Spruce Biosciences, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company is a clinical-stage biopharmaceutical business developing tildacerfont for rare endocrine disorders; it had no approved products and generated no revenue.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Research and development expense | $8.6 million | $7.8 million | $24.4 million | $18.0 million |
| General and administrative expense | $2.8 million | $1.8 million | $8.5 million | $3.0 million |
| Total operating expense | $11.4 million | $9.6 million | $32.9 million | $21.1 million |
| Net loss | $11.4 million | $9.6 million | $33.1 million | $21.2 million |
| Basic and diluted loss per share | $0.49 | $12.35 | $1.42 | $27.54 |
At September 30, 2021, cash and cash equivalents were $58.4 million, short- and long-term investments totaled $72.9 million, and total cash, cash equivalents and investments were $131.3 million. Total assets were $135.1 million; total liabilities were $15.4 million; and stockholders’ equity was $119.7 million. The company reported a $93.9 million accumulated deficit.
For the first nine months, operating cash use was $26.1 million, investing cash use was $73.2 million (primarily purchases of investments), and financing provided $0.5 million. Cash, cash equivalents and restricted cash declined by $98.8 million, largely reflecting the transfer of cash into investments as well as operating cash use. The filing states that available cash, cash equivalents and investments were expected to fund planned operations for at least 12 months following issuance of the financial statements.
Gross term-loan principal outstanding was $5.0 million, with a $4.9 million net carrying value. The loan matures January 1, 2026; additional borrowing is subject to availability and, for the second tranche, clinical and financial milestones. There is no meaningful gross margin measure because the company had no product revenue.
Changes versus the prior comparable period
- Q3 net loss increased by $1.9 million year over year; nine-month net loss increased by $11.9 million.
- Nine-month R&D expense rose $6.4 million, primarily from greater clinical and regulatory activity for tildacerfont. Nine-month G&A expense rose $5.5 million, primarily from personnel, directors’ and officers’ insurance, and public-company legal and professional costs.
- Nine-month operating cash use increased from $18.3 million to $26.1 million. The prior-year period included $87.6 million of preferred-stock financing; the 2021 period had no comparable equity financing.
- Weighted-average shares were substantially higher in 2021 following the October 2020 IPO and preferred-stock conversion; this makes the year-over-year per-share loss comparison less informative than the change in total net loss.
Outlook, commentary and risks
- Clinical program: The company had initiated CAHmelia-203, a Phase 2b trial in adults with classic congenital adrenal hyperplasia (CAH) and poor disease control, with topline results anticipated in 2023. CAHmelia-204 studies adults with good disease control and focuses on glucocorticoid reduction; the company said it would provide topline timing guidance after assessing COVID-19’s impact on enrollment. It also planned pediatric CAH development and a Phase 2 proof-of-concept study in a PCOS subgroup.
- Regulatory uncertainty: The FDA or other regulators may require additional trials, including Phase 3 studies, for adult CAH. Timing and scope of any such trials were not ascertainable. Earlier clinical findings do not assure later efficacy or approval.
- Operating risks: COVID-19 had delayed site activation and enrollment, increased trial costs through remote visits, and contributed to a hydrocortisone supply shortage. The company also relies on third parties, including single-source drug-substance and drug-product manufacturers.
- Funding: Management expected continued losses and negative operating cash flow and anticipated needing substantial additional financing. Future equity financing could dilute shareholders; debt could impose additional fixed payments and restrictive covenants.
- License obligations: The Lilly license may require up to $23.0 million in development and sales milestone payments, plus tiered royalties if products generate sales. No milestone amounts were due or paid in the periods presented.
- Leadership change after quarter-end: On November 15, 2021, CEO and director Richard King retired and resigned, with no stated disagreement with the company. Executive Chairman Michael Grey became interim CEO. King’s separation terms included 12 months of base salary ($500,000 annually) payable as a lump sum, 12 months of COBRA coverage, and extended exercise time for vested options.
Important facts for investors to verify
- Whether CAHmelia-203 enrollment and the expected 2023 topline timeline remain achievable, and when management will update CAHmelia-204 timing.
- Whether regulators will accept the Phase 2b program as adequate for registration or require additional, potentially costly trials.
- Actual cash burn, investment liquidity and runway relative to the company’s stated at-least-12-month funding estimate.
- Availability and terms of any undrawn loan tranches, including milestone conditions, interest rates, covenants and repayment obligations.
- COVID-19-related enrollment, site, trial-supply and manufacturing impacts, including the hydrocortisone shortage.
- Execution of the CEO transition and any resulting changes to strategy, personnel or clinical plans.