Spero Therapeutics, Inc. — Q2 2019 Form 10-Q
Business context and reporting period. This clinical-stage biopharmaceutical company reported for the quarter and six months ended June 30, 2019. Its programs target drug-resistant bacterial infections: SPR994 (oral antibiotic, in Phase 3), SPR720 (oral treatment candidate for pulmonary NTM, in Phase 1), and the intravenous Potentiator Platform candidates SPR206 and SPR741. Spero had no approved products and generated no product-sale revenue.
Key financial metrics
Amounts below are in millions of dollars except per-share data. Revenue is primarily government funding and collaboration-related; product margins are not meaningful because the company has no product sales.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $2.16 | $0.46 | $9.87 | $1.62 |
| Operating expenses | $15.81 | $10.43 | $29.22 | $22.40 |
| Loss from operations | $(13.65) | $(9.97) | $(19.35) | $(20.79) |
| Net loss | $(13.15) | $(9.96) | $(18.22) | $(20.60) |
| Net loss per share | $(0.74) | $(0.69) | $(1.04) | $(1.43) |
| Operating cash used | — | $(22.99) | $(20.60) |
- Liquidity at June 30: cash and cash equivalents were $71.1 million and marketable securities were $32.3 million, totaling $103.4 million. Current assets were $112.7 million and current liabilities $8.2 million.
- Debt and liabilities: the filing reports no debt. Total liabilities were $12.8 million, including $4.85 million of operating lease liabilities. The company adopted lease accounting in January 2019, recording right-of-use assets and lease liabilities.
- Equity and financing: six-month financing cash flow was $10.5 million, mainly from ATM stock sales and a $5.0 million Novo Holdings investment. Shares outstanding were 18.65 million at June 30, up from 17.21 million at year-end.
Changes versus prior comparable periods
- Q2 revenue rose by $1.69 million year over year, largely from BARDA funding for SPR994; R&D expense increased $4.65 million, principally reflecting SPR994 Phase 3 activity and SPR720 Phase 1 work. Q2 net loss consequently widened by $3.19 million.
- Six-month revenue increased $8.26 million, including $3.87 million in collaboration revenue from the Everest agreement and higher BARDA funding. R&D and G&A expenses increased by $5.25 million and $1.57 million, respectively; net loss narrowed by $2.38 million.
- Operating cash use increased $2.39 million year over year. Cash and cash equivalents increased during the half as marketable securities matured and equity financing proceeds were received; cash plus securities declined from $115.4 million at year-end 2018 to $103.4 million at June 30, 2019.
Outlook, commentary and risks
- Management expected available cash, cash equivalents, marketable securities and initial committed BARDA funding to cover operating and capital needs for at least 12 months from the August 8, 2019 issuance date, into the second half of 2020, including through the anticipated top-line readout of the SPR994 Phase 3 trial. This is an estimate based on assumptions; management expected continuing losses and said additional funding would be needed beyond that period.
- BARDA’s SPR994 award was increased to $46.7 million in potential funding, including $18.1 million initially committed; the remaining $28.5 million depends on BARDA options and specified milestones. A separate $5.9 million DoD award for SPR206 was announced after quarter-end, on July 1, 2019.
- Everest licensed SPR206 in certain Asian markets. Spero recognized $3.9 million of related revenue in the first half; additional milestones and royalties are contingent on future events. The Gates MRI collaboration for SPR720 tuberculosis research provides funding as qualifying costs are incurred and includes a no-cost exclusive license for TB use in low- and middle-income countries.
- Novo purchased $5.0 million of stock in June and may purchase a further $5.0 million tranche, subject to stated conditions; the second purchase is not assured. Continued equity financing could dilute shareholders.
- SPR994 had FDA Fast Track and Qualified Infectious Disease Product designations, but neither guarantees approval. Key risks include clinical-trial efficacy, safety and enrollment; regulatory and manufacturing requirements; dependence on third parties; competition and reimbursement; reliance on government awards and milestone-contingent funding; and the need for additional capital. The company disclosed no material legal proceedings and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- SPR994 Phase 3 timing, enrollment, safety findings and eventual data readout, plus whether results support the planned regulatory pathway.
- Actual cash burn and whether the stated runway assumptions remain valid as development spending grows.
- BARDA option exercise and milestone conditions, and receipt and permitted use of the post-quarter $5.9 million DoD award.
- Whether Novo’s conditional second $5.0 million investment closes, and the dilution from ongoing or future equity issuance.
- Everest’s progress, remaining performance obligations and contingent milestone/royalty prospects; and the scope and economics of the Gates MRI collaboration.
- Potential costs and timing of license milestones, royalties, clinical development and manufacturing, including obligations that are contingent on future achievements.