Spruce Biosciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Spruce is a clinical-stage biopharmaceutical company with no approved products or product revenue. Its lead and only product candidate is tildacerfont, being developed for rare endocrine disorders.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $9.1 million | $9.1 million | $17.6 million | $15.8 million |
| General and administrative expense | $2.8 million | $2.6 million | $6.0 million | $5.7 million |
| Total operating expenses | $11.9 million | $11.7 million | $23.6 million | $21.5 million |
| Net loss | $11.9 million | $11.8 million | $23.6 million | $21.7 million |
| Basic and diluted loss per share | $0.51 | $0.50 | $1.01 | $0.93 |
With no revenue, operating or profit margins are not meaningful. Q2 net loss increased slightly year over year; the first-half net loss increased by $2.0 million, primarily reflecting higher clinical-development spending. First-half clinical-development expense rose $3.5 million, partly offset by lower manufacturing, preclinical, and other R&D costs. G&A increased modestly, including public-company costs.
- Cash and investments: $99.1 million at June 30, 2022, versus $121.4 million at December 31, 2021. Management said the balance should fund planned operations for at least 12 months, based on current plans and assumptions.
- Cash flow: $21.4 million used in operations in the first half, compared with $18.5 million in the prior-year period. Investing activities provided $26.0 million, mainly from $39.0 million of investment maturities, partly offset by $13.0 million of purchases. Financing activities used $0.2 million.
- Balance sheet: Current assets were $96.5 million and current liabilities $10.1 million. Accumulated deficit was $126.8 million; stockholders’ equity was $89.1 million.
- Debt: $5.0 million principal outstanding on the Silicon Valley Bank term loan ($4.9 million net of discount and issuance costs). A further $10.0 million second tranche was available subject to milestones and other conditions. The loan is secured by substantially all assets other than intellectual property, subject to the agreement’s terms.
- Other financial items: Comprehensive loss for the first half was $24.3 million, including a $0.7 million unrealized loss on available-for-sale securities. The company considered the investment losses temporary and not credit-related. No material legal proceedings were reported.
Pipeline, outlook, and material risks
- Spruce reported Phase 2b CAHmelia-203 underway in adults with classic congenital adrenal hyperplasia (CAH) and poor disease control, with topline results anticipated in the second half of 2023. CAHmelia-204, focused on glucocorticoid reduction in adults with good disease control, had topline results anticipated in the second half of 2024.
- A Phase 2 pediatric CAH trial in patients aged 6–17 and a Phase 2 proof-of-concept PCOS trial were also underway. The company anticipated initial pediatric safety results and PCOS topline results in the first half of 2023. Timelines are forward-looking and subject to trial progress and other uncertainties.
- Management said the two adult Phase 2b trials were intended to provide patient exposures for a potential registrational safety database, but FDA or foreign regulators may require additional studies, potentially including Phase 3 trials. Any required studies’ scope and timing were not ascertainable.
- COVID-19-related site and enrollment delays had extended the adult trials and increased costs. Spruce expanded planned site coverage and amended protocols to allow remote visits; it also cited possible clinical-supply disruption, including hydrocortisone shortages. Russia-Ukraine-related market volatility and broader economic conditions could affect financing, trade, and supply continuity.
- Spruce expects significant future losses and additional financing needs; it has no assurance that financing will be available on acceptable terms. A $200 million shelf registration was effective and an at-the-market agreement allowed sales of up to $21 million, but no shares had been sold under that agreement by June 30, 2022.
- The May 2022 loan amendment revised second-tranche availability milestones and reduced the stated floating interest-rate formula. If the company borrows under that tranche, a $50 million minimum-liquidity covenant applies; failure to meet it can trigger a cash-pledge requirement, subject to the agreement’s conditions. Management reported covenant compliance at June 30, 2022.
- Key risks include dependence on one unapproved candidate, uncertain trial efficacy and safety, recruitment and regulatory uncertainty, reliance on third-party and single-source manufacturers, financing and dilution risk, and competition. Spruce cited a prior liver-enzyme elevation in one patient at a 1,000 mg daily dose in a Phase 2a study; it reported no drug-related serious adverse events across more than 200 subjects in eight completed trials to date.
Important facts for investors to verify
- Whether trial enrollment and results remain on the stated schedules, and whether regulators will require additional or Phase 3 trials.
- How quickly cash and investments are consumed relative to the stated 12-month runway, and whether new financing or ATM sales are needed.
- The conditions for drawing the $10 million loan tranche, the resulting liquidity covenant, and the implications of the loan’s collateral and default provisions.
- Clinical safety findings, including liver monitoring and pediatric safety, as additional trial data become available.
- Potential dilution from financing and equity awards: 23.56 million common shares were outstanding at June 30, 2022, with substantial options and other equity awards reserved or outstanding.