Scholar Rock Holding Corp. — Q1 2022 Form 10-Q
Business context and reporting period
The filing covers the three months ended March 31, 2022. Scholar Rock is a clinical-stage biopharmaceutical company developing antibody therapies for serious diseases. Its lead programs are apitegromab for spinal muscular atrophy (SMA), in Phase 3, and SRK-181 for checkpoint-inhibitor-resistant cancers, in Phase 1. The company had no product sales; reported revenue came from collaboration arrangements.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $33.2 million | $4.7 million; increase of $28.5 million |
| Research and development expense | $29.4 million | $22.5 million; up 30.2% |
| General and administrative expense | $10.8 million | $9.4 million; up 14.9% |
| Total operating expenses | $40.1 million | $31.9 million; up 25.7% |
| Net loss | $8.0 million | $27.7 million |
| Net loss per share, basic and diluted | $0.21 | $0.76 |
| Net cash used in operating activities | $42.6 million | $26.5 million |
The $33.2 million of Q1 2022 revenue was recognized after Gilead terminated its option exercise periods in January; it represented previously deferred material-rights revenue, not product sales. All Gilead collaboration revenue had been recognized by March 31, 2022. No gross profit or gross margin figure is presented.
Cash, cash equivalents and marketable securities totaled $210.2 million at March 31, 2022, down from $253.0 million at December 31, 2021. Cash and cash equivalents alone were $100.2 million; marketable securities were $110.0 million. Operating cash use increased year over year; the reported amount included a $33.2 million reduction in deferred revenue. Investing cash use was $70.6 million, mainly reflecting purchases of marketable securities, and financing provided $0.5 million.
Debt totaled approximately $50.2 million at carrying value: $6.6 million current and $43.6 million long term. The loan matures May 1, 2025; interest-only payments run through November 2022, with principal payments beginning December 2022. The interest rate is the greater of prime plus 4.60% or 7.85%. Current assets were $228.6 million and current liabilities $33.4 million. Accumulated deficit was $384.1 million.
Material changes versus the prior comparable period
- Revenue increased sharply because Gilead’s option termination triggered recognition of $33.2 million of deferred revenue. This is a one-time collaboration-related item, rather than recurring product revenue.
- Net loss narrowed to $8.0 million from $27.7 million, despite higher operating expenses, principally because of the revenue recognition.
- R&D expense rose mainly from apitegromab Phase 3 SAPPHIRE trial costs and higher employee compensation; G&A increased primarily due to employee compensation and equity-based compensation.
- Operating cash use rose to $42.6 million from $26.5 million. Cash and marketable securities combined declined $42.8 million during the quarter.
Outlook, commentary and risks
- Management estimated that existing cash, cash equivalents and marketable securities would fund operating expenses and capital needs into the fourth quarter of 2023, while noting additional capital would be required to complete clinical development of current programs. The filing also states that existing resources are expected to cover at least one year after issuance of the financial statements.
- Management expected clinical-stage development costs to remain substantial. Increased costs for apitegromab and SRK-181 were expected to be partly offset by lower early-stage research costs following portfolio changes and workforce reductions.
- On May 16, 2022, after quarter-end, the company announced a restructuring to focus on clinical-stage assets, reducing its workforce by 39 positions, or approximately 25%. Estimated cash severance-related costs are $1.7 million to $2.3 million; non-cash equity modification costs were not yet estimable. Management expected employee-related expenses to decline in the second half of 2022.
- The Chief Medical Officer notified the company of his resignation on May 11, effective June 30, 2022; a search for a successor had begun.
- Key risks include clinical-trial uncertainty and enrollment delays, COVID-19 effects on trial sites and supply chains, dependence on third-party manufacturers (including a single-source supplier for drug substance), regulatory and intellectual-property risks, and the need for additional financing. The company also reported COVID-related missed or delayed apitegromab doses in TOPAZ and slower-than-projected enrollment in the SRK-181 DRAGON trial.
- The company reported no material legal proceedings and no material changes in internal control over financial reporting. Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2022.
Important facts for investors to verify
- Whether clinical progress and future data from Phase 3 SAPPHIRE, the TOPAZ extension and Phase 1 DRAGON support continued development plans and timelines.
- How the company’s cash runway changes against its stated fourth-quarter 2023 estimate, given operating cash use and the additional funding needed to complete current programs.
- Whether the May 2022 restructuring delivers expected savings, and the final cash and non-cash costs and operational effects.
- The debt facility’s repayment schedule, interest-rate exposure and cash-collateral covenant requirements.
- That Q1 2022 revenue was entirely collaboration-related and non-recurring; the filing reports no commercial product revenue.