Sutro Biopharma, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. Sutro is a clinical-stage biopharmaceutical discovery, development and manufacturing company. It has no products approved for commercial sale; reported revenue comes from collaborations, licensing and supply services.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparator |
|---|---|---|
| Revenue | $5.9 | $14.7; down 60% |
| Research and development expense | $30.0 | $22.6; up 33% |
| General and administrative expense | $15.0 | $11.1; up 35% |
| Total operating expenses | $45.0 | $33.7 |
| Loss from operations | $(39.1) | $(19.0) |
| Net loss | $(39.1) | $(30.4) |
| Basic and diluted loss per share | $(0.84) | $(0.66) |
| Net cash used in operating activities | $(35.3) | $(30.4) |
Revenue decline primarily reflected lower Merck collaboration revenue, including completion of prior-period performance obligations and recognition of a contingent payment in Q1 2021. Higher R&D costs mainly reflected increased personnel, outside services, laboratory supplies and clinical/preclinical work. Net loss included a $0.6 million unrealized gain on Vaxcyte shares; Q1 2021 included a $10.7 million unrealized loss on those shares. No separate gross margin metric is reported.
Financial position and liquidity
- At March 31, 2022, cash, cash equivalents and marketable securities totaled $192.1 million, versus $229.5 million at December 31, 2021. The balance-sheet cash and cash equivalents figure was $28.9 million; marketable securities were $163.2 million.
- Current assets were $228.7 million and current liabilities $38.8 million. Total assets were $303.7 million; total liabilities $83.3 million.
- Debt was approximately $25.3 million, net of debt discount, including $12.5 million current and $12.8 million non-current. The loan bears floating interest with an 8.07% floor and matures March 1, 2024.
- Cash, cash equivalents and restricted cash declined $1.5 million during the quarter. Investing cash inflow of $33.0 million largely reflected marketable-security maturities and sales, rather than operating earnings.
- Accumulated deficit was $372.5 million. Management expects continued substantial losses and says existing unrestricted cash, cash equivalents and marketable securities should fund operations for at least 12 months after the filing date; additional capital will be needed to support longer-term plans.
Material changes, outlook and risks
- Tasly license: Sutro did not recognize the $40.0 million upfront payment under its December 2021 STRO-002 Greater China license after Tasly requested renegotiation in February 2022. An April 18, 2022 amendment changed the upfront payment to $25.0 million; $15.0 million is to be placed in escrow and becomes payable upon specified regulatory milestones. The amendment also provides additional potential milestone payments; see investor verification points below.
- Pipeline: STRO-002 Phase 1 dose expansion was ongoing; January 2022 initial data indicated a manageable safety profile and preliminary efficacy, and the candidate has FDA Fast Track designation for specified platinum-resistant ovarian, fallopian tube or primary peritoneal cancers. STRO-001 Phase 1 dose escalation was ongoing and the maximum tolerated dose had not been reached; earlier reported data described tolerability but remain preliminary.
- Management outlook: Sutro expects operating expenses to rise as it advances candidates, expands R&D and manufacturing capabilities, and pursues regulatory development. It gave no specific revenue or earnings forecast in this filing and stated that it expects no commercial product revenue for years, if ever.
- Principal risks: Clinical and regulatory uncertainty; significant ongoing losses and need for additional financing; reliance on collaborators and milestone payments; manufacturing and supply constraints; and volatility in the Vaxcyte equity investment. COVID-19 had caused increased material costs and supply delays, including difficulty sourcing manufacturing filters; the company reported minor trial enrollment/data delays but said overall enrollment and treatment remained on track.
- The filing reported no material legal proceedings. Management concluded disclosure controls and procedures were effective as of March 31, 2022.
Important facts for investors to verify
- Review the April 2022 Tasly amendment for the precise conditions and timing of the $15.0 million escrow payment and the scope of milestone payments. The filing describes up to $350.0 million in additional potential milestone payments; confirm how this relates to the original agreement’s stated milestone amounts.
- Track quarterly operating cash burn against the stated minimum 12-month runway, and assess timing, terms and dilution risk of potential future financing.
- Assess updated STRO-002 and STRO-001 clinical data, including response durability, adverse events and dose changes; early-stage results do not establish efficacy or approval prospects.
- Monitor manufacturing-material availability and clinical-supply execution, as delays could affect company and collaborator programs.
- Consider the effect of Vaxcyte share-price changes on reported earnings: Sutro held 1,562,879 shares valued at $37.7 million at quarter-end.