Business context and reporting period
Scholar Rock Holding Corporation is a clinical-stage biopharmaceutical company developing antibody therapies that selectively modulate growth-factor signaling. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020. Its lead candidate, apitegromab, is being studied for spinal muscular atrophy (SMA); SRK-181 is in Phase 1 development for cancers resistant to checkpoint inhibitors. The company had no commercial product sales.
Financial performance and position
Amounts are in U.S. dollars; financial statement amounts below are in millions except per-share data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $3.0 | $4.8 | $12.0 | $12.9 |
| Research and development expense | $18.4 | $15.7 | $52.3 | $40.2 |
| General and administrative expense | $8.3 | $6.2 | $20.5 | $15.0 |
| Operating loss | $(23.6) | $(17.1) | $(60.8) | $(42.2) |
| Net loss | $(23.6) | $(16.1) | $(59.9) | $(39.4) |
| Net loss per share | $(0.79) | $(0.55) | $(2.02) | $(1.46) |
- All reported revenue came from the Gilead collaboration. Q3 revenue fell 36.4% year over year; nine-month revenue fell 7.4%. Management attributed the decreases to lower program progress and internal-resource utilization, partly due to COVID-related laboratory restrictions.
- Operating expenses rose 21.8% in Q3 and 32.0% for the first nine months. Increased apitegromab trial and manufacturing costs, SRK-181 development, and research and administrative headcount were key drivers. Nine-month G&A also included higher professional-services expense.
- Operating cash use was $40.6 million for the first nine months, versus $47.0 million a year earlier. Investing activities provided $59.1 million, mainly from net sales and maturities of marketable securities; financing provided $1.4 million.
- At September 30, cash and cash equivalents were $56.2 million and marketable securities $60.0 million, totaling $116.3 million. Current assets were $119.4 million and current liabilities $32.9 million. Accumulated deficit was $217.8 million; stockholders’ equity was $63.0 million.
- The company reported no loan payable at September 30; its prior equipment loan had been repaid in 2019. Operating lease liabilities totaled $32.9 million, including the new headquarters lease. Deferred revenue was $55.4 million, comprising $16.7 million current and $38.7 million long-term.
- Equity-based compensation was $8.6 million for the first nine months, including $1.5 million related to modification of certain awards.
Material developments, outlook, and risks
- Clinical update: In October 2020, the company announced positive six-month interim TOPAZ Phase 2 results, reporting motor-function improvements across the three SMA cohorts and a dose response in Cohort 3. No Grade 3 or higher adverse events were reported in the interim analysis. The results are interim and may change with additional data; three participants missed doses and the interim timepoint because of COVID-related site restrictions.
- Milestones: Top-line 12-month TOPAZ data were expected in Q2 2021. A DRAGON Phase 1 dose-escalation update was expected in Q4 2020; the company expected to advance to Part B in Q1 2021 and anticipated clinical response and safety data in the second half of 2021.
- Post-quarter financing: On October 16, 2020, the company borrowed $25 million under a facility providing up to $50 million. The additional $25 million is conditional on specified first-patient dosing milestones in apitegromab Phase 3 and SRK-181 DRAGON Part B. The facility matures May 1, 2025, has two years of interest-only payments, and carries interest at the greater of prime plus 4.60% or 7.85%, plus a final payment equal to 4% of original principal.
- A November 2, 2020 follow-on offering generated approximately $215.8 million in net proceeds. Including the October borrowing and offering proceeds, management estimated funding for operating expenses and capital expenditures into 2023, but stated additional capital would be required to complete clinical development of current programs. This estimate depends on assumptions and spending could be higher or funds exhausted sooner.
- In October, the company also agreed to sublease about 20,751 square feet at its former headquarters, with initial annual base rent of approximately $1.9 million; the term is expected to begin between January and March 2021 and run through August 2023.
- Key risks include clinical efficacy and safety uncertainty, regulatory and manufacturing delays, reliance on third parties and a single-source manufacturer, and COVID-19 impacts on trial access, enrollment, dosing, laboratory work, and data timing. The company expects significant losses and expenses to continue. No material legal proceedings were reported, and management concluded disclosure controls were effective as of September 30, 2020.
Important facts for investors to verify
- Review final 12-month TOPAZ data and subsequent regulatory feedback; assess whether interim efficacy and safety findings are confirmed.
- Check DRAGON progress, timing, enrollment, safety findings, and whether the conditions for the second $25 million debt tranche are met.
- Reconcile the projected runway into 2023 with actual operating cash use, trial costs, lease obligations, and any further financing needs.
- Track Gilead program progress and deferred-revenue recognition; collaboration revenue is not product revenue and may vary with research progress and option decisions.
- Assess the effects of COVID-19 and manufacturing capacity on clinical execution, supply, and expected data readouts.