:
One patient treated with 20 mg/kg dose (Cohort 1) presented with post lumbar puncture syndrome. Event resolved without sequelae.
One patient treated with 20 mg/kg dose (Cohort 2) presented with worsening of scoliosis. Event resolved (with surgery, reported as serious, above) without sequelae.
One patient treated with 20 mg/kg dose (Cohort 2) presented with osteopenia. Events remains ongoing.
One patient treated with 2 mg/kg (Cohort 3) presented with two instances of hypoglycemia and one instance of metabolic acidosis. All events resolved without sequelae.

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One patient (Cohort 1) discontinued from the trial due to Grade 2 muscle fatigue that started prior to initiation of dosing with study drug; assessed by the trial investigator as unrelated to apitegromab.

Restructuring

In May 2022, we announced a reduction in workforce in connection with the restructuring of our business to prioritize and focus on our clinical stage assets. The restructuring resulted in a reduction of our workforce by 39 positions, or approximately 25%, and occurred during the second quarter of 2022. As a result, we recorded restructuring costs of $1.9 million in the three and six months ended June 30, 2022, related to severance benefits for the affected employees, including salary continuation, coverage of medical insurance premiums and outplacement services. We also incurred $0.1 million of non-cash expense related to equity modifications associated with the extension of the post-termination option exercise period for the vested portion of the affected employees’ outstanding stock options, as well as modifications of certain restricted stock units. All the employees affected by the restructuring plan were notified and provided with their severance benefits offers in the second quarter of 2022, although severance benefits payments associated with the restructuring plan will continue past the end of the second quarter of 2022. Each affected employee’s eligibility for the severance benefits was contingent upon such employee’s execution (without revocation, as applicable) of a separation agreement, which includes a general release of claims against us and affiliated persons and entities.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic (the “COVID-19 pandemic”), which continues to spread throughout the U.S. and worldwide. We have been and could continue to be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the COVID-19 pandemic. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent the further spread, including the development and deployment of any vaccine program. Accordingly, we cannot predict the extent to which our business, including our clinical trials, financial condition and results of operations will be affected. As a result of the COVID-19 pandemic, we have experienced disruptions that have impacted our business, preclinical studies and clinical trials, including disruptions or restrictions on our ability to access and monitor certain clinical trial sites, restrictions on clinical trial participants’ ability to access our clinical trial sites and delays in enrollment. Some clinical trial participants have missed or experienced delays in receiving doses of study drug and completing their clinical trial assessments. For example, four patients (one in Cohort 2 and three in Cohort 3) of the TOPAZ clinical trial each missed three doses of apitegromab over the course of the 12-month treatment period due to COVID-19-related site access restrictions. This has affected our clinical trials and could result in further impacts, including delays in or adverse impacts to data readouts from our clinical trials and delays in our ability to identify and enroll patients in current or future clinical trials and decisions by enrolled patients to discontinue from our clinical trials due to COVID-19 related concerns. While our laboratory operations have resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies, as well as research services from our vendors in a consistently timely manner due to COVID-19 related supply chain issues. Some of our third-party manufacturers have diverted resources or manufacturing capacity to accommodate the development or manufacture of COVID-19 vaccines. Although this has not yet had an impact on our ability to produce sufficient quantities of apitegromab or SRK-181 for our clinical trials, we continue to work closely with our third-party manufacturers to mitigate potential impacts to our clinical supply chain. In addition, delays in the development of COVID-19 vaccines or the deployment of vaccines which are approved or otherwise authorized for emergency use, a recurrence or “subsequent waves” of COVID-19 cases, or the discovery of vaccine-resistant COVID-19 variants could cause other widespread or

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more severe impacts. We continue to monitor developments as we adjust to the disruptions and uncertainties relating to the COVID-19 pandemic.

Financial Operations Overview

Revenue

No revenues have been recorded from the sale of any commercial product. Revenue generation activities have been limited to collaborations, containing research services and the issuance of a license. The Gilead Collaboration Agreement was executed on December 19, 2018 (the “Effective Date”) and we began recognizing associated revenue in 2019. Under the Gilead Collaboration Agreement, Gilead had exclusive options to license worldwide rights to product candidates that emerged from three of the Company’s TGFβ programs (each a “Gilead Program”). Each option could have been exercised by Gilead at any time from the Effective Date through a date that was 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 was earlier (the “Option Exercise Period”). On January 6, 2022, Gilead agreed to terminate its option exercise period for all programs.

Revenue associated with the research and development and license performance obligations relating to the Gilead Programs was recognized as revenue using an input method as the research and development services were provided over the research term, which was during the period January 2019 through December 2021. The input method was based on the costs that were incurred on each Gilead Program and the costs that were expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurred over time. In management’s judgment, this input method was the best measure of progress towards satisfying the performance obligations. We evaluated the measure of progress each reporting period and, if necessary, adjusted the measure of performance and related revenue recognition. The estimate of remaining costs was highly subjective, as the research was novel, therefore efforts to be successful may have been significantly different than the estimated costs made at each balance sheet date. The amounts of revenue allocated to the three material rights provided by the options was to be deferred on the Company’s consolidated balance sheet until either exercise or termination of the respective options. In January 2022, Gilead agreed that its option exercise period for all programs had been terminated. The remaining $33.2 million of deferred revenue associated with the materials rights provided by the options was recognized as revenue during the three months ended March 31, 2022. As of January 31, 2022 all revenue related to the Gilead Collaboration Agreement has been recognized.

Operating Expenses

Research and Development

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

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

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

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

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

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

the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;
establishing an appropriate safety profile;
successful enrollment in and completion of clinical trials, including on account of the COVID-19 pandemic and its impact at clinical trial sites;
whether our product candidates show safety and efficacy in our clinical trials;
receipt of marketing approvals from applicable regulatory authorities, if any;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
significant and changing government regulation;
commercializing the product candidates, if and when approved, whether alone or in collaboration with others; and
continued acceptable safety profile of the products following any regulatory approval.

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

General and Administrative

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

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As a result of our reduction in force, we expect our employee related expenses to decline in the second half of the year compared to the first half of the year.

Other Income (Expense), Net

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

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands, except percentages):

Three Months Ended June 30, 

Change

 

    

2022

    

2021

    

$

    

%

 

Revenue

$

$

4,595

$

(4,595)

(100.0)

%

Operating expenses:

Research and development

32,073

25,603

6,470

25.3

%

General and administrative

 

11,074

 

9,265

 

1,809

19.5

%

Total operating expenses

 

43,147

 

34,868

 

8,279

23.7

%

Loss from operations

 

(43,147)

 

(30,273)

 

(12,874)

42.5

%

Other income (expense), net

 

(853)

 

(434)

 

(419)

96.5

Net loss

$

(44,000)

$

(30,707)

$

(13,293)

43.3

%

Revenue

Revenue was $0 and $4.6 million for the three months ended June 30, 2022 and June 30, 2021, respectively, a decrease of $4.6 million or 100.0%. The revenue for the three months ended June 30, 2021 was related to the Gilead Collaboration Agreement executed in December 2018. Revenue associated with the research and development and license performance obligations relating to the Gilead Programs was recognized as the research and development services were provided using a cost input method and was fully recognized as of December 31, 2021. In January 2022, upon Gilead’s termination of its option exercise period for all programs, revenue of $33.2 million attributable to the material rights was recognized, after which all revenue related to the Gilead Collaboration Agreement had been fully recognized.

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Operating Expenses

Research and Development

Research and development expense was $32.1 million and $25.6 million for the three months ended June 30, 2022 and June 30, 2021, respectively, an increase of $6.5 million or 25.3%. The following table summarizes our research and development expense for the three months ended June 30, 2022 and 2021 (in thousands, except percentages):

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