Spero Therapeutics, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Spero is a clinical-stage biopharmaceutical company developing treatments for drug-resistant bacterial infections and rare diseases. It had no approved products and generated no product-sales revenue.
Financial summary
Amounts below are in millions of dollars, except per-share data. There is no product gross margin to report; the filing does not provide a meaningful product-margin measure.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $4.0 | $4.6 | $7.4 | $14.5 |
| Operating expenses | $23.0 | $22.6 | $67.7 | $51.9 |
| Operating loss | $(19.0) | $(18.0) | $(60.3) | $(37.3) |
| Net loss | $(18.9) | $(17.7) | $(59.7) | $(35.9) |
| Net loss per share, basic and diluted | $(0.86) | $(0.95) | $(2.91) | $(2.01) |
| Cash used in operating activities | — | — | $(69.5) | $(32.7) |
- At September 30, cash and cash equivalents were $125.2 million and marketable securities were $2.0 million, totaling $127.2 million. Current assets were $142.7 million versus current liabilities of $17.6 million. Total liabilities were $24.3 million, primarily lease liabilities; the filing reports no debt.
- Cash and cash equivalents increased $95.5 million during the first nine months. Financing provided $114.8 million, principally from equity offerings; investing provided $50.2 million, largely from marketable-security maturities.
Material changes versus comparable periods
- Q3 revenue decreased $0.6 million year over year, mainly reflecting lower BARDA grant revenue. Nine-month revenue fell $7.1 million, including a $3.8 million decline in collaboration revenue and a $3.3 million decline in grant revenue.
- Q3 R&D expense decreased $0.8 million, largely as significant Phase 3 tebipenem activity wound down; nine-month R&D expense increased $13.8 million, mainly from tebipenem Phase 3, formulation and manufacturing costs, and increased personnel.
- G&A expense rose $1.2 million in Q3 and $2.1 million for the first nine months, reflecting higher personnel, professional and commercial-operation costs. Nine-month net loss widened $23.8 million.
- Operating cash use more than doubled year over year to $69.5 million for the first nine months, in part reflecting the higher loss and a decrease in accrued expenses.
Outlook, management commentary and risks
- Management estimated that September 30 cash, cash equivalents and marketable securities, together with committed BARDA and other non-dilutive funding, would support operating and capital needs into Q1 2022, through the tebipenem HBr approval process. Separately, the company concluded that substantial doubt about its ability to continue as a going concern exists because further funding is needed and planned cost reductions are not considered probable for the accounting assessment.
- On September 15, Spero raised approximately $74.7 million net from a public offering of common and Series D convertible preferred stock. On October 1, after quarter-end, underwriters exercised an option for additional common shares, generating approximately $11.2 million net.
- Spero reported positive topline Phase 3 ADAPT-PO results for oral tebipenem HBr: the primary endpoint met non-inferiority versus IV ertapenem, with overall response rates of 58.8% and 61.6%, respectively. The non-inferiority margin was changed before database lock from -10% to -12.5% due to potential COVID-19 effects; the company stated the trial also met the original margin based on the confidence interval. Spero anticipated filing an NDA in Q2 2021.
- SPR720 received FDA Fast Track designation, and its IND was accepted. The company expected to begin a Phase 2a NTM pulmonary disease trial by year-end 2020. SPR206 development plans included additional studies in 2021; a $2.0 million Everest milestone was invoiced after delivery of the Phase 1 study report in October.
- COVID-19 had affected clinical and development timelines. Management reported no material liquidity impact or asset impairment to date, but warned of possible trial, manufacturing, regulatory and financing disruptions. Other central risks include clinical and regulatory uncertainty, dependence on third-party manufacturers and contractors, reliance on government funding, competition, intellectual-property and licensing risks, and the need for additional capital. The BARDA contract’s further $12.7 million option remained conditional.
Important facts for investors to verify
- Whether FDA review and the anticipated Q2 2021 tebipenem HBr NDA filing proceeded on schedule, and the status of the filing and any additional FDA requirements.
- The final ADAPT-PO data and regulatory interpretation, including the amended non-inferiority margin and the analysis against the original margin.
- Actual cash burn, available funding and runway versus management’s Q1 2022 estimate; the substantial-doubt going-concern disclosure remains material despite the subsequent offering proceeds.
- Progress and costs for the SPR720 Phase 2a and SPR206 programs, and whether BARDA’s conditional option funding and other grant commitments are realized.
- Potential dilution from convertible preferred stock and future financing. Series D preferred shares are convertible one-for-one into common shares, subject to ownership limits; the filing reported 3.215 million Series D shares outstanding at quarter-end.