Spero Therapeutics, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2020. Spero is a clinical-stage biopharmaceutical company developing treatments for drug-resistant bacterial infections and rare diseases. Its lead candidate is oral antibiotic tebipenem HBr; other programs include SPR720 and IV candidate SPR206. The company had no approved products and generated no product sales.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $1.7 million | $7.7 million; down $6.0 million |
| Research and development expense | $20.4 million | $9.5 million; up $10.9 million |
| General and administrative expense | $4.1 million | $3.9 million |
| Operating loss | $22.8 million | $5.7 million |
| Net loss | $23.3 million | $5.1 million |
| Net loss per share | $1.22 | $0.29 |
| Net cash used in operating activities | $23.3 million | $10.9 million |
Revenue comprised $1.5 million of grant revenue and $0.2 million of collaboration revenue. The company reported no product revenue; product margins are therefore not meaningful. Higher R&D spending principally reflected $11.6 million of additional tebipenem HBr costs, including its pivotal Phase 3 trial and manufacturing and formulation work. Lower grant and collaboration revenue also contributed to the larger loss.
At March 31, cash and cash equivalents were $64.4 million and marketable securities were $24.5 million, or $88.8 million combined. Current assets were $98.0 million and current liabilities $22.7 million. Total liabilities were $27.5 million, including $5.5 million of operating lease liabilities; no financial debt balance is reported. Accumulated deficit was $222.7 million. Cash provided by financing activities was $30.2 million, mainly from the rights offering; investing activities provided $27.8 million, primarily from securities maturities.
Material changes and business developments
- The March rights offering raised $30.0 million gross, approximately $29.5 million net, through common stock and Series C convertible preferred stock. Series C is convertible into common shares, creating potential dilution. Common shares outstanding were 20.3 million at quarter-end.
- After quarter-end, through April 30, the company sold 286,448 shares under its ATM program for approximately $2.8 million gross.
- Management said the lead tebipenem HBr Phase 3 ADAPT-PO trial completed enrollment of more than 1,370 subjects on May 5, 2020, with topline results anticipated in Q3 2020. This is a post-quarter-end update.
- SPR720 received FDA orphan drug designation in March. Management planned to submit an IND and begin a Phase 2a trial in NTM patients in the second half of 2020.
- Spero selected SPR206 as the lead Potentiator Platform candidate and discontinued SPR741 development effective January 1, 2020; associated SPR741 rights reverted to Northern Antibiotics.
Outlook, risks and contingencies
- Going concern and funding: Management disclosed substantial doubt about the company’s ability to continue as a going concern. It estimated available cash, securities and committed non-dilutive funding would support planned operations into Q1 2021, including a tebipenem HBr NDA filing, but not for more than one year beyond the filing date. Additional funding is required; no assurance was given it will be available on acceptable terms. Failure to raise capital could force program delays, reductions or termination.
- Spending outlook: R&D expense was expected to increase in 2020 versus 2019, reflecting the tebipenem trial and potential NDA preparation, planned SPR720 Phase 2a work, and staffing. Management also anticipated higher G&A costs over time.
- COVID-19: The company had moved employees to remote work and, based on its assessment at the time, did not expect a material effect on its development timeline or liquidity. It cautioned that the pandemic could disrupt trials, enrollment, vendors, manufacturing and regulatory processes, and could impair access to capital.
- Program and execution risks: Tebipenem HBr’s pivotal results, FDA review, manufacturing readiness and commercial prospects remain uncertain. The company relies on third-party manufacturers and trial operators, and on government awards, including BARDA funding. A further $12.7 million BARDA option remained subject to specified conditions.
- Other items: The filing reported no material legal proceedings and no off-balance-sheet arrangements. The company also disclosed approximately $4.3 million of future minimum payments for an office lease not yet commenced at quarter-end.
Most important facts for investors to verify
- Whether the expected Q3 2020 ADAPT-PO topline results and anticipated NDA timing were achieved, and how the results affect regulatory prospects.
- Current cash runway and financing needs, including subsequent ATM sales, available BARDA and other grant funding, and any change in the going-concern assessment.
- SPR720 Phase 2a and SPR206 development timelines, data and funding; confirm the implications of ending SPR741 development.
- Potential dilution from Series C preferred conversion, stock options and future equity financing.
- Actual effects of COVID-19 on clinical operations, supply chains, trial costs and access to capital.