Spruce Biosciences, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2022, compared with the same period in 2021. Spruce is a clinical-stage biopharmaceutical company developing tildacerfont, its sole product candidate, for classic congenital adrenal hyperplasia (CAH) and a subgroup of patients with polycystic ovary syndrome (PCOS). The company had no approved products or product revenue.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $8.5 million | $6.7 million; up $1.8 million |
| General and administrative expense | $3.2 million | $3.1 million; up $0.1 million |
| Total operating expenses | $11.7 million | $9.8 million; up $1.9 million |
| Net loss | $11.8 million | $9.9 million |
| Net loss per share, basic and diluted | $0.50 | $0.42 |
| Net cash used in operating activities | $11.8 million | $8.8 million |
| Cash, cash equivalents and investments | $108.9 million | $119.0 million at December 31, 2021 |
| Accumulated deficit | $114.9 million | $103.1 million at December 31, 2021 |
Research and development expense rose primarily as adult CAH trials advanced and pediatric CAH and PCOS programs began. Clinical-development costs increased $1.7 million. The company reported no gross margin because it had no product revenue. Comprehensive loss was $12.3 million, including a $0.5 million unrealized loss on available-for-sale securities.
At March 31, 2022, current assets were $95.1 million and current liabilities were $9.0 million. Cash and cash equivalents were $23.3 million; short- and long-term investments were $68.0 million and $17.6 million, respectively. Term-loan principal was $5.0 million, with a net carrying amount of $4.9 million; the loan matures January 1, 2026. Management stated that available cash, cash equivalents and investments were expected to fund planned operations for at least 12 months after issuance of the statements, while noting the company expects continued losses and needs substantial additional financing.
Investing activities used $7.5 million, mainly reflecting investment purchases net of maturities. Financing activities used $0.1 million. The company had an effective shelf registration for up to $200 million and an at-the-market agreement allowing up to $21 million in stock sales; no shares had been sold under that agreement by March 31, 2022.
Material changes and outlook
- Net loss increased $1.9 million year over year, primarily reflecting higher clinical-development spending. Operating cash use increased $3.0 million.
- Management anticipated topline results from CAHmelia-203, a Phase 2b trial in adults with poorly controlled classic CAH, in the second half of 2023; from CAHmelia-204, a Phase 2b trial focused on glucocorticoid reduction in well-controlled adults, in the second half of 2024.
- Topline safety results from the first cohort of the pediatric CAH Phase 2 trial and topline results from the PCOS Phase 2 proof-of-concept trial were anticipated in the first half of 2023.
- Management said positive adult CAH trial results could support discussions with regulators about registration, but regulators may require additional studies, including Phase 3 trials. These timelines and outcomes are uncertain.
- In May 2022, after quarter-end, Spruce and Silicon Valley Bank amended the loan. The amendment reduced the stated interest-rate floor/spread and revised conditions for access to the $10 million second tranche. If Spruce draws that tranche, a $50 million minimum-liquidity covenant applies; failure to meet it can trigger a cash pledge. The amendment also provides for a longer interest-only period under specified conditions.
Risks, contingencies and other notable items
- Spruce depends entirely on tildacerfont; clinical efficacy, safety, regulatory approval and commercial success are unproven. The filing cites possible enrollment delays, trial costs, and effects of COVID-19, including on trial sites and supplies.
- The company reported a cash runway of at least 12 months, but warned that it will need substantial additional capital and may have to delay or reduce programs if financing is unavailable on acceptable terms. Equity financing could dilute shareholders.
- Development and manufacturing rely on third parties, including single-source suppliers. The SVB loan is secured by substantially all assets other than intellectual property and includes restrictive covenants and default provisions.
- The Lilly license provides for up to $23 million in development and sales milestones and tiered royalties ranging from mid-single digits to below-teens on future sales. No milestone payments were due or made in the periods presented.
- Unrealized investment losses were described as temporary and not credit-related; no impairment charge was recorded. No material legal proceedings were reported. Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether CAH and PCOS trial enrollment, conduct and stated topline timelines remain achievable, and whether regulators will require additional or Phase 3 trials.
- How quickly cash and investments are consumed relative to the stated 12-month runway, and the timing and terms of any additional financing or ATM sales.
- The conditions for drawing the SVB second tranche and the implications of its liquidity covenant, cash-pledge mechanism, fees and repayment terms.
- Whether clinical results support safety and efficacy across the intended patient groups, including pediatric patients; adult experience to date does not establish pediatric safety.
- Potential dilution from outstanding equity awards, future plan share increases and any securities issued under the shelf or ATM facility.