Scholar Rock Holding Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing. Filed March 12, 2020.
Business context
Scholar Rock is a clinical-stage biopharmaceutical company developing monoclonal antibodies that selectively inhibit growth-factor activation. Its lead programs are SRK-015 for spinal muscular atrophy (SMA) and SRK-181 for cancers resistant to checkpoint inhibitors. The company had no approved products and no commercial product sales in 2019.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Collaboration revenue | $20.5 million | None |
| Research and development expense | $54.2 million | $36.3 million |
| General and administrative expense | $20.8 million | $14.4 million |
| Loss from operations | $(54.5) million | $(50.7) million |
| Net loss | $(51.0) million | $(49.3) million |
| Net loss per share, basic and diluted | $(1.85) | $(3.15) |
| Operating cash flow | $(63.1) million | $24.6 million |
Revenue came from the Gilead collaboration, not product sales. Net loss increased by $1.7 million, while loss per share narrowed because the weighted-average share count increased substantially. Research and development expense rose 49%, principally reflecting SRK-181 development and manufacturing preparation, increased staffing and facility costs. General and administrative expense increased 45%, largely due to headcount and a full year of public-company costs. No product gross margin is reported.
Cash, liquidity and debt
- At year-end, cash and cash equivalents were $36.3 million and marketable securities were $121.1 million, totaling $157.4 million. Restricted cash was an additional $2.5 million.
- Current assets were $185.2 million and current liabilities were $32.8 million. Deferred revenue was $67.4 million in total, including current and long-term portions.
- Operating cash use was $63.1 million. Financing provided $48.9 million, mainly from a June–July 2019 public offering that generated $48.3 million net. Investing cash use was $62.2 million, primarily reflecting marketable-security transactions.
- The company repaid its remaining bank loan in June 2019; no loan payable remained at year-end. Operating lease liabilities totaled $5.3 million at year-end, excluding the 301 Binney Street lease, which had not yet commenced for accounting purposes.
- Management estimated existing cash and marketable securities would fund operations into the fourth quarter of 2021, but said additional capital would be required to complete clinical development of current programs. This estimate depends on assumptions that may change.
Material developments, outlook and risks
- SRK-015: TOPAZ Phase 2 enrollment in Type 2 and Type 3 SMA was completed in January 2020 with 58 patients. Preliminary results from 29 patients showed dose-proportional exposure and up to 100-fold increases in serum latent myostatin, indicating target engagement; they did not establish clinical efficacy. Interim six-month safety and efficacy analysis was planned for mid-2020, with 12-month topline results expected from Q4 2020 through Q1 2021. SRK-015 had U.S. and EU orphan designations.
- SRK-181: A Phase 1 trial in solid tumors with primary resistance to anti-PD-(L)1 therapy began in Q1 2020. Initial biomarker data were expected in the second half of 2020; response and safety data from expansion cohorts were anticipated during 2021. These are forward-looking expectations, not reported outcomes.
- Gilead collaboration: Gilead provided $50 million upfront cash and purchased $30 million of Scholar Rock stock in 2018. A $25 million preclinical milestone was achieved in December 2019 and the related payment was received in January 2020. The company recognized $20.5 million of collaboration revenue in 2019 and reported $67.4 million of deferred revenue at year-end. The agreement provides potential future option, development, regulatory and commercial payments and tiered royalties; the filing gives differing aggregate milestone figures in different sections, as noted below.
- Other programs: Scholar Rock intended to nominate an RGMc-targeting candidate for iron-restricted anemia in 2020 and select an additional SRK-015 indication. Gilead collaboration research continued for fibrosis programs.
- Principal uncertainties: Clinical safety and efficacy remain unproven; the company depends on future financing, third-party manufacturers and research vendors, and collaboration decisions. Management identified potential COVID-19 effects on trial enrollment, site operations, patient access and supply chains. Other significant risks include regulatory approval, competition, intellectual-property challenges, reimbursement and the possibility of clinical delays or failure.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2019. The independent auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness. The company reported no material legal proceedings.
Investor verification checklist
- Check subsequent filings for TOPAZ clinical efficacy and safety results, including the distinction between the preliminary target-engagement findings and clinical benefit.
- Verify the timing, enrollment and results of the SRK-181 Phase 1 trial and any impact from COVID-19.
- Reconcile the Gilead collaboration’s potential milestone total: the filing cites $1.425 billion across three programs in the detailed terms, but $1.450 billion elsewhere.
- Track cash burn, available liquidity, milestone cash receipts and any new financing against management’s stated runway into Q4 2021.
- Review collaboration revenue recognition and the $67.4 million deferred-revenue balance, including the timing and conditions for future recognition.