Spero Therapeutics, Inc. quarterly report, Q2 FY2022

Spero Therapeutics, Inc. — Q2 2022 Form 10-Q

Business context and reporting period. This clinical-stage biopharmaceutical company reported the quarter and six months ended June 30, 2022. It has no products approved for sale and has generated no product-sales revenue. Its programs include tebipenem HBr for complicated urinary tract infections (cUTI), SPR720 for nontuberculous mycobacterial pulmonary disease, and SPR206 for multidrug-resistant Gram-negative infections.

Financial results and liquidity

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Total revenue	$2.0m	$5.1m	$4.1m	$12.4m
Research and development	$8.2m	$14.5m	$25.1m	$32.9m
General and administrative	$8.1m	$9.2m	$23.4m	$17.5m
Restructuring expense	$11.8m	—	$11.8m	—
Net loss	$28.7m	$18.6m	$61.5m	$38.0m
Basic and diluted loss per share	$0.87	$0.63	$1.88	$1.29

Revenue consisted of government grant and collaboration revenue, not product sales. Six-month grant revenue fell to $2.9m from $10.3m, primarily because of lower qualifying tebipenem HBr expenses under BARDA; collaboration revenue was $1.1m versus $2.1m. The filing does not provide a meaningful product gross margin.

Cash and liquidity: Cash and cash equivalents were $45.4m at June 30, 2022, down from $112.6m at year-end 2021. Marketable securities were nil at June 30, versus $33.8m at year-end. Current assets were $52.0m and current liabilities $14.2m.
Cash flow: Operating activities used $51.3m in the first half, compared with $32.0m in the prior-year period. Investing activities provided $33.9m, mainly from maturities of securities; financing activities used $49.9m, principally the $54.5m royalty-liability repayment.
Debt and other obligations: The company terminated its HCR royalty financing agreement in June and repaid $54.5m, removing the $48.4m balance-sheet liability. It recorded a $3.6m extinguishment loss and $2.6m of related first-half interest expense. A contingent change-of-control derivative liability of $0.1m remained, expiring December 31, 2022. Operating lease liabilities totaled $7.0m.
Equity: Stockholders’ equity was $35.9m, versus $88.3m at December 31, 2021. Common shares outstanding increased to 35.1m from 32.4m; the company sold 737,619 shares through its ATM program for approximately $4.3m gross proceeds in the first half.

Material changes versus prior period

Net loss increased by $10.1m in Q2 and $23.5m for the first half year over year. The Q2 comparison includes the $11.8m restructuring charge; first-half results also reflect royalty-financing interest and extinguishment expense.
Operating expenses were lower in Q2 before restructuring, reflecting reduced research activity and staffing. For the first half, R&D declined $7.7m, while G&A rose $5.8m, largely due to commercial build-out and related costs incurred before the restructuring.
After FDA feedback in a May Late Cycle Meeting, Spero suspended tebipenem HBr commercialization efforts and reduced its workforce from 146 employees at year-end 2021 to 41 at June 30, 2022. Resources were redirected toward SPR720 and SPR206.

Outlook, risks and unusual items

Regulatory setback: The FDA issued a Complete Response Letter on June 27, 2022, finding the Phase 3 ADAPT-PO cUTI trial insufficient to support tebipenem HBr approval and requiring an additional clinical study. Spero held a Type A meeting with the FDA on August 2 and expected written minutes in Q3 2022. The path, timing and economics of further development remain uncertain.
Pipeline timing: Spero expected to start a roughly 35-patient SPR720 Phase 2 trial in Q4 2022, with interim data in mid-2023 and topline data in 2024. It expected to initiate a planned SPR206 Phase 2 trial in Q3 2023. These are forward-looking estimates, not guaranteed outcomes.
Funding and going concern: Management said existing cash and non-dilutive funding commitments were expected to fund the refocused plan into late 2023, subject to uncertain spending. Nonetheless, the financial statements state that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. Additional financing may be needed; failure to obtain it could force further program delays, reductions or discontinuations.
Cost outlook: Management expected R&D and G&A expenses to be lower for the remainder of 2022 under the restructuring, but provided no quantified expense guidance. The $11.8m restructuring charge included $8.7m employee costs, $0.6m lease impairment and $2.6m other discontinuation costs. Remaining restructuring accruals were expected to be paid by Q1 2023.
Subsequent event: In July 2022 Pfizer confirmed a $5.0m SPR206 regulatory-engagement milestone, which Spero invoiced after quarter-end; it is not included in Q2 revenue or June 30 cash.
Contingencies and listing: Two putative securities class actions allege misleading statements concerning tebipenem HBr; Spero denies wrongdoing and cannot estimate a possible loss. On August 8, 2022, Nasdaq notified the company that its share price was below the $1 minimum bid requirement; the stated initial compliance deadline was February 6, 2023.
Other principal risks include clinical-trial and regulatory uncertainty, dependence on government awards and third-party manufacturers, financing needs, potential dilution, COVID-19-related disruption, and the possibility of further litigation or restructuring disruption.

Important facts for investors to verify

FDA meeting minutes and the requirements, cost and timing of any further tebipenem HBr study or partnership.
Actual cash burn, restricted or available funding, and whether financing or cost reductions are needed before the stated late-2023 runway estimate.
Progress and enrollment for the SPR720 and SPR206 trials against management’s stated timelines.
Receipt and accounting treatment of the $5.0m Pfizer milestone, and the status of future collaboration or grant funding.
Developments in the securities lawsuits, restructuring costs and retention awards, and Nasdaq bid-price compliance.