Sutro Biopharma, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter financial comparison. Sutro is a clinical-stage biopharmaceutical company developing protein therapeutics using its cell-free XpressCF and site-specific conjugation platforms. It has no approved products and generated no commercial product sales.
Financial performance and position
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $61.9 million | $42.7 million | +45% |
| Research and development expense | $104.4 million | $77.0 million | +36% |
| General and administrative expense | $56.0 million | $36.8 million | +52% |
| Total operating expenses | $160.4 million | $113.8 million | +41% |
| Loss from operations | $(98.5) million | $(71.1) million | Loss widened |
| Net loss | $(105.5) million | $(32.1) million | Loss widened |
| Net loss per share, diluted | $(2.29) | $(0.99) | |
| Cash used in operating activities | $(81.7) million | $(67.8) million | Use increased |
- Revenue came from collaborations, services and materials supply, principally with Merck, BMS, EMD Serono and Vaxcyte. Merck revenue rose to $42.8 million from $26.1 million, including a $15.0 million contingent payment tied to initiation of an IND-enabling toxicology study. No commercial-product revenue was reported.
- The larger 2021 net loss reflected a $4.5 million unrealized loss on Vaxcyte shares, compared with a $41.5 million unrealized gain in 2020. Excluding this volatile non-operating item, the operating loss also widened as expenses grew faster than revenue.
- At December 31, 2021, cash, cash equivalents and marketable securities totaled $229.5 million, versus $326.5 million a year earlier. Total assets were $341.4 million, total liabilities $88.8 million and stockholders’ equity $252.6 million. The current ratio was approximately 5.2 based on reported current assets and current liabilities.
- Debt was $25.1 million, including $9.4 million current and $15.7 million non-current. The term loan matures March 1, 2024; principal payments were scheduled to begin after the interest-only period ending March 1, 2022. The loan is secured by company assets other than intellectual property and includes restrictive covenants.
- Capital spending on property and equipment was $15.3 million. Net cash provided by financing activities was $3.3 million in 2021, versus $269.2 million in 2020, when the company completed equity offerings and debt refinancing.
- Vaxcyte shares held by Sutro were valued at $37.2 million at year-end, down from $41.6 million. The filing reports a $4.5 million 2021 unrealized loss on this investment.
- No conventional product gross margin is meaningful because the company has no commercial sales. Operating and net margins were negative.
Material developments and outlook
- STRO-002: The dose-escalation portion of its Phase 1 trial was complete, and dose expansion was ongoing. May 2021 dose-escalation data showed responses in 10 of 31 evaluable patients, with median progression-free survival of 7.2 months. Initial dose-expansion results were released in January 2022: the filing reports a 33% objective response rate among 33 evaluable patients, with exploratory results suggesting higher response rates at the 5.2 mg/kg starting dose and among patients with higher FolRα expression. These are preliminary results from an early-stage trial. The trial also recorded one Grade 5 febrile neutropenia event at the 5.2 mg/kg starting dose; the protocol was updated to require dose reduction for Grade 4 neutropenia.
- FDA granted STRO-002 Fast Track designation in August 2021 for certain platinum-resistant ovarian, fallopian tube or primary peritoneal cancers. A bevacizumab combination cohort opened in December 2021; Sutro expected initial results in the first half of 2023. An endometrial cancer expansion cohort began enrolling in Q4 2021, with initial results also expected in the first half of 2023. A pilot study in NSCLC and other non-gynecologic cancers was planned for the second half of 2022.
- STRO-001: Phase 1 dose escalation continued, and the maximum tolerated dose had not been reached. Sutro expected to identify a recommended Phase 2 dose by the end of 2022. Updated trial data cited in the filing were from 2020; reported responses included one complete and two partial responses among seven patients with diffuse large B-cell lymphoma. FDA orphan drug designation applies to multiple myeloma.
- Collaborations: BMS’s BCMA ADC CC-99712 and EMD Serono’s M1231 bispecific ADC were in Phase 1 studies. Merck extended research on one cytokine program but did not extend another program, which reverted to Sutro in December 2021. Sutro reported approximately $446 million in aggregate collaboration payments through year-end, including about $54 million in stock investments.
- Greater China licenses: BioNova paid $4.0 million for an option relating to STRO-001, with further contingent payments possible. Tasly’s STRO-002 license provided for a $40.0 million upfront payment and up to $345.0 million in additional contingent payments and milestones. In February 2022, Tasly sought to discuss and renegotiate the agreement. Sutro disclosed substantial uncertainty about timely receipt of the $40.0 million and said it was considering available remedies. The payment was not recognized as 2021 revenue.
- Management said year-end cash and marketable securities were expected to fund operations for at least 12 months after the filing date, but stated that additional financing would be required to advance development and support operations. Future funding could involve equity dilution, debt restrictions or giving up rights through collaborations.
- COVID-19 caused higher costs and delays in sourcing manufacturing materials, including filters and other consumables. Management said enrollment and treatment were generally on track, while warning that further shortages could delay research, manufacturing or clinical programs.
- The company reported significant continuing losses and no assurance of future profitability. Other material risks include early-stage clinical uncertainty, manufacturing scale-up and regulatory requirements for its novel cell-free platform, third-party and collaborator dependence, competition, intellectual property challenges, and potential financing needs. Sutro reported no legal proceedings that management considered likely to have a material adverse effect.
Investor verification priorities
- Confirm the status and enforceability of the Tasly agreement, whether the $40.0 million upfront payment was received, and any changes to the license terms or rights.
- Review updated STRO-002 efficacy and safety data, particularly response durability, biomarker-enrichment findings and the febrile neutropenia event; distinguish preliminary Phase 1 findings from confirmatory evidence.
- Track STRO-001 dose-escalation progress and whether the recommended Phase 2 dose and other stated development milestones are achieved on schedule.
- Reassess cash burn, collaboration receipts, committed spending and financing needs against management’s stated minimum 12-month runway; note that 2021 operating cash use was $81.7 million.
- Monitor manufacturing supply availability, clinical supply capacity, and the status and economics of major collaborator programs, including Merck, BMS and EMD Serono.
- Verify the effect of Vaxcyte share-price changes on reported results and the company’s liquidity strategy, as the investment is publicly traded and can add earnings volatility.
Audit and controls
Ernst & Young LLP issued an unqualified opinion on the financial statements and on internal control over financial reporting as of December 31, 2021. The auditor identified collaboration revenue as a critical audit matter, citing the volume of reimbursable research, development and material-supply activities and the judgment needed to test eligible costs.