Here’s why everyone is talking about Scholar Rock right now

Actions of Learned Rock (SRRK -13.97%) rose 364% on Monday, October 7, 2024. The market was reacting to surprisingly positive news about the drugmaker’s lead clinical-stage candidate, apitegromab.

If you’re like the vast majority of individual investors, you’ve never heard of Scholar Rock, apitegromab, or the muscle-wasting disease it might treat. Here’s a quick look at the results that have savvy biotech investors excited to see if the stock can keep rising.

The surprising success of Scholar Rock

Apitegromab is an antibody that binds to another protein called myostatin, which normally works to limit muscle growth. It is being tested in the phase 3 Sapphire trial, which enrolled nonambulatory patients with spinal muscular atrophy (SMA) type 2 and type 3.

SMA is a genetic disorder that results in a loss of motor neurons, which is not great for the muscles they are attached to. Spinraza from biogenic and Evrysdi from Roche they can keep the motor neurons from giving up, but they do nothing to help the muscles recover.

The Sapphire study enrolled 156 patients aged 2 to 12 years, plus a smaller exploratory group aged 13 to 21 years. Patients were already receiving standard care with either Spinraza or Evrysdi.

The addition of apitegromab to standard care improved patient scores on the Hammersmith Functional Motor Scale Extended (HFMSE) by an average of 1.8 points for patients aged 2 to 12 years who received either 10 mg or 20 mg daily of oral suspension. This was the main goal that the investigators set out to achieve.

Apitegromab also passed a key secondary endpoint. After 12 months, 30.4% of patients had improved by three or more points, compared to only 12.5% ​​in the placebo group.

Apitegromab could generate blockbuster sales

The improvements reported on the HFMSE scale may not seem like much when you consider that the maximum score is 66 points, but it is significant. For SMA patients who have lost motor function, just two points could mean the difference between standing unassisted for a few seconds or immediately collapsing in an uncoordinated heap.

Spinraza has lost market share to Evrysdi, but is still on track to generate about $1.6 billion in top-line revenue for biogenic this year. Evrysdi is on track to produce approximately $2 billion in top-line revenue for Roche this year. As a companion therapy for SMA, annual sales of apitegromab could exceed $1 billion at their peak.

Wall Street is particularly bullish on apitegromab and Scholar Rock because SMA isn’t the only thing that can lead to muscle wasting. Analysts are particularly interested in potential combinations with anti-obesity drugs such as tirzepatide, which Eli Lilly markets like Zepbound for obesity and Mounjaro for diabetes.

Tirzepatide was launched in 2022 as a diabetes treatment, and sales have already reached an annual run rate of $17.3 billion, despite its association with muscle wasting. If adding apitegromab to tirzepatide and similar drugs becomes standard practice, annual sales could reach several billion.

What’s next for Scholar Rock

Scholar Rock plans to submit applications for marketing authorization for apitegromab as a treatment for SMA to the US Food and Drug Administration (FDA) and the European Medicines Agency in the first quarter of 2025.

Assuming the FDA accepts the impending application, an expedited designation previously granted could speed the review process from 10 to six months. In other words, Scholar Rock could start seeing sales of its lead candidate as an SMA treatment by the end of next year.

Acceptance of a review request and an approval decision aren’t the only catalysts that could push Scholar Rock’s stock much higher in 2025. In the second quarter, the company expects to report top-line data from the Phase 2 Embraze study.

Embraze is enrolling about 100 patients who would like to lose weight and offers them either Wegovy from Novo Nordisk or Zepbound. Half will receive either apitegromab or a placebo. If the average loss of lean body mass is significantly greater in the placebo group, this stock could rise much higher than it has already recorded.

Is it time to buy?

At recent prices, Scholar Rock boasts a market cap of $2.5 billion. That’s an appropriate valuation for a company that could get approval for an SMA treatment late next year. That said, the current valuation of these stocks is not a successful price for the Embraze lawsuit.

Scholar Rock is a high-risk stock best avoided by most individual investors. If you have an extremely high risk tolerance, however, adding some stocks to a well-diversified portfolio might be a smart move right now.