Spruce Biosciences, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; financial statements are unaudited. Spruce is a clinical-stage biopharmaceutical company developing tildacerfont for rare endocrine disorders. It has no approved products and generates no product sales.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $3.1 million | None | $7.2 million | None |
| Research and development | $13.5 million | $8.8 million | $38.3 million | $26.4 million |
| General and administrative | $3.2 million | $2.8 million | $9.7 million | $8.8 million |
| Net loss | $12.4 million | $11.4 million | $38.0 million | $35.0 million |
| Net loss per share, basic and diluted | $0.30 | $0.48 | $1.01 | $1.49 |
| Cash used in operating activities | — | — | $22.1 million | $29.9 million |
Liquidity and debt: At September 30, 2023, cash, cash equivalents and investments totaled approximately $108.0 million, compared with $79.1 million at December 31, 2022. The company reported $3.8 million of term-loan principal outstanding, with $4.2 million of scheduled principal and interest payments remaining. The loan bears a 9.00% stated rate, matures in January 2026, and is secured by substantially all assets other than intellectual property. Spruce reported covenant compliance.
Margins and profitability: No product-sales gross margin is reported because there are no commercial product sales. Spruce remains loss-making and does not expect positive operating cash flow in the foreseeable future.
Changes versus comparable periods
- Q3 collaboration revenue of $3.1 million and nine-month revenue of $7.2 million arose from the Kaken Japan license agreement; there was no collaboration revenue in 2022.
- Q3 operating expenses increased $5.2 million year over year, primarily from higher clinical-development and personnel costs. Nine-month operating expenses increased $12.9 million, led by clinical development, personnel, manufacturing timing and support costs.
- Net loss increased by $1.0 million in Q3 and $2.9 million for the first nine months. Higher interest income partly offset increased operating costs; the company attributed the increase in interest income to higher yields on investments.
- Nine-month operating cash use fell by $7.9 million year over year, with the $15.0 million Kaken upfront payment contributing to the improvement. Investing activities provided $46.5 million, mainly from investment maturities; financing activities provided $49.7 million, mainly from the February private placement.
- February 2023 financing raised $53.6 million gross ($50.9 million net) through common stock and warrants. Common shares outstanding rose from 23.6 million at December 31, 2022 to 40.7 million at September 30, 2023. An additional 12.687 million standard warrants, exercisable at $3.96 per share for five years, remained outstanding.
Outlook, development and risks
- Management estimates existing cash, cash equivalents and investments will fund operations and debt obligations for at least 12 months after issuance of the statements and expects funding to extend into the first half of 2025, based on its current operating plan. Spruce anticipates needing substantial additional financing; actual cash use may differ from its assumptions.
- CAHmelia-203, a Phase 2b trial in adults with classic congenital adrenal hyperplasia (CAH) and highly elevated baseline androstenedione, had reached target enrollment; topline results were expected in Q1 2024. CAHmelia-204, studying glucocorticoid reduction in adults with normal or near-normal baseline androstenedione, was expected to complete enrollment in early Q1 2024, with topline results expected in Q3 2024.
- The pediatric CAH Phase 2 trial was fully enrolled with 30 patients; topline results were expected in Q1 2024. Spruce reported interim POWER trial findings in PCOS that supported target engagement and suggested possible DHEAS reduction; the company described the data as interim and planned to present final data later.
- Kaken holds exclusive Japan rights for tildacerfont in CAH and is responsible for Japanese development and regulatory approvals. Spruce received a $15.0 million upfront payment and may receive up to approximately $65.0 million in development, regulatory and sales milestones, plus product-supply payments or royalties, subject to the agreement.
- Approval and commercialization remain uncertain. Regulators may require additional adult CAH trials, including Phase 3 studies. Risks include clinical efficacy or safety failures, trial delays and enrollment challenges, reliance on third-party manufacturers and CROs, financing needs, competition, and dependence on a single product candidate. The filing notes that Neurocrine reported positive topline results from Phase 3 CAH trials.
- The company highlighted potential financing dilution, exposure to financial-market and banking disruption, and macroeconomic and geopolitical uncertainty. It reported no material legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Check the final results and regulatory implications of the two adult CAH trials and the pediatric CAH trial against the filing’s stated timelines.
- Assess whether cash runway assumptions remain valid as trial spending increases, and whether further capital or partnering will be needed.
- Review potential dilution from the 12.687 million outstanding warrants, registered resale securities and any future equity issuance.
- Verify the timing and conditions for Kaken milestones, royalties and supply revenue; these amounts are contingent and not assured.
- Monitor competitive CAH programs, regulatory requirements and tildacerfont’s safety and efficacy evidence, including the distinction between interim and final trial data.