Spero Therapeutics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparative period is Q1 2017. Filed May 10, 2018. Spero is a clinical-stage biopharmaceutical company developing treatments for drug-resistant bacterial infections. It had no approved products and generated no product-sale revenue; reported revenue was from government grants.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Grant revenue | $1.153 million | $0.140 million |
| Research and development expense | $8.925 million | $5.999 million |
| General and administrative expense | $3.044 million | $1.740 million |
| Total operating expenses | $11.969 million | $7.739 million |
| Operating loss | $10.816 million | $7.599 million |
| Net loss | $10.644 million | $6.411 million |
| Net loss per share, basic and diluted | $0.74 | $21.60 |
| Cash used in operating activities | $11.961 million | $6.979 million |
| Cash, cash equivalents and marketable securities | $75.393 million at March 31, 2018 | $87.288 million cash and equivalents at December 31, 2017; no marketable securities |
At March 31, cash and cash equivalents were $52.552 million and marketable securities were $22.841 million. Total assets were $81.059 million, total liabilities $6.161 million, and stockholders’ equity $74.898 million. The filing reports no conventional debt balance. Operating cash outflow increased year over year; a further $22.825 million was used to purchase marketable securities, so the $34.786 million decrease in cash and cash equivalents reflects both operating use and investment transfers. No product gross margin is applicable because there were no product sales.
Material changes versus Q1 2017
- Grant revenue rose by $1.013 million, largely reflecting NIAID and CARB-X funding in addition to DoD reimbursement.
- Operating expenses increased $4.230 million. R&D increased $2.926 million, including new SPR206 development spending and higher SPR994 clinical costs; G&A increased $1.304 million, primarily from increased headcount, share-based compensation and public-company costs.
- Net loss widened by $4.233 million. Q1 2017 included $1.199 million of income from a derivative-liability fair-value change that did not recur; 2018 included $0.172 million of interest and other income.
- Cash from financing was zero in Q1 2018, compared with $43.001 million of preferred-unit proceeds in Q1 2017. The company had raised $74.2 million net in its November 2017 IPO.
Outlook, programs and risks
- Management estimated that cash, cash equivalents and marketable securities would fund operating expenses and capital expenditures through late in Q2 2019, assuming development of SPR994 and SPR720 plus either SPR206 or SPR741. Management cautioned that the estimate depends on assumptions and that available funds would not fund SPR994 through its pivotal Phase 3 trial or the portfolio through approval and commercialization.
- SPR994 Phase 1 top-line data were expected in mid-2018. Subject to FDA feedback, the company planned to seek agreement on a Phase 3 cUTI protocol and initiate the pivotal trial around year-end 2018. It planned to use prior Japanese Phase 2 data to support this path; the FDA could require additional studies.
- SPR741 Phase 1b drug-interaction top-line data were expected in Q2 2018. The company planned to prioritize SPR741 versus SPR206 after reviewing trial and toxicology results, and might seek partners or other non-dilutive funding for the candidate deprioritized.
- SPR720 was being developed for pulmonary non-tuberculous mycobacterial infections; NIAID exercised a $0.4 million option in February 2018. CARB-X committed an additional $0.4 million for SPR741-related work, with no further options under that award.
- The company expected continuing losses and substantial financing needs. Risks include clinical-trial failure or delay, FDA requirements, dependence on third-party manufacturers and CROs, uncertain grant funding, competition, intellectual-property and licensing issues, and possible dilution or unfavorable financing terms. The company reported no material legal proceedings.
- Potential obligations include up to $7.230 million of future minimum operating lease payments and contingent license milestones and royalties; these amounts are not current debt. The IPO lock-up agreements expired April 30, 2018, potentially increasing share-sale supply.
Most important facts for investors to verify
- Actual SPR994 Phase 1 and SPR741 Phase 1b results, and whether FDA feedback supports the proposed SPR994 Phase 3 timing and design.
- Cash runway against actual quarterly operating cash use, and whether additional capital or partnerships will be needed before pivotal development.
- Which Potentiator candidate—SPR741 or SPR206—management prioritizes, and the implications for spending and external funding.
- Milestone, royalty, lease and other contractual commitments, plus any changes in grant availability or program scope.
- Share-count and ownership changes following the lock-up expiration; the filing reported 14,377,753 common shares outstanding as of May 7, 2018.