Spero Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited financial statements; filed August 6, 2020.
Business context
Spero is a clinical-stage biopharmaceutical company with no approved products and no product-sale revenue. Its lead candidate is oral antibiotic tebipenem HBr for complicated urinary tract infections (cUTI); it is also developing SPR720 for nontuberculous mycobacterial disease and IV candidate SPR206 for drug-resistant infections. Revenue primarily comes from government awards and collaboration funding.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $1.7m | $2.2m | $3.4m | $9.9m |
| Research and development expense | $15.7m | $12.0m | $36.1m | $21.6m |
| General and administrative expense | $4.5m | $3.8m | $8.6m | $7.7m |
| Net loss | $17.5m | $13.2m | $40.8m | $18.2m |
| Basic and diluted loss per share | $0.85 | $0.74 | $2.06 | $1.04 |
As of June 30, 2020, cash and cash equivalents were $65.3m and marketable securities were $6.0m, for combined liquidity of $71.4m. Current assets were $85.3m and current liabilities $19.0m. Total liabilities were $23.8m, including operating lease liabilities; the filing reports no debt. Stockholders’ equity was $73.7m, and accumulated deficit was $240.2m. No meaningful operating margin is presented; the company remains loss-making.
Six-month operating cash use was $48.2m, compared with $23.0m in 2019. Investing activities provided $46.3m, mainly from maturities of marketable securities; financing activities provided $37.6m, principally from the rights offering and ATM stock sales. Cash and cash equivalents increased by $35.6m during the period.
Material changes versus prior comparable periods
- Six-month revenue fell $6.4m year over year. Collaboration revenue declined $3.7m because 2019 included license and know-how transfer revenue from Everest; 2020 collaboration revenue was mainly services. Grant revenue fell $2.8m, including lower BARDA and other award funding recognized.
- Six-month R&D expense increased $14.5m, driven primarily by $14.2m higher tebipenem HBr program costs as the pivotal Phase 3 trial advanced. The company said it expected R&D expense to rise in 2020 versus 2019.
- Six-month net loss more than doubled year over year, reflecting increased operating expenses and lower revenue.
- The company raised $30.0m gross in its March rights offering, issuing common shares and Series C convertible preferred shares, and received approximately $7.5m gross from ATM sales in the first half. It had 21.0m common shares outstanding at June 30; Series C shares were convertible into 2.287m common shares, subject to ownership limits.
Outlook, commentary and key risks
- Runway and going concern: Management estimated that cash, cash equivalents, marketable securities and committed non-dilutive funding would support planned expenses into Q1 2021. The filing states there is substantial doubt about the company’s ability to continue as a going concern, and additional funding is required. Further financing may be unavailable or dilutive; the company could delay, reduce or discontinue programs.
- Clinical milestones: ADAPT-PO, the blinded Phase 3 tebipenem HBr cUTI trial, completed enrollment of more than 1,370 eligible subjects. Top-line results were anticipated in Q3 2020. Subject to positive data and FDA agreement, the company planned to begin a rolling NDA submission in Q1 2021 and complete submission in Q2 2021.
- COVID-19: The company reported clinical and development timeline impacts, including reduced CRO capacity. It moved the planned SPR206 Phase 1 bronchoalveolar lavage trial to the first half of 2021 from the second half of 2020. Management also cited possible effects on tebipenem data validation and analysis. It reported no material liquidity impact or COVID-related asset impairment to date.
- Other programs: The company planned to initiate a Phase 2a SPR720 trial in the second half of 2020, subject to FDA acceptance of an IND. It anticipated SPR206 Phase 1 final data and an Everest milestone payment in the second half of 2020, and planned SPR206 pulmonary penetration and renal impairment studies in 2021.
- Funding and execution risks: The second $12.7m BARDA option remained conditional on specified progress and results. The company depends on third-party manufacturers, CROs and government funding, and warned that clinical failure, regulatory delay, supply interruption, or reduced capital access could materially affect operations. Tebipenem HBr’s pivotal results and regulatory path remain uncertain.
- Portfolio change: Spero discontinued development of SPR741 in early January 2020 and proceeded with SPR206 as the Potentiator Platform lead candidate.
- Other disclosures: The company reported effective disclosure controls and no material legal proceedings. It disclosed no material changes in contractual obligations outside the ordinary course during the quarter.
Important facts for investors to verify
- ADAPT-PO final results, their consistency with the planned NDA pathway, and FDA agreement on rolling submission and timing.
- Actual cash burn, updated funding runway, and whether additional capital or conditional government funding is secured on acceptable terms.
- The extent of COVID-19 effects on trial timelines, CRO capacity, data validation, manufacturing and costs.
- SPR720 IND acceptance and Phase 2a initiation, and SPR206 study progress, milestone timing and partner funding.
- Potential dilution from future equity sales and conversion of preferred shares, and the company’s progress toward reducing its going-concern risk.