Spero Therapeutics, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Spero is a clinical-stage biotechnology company with no approved products and no product-sales revenue.
Financial performance and position
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Grant revenue | $2.0 million | $0.3 million |
| Research and development expense | $32.9 million | $26.3 million |
| General and administrative expense | $10.8 million | $7.2 million |
| Operating loss | $41.7 million | $33.2 million |
| Net loss | $39.9 million | $32.6 million |
| Net loss attributable to common stockholders | $46.1 million | $29.9 million |
| Cash used in operating activities | $39.1 million | $29.0 million |
Q4 2017 grant revenue was $993,000, operating expenses were $15.0 million, net loss was $13.9 million, and net loss attributable to common stockholders was $14.8 million, or $1.59 per share. Per-share comparisons with prior periods are affected by the IPO-related share conversion and capital restructuring.
At year-end, cash and cash equivalents were $87.3 million, working capital was $83.9 million, total assets were $93.5 million, total liabilities were $8.5 million, and stockholders’ equity was $85.0 million. The company reported no interest-bearing debt on the balance sheet. No meaningful product gross margin exists because there were no product sales.
Cash increased by $77.0 million during 2017, mainly from $74.2 million of net IPO proceeds and $43.1 million from preferred-unit financing, partly offset by operating cash use and other financing payments. Operating cash use rose year over year. The company estimated its cash would fund operating expenses and capital expenditures into Q2 2019, but stated that this would not fund SPR994 through its pivotal Phase 3 trial and that additional financing would be needed.
Material changes versus prior period
- Net loss increased from $32.6 million to $39.9 million; operating expenses increased 30% to $43.7 million.
- R&D expense rose 25%, with SPR994 spending increasing to $9.8 million from $1.0 million as its Phase 1 trial began. G&A expense rose 50%, including higher public-company, legal, accounting and personnel costs.
- Grant revenue increased to $2.0 million, primarily from DoD, CARB-X and NIAID reimbursements; it remains small relative to operating costs.
- The November 2017 IPO raised $74.2 million net. Preferred securities converted to common stock at the IPO, and Spero began Nasdaq trading on November 2, 2017.
- Cash rose from $10.3 million to $87.3 million. A $1.5 million noncash gain from changes in derivative fair value contributed to reported results but did not represent operating revenue.
Business, outlook and key risks
The portfolio comprises SPR994, an oral carbapenem candidate initially aimed at complicated urinary tract infections; SPR741, an IV antibiotic potentiator; SPR206, an IV direct-acting candidate in preclinical toxicology; and SPR720, an oral candidate for pulmonary non-tuberculous mycobacterial infection. The company planned to prioritize either SPR741 or SPR206 for further development and seek partners or non-dilutive funding for a candidate it deprioritized.
- SPR994: Phase 1 began in Australia in October 2017, with top-line data expected mid-2018. Subject to results and FDA feedback, the company planned to seek agreement on a pivotal Phase 3 cUTI trial and initiate it around year-end 2018. QIDP designation applies to cUTI, community-acquired bacterial pneumonia and diabetic foot infections, but does not guarantee approval or a faster development timeline.
- SPR741: Phase 1b drug-interaction study began in late 2017; top-line data were expected in Q2 2018. Management reported prior Phase 1 dosing was generally well tolerated, but efficacy in patients had not been established.
- SPR206 and SPR720: SPR206 remained in GLP toxicology testing. SPR720 was in preclinical development, with Phase 1 planned for 1H 2019 subject to positive safety and activity results.
- Funding and going concern: The company has recurring losses, no product revenue and expects further losses. The auditor issued an unqualified opinion but included an emphasis-of-matter paragraph about the need for additional financing. Management said cash was expected to cover at least 12 months from the financial-statement issuance date, while long-term viability depended on raising capital.
- Development and operating risks: Clinical, regulatory and safety outcomes are uncertain; FDA may require additional studies, including because prior tebipenem Phase 2 studies in Japan differed from FDA cUTI guidance. Spero also depends on third-party manufacturers and research organizations, has limited commercial infrastructure, and faces competition, reimbursement and antibiotic-resistance risks.
- Other exposures: Material contingent license milestones and royalties are not included in stated contractual obligations because amounts and timing depend on future events. Recorded operating lease commitments were $2.1 million; a January 2018 lease expansion added approximately $0.5 million annual base rent initially.
Most important facts for investors to verify
- Whether SPR994 Phase 1 results and FDA discussions support the planned pivotal Phase 3 design, timing and funding needs.
- Actual cash burn, government-award receipts and the financing required beyond the stated Q2 2019 runway.
- SPR741 Phase 1b results and SPR206 toxicology findings, including which potentiator program Spero advances.
- SPR720’s remaining toxicology results and whether the planned 2019 clinical start remains feasible.
- Potential dilution from future financing, option awards and the release of IPO lock-up shares, as well as contingent licensing payments if development milestones are achieved.