Scholar Rock Holding Corporation — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unaudited results. Scholar Rock is a pre-revenue biopharmaceutical company developing medicines targeting growth-factor signaling. Its lead candidate, SRK-015, is in Phase 1 development for spinal muscular atrophy (SMA); the FDA has granted it orphan drug designation.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $8.1 million | $4.8 million | $26.2 million | $13.1 million |
| General and administrative expense | $3.2 million | $1.2 million | $8.9 million | $3.5 million |
| Total operating expenses | $11.2 million | $5.9 million | $35.1 million | $16.6 million |
| Net loss | $10.8 million | $5.9 million | $34.4 million | $16.5 million |
| Operating cash used | — | — | $30.5 million | $15.7 million |
Margins are not meaningful because the company reported no revenue. Q3 basic and diluted net loss per share was $0.44; the nine-month figure was $2.72. The filing cautions that the large increase in shares following the IPO affects year-over-year per-share comparability.
At September 30, cash and cash equivalents were $104.0 million, with a further $0.2 million of restricted cash; marketable securities were zero. Total assets were $109.0 million, total liabilities $6.7 million, and stockholders’ equity $102.3 million. Loan payable was approximately $0.6 million, with $0.04 million of capital lease obligations. The company received $77.8 million net from its May 2018 IPO. Cash and cash equivalents and marketable securities were $58.0 million at December 31, 2017.
Changes versus the prior comparable period
- Q3 operating expenses rose 89% and net loss rose 82% year over year. For the first nine months, operating expenses increased 112% and net loss increased 108%.
- Nine-month R&D expense doubled, driven by higher SRK-015 and other program research, preclinical, clinical and manufacturing costs, plus increased R&D headcount and facility costs.
- Nine-month G&A expense increased 155%, reflecting additional personnel and higher legal, audit, consulting, investor-relations and other public-company costs.
- Operating cash use increased by $14.8 million year over year. IPO proceeds more than offset operating and investing outflows, lifting cash and restricted cash by $47.5 million during the nine months.
Outlook, risks and notable items
- Management expects significant expenses and operating losses to continue as SRK-015 and other programs advance. It estimates existing cash will fund operating expenses and capital expenditures into the second half of 2020, while warning actual needs may differ and additional capital will be required to complete development.
- The Phase 1 trial of SRK-015 began in May 2018. Other programs, including the TGFβ1 program, remain in preclinical development; the company had not nominated candidates from those programs.
- Key uncertainties include clinical safety and efficacy, trial enrollment and timing, regulatory approval, manufacturing supply and scale-up, intellectual-property protection, competition and the availability and terms of future financing. SRK-015 manufacturing currently relies on a single-source supplier.
- The company reported no product revenue and no revenue under its Janssen option and license agreement for the periods presented. The agreement includes potential development and regulatory milestones, commercial milestones and royalties; these are contingent and are not assured revenue.
- Equity-based compensation included $0.3 million related to modifications of awards in connection with the planned December 31, 2018 retirement of the COO and Head of Corporate Development.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective as of September 30, 2018.
Important facts for investors to verify
- Progress, safety findings, enrollment and timing for the SRK-015 Phase 1 trial and any subsequent clinical plans.
- Actual cash burn and whether the stated runway into the second half of 2020 remains supportable under updated development plans.
- Dependence on single-source manufacturing and the readiness, cost and capacity of clinical supply.
- Terms, timing and likelihood of any Janssen milestones or royalties; none were recognized as revenue in this filing.
- Future financing needs and potential dilution or restrictions if capital is raised through equity, debt or collaboration arrangements.