Spero Therapeutics, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Filed March 16, 2020. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and reporting period
Spero is a clinical-stage biopharmaceutical company developing treatments for drug-resistant infections and rare diseases. Its lead candidate, oral antibiotic tebipenem HBr, was in a pivotal Phase 3 trial for complicated urinary tract infections (cUTI); SPR720 was in Phase 1 development for pulmonary NTM disease; and IV candidate SPR206 was in Phase 1 development for resistant Gram-negative infections. The company had no approved products and no product-sale revenue.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Grant revenue | $13.4 | $4.0 |
| Collaboration revenue | $4.7 | — |
| Total revenue | $18.1 | $4.0 |
| Research and development expense | $65.8 | $33.9 |
| General and administrative expense | $15.6 | $12.9 |
| Operating loss | $(63.2) | $(42.8) |
| Net loss | $(60.9) | $(41.7) |
| Net loss per share, basic and diluted | $(3.35) | $(2.60) |
| Cash used in operating activities | $(50.0) | $(39.6) |
Revenue was primarily grant and collaboration funding, not product sales. Operating expenses rose 74% year over year, mainly reflecting tebipenem HBr Phase 3 trial costs. The reported operating loss was about 3.5 times FY2019 revenue; a conventional product gross margin was not applicable.
For Q4 2019, grant revenue was $2.9 million, collaboration revenue $0.7 million, operating expenses $29.5 million and net loss $25.0 million, compared with a $10.6 million net loss in Q4 2018.
At year-end, cash and cash equivalents were $29.7 million and marketable securities $52.3 million, totaling $82.0 million. Current assets were $95.4 million versus current liabilities of $26.7 million. No borrowings are reported; liabilities included $5.5 million of operating lease liabilities. Operating cash use increased from $39.6 million to $50.0 million. The auditor’s report includes an explanatory paragraph on substantial doubt about the company’s ability to continue as a going concern.
Material changes versus the prior period
- Total revenue increased $14.2 million, primarily due to BARDA funding and $4.7 million of Everest collaboration revenue.
- R&D expense increased $31.9 million. Tebipenem HBr direct program costs rose to $43.4 million from $11.4 million, principally due to the pivotal Phase 3 trial.
- Net loss widened by $19.3 million, and operating cash use increased by $10.4 million.
- Cash and marketable securities declined from $115.4 million at year-end 2018 to $82.0 million at year-end 2019.
Outlook, risks and unusual items
- Management expected tebipenem HBr Phase 3 top-line results in Q3 2020 and, if results and required supporting work were favorable, intended to file an NDA. An independent review committee recommended continuing at the selected dose without modification after reviewing interim pharmacokinetic data.
- Management planned to submit an IND for SPR720 and, subject to FDA acceptance, start a Phase 2a trial in NTM patients in the second half of 2020. Preliminary Phase 1 findings indicated tolerability at studied doses, but were not proof of efficacy.
- SPR206’s preliminary Phase 1 results supported continued development; planned studies included a lung-exposure study and renal-impairment study. Spero discontinued SPR741 effective January 1, 2020, with its rights reverting to Northern Antibiotics.
- Management estimated available resources, including committed funding and the March 2020 rights offering, would fund planned operations into Q1 2021, including through a potential tebipenem HBr NDA filing. It nevertheless concluded substantial doubt about going concern remained and said further financing would be needed.
- Subsequent to year-end, Spero raised approximately $29.5 million net in a rights offering. BARDA also exercised a $15.9 million option, bringing committed BARDA funding to $34.1 million; a further $12.7 million remained subject to an option and specified conditions.
- Principal risks include clinical-trial and regulatory failure or delay, dependence on tebipenem HBr, further financing needs and potential dilution, reliance on third-party manufacturers and research organizations, reimbursement and competition, and patent or licensing risks. The filing also identified the emerging coronavirus outbreak as a possible source of trial and operational disruption.
- There were no material legal proceedings and no off-balance-sheet arrangements. The company adopted lease accounting in 2019, recognizing $5.5 million of operating lease liabilities at year-end. A further lease expected to commence in June 2020, with approximately $4.3 million of minimum payments, was excluded from the reported lease commitments.
Important facts for investors to verify
- Whether tebipenem HBr’s pivotal trial produced the expected results and whether the FDA accepted and approved an NDA.
- Cash burn, remaining cash runway, financing raised after the filing, and whether the company’s going-concern assessment changed.
- Actual timing, funding conditions and eligible costs under BARDA and other government awards, including any unexercised options.
- Final clinical data and regulatory progress for SPR720 and SPR206, and execution of the SPR741 discontinuation.
- Potential dilution from common and convertible preferred shares, options, and future equity financing.