Spero Therapeutics, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing was signed March 14, 2019. Spero is a clinical-stage biopharmaceutical company developing treatments for drug-resistant bacterial infections; it had no approved products and generated no product-sales revenue.
Business context and pipeline
- SPR994 (oral tebipenem pivoxil): The lead candidate for complicated urinary tract infections (cUTI). Phase 1 results supported a planned 600 mg, three-times-daily dose. The pivotal Phase 3 ADAPT-PO study was planned for approximately 1,200 patients against IV ertapenem. FDA accepted the cUTI IND in February 2019; trial sites were expected to open around the end of March 2019.
- SPR206: IV candidate for resistant Gram-negative infections. Phase 1 began in December 2018; top-line data were expected in the second half of 2019.
- SPR741: IV combination agent. Phase 1 and a 27-person Phase 1b drug-interaction study were completed; the company had not yet selected its lead Potentiator Platform candidate.
- SPR720: Oral candidate for pulmonary non-tuberculous mycobacterial infection. Phase 1 began in January 2019; top-line data were expected in the second half of 2019.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise stated.
| Metric | FY2018 | FY2017 |
|---|---|---|
| Grant revenue | $3.966 | $1.979 |
| Research and development expense | $33.885 | $32.869 |
| General and administrative expense | $12.887 | $10.840 |
| Total operating expenses | $46.772 | $43.709 |
| Operating loss | $(42.806) | $(41.730) |
| Net loss | $(41.662) | $(39.886) |
| Net loss per share, basic and diluted | $(2.60) | $(17.82) |
| Operating cash used | $39.625 | $39.111 |
- All reported revenue was government grant revenue, primarily reimbursements of eligible research costs. No product revenue was reported. Gross margin is not meaningful for this development-stage business.
- At year-end, cash and cash equivalents were $34.080 million and marketable securities were $81.363 million, totaling $115.443 million. Working capital was $111.901 million; total assets were $129.006 million and total liabilities were $13.151 million. The filing reports no interest-bearing debt.
- Operating cash use was broadly stable year over year. Investing activities used $83.156 million, mainly reflecting net purchases of marketable securities and $2.436 million of property and equipment purchases. Financing provided $69.523 million, principally from the July 2018 equity offering.
- The July offering generated approximately $69.5 million net of offering costs. A $200 million shelf registration became effective in December 2018, including a $50 million at-the-market facility; no ATM shares had been sold by year-end.
- Management estimated available cash, cash equivalents and marketable securities, together with initial BARDA funding, would support operations into the second half of 2020, including through the planned SPR994 Phase 3 top-line readout. The auditor highlighted the need for additional financing; continued operations beyond the stated funding horizon depend on raising capital.
Material changes, outlook and risks
- Net loss increased by $1.776 million from 2017 as operating expenses grew by $3.063 million, partly offset by higher grant revenue. R&D rose modestly overall, with increased SPR994 and SPR720 spending and reduced Potentiator Platform spending. G&A increased, mainly with staffing and public-company costs.
- Grant revenue increased by $1.987 million, reflecting the new BARDA award and greater NIAID funding for SPR206, partly offset by lower DoD and CARB-X funding.
- In January 2019, Spero licensed SPR206 in Greater China, South Korea and certain Southeast Asian countries to Everest Medicines. The agreement provided a $3 million upfront payment, potential development, regulatory and commercial milestones of up to $59.5 million, and tiered royalties. Spero also granted Everest a 12-month exclusive option to negotiate for SPR741 rights in the same territories. Milestones and royalties are contingent, not assured.
- The BARDA award provides $15.7 million of base-period funding through June 2021; up to a further $28.5 million depends on BARDA exercising options and specified progress. Total potential BARDA funding is up to $44.2 million. Government funding is subject to eligible costs, contractual requirements and, for options, agency decisions.
- Management expects increased development spending. The principal risks include clinical-trial failure or delay, regulatory uncertainty, dependence on SPR994, need for additional financing and potential dilution, reliance on third-party manufacturers and research organizations, and uncertain reimbursement, competition and market adoption. The filing also identifies intellectual-property and government-award risks.
- Unusual items included a $0.2 million write-off of laboratory assets and leasehold improvements following closure of the Watertown lab, and a $0.2 million year-end derivative liability. No material legal proceedings were reported. The auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting, without an auditor attestation on internal controls.
Key facts for investors to verify
- Current cash runway, burn rate and any financing since the December 31, 2018 balance-sheet date; distinguish management’s runway estimate from committed funding.
- ADAPT-PO enrollment, interim pharmacokinetic and safety findings, and whether the planned trial design and non-inferiority margin remain acceptable to FDA.
- SPR206 and SPR720 Phase 1 results, and the timing and rationale for choosing a lead Potentiator Platform candidate.
- Actual BARDA and NIAID reimbursements and option decisions, plus Everest milestone conditions, payment timing and partner development progress.
- Potential dilution from preferred-stock conversion, outstanding options, the shelf and ATM facility; assess also the company’s contingent licensing milestones and royalties.