Scholar Rock Holding Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Filed August 9, 2023. Scholar Rock is a clinical-stage biopharmaceutical company with no commercial product revenue.
Business context and development outlook
The company is developing apitegromab for spinal muscular atrophy (SMA), SRK-181 for cancers resistant to checkpoint inhibitors, and earlier-stage programs in fibrosis and other conditions. Management expected to complete enrollment in the Phase 3 SAPPHIRE trial in Q3 2023, with top-line results expected in 2024; a potential apitegromab launch was projected for 2025 if development and approval succeed. The Phase 1 DRAGON trial of SRK-181 continued, with biomarker and clinical updates expected in 2023.
In June 2023, the company reported that 36-month TOPAZ extension treatment was associated with sustained motor-function improvement and improvements in patient-reported measures. These findings are from an extension study and do not establish the outcome of the pivotal SAPPHIRE trial.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $33.2 million |
| Research and development | $26.9 million | $32.1 million | $56.6 million | $61.4 million |
| General and administrative | $12.2 million | $11.1 million | $23.0 million | $21.8 million |
| Total operating expenses | $39.1 million | $43.1 million | $79.6 million | $83.3 million |
| Net loss | $37.9 million | $44.0 million | $77.3 million | $52.0 million |
| Basic and diluted loss per share | $0.47 | $1.06 | $0.97 | $1.31 |
There is no meaningful revenue-based margin to report because the company had no product sales. The 2022 six-month revenue was a one-time $33.2 million recognition of deferred Gilead collaboration material-rights revenue; that agreement’s revenue was fully recognized by January 2022. Consequently, the six-month operating loss and net loss increased year over year despite lower operating expenses. Q2 net loss narrowed year over year, chiefly alongside lower R&D expense and higher net other income.
At June 30, 2023, cash and cash equivalents were $108.1 million and marketable securities were $140.7 million, totaling $248.7 million, versus $315.4 million at year-end 2022. Accumulated deficit was $587.9 million. Six-month operating cash use was $75.6 million; investing activities provided $74.7 million, primarily from marketable-security maturities, and financing activities provided $5.8 million, mainly from ATM sales. The company reported $49.9 million of long-term debt and no current debt principal shown on the balance sheet.
Management said existing cash, cash equivalents and marketable securities were expected to fund operating expenses and capital requirements into 2025, but also stated that additional capital would be needed to complete clinical development and commercialization. Separately, the notes say existing resources should cover current operations for at least one year after issuance of the financial statements.
Material changes, financing and notable items
- Q2 R&D expense declined 16.2% year over year, primarily due to lower apitegromab drug-supply manufacturing costs and lower costs associated with the prior-year restructuring; G&A rose 10.3%, mainly on employee-related costs. For the six months, SRK-181 external costs increased 48.3%, largely reflecting trial costs, including pembrolizumab purchases.
- The company sold 619,290 shares under its $100 million ATM program through June 30, receiving $5.2 million net. The ATM remained available for additional sales.
- The Oxford/Silicon Valley Bank facility has $50 million funded and outstanding. A 2022 amendment extended maturity to November 2027 and interest-only payments through November 2024, with a potential extension through November 2025 subject to milestones. The stated rate is the greater of prime plus 4.60% or 9.35%. Up to $50 million in additional tranches may be available subject to conditions and lender discretion.
- Approximately 25.4 million pre-funded warrants remained outstanding at June 30, 2023. The company also disclosed 10.5 million common warrants and outstanding equity awards, creating potential dilution. The pre-funded warrants are included in weighted-average shares for loss-per-share purposes because they are exercisable for nominal consideration.
- Unrealized losses on available-for-sale U.S. Treasury securities were considered temporary; the company reported no credit-related impairment charges. No material legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the period.
Risks and contingencies
The business remains loss-making, depends on external financing, and expects substantial R&D spending. Clinical development, trial enrollment and results, regulatory review, manufacturing and reliance on third-party suppliers are significant risks; apitegromab relies on a single-source drug-substance supplier. Other risks include the need to establish commercial capabilities, possible dilution from equity financing and warrants, and uncertainty in access to capital. Management also discussed financial-services-sector risks following the SVB closure and broader risks from inflation, interest rates and geopolitical events. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether SAPPHIRE enrollment completed on the anticipated Q3 2023 schedule and whether 2024 top-line results remain on track.
- How the 36-month TOPAZ extension findings compare with final pivotal SAPPHIRE results and whether the trial meets its endpoints.
- The assumptions supporting the stated cash runway into 2025, especially against six-month operating cash use of $75.6 million and the stated need for further funding.
- Current ATM usage, potential future equity issuance, and the dilutive impact of outstanding warrants and equity awards.
- Debt interest expense, milestone conditions for additional borrowing and any changes to the facility’s terms.