Spruce Biosciences, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed August 10, 2021. Spruce is a clinical-stage biopharmaceutical company with no approved products or product revenue. Its business depends on tildacerfont, being developed for classic congenital adrenal hyperplasia (CAH) and a subgroup of polycystic ovary syndrome (PCOS).
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $9.1 million | $5.7 million | $15.8 million | $10.3 million |
| General and administrative expense | $2.6 million | $0.7 million | $5.7 million | $1.3 million |
| Total operating expenses | $11.7 million | $6.4 million | $21.5 million | $11.5 million |
| Net loss | $11.8 million | $6.4 million | $21.7 million | $11.6 million |
| Net loss per share, basic and diluted | $0.50 | $8.43 | $0.93 | $15.15 |
There is no product revenue or gross margin to report; operating margins are not meaningful for this pre-commercial company. The lower loss per share versus 2020 reflects the much larger post-IPO share count, not improved profitability.
- Cash and investments: $139.0 million at June 30, 2021, including $78.3 million cash and cash equivalents and approximately $60.7 million investments. Management expected these resources to fund planned operations for at least 12 months, while noting the estimate depends on assumptions and spending could accelerate.
- Cash flows, six months: $18.5 million used in operations; $60.9 million used in investing, primarily purchases of available-for-sale securities; and $0.5 million provided by financing. Cash, cash equivalents and restricted cash decreased $78.9 million to $78.5 million, largely reflecting the investment purchases.
- Debt and liquidity: $5.0 million term-loan principal outstanding ($4.9 million net carrying value). Current liabilities were $7.0 million and current assets $111.4 million. The loan agreement permits up to $30.0 million in total borrowing, subject to tranche availability and, for the second tranche, clinical and financial milestones. The company reported compliance with loan covenants.
- Other balance-sheet items: Total assets were $143.4 million, total liabilities $13.3 million, and stockholders’ equity $130.1 million. Accumulated deficit was $82.5 million.
Material changes versus the prior comparable periods
- Q2 operating expenses rose $5.3 million year over year; the six-month increase was $10.0 million. Management attributed higher R&D primarily to increased clinical activity, manufacturing and personnel costs.
- G&A increased substantially, including higher personnel costs and directors’ and officers’ insurance; the six-month increase also included legal and professional fees associated primarily with public-company operations.
- Six-month net loss increased $10.0 million year over year. Operating cash use rose to $18.5 million from $10.7 million.
- The company held $60.7 million in investments at quarter-end, compared with none at December 31, 2020. These included commercial paper, corporate bonds and U.S. Treasury securities.
Outlook, commentary and risks
- Management anticipated topline results from the Phase 2b CAHmelia-203 trial in adults with poorly controlled classic CAH in the first half of 2022, and from CAHmelia-204, focused on glucocorticoid reduction in adults with good disease control, in the second half of 2022. Positive results would prompt discussions with regulators; FDA or foreign authorities could require additional trials, including Phase 3.
- The company planned to initiate pediatric classic CAH development and a Phase 2 proof-of-concept PCOS trial in the second half of 2021. These were forward-looking plans, not reported outcomes.
- Management cited prior Phase 2a results in poorly controlled adult CAH patients, including approximately 80% reductions in key disease-control hormones. It reported 235 subjects treated across eight trials with no drug-related serious adverse events; this does not establish future safety or efficacy.
- Material risks include clinical-trial efficacy, safety, enrollment and timing; regulatory requirements; COVID-19-related trial and supply disruption; reliance on single-source manufacturers and CROs; dependence on licensed intellectual property; and the need for substantial additional financing. The company stated that remote trial visits increased Phase 2b costs and noted a hydrocortisone supply shortage.
- The Lilly license includes up to $23.0 million in contingent clinical and commercial milestone payments and tiered royalties ranging from mid-single digits to sub-teens on applicable net sales. No milestone payments were reported as paid or due in the periods presented.
- Neurocrine filed a petition in May 2021 seeking USPTO post-grant review of U.S. Patent 10,849,908; the filing describes the potential proceeding but does not report an outcome. The company reported no material legal proceedings and no material changes in contractual obligations during the quarter.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter. A previously identified material weakness had been reported remediated in the 2020 Form 10-K.
Important facts for investors to verify
- Progress, enrollment and final results for CAHmelia-203 and CAHmelia-204, and whether regulators require additional or Phase 3 trials.
- Whether pediatric CAH and PCOS programs began on the anticipated schedule, and what evidence supports the stated clinical and commercial opportunities.
- Cash burn, investment balances and the assumptions underlying management’s at-least-12-month runway estimate; availability and terms of additional financing or loan tranches.
- Manufacturing capacity and supply continuity, including the reported hydrocortisone shortage and reliance on single-source suppliers.
- Status and potential implications of the USPTO review petition, the Lilly license obligations, and any subsequent regulatory or legal developments.