Sutro Biopharma, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Sutro is a clinical-stage biopharmaceutical discovery, development and manufacturing company; it has no approved products and no commercial product sales. Financial amounts below are in millions unless otherwise noted.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $8.5 in 2021; $17.8 in 2020 | $51.2 in 2021; $34.4 in 2020 |
| Operating expenses | $43.2 in 2021; $28.4 in 2020 | $114.7 in 2021; $80.7 in 2020 |
| Loss from operations | $(34.7) in 2021; $(10.6) in 2020 | $(63.5) in 2021; $(46.2) in 2020 |
| Net income (loss) | $(30.9) in 2021; $17.1 in 2020 | $(67.4) in 2021; $27.4 in 2020 |
| Operating cash flow | Not separately presented for the quarter | $(60.1) in 2021; $(48.9) in 2020 |
- At September 30, cash and cash equivalents were $30.7, marketable securities were $223.5, and equity securities were $39.8. Management reported $254.2 of unrestricted cash, cash equivalents and marketable securities.
- Current assets were $250.7 and current liabilities $35.5, implying a current ratio of approximately 7.1. Total assets were $371.5 and stockholders’ equity $283.6.
- Debt was approximately $25.0, with $6.3 classified as current and $18.7 as non-current. The loan bears interest at 8.07% currently, is interest-only through March 1, 2022, and matures March 1, 2024.
- Cash, cash equivalents and restricted cash fell $175.4 over the nine-month period to $31.6, reflecting $60.1 of operating cash use, $118.1 of investing cash use and $2.8 of financing cash provided. Investing outflows primarily reflect purchases of marketable securities and property and equipment.
- The filing does not present a conventional gross margin measure; revenue is primarily from collaborations, licenses and supply/services.
Material changes versus the prior comparable period
- Q3 revenue decreased 52% year over year, mainly due to lower BMS and Merck collaboration revenue and the absence of an EMD Serono contingent payment recorded in Q3 2020.
- Nine-month revenue increased 49%, principally due to Merck collaboration revenue. This included a $14.0 cumulative catch-up following a $15.0 contingent payment earned in Q2 2021 for initiation of an IND-enabling toxicology study. The Merck increase also included higher supply revenue.
- Research and development expense rose 37% in both the quarter and nine-month period, to $26.6 and $74.5, respectively. General and administrative expense rose 83% in Q3 to $16.6 and 52% for nine months to $40.2. The filing attributes the increases largely to personnel, facilities, materials and external services.
- Q3 net results shifted from income to loss. Nine-month results shifted from income to loss, substantially reflecting the change in non-cash Vaxcyte investment remeasurement: a $1.9 loss in 2021 versus a $78.6 gain in 2020. The investment produced a $4.5 unrealized gain in Q3 2021, versus a $29.8 gain in Q3 2020.
- Stock-based compensation increased to $16.4 for the nine months, from $8.8 in 2020. Shares outstanding were 46.3 million at September 30, 2021, compared with 45.8 million at December 31, 2020.
Outlook, commentary, risks and unusual items
- Management expects existing cash, cash equivalents and marketable securities to fund operations for at least 12 months after the filing date, but says additional capital will be needed for development and operations. It expects operating expenses to increase as clinical development, manufacturing capabilities and other activities advance; no specific financial guidance was provided.
- STRO-001 was in Phase 1 dose escalation for multiple myeloma and non-Hodgkin lymphoma. STRO-002 was in Phase 1 dose expansion for ovarian and endometrial cancers; the company reported reaching its targeted 40-patient expansion enrollment and expected initial expansion data in the second half of 2021.
- COVID-19-related material shortages had delayed availability of routine development and manufacturing supplies, including certain filters. Management reported overall patient enrollment and treatment remained on track, while warning that supply, trial and operational disruptions could worsen.
- Collaboration revenue can vary with service activity, milestone timing and accounting estimates. The company remains dependent on collaborators, has no commercial product revenue, and warns that clinical, regulatory, manufacturing, funding and product-development risks could delay or prevent commercialization.
- Long-term operating lease liabilities were $33.5. The South San Francisco sublease has estimated base rent payments of approximately $39.1 over its term, including potential rent abatements subject to conditions. The company also extended two San Carlos leases.
- Subsequent to quarter-end, Sutro signed an October 9, 2021 BioNova option agreement for potential Greater China rights to STRO-001. Terms include a $4.0 million option payment, potential payments of up to $200 million tied to option exercise and milestones, and tiered royalties; BioNova may terminate under specified terms.
Important facts for investors to verify
- Whether the stated cash runway remains adequate as R&D, manufacturing, lease and other spending increases, and what financing may be required.
- How much future collaboration revenue depends on milestones or catch-up accounting versus continuing services and supply activity, including revenue concentration among major partners.
- Clinical-trial progress and safety/efficacy updates for STRO-001 and STRO-002, and whether material shortages affect manufacturing or trial timelines.
- The value and volatility of the Vaxcyte investment and its potential impact on reported earnings.
- Whether BioNova exercises its option and the conditions, timing and collectability of associated payments and royalties.
- Debt repayment and covenant terms, lease commitments, and potential dilution from equity compensation or future capital raises.