Scholar Rock Holding Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated financial statements. Scholar Rock is a clinical-stage biopharmaceutical company; it reported no revenue from product sales. Dollar amounts below are in millions unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Collaboration revenue | $4.7 | $5.0; down 6.4% |
| Research and development expense | $22.5 | $16.9; up 33.4% |
| General and administrative expense | $9.4 | $5.8; up 60.9% |
| Total operating expenses | $31.9 | $22.7; up 40.4% |
| Loss from operations | $(27.2) | $(17.7) |
| Net loss | $(27.7) | $(17.1) |
| Basic and diluted net loss per share | $(0.76) | $(0.58) |
| Net cash used in operating activities | $(26.5) | Net cash provided of $2.6 |
Revenue reflects the Gilead collaboration and decreased with the period-over-period change in program progress. The 2020 operating cash inflow included a $25.0 Gilead milestone payment received in January 2020, making the year-over-year comparison atypical. The filing does not report a meaningful product gross margin; the company has no commercial product sales.
Cash, cash equivalents and marketable securities totaled $314.7 at March 31, 2021, down from $341.0 at December 31, 2020. Cash, cash equivalents and restricted cash were $161.6. The company reported $25.0 of long-term debt, with a carrying value of $24.8, and operating lease liabilities totaling approximately $31.0. A further $25.0 loan tranche was available through December 31, 2021, subject to specified clinical-trial dosing milestones. Deferred revenue was $47.3, including $14.1 expected to be recognized for research services and $33.2 related to Gilead material rights.
Material changes and operating developments
- R&D expense rose primarily from higher apitegromab clinical drug-supply costs, increased headcount and facility costs. Apitegromab external costs increased $2.8; SRK-181 external costs decreased $1.6.
- G&A expense increased mainly because of higher employee compensation and costs associated with the new 301 Binney Street facility.
- Equity-based compensation increased to $4.7 from $2.2.
- Property and equipment purchases were $2.3, versus $0.2 in the prior-year quarter.
- The company subleased its former 620 Memorial Drive space beginning February 2021; Q1 sublease income was $0.3.
Outlook, commentary and risks
- Management expected existing cash, cash equivalents and marketable securities to fund operating expenses and capital needs into 2023, while stating that additional capital would be required to complete clinical development of current programs. The estimate depends on assumptions and resources could be used sooner than expected.
- Management expected significant operating losses and rising expenses as it advances apitegromab and SRK-181, continues Gilead research and develops its pipeline. No product-sales revenue was expected in the near future.
- After quarter-end, on April 6, 2021, the company announced positive 12-month top-line results from the TOPAZ Phase 2 apitegromab trial. A Phase 3 trial in non-ambulatory Type 2 and Type 3 SMA was anticipated to begin by year-end 2021, subject to regulatory feedback. Results were top-line and remain subject to further data review.
- SRK-181’s DRAGON Phase 1 dose-escalation study was ongoing; the company planned to advance to dose expansion in mid-2021 and anticipated initial clinical response and safety data by year-end 2021. Enrollment had been slower than originally projected, partly due to COVID-19 restrictions.
- COVID-19 had disrupted trial-site access, dosing, assessments and enrollment; four TOPAZ participants missed three consecutive doses. The company also cited potential clinical-supply constraints, including reliance on third-party manufacturers and a single-source drug-substance supplier.
- Gilead’s collaboration options cover three programs. The company may receive future milestone and royalty payments, but Gilead may choose not to exercise options or may discontinue programs. The additional debt tranche is also contingent on clinical milestones.
- Other key risks include clinical and regulatory uncertainty, third-party manufacturing and trial dependence, need for future financing, intellectual-property challenges, and the possibility that preliminary clinical findings do not persist in later trials. No material legal proceedings were reported. Management concluded disclosure controls were effective as of March 31, 2021.
Investor verification points
- Review the full TOPAZ dataset, including final analyses, the effects of missed doses and protocol deviations, and safety follow-up; distinguish the April post-quarter announcement from Q1 results.
- Track Phase 3 start timing, trial design and regulatory feedback for apitegromab, and DRAGON enrollment, dose escalation and planned expansion for SRK-181.
- Reassess cash runway against increasing trial and manufacturing costs, the conditional second debt tranche, and the company’s stated need for additional capital.
- Monitor Gilead option decisions, remaining research obligations and timing of recognition of the $47.3 deferred-revenue balance.
- Assess COVID-19 and single-source manufacturing exposure, including possible effects on clinical supply and trial timelines.