Spyre Therapeutics, Inc. quarterly report, Q2 FY2018

Filing Overview

Important identity note: The supplied Form 10-Q is for Aeglea BioTherapeutics, Inc., not Spyre Therapeutics, Inc. It covers the quarter and six months ended June 30, 2018, and was filed August 9, 2018. The interim financial statements are unaudited.

Business Context and Reporting Period

Aeglea was a clinical-stage biotechnology company developing engineered human enzyme therapeutics for rare genetic diseases and cancer. Its lead candidate was pegzilarginase, being evaluated for Arginase 1 Deficiency, advanced solid tumors, and in combination with pembrolizumab for small cell lung cancer. The company had no approved products and no product revenue.

Key Financial Metrics

Metric	Three Months Ended June 30, 2018	Six Months Ended June 30, 2018
Grant revenue	$2.4 million	$3.9 million
Research and development expense	$9.1 million	$16.0 million
General and administrative expense	$2.9 million	$5.8 million
Loss from operations	$(9.7) million	$(17.9) million
Net loss	$(9.4) million	$(17.5) million
Net loss per share	$(0.46)	$(0.94)
Operating cash flow	Not separately provided	$(16.5) million

Derived margins remained deeply negative: six-month operating margin was approximately (461%) and net margin approximately (451%), based on grant revenue only. The company had no product sales and had incurred losses in every year since inception.

Cash and cash equivalents at June 30, 2018: $20.6 million.
Marketable securities: $51.6 million; total cash, cash equivalents and marketable securities: $72.2 million.
Working capital: $72.7 million; accumulated deficit: $90.0 million.
Total liabilities: $6.3 million, primarily current liabilities of $6.2 million.
Debt: None; the company reported no debt, credit facility or other committed capital.
Common shares outstanding at June 30, 2018: 21.9 million; shares outstanding as of August 3, 2018: 22.0 million.

Material Changes Versus Prior Comparable Period

Second-quarter grant revenue increased 61% to $2.4 million; six-month grant revenue increased 58% to $3.9 million.
Second-quarter research and development expense increased 56% to $9.1 million; six-month R&D expense increased 48% to $16.0 million, primarily because of expanded clinical activity, personnel and nonclinical work.
General and administrative expense increased 24% in the quarter and 23% year to date, reflecting increased headcount and public-company costs. Stock-based compensation was $1.0 million in the quarter and $1.8 million year to date, versus $0.7 million and $1.1 million, respectively.
Net loss increased 42% in the quarter to $9.4 million and 36% year to date to $17.5 million.
Operating cash use increased from $11.4 million to $16.5 million for the six months, while financing cash inflows increased from $11.6 million to $38.8 million.
In April 2018, Aeglea issued 5.05 million common shares in a public offering for gross proceeds of $40.4 million and net proceeds of approximately $37.7 million, creating substantial dilution but strengthening liquidity.

Cash Flow, Liquidity and Outlook

Six-month cash flows were $(16.5) million from operating activities, $(14.5) million from investing activities and $38.8 million from financing activities, producing a $7.8 million increase in cash and cash equivalents.
The CPRIT research grant, with a maximum award of $19.8 million, covered June 2014 through May 31, 2018. Aeglea had submitted the full grant amount for reimbursement and reported a $4.3 million grant receivable at June 30, 2018. No future grant revenue was expected under the contract.
Management believed existing cash, cash equivalents and marketable securities were sufficient to fund operations through approximately mid-2020, based on current plans. This estimate was subject to significant uncertainty.
The company expected operating losses and R&D spending to increase as it advanced pegzilarginase, expanded its pipeline, pursued clinical and manufacturing activities, and operated as a public company.
Additional financing would be required to execute all planned development activities. Future equity financing could dilute existing holders, while debt, collaborations or licenses could impose restrictive terms or require relinquishing rights.

Clinical, Management and Other Unusual Items

Aeglea reported initial data suggesting clinically relevant improvements in two Arginase 1 Deficiency patients after eight weeks of pegzilarginase dosing, including six-minute walk test improvements of 31.4% and 23.4%. The filing cautioned that the data were early, based on limited patients, and may not predict later results.
The company initiated or expanded clinical cohorts in small cell lung cancer, uveal melanoma and cutaneous melanoma, and expected to initiate Phase 2 combination testing with pembrolizumab in the fourth quarter of 2018.
Management expected to report additional Arginase 1 Deficiency data at medical conferences in September and October 2018 and Phase 1 combination-trial safety and clinical-activity data in the fourth quarter of 2018.
Reported safety risks included serious adverse events in oncology studies, including events considered possibly or probably related to pegzilarginase, and an infusion-associated reaction involving facial flushing, facial swelling and throat tightness attributed to anti-drug antibodies to the PEG component.
Clinical development for acute myeloid leukemia and myelodysplastic syndrome had been discontinued in December 2017 because of insufficient evidence of clinical benefit.
In July 2018, Anthony G. Quinn became President and Chief Executive Officer, and Bryan Lawlis joined the Board of Directors.
The company had potential University of Texas license milestone obligations of up to $6.4 million, including significant payments tied to regulatory approvals, plus royalties and sublicense revenue sharing.
Disclosure controls and procedures were reported effective at the reasonable assurance level, and management reported no material changes in internal control over financial reporting during the quarter.

Principal Risks and Contingencies

The company had no product revenue, no approved products and a limited operating history; profitability might never be achieved.
Clinical trials could fail, be delayed, face enrollment difficulties or reveal additional safety issues. Early efficacy observations were not necessarily predictive of pivotal-trial or regulatory outcomes.
The company relied on third parties for clinical research, manufacturing, drug supply, distribution and potential companion diagnostics.
Regulatory approval, reimbursement, manufacturing scale-up, intellectual property protection and market acceptance remained uncertain.
Collection of the $4.3 million CPRIT receivable was considered reasonably assured by management but was not guaranteed.
The filing identified no material pending legal proceedings, but disclosed ordinary-course contractual, license, product liability, regulatory, intellectual property and environmental risks.

Investor Verification Checklist

Confirm that the filing belongs to Aeglea BioTherapeutics rather than Spyre Therapeutics and verify the intended issuer and period.
Verify the status and collectability of the $4.3 million CPRIT grant receivable after the grant period ended.
Reconcile the company’s stated mid-2020 cash runway with subsequent operating cash burn, clinical spending and financing activity.
Review subsequent clinical data for pegzilarginase, including efficacy, immunogenicity, serious adverse events and regulatory feedback.
Assess dilution from the April 2018 offering, outstanding options, the $20 million at-the-market facility and any later equity issuance.
Review license milestone, royalty and sublicense obligations to the University of Texas and the company’s ability to fund potential payments.