Spruce Biosciences, Inc. — Q3 2022 Form 10-Q
Business context and period: Unaudited results for the three and nine months ended September 30, 2022, compared with 2021. Spruce is a clinical-stage biopharmaceutical company developing tildacerfont for rare endocrine disorders, principally classic congenital adrenal hyperplasia (CAH), and a PCOS subgroup. It has no approved products and has generated no product revenue.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development | $8.8M | $8.6M | $26.4M | $24.4M |
| General and administrative | $2.8M | $2.8M | $8.8M | $8.5M |
| Total operating expenses | $11.6M | $11.4M | $35.2M | $32.9M |
| Net loss | $11.4M | $11.4M | $35.0M | $33.1M |
| Net loss per share, basic and diluted | $0.48 | $0.49 | $1.49 | $1.42 |
| Cash used in operating activities | Not provided quarterly | $29.9M | $26.1M |
Margins: Not meaningful; the company reported no revenue. At September 30, cash and cash equivalents were $21.6M and short-term investments were $68.8M, totaling $90.4M. Total assets were $95.3M; stockholders’ equity was $78.5M. The accumulated deficit was $138.2M.
Debt and liquidity: Term-loan principal outstanding was $5.0M ($4.9M carrying value), with $1.2M classified as current. Scheduled principal and interest payments totaled $5.6M; the loan matures in January 2026. The company also reported a $1.4M operating lease liability. Management believes available cash, cash equivalents, and short-term investments will fund planned operations and debt obligations for at least 12 months after issuance of the statements, while warning it will need substantial additional financing.
Material changes versus prior comparable periods
- Q3 operating expenses rose $0.2M year over year, mainly from higher clinical-development and personnel costs, partly offset by lower manufacturing and preclinical costs. Net loss was nearly unchanged, with higher interest and other income offsetting higher operating costs.
- For the first nine months, operating expenses increased $2.2M and net loss widened $1.9M. Clinical-development costs rose $4.1M, partly offset by lower manufacturing and preclinical spending.
- Cash and investments declined from $121.4M at December 31, 2021, to $90.4M at September 30, 2022. Nine-month operating cash use increased by $3.9M year over year.
- Investment maturities and purchases produced $9.1M of investing cash inflow in 2022, versus $73.2M of investing cash use in 2021. The company did not draw on its Jefferies at-the-market offering through September 30, 2022.
Outlook, management commentary, and key risks
- Management expects losses and research-and-development spending to continue, with spending planned for adult CAH trials, pediatric CAH and PCOS studies, regulatory preparation, and potential commercial capabilities. No profitability or revenue guidance was provided.
- Topline results were anticipated in the second half of 2023 for CAHmelia-203, a Phase 2b adult CAH trial in patients with elevated adrenal hormones; in the second half of 2024 for CAHmelia-204, a Phase 2b trial focused on glucocorticoid reduction; and in the first half of 2023 for both the first pediatric CAH cohort’s safety results and the PCOS Phase 2 study.
- The company said regulators may require additional adult CAH studies, including Phase 3 trials; the scope and timing were not ascertainable. Trial enrollment and site activation had been delayed, with COVID-19 and trial-related operational changes increasing costs.
- The $10M second loan tranche was available through December 31, 2022, subject to milestones management said were not probable of achievement as of September 30. Drawing it would trigger a $50M liquidity covenant and related cash-pledge provisions if that covenant were not met.
- Key risks include dependence on tildacerfont as the sole product candidate; uncertain clinical efficacy, safety, enrollment, and regulatory outcomes; reliance on third-party manufacturers and CROs, including single-source suppliers; need for additional financing and potential dilution; competition; and macroeconomic, inflation, COVID-19, and geopolitical disruptions.
- Contingencies include up to $23M in milestone payments to Eli Lilly and tiered royalties on future product sales. No material legal proceedings were reported. Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the clinical-trial timelines and enrollment assumptions remain achievable, and what final results show.
- Whether regulators will require additional or Phase 3 adult CAH trials, and the associated cost and timeline.
- Whether available liquidity and the stated 12-month runway remain adequate given operating cash use and the need for future financing.
- Whether the second loan tranche’s milestones were met before expiration, and the effect of loan covenants, repayment terms, and any future borrowing.
- Whether manufacturing supply, clinical execution, and single-product dependence pose material risks to development plans.