Spero Therapeutics, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unaudited consolidated results. Spero is a clinical-stage biopharmaceutical company developing treatments for drug-resistant bacterial infections. It has no approved products and has generated no product sales; reported revenue is from government grants.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Grant revenue | $0.658 | $0.597 | $2.274 | $0.986 |
| Research and development | $8.459 | $6.910 | $24.758 | $20.366 |
| General and administrative | $3.134 | $3.653 | $9.238 | $8.350 |
| Operating loss | $(10.935) | $(9.966) | $(31.722) | $(27.730) |
| Net loss | $(10.463) | $(9.844) | $(31.063) | $(26.018) |
| Net loss per common share, basic and diluted | $(0.60) | $(36.02) | $(2.01) | $(93.96) |
- Cash and investments: $131.2 million at September 30, 2018, comprising $40.5 million cash and equivalents and $90.7 million marketable securities. Total current assets were $133.7 million and current liabilities $10.3 million.
- Cash flow, nine months: $26.1 million used in operations, $90.4 million used in investing (mainly purchases of marketable securities), and $69.7 million provided by financing. Cash and equivalents declined $46.9 million to $40.5 million; the decline partly reflects investing cash reallocated into securities.
- Debt: The balance sheet reports no debt. Total liabilities were $10.6 million, primarily current operating liabilities and deferred rent.
- Margins: Product gross margins are not applicable because there are no product sales; grant revenue is recognized against qualifying expenses.
Changes versus prior comparable periods
- Q3 grant revenue rose $0.061 million, while operating expenses increased $1.030 million and net loss widened $0.619 million.
- For the first nine months, grant revenue increased $1.288 million, but operating expenses rose $5.280 million and net loss widened $5.045 million. R&D spending increased $4.392 million, reflecting advancing programs, staffing and facilities; G&A increased $0.888 million.
- Q3 R&D spending on SPR994 increased as the company prepared manufacturing and clinical-trial materials for a planned Phase 3 study. Potentiator Platform spending was lower year over year, primarily because the SPR741 Phase 1b interaction study had been completed; SPR206 preparation costs were increasing.
- Reported per-share losses are not directly comparable across years: the 2017 periods had a much smaller weighted-average common share count and included preferred-share dividends and accretion. In 2018, the July financing expanded the share base.
Outlook, developments and risks
- Management said existing cash, cash equivalents and marketable securities, together with initial committed BARDA funding, were expected to fund operations and capital needs into the second half of 2020, including through the planned SPR994 Phase 3 top-line readout. A separate going-concern assessment stated funding was expected to cover at least 12 months from issuance of the financial statements. These forecasts depend on assumptions and do not fund all candidates through approval and commercialization.
- The July 2018 BARDA award may provide up to $44.2 million for SPR994 development. The $15.7 million three-year base period is committed; two further tranches, totaling $28.5 million, depend on BARDA options and specified progress. DTRA support of up to $10.0 million would cover certain studies, not provide funds directly to Spero.
- After positive Phase 1 results in healthy volunteers, Spero planned to advance SPR994 at 600 mg three times daily into a pivotal cUTI Phase 3 trial around year-end 2018, subject to FDA discussions. This is a plan, not a completed regulatory agreement or trial start.
- The company planned a Phase 1 trial of SPR206 around year-end 2018 and a Phase 1 trial of SPR720 in early 2019, subject to regulatory progress. It intended to select a lead Potentiator Platform candidate after obtaining comparable clinical-stage data for SPR741 and SPR206.
- Key risks include clinical failure or delay, safety findings, FDA requirements, patient enrollment, reliance on third-party manufacturers and trial operators, competition and bacterial resistance, intellectual-property and licensing risks, and the need for further capital. Additional equity could dilute shareholders; government awards and BARDA option funding are conditional.
- Potential future license payments include clinical, regulatory and commercial milestones and royalties. The filing reports no material legal proceedings and no material subsequent events. Management reported effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether FDA discussions supported the planned SPR994 Phase 3 design, timing and dose, and whether the trial began as anticipated.
- How much BARDA funding is actually reimbursed, whether milestones are met, and whether BARDA exercises its additional options.
- Whether cash burn and development spending remain consistent with management’s runway assumptions, especially as multiple trials advance.
- Clinical safety and efficacy results for SPR994, SPR206 and SPR720, including whether preliminary findings translate into patient trials.
- Potential dilution from the 2.22 million common shares issuable upon conversion of Series A preferred stock, outstanding options, and any future financing.
- Material license obligations, including milestone and royalty terms, and the funding and commercialization arrangements for programs not supported by committed grants.