SCHOLAR ROCK: Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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The information contained in this section has been derived from our consolidated
financial statements and should be read together with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K. This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, the
"Exchange Act" and are subject to the "safe harbor" created by those sections.
In particular, statements contained in this Annual Report on Form 10-K that are
not historical facts, including, but not limited to statements regarding our
future expectations, plans and prospects, including without limitation, our
expectations regarding the potential of the TGF? program, our collaboration with
Gilead, the potential of apitegromab as a therapy in SMA and the timeline for
and progress in developing apitegromab, the potential of SRK-181 as a cancer
immunotherapy and the timeline for and

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progress in developing SRK-181, and liquidity, constitute forward-looking
statements and are made under these safe harbor provisions. Some of the
forward-looking statements can be identified by the use of forward-looking terms
such as "believes," "expects," "may," "will," "should," "could," "seek,"
"intends," "plans," "estimates," "anticipates," or other comparable terms.
Forward-looking statements involve inherent risks and uncertainties, which could
cause actual results to differ materially from those in the forward-looking
statements. We caution readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made. We urge you to
consider the risks and uncertainties discussed in greater detail under the
heading "Risk Factors" elsewhere in this Annual Report on Form 10-K in
evaluating our forward-looking statements. We have no plans to update our
forward-looking statements to reflect events or circumstances after the date of
this report. As a result of many factors, including those factors set forth
under the heading "Risk Factors" elsewhere in this Annual Report on Form 10-K,
our actual results could differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion
and analysis.

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 latent myostatin activation, for the

? SMA treatment. We also believe that apitegromab may have potential in the

treatment of other myostatin-related disorders.

? SRK-181, an inhibitor of latent TGFα1 activation, for the treatment of

cancers resistant to anti-PD-(L)1 antibody therapies.

Potent and selective inhibitors of TGF activation? in collaboration with

? Gilead, for the treatment of fibrotic diseases. We advance several

collaborative programs for the selection of product candidates.

? Additional discovery and early preclinical programs related to breeding

   modulation of growth factor signaling.




Our first product candidate, apitegromab (formerly SRK-015), is a highly
selective, fully human, monoclonal antibody, with a unique mechanism of action
that results in inhibition of the activation of the growth factor, myostatin, in
skeletal muscle. Apitegromab is being developed as a potential first
muscle-directed therapy for the treatment of SMA. Our TOPAZ Phase 2
proof-of-concept trial enrolled 58 patients with Type 2 and Type 3 SMA across
three cohorts; one patient discontinued from the trial. On October 27, 2020 we
announced positive six-month interim analysis results from the TOPAZ trial and
top-line data for the 12-month treatment period are expected in the second
quarter of 2021. The FDA granted Rare Pediatric Disease designation and Orphan
Drug Designation to apitegromab for the treatment of SMA in August 2020 and
March 2018, respectively.

Our second product candidate, SRK-181, is being developed for the treatment of
cancers that are resistant to CPI therapies, such as anti-PD-1 or anti-PD-L1
antibody therapies. SRK-181 is a potent and highly selective inhibitor of the
activation of latent TGF?1. In May 2020, we announced the initiation of patient
dosing in our DRAGON Phase 1 proof-of-concept clinical trial of SRK-181 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

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multiple solid tumor types, including urothelial carcinoma, cutaneous melanoma
and non-small cell lung cancer, and other solid tumors. We expect to advance to
Part B of the trial in the second quarter of 2021 with initial clinical response
and safety data anticipated in the second half of 2021.

Since inception, we have incurred significant operating losses. Our net losses
were $86.5 million and $51.0 million for the years ended December 31, 2020 and
2019, respectively. As of December 31, 2020, we had an accumulated deficit of
$244.3 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 apitegromab development activities, including finalizing

? our TOPAZ phase 2 clinical trial and planning for our phase 3 clinical trial

trial program and supply of associated drugs;

? continue research and development activities for SRK-181, including conducting

our Phase 1 clinical trial DRAGON;

? 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, develop and protect our intellectual property portfolio;

? hire additional staff for research, development and business; 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, three patients (one in Cohort 2
and two in Cohort 3) of the TOPAZ clinical trial 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. The COVID-19 pandemic has affected our
clinical trials and could result in further impacts, including delays in or
adverse impacts to data readouts (e.g. poor or negative efficacy results or
adverse safety signal) 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. Additionally, our laboratory operations have been reduced
since the declaration of the pandemic and our research activities will continue
to be impacted until our laboratory operations are able to return to normal
levels of operation that existed prior to the COVID-19 pandemic. In addition,
delays in the development of COVID-19 vaccines or the deployment of approved
vaccines, a

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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.

Overview of financial operations

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 TGF? 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 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 will be recognized as options are exercised by
Gilead or at the conclusion of the Option Exercise Period.

Functionnary costs

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 stocks

compensation costs for our research and development personnel;

? expenses incurred under agreements with third parties who carry out research and

development and preclinical activities on our behalf;

? expenses incurred under agreements related to our clinical trials, including

the costs of investigational sites and CROs who conduct our clinical trials;

? development of manufacturing processes, manufacture of clinical supplies and

technology transfer fees;

? consulting fees and professional fees related to research and development

Activities;

? the costs of purchasing laboratory supplies and non-capital equipment used in our

internal research and development activities;


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? costs related to compliance with clinical regulatory requirements; and

? facility costs and other allocated expenses, which include rental expenses

and facility maintenance, 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 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, results and costs of our preclinical development

research and development activities, clinical trials and other activities;

? establish an appropriate security profile;

? successful enrollment and completion of clinical trials, including on

update on the COVID-19 pandemic and its impact on clinical trial sites;

? whether our product candidates demonstrate 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;

? obtain and maintain patent and trade secret protection and regulation

exclusivity for our product candidates;

? significant and changing government regulations;

? commercialize the product candidates, if approved, alone or

in collaboration with others; and

? maintenance of the acceptable safety profile of the products following any

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 alter the costs and schedule associated with development. of this product candidate.


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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 (expenses), net

Other income (expense), net consists primarily of interest income earned on our
cash and cash equivalents and marketable securities, interest expense incurred
on our credit facilities (the August 2015 Loan and Security Agreement with
Silicon Valley Bank, which was fully repaid in June 2019, and the October 2020
Loan and Security Agreement with Oxford Finance LLC ("Oxford") and Silicon
Valley Bank ("SVB"), both further discussed in Note 12 of our consolidated
financial statements appearing elsewhere in this report), including amortization
of debt discount and debt issuance costs.

Operating results

Comparison of the years ended December 31, 2020 and 2019


The following table summarizes our results of consolidated operations for
the years ended December 31, 2020 and 2019 (in thousands, except percentages):


                                 Year Ended December 31,              Change
                                   2020             2019           $           %
Revenue                        $      15,403     $   20,492    $  (5,089)    (24.8) %
Operating expenses:
Research and development              74,062         54,217        19,845      36.6 %
General and administrative            28,219         20,817         7,402  
   35.6 %
Total operating expenses             102,281         75,034        27,247      36.3 %
Loss from operations                (86,878)       (54,542)      (32,336)      59.3 %
Other income (expense), net              395          3,542       (3,147)  
 (88.8) %
Net loss                       $    (86,483)     $ (51,000)    $ (35,483)      69.6 %




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Revenue
Revenue was $15.4 million for the year ended December 31, 2020 compared to $20.5
million for the year ended December 31, 2019, a decrease of $5.1 million, or
24.8%. 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. A $25.0 million preclinical milestone was
achieved in December 2019 through the successful demonstration of efficacy in
preclinical in vivo proof-of-concept studies. As a result, the associated $25
million was included in the transaction price allocated to the performance
obligations as of December 31, 2019. The decrease in revenue was attributable to
the change in progress of the programs period over period, due to a lower
utilization of internal resources partly due to laboratory restrictions
associated with the COVID-19 pandemic.

Functionnary costs

Research and development


Research and development expense was $74.1 million for the year ended
December 31, 2020 compared to $54.2 million for the year ended December 31,
2019, an increase of $19.9 million, or 36.6%. The following table summarizes our
research and development expense for the years ended December 31, 2020 and 2019
(in thousands, except percentages):


                                                    Year Ended December 31,             Change
                                                      2020             2019           $          %
External costs by program:
Apitegromab (SRK-015)                             $     19,213     $     10,643    $  8,570     80.5 %
SRK-181                                                 16,397           14,121       2,276     16.1 %
Other early programs and unallocated costs               6,058            6,089        (31)    (0.5) %
Total external costs                                    41,668           30,853      10,815     35.1 %
Internal costs:
Employee compensation and benefits                      22,590           15,853       6,737     42.5 %
Facility and other                                       9,804            7,511       2,293     30.5 %
Total internal costs                                    32,394           23,364       9,030     38.6 %
Total research and development expense            $     74,062     $     54,217    $ 19,845     36.6 %



The increase in research and development expenses is mainly attributable to the following items:

? An increase in our external research and development costs of $10.8 million,

which mainly consisted of:

$8.6 million increased costs associated with apitegromab, primarily due to

o the costs of our TOPAZ phase 2 clinical trial, including the supply of clinical drugs

manufacturing; and

$2.3 million increased costs associated with SRK-181. Our DRAGON Phase 1

o the clinical trial was initiated during the first quarter of 2020 and the increase

is associated with the costs of clinical trials.

$9.0 million increase in internal research and development costs,

primarily due to increased compensation and employee benefits costs,

? associated with an increase in headcount and associated overhead as we continue to

expand our research and development functions in addition to an increase in

set-up costs due to our new office and lab space at 301 Binney Street

in Cambridge, MA.

We expect our research and development expenses to increase as we continue to
advance the development of our product candidates, including apitegromab,
completing our TOPAZ Phase 2 clinical trial and planning for the Phase 3
clinical trial program, and SRK-181, through our DRAGON Phase 1 clinical trial.
Additionally, we expect to continue to conduct research under the Gilead
collaboration. However, as described above in COVID-19 Pandemic, the ultimate
extent of the impact of the COVID-19 pandemic on our results of operations will
depend on future developments, which are highly uncertain. Accordingly, we
cannot fully predict the extent to which our business and results of operations
will be affected.

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General and Administrative

General and administrative expense was $28.2 million for the year ended December
31, 2020 compared to $20.8 million for the year ended December 31, 2019, an
increase of $7.4 million or 35.6%. The increase in general and administrative
expense was primarily attributable to an increase of $4.4 million in employee
compensation and benefits, related to increased headcount and separation related
expenses, and $2.5 million in professional services.

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 development of our product
candidates. However, as described above in COVID-19 Pandemic, the ultimate
extent of the impact of the COVID-19 pandemic on our results of operations will
depend on future developments, which are highly uncertain. Accordingly, we
cannot fully predict the extent to which our business and results of operations
will be affected.

Other Income (Expense), Net
The decrease in other income (expense), net was attributable a decrease in
income earned on our investment portfolio, associated with lower interest rates
during the year ended December 31, 2020, as compared to the year ended December
31, 2019, in addition to interest expense related to our debt facility entered
into in October 2020.

Cash and capital resources

Sources of liquidity


Since our inception, we have not generated any product revenue and have incurred
significant operating losses and negative cash flows from our operations. We
have funded our operations to date primarily with proceeds from the sale of our
convertible preferred stock and units in private placements before our IPO, and
sale of our common stock through our IPO, to Gilead in an exempt private
placement, through a secondary public offering in June 2019, and through a
follow-on offering completed in November 2020, as well as payments from our
research collaborations and a debt facility entered into in October 2020.

The following table provides information regarding our total cash and cash
equivalents and marketable securities at December 31, 2020 and December 31, 2019
(in thousands):



                                                             December 31,       December 31,
                                                                 2020               2019
Cash and cash equivalents                                   $       160,358    $       36,308
Marketable securities                                               180,673           121,140

Total cash, cash equivalents and marketable securities $341,031

   $      157,448




During the year ended December 31, 2020, our cash, cash equivalents and
marketable securities balance increased by approximately $183.6 million. The
change was primarily the result of net proceeds from the sale of our common
stock in a follow-on offering completed in November 2020, the $25.0 million of
cash received from Gilead in January 2020 from the preclinical milestone that
was achieved in December 2019 for the successful demonstration of efficacy in
preclinical in vivo proof-of-concept studies, as well as $25.0 million received
from a debt facility entered into in October 2020, partially offset by cash used
to operate our business, including payments related to, among other things,
research and development and general and administrative expenses as we continued
to invest in our primary product candidates and supported our internal research
and development efforts. We also made capital purchases and interest payments on
our debt.

In October 2020, we entered into an underwriting agreement relating to the
issuance and sale of an aggregate of 3,717,948 shares of our common stock at
$39.00 per share and pre-funded warrants to purchase 2,179,487 shares of our
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

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include 769,230 shares that we granted to the guarantors under an over-allotment option, which was exercised in full. The total gross proceeds of the transaction were $230.0 million, including proceeds from the option granted by us to the underwriters. The offer closed on November 2, 2020 and we received about $215.9 million as net proceeds, after deducting underwriting discounts and commissions and estimated offering costs.




In October 2020, we entered into a Loan and Security Agreement (the "Loan and
Security Agreement") with Oxford and SVB (each, a "Lender" and collectively, the
"Lenders"), providing up to $50.0 million of borrowings, of which $25.0 million
was advanced on October 16, 2020. The additional $25.0 million under the Loan
and Security Agreement will be available to us until December 31, 2021, subject
to our achievement of both (i) the dosing of the first patient in a Phase 3
clinical trial for apitegromab and (ii) the dosing of the first patient in Part
B of the DRAGON Phase 1 clinical trial for SRK-181.

In June and July 2019, we sold 3,450,000 shares of our common stock through an
underwritten public offering, including an overallotment option. As a result of
the offering, we received aggregate net proceeds, after underwriting discounts
and commissions and other offering expenses, of approximately $48.3 million.

In December 2018, we entered into the Gilead Collaboration Agreement, with
Gilead pursuant to which we will conduct research and pre-clinical development
activities relating to the diagnosis, treatment, cure, mitigation or prevention
of diseases, disorders or conditions, other than in the field of oncology in
accordance with a pre-determined research plan. Pursuant to the Gilead
Collaboration Agreement, Gilead made non-refundable payments of $80.0 million,
including an upfront payment and an equity investment. In December 2019, we
achieved a $25 million preclinical milestone for the successful demonstration of
efficacy in preclinical in vivo proof-of-concept studies, and subsequently
received the associated payment in January 2020.

Cash flow

The following table provides information on our cash flows for the years ended December 31, 2020 and 2019 (in thousands):


                                                                Year Ended December 31,
                                                                  2020             2019
Net cash used in operating activities                         $    (60,271)     $ (63,115)
Net cash used in investing activities                              (63,498)

(62,236)

Net cash provided by financing activities                           247,819

48,883

Net increase (decrease) in cash and cash equivalents and
restricted cash                                               $     124,050     $ (76,468)



Net cash used in by operating activities

Net cash used in operating activities was $60.3 million for the year ended
December 31, 2020 and consisted of our net loss of $86.5 million partially
offset by changes in our assets and liabilities of $11.2 million and non-cash
adjustments of $15.0 million. The changes in our assets and liabilities includes
the reduction of accounts receivable due to the $25.0 million of cash received
from Gilead in January 2020 from the preclinical milestone that was achieved in
December 2019 and a $15.4 million change in deferred revenue related to the
Gilead collaboration. The non-cash adjustments are primarily from equity-based
compensation.

Net cash used in operating activities was $63.1 million for the year ended
December 31, 2019 and consisted of our net loss of $51.0 million and changes in
our assets and liabilities of $21.2 million, of which $25.0 million is a change
in accounts receivable related to the milestone achieved in the Gilead
collaboration. The uses of cash were partially offset by non-cash adjustments of
$9.1 million, primarily from equity-based compensation.

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Net cash used in investment activities

Net cash used in investing activities was $63.5 million for the year ended
December 31, 2020 compared to net cash used in investing activities of $62.2
million for the year ended December 31, 2019. Net cash used in investing
activities for both periods was primarily associated with transactions involving
our marketable securities as well as capital expenditures.

Net cash provided by financing activities


Net cash provided by financing activities was $247.8 million for the year ended
December 31, 2020 compared to $48.9 million for the year ended December 31,
2019. Net cash provided by financing activities for the year ended December 31,
2020 consisted primarily of $215.9 million in net proceeds from the sale of our
common stock in a follow-on offering completed in November 2020 as well as a
$25.0 million drawdown from our debt facility, which we entered into in October
2020, in addition to $7.3 million in proceeds from stock option exercises.

Net cash provided by financing activities for the year ended December 31, 2019
consisted primarily of net proceeds from a secondary public offering of common
stock in June and July 2019, in addition to proceeds from stock option
exercises.

Financing needs


We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue the research and development for, continue and
initiate later stage clinical trials for, continue to develop and optimize our
manufacturing processes for, and seek marketing approval for, our product
candidates, including apitegromab and SRK-181, and any of our future product
candidates. In addition, if we obtain marketing approval for apitegromab,
SRK-181 or any of our future product candidates, we expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing
and distribution. Furthermore, we expect to continue to incur costs associated
with operating as a public company.

We expect that our existing cash, cash equivalents, marketable securities will
enable us to fund our operating expenses and capital expenditure requirements
into 2023. However, we will require additional capital in order to complete
clinical development for each of our current programs. We have based this
estimate on assumptions that may prove to be wrong, and we may use our available
capital resources sooner than we currently expect. Our future capital
requirements will depend on many factors, including:

the costs and development schedule of our product candidates, apitegromab and

SRK-181, including TOPAZ phase 2 clinical trial and phase 3 clinical trial

? program for apitegromab, the DRAGON phase 1 clinical trial for SRK-181 and

the costs and timing of conducting future clinical trials, including due to

the COVID-19 pandemic and its impact on clinical trial sites;

? future manufacturing costs of apitegromab, SRK-181 and any other products

candidates;

the scope, progress, results and costs of discovery, preclinical development,

? laboratory and clinical trials for other potential product candidates

we can develop, if necessary;

? identification and development costs, or licensing or acquisition costs,

additional product candidates and technologies;

? the costs, timing and results of regulatory review of our product candidates;

? our ability to establish and maintain collaborations under favorable conditions, if

everything;

the achievement of milestones or the occurrence of other developments that trigger

? payments under any collaboration agreement, license agreement or other

any agreements we might have at that time;

? the costs of seeking marketing authorizations for our product candidates that

successfully complete clinical trials, if any;

costs and timing of future marketing activities, including products

? sales, marketing, manufacturing and distribution, for all our products

candidates for whom we receive marketing authorization;


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? the amount of revenue, if any, from commercial sales of our product

candidates, if any of our product candidates receive marketing approval;

the costs of preparing, filing and pursuing patent applications, obtaining,

? maintain and enforce our intellectual property rights and defend

intellectual property claims;

? the growth of our workforce and associated costs as we expand our business

and research and development activities;

the costs of expanding our infrastructure and facilities to accommodate our

? growth of the employee base, including the addition of equipment and physical infrastructure

to support our research and development; and

? operating costs as a public company.

Identifying potential product candidates and conducting preclinical studies and
clinical trials is a time-consuming, expensive and uncertain process that
takes years to complete, and we may never generate the necessary data or results
required to obtain marketing approval and achieve product sales. In addition,
our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of products that we do
not expect to be commercially available for many years, if at all. Accordingly,
we will need to continue to rely on additional financing to achieve our business
objectives. Adequate additional financing may not be available to us on
acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic alliances and licensing arrangements. To
the extent that we raise additional capital through the sale of equity or
convertible debt securities, common stockholder ownership interests may be
diluted, and the terms of these securities may include liquidation or other
preferences that could adversely affect the rights of a common stockholder.
Additional debt financing, if available, may involve agreements that include
restrictive covenants that limit our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends,
that could adversely impact our ability to conduct our business.

If we raise funds through collaborations, strategic alliances or licensing
arrangements with third parties, we may have to relinquish valuable rights to
our technologies, future revenue streams, research programs or product
candidates or to grant licenses on terms that may not be favorable to us. Market
volatility resulting from the COVID-19 pandemic or other factors could also
adversely impact our ability to access capital as and when needed. If we are
unable to raise additional funds through equity or debt financings when needed,
we may be required to delay, limit, reduce or terminate our product development
or future commercialization efforts or grant rights to develop and market
product candidates that we would otherwise prefer to develop and market
ourselves.

Significant Accounting Policies and Use of Estimates


This management's discussion and analysis is based on our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these consolidated financial
statements requires us to make judgments and estimates that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities in our consolidated financial statements. We
base our estimates on historical experience, known trends and events and various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgements about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. On an ongoing basis, we evaluate our judgments and estimates in
light of changes in circumstances, facts and experience. The effects of material
revisions in estimates, if any, will be reflected in the consolidated financial
statements prospectively from the date of change in estimates. Our actual
results may differ from these estimates under different assumptions or
conditions.

While our significant accounting policies are described in more detail in Note 2
to our consolidated financial statements appearing elsewhere in this report, we
believe that the following accounting policies are those most critical to the
judgments and estimates used in the preparation of our consolidated financial
statements.

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Accumulated research and development costs

As part of the process of preparing our consolidated financial statements, we
are required to estimate our accrued expenses as of each balance sheet date.
This process involves reviewing open contracts and purchase orders,
communicating with our personnel to identify services that have been performed
on our behalf and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise
notified of the actual cost. The majority of our service providers invoice us
monthly in arrears for services performed or when contractual milestones are
met. We make estimates of our accrued expenses as of each balance sheet date
based on facts and circumstances known to us at that time. We periodically
confirm the accuracy of our estimates with the service providers and make
adjustments if necessary. The significant estimates in our accrued research and
development expenses include the costs incurred for services performed by our
vendors in connection with research and development activities for which we have
not yet been invoiced. In certain instances, we prepay for services to be
provided in the future. These amounts are expensed as the services are
performed.

We base our expenses related to research and development activities on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with vendors that conduct research and development on our behalf. The
financial terms of these agreements are subject to negotiation, vary from
contract to contract and may result in uneven payment flows. There may be
instances in which payments made to our vendors will exceed the level of
services provided and result in a prepayment of the research and development
expense. In accruing service fees, we estimate the time period over which
services will be performed and the level of effort to be expended in each
period. If the actual timing of the performance of services or the level of
effort varies from our estimate, we adjust the accrual or prepaid balance
accordingly. Nonrefundable advance payments for goods and services that will be
used in future research and development activities are expensed when the
activity has been performed or when the goods have been received rather than
when the payment is made.

Although we do not expect our estimates to be materially different from amounts
incurred, if our estimates of the status and timing of services performed differ
from the actual status and timing of services performed, it could result in us
reporting amounts that are too high or too low in any particular period. To
date, there have been no material differences between our estimates of such
expenses and the amounts incurred.

Determining the fair value of share-based awards

We determine the fair value of restricted common stock awards granted based on
the fair value of our common stock less any purchase price, as applicable. We
estimate the fair value of stock option awards granted using the Black-Scholes
option-pricing model, which uses as inputs the fair value of our common stock
and subjective assumptions we make, including the expected stock price
volatility and the expected term of the award. Due to the lack of a public
market for the trading of our common stock prior to our IPO, and a lack of
company-specific historical and implied volatility data, we base the estimate of
expected volatility on the historical volatility of a representative group of
publicly traded companies for which historical information is available. The
historical volatility is generally calculated based on a period of time
commensurate with the expected term assumption. We use the simplified method to
calculate the expected term for options granted to employees and directors. We
utilize this method as we do not have sufficient historical exercise data to
provide a reasonable basis upon which to estimate the expected term. For grants
to non-employees, ASU 2018-07 allows entities to use the expected term to
measure non-employee options or elect to use the contractual term as the
expected term, on an award-by-award basis. The risk-free interest rate is based
on a U.S. treasury instrument whose term is consistent with the expected term of
the stock options. The expected dividend yield is assumed to be zero as we have
never paid dividends and do not have current plans to pay any dividends on our
common stock.

The assumptions underlying these valuations represented management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. Accordingly, if factors or expected results change and we use materially different assumptions or estimates, our stock-based compensation expense could be materially different.

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Revenue Recognition

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 in December
2018. We began recognizing associated revenue in 2019 over the period that
research is performed under the collaboration. We account for revenue under ASC
Topic 606, Revenue from Contracts with Customers ("ASC 606").

Under ASC 606, we recognize revenue when our customer obtains control of
promised goods or services, in an amount that reflects the consideration which
we expect to receive in exchange for those goods or services. To determine the
appropriate amount of revenue to be recognized for arrangements determined to be
within the scope of ASC 606, we perform the following five steps: (i)
identification of the contract(s) with the customer, (ii) identification of the
promised goods or services in the contract and determination of whether the
promised goods or services are performance obligations, (iii) measurement of the
transaction price, (iv) allocation of the transaction price to the performance
obligations, and (v) recognition of revenue when (or as) we satisfy each
performance obligation. We only apply the five-step model to contracts when it
is probable that we will collect the consideration we are entitled to in
exchange for the goods or services we transfer to our customer.

Identification of the Contract(s) with the Client


We account for a contract with a customer that is within the scope of ASC 606
when all of the following criteria are met: (i) the arrangement has been
approved by the parties and the parties are committed to perform their
respective obligations, (ii) each party's rights regarding the goods or services
to be transferred can be identified, (iii) the payment terms for the goods or
services to be transferred can be identified, (iv) the arrangement has
commercial substance and (v) collection of substantially all of the
consideration to which we will be entitled in exchange for the goods or services
that will be transferred to the customer is probable.

Identification of performance obligations


Performance obligations are promised goods or services in a contract to transfer
a distinct good or service to the customer. Promised goods or services are
considered distinct when: (i) the customer can benefit from the good or service
on its own or together with other readily available resources and (ii) the
promised good or service is separately identifiable from other promises in the
contract. In assessing whether promised goods or services are distinct, we
consider factors such as the stage of development of the underlying intellectual
property, the capabilities of our customer to develop the intellectual property
on their own and whether the required expertise is readily available.
Arrangements that include rights to additional goods or services that are
exercisable at a customer's discretion are generally considered options. We
assess if these options provide a material right to the customer and if so, they
are considered performance obligations. The identification of material rights
requires judgments related to the determination of the value of the underlying
license relative to the option exercise price, including assumptions about
technical feasibility and the probability of developing a candidate that would
be subject to the option rights.

Determination of the transaction price


We estimate the transaction price based on the amount of consideration we expect
to receive for transferring the promised goods or services in the contract. The
consideration may include both fixed consideration and variable consideration.
At the inception of each arrangement that includes variable consideration, we
evaluate the amount of the potential payments and the likelihood that the
payments will be received. We utilize either the most likely amount method or
expected value method to estimate the transaction price based on which method
better predicts the amount of consideration expected to be received. If it is
probable that a significant revenue reversal would not occur, the variable
consideration is included in the transaction price.

We evaluate whether development, regulatory, and commercial milestone payments
are considered probable of being reached and estimate the amount to be included
in the transaction price using the most likely amount method. If it is probable
that a significant revenue reversal would not occur, the associated milestone
value is included in the transaction

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price. Milestone payments that are not within our control or the licensee's
control, such as regulatory approvals, are not considered probable of being
achieved until those approvals are received. At the end of each reporting
period, we re-evaluate the probability of achievement of such milestones and any
related constraint, and if necessary, adjust our estimate of the overall
transaction price. Any such adjustments are recorded on a cumulative catch-up
basis, which would affect collaboration revenue and earnings in the period of
adjustment.

For sales-based royalties, including milestone payments based on the level of
sales, we determine whether the sole or predominant item to which the royalties
relate is a license. When the license is the sole or predominant item to which
the sales-based royalty relates, we recognize revenue at the later of: (i) when
the related sales occur, or (ii) when the performance obligation to which some
or all of the royalty has been allocated has been satisfied (or partially
satisfied). To date, we have not recognized any sales-based royalty revenue
resulting from our arrangement.

Allocation of the transaction price

We allocate the transaction price based on the estimated standalone selling
price. We must develop assumptions that require judgment to determine the
standalone selling price for each performance obligation identified in the
contract. We utilize key assumptions to determine the standalone selling price,
which may include other comparable transactions, pricing considered in
negotiating the transaction and the estimated costs. Estimating costs for
research and development programs is subjective as we estimate the costs
anticipated to successfully complete the research performance obligations. As
the research is novel, efforts to be successful may be significantly different
than the estimated costs at the beginning of the contract. Certain variable
consideration is allocated specifically to one or more performance obligations
in a contract when the terms of the variable consideration relate to the
satisfaction of the performance obligation and the resulting amounts allocated
to each performance obligation are consistent with the amounts we would expect
to receive for satisfying each performance obligation.

Revenue recognition


We utilize judgment to determine whether the performance obligation is satisfied
over time or at a point in time. We determine the appropriate method of
measuring progress performance obligations satisfied over time for purposes of
recognizing revenue, such as by using an input method based on costs incurred
compared to the costs expected to be incurred in the future to satisfy the
performance obligation. We evaluate the measure of progress each reporting
period and, if necessary, adjust the measure of performance and related revenue
recognition. The estimated 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. If the license to our
intellectual property is determined to be distinct from the other performance
obligations identified in the arrangement, we will recognize revenue from
non-refundable, up-front fees allocated to the license when the license is
transferred to the customer and the customer is able to use and benefit from the
license.

We receive payments from customers based on billing schedules established in
each contract. Up-front payments and fees are recorded as deferred revenue upon
receipt or when due until we perform our obligations under these arrangements.
Amounts are recorded as accounts receivable when our right to consideration is
unconditional.

Off-balance sheet arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the SECOND rules.

Recent accounting pronouncements


We have reviewed all recently issued standards and have determined that, other
than Recently Issued Accounting Pronouncements as disclosed in Note 2 to our
audited consolidated financial statements appearing elsewhere in this Annual
Report on Form 10-K, such standards will not have a material impact on our
financial statements or do not otherwise apply to our operations.

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