Spero Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited; amounts below are in millions of dollars unless noted.
Business context
Spero is a clinical-stage biopharmaceutical company developing treatments for multidrug-resistant bacterial infections and rare diseases. Its lead candidate, oral antibiotic tebipenem HBr, was submitted to the FDA for complicated urinary tract infections (cUTI) on October 28, 2021, after the quarter. Other programs include SPR720 for non-tuberculous mycobacterial lung disease and IV antibiotic candidate SPR206. The company has no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $3.1 | $4.0 | $15.5 | $7.4 |
| Research and development | $14.4 | $17.7 | $47.3 | $53.8 |
| General and administrative | $11.2 | $5.3 | $28.7 | $13.9 |
| Operating loss | $(22.5) | $(19.0) | $(60.5) | $(60.3) |
| Net loss | $(22.5) | $(18.9) | $(60.5) | $(59.7) |
| Net loss per share | $(0.70) | $(0.86) | $(1.99) | $(2.91) |
Revenue consisted of government grants and collaboration revenue, not product sales. The filing reports no gross profit or product margin. Nine-month operating cash use was $37.0 million, versus $69.5 million in 2020; cash provided by investing activities was $30.9 million and financing activities provided $33.7 million.
At September 30, cash and cash equivalents were $112.9 million and marketable securities were $10.6 million, totaling $123.4 million. Current assets were $131.8 million against current liabilities of $17.3 million. Total liabilities were $32.8 million; no HCR financing debt was recorded at quarter-end. Accumulated deficit was $338.2 million.
Material changes versus the prior comparable period
- Q3 revenue declined $0.9 million year over year, mainly because BARDA-funded tebipenem activity decreased by $3.0 million, partly offset by $1.5 million more DoD grant revenue and higher collaboration revenue.
- For the first nine months, revenue rose $8.1 million, reflecting increased BARDA and DoD funding and collaboration revenue, including Pfizer revenue.
- Q3 R&D expense fell $3.3 million, primarily as significant tebipenem Phase 3 work concluded and SPR720 spending declined during its clinical hold. Nine-month R&D expense decreased $6.5 million.
- G&A increased $5.8 million in Q3 and $14.7 million for nine months, driven by added commercial and administrative headcount, commercialization preparation, professional fees and transaction costs.
- Common shares outstanding increased to 32.2 million at September 30 from 29.3 million at December 31, 2020, including shares sold to Pfizer and through the at-the-market program.
Outlook, financing, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. Before considering the HCR financing received after quarter-end, management said existing cash, securities and committed non-dilutive funding were expected to support operations into Q4 2022. The company states that the $50 million HCR initial funding plus a potential $50 million FDA-approval payment could extend runway into the second half of 2023, assuming tebipenem approval in 2022. The approval payment is conditional, and the forecast is subject to spending and timing uncertainty.
- HCR revenue-interest financing: The September 29 agreement provides for up to $125 million. Spero received $50 million on October 19, 2021; another $50 million is contingent on FDA approval of tebipenem for cUTI by December 31, 2022, and up to $25 million is subject to mutual agreement and sales thresholds. HCR receives tiered royalties on specified product and licensee revenues, subject to a 2.5-times funded-amount cap, with potential repayment, minimum-return and default provisions. The agreement is secured by tebipenem-related assets and includes covenants. The initial funding is accounted for as long-term debt in Q4, not at September 30.
- Tebipenem: The NDA was submitted October 28, 2021; the FDA has 60 days under standard procedures to determine whether it is complete and acceptable for review. Approval, timing and commercialization remain uncertain. BARDA extended the relevant performance period through December 15, 2022; further award funding is partly conditional.
- SPR720: The FDA placed the Phase 2a trial on clinical hold after mortality events of inconclusive treatment causality in a non-human-primate toxicology study. Spero discontinued the trial, completed the animal studies and was engaging with FDA on the program’s future path. No serious adverse events had been observed in human study participants, according to the filing.
- Other programs and collaborations: Pfizer received an exclusive royalty-bearing SPR206 license for specified territories; Spero remains responsible for development costs there, while Pfizer is responsible for commercialization. The $40 million Pfizer share purchase included a $12.5 million premium allocated to license and R&D performance obligations; $10.9 million remained deferred revenue at quarter-end. Everest also licenses SPR206 in specified Asian territories.
- COVID-19 had affected development timelines, though Spero reported no material liquidity impact or asset impairment to date. Risks include regulatory review and clinical outcomes, manufacturing concentration, reliance on government awards and partners, competition, reimbursement, intellectual property, and additional capital needs. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- FDA acceptance, review timeline, any information requests, and eventual decision on the tebipenem HBr NDA; also assess how supporting clinical data and manufacturing readiness affect approval prospects.
- Whether the conditional HCR approval tranche is received, the full financing’s effective cost and repayment triggers, royalty burden, collateral and covenant effects, and resulting cash runway.
- Actual cash burn, committed versus optional government funding, and whether additional financing or spending reductions will be needed; substantial doubt about going concern was disclosed.
- FDA feedback and next steps for SPR720 following the clinical hold and animal toxicology findings.
- Commercial launch requirements and prospects, including pricing, reimbursement, market acceptance, competition, and the company’s ability to build or partner for commercialization.
- Potential dilution from equity issuance and the extent to which Pfizer and other collaborators deliver future milestone, royalty or development value.