Scholar Rock Holding Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Filed August 7, 2020. Scholar Rock is a clinical-stage biopharmaceutical company; it reported no revenue from product sales. Collaboration revenue came from its Gilead agreement.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $3.9 million | $5.0 million | $8.9 million | $8.1 million |
| Research and development | $17.0 million | $13.7 million | $33.9 million | $24.5 million |
| General and administrative | $6.4 million | $4.7 million | $12.2 million | $8.8 million |
| Operating loss | $(19.5) million | $(13.4) million | $(37.2) million | $(25.1) million |
| Net loss | $(19.3) million | $(12.5) million | $(36.4) million | $(23.3) million |
| Basic and diluted loss per share | $(0.65) | $(0.48) | $(1.23) | $(0.90) |
Gross profit and gross margin are not presented; the filing does not provide a clear margin measure.
- Liquidity at June 30: Cash and cash equivalents of $115.1 million and marketable securities of $26.0 million, totaling $141.2 million, versus $157.4 million at December 31, 2019. Current assets were $145.2 million and current liabilities $32.6 million.
- Cash flows, first half: Operating cash use was $17.2 million, compared with $31.9 million in 2019. Investing provided $95.0 million, principally from net maturities of marketable securities; financing provided $1.0 million, mainly option exercises. Cash, cash equivalents and restricted cash increased $78.8 million.
- Debt and other obligations: The company reported no loan payable; its Silicon Valley Bank loan was fully repaid in June 2019. Deferred revenue totaled approximately $58.5 million. Operating lease liabilities totaled $4.8 million at June 30.
Changes versus prior periods
- Q2 revenue declined 22.6% year over year, which management attributed to lower Gilead-program activity amid COVID-related laboratory restrictions. First-half revenue increased 9.6% year over year as collaboration progress differed between periods.
- First-half R&D expense rose 38.6%, reflecting increased TOPAZ trial costs, SRK-181 clinical and manufacturing costs, Specifica antibody-library expense, and higher employee costs. G&A rose 38.8%, primarily due to professional services and increased headcount.
- First-half net loss widened by $13.1 million to $36.4 million. Lower investment income also contributed to the year-over-year comparison.
- Cash and securities fell by $16.3 million from year-end despite a $25 million Gilead milestone payment received in January 2020. The cash-flow statement’s investing inflow largely reflects security maturities, not operating cash generation.
Outlook, risks and notable items
- Management expects significant operating losses and rising expenses as it advances SRK-015, SRK-181 and other programs. It estimated existing cash resources would fund operating and capital needs into Q4 2021; elsewhere, the financial-statement note says resources were expected to cover current operations for at least one year after issuance. Both estimates depend on assumptions and future spending.
- TOPAZ Phase 2 enrollment was completed in January 2020 with 58 patients. An interim analysis was planned for Q4 2020 and 12-month topline data for the first half of 2021. COVID-19 disruptions could affect dosing, assessments and readout timing.
- SRK-181’s DRAGON Phase 1 trial began dosing in April 2020. A dose-escalation update was anticipated in Q4 2020, with clinical response and safety data anticipated in 2021; COVID-19 could delay results.
- The company intended to nominate an RGMc-targeting candidate in 2020. Gilead has options on candidates from three TGFβ programs; the company reported a $25 million preclinical milestone received in January and potential additional collaboration payments contingent on future milestones.
- COVID-19 had disrupted access to some trial sites, patient dosing and assessments, enrollment, laboratory operations and research activity. Further disruption could delay development and increase costs.
- A new Cambridge headquarters lease had base rent of $6.9 million annually, subject to 3.5% increases, with a free-rent period through mid-August 2020. The lease had not commenced for accounting purposes at June 30. A $2.3 million letter of credit was secured; tenant improvements were expected to include a $14.1 million allowance.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level, with no material change in internal control over financial reporting during Q2.
Investor facts to verify
- Whether trial operations and data-readout timelines for TOPAZ and DRAGON were affected by the pandemic, and whether subsequent results support continued development.
- Cash burn, collaboration receipts and management’s runway assumptions, including the differing runway statements in the filing.
- Gilead program progress, option exercise or expiry timing, and the pace at which deferred revenue is recognized.
- The timing and total cost of the new headquarters move, including tenant-improvement spending, reimbursements and lease commencement.
- Funding needs to complete clinical development, potential dilution or financing terms, and any changes in stated cash runway.