UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2021

OR

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

FOR THE TRANSITION PERIOD FROM _ TO _

COMMISSION FILE NUMBER 001-38501

______________________________________________

SCHOLAR ROCK HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	82-3750435
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
301 Binney Street, 3rd Floor Cambridge, Massachusetts	02142
(Address of principal executive offices)	(Zip Code)

(857) 259 3860

(Registrant’s telephone number, including area code)

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SRRK	The Nasdaq Global Select Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

The number of outstanding shares of the Registrant’s Common Stock as of August 4, 2021 was 34,460,597.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

● the success, cost and timing of clinical trials for apitegromab (SRK-015), including the results, progress and completion of clinical trials, and the results, and the timing of results, from these trials;

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

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

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

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

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

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

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

● the timing, scope, or likelihood of our ability to obtain and maintain regulatory approval from the U.S. Food and Drug Administration (“FDA”), the European Commission (“EC”) and other regulatory authorities for apitegromab, SRK-181 and any future product candidates, and any related restrictions, limitations or warnings in the label of any approved product candidate;

● our ability to continue to grow our organization, including our personnel, systems and relationships with third parties;

● our ability to retain our executives and highly skilled technical and managerial personnel, which could be affected due to any transition in management, or if we fail to recruit additional highly skilled personnel;

● our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and the duration of such protection;

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

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

● our expectations relating to the potential of our proprietary platform technology;

● our ability to obtain additional funding when necessary;

● the size and growth potential of the markets for our product candidates, and our ability to serve those markets, either alone or in combination with others;

● our expectations related to the use of our cash reserves;

● the impact of new laws and regulations or amendments to existing laws and regulations;

● developments and projections relating to our competitors and our industry;

● our estimates and expectations regarding cash and expense levels, future revenue, capital requirements and needs for additional financing, including our expected use of proceeds from our public offerings, and liquidity sources;

● our expectations regarding the period during which we qualify as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act; and

● other risks and uncertainties, including those listed under the caption Part II, Item 1A “Risk Factors”.

The risks set forth above are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Current Reports on Form 8-K or otherwise, for a discussion of risks and uncertainties that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report.

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

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SCHOLAR ROCK HOLDING CORPORATION

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	5
Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	5
Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020	6
Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2021 and 2020	7
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	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	32
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 3. Defaults Upon Senior Securities	84
Item 4. Mine Safety Disclosures	84
Item 5. Other Information	84
Item 6. Exhibits	85
SIGNATURES	86

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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)

	June 30,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	206,919	$	160,358
Marketable securities		75,298		180,673
Prepaid expenses and other current assets		8,149		3,373
Total current assets		290,366		344,404
Property and equipment, net		9,433		8,121
Operating lease right-of-use asset		28,733		32,261
Restricted cash		2,498		2,498
Other long-term assets		1,021		1,021
Total assets	$	332,051	$	388,305
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,627	$	3,409
Accrued expenses		15,454		14,958
Operating lease liability		6,999		5,366
Deferred revenue		42,706		18,816
Other current liabilities		236		15
Total current liabilities		67,022		42,564
Long-term portion of operating lease liability		23,523		27,093
Long-term debt		24,847		24,680
Other long-term liabilities		3		5
Long-term portion of deferred revenue		—		33,193
Total liabilities		115,395		127,535
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2021 and December 31, 2020; no shares issued and outstanding at June 30, 2021 and December 31, 2020		—		—
Common stock, $0.001 par value; 150,000,000 shares authorized; 34,459,787 and 34,152,470 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		34		34
Additional paid-in capital		519,322		505,069
Accumulated other comprehensive income (loss)		9		(2)
Accumulated deficit		(302,709)		(244,331)
Total stockholders’ equity		216,656		260,770
Total liabilities and stockholders’ equity	$	332,051	$	388,305

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue	$	4,595	$	3,900	$	9,303	$	8,930
Operating expenses:
Research and development		25,603		16,997		48,152		33,899
General and administrative		9,265		6,365		18,631		12,187
Total operating expenses		34,868		23,362		66,783		46,086
Loss from operations		(30,273)		(19,462)		(57,480)		(37,156)
Other income (expense), net		(434)		181		(898)		805
Net loss	$	(30,707)	$	(19,281)	$	(58,378)	$	(36,351)
Net loss per share, basic and diluted	$	(0.84)	$	(0.65)	$	(1.60)	$	(1.23)
Weighted average common shares outstanding, basic and diluted		36,582,708		29,690,280		36,482,132		29,608,814
Comprehensive loss:
Net loss	$	(30,707)	$	(19,281)	$	(58,378)	$	(36,351)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		(14)		(185)		11		12
Total other comprehensive income (loss)		(14)		(185)		11		12
Comprehensive loss	$	(30,721)	$	(19,466)	$	(58,367)	$	(36,339)

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 (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
						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

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)

	Six Months Ended
	June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(58,378)	$	(36,351)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,227		784
Amortization of debt discount and debt issuance costs		167		—
Loss on disposal of property and equipment		24		—
Equity-based compensation		10,899		4,609
Amortization/accretion of investment securities		517		(196)
Non-cash operating lease expense		3,107		523
Change in operating assets and liabilities:
Accounts receivable		—		25,000
Prepaid expenses and other current assets		(4,355)		(1,292)
Other assets		—		(963)
Accounts payable		(1,779)		1,543
Accrued expenses		1,227		(1,377)
Operating lease liabilities		(1,937)		(541)
Deferred revenue		(9,303)		(8,930)
Other liabilities		227		—
Net cash used in operating activities		(58,357)		(17,191)
Cash flows from investing activities:
Purchases of property and equipment		(3,295)		(283)
Purchases of marketable securities		(30,131)		(19,400)
Maturities of marketable securities		135,000		114,700
Net cash provided by investing activities		101,574		95,017
Cash flows from financing activities:
Proceeds from stock option exercises		3,354		1,003
Other		(10)		(9)
Net cash provided by financing activities		3,344		994
Net increase in cash, cash equivalents and restricted cash		46,561		78,820
Cash, cash equivalents and restricted cash, beginning of period		162,856		38,806
Cash, cash equivalents and restricted cash, end of period	$	209,417	$	117,626
Supplemental disclosure of non-cash items:
Property and equipment purchases in accounts payable and accrued expenses	$	635	$	7
Supplemental cash flow information:
Cash paid for interest	$	992	$	—

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

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SCHOLAR ROCK HOLDING CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of the Business

Scholar Rock Holding Corporation and its subsidiaries (collectively, the “Company”) is a biopharmaceutical company focused on the discovery and development of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. The Company’s novel understanding of the molecular mechanisms of growth factor activation enabled the development of a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target these signaling proteins at the cellular level. The Company’s first product candidate, apitegromab (formerly SRK-015), is a selective, fully human, monoclonal antibody, with a unique mechanism of action that results in the inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of spinal muscular atrophy (“SMA”). Apitegromab was evaluated in the Company’s TOPAZ Phase 2 proof-of-concept trial for the treatment of patients with Type 2 and Type 3 SMA and positive 12-month top-line results were announced in April 2021 demonstrating apitegromab’s transformative potential. A randomized, double-blind, placebo-controlled Phase 3 trial in patients with non-ambulatory Type 2 and 3 SMA is anticipated to initiate by year-end 2021. The Company’s second product candidate, SRK-181, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor (“CPI”) therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies. SRK-181 is a selective inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”) that is being investigated in the DRAGON Phase 1 proof-of-concept trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. The Company is progressing the Part A dose escalation portion of the DRAGON trial and plans to advance to Part B dose expansion in mid-2021. Additionally, the Company continues to create a pipeline of novel product candidates with the potential to transform the lives of patients suffering from a wide range of serious diseases, including neuromuscular disorders, cancer, and fibrosis. The Company was originally formed in May 2012. Its principal offices are in Cambridge, Massachusetts.

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

Revenue generation activities have been limited to 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”). No revenues have been recorded from the sale of any commercial product.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s product candidates. The Company anticipates that it will continue to incur significant operating losses for the next several years as it continues to develop its product candidates. The Company believes that its existing cash, cash equivalents and marketable securities at June 30, 2021 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, 2020, 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, 2020.

Cash, Cash Equivalents and Restricted Cash

The following table reconciles cash, cash equivalents and restricted cash per the balance sheet to the statement of cash flows (in thousands):

	As of June 30,
	2021		2020
Cash and cash equivalents	$	206,919	$	115,128
Restricted cash		2,498		2,498
	$	209,417	$	117,626

Unaudited Interim Financial Information

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

Use of Estimates

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

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. Under current GAAP, a company only considered past events and current conditions in measuring an incurred loss. Under ASU 2016-13, the information that a company must consider is broadened in developing an expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss. The guidance is applied using a modified retrospective, or prospective approach, depending on a specific amendment. In November 2019, the FASB deferred the effective date for smaller reporting companies to fiscal years beginning after December 15, 2022. The Company does not anticipate a material impact to its net financial position or disclosures as a result of the adoption of ASU 2016-13.

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3. Fair Value of Financial Assets and Liabilities

The following tables summarize the assets and liabilities measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020 (in thousands):

	Fair Value Measurements at June 30, 2021
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	199,238	$	199,238	$	—	$	—
Marketable securities:
U.S. Treasury obligations		75,298		75,298		—		—
Total assets	$	274,536	$	274,536	$	—	$	—

	Fair Value Measurements at December 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds, included in cash and cash equivalents	$	119,841	$	119,841	$	—	$	—
U.S. Treasury obligations, included in cash and cash equivalents		9,998		9,998		—		—
Marketable securities:
U.S. Treasury obligations		180,673		180,673		—		—
Total assets	$	310,512	$	310,512	$	—	$	—

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 June 30, 2021 and December 31, 2020. There were no transfers of assets between fair value measurement levels during the three and six months ended June 30, 2021 or 2020.

The carrying amounts reflected in the balance sheets for prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at June 30, 2021 and December 31, 2020, due to their short-term nature.

The Company believes the terms of its debt reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company's debt approximates its fair value based on Level 3 of the fair value hierarchy.

4. Marketable Securities

The following table summarizes the Company’s investments as of June 30, 2021 (in thousands):

			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	75,289	$	9	$	—	$	75,298
Total available-for-sale securities	$	75,289	$	9	$	—	$	75,298

The following table summarizes the Company’s investments as of December 31, 2020 (in thousands):

			Gross
	Amortized		Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
Marketable securities available-for-sale:
U.S. Treasury obligations	$	180,675	$	7	$	(9)	$	180,673
Total available-for-sale securities	$	180,675	$	7	$	(9)	$	180,673

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5. Accrued Expenses

As of June 30, 2021 and December 31, 2020, accrued expenses consist of the following (in thousands):

	As of
	June 30,		December 31,
	2021		2020
Accrued external research and development expense	$	9,059	$	5,387
Accrued payroll and related expenses		4,231		6,663
Accrued professional and consulting expense		1,154		1,141
Accrued other		552		476
Accrued payable for property and equipment		458		1,291
	$	15,454	$	14,958

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 six months ended June 30, 2021 and 2020 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Research and development expense	$	2,847	$	887	$	4,958	$	1,702
General and administrative expense		3,379		1,508		5,941		2,907
	$	6,226	$	2,395	$	10,899	$	4,609

The following table summarizes the Company’s unrecognized equity-based compensation expense as of June 30, 2021:

	As of June 30, 2021
		Unrecognized Expense (in thousands)	Weighted Average Remaining Period of Recognition (years)
Restricted Stock Awards	$	28	0.3
Restricted Stock Units		13,783	3.6
Stock Options		57,333	2.7
	$	71,144

Restricted Stock Awards

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

		Weighted
		Average Fair
		Value per Share
	Number of Shares	at Issuance
Restricted stock awards as of December 31, 2020	57,969	$	5.77
Vested	(48,582)	$	5.77
Restricted stock awards as of June 30, 2021	9,387	$	5.77

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Restricted Stock Units

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

		Weighted
		Average Grant
	Number of Units	Date Fair Value
Restricted stock units as of December 31, 2020	—	$	—
Granted	281,786	$	57.28
Forfeited	(14,305)	$	59.44
Restricted stock units as of June 30, 2021	267,481	$	57.17

Stock Options

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

				Weighted
		Weighted		Average
	Number of	Average		Remaining	Aggregate
	Shares	Exercise Price		Contractual Term	Intrinsic Value
				(in years)	(in thousands)
Outstanding as of December 31, 2020	3,679,931	$	14.96	8.01	$	123,600
Granted	1,093,355	$	55.85
Exercised	(307,317)	$	10.91
Cancelled	(142,959)	$	28.47
Outstanding as of June 30, 2021	4,323,010	$	25.14	8.10	$	46,787
Options exercisable as of June 30, 2021	1,148,376	$	16.87	7.47	$	15,525

Using the Black-Scholes option pricing model, the weighted average fair value of options granted during the six months ended June 30, 2021 was $40.93.

The following weighted average assumptions were used in determining the fair value of options granted in the six months ended June 30, 2021 and 2020:

	Six Months Ended
	June 30,
	2021		2020
Risk-free interest rate	0.74	%	1.24	%
Expected dividend yield	0.0	%	0.0	%
Expected term (years to liquidity)	6.21		6.19
Expected volatility	87.89	%	81.86	%

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7. 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 covers approximately 20,751 square feet and 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. Under this lease, the Company will receive lease incentives of $14.1 million in the form of an allowance for tenant improvements related to the design and build out of the space, of which the Company has received $14.0 million as of June 30, 2021. In connection with the lease, the Company has secured a letter of credit for $2.3 million which renews automatically each year. The lease commencement date, for accounting purposes, was reached in September 2020.

Other information related to the Company’s leases (excluding the Company’s sublease income of $0.7 million and $1.0 million for the three and six months ended June 30, 2021, respectively) is as follows (in thousands, except lease term and discount rate):

	For Three Months Ended		For Six Months Ended
	June 30,		June 30,
	2021		2021
Lease Cost:
Operating lease cost	$	2,158	$	4,312
Variable lease cost		545		1,153
Total lease cost	$	2,703	$	5,465

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	For Six Months Ended
	June 30,
	2021
Other information:
Operating cash flows used for operating leases	$	4,378
Weighted average remaining lease term		3.9 years
Weighted average incremental borrowing rate		7.5	%

Specifica Antibody Library

On December 20, 2019 (the “Effective Date”), the Company entered into a Library Development and Transfer Agreement with Specifica Inc. (“Specifica”), whereby Specifica is responsible for developing and delivering a customized antibody display library (the “Library”) for the Company to use to identify antibodies for further research, development, and commercialization. As of June 30, 2021 the Company has paid $2.0 million of the total $3.7 million in fees expected to be paid through 2023 related to the Library. As the return right has lapsed, all $3.7 million in fees have been recognized as expense to date.

Legal Proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of its business. The Company was not subject to any material legal proceedings during the six months ended June 30, 2021 and 2020.

8. Debt

On October 16, 2020 (the “Closing Date”) the Company entered into a Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank for $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.

9. Agreements

Collaboration with Gilead

On December 19, 2018 (the “Effective Date”), the Company entered into a Master Collaboration Agreement (the “Gilead Collaboration Agreement”) with Gilead to discover and develop specific inhibitors of transforming growth factor beta (“TGFβ”) activation focused on the treatment of fibrotic diseases. Under the collaboration, Gilead has exclusive options to license worldwide rights to product candidates that emerge from three of the Company’s TGFβ programs (each a “Gilead Program”). Pursuant to the Gilead Collaboration Agreement, the Company is responsible for antibody discovery and preclinical research through product candidate nomination, after which, upon exercising the option for a Gilead Program, Gilead will be responsible for the program’s preclinical and clinical development and commercialization. Such option may be exercised by Gilead at any time from the Effective Date through a date that is 90 days following the expiration of the Research Collaboration Term for a given Gilead Program (no later than March 19, 2022), or until termination of the Gilead Program, whichever is earlier (the “Option Exercise Period”).

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

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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 June 30, 2021. 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 six months ended June 30, 2021, the Company recognized $4.6 million and $9.3 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 June 30, 2021 is $42.7 million. The Company will recognize the $9.5 million of 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 six months as of June 30, 2021; 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 $33.2 million of 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.

10. Net Loss per Share

The Company calculates basic net loss per share by dividing net loss by the weighted average number of common shares outstanding, excluding restricted common stock. The weighted average number of common shares used in the basic and diluted net loss per share calculation include the pre-funded warrants issued in connection with the Company’s November 2, 2020 follow-on offering as the warrants are exercisable at any time for nominal cash consideration. As of June 30, 2021 no pre-funded warrants have been exercised and 2,179,487 pre-funded warrants are outstanding. The Company has generated a net loss in all periods presented, so the basic and diluted net loss per share are the same, as the inclusion of the potentially dilutive securities would be anti-dilutive.

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

	Six Months Ended June 30,
	2021	2020
Restricted stock awards	9,387	126,646
Restricted stock units	267,481	—
Warrant	—	7,614
Stock options	4,323,010	3,491,671
	4,599,878	3,625,931

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a biopharmaceutical company focused on the discovery and development of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. Our novel understanding of the molecular mechanisms of growth factor activation enabled us to develop a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target the precursor, or latent, forms of growth factors. By targeting the signaling proteins at the cellular level and acting in the disease microenvironment, we believe we may avoid the historical dose-limiting safety challenges associated with inhibiting growth factors for therapeutic effect. We believe our focus on biologically validated growth factors may facilitate a more efficient development path.

We have a productive scientific platform and are building our portfolio of novel product candidates with the aim of transforming the lives of patients suffering from a wide range of serious diseases, including neuromuscular disorders, cancer, and fibrosis. We have discovered and progressed the development of:

● Apitegromab, an inhibitor of the activation of myostatin, for the treatment of spinal muscular atrophy (“SMA”). We also believe apitegromab could have potential in the treatment of other myostatin-related disorders.

● SRK-181, an inhibitor of the activation of latent transforming growth factor beta-1 (“TGFβ1”), for the treatment of cancers that are resistant to anti-PD-(L)1 antibody therapies.

● Potent and selective inhibitors of the activation of transforming growth factor beta (“TGFβ”) in collaboration with Gilead, for the treatment of fibrotic diseases. We are advancing multiple collaboration programs toward product candidate selection.

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

Our first product candidate, apitegromab (formerly SRK-015), is a selective, fully human, monoclonal antibody that specifically binds to proforms of myostatin, which include promyostatin and latent myostatin, thereby inhibiting activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy to address the motor function impairment affecting patients with SMA. In May 2021, the U.S. Food and Drug Administration (“FDA”) granted Fast Track designation for apitegromab for the treatment of SMA. The

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FDA granted Rare Pediatric Disease designation and Orphan Drug designation to apitegromab for the treatment of SMA in August 2020 and March 2018, respectively. The European Medicines Agency (“EMA”) granted Priority Medicines (PRIME) designation in March 2021 and Orphan Medicinal Product designation in December 2018 to apitegromab for the treatment of SMA.

In April 2021, we announced positive top-line data for the 12-month treatment period of our TOPAZ Phase 2 proof-of-concept clinical trial and in June 2021, we announced supportive data from additional exploratory analyses from the TOPAZ Phase 2 clinical trial at the 2021 Cure SMA Virtual Conference that further demonstrated the potential of apitegromab in patients with SMA. TOPAZ enrolled 58 patients with Type 2 and Type 3 SMA across three cohorts and evaluated the safety and efficacy of intravenous apitegromab dosed every four weeks (Q4W) over a 12-month treatment period.

● Majority (74%, 23/31) of non-ambulatory patients showed a clinical improvement (defined as ≥1-point increase) in Hammersmith Functional Motor Scale Expanded (HFMSE).

● In the non-ambulatory cohort of patients (mean age 3.8 years) on background nusinersen started earlier in life (<5 years of age), treatment with apitegromab 20 mg/kg led to sizeable increases in HFMSE.

o Mean increase from baseline was +7.1 points.

o 88% (7/8) of patients improved (attained a ≥1-point increase).

o 63% (5/8) of patients attained a ≥5-point increase.

o 38% (3/8) of patients attained a >10-point increase.

o Patients had received approximately two years of prior nusinersen treatment at the time of enrollment (5.4 mean maintenance doses) and were in the chronic maintenance phase of nusinersen therapy during the TOPAZ trial.

● In the non-ambulatory cohort of patients (mean age 11.7 years) on background nusinersen started later in life (≥5 years of age), treatment with apitegromab 20 mg/kg led to an increase in HFMSE, contrasting with declines experienced on average by this patient population without treatment.

o Mean increase from baseline was +0.6 points by intent-to-treat analysis and +1.2 points by per-protocol analysis.

o 64% (9/14) of patients improved (attained a ≥1-point increase).

o 29% (4/14) of patients attained a ≥3-point increase.

o Patients had received approximately two years of prior nusinersen treatment at the time of enrollment (5.1 mean maintenance doses) and were in the chronic maintenance phase of nusinersen therapy during the TOPAZ trial.

● A post-hoc analysis across all non-ambulatory patients showed no correlation between change in HFMSE score at 12 months and duration of prior nusinersen therapy, providing further evidence that improvements in motor function may be attributed to apitegromab.

● WHO Motor Development Milestones, a high bar assessment representing major functional achievements, were gained by seven of 35 non-ambulatory patients treated with apitegromab and nusinersen, including three patients who initiated background nusinersen therapy later in life (≥5 years of age).

o Five patients achieved one new WHO motor milestone, including one patient gaining the ability to walk independently and one patient gaining the ability to stand independently.

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o One patient achieved two new WHO motor milestones (hands and knees crawling and standing with assistance).

o One patient achieved three new WHO motor milestones (hands and knees crawling, standing with assistance, and walking with assistance).

● In the ambulatory cohort of patients (mean age 12.6 years), treatment with apitegromab 20 mg/kg as add-on to nusinersen led to a 0.3-point decline from baseline in Revised Hammersmith Scale (RHS) and treatment with apitegromab 20 mg/kg as a monotherapy led to a 0.4-point decline in RHS. Motor function declines are common in patients with ambulatory Type 3 and can be severe in a subset of patients.

The five most frequently reported treatment-emergent adverse events (AEs) included headache, pyrexia, upper respiratory tract infection, cough, and nasopharyngitis​. Incidence and severity of AEs were consistent with the underlying patient population and background therapy.

The extension phase for patients who completed the 12-month TOPAZ trial is ongoing.

Subject to feedback from regulatory agencies, a randomized, double-blind, placebo-controlled Phase 3 trial is anticipated to initiate by the end of 2021 and is expected to evaluate apitegromab as an add-on to nusinersen or risdiplam in patients with non-ambulatory Type 2 and Type 3 SMA. The non-ambulatory Type 2 and Type 3 patient population is where apitegromab demonstrated the largest increases in motor function (HFMSE scores) as an add-on to nusinersen in the TOPAZ trial. Patients with non-ambulatory Type 2 and Type 3 SMA represent approximately two-thirds of the overall prevalent SMA patient population.

We have identified multiple other diseases for which the selective inhibition of the activation of myostatin may offer therapeutic benefit, including additional patient populations in SMA (such as Type 1 SMA and ambulatory Type 3 SMA) and indications outside of SMA, such as Becker Muscular Dystrophy (BMD).

Our second product candidate, SRK-181, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor (“CPI”) therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies. SRK-181 is a selective inhibitor of the activation of latent TGFβ1 that is being investigated in our DRAGON Phase 1 proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. This two-part trial consists of a dose escalation portion (Part A) and a dose expansion portion (Part B). Part A is evaluating SRK-181 as a single-agent and in combination with an approved anti-PD-(L)1 therapy and Part B will evaluate SRK-181 in combination with an approved anti-PD-(L)1 therapy across multiple solid tumor types, including urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, and other solid tumors. We are enrolling patients and progressing dose escalation in Part A of the trial and expect to advance to Part B of the trial in mid-2021 with initial clinical response and safety data from Part A anticipated by the end of 2021.

Utilizing our proprietary platform, we have multiple early stage and preclinical programs directed against targets that are known to be important in serious diseases, including neuromuscular disorders, cancer and fibrosis. We are discovering and generating selective and differentiated monoclonal antibodies against difficult targets by 1) applying our structural insights and antibody discovery expertise, 2) prioritizing human biology, and 3) embedding translational thinking early in the research and development process.

Since inception, we have incurred significant operating losses. Our net losses were $58.4 million for the six months ended June 30, 2021. As of June 30, 2021, we had an accumulated deficit of $302.7 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. In addition, we anticipate that our expenses will increase in connection with our ongoing activities, as we:

● continue development activities for apitegromab, including the ongoing extension phase of our TOPAZ Phase 2 clinical trial and preparations and conduct of our Phase 3 clinical trial program in SMA, and associated drug supply;

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

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

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

● maintain, expand and protect our intellectual property portfolio;

● hire additional research, development and business personnel; and

● continue to build the infrastructure to support our operations as a public company.

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

COVID-19 Pandemic

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

Financial Operations Overview

Revenue

No revenues have been recorded from the sale of any commercial product. Revenue generation activities have been limited to collaborations containing research services and the issuance of a license. Currently, revenue is being recognized related to the Gilead Collaboration Agreement which was executed on December 19, 2018 (the “Effective Date”), and we began recognizing associated revenue in 2019. Under the Gilead Collaboration Agreement, Gilead has exclusive options to license worldwide rights to product candidates that emerge from three of the Company’s TGFβ

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programs (each a “Gilead Program”). Each option may be exercised by Gilead at any time from the Effective Date through a date that is 90 days following the expiration of the Research Collaboration Term for a given Gilead Program (no later than March 19, 2022), or until termination of the Gilead Program, whichever is earlier (the “Option Exercise Period”).

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. The input method is based on 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 obligations. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. The estimate of remaining costs is highly subjective, as the research is novel, therefore efforts to be successful may be significantly different than the estimated costs made at the balance sheet date. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on our consolidated balance sheet. We expect to recognize the remaining $9.5 million in deferred revenue related to the research and development services based on the cost input method described above, over the remaining research term for each respective Gilead Program, which is up to three years from the execution of the agreement. 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 of $33.2 million will be recognized as options are exercised by Gilead or at the conclusion of the Option Exercise Period.

Operating Expenses

Research and Development

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

● employee-related expenses, including salaries, benefits and equity-based compensation expense for our research and development personnel;

● expenses incurred under agreements with third parties that conduct research and development and preclinical activities on our behalf;

● expenses incurred under agreements related to our clinical trials, including the costs for investigative sites and contract research organizations (“CROs”), that conduct our clinical trials;

● manufacturing process-development, manufacturing of clinical supplies and technology-transfer expenses;

● consulting and professional fees related to research and development activities;

● costs of purchasing laboratory supplies and non-capital equipment used in our internal research and development activities;

● costs related to compliance with clinical regulatory requirements; and

● facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies.

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

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

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due

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to the increased size and duration of later-stage clinical trials, as well as the associated clinical trial material requirements. We expect research and development costs to increase for the foreseeable future as our product candidate development programs progress, and we expect to incur additional costs in connection with our research and development activities under our collaboration with Gilead. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

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

● the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;

● establishing an appropriate safety profile;

● successful enrollment in and completion of clinical trials, including on account of the COVID-19 pandemic and its impact at clinical trial sites;

● whether our product candidates show safety and efficacy in our clinical trials;

● receipt of marketing approvals from applicable regulatory authorities, if any;

● establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

● obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

● significant and changing government regulation;

● commercializing the product candidates, if and when approved, whether alone or in collaboration with others; and

● continued acceptable safety profile of the products following any regulatory approval.

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

General and Administrative

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

We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including the continued progression of our product candidates through development stages, as we hope to approach marketing and commercialization. These increases will likely include increased costs related to the hiring of additional personnel, as well as fees to outside consultants, among other expenses. We also anticipate continued expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services, director and officer insurance premiums and investor relations costs.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and marketable securities, and interest expense incurred on our credit facility (the October 2020 Loan and Security Agreement with

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Oxford Finance LLC and Silicon Valley Bank, further discussed in Note 8 of our consolidated financial statements appearing elsewhere in this report), including amortization of debt discount and debt issuance costs.

Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020 (in thousands, except percentages):

	Three Months Ended June 30,				Change
	2021		2020		$		%
Revenue	$	4,595	$	3,900	$	695	17.8	%
Operating expenses:
Research and development		25,603		16,997		8,606	50.6	%
General and administrative		9,265		6,365		2,900	45.6	%
Total operating expenses		34,868		23,362		11,506	49.3	%
Loss from operations		(30,273)		(19,462)		(10,811)	55.5	%
Other income (expense), net		(434)		181		(615)	NM*
Net loss	$	(30,707)	$	(19,281)	$	(11,426)	59.3	%

*NM means not meaningful.

Revenue

Revenue was $4.6 million and $3.9 million for the three months ended June 30, 2021 and June 30, 2020, respectively, an increase of $0.7 million or 17.8%. The revenue for both of these periods was related to the Gilead Collaboration Agreement executed in December 2018. Revenue associated with the research and development and license performance obligations relating to the Gilead Programs is recognized as the research and development services are provided using a cost input method. The increase in revenue was attributable to the change in progress of the programs period over period. The $42.7 million deferred revenue balance as of June 30, 2021 is comprised of $9.5 million that we expect will be recognized as revenue during the remainder of 2021 and $33.2 million related to material rights that will be recognized as revenue either at the time the options are exercised by Gilead or at the lapse of the Option Exercise Period, March 19, 2022.

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Operating Expenses

Research and Development

Research and development expense was $25.6 million and $17.0 million for the three months ended June 30, 2021 and June 30, 2020, respectively, an increase of $8.6 million or 50.6%. The following table summarizes our research and development expense for the three months ended June 30, 2021 and 2020 (in thousands, except percentages):

	Three Months Ended June 30,		Change
	2021	2020	$	%
External costs by program