Spero Therapeutics, Inc. — Q3 2019 Form 10-Q
Business context and reporting period. Unaudited results cover the three and nine months ended September 30, 2019; balance-sheet figures are compared with December 31, 2018. Spero is a clinical-stage biotechnology company developing antibiotics for drug-resistant infections. It had no approved products and generated no product-sales revenue.
Key financial metrics
Amounts below are in millions of dollars except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $4.6 | $0.7 | $14.5 | $2.3 |
| Operating expenses | $22.6 | $11.6 | $51.9 | $34.0 |
| Operating loss | $(18.0) | $(10.9) | $(37.3) | $(31.7) |
| Net loss | $(17.7) | $(10.5) | $(35.9) | $(31.1) |
| Net loss per share, basic and diluted | $(0.95) | $(0.60) | $(2.01) | $(2.01) |
- Revenue composition: Q3 grant revenue was $4.5 million and collaboration revenue $0.2 million. Nine-month figures were $10.5 million and $4.0 million, respectively. These are not product-sales revenues.
- Cash flow: For the first nine months, operating cash use was $32.7 million; investing activities provided $33.6 million, primarily from net maturities of marketable securities; financing provided $10.5 million, mainly from equity issuance.
- Liquidity: At September 30, cash and cash equivalents were $45.6 million and marketable securities were $48.3 million, totaling $93.9 million, versus $115.4 million at year-end 2018. Current assets were $104.0 million and current liabilities $15.1 million.
- Debt and leases: The filing reports no debt. Operating lease liabilities totaled $4.6 million, including $0.4 million current and $4.2 million non-current.
- Equity: Stockholders’ equity was $93.0 million, down from $115.9 million at year-end 2018. Common shares outstanding were 18.66 million at September 30; 19.13 million were outstanding October 31.
Material changes versus the prior comparable period
- Q3 revenue increased $4.0 million year over year, largely from BARDA funding for SPR994; nine-month revenue increased $12.2 million, including $4.0 million of Everest collaboration revenue.
- Q3 R&D expense rose $10.0 million to $18.5 million; nine-month R&D rose $15.3 million to $40.0 million. The primary driver was SPR994 Phase 3 trial spending, including $12.4 million of additional trial costs over the nine-month comparison.
- Q3 net loss widened $7.3 million to $17.7 million; the nine-month net loss widened $4.9 million to $35.9 million. Q3 G&A also increased, reflecting personnel and business-development/commercial-readiness costs.
- Cash, cash equivalents and marketable securities declined by $21.6 million from year-end, despite $10.5 million of financing inflows. Common shares increased during the period, including ATM sales and conversion of preferred stock.
Outlook, management commentary, risks and unusual items
- Management expected available cash, cash equivalents and marketable securities, together with initial committed BARDA funding, to fund operating and capital needs for at least 12 months from the November 4, 2019 financial-statement issuance date, including through the expected SPR994 Phase 3 top-line readout. The readout was expected in Q3 2020. Management cautioned that funding beyond that period depends on additional capital.
- BARDA’s initial committed SPR994 funding was increased to $18.1 million; the potential total award was $46.7 million, with further funding dependent on options and milestones. A separate $5.9 million DoD award supports SPR206 development over four years.
- On October 3, 2019, an independent review committee recommended continuing the blinded SPR994 Phase 3 trial without changing the protocol-defined dose after reviewing interim pharmacokinetic data. This was not an efficacy readout.
- On October 18, 2019, after quarter-end, Spero completed the second approximately $5.0 million Novo stock sale. The filing also reports $5.0 million received in the June closing and $5.3 million net proceeds from ATM sales during the first nine months.
- Everest licensed SPR206 rights in specified Asian territories and received an option to negotiate rights to SPR741. The agreement provides potential milestones and royalties, which are contingent; Spero recognized $4.0 million of collaboration revenue over nine months. Gates MRI funding for SPR720 tuberculosis work was recorded as a reduction of R&D expense, not revenue; the Q3 reduction was $0.9 million.
- Principal risks include clinical-trial failure or delay, regulatory uncertainty, dependence on SPR994, need for future financing and possible dilution, reliance on contract manufacturers and research organizations, government-award conditions, intellectual-property and licensing risks, and competition and reimbursement uncertainty. Spero reported recurring losses and an accumulated deficit of $174.4 million.
- Management said disclosure controls were effective as of September 30, 2019, and reported no material change in internal control over financial reporting during the quarter. The CFO resignation was disclosed as effective November 8, 2019; an interim CFO was appointed.
Important facts for investors to verify
- Whether SPR994’s pivotal Phase 3 trial remains on schedule and whether the anticipated Q3 2020 readout occurs, including final safety and efficacy results.
- Actual cash burn and remaining runway against the stated 12-month outlook, including timing and eligibility for BARDA option funding.
- Whether the conditional Everest milestones, royalties, and SPR741 option produce future payments or development obligations.
- How future financing, equity issuance, preferred-stock conversion, and stock-based compensation affect dilution and cash runway.
- Whether the filing’s stated financial runway assumptions remain valid given ongoing clinical costs and reliance on government and collaboration funding.