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, 2020

OR

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

FOR THE TRANSITION PERIOD FROM _ TO _

COMMISSION FILE NUMBER 001-38501

______________________________________________

SCHOLAR ROCK HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	82-3750435
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
620 Memorial Drive, 2nd Floor Cambridge, Massachusetts	02139
(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 4, 2020 was 33,638,829.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

● the success, cost and timing of clinical trials for apitegromab (SRK-015), including the results, progress and completion of our TOPAZ Phase 2 clinical trial for apitegromab and any future clinical trials for apitegromab, and the results, and the timing of results, from these trials;

● the success, cost and timing of clinical trials for SRK-181, including the results, progress and completion of our DRAGON Phase 1 clinical trial for SRK-181 and any future clinical trials for SRK-181, and the results, and the timing of results, from these trials;

● the success, cost and timing of our other product development activities, preclinical studies and clinical trials, and the results, and timing of results, from these studies and trials;

● the costs, timing and outcome of regulatory review of our product candidates;

● our success in identifying and executing a development program for additional indications for apitegromab, SRK-181 and in identifying product candidates from our other programs;

● the clinical utility of our product candidates and their potential advantages over other therapeutic options;

● our ability to obtain, generally or on terms acceptable to us, funding for our operations, including funding necessary to complete further development and, upon successful development, if approved, commercialization of apitegromab, SRK-181 or any of our future product candidates;

● risks associated with the COVID-19 pandemic, which may adversely impact our business, preclinical studies, clinical trials and financial results;

● the potential for our identified research priorities to advance our proprietary platform, development programs or product candidates;

● the timing, scope, or likelihood of our ability to obtain and maintain regulatory approval from the U.S. Food and Drug Administration (“FDA”), European Medicines Agency (“EMA”) 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 expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and the duration of such protection;

● our ability and the potential to successfully manufacture our product candidates for clinical trials and for commercial use, if approved;

● our ability to establish or maintain collaborations or strategic relationships, including our collaboration with Gilead Sciences, Inc. (“Gilead”);

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● 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 expenses, future revenue, capital requirements and needs for additional financing, including our expected use of proceeds from our public offerings;

● cash and expense levels, future revenues and liquidity sources;

● our expectations regarding the period during which we qualify as an emerging growth company (“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 Quarterly 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 Quarterly Report.

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

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SCHOLAR ROCK HOLDING CORPORATION

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	5
Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	5
Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019	6
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2020 and 2019	7
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	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	30
Item 4. Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	89
Item 3. Defaults Upon Senior Securities	89
Item 4. Mine Safety Disclosures	89
Item 5. Other Information	89
Item 6. Exhibits	90
SIGNATURES	91

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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,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	56,227	$	36,308
Marketable securities		60,037		121,140
Accounts receivable		—		25,000
Prepaid expenses and other current assets		3,117		2,719
Total current assets		119,381		185,167
Property and equipment, net		5,550		4,171
Operating lease right-of-use asset		34,942		4,447
Restricted cash		2,498		2,498
Other long-term assets		1,050		98
Total assets	$	163,421	$	196,381
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,106	$	1,130
Accrued expenses		10,968		9,610
Operating lease liability		4,072		1,135
Deferred revenue		16,706		20,923
Other current liabilities		17		16
Total current liabilities		32,869		32,814
Long-term portion of operating lease liability		28,830		4,168
Other long-term liabilities		6		9
Long-term portion of deferred revenue		38,739		46,489
Total liabilities		100,444		83,480
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2020 and December 31, 2019; no shares issued and outstanding at September 30, 2020 and December 31, 2019		—		—
Common stock, $0.001 par value; 150,000,000 shares authorized and 29,917,907 shares issued and outstanding as of September 30, 2020; 150,000,000 shares authorized and 29,792,922 shares issued and outstanding as of December 31, 2019		30		30
Additional paid-in capital		280,704		270,682
Accumulated other comprehensive income		3		37
Accumulated deficit		(217,760)		(157,848)
Total stockholders’ equity		62,977		112,901
Total liabilities and stockholders’ equity	$	163,421	$	196,381

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,
	2020		2019		2020		2019
Revenue	$	3,037	$	4,774	$	11,967	$	12,919
Operating expenses:
Research and development		18,383		15,699		52,282		40,153
General and administrative		8,272		6,181		20,459		14,961
Total operating expenses		26,655		21,880		72,741		55,114
Loss from operations		(23,618)		(17,106)		(60,774)		(42,195)
Other income (expense), net		57		959		862		2,768
Net loss	$	(23,561)	$	(16,147)	$	(59,912)	$	(39,427)
Net loss per share, basic and diluted	$	(0.79)	$	(0.55)	$	(2.02)	$	(1.46)
Weighted average common shares outstanding, basic and diluted		29,779,114		29,232,158		29,665,995		26,929,215
Comprehensive loss:
Net loss	$	(23,561)	$	(16,147)	$	(59,912)	$	(39,427)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		(46)		(32)		(34)		34
Total other comprehensive income (loss)		(46)		(32)		(34)		34
Comprehensive loss	$	(23,607)	$	(16,179)	$	(59,946)	$	(39,393)

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		Income		Deficit		Equity
Balance at December 31, 2019	29,792,922	$	30	$	270,682	$	37	$	(157,848)	$	112,901
Unrealized gain on marketable securities	—		—		—		197		—		197
Exercise of stock options	40,252		—		405		—		—		405
Equity-based compensation expense	—		—		2,214		—		—		2,214
Net Loss	—		—		—		—		(17,070)		(17,070)
Balance at March 31, 2020	29,833,174	$	30	$	273,301	$	234	$	(174,918)	$	98,647
Unrealized loss on marketable securities	—		—		—		(185)		—		(185)
Restricted shares forfeited during the period	(42,010)		—		—		—		—		—
Exercise of stock options	83,523		—		598		—		—		598
Equity-based compensation expense	—		—		2,395		—		—		2,395
Net Loss	—		—		—		—		(19,281)		(19,281)
Balance at June 30, 2020	29,874,687	$	30	$	276,294	$	49	$	(194,199)	$	82,174
Unrealized loss on marketable securities	—		—		—		(46)		—		(46)
Exercise of stock options	43,220		—		374		—		—		374
Equity-based compensation expense	—		—		4,036		—		—		4,036
Net Loss	—		—		—		—		(23,561)		(23,561)
Balance at September 30, 2020	29,917,907	$	30	$	280,704	$	3	$	(217,760)	$	62,977
						Accumulated
				Additional		Other				Total
	Common Stock			Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balance at December 31, 2018	26,217,701	$	26	$	213,453	$	(8)	$	(106,848)	$	106,623
Unrealized gain on marketable securities	—		—		—		24		—		24
Restricted shares forfeited during the period	(2,237)		—		—		—		—		—
Exercise of stock options	1,983		—		13		—		—		13
Equity-based compensation expense	—		—		1,618		—		—		1,618
Net loss	—		—		—		—		(10,755)		(10,755)
Balance at March 31, 2019	26,217,447	$	26	$	215,084	$	16	$	(117,603)	$	97,523
Unrealized gain on marketable securities	—		—		—		42		—		42
Sale of common shares, net of issuance costs	3,000,000		3		42,019		—		—		42,022
Exercise of stock options	12,883		—		79		—		—		79
Equity-based compensation expense	—		—		1,814		—		—		1,814
Net loss	—		—		—		—		(12,525)		(12,525)
Balance at June 30, 2019	29,230,330	$	29	$	258,996	$	58	$	(130,128)	$	128,955
Unrealized loss on marketable securities	—		—		—		(32)		—		(32)
Restricted shares forfeited during the period	(1,973)		—		—		—		—		—
Sale of common shares, net of issuance costs	450,000		1		6,325		—		—		6,326
Exercise of stock options	65		—		—		—		—		—
Equity-based compensation expense	—		—		2,688		—		—		2,688
Net loss	—		—		—		—		(16,147)		(16,147)
Balance at September 30, 2019	29,678,422	$	30	$	268,009	$	26	$	(146,275)	$	121,790

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

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SCHOLAR ROCK HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(59,912)	$	(39,427)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,172		917
Gain or loss on sale of property and equipment		—		(8)
Equity-based compensation		8,645		6,120
Amortization/accretion of investment securities		(188)		(1,023)
Non-cash operating lease expense		791		742
Change in operating assets and liabilities:
Accounts receivable		25,000		—
Prepaid expenses and other current assets		(4,197)		(1,001)
Other assets		(952)		(85)
Accounts payable		(24)		(664)
Accrued expenses		1,864		984
Operating lease liabilities		(818)		(625)
Deferred revenue		(11,967)		(12,919)
Other liabilities		—		(59)
Net cash used in operating activities		(40,586)		(47,048)
Cash flows from investing activities:
Purchases of property and equipment		(2,114)		(1,645)
Purchases of marketable securities		(79,443)		(194,608)
Sales and maturities of marketable securities		140,700		112,800
Proceeds from sale of property and equipment		—		8
Net cash provided by (used in) investing activities		59,143		(83,445)
Cash flows from financing activities:
Principal payments on loan payable		—		(365)
Proceeds from sale of common stock, net of issuance costs		—		48,348
Proceeds from stock option exercises		1,377		92
Other		(15)		(10)
Net cash provided by financing activities		1,362		48,065
Net increase (decrease) in cash and cash equivalents and restricted cash		19,919		(82,428)
Cash and cash equivalents and restricted cash, beginning of period		38,806		115,274
Cash and cash equivalents and restricted cash, end of period	$	58,725	$	32,846
Supplemental disclosure of non-cash items:
Property and equipment purchases in accounts payable and accrued expenses	$	424	$	832
Operating lease right-of-use asset obtained in exchange for operating lease obligation	$	31,286	$	5,444

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

8

SCHOLAR ROCK HOLDING CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of the Business

Scholar Rock Holding Corporation and its subsidiaries (collectively, the “Company”) is a biopharmaceutical company focused on the discovery and development of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. The Company’s novel understanding of the molecular mechanisms of growth factor activation enabled the development of a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target these signaling proteins at the cellular level. The Company’s first product candidate, apitegromab (previously referred to as SRK-015), is a highly selective fully human, monoclonal antibody, with a unique mechanism of action that results in the inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). Apitegromab is being evaluated in the Company’s TOPAZ Phase 2 proof-of-concept trial for the treatment of patients with Type 2 and Type 3 SMA. In October 2020, the Company announced positive proof-of-concept data from the six-month interim analysis in the TOPAZ 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-(L)1 antibody therapies. SRK-181 is a potent and highly selective inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”). The Company initiated the DRAGON Phase 1 proof-of-concept clinical trial of SRK-181 in patients with locally advanced or metastatic solid tumors that do not respond to anti-PD-(L)1 antibodies in the first quarter of 2020 and patient dosing commenced in April 2020. Additionally, the Company continues to create a pipeline of novel product candidates with the potential to transform the lives of patients suffering from a wide range of serious diseases, including neuromuscular disorders, cancer, fibrosis and anemia. The Company was originally formed in May 2012. Its principal offices are in Cambridge, Massachusetts.

Since its inception, the Company’s operations have focused on research and development of monoclonal antibodies that selectively inhibit activation of growth factors for therapeutic effect, as well as establishing the Company’s intellectual property portfolio and performing research and development activities. The Company has primarily financed its operations through various equity financings, including the initial public offering of its common stock (the “IPO”) in May 2018, a secondary offering of common stock in June 2019, and a follow-on offering of common stock and pre-funded warrants completed in November 2020 (Note 11), as well as research and development collaboration agreements.

Revenue generation activities have been limited to two collaborations, both containing research services and the issuance of a license. The first agreement, executed in 2013, was with Janssen Biotech, Inc. (“Janssen”), a subsidiary of Johnson & Johnson. The second agreement (the “Gilead Collaboration Agreement”), executed in December 2018, was with Gilead Sciences, Inc. (“Gilead”). The Company began recognizing revenue on the Gilead Collaboration Agreement in 2019. No revenues have been recorded from the sale of any commercial product.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s 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, 2020 will be sufficient to allow the Company to fund its current operations through at least a period of one year after the date the financial statements are issued.

2. Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of the unaudited consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. There have been no material changes

9

to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Cash and Cash Equivalents and Restricted Cash

The following table reconciles cash and cash equivalents and restricted cash per the balance sheet to the statement of cash flows:

	As of September 30,
	2020		2019
Cash and cash equivalents	$	56,227	$	32,641
Restricted cash		2,498		205
	$	58,725	$	32,846

Unaudited Interim Financial Information

The consolidated financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited consolidated financial statements include the accounts of Scholar Rock Holding Corporation and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the related reporting of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new standard aligns the requirements for capitalizing implementation costs for hosting arrangements (services) with costs for internal-use software (assets). As a result, certain implementation costs incurred in hosting arrangements are deferred and amortized. The new standard was effective for the Company on January 1, 2020 and was adopted prospectively. As such, there was no transition adjustment. There was no material impact to the Company’s net financial position or disclosures as a result of the adoption of ASU 2018-15.

Recently Issued Accounting Pronouncements

The Company has reviewed all recently issued accounting pronouncements and has determined that such standards do not currently apply to its operations.

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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, 2020 and December 31, 2019 (in thousands):

	Fair Value Measurements at September 30, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	52,668	$	52,668	$	—	$	—
Marketable securities:
U.S. Treasury obligations		60,037		60,037		—		—
Total assets	$	112,705	$	112,705	$	—	$	—

	Fair Value Measurements at December 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	34,896	$	34,896	$	—	$	—
Marketable securities:
U.S. Treasury obligations		121,140		121,140		—		—
Total assets	$	156,036	$	156,036	$	—	$	—

Cash and cash equivalents and marketable securities include investments in money market funds and U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1 as of September 30, 2020 and December 31, 2019. There were no transfers of assets between fair value measurement levels during the three and nine months ended September 30, 2020 or 2019.

The carrying amounts reflected in the balance sheets for accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at September 30, 2020 and December 31, 2019, due to their short-term nature.

4. Marketable Securities

The following table summarizes the Company’s investments as of September 30, 2020 (in thousands):

			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	60,034	$	3	$	—	$	60,037
Total available-for-sale securities	$	60,034	$	3	$	—	$	60,037

The following table summarizes the Company’s investments as of December 31, 2019 (in thousands):

			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	121,103	$	39	$	(2)	$	121,140
Total available-for-sale securities	$	121,103	$	39	$	(2)	$	121,140

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5. Accrued Expenses

As of September 30, 2020 and December 31, 2019, accrued expenses consist of the following (in thousands):

	As of
	September 30,		December 31,
	2020		2019
Accrued payroll and related expenses	$	5,014	$	4,088
Accrued external research and development expense		4,398		4,380
Accrued professional and consulting expense		1,003		929
Accrued other		553		213
	$	10,968	$	9,610

6. Equity-Based Compensation

The Company recorded equity-based compensation expense related to all equity-based awards, which was allocated as follows in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Research and development expense	$	900	$	577	$	2,602	$	1,794
General and administrative expense		3,136		2,111		6,043		4,326
	$	4,036	$	2,688	$	8,645	$	6,120

Equity-based compensation during the three and nine months ended September 30, 2020 includes $1.5 million related to the modification of certain equity awards. Equity-based compensation during the three and nine months ended September 30, 2019 includes $0.6 million and $0.1 million related to the acceleration and modification, respectively, of certain equity awards.

Restricted Stock

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

		Weighted
		Average Fair
		Value per Share
	Number of Shares	at Issuance
Restricted common stock as of December 31, 2019	302,360	$	5.77
Granted	—	$	—
Vested	(174,234)	$	5.77
Forfeited	(42,010)	$	5.77
Restricted common stock as of September 30, 2020	86,116	$	5.77

As of September 30, 2020, the Company had unrecognized equity-based compensation expense of $0.4 million related to restricted stock which is expected to be recognized over a period of 0.8 years.

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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, 2019	2,401,382	$	12.63	8.36	$	6,523
Granted	2,223,315	$	14.25
Exercised	(166,995)	$	8.24
Cancelled	(318,463)	$	13.57
Outstanding as of September 30, 2020	4,139,239	$	13.60	7.65	$	18,874
Options exercisable as of September 30, 2020	1,208,910	$	12.92	6.38	$	6,850

Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the nine months ended September 30, 2020 was $9.96.

The following weighted average assumptions were used in determining the fair value of options granted in the nine months ended September 30, 2020:

Risk-free interest rate	0.95	%
Expected dividend yield	0.0	%
Expected term (years to liquidity)	6.21
Expected volatility	81.65	%

As of September 30, 2020, the Company has unrecognized equity-based compensation expense related to its stock options of $23.6 million which the Company expects to recognize over the remaining weighted average vesting period of 2.8 years.

7. Commitments and Contingencies

Operating Leases

620 Memorial Facility Lease

In March 2015, the Company entered into a 5-year facility lease 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. Rent for the facility Lease, including the Expansion Space, increases from $1.4 million a year to $1.7 million a year over the term of the 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.

301 Binney Facility Lease

In November 2019, the Company entered into a facility lease 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 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 Company is involved in the construction and design of the space and anticipates that it will incur construction costs of which $14.1 million will be reimbursed through an allowance for tenant improvements. In

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connection with the facility 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 during the three months ended September 30, 2020, and accordingly, the Company recognized the operating lease right-of-use asset and associated operating lease liability.

Other information related to the Company’s Leases is as follows (in thousands, except lease term and discount rate):

	For Three Months Ended		For Nine Months Ended
	September 30,		September 30,
	2020		2020
Lease Cost:
Operating lease cost	$	344	$	1,031
Variable lease cost		189		567
Total lease cost	$	533	$	1,598

	For Nine Months Ended
	September 30,
	2020
Other information:
Operating cash flows used for operating leases	$	1,059
Weighted average remaining lease term		4.6 years
Weighted average incremental borrowing rate		7.40	%

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of September 30, 2020 (in thousands):

Year Ending December 31,
2020 (excluding the nine months ended September 30, 2020)(1)	$	350
2021(1)		8,360
2022		9,196
2023		9,070
2024		8,064
2025		4,498
Total lease payments		39,538
Less imputed interest		(6,636)
Total operating lease liabilities	$	32,902

⁽¹⁾ Maturities for operating lease liabilities in 2020 and 2021 are presented at a lesser amount due to tenant improvement allowances expected to be received related to the ongoing construction at the Company’s facility at 301 Binney Street.

Specifica Antibody Library

On December 20, 2019 (the “Effective Date”), the Company entered into a Library Development and Transfer Agreement with Specifica Inc. (“Specifica”), whereby Specifica is responsible for developing and delivering a customized antibody display library (the “Library”) for the Company to use to identify antibodies for further research, development, and commercialization. The Company expects to pay $3.7 million in fees through 2023 related to the Library.

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, 2020 and 2019.

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8. Loan Payable

In August 2015, the Company entered into a Loan and Security Agreement with Silicon Valley Bank, which provided the Company an equipment line of credit of up to $2.0 million to finance the purchase of eligible equipment. The Company made the final payments on the loan in June 2019.

9. Agreements

Collaboration with Gilead

On December 19, 2018 (the “Effective Date”), the Company entered into a Master Collaboration Agreement (the “Gilead Collaboration Agreement”) with Gilead to discover and develop specific inhibitors of TGFβ activation focused on the treatment of fibrotic diseases. Under the collaboration, Gilead has exclusive options to license worldwide rights to product candidates that emerge from three of the Company’s TGFβ programs (each a “Gilead Program”). Pursuant to the Gilead Collaboration Agreement, the Company is responsible for antibody discovery and preclinical research through product candidate nomination, after which, upon exercising the option for a Gilead Program, Gilead will be responsible for the program’s preclinical and clinical development and commercialization. Such option may be exercised by Gilead at any time from the Effective Date through a date that is 90 days following the expiration of the Research Collaboration Term for a given Gilead Program, or until termination of the Gilead Program, whichever is earlier (the “Option Exercise Period”).

Prior to Gilead’s exercise of an option, the Company has the lead responsibility for drug discovery and pre-clinical development of all Gilead Programs through to Development Candidate Nomination. Within a certain period of time after receiving a data package for a Development Candidate Nomination, Gilead may exercise its option to enter into a Form of License Agreement for exclusive rights to develop, manufacture and commercialize the licensed antibodies and licensed products of such Gilead Program.

Revenue associated with the research and development and license performance obligations relating to the Gilead Programs is recognized as revenue as the research and development services are provided using an input method, according to the costs incurred on each Gilead Program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over time. In management’s judgment, this input method is the best measure of progress towards satisfying the performance obligation. The amounts allocated to the three material rights will be recognized when Gilead exercises each respective option and delivers the underlying license and transfer of know-how, or immediately as each option expires unexercised. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s consolidated balance sheet.

None of the performance obligations have been fully satisfied as of September 30, 2020. 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 will not occur.

In the three and nine months ended September 30, 2020, the Company recognized $3.0 million and $12.0 million, respectively, in revenue in the Company’s consolidated statements of operations and comprehensive loss under the Gilead Collaboration Agreement. The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligations and recorded in deferred revenue at September 30, 2020 is $55.4 million. The Company will recognize the deferred revenue related to the research and development services based on a cost input method, over the remaining research term for each respective Gilead Program, which is a maximum of 1.3 years as of September 30, 2020; each research term is dependent on the timing of Gilead either exercising its options for the Gilead Programs or terminating further development on the Gilead Programs prior to the expiration date of the research term. The deferred revenue related to the material rights will be recognized as options are exercised by Gilead or at the conclusion of the Option Exercise Period.

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10. Net Loss per Share

The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding, excluding restricted common stock. The 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:

	Nine Months Ended September 30,
	2020	2019
Restricted common stock	86,116	388,902
Warrant	7,614	7,614
Stock options	4,139,239	2,470,470
	4,232,969	2,866,986

11. Subsequent Events

Sublease of 620 Memorial Drive

On October 5, 2020, the Company entered into a Sublease Agreement (the “Sublease”) with Orna Therapeutics, Inc. (the “Subtenant”) to sublease approximately 20,751 square feet of office and laboratory space located at 620 Memorial Drive, Cambridge, Massachusetts. The Sublease term will commence on a date to be determined between January 1 and March 15, 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 will also be 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.

Debt Facility

On October 16, 2020 (the “Closing Date”) the Company entered into a Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank for $50.0 million (the “Loan and Security Agreement”). The first tranche of $25.0 million was funded on the Closing Date. The second $25.0 million tranche is available through December 31, 2021 upon dosing of the first patient in a Phase 3 trial for apitegromab and dosing of the first patient in Part B of the DRAGON Phase 1 trial for SRK-181. The Loan and Security Agreement will mature on May 1, 2025 and requires interest only payments for the first two years. 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.

Follow-On Financing

On October 28, 2020, the Company entered into an underwriting agreement with J.P. Morgan Securities LLC, Jefferies LLC and Credit Suisse Securities (USA) LLC, as representatives of the several underwriters named therein (the “Underwriters”), relating to the issuance and sale of an aggregate of 3,717,948 shares of its common stock at $39.00 per share and pre-funded warrants to purchase 2,179,487 shares of its common stock. The price of each pre-funded warrant was $38.9999, 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 shares of common stock sold include 769,230 shares pursuant to the option granted by the Company to the underwriters, which option was exercised in full. Total gross proceeds of the transaction was $230.0 million, including the proceeds from the option granted to the underwriters. The offering was made pursuant to the Company’s effective shelf registration on Form S-3. The offering closed on November 2, 2020 and the Company received approximately $215.8 million in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses.

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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, 2019.

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 these signaling proteins at the cellular level. We believe this approach, acting in the disease microenvironment, avoids the historical dose-limiting safety challenges associated with inhibiting growth factors for therapeutic effect. We also believe our focus on biologically validated growth factors may facilitate a more efficient development path.

Our first product candidate, apitegromab (U.S. Adopted Names Council approved non-proprietary drug name for SRK-015), is a highly selective, fully human, monoclonal antibody, with a unique mechanism of action that results in the inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). In August 2020, the U.S. Food and Drug Administration (“FDA”) granted Rare Pediatric Disease designation for apitegromab for the treatment of SMA. The FDA had previously granted Orphan Drug Designation to apitegromab for the treatment of SMA. Apitegromab is being evaluated in our TOPAZ Phase 2 proof-of-concept trial for the treatment of patients with Type 2 and Type 3 SMA. Enrollment in the trial completed in January 2020 with a total of 58 patients enrolled across three cohorts: apitegromab Cohort 1 enrolled 23 patients with ambulatory Type 3 SMA, Cohort 2 enrolled 15 patients with Type 2 or non-ambulatory Type 3 SMA, and Cohort 3 enrolled 20 patients with Type 2 SMA who had initiated treatment with an approved SMN upregulator therapy before the age of 5. All patients are being treated with intravenous apitegromab dosed every four weeks (Q4W) over a 12-month treatment period. With the exception of 11 patients in Cohort 1, who are being treated with apitegromab as monotherapy, the remaining are all being treated with apitegromab in conjunction with an approved SMN upregulator therapy (nusinersen). A pre-planned interim analysis was conducted following a six-month treatment period across all three study cohorts and positive interim analysis results were announced in October 2020. Three patients (one in Cohort 2 and two in Cohort 3) each missed three doses of apitegromab and the six-month interim analysis timepoint due to COVID-19-related site access restrictions; the six-month timepoint from these patients was not included in the interim analysis.

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● Treatment with apitegromab led to improvements in the Hammersmith scale scores (primary efficacy endpoint) in all three cohorts of patients with Type 2 and Type 3 SMA. At the six-month interim analysis timepoint:

Cohort 1 mean change from baseline in Revised Hammersmith Scale (RHS) score:

o apitegromab pooled (n = 23): +0.5 points (95% CI of -1.1, +2.2)

o apitegromab 20 mg/kg monotherapy (n = 11): +0.7 points (95% CI of -2.5, +4.0)

o apitegromab 20 mg/kg + nusinersen (n = 12): +0.3 points (95% CI of -1.4, +2.0)

Cohort 2 (apitegromab 20 mg/kg + nusinersen) mean change from baseline in Hammersmith Functional Motor Scale Expanded (HFMSE) score (n = 14): + 1.4 points (95% CI of +0.1, +2.7)

Cohort 3 mean change from baseline in HFMSE score:

o apitegromab 20 mg/kg dose + nusinersen (n = 9): +5.6 points (95% CI of +2.5, +8.7)

o apitegromab 2 mg/kg dose + nusinersen (n = 9): +2.4 points (95% CI of -0.9, +5.8)

● Substantial proportion of patients in each cohort attained ≥3-point improvement in Hammersmith scores. At the six-month interim analysis timepoint:

Cohort 1 proportion of patients attaining ≥3-point improvement in RHS:

o apitegromab pooled: 26% (6/23)

o apitegromab 20 mg/kg monotherapy: 36% (4/11)

o apitegromab 20 mg/kg + nusinersen: 17% (2/12)

Cohort 2 proportion of patients attaining ≥3-point improvement in HFMSE: 21% (3/14)

Cohort 3 proportion of patients attaining ≥3-point improvement in HFMSE:

o apitegromab 20 mg/kg dose + nusinersen: 67% (6/9)

o apitegromab 2 mg/kg dose + nusinersen: 44% (4/9)

● Dose response in the primary efficacy endpoint was observed in Cohort 3, which has a randomized, double-blind, parallel arm design. Patients treated with the high dose (20 mg/kg) achieved numerically greater improvements from baseline in HFMSE scores as compared to the low dose (2 mg/kg) at all assessed timepoints (week 8, week 16, and the six-month interim analysis timepoint).

o Numerically greater improvements with high dose were observed both in terms of mean change from baseline and in proportions of patients attaining ≥3 point increase in HFMSE score.

● Pharmacokinetic and pharmacodynamic data supported the clinically observed dose response; high dose (20 mg/kg) yielded higher levels of drug exposure and target engagement than low dose (2 mg/kg)

o Treatment with the high dose led to higher levels of drug exposure than with the low dose.

o Treatment with high dose achieved higher levels of target engagement, and treatment with low dose did not attain full target saturation.

● No safety signals were identified from the interim analysis.

o Incidence and severity of adverse events were consistent with underlying patient population and background therapy.

o Five most frequently reported treatment-emergent adverse events (TEAEs): Headache, upper respiratory tract infection, pyrexia, nasopharyngitis, and cough.

o No grade 3 (severe) or higher adverse events were reported.

o One patient (Cohort 1) experienced a serious TEAE of Grade 2 viral upper respiratory tract infection leading to hospitalization. The event was resolved without sequelae and was assessed by the trial investigator as unrelated to study drug.

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o 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 study drug.

Top-line data for the 12-month treatment period of the TOPAZ Phase 2 trial are expected in the second quarter of 2021. Twelve-month data could provide additional insights on the potential durability of effect and the potential for further improvements in motor function, as well as additional safety data.

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-(L)1 antibody therapies. SRK-181 is a potent and highly selective inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”). We initiated the DRAGON Phase 1 proof-of-concept clinical trial of SRK-181 in patients with locally advanced or metastatic solid tumors that do not respond to anti-PD-(L)1 antibodies in the first quarter of 2020 and commenced patient dosing in April 2020. This two-part trial consists of a dose escalation portion (Part A) and a dose expansion portion (Part B). Part A will evaluate SRK-181 as a single-agent and in combination with an approved anti-PD-(L)1 antibody therapy and Part B will evaluate SRK-181 in combination with an approved anti-PD-(L)1 antibody therapy in multiple cohorts that are expected to include urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, amongst other solid tumor types. An update on dose escalation in Part A of the DRAGON Phase 1 proof-of-concept trial is expected in the fourth quarter of 2020. We continue to expect to advance to Part B of the trial in the first quarter of 2021 with clinical response and safety data anticipated in the second half of 2021.

Our proprietary platform focused on the discovery of antibodies that locally and selectively target the precursor, or latent, form of growth factors has been productive and we continue to build 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, fibrosis and anemia.

We have discovered and progressed the development of:

● Potent and selective inhibitors of the activation of TGFβ in collaboration with Gilead, for the treatment of fibrotic diseases. We are advancing multiple collaboration programs toward product candidate selection.

● Inhibitor of RGMc, a co-receptor of bone morphogenetic protein 6 (“BMP6”), to pursue in iron-restricted anemias.

● Additional discovery and early preclinical programs related to the selective modulation of growth factor signaling.

Since inception, we have incurred significant operating losses. Our net losses were $59.9 million and $39.4 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $217.8 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. In addition, we anticipate that our expenses will increase in connection with our ongoing activities, as we:

● continue development activities for apitegromab, our first product candidate, including the completion of our TOPAZ Phase 2 clinical trial and the planning for our Phase 3 clinical trial program;

● continue research and development activities for SRK-181, including the conduct of our DRAGON Phase 1 clinical trial;

● continue research and development activities to support our collaboration with Gilead;

● continue research and development activities to allow us to nominate a product candidate that targets RGMc to pursue in iron-restricted anemias;

● continue to discover, validate and develop additional product candidates through the use of our proprietary platform;

● maintain, expand and protect our intellectual property portfolio;