SEC Filing - Scholar Rock, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED September 30, 2022


☐	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 November 8, 2022 was 51,663,391.

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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 and SRK-181, 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 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 and SRK-181 and in identifying product candidates from our preclinical 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 or other public health pandemics, 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 by identifying future 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;

●

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 or as a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934; 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.

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SCHOLAR ROCK HOLDING CORPORATION

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	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	5
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	5
Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	6
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2022 and 2021	7
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	9
Notes to Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	32

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	82
Item 3. Defaults Upon Senior Securities	82
Item 4. Mine Safety Disclosures	82
Item 5. Other Information	82
Item 6. Exhibits	83
SIGNATURES	84

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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,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	133,075	$	212,835
Marketable securities		210,580		40,159
Prepaid expenses and other current assets		13,957		12,325
Total current assets		357,612		265,319
Property and equipment, net		8,142		9,564
Operating lease right-of-use asset		20,319		25,442
Restricted cash		2,498		2,498
Other long-term assets		1,732		1,622
Total assets	$	390,303	$	304,445
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,001	$	4,434
Accrued expenses		22,866		17,456
Operating lease liability		8,064		7,407
Short-term debt		805		1,577
Deferred revenue		—		33,193
Other current liabilities		—		230
Total current liabilities		33,736		64,297
Long-term portion of operating lease liability		13,535		19,652
Long-term debt		49,767		48,422
Total liabilities		97,038		132,371
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding at September 30, 2022 and December 31, 2021		—		—
Common stock, $0.001 par value; 150,000,000 shares authorized; 51,660,854 and 35,209,099 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		52		35
Additional paid-in capital		765,526		548,204
Accumulated other comprehensive loss		(936)		(35)
Accumulated deficit		(471,377)		(376,130)
Total stockholders’ equity		293,265		172,074
Total liabilities and stockholders’ equity	$	390,303	$	304,445

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,
	2022		2021		2022		2021
Revenue	$	—	$	5,464	$	33,193	$	14,767
Operating expenses:
Research and development		33,392		31,265		94,831		79,417
General and administrative		10,470		11,276		32,304		29,907
Total operating expenses		43,862		42,541		127,135		109,324
Loss from operations		(43,862)		(37,077)		(93,942)		(94,557)
Other income (expense), net		565		(430)		(1,305)		(1,328)
Net loss	$	(43,297)	$	(37,507)	$	(95,247)	$	(95,885)
Net loss per share, basic and diluted	$	(0.55)	$	(1.02)	$	(1.80)	$	(2.62)
Weighted average common shares outstanding, basic and diluted		79,336,161		36,683,026		52,958,447		36,549,833

Comprehensive loss:
Net loss	$	(43,297)	$	(37,507)	$	(95,247)	$	(95,885)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		(857)		(9)		(901)		2
Total other comprehensive income (loss)		(857)		(9)		(901)		2
Comprehensive loss	$	(44,154)	$	(37,516)	$	(96,148)	$	(95,883)

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

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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		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
Unrealized loss on marketable securities	—		—		—		(857)		—		(857)
Exercise of stock options	920		—		5		—		—		5
Issuance of common shares upon RSU vesting	21,687		—		—		—		—		—
Equity-based compensation expense	—		—		7,917		—		—		7,917
Other	—		—		(10)		—		—		(10)
Net loss	—		—		—		—		(43,297)		(43,297)
Balance at September 30, 2022	51,660,854	$	52	$	765,526	$	(936)	$	(471,377)	$	293,265

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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	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
Unrealized loss on marketable securities	—		—		—		(9)		—		(9)
Exercise of stock options	139,751		1		1,965		—		—		1,966
Equity-based compensation expense	—		—		6,154		—		—		6,154
Net loss	—		—		—		—		(37,507)		(37,507)
Balance at September 30, 2021	34,599,538	$	35	$	527,441	$	—	$	(340,216)	$	187,260

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,
	2022		2021
Cash flows from operating activities:
Net loss	$	(95,247)	$	(95,885)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,237		1,900
Amortization of debt discount and debt issuance costs		573		248
Loss on disposal of property and equipment		32		24
Equity-based compensation		21,536		17,053
Amortization/accretion of investment securities		(494)		808
Non-cash operating lease expense		5,122		4,755
Change in operating assets and liabilities:
Prepaid expenses and other current assets		(1,633)		(7,876)
Other assets		(110)		(84)
Accounts payable		(2,245)		(1,194)
Accrued expenses		5,322		4,120
Operating lease liabilities		(5,460)		(3,663)
Deferred revenue		(33,193)		(14,767)
Other liabilities		(227)		227
Net cash used in operating activities		(103,787)		(94,334)
Cash flows from investing activities:
Purchases of property and equipment		(947)		(4,706)
Purchases of marketable securities		(290,828)		(60,437)
Maturities of marketable securities		120,000		170,000
Net cash (used in) provided by investing activities		(171,775)		104,857
Cash flows from financing activities:
Proceeds from sale of common shares, pre-funded warrants and warrants to purchase common shares, net of issuance costs		195,315		—
Proceeds from stock option exercises		487		5,269
Other		—		(19)
Net cash provided by financing activities		195,802		5,250
Net (decrease) increase in cash, cash equivalents and restricted cash		(79,760)		15,773
Cash, cash equivalents and restricted cash, beginning of period		215,333		162,856
Cash, cash equivalents and restricted cash, end of period	$	135,573	$	178,629
Supplemental disclosure of non-cash items:
Property and equipment purchases in accounts payable and accrued expenses	$	112	$	10
Supplemental cash flow information:
Cash paid for interest	$	3,032	$	1,494

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 commenced in 2021 and includes the following active cohorts: urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, and clear cell renal cell carcinoma. 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, 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 September 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 September 30,
	2022		2021
Cash and cash equivalents	$	133,075	$	176,131
Restricted cash		2,498		2,498
	$	135,573	$	178,629

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


	Fair Value Measurements at September 30, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	122,040	$	122,040	$	—	$	—
Marketable securities:
U.S. Treasury obligations		210,580		210,580		—		—
Total assets	$	332,620	$	332,620	$	—	$	—


	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 September 30, 2022 and December 31, 2021. There were no transfers of assets between fair value measurement levels during the three and nine months ended September 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 September 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 September 30, 2022 (in thousands):


			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	211,516		—		(936)	$	210,580
Total available-for-sale securities	$	211,516	$	—	$	(936)	$	210,580

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

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The aggregate fair value of marketable securities with unrealized losses was $211.5 million and $30.2 million at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, 23 investments 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 September 30, 2022 and December 31, 2021, accrued expenses consist of the following (in thousands):


	As of
	September 30,		December 31,
	2022		2021
Accrued external research and development expense	$	13,954	$	8,428
Accrued payroll and related expenses		6,578		7,147
Accrued professional and consulting expense		1,378		1,421
Accrued other		731		460
Accrued restructuring expense		225		—
	$	22,866	$	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. Gross proceeds from the transaction were $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 $195.3 million in net proceeds, after deducting placement agent fees and 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.

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 nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Research and development expense	$	4,144	$	2,482	$	10,667	$	7,440
General and administrative expense		3,773		3,672		10,869		9,613
	$	7,917	$	6,154	$	21,536	$	17,053

Equity-based compensation during the three and nine months ended September 30, 2022 includes $1.2 million and $1.3 million, respectively, related to the modification of certain equity awards.

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



	As of September 30, 2022
		Unrecognized Expense (in thousands)	Weighted Average Remaining Period of Recognition (years)
Restricted Stock Units		19,146	2.8
Stock Options		40,638	2.7
	$	59,784

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	1,724,256	$	11.00
Vested	(81,913)	$	46.48
Forfeited	(249,509)	$	22.08
Restricted stock units as of September 30, 2022	1,707,735	$	14.39

The total fair value of restricted stock units vested during the nine months ended September 30, 2022 was $1.2 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	3,157,932	$	10.08
Exercised	(43,312)	$	11.25
Cancelled	(715,347)	$	25.60
Outstanding as of September 30, 2022	6,142,673	$	17.69	8.26	$	2,591
Options exercisable as of September 30, 2022	2,247,725	$	20.54	6.53	$	427

Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the nine months ended September 30, 2022 was $7.42.

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


	Nine Months Ended
	September 30,
	2022		2021
Risk-free interest rate	2.99	%	0.77	%
Expected dividend yield	0.0	%	0.0	%
Expected term (years to liquidity)	5.97		6.21
Expected volatility	88.47	%	87.79	%

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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 $2.0 million for the three and nine months ended September 30, 2022, respectively) is as follows (in thousands, except lease term and discount rate):


	For Three Months Ended		For Nine Months Ended
	September 30,		September 30,
	2022		2022
Lease Cost:
Operating lease cost	$	2,169	$	6,506
Variable lease cost		504		1,408
Total lease cost	$	2,673	$	7,914

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	For Nine Months Ended
	September 30,
	2022
Other information:
Operating cash flows used for operating leases	$	6,843
Weighted average remaining lease term		2.7
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 nine months ended September 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 (“Oxford”) 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 under Tranche 2 which was funded in December 2021. The Loan and Security Agreement was to mature on May 1, 2025 and required interest-only payments through November 2022, with principal payments to commence in December 2022. Pursuant to the Loan and Security Agreement, 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.

On November, 10, 2022, the Company entered into Amendment 2 to the Loan and Security Agreement (the “Amendment”) to increase the total agreement to an amount up to $100.0 million, comprised of the original $50.0 million loan which remains outstanding and two additional $25.0 million tranches. The first $25.0 million tranche is available at the Company’s discretion through December 2023 upon achievement of certain development and business performance milestones. The second $