Spero Therapeutics, Inc. — Q3 2023 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2023; filed November 13, 2023. Spero is a clinical-stage biopharmaceutical company developing treatments for bacterial infections and rare diseases. It has no products approved for sale and has not generated product-sale revenue. Its programs include SPR720, tebipenem HBr and SPR206.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $25.5 | $2.0 | $30.3 | $6.1 |
| Operating expenses | $27.4 | $13.8 | $59.3 | $74.2 |
| Operating loss | $1.9 | $11.8 | $29.1 | $68.1 |
| Net loss | $3.2 | $11.7 | $28.4 | $73.2 |
| Net loss per share, basic and diluted | $0.06 | $0.33 | $0.54 | $2.16 |
Q3 operating and net loss margins were approximately 7.6% and 12.6%, respectively; nine-month loss margins were approximately 96.0% and 93.8%. These ratios reflect milestone and collaboration revenue timing and are not product gross margins. The filing reports no product sales.
Cash and cash equivalents were $93.8 million at September 30, 2023, down from $109.1 million at December 31, 2022. Current assets were $102.2 million and current liabilities $25.5 million (about 4.0x current coverage). Operating cash use was $15.5 million for the first nine months, versus $52.2 million in 2022. There was no investing cash flow and financing provided $0.2 million. The balance sheet reports no borrowings; it includes $5.8 million of operating lease liabilities. Stockholders’ equity was $53.7 million.
Material changes versus prior comparable periods
- Q3 collaboration revenue rose to $23.4 million, chiefly from the GSK tebipenem HBr agreement; $21.2 million of the $30.0 million development milestone was recognized in the quarter. Total Q3 revenue was not recurring product revenue.
- Q3 R&D expense increased $9.0 million to $16.4 million, driven mainly by higher SPR720 and tebipenem HBr clinical and trial-startup activity.
- Q3 included a $5.3 million impairment of the Savior manufacturing-facility asset after Spero determined it had no future use for the facility. The service agreement was terminated in October 2023.
- Q3 G&A expense decreased $0.9 million to $5.7 million. Nine-month operating expenses fell $14.9 million, reflecting lower G&A and no repeat of the $11.7 million 2022 restructuring charge, partly offset by the 2023 impairment.
- Nine-month net loss improved by $44.8 million. Besides higher collaboration and grant revenue and lower expenses, the comparison benefited from no repeat of 2022 royalty-sale interest expense and extinguishment loss.
- Cash used in operations fell by $36.7 million year over year. The company also had no marketable securities at September 30, 2023.
Outlook, commentary and risks
- Management estimated cash runway into the second half of 2025 and said existing cash should fund operations and capital needs for at least 12 months from issuance of the financial statements. Additional funding will be needed thereafter; financing may dilute shareholders or require less favorable terms. If funding is unavailable, Spero may reduce spending or delay, scale back or discontinue programs.
- SPR720 Phase 2a enrollment continued at approximately 26 sites, with topline data expected in the second half of 2024. The study plans to enroll up to 35 participants.
- FDA agreed under a Special Protocol Assessment to the design and size of the pivotal Phase 3 PIVOT-PO trial of tebipenem HBr. Enrollment was expected to begin in Q4 2023; the trial is designed for approximately 2,648 patients. The SPA does not guarantee trial success or FDA approval.
- GSK paid a $30.0 million development milestone in Q3. Potential additional payments include up to $120.0 million in development milestones, $150.0 million in commercial milestones, $225.0 million in sales milestones, and tiered royalties. Future milestones and royalties are conditional, not assured. Spero remains responsible for the follow-up Phase 3 trial and its clinical supply costs.
- NIAID exercised an SPR206 contract option in August, committing $0.8 million through August 2024. Government funding and milestone receipts are subject to award terms and progress requirements.
- A securities class action concerning prior tebipenem HBr NDA statements remained pending; the motion to dismiss had not been decided. A related derivative action was filed in October 2023. The company denies wrongdoing and cannot estimate a loss range.
- Key risks include clinical and regulatory failure, trial enrollment or safety issues, reliance on a small number of third-party manufacturers and suppliers, competition and uncertain reimbursement, dependence on external financing and conditional collaboration payments. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether PIVOT-PO started enrollment as expected, its progress and costs, and whether the protocol and SPA remain applicable.
- SPR720 enrollment, topline timing and results, including safety and efficacy data.
- Cash runway assumptions, quarterly operating cash use, and funding plans beyond the stated second-half-2025 runway.
- Recognition and remaining balance of GSK deferred revenue, future milestone conditions, and Spero’s obligations for the tebipenem HBr trial.
- Outcome and potential costs of the securities and derivative litigation, including insurance coverage.
- Effect of the Savior asset impairment and termination on future manufacturing arrangements, and any exposure to supply disruption.