Scholar Rock Holding Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Scholar Rock is a clinical-stage biopharmaceutical company developing antibody therapies, including apitegromab for spinal muscular atrophy (SMA) and SRK-181 for cancers resistant to checkpoint inhibitors. It has no approved products and has not generated product-sales revenue.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0 | $33.2 million |
| Research and development expense | $29.7 million | $29.4 million |
| General and administrative expense | $10.8 million | $10.8 million |
| Operating loss | $40.5 million | $6.9 million |
| Net loss | $39.4 million | $8.0 million |
| Basic and diluted loss per share | $0.49 | $0.21 |
| Net cash used in operating activities | $43.1 million | $42.6 million |
The prior-year quarter included $33.2 million of Gilead collaboration revenue recognized after Gilead terminated its program options; all revenue under that agreement had been recognized by January 2022. Accordingly, the revenue decline drove most of the increase in reported operating and net losses, while operating expenses were broadly stable. Operating margin is not meaningful for Q1 2023 because there was no revenue.
At March 31, 2023, cash and cash equivalents were $151.3 million and marketable securities were $124.0 million, totaling $275.3 million. This was down $40.1 million from year-end 2022. Current assets were $287.2 million versus current liabilities of $26.2 million. The company reported $49.8 million of long-term debt and $86.1 million of total liabilities. Debt bears interest at the greater of prime plus 4.60% or 9.35%; principal payments are scheduled to begin in December 2024 or, subject to milestones, December 2025, with maturity extended to November 2027.
Cash used in investing activities was $90.0 million, principally reflecting maturities of marketable securities; financing activities provided $1.1 million, including $0.8 million of net ATM proceeds. Cash, cash equivalents and restricted cash increased $48.0 million, while cash plus marketable securities declined because cash flows also reflect security purchases, maturities and operating use.
Programs, outlook and material risks
- Management expected to complete enrollment in the Phase 3 SAPPHIRE apitegromab trial in 2023, with topline results expected in 2024; a commercial launch in 2025 was anticipated only if the trial succeeds and the product is approved. TOPAZ 36-month extension data were expected in mid-2023.
- The Phase 1 DRAGON trial of SRK-181 was ongoing; biomarker and clinical updates were expected in 2023. R&D spending included higher SRK-181 costs, partly offset by lower internal costs following the May 2022 workforce restructuring.
- The company expects substantial operating losses and expenses to continue. Management said available cash, cash equivalents and marketable securities were expected to fund operating expenses and capital requirements into 2025, but additional capital would be needed to complete clinical development and commercialization. These estimates depend on assumptions and could change.
- Key risks include clinical-trial failure, delay or enrollment challenges; regulatory uncertainty; reliance on third parties and a single-source drug-substance supplier; future financing needs and potential dilution; and possible disruption to supply chains or access to capital. The filing also discusses the SVB failure: the company held about $1.3 million in SVB operating accounts and $2.5 million supporting lease letters of credit at quarter-end, and said it had shifted activity to other banks to reduce operational risk.
- No material legal proceedings were reported. Management concluded disclosure controls were effective as of March 31, 2023, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether SAPPHIRE enrollment, 2024 topline timing and the stated potential 2025 launch remain on track, and what the final trial results show.
- Whether the company’s cash runway assumptions remain valid as clinical spending continues, and the timing and terms of any additional financing.
- The progress and data from DRAGON, and the costs and enrollment status of the apitegromab and SRK-181 programs.
- The effective debt interest rate, milestone conditions for additional tranches or extended interest-only payments, and any updated lender or banking arrangements.
- Potential dilution from outstanding securities: 27.7 million pre-funded warrants, 10.5 million common warrants, and equity awards. The filing’s reported weighted-average shares include pre-funded warrants; investors should distinguish this measure from common shares actually issued and outstanding.