Spero Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited. Spero is a clinical-stage biopharmaceutical company with no approved products and no product-sale revenue.
Business context and key developments
- Programs include SPR720 for nontuberculous mycobacterial pulmonary disease, SPR206 for multidrug-resistant Gram-negative infections, and tebipenem HBr for complicated urinary tract infections (cUTI).
- The FDA had issued a Complete Response Letter for tebipenem HBr. Following an August Type A meeting, FDA indicated that one additional positive Phase 3 trial, supported by confirmatory nonclinical evidence, could potentially support approval for a limited-use cUTI indication.
- After quarter-end, on November 7, 2022, the GSK license transaction closed. Spero became entitled to a $66 million upfront payment and received $9 million from GSK affiliate Glaxo Group Limited for 7.45 million shares. GSK may also pay up to $525 million in development, commercial and sales milestones, plus tiered royalties. Spero is responsible for the follow-up U.S. Phase 3 trial and its clinical supply costs.
Financial results and liquidity
Amounts below are in millions, except per-share data.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $2.0 | $3.1 | $6.1 | $15.5 |
| Research and development | $7.4 | $14.4 | $32.5 | $47.3 |
| General and administrative | $6.6 | $11.2 | $30.0 | $28.7 |
| Restructuring expense (credit) | $(0.2) | — | $11.7 | — |
| Operating loss | $(11.8) | $(22.5) | $(68.1) | $(60.5) |
| Net loss | $(11.7) | $(22.5) | $(73.2) | $(60.5) |
| Net loss per share, basic and diluted | $(0.33) | $(0.70) | $(2.16) | $(1.99) |
| Cash used in operating activities | — | — | $(52.2) | $(37.0) |
- Revenue came from grants and collaborations, not product sales. Nine-month grant revenue declined $8.9 million, primarily due to lower reimbursable tebipenem and DoD-funded activity.
- At September 30, cash and cash equivalents were $50.4 million, with no marketable securities; total current assets were $52.9 million and current liabilities $16.2 million. Total assets were $64.5 million and stockholders’ equity $32.5 million.
- The company had no remaining balance on its HCR royalty-financing liability at quarter-end. It paid $54.5 million to terminate the agreement and recorded $2.6 million of related interest expense and a $3.6 million extinguishment loss during the nine-month period. A $0.1 million change-of-control derivative liability remained, expiring December 31, 2022.
- The nine-month net loss increased $12.7 million year over year despite lower operating expenses, mainly reflecting lower revenue and the royalty-financing interest and extinguishment charges. Q3 net loss narrowed from the prior year as operating expenses fell.
- After quarter-end, Spero sold another 1.57 million shares through its at-the-market program for approximately $3.2 million gross proceeds through November 10. The November 10 share count was 51.8 million, including post-quarter issuance.
Changes, outlook and material items
- May 2022 restructuring reduced headcount from 146 to 41 employees. Nine-month restructuring charges were $11.7 million, largely severance ($8.6 million), contract and other discontinuation costs ($2.5 million), and lease impairment ($0.6 million). Approximately $1.0 million remained accrued at September 30.
- Management expected the GSK upfront payment, the $9 million equity investment, existing resources and other non-dilutive funding to cover operating and capital needs for at least 12 months from filing issuance. Including GSK Phase 3 delivery milestones, management estimated runway beyond 2024; these expectations depend on planned activities and milestone receipts. Additional funding will be needed beyond that point.
- SPR720 Phase 2 was expected to begin screening and dosing in Q4 2022, with top-line results expected in the first half of 2024; the company no longer planned a 2023 interim readout. The trial was expected to enroll up to 35 patients and assess sputum bacterial-load change over 56 days.
- Spero expected to initiate a Phase 2 SPR206 trial in Q3 2023 in patients with multidrug-resistant pathogens. Pfizer paid a $5 million SPR206 regulatory milestone in Q3; $0.9 million was recognized as revenue in the quarter and the balance allocated to future services.
- BARDA committed approximately $46.9 million for tebipenem development, with potential total BARDA/DTRA support of up to $69.7 million subject to conditions. BARDA reprogrammed remaining pediatric-trial funding to cUTI trials, including pyelonephritis.
- There is no meaningful product gross margin to report because Spero has no product sales. Management expects operating expenses to be lower following restructuring and the cessation of tebipenem commercialization activities, while continuing to invest in SPR720 and SPR206.
Risks and contingencies
- Product development and approval remain uncertain: tebipenem requires another Phase 3 trial and confirmatory nonclinical evidence; SPR720 and SPR206 remain investigational and subject to clinical, regulatory, safety, enrollment, manufacturing and funding risks.
- Two consolidated putative securities class actions against Spero and certain officers allege misleading statements concerning tebipenem’s NDA. Spero denies wrongdoing and intends to defend the cases; it could not estimate a possible loss range.
- Management reported substantial doubt about going concern in the 2021 auditor’s report. For this quarter, management stated that resources including post-quarter GSK proceeds support at least 12 months, but funding beyond the stated runway is not assured. Failure to secure funds could force delays, reductions or termination of programs.
- Other material risks include reliance on a small number of third-party manufacturers and suppliers, potential clinical or regulatory setbacks, competition, COVID-19-related disruption, litigation costs, and dilution from equity financing. Nasdaq notified Spero of a bid-price deficiency in August 2022; the company reported regaining compliance in October 2022.
Key facts for investors to verify
- Receipt and permitted use of the GSK $66 million upfront payment, and the timing and conditions for Phase 3 milestone payments that underpin management’s runway estimate.
- Final FDA-agreed tebipenem Phase 3 protocol, trial funding and execution, and whether results and supporting evidence meet FDA requirements.
- SPR720 Phase 2 enrollment and timing, and progress toward the planned SPR206 Phase 2 start.
- Cash burn after the GSK closing, restructuring savings, remaining restructuring and retention obligations, and any additional financing or share issuance.
- Developments in the consolidated securities litigation, including potential costs or outcomes not estimable at filing.