Sutro Biopharma, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Sutro is a clinical-stage drug discovery, development and manufacturing company using its XpressCF platform. It has no approved products and no commercial product sales; revenue is principally from collaborations, licenses and supply/services.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $14.7 million | $7.2 million; up 105% |
| Research and development expense | $22.6 million | $17.6 million; up 28% |
| General and administrative expense | $11.1 million | $8.7 million; up 27% |
| Loss from operations | $19.0 million | $19.2 million loss |
| Net loss / loss per share | $30.4 million / $0.66 | $19.6 million / $0.84 |
| Operating cash flow | $30.4 million used | $18.7 million used |
Revenue growth primarily reflected Merck revenue, including $5.9 million recognized when the contingent third-program performance obligation ended, and higher Vaxcyte supply revenue. Merck contributed $11.9 million, BMS $1.2 million, EMD Serono $0.2 million and Vaxcyte $1.3 million. Research and development spending rose mainly with headcount, laboratory and production materials, and facilities. Operating loss was nearly unchanged, while net loss widened principally because of a $10.7 million noncash unrealized loss on Vaxcyte shares. No gross margin is separately presented; a commercial-product margin is not meaningful at this stage.
At March 31, cash and cash equivalents were $55.8 million, marketable securities were $239.1 million, and Vaxcyte equity securities were valued at $31.0 million. Unrestricted cash, cash equivalents and marketable securities totaled $294.9 million. Cash, cash equivalents and restricted cash declined $150.3 million during the quarter; investing cash use of $121.7 million largely reflected purchases of marketable securities, rather than operating spending. Total assets were $358.5 million and stockholders’ equity was $307.3 million. Debt was $25.0 million principal, reported at $24.7 million net of discount, classified as non-current. The floating-rate loan has a minimum rate of 8.07%, is interest-only through March 2022 and matures March 2024.
Changes, outlook and material matters
- Compared with Q1 2020, revenue more than doubled, but operating expenses also increased; net loss increased by $10.8 million, reflecting the Vaxcyte valuation loss. Weighted-average shares increased to 45.9 million from 23.2 million, so per-share loss declined despite the higher total loss.
- Management expects substantial ongoing losses and higher operating expenses as it advances programs and expands research, manufacturing and clinical capabilities. It believes existing unrestricted cash, cash equivalents and marketable securities will fund operations for at least 12 months after filing, but says additional capital will be needed to support development and operations. No specific longer-term financial guidance is provided.
- On April 14, 2021, after quarter-end, Merck agreed to a $15 million milestone payment following initiation of an IND-enabling toxicology study for the first cytokine-derivative program.
- Clinical outlook: STRO-001 dose escalation was ongoing, with dose expansion expected to begin in the second half of 2021. STRO-002 dose escalation was fully enrolled and dose expansion was underway; management expected updated dose-escalation data in Q2 2021 and initial expansion data in the second half of 2021. Combination and endometrial-cancer expansion cohorts were planned for the second half of 2021.
- COVID-19 was causing delays in availability of routine development and manufacturing materials, including filters and other consumables. Sutro reported minor enrollment and data-entry delays, while overall patient enrollment and treatment remained on track; more significant disruption remains possible.
- The company recorded $1.1 million of rent expense during the quarter for early access and tenant improvements at its planned headquarters. The sublease covers approximately 115,466 square feet, expires December 2027, and has estimated future minimum payments of $47.8 million, before potential rent-abatement benefits.
- Key risks include clinical and regulatory failure, manufacturing scale-up and supply constraints, reliance on collaborators and third parties, need for additional financing and potential dilution, and volatility in the Vaxcyte investment. The filing reports no material pending legal proceedings and no material changes in internal control during the quarter.
Important facts for investors to verify
- Whether the Merck $15 million milestone was received and when it is recognized in revenue and cash flow.
- Current trial enrollment, safety and efficacy updates, and whether the stated 2021 data and expansion timelines were achieved.
- Cash burn and the timing of additional financing needs, especially as research, clinical and facility spending grows.
- Availability of manufacturing materials and the effect of supply constraints or COVID-19 on clinical and manufacturing schedules.
- Vaxcyte share value and its effect on reported earnings: the quarter’s $10.7 million unrealized loss was noncash, but the investment remains exposed to market-price declines.
- Loan covenants and repayment terms, as well as the timing and total cost of the new headquarters sublease.