Scholar Rock Holding Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Scholar Rock is a clinical-stage biopharmaceutical company developing antibody medicines for serious diseases. It has no approved products and has generated no product-sales revenue.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.0 | $4.6 | $33.2 | $9.3 |
| Research and development expense | $32.1 | $25.6 | $61.4 | $48.2 |
| General and administrative expense | $11.1 | $9.3 | $21.8 | $18.6 |
| Operating loss | $(43.1) | $(30.3) | $(50.1) | $(57.5) |
| Net loss | $(44.0) | $(30.7) | $(52.0) | $(58.4) |
| Net loss per share, basic and diluted | $(1.06) | $(0.84) | $(1.31) | $(1.60) |
- Six-month operating cash use was $77.3 million, compared with $58.4 million in the prior-year period. Investing activities used $26.1 million, while financing provided $196.3 million, primarily from the June equity offering.
- At June 30, cash and cash equivalents were $305.7 million, marketable securities $65.0 million, and restricted cash $2.5 million. Current assets were $389.1 million and current liabilities $40.2 million.
- Total debt was $50.4 million: $11.6 million current and $38.8 million long-term. The facility matures May 2025; principal payments were scheduled to begin in December 2022 after interest-only payments through November 2022. Interest is variable, at the greater of prime plus 4.60% or 7.85%.
- No meaningful product gross margin is reported; the company has no commercial product sales. It reported operating and net losses and expects significant future losses.
Material changes versus comparable periods
- Q2 revenue fell to zero after the Gilead collaboration revenue had been fully recognized. First-half 2022 revenue rose to $33.2 million because the company recognized deferred revenue for Gilead option-related material rights in January 2022; this was not recurring product revenue. Gilead’s option period ended in January, and the collaboration revenue was fully recognized.
- Q2 operating expenses increased 23.7% year over year, with R&D up 25.3% and G&A up 19.5%. The company attributed R&D growth mainly to apitegromab Phase 3 costs, SRK-181 clinical-supply manufacturing, and employee compensation. First-half expenses also increased, but the $33.2 million Gilead revenue recognition helped reduce the reported net loss versus the prior-year half.
- In June, the company raised approximately $195.3 million net through a registered offering of common shares, pre-funded warrants and common warrants. The offering included 16.3 million common shares, pre-funded warrants for 25.5 million shares and warrants for 10.5 million shares. The common warrants have a $7.35 exercise price and expire December 31, 2025. The pre-funded warrants are exercisable for nominal consideration.
- In May, Scholar Rock announced a 39-position workforce reduction, about 25% of staff, to prioritize clinical-stage programs. It recorded $1.9 million in severance costs and $0.1 million of non-cash equity-modification expense; $1.4 million of severance remained accrued at quarter-end. Management expected employee-related expenses to decline in the second half.
Outlook, commentary and risks
- Management said cash, cash equivalents and marketable securities should fund operating expenses and capital needs into 2025, while noting additional capital will be needed to complete clinical development and commercialization. The financial-statement note separately says resources are sufficient for at least one year after issuance; investors should reconcile the stated runway assumptions.
- Management expected R&D spending to rise as apitegromab advances in the Phase 3 SAPPHIRE trial and Phase 2 TOPAZ extension, and SRK-181 advances in the Phase 1 DRAGON trial. It expected lower early-stage program costs and the workforce reduction to substantially offset some clinical-stage increases.
- In June, the company reported 24-month TOPAZ extension data supporting sustained improvement in non-ambulatory SMA patients, based on an observed-case analysis. It reported no serious safety risks identified, no deaths or serious adverse reactions attributed to apitegromab, and 14 serious treatment-emergent adverse events assessed by investigators as unrelated. These Phase 2 extension results do not establish Phase 3 efficacy; SAPPHIRE remains pivotal.
- Key risks include clinical-trial failure or delay, enrollment and data-quality challenges, COVID-19 effects on trial sites and supply chains, reliance on third-party manufacturers (including a single-source supplier for drug substance), regulatory uncertainty, and the need for future financing. Further share or warrant issuance could dilute existing holders.
- The filing reported no material legal proceedings for the six-month period. Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2022.
Important facts for investors to verify
- Progress, timing and endpoint results for SAPPHIRE and DRAGON, and whether TOPAZ extension findings are borne out in controlled, pivotal evidence.
- The basis for the stated cash runway into 2025, expected spending and financing needs, and debt-service requirements as principal repayments commence.
- The potential dilution and share overhang from the June offering, including exercise of pre-funded warrants, common warrants and outstanding equity awards.
- Whether the restructuring delivers expected savings without impairing clinical execution, staffing or program timelines.
- Exposure to manufacturing capacity, supply-chain disruption and trial-site access, including the company’s reliance on third parties.