Sutro Biopharma, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Sutro is a clinical-stage oncology company developing antibody-drug conjugates and related medicines. It has no products approved for commercial sale; revenue is primarily from collaborations and licensing.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $13.0 million | $12.7 million | Up 3% |
| Research and development expense | $56.9 million | $39.4 million | Up 44% |
| General and administrative expense | $12.7 million | $15.5 million | Down 18% |
| Loss from operations | $56.6 million | $42.2 million | Loss increased $14.4 million |
| Net loss | $58.2 million | $50.1 million | Loss increased $8.2 million |
| Basic and diluted loss per share | $0.95 | $0.85 | — |
| Net cash used in operating activities | $64.7 million | $61.0 million | Use increased $3.8 million |
Cash, cash equivalents and marketable securities totaled $267.6 million at March 31, 2024, down from $333.7 million at year-end 2023. Sutro also held $45.6 million of Vaxcyte shares. Management believes available resources will fund operations for at least 12 months after filing, but expects to need additional capital. Q1 investing activities provided $64.1 million, principally from marketable-security maturities; financing activities used $3.4 million, including $4.1 million of debt repayment. The current debt balance was zero at quarter-end. A $156.5 million deferred royalty obligation is recorded separately; it increased through non-cash interest expense. Operating lease liabilities totaled $28.1 million.
Revenue is not a product-sales gross-margin measure, and the filing does not provide a meaningful product gross margin. The company reported no commercial product revenue.
Material changes and notable items
- R&D expense rose $17.5 million, mainly from increased outside services and CMO activity, facilities and IT costs, clinical and preclinical work, and personnel. G&A fell $2.8 million, primarily from lower allocated IT and personnel costs.
- Revenue growth was chiefly attributable to Astellas, whose revenue increased $5.1 million, and Tasly, which contributed $1.0 million. This was partly offset by lower Merck revenue and the cessation of revenue from BMS and EMD Serono programs discontinued in 2023.
- Net loss included a $3.7 million unrealized gain on Sutro’s Vaxcyte investment, compared with a $7.0 million unrealized loss in Q1 2023. It also included $7.2 million of non-cash interest expense on the Blackstone royalty obligation.
- Accumulated deficit was $617.6 million. Common shares outstanding were 62.46 million at March 31; 15.13 million potential common shares were excluded from diluted loss per share as anti-dilutive.
Business outlook, risks and contingencies
- Capital and funding: In April, Sutro received $50.0 million upfront under its STRO-003 license to Ipsen, and Ipsen USA invested $25.0 million in Sutro shares. Sutro also completed an underwritten offering of 14.48 million shares at $5.18 per share for approximately $75.0 million gross. These post-quarter proceeds were not included in March 31 liquidity. Further potential Ipsen payments include development and regulatory milestones of up to $447 million, sales milestones of up to $360 million, and tiered royalties; these are contingent, not assured. Ipsen may terminate for convenience on 60 days’ notice.
- Clinical and pipeline plans: Sutro reported in April that it completed Part 1 enrollment and began Part 2 of the Phase 2/3 REFRαME-O1 luvelta study. It expects to start a luvelta NSCLC Phase 2 study in the second half of 2024, with initial data expected in the first half of 2025, and a registration-directed pediatric AML study in the second half of 2024. It anticipates being ready to file an IND for STRO-004 in 2025. These are forward-looking expectations.
- Clinical safety: Aggregated Phase 1 luvelta data included Grade 3 or higher neutropenia in 64.6% of patients; febrile neutropenia was under 5%. Six grade 5 safety events occurred, one assessed as probably related to luvelta. In a 16-patient cohort using prophylactic pegfilgrastim, Sutro reported a reduction in first-cycle Grade 3 or higher neutropenia. Early and preliminary clinical findings may not predict pivotal-trial outcomes.
- Key risks: Sutro expects continued substantial losses and negative operating cash flows. Funding beyond the stated runway may not be available on acceptable terms and could dilute shareholders or require program reductions. Other principal risks include clinical efficacy and safety, regulatory approval, manufacturing scale-up and third-party supply, competition, collaboration partner decisions, and intellectual-property protection. Sutro disclosed no material legal proceedings and no material changes in internal control during the quarter.
Important facts for investors to verify
- Whether REFRαME-O1 progresses as planned and supports the intended regulatory strategy, including dose selection and enrollment.
- Updated luvelta safety and efficacy data, particularly neutropenia, other serious adverse events, and the durability of responses.
- Actual cash burn, collaboration receipts, and whether post-quarter Ipsen and offering proceeds extend runway beyond management’s estimate.
- Terms and accounting for the Ipsen agreement, including milestone conditions, termination rights, equity issuance, and future royalties.
- The fair value and potential volatility of the Vaxcyte holding, and assumptions underlying the Blackstone deferred royalty obligation and its 19.0% effective interest rate.