Scholar Rock Holding Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The filing was signed August 10, 2021. Scholar Rock is a clinical-stage biopharmaceutical company; it has no product sales and reported collaboration revenue only.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $4.6 million | $3.9 million | $9.3 million | $8.9 million |
| Research and development expense | $25.6 million | $17.0 million | $48.2 million | $33.9 million |
| General and administrative expense | $9.3 million | $6.4 million | $18.6 million | $12.2 million |
| Operating loss | $(30.3) million | $(19.5) million | $(57.5) million | $(37.2) million |
| Net loss | $(30.7) million | $(19.3) million | $(58.4) million | $(36.4) million |
| Basic and diluted loss per share | $(0.84) | $(0.65) | $(1.60) | $(1.23) |
Revenue came from the Gilead collaboration. As a development-stage company with no product sales, the filing does not present a commercial gross margin. Operating expenses rose substantially: six-month R&D increased 42% and G&A increased 53%. Management attributed R&D growth mainly to apitegromab clinical drug supply, increased headcount and facility costs; G&A growth included compensation, professional fees and facility costs.
- Liquidity at June 30: Cash and cash equivalents of $206.9 million and marketable securities of $75.3 million, totaling $282.2 million; restricted cash was $2.5 million. Total cash, equivalents and marketable securities were $341.0 million at December 31, 2020.
- Cash flows, six months: Operating cash used was $58.4 million, investing cash provided was $101.6 million (primarily marketable securities activity), and financing cash provided was $3.3 million, mainly option exercises. Cash, equivalents and restricted cash increased $46.6 million.
- Debt: Long-term debt was $24.8 million. A $50 million Oxford Finance/Silicon Valley Bank facility included $25 million funded in October 2020; the remaining $25 million was available through December 31, 2021, subject to clinical dosing milestones. Maturity is May 1, 2025; interest-only payments apply for the first two years.
- Accumulated deficit: $302.7 million. No dividends are anticipated.
Material changes and business developments
- Q2 revenue increased 17.8% year over year, while net loss widened 59.3%. For the first half, revenue rose 4.2% and net loss widened 60.6%.
- Apitegromab: the company reported positive 12-month TOPAZ Phase 2 topline results in April and supportive exploratory analyses in June. It anticipated starting a randomized, placebo-controlled Phase 3 trial in non-ambulatory Type 2 and Type 3 SMA by year-end 2021, subject to regulatory feedback. The FDA granted Fast Track designation in May; EMA PRIME designation was granted in March.
- SRK-181: the DRAGON Phase 1 trial was progressing through dose escalation. The company expected to move to dose expansion in mid-2021 and anticipated initial Part A response and safety data by year-end 2021.
- Deferred revenue from Gilead was $42.7 million: $9.5 million related to research services, expected to be recognized over the remaining research terms, and $33.2 million related to material rights, recognizable if options are exercised or when the option period ends. Gilead’s option period runs no later than March 19, 2022.
Outlook, risks and contingencies
- Management expected existing and available cash, cash equivalents and marketable securities to fund operating expenses and capital expenditures into 2023, but stated the company would need additional capital to complete clinical development of its current programs. The estimate depends on assumptions and cash could be used sooner than expected. The notes also state liquidity was expected to cover at least one year after the financial statements were issued.
- Expenses, especially R&D, were expected to rise as apitegromab advances toward Phase 3, SRK-181 progresses in DRAGON, and the company continues Gilead and discovery programs. Management expected significant operating losses for the foreseeable future.
- COVID-19 had caused trial-site access disruptions, delayed or missed doses and assessments, and slower DRAGON enrollment. The company cited continued uncertainty around clinical execution and third-party supply, though it reported no impact at that time on quantities of apitegromab or SRK-181 needed for trials.
- Key risks include clinical-trial failure or delay, preliminary data changing after verification, regulatory uncertainty, reliance on third-party manufacturers and a single drug-substance source, financing needs and dilution, and dependence on Gilead’s options and performance. The company reported no material legal proceedings and no off-balance-sheet arrangements.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2021; no material change in internal control over financial reporting was reported during the first half.
Important facts for investors to verify
- Whether the planned apitegromab Phase 3 trial started on schedule, and whether regulators agreed with its design.
- Final and complete TOPAZ data, including safety, durability and interpretation of the exploratory analyses.
- DRAGON enrollment, dose-escalation results, safety findings and progress into dose expansion.
- Actual cash burn and runway against management’s “into 2023” estimate, including the differing one-year liquidity statement in the notes.
- Whether the additional $25 million debt tranche’s dosing conditions were met, and the consequences for financing needs and dilution.
- Gilead option decisions and the timing of recognition of the $42.7 million deferred revenue balance.