Spero Therapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 9, 2019. Spero is a clinical-stage biopharmaceutical company developing antibiotics for multidrug-resistant bacterial infections. It had no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Grant revenue | $3.9 million | $1.2 million |
| Collaboration revenue | $3.8 million | — |
| Total revenue | $7.7 million | $1.2 million |
| Research and development expense | $9.5 million | $8.9 million |
| General and administrative expense | $3.9 million | $3.0 million |
| Operating loss | $5.7 million | $10.8 million |
| Net loss | $5.1 million | $10.6 million |
| Basic and diluted loss per share | $0.29 | $0.74 |
| Cash used in operating activities | $10.9 million | $12.0 million |
Revenue was primarily government grant reimbursement and Everest collaboration revenue, not product sales; conventional product gross margins are therefore not meaningful. The smaller year-over-year net loss reflected higher revenue, partly offset by increased operating expenses. R&D spending rose $0.6 million: SPR994 and SPR720 program costs increased, while Potentiator Platform costs declined.
At March 31, cash and cash equivalents were $49.4 million and marketable securities were $57.0 million, totaling $106.4 million in liquid resources. Current assets were $115.7 million and current liabilities $6.6 million. Total liabilities were $11.3 million; the filing reports no debt. Operating lease liabilities were $5.0 million. Stockholders’ equity was $113.3 million and accumulated deficit $143.6 million. The company raised $1.5 million net through its at-the-market offering during the quarter and reported approximately $2.6 million of additional gross ATM proceeds after quarter-end.
Cash from investing activities was $24.7 million, mainly reflecting net maturities of marketable securities; financing activities provided $1.6 million. Management stated that cash, cash equivalents and marketable securities, together with initial committed BARDA funding, were expected to fund operations and capital needs into the second half of 2020, including through the anticipated top-line readout of SPR994’s pivotal Phase 3 trial. The filing also says resources were expected to cover at least 12 months from issuance. Management cautioned that estimates depend on assumptions and additional financing will be needed beyond the projected runway.
Material developments and outlook
- SPR994: FDA accepted the cUTI investigational new drug application in February 2019 and granted Fast Track designation in March; the candidate also had QIDP designation. Trial sites opened and patient screening began in April 2019 for the pivotal Phase 3 ADAPT-PO study. These designations do not assure approval or a specific review timeline.
- Everest agreement: Spero licensed SPR206 in Greater China, South Korea and certain Southeast Asian countries and granted Everest a 12-month option to negotiate a license for SPR741 in those territories. The agreement provided $3.0 million in upfront payments, with further potential milestones; the company described potential SPR206 milestones of up to $58.5 million and high-single-digit to low-double-digit royalties, subject to development, regulatory and sales outcomes. Spero recognized $3.8 million of collaboration revenue in Q1. The filing’s accounting analysis included $5.0 million in transaction price, of which $1.2 million was allocated to partially unsatisfied performance obligations at quarter-end.
- Government funding: BARDA awarded up to $44.2 million for SPR994, including $15.7 million committed for the base period; additional funding depends on options, milestones and satisfactory progress. The company recognized $3.6 million of BARDA revenue in Q1. Management also disclosed that DTRA may provide up to $10.0 million for biodefense work, but Spero would not receive those funds directly.
- Pipeline: SPR720 Phase 1 began in January 2019. Spero continued development of SPR206 and SPR741 and expects R&D spending to increase as clinical programs advance.
- Accounting and other items: Adoption of lease accounting standard ASC 842 on January 1, 2019 added operating-lease right-of-use assets and liabilities; management said it had no material effect on results or cash flows. The company reported no material legal proceedings and no material change in contractual obligations outside the ordinary course.
Risks and contingencies
- The company has recurring losses, no product revenue, and expects significant future operating losses. Its stated runway does not fund all candidates through approval and commercialization; future financing may dilute shareholders or require Spero to grant rights to its programs.
- SPR994 is the lead program and the pivotal Phase 3 trial was just beginning. Efficacy, safety, enrollment, manufacturing, regulatory review and the relevance of prior Japanese clinical data remain material uncertainties.
- BARDA’s potential funding beyond its committed base period depends on options and milestones. Government awards can be reduced or terminated and carry compliance, audit and intellectual-property risks.
- Everest milestones, royalties and any SPR741 license are contingent; Everest may terminate the agreement under specified terms. Spero also depends on licensors, contract research organizations and manufacturers.
- Other risks include antibiotic resistance, competition, patent and license protection, reimbursement and market adoption, and the need to build or partner for commercialization.
Important facts for investors to verify
- SPR994 Phase 3 enrollment progress, trial timing, and eventual clinical and regulatory outcomes.
- Actual cash burn and runway relative to management’s second-half-2020 estimate, including timing and conditions of BARDA funding.
- Everest’s delivery and acceptance of contracted services, the near-term milestone described by management, and any exercise or expiration of the SPR741 option.
- Future ATM issuance, remaining capacity under the offering program, and resulting shareholder dilution.
- Development spending, lease obligations, and any changes in licensing, manufacturing or government-award commitments.