Sutro Biopharma, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Sutro is a clinical-stage drug discovery, development and manufacturing company; it has no products approved for sale and no commercial product revenue. Its programs use the XpressCF cell-free protein synthesis platform.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $42.7 million | $42.7 million |
| Research and development expense | $77.0 million | $65.6 million |
| General and administrative expense | $36.8 million | $32.6 million |
| Total operating expenses | $113.8 million | $98.2 million |
| Loss from operations | $71.1 million | $55.5 million |
| Net loss | $32.1 million | $55.7 million |
| Net loss per share | $0.99 | $2.43 |
| Cash used in operating activities | $67.8 million | $65.0 million |
- FY2020 revenue was essentially unchanged. Revenue came principally from collaboration and license arrangements, research and development services, and manufacturing and supply services.
- FY2020 net loss included a $41.5 million unrealized gain on Sutro’s Vaxcyte shares. The gain is non-cash and reflects market-value changes; reported net loss therefore does not represent operating performance alone.
- At December 31, 2020, cash and cash equivalents were $206.2 million, marketable securities were $120.3 million, and working capital was $348.6 million. Sutro also held Vaxcyte shares valued at $41.6 million. Accumulated deficit was $227.9 million.
- Net financing cash inflow was $269.2 million, primarily from $251.4 million net proceeds from public offerings and ATM sales, and $25.0 million of loan proceeds, partly offset by debt repayment. The 2020 offerings and ATM sales increased shares outstanding materially.
- Debt was reported at $24.5 million, net of debt discount. The term loan bears a floating rate with an 8.07% minimum, is interest-only through March 2022, and matures March 1, 2024. It is secured by company assets other than intellectual property and includes restrictive covenants.
- No commercial product margins are reported. The filing does not provide a meaningful commercial gross-margin measure.
Quarterly results and changes
Unaudited Q4 2020 revenue was $8.3 million and net loss was $59.5 million, compared with Q3 revenue of $17.8 million and net income of $17.1 million. Q4 loss per share was $1.48. The filing provides quarterly results but does not clearly attribute the Q4 loss to specific drivers; Vaxcyte investment remeasurement was a significant source of earnings volatility for the year.
Compared with 2019, research and development expense increased 17% and general and administrative expense increased 13%, while revenue was flat. Management attributed higher R&D costs mainly to consulting and outside services, personnel, and manufacturing-related activity. Higher G&A reflected personnel, professional services, public-company costs, and facilities.
Programs, outlook and risks
- STRO-001: Phase 1 dose escalation continued for multiple myeloma and non-Hodgkin lymphoma (NHL); the maximum tolerated dose had not been reached. In the reported NHL data, seven patients with diffuse large B-cell lymphoma included one complete response and two partial responses. Sutro expected to begin dose expansion in the second half of 2021.
- STRO-002: Phase 1 dose escalation was fully enrolled, with dose expansion underway. Among 31 evaluable ovarian cancer patients treated at clinically active dose levels, 10 had a RECIST response (one complete and nine partial responses, including three confirmed); 23 had disease control at 12 weeks. Grade 3/4 events included reversible neutropenia; grade 3 arthralgia and neuropathy were also reported. These early, uncontrolled clinical findings do not establish safety or efficacy.
- Management expected updated STRO-002 dose-escalation data in the first half of 2021 and initial expansion data, plus additional expansion cohorts, in the second half of 2021. These are forward-looking expectations, not guarantees.
- Partners’ clinical programs included BMS’s BCMA ADC CC-99712 and EMD Serono’s MUC1-EGFR bispecific ADC M1231. Potential contingent economics include up to approximately $275 million in development and regulatory payments for the BMS program, and up to $52.5 million for M1231; Merck may owe up to approximately $0.5 billion per selected target program under specified conditions. These amounts are conditional and are not assured.
- Based on its operating plan, Sutro believed available cash, cash equivalents and marketable securities would fund operations for at least 12 months after the filing. It expects substantial continued spending and may need additional financing. No formal revenue or earnings guidance was provided.
- COVID-19 had caused delays in obtaining routine development and manufacturing materials, including filters, but management said patient enrollment and treatment remained on track at the filing date. Further supply, trial, staffing, or regulatory disruptions remained possible.
- A new South San Francisco sublease carries approximately $45.5 million in estimated base rent over its term, before potential rent abatements, and expires in December 2027. The company reported no material pending legal proceedings.
Most important facts for investors to verify
- Clinical trial updates, including response durability, confirmed responses, adverse events, dose selection, and whether planned 2021 milestones were achieved.
- Cash burn and runway relative to the stated estimate; the timing and terms of any additional financing and resulting dilution.
- Vaxcyte share price and the effect of future fair-value changes on reported earnings, separately from operating results and cash flows.
- Collaboration progress, partner decisions, milestone conditions, and the potential impact if a partner delays, deprioritizes, or ends a program.
- Ability to secure manufacturing materials and scale compliant production, particularly given COVID-related supply constraints and the platform’s limited regulatory precedent.
- Debt covenants and repayment obligations, as well as the long-term cost and occupancy assumptions for the new sublease.