Scholar Rock Holding Corp. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results. Scholar Rock is a clinical-stage biopharmaceutical company; it had no product-sale revenue. Collaboration revenue was from Gilead.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $5.5 million | $3.0 million | $14.8 million | $12.0 million |
| Research and development expense | $31.3 million | $18.4 million | $79.4 million | $52.3 million |
| General and administrative expense | $11.3 million | $8.3 million | $29.9 million | $20.5 million |
| Total operating expenses | $42.5 million | $26.7 million | $109.3 million | $72.7 million |
| Operating loss | $(37.1) million | $(23.6) million | $(94.6) million | $(60.8) million |
| Net loss | $(37.5) million | $(23.6) million | $(95.9) million | $(59.9) million |
| Basic and diluted net loss per share | $(1.02) | $(0.79) | $(2.62) | $(2.02) |
There is no meaningful product gross margin disclosed: revenue was collaboration-related, not from commercial products. Operating expenses substantially exceeded revenue. For the nine months, R&D increased 51.9%, principally due to apitegromab clinical supply manufacturing, higher headcount and facility costs; G&A rose 46.2%, including higher personnel, professional fees and facility costs. Revenue growth reflected program progress and revised estimates of remaining Gilead research costs; the company said a reduction in estimated remaining costs materially contributed to Q3 revenue.
- Cash and investments: $246.4 million at September 30, 2021, comprising $176.1 million in cash and cash equivalents and $70.3 million in marketable securities, down from $341.0 million at December 31, 2020. Restricted cash was an additional $2.5 million.
- Cash flows, nine months: $94.3 million used in operating activities, compared with $40.6 million used in 2020; $104.9 million provided by investing activities, mainly marketable-security maturities; and $5.3 million provided by financing activities, mainly option exercises. Cash, cash equivalents and restricted cash increased $15.8 million.
- Debt: $24.9 million long-term debt outstanding. The October 2020 facility provides a further $25 million tranche, available through December 31, 2021 subject to first-patient dosing in both the apitegromab Phase 3 trial and SRK-181 DRAGON Part B. Maturity is May 1, 2025; stated interest is the greater of prime plus 4.60% or 7.85%, with a 4% final payment.
- Deferred revenue: $37.2 million related to Gilead at period-end: $4.0 million expected to be recognized for research services over the remaining research terms, and $33.2 million related to option material rights, recognized if options are exercised or when the option period ends.
The company said its existing cash, cash equivalents and marketable securities were expected to fund operating expenses and capital expenditures into 2023, while noting it would need additional capital to complete clinical development of its programs. The financial-statement note separately states that resources were expected to cover current operations for at least one year after issuance. These are management estimates, not a financing commitment.
Business developments and outlook
- Apitegromab for SMA: The company reported positive 12-month TOPAZ Phase 2 topline results announced in April 2021. Among non-ambulatory patients, 74% (23 of 31) improved by at least one HFMSE point. In the younger non-ambulatory cohort receiving 20 mg/kg, mean HFMSE improvement was 7.1 points; in the older cohort, mean improvement was 0.6 points by intent-to-treat analysis. The company anticipated initiating a randomized, double-blind, placebo-controlled Phase 3 trial in non-ambulatory Type 2 and 3 SMA by year-end 2021, subject to regulatory feedback. FDA Fast Track and Rare Pediatric Disease designations and EMA PRIME designation had been granted.
- SRK-181 for cancer: The company continued dose escalation in Part A of the DRAGON Phase 1 trial and had initiated Part B dose expansion in combination with approved anti-PD-(L)1 therapy, across several solid-tumor cohorts. Initial Part A response and safety data were expected to be presented in November 2021.
- Gilead collaboration: Gilead has options to license candidates from three TGFβ programs, with the option period ending no later than March 19, 2022. The company expected to recognize the remaining $4.0 million of research-service deferred revenue during the remainder of 2021; timing of the $33.2 million material-rights revenue depends on option exercise or expiration.
- Spending outlook: Management expected R&D and G&A expenses to increase as clinical development, manufacturing, staffing and public-company costs grow. It anticipated continued losses for the foreseeable future and no near-term product-sales revenue.
Risks, contingencies and unusual items
- COVID-19 had disrupted site access, dosing, assessments and trial enrollment; four TOPAZ participants each missed three doses during the 12-month period because of site-access restrictions. DRAGON enrollment had also been slower than originally projected. Supply-chain constraints could continue, although the company reported no impact to date on its ability to produce sufficient clinical quantities.
- The company relies on third parties for clinical development and manufacturing, including a single-source drug-substance supplier for apitegromab and SRK-181. Manufacturing capacity, quality, regulatory compliance and supply continuity are material risks.
- Clinical results remain uncertain: early or topline findings may change with additional data and verification, and later-stage trials may not reproduce earlier results. Regulatory approval, patient recruitment, safety, efficacy, reimbursement and commercialization are not assured.
- Additional financing will be required to complete clinical development; it may not be available on acceptable terms. Equity financing could dilute shareholders, while debt or collaboration arrangements could impose restrictions or require rights to be relinquished.
- No material legal proceedings were reported for the period. The filing disclosed lease commitments, including a sublease of the former facility through August 2023, and no off-balance-sheet arrangements.
- Disclosure controls and procedures were assessed as effective at the reasonable assurance level as of September 30, 2021; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the apitegromab Phase 3 trial began on the anticipated schedule, and how its design and regulatory feedback compare with the stated plan.
- Final and verified TOPAZ results, including the clinical significance and durability of outcomes and the effects of missed doses and background therapy.
- DRAGON enrollment progress and the safety and response data for SRK-181, including results from dose escalation and expansion cohorts.
- Cash use against management’s runway estimate, future capital needs and whether the conditional $25 million debt tranche became available.
- Gilead’s option decisions and the timing and assumptions behind recognition of deferred revenue, particularly the $33.2 million tied to material rights.
- Potential dilution, including 2,179,487 outstanding pre-funded warrants at September 30, 2021, in addition to stock options and other equity awards.