SCHOLAR ROCK HOLDING CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) – marketscreener.com

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, including those risks identified under Part II, Item 1A. Risk Factors.
Overview
Apitegromab, an inhibitor of the activation of myostatin, for the treatment of
? spinal muscular atrophy (“SMA”). We also believe apitegromab could have
potential in the treatment of other myostatin-related disorders.
SRK-181, an inhibitor of the activation of latent transforming growth factor
? beta-1 (“TGF?1”), for the treatment of cancers that are resistant to
anti-PD-(L)1 antibody therapies.
Potent and selective inhibitors of the activation of transforming growth factor
? beta (“TGF?”) in collaboration with Gilead, for the treatment of fibrotic
diseases. We are advancing multiple collaboration programs toward product
candidate selection.
? Additional discovery and early preclinical programs related to the selective
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Majority (74%, 23/31) of non-ambulatory patients showed a clinical improvement
? (defined as ?1-point increase) in Hammersmith Functional Motor Scale Expanded
(“HFMSE”).
In the non-ambulatory cohort of patients (mean age 3.8 years) on background
? nusinersen started earlier in life (<5 years of age), treatment with
apitegromab 20 mg/kg led to sizeable increases in HFMSE.
o Mean increase from baseline was +7.1 points.
o 88% (7/8) of patients improved (attained a ?1-point increase).
o 63% (5/8) of patients attained a ?5-point increase.
o 38% (3/8) of patients attained a >10-point increase.
Patients had received approximately two years of prior nusinersen treatment at
o the time of enrollment (5.4 mean maintenance doses) and were in the chronic
maintenance phase of nusinersen therapy during the TOPAZ trial.
In the non-ambulatory cohort of patients (mean age 11.7 years) on background
? nusinersen started later in life (?5 years of age), treatment with apitegromab
20 mg/kg led to an increase in HFMSE, contrasting with declines experienced on
average by this patient population without treatment.
o Mean increase from baseline was +0.6 points by intent-to-treat analysis and
+1.2 points by per-protocol analysis.
o 64% (9/14) of patients improved (attained a ?1-point increase).
o 29% (4/14) of patients attained a ?3-point increase.
Patients had received approximately two years of prior nusinersen treatment at
o the time of enrollment (5.1 mean maintenance doses) and were in the chronic
maintenance phase of nusinersen therapy during the TOPAZ trial.
A post-hoc analysis across all non-ambulatory patients showed no correlation
? between change in HFMSE score at 12 months and duration of prior nusinersen
therapy, providing further evidence that improvements in motor function may be
attributed to apitegromab.
WHO Motor Development Milestones, a high bar assessment representing major
? functional achievements, were gained by seven of 35 non-ambulatory patients
treated with apitegromab and nusinersen, including three patients who initiated
background nusinersen therapy later in life (?5 years of age).
Five patients achieved one new WHO motor milestone, including one patient
o gaining the ability to walk independently and one patient gaining the ability
to stand independently.
o One patient achieved two new WHO motor milestones (hands and knees crawling and
standing with assistance).
o One patient achieved three new WHO motor milestones (hands and knees crawling,
standing with assistance, and walking with assistance).
In the ambulatory cohort of patients (mean age 12.6 years), treatment with
apitegromab 20 mg/kg as add-on to nusinersen led to a 0.3-point decline from
? baseline in Revised Hammersmith Scale (RHS) and treatment with apitegromab 20
mg/kg as a monotherapy led to a 0.4-point decline in RHS. Motor function
declines are common in patients with ambulatory Type 3 and can be severe in a
subset of patients.
The five most frequently reported treatment-emergent adverse events (“AEs”) included headache, pyrexia, upper respiratory tract infection, cough, and nasopharyngitis . Incidence and severity of AEs were consistent with the underlying patient population and background therapy.
? Time to achieving various thresholds of improvement in HFMSE scores further
supported the dose response in clinical efficacy.
? Increases in RULM were also observed in both non-ambulatory cohorts.
? Greater increases in HFMSE (non-ambulatory) and RHS (ambulatory) scores were
seen in patients who were not limited by scoliosis or joint contractures.
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continue development activities for apitegromab, including the ongoing
? extension phase of our TOPAZ Phase 2 clinical trial and preparations and
conduct of our Phase 3 clinical trial program in SMA, and associated drug
supply;
? continue research and development activities for SRK-181, including the conduct
of our DRAGON Phase 1 clinical trial;
? continue research and development activities to support our collaboration with
Gilead;
? continue to discover, validate and develop additional product candidates
through the use of our proprietary platform;
? maintain, expand and protect our intellectual property portfolio;
? hire additional research, development and business personnel; and
? continue to build the infrastructure to support our operations as a public
COVID-19 Pandemic
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continue to monitor developments as we adjust to the disruptions and evaluate and adjust to the uncertainties relating to the COVID-19 pandemic.
Financial Operations Overview
Revenue
Operating Expenses
Research and Development
? employee-related expenses, including salaries, benefits and equity-based
compensation expense for our research and development personnel;
? expenses incurred under agreements with third parties that conduct research and
development and preclinical activities on our behalf;
expenses incurred under agreements related to our clinical trials, including
? the costs for investigative sites and contract research organizations (“CROs”),
that conduct our clinical trials;
? manufacturing process-development, manufacturing of clinical supplies and
technology-transfer expenses;
? consulting and professional fees related to research and development
activities;
? costs of purchasing laboratory supplies and non-capital equipment used in our
internal research and development activities;
? costs related to compliance with clinical regulatory requirements; and
? facility costs and other allocated expenses, which include expenses for rent
? the scope, progress, outcome and costs of our preclinical development
activities, clinical trials and other research and development activities;
? establishing an appropriate safety profile;
? successful enrollment in and completion of clinical trials, including on
account of the COVID-19 pandemic and its impact at clinical trial sites;
? whether our product candidates show safety and efficacy in our clinical trials;
? receipt of marketing approvals from applicable regulatory authorities, if any;
? establishing commercial manufacturing capabilities or making arrangements with
third-party manufacturers;
? obtaining and maintaining patent and trade secret protection and regulatory
exclusivity for our product candidates;
? significant and changing government regulation;
? commercializing the product candidates, if and when approved, whether alone or
in collaboration with others; and
? continued acceptable safety profile of the products following any regulatory
A change in the outcome of any of these variables with respect to the development of apitegromab, SRK-181 or any of our future product candidates could significantly change the costs and timing associated with the development of that product candidate.
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facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting, consulting services, and corporate expenses.
Other Income (Expense), Net
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands, except percentages):
The increase in research and development expense was primarily attributable to the following:
? An increase in our external research and development costs of $8.5 million,
which primarily consisted of:
o $5.1 million increase in costs associated with apitegromab, due primarily to
costs associated with our clinical drug supply manufacturing; and
$3.2 million increase in costs associated with SRK-181 primarily due to the
o purchase of pembrolizumab (to be used in conjunction with SRK-181 in Part B of
the DRAGON Phase 1 clinical trial), partially offset by lower clinical drug
supply manufacturing costs compared to the corresponding period in 2020; and
o $0.2 million increase in other early development candidates and unallocated
costs.
$4.4 million increase in internal research and development costs, which was
primarily driven by an increase in employee compensation and benefits costs,
? associated with increased headcount and related overhead, as we continued to
expand our research and development functions in addition to an increase in
facility costs due to our new office and laboratory space at 301 Binney Street
in Cambridge, Massachusetts.
General and Administrative
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Other Income (Expense), Net
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands, except percentages):
The increase in research and development expense was primarily attributable to the following:
? An increase in our external research and development costs of $13.3 million,
which primarily consisted of:
o $12.9 million increase in costs associated with apitegromab, due primarily to
costs associated with our clinical drug supply manufacturing; and
o $0.5 million increase in other early development candidates and unallocated
costs; partially offset by
$0.1 million decrease in costs associated with SRK-181 primarily due to lower
o clinical drug supply manufacturing costs compared to the corresponding period
in 2020, partially offset by the purchase of pembrolizumab (to be used in
conjunction with SRK-181 in Part B of the DRAGON Phase 1 clinical trial).
$13.8 million increase in internal research and development costs, which was
primarily driven by an increase in employee compensation and benefits costs,
? associated with increased headcount and related overhead, as we continued to
expand our research and development functions in addition to an increase in
facility costs due to our new office and laboratory space at 301 Binney Street
in Cambridge, Massachusetts.
General and Administrative
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Other Income (Expense), Net
Liquidity and Capital Resources
Sources of Liquidity
Total cash, cash equivalents and marketable securities $ 246,435 $ 341,031
Cash Flows
The following table provides information regarding our cash flows for the nine months ended September 30, 2021 and 2020 (in thousands):
Net increase in cash, cash equivalents and restricted cash $ 15,773 $ 19,919
Net Cash Used in Operating Activities
Net cash used in operating activities was $94.3 million for the nine months ended September 30, 2021, and consisted of our net loss of $95.9 million, changes in our assets and liabilities of $23.2 million, partially offset by non-cash adjustments of $24.8 million. The changes in our assets and liabilities includes a $14.8 million change in deferred revenue related to the Gilead collaboration. The non-cash adjustments are primarily from equity-based compensation.
Net Cash Provided by Investing Activities
Net Cash Provided by Financing Activities
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development for, continue and initiate later stage clinical trials for, continue to develop and optimize our
the costs and timing of developing our product candidates, apitegromab and
SRK-181, including the extension phase of our TOPAZ Phase 2 clinical trial and
? the preparations and conduct of our Phase 3 clinical program for apitegromab in
SMA, the DRAGON Phase 1 clinical trial for SRK-181, and the costs and timing of
the costs of future manufacturing of apitegromab, SRK-181 and any other product
? candidates; including impacts from the COVID-19 pandemic and its impact at our
contract manufacturers;
the scope, progress, results and costs of discovery, preclinical development,
? laboratory testing and clinical trials for other potential product candidates
we may develop, if any;
? the costs of identifying and developing, or in-licensing or acquiring,
additional product candidates and technologies;
? the costs, timing and outcome of regulatory review of our product candidates;
? our ability to establish and maintain collaborations on favorable terms, if at
all;
the achievement of milestones or occurrence of other developments that trigger
? payments under any collaboration agreements, license agreements, or other
agreements we might have at such time;
? the costs of seeking marketing approvals for our product candidates that
successfully complete clinical trials, if any;
the costs and timing of future commercialization activities, including product
? sales, marketing, manufacturing and distribution, for any of our product
candidates for which we receive marketing approval;
? the amount of revenue, if any, received from commercial sales of our product
candidates, should any of our product candidates receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, obtaining,
? maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
? our headcount growth and associated costs as we expand our business operations
and research and development activities;
the costs of expanding our infrastructure and facilities to accommodate our
? growing employee base, including adding equipment and physical infrastructure
to support our research and development; and
? the costs of operating as a public company.
Critical Accounting Policies and Use of Estimates
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
Recent Accounting Pronouncements
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