Spruce Biosciences, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 15, 2023. Spruce is a clinical-stage biopharmaceutical company developing tildacerfont for rare endocrine disorders. It had no approved products or commercial product sales.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Collaboration revenue | $2.0 million | $0 |
| Research and development expense | $11.7 million | $8.5 million |
| General and administrative expense | $3.5 million | $3.2 million |
| Total operating expenses | $15.2 million | $11.7 million |
| Net loss | $12.8 million | $11.8 million |
| Net loss per share | $0.40 | $0.50 |
| Cash, cash equivalents and investments | $118.6 million | $79.1 million at December 31, 2022 |
| Net cash used in operating activities | $11.8 million | $11.8 million |
| Term loan carrying value | $4.5 million | $4.9 million at December 31, 2022 |
| Accumulated deficit | $162.1 million | $149.3 million at December 31, 2022 |
Operating loss was $13.2 million versus $11.7 million. The filing does not present a meaningful commercial gross margin; revenue is collaboration revenue, not product sales. R&D expense rose $3.2 million, primarily with clinical-trial progression, higher personnel costs and manufacturing activity. Interest and other income increased to $0.5 million from $0.1 million, largely due to higher investment yields.
Current assets were $137.2 million and current liabilities $23.0 million at quarter-end. Operating cash use was nearly unchanged year over year. Investing activities provided $10.5 million, mainly from investment maturities; financing activities provided $50.5 million, mainly from the February private placement. The resulting increase in cash, cash equivalents and restricted cash was $49.2 million.
Material changes and financing
- In February 2023, Spruce raised approximately $53.6 million gross in a private placement, issuing 16.116 million common shares, pre-funded warrants for 0.8 million shares and warrants for 12.687 million shares. Net proceeds were approximately $50.9 million after offering costs. The warrants may create additional dilution; none had been exercised by March 31.
- Shares issued and outstanding increased to 39.746 million from 23.601 million at year-end 2022. The filing reports 39.746 million shares outstanding as of May 11, 2023.
- The January 2023 Kaken agreement licensed tildacerfont for CAH in Japan. Spruce recognized $2.0 million of collaboration revenue in Q1 from a $15.0 million upfront payment; the remaining $13.0 million was deferred revenue at quarter-end. The upfront payment was received in April 2023. Spruce may also receive up to approximately $65 million in milestones and royalties, contingent on future development, approval and sales.
- The term loan carried an 8.5% stated interest rate at March 31, 2023, with maturity in January 2026. Principal repayment began in January 2023; scheduled future principal and interest payments totaled $5.2 million. The company reported covenant compliance.
Outlook, risks and other notable matters
- Management said quarter-end cash, cash equivalents and investments, together with the April Kaken payment, were expected to fund operations and debt obligations for at least 12 months after financial-statement issuance and, under its current operating plan, into the first half of 2025. These estimates depend on assumptions; Spruce expects continued losses and says substantial additional financing will be needed.
- Clinical milestones stated in the filing: topline results from adult CAH Phase 2b trial CAHmelia-203 and adolescent cohorts of pediatric trial CAHptain were anticipated in the second half of 2023; topline results from CAHmelia-204 were anticipated in the second half of 2024; and topline results from the PCOS P.O.W.E.R. trial were anticipated in Q3 2023. These are management expectations, not assured outcomes.
- The company’s prospects depend on tildacerfont, its only product candidate. The FDA or foreign regulators may require additional studies, including one or more Phase 3 trials for adult classic CAH; timing and scope are not ascertainable in the filing. Patient enrollment delays, trial results, safety, regulatory approval, manufacturing and financing are key uncertainties.
- Spruce noted prior Phase 2a liver-enzyme elevation in one patient treated at 1,000 mg daily; it resolved without additional intervention. The filing reports no drug-related serious adverse events among more than 200 subjects across eight completed trials, while noting pediatric safety has not yet been established.
- SVB’s March 2023 failure temporarily presented deposit-access risk. The company said depositors were protected through the government response and reported no losses in its accounts, but identified potential future banking disruptions as a risk.
- No material legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Key facts investors should verify
- Whether the stated trial timelines were met and what the full, final efficacy and safety results show.
- Whether regulators require additional adult CAH trials, and the resulting development cost and timeline.
- Actual cash burn, financing needs and runway relative to management’s first-half-2025 estimate.
- Potential dilution from the private-placement warrants, equity plans and any future capital raises.
- Recognition of the remaining Kaken upfront consideration, and whether milestone or royalty payments become achievable.
- Debt repayment, interest-rate exposure and continued compliance with loan covenants.