Spero Therapeutics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts below are in U.S. dollars; millions unless stated otherwise. Spero is a clinical-stage biopharmaceutical company developing treatments for bacterial infections and rare diseases. It had no products approved for sale and generated no product-sales revenue.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $2.1 million | $7.3 million |
| Research and development expense | $17.0 million | $18.4 million |
| General and administrative expense | $15.3 million | $8.3 million |
| Operating loss | $30.2 million | $19.4 million |
| Net loss | $32.8 million; $1.01 per share | $19.4 million; $0.66 per share |
| Net cash used in operating activities | $28.2 million | $15.5 million |
| Cash, cash equivalents and marketable securities | $122.0 million at March 31, 2022 | $146.4 million at December 31, 2021 |
| Total liabilities / stockholders’ equity | $83.4 million / $62.5 million | $82.8 million / $88.3 million at December 31, 2021 |
Grant revenue was $1.8 million, down from $7.3 million, primarily because qualifying tebipenem HBr expenses under the BARDA award declined. Collaboration revenue was $0.2 million, from Pfizer. R&D expense decreased as tebipenem NDA-support work and SPR720 activity declined, partly offset by increased SPR206 clinical costs and R&D personnel expense. G&A rose mainly with commercial preparation for tebipenem and higher headcount, professional fees and consulting costs. The company reported no product gross margin; margins are not meaningful for its current grant- and collaboration-funded, pre-commercial operations.
Cash and cash equivalents were $72.1 million and marketable securities were $49.9 million. Q1 investing cash outflow of $16.1 million largely reflected purchases of marketable securities, rather than operating investment alone. The company raised $3.7 million gross through its at-the-market stock offering during the quarter. It classified the $50 million HCR royalty-financing liability as current at March 31, 2022; the carrying amount was $50.9 million, including $2.5 million of Q1 interest expense. This is a royalty-linked financing obligation, not conventional bank debt.
Material changes versus the prior period
- Revenue fell $5.2 million year over year, mainly due to lower BARDA-funded tebipenem activity.
- Operating expenses increased $5.6 million, as a $1.4 million reduction in R&D was more than offset by a $7.0 million increase in G&A.
- Net loss widened by $13.4 million, including $2.5 million of interest expense on the HCR financing and a $0.2 million adverse change in the derivative liability.
- Cash, cash equivalents and marketable securities declined $24.4 million from December 31, 2021. Operating cash use increased $12.7 million year over year.
Outlook, management commentary and principal risks
- Tebipenem HBr and subsequent events: The FDA accepted the NDA with priority review and a June 27, 2022 target action date. After a May 3, 2022 Late Cycle Meeting, management said FDA feedback suggested the data package might be insufficient for approval in that review cycle. The review remained ongoing, with no final FDA decision reported. Spero suspended current commercialization activities and said it would continue discussions with the FDA on a potential path forward.
- Restructuring: Announced May 3, after quarter-end, the company reduced its workforce from 146 employees at December 31, 2021 to approximately 35. It estimated about $8 million in severance and related termination costs, mostly in Q2 2022, and expects lower future commercialization-related G&A.
- Program priorities: Spero shifted resources toward SPR720 and SPR206. It expected to begin the SPR720 Phase 2 trial in the second half of 2022, with interim data in 2023 and topline results in 2024. The FDA lifted the SPR720 Phase 2 clinical hold in January 2022.
- Cash outlook and going concern: Management estimated that available cash, marketable securities and other non-dilutive funding commitments could support the refocused plan through late 2023, subject to expenditure uncertainty and assuming repayment of amounts under the HCR agreement. Nevertheless, management concluded that substantial doubt about the company’s ability to continue as a going concern exists; additional financing may be needed, and there is no assurance it will be available on acceptable terms.
- HCR terms: The agreement provides for tiered royalties on specified product and licensee revenues. A further $50 million is contingent on tebipenem FDA approval by December 31, 2022. If approval is not obtained by that date, the agreement requires repayment of the initial $50 million plus a 13.5% annual return. Minimum-return, default and change-of-control provisions may create additional cash demands.
- Other risks: Clinical and regulatory outcomes for all candidates remain uncertain; the company relies on government awards, collaborators and a small number of third-party manufacturers. COVID-19 and supply-chain disruptions could affect trials, manufacturing and timelines. The filing reports no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- FDA’s decision and subsequent communications on the tebipenem HBr NDA, and whether an additional-data or other approval pathway is feasible.
- HCR repayment obligations, timing and liquidity impact if tebipenem is not approved by December 31, 2022, as well as any further financing under the agreement.
- Actual cash burn, restructuring charges and resulting runway compared with management’s late-2023 estimate; that estimate does not remove the disclosed going-concern substantial doubt.
- Execution and funding of the SPR720 and SPR206 development plans, including SPR720 trial start and reported data milestones.
- Availability and terms of future equity, debt, collaboration, grant or other financing, including potential dilution and effects on product rights.