Spero Therapeutics, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed August 9, 2018. The company is a clinical-stage biopharmaceutical developer focused on drug-resistant bacterial infections. It had no approved products and no product-sale revenue; reported revenue was from government grants.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Grant revenue | $0.463m | $0.249m | $1.616m | $0.389m |
| Research and development | $7.374m | $7.457m | $16.299m | $13.456m |
| General and administrative | $3.060m | $2.957m | $6.104m | $4.697m |
| Operating loss | $(9.971)m | $(10.165)m | $(20.787)m | $(17.764)m |
| Net loss | $(9.956)m | $(9.763)m | $(20.600)m | $(16.174)m |
| Basic and diluted loss per share | $(0.69) | $(36.21) | $(1.43) | $(57.88) |
At June 30, cash and cash equivalents were $48.715m and marketable securities were $17.922m, totaling $66.637m. Current assets were $70.492m versus current liabilities of $6.601m. The balance sheet reported no debt balance. Stockholders’ equity was $65.668m and accumulated deficit was $117.440m.
For the first half, operating cash use was $20.602m. Investing cash use was $17.825m, primarily net purchases of marketable securities; financing cash use was $0.196m. Cash, cash equivalents and restricted cash declined by $38.623m. The filing reports no meaningful product gross margin; grant revenue was substantially below operating expenses.
Changes versus comparable periods
- First-half grant revenue increased to $1.616m from $0.389m, reflecting government-award reimbursements.
- First-half operating expenses rose $4.250m, driven by higher R&D and G&A spending. R&D investment shifted notably toward SPR206, while SPR741 spending declined; staffing and share-based compensation also increased.
- First-half net loss widened to $20.600m from $16.174m. The 2017 period included a $1.549m gain from a derivative-liability fair-value change that did not recur in 2018.
- Q2 operating expenses were nearly unchanged year over year, but net loss increased modestly. The prior-year period included other income and losses attributable to non-controlling interests.
Outlook, developments and risks
- Management expected cash and marketable securities at quarter-end, the July financing and initial BARDA funding to support operations into the second half of 2020, including through the planned top-line readout of the SPR994 pivotal Phase 3 trial. This estimate depends on assumptions and does not fund all candidates through approval and commercialization.
- On July 17, 2018, Spero raised approximately $70.5m net of underwriting discounts and commissions, before company-paid offering expenses, through common and convertible preferred stock. The preferred shares are convertible into common stock, creating potential dilution.
- In July, Spero reported interim SPR994 dose-selection data and proposed 300 mg three times daily for a planned pivotal Phase 3 cUTI trial. Final Phase 1 multiple-ascending-dose data, FDA discussions, and trial timing remained subject to future results and regulatory discussions.
- A July 2018 BARDA award provides $15.7m of initial funding over a three-year base period, with potential total funding up to $44.2m subject to options and milestones. DTRA may separately fund up to $10m for certain studies, but those funds would not be paid to Spero.
- Spero planned a Phase 1 trial of SPR206 in 2019 and had not yet selected a lead Potentiator candidate. Management expected ongoing losses and increasing R&D spending.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, reliance on third-party manufacturers and research organizations, dependence on government awards and future financing, competition, and possible bacterial resistance. The company stated that it had no material legal proceedings. It disclosed contingent license milestone and royalty obligations, including up to $81.1m in milestones under the Vertex agreement; amounts depend on future events.
Most important facts for investors to verify
- Whether the July financing and BARDA funding support the stated runway, and whether BARDA’s conditional options are exercised.
- Final SPR994 Phase 1 safety and dose data, FDA feedback, and the actual timing, design, enrollment and results of the planned Phase 3 cUTI trial.
- SPR206 Phase 1 timing and data, and how Spero allocates spending between SPR206 and SPR741.
- Quarterly cash burn, grant reimbursements, and the effect of future trials and contingent license payments on funding needs and dilution.