Business Context and Reporting Period
This unaudited Form 10-Q was filed by Aeglea BioTherapeutics, Inc. for the quarter and six months ended June 30, 2023. The filing predates the company’s subsequent rebranding as Spyre Therapeutics. During the quarter, Aeglea acquired Spyre’s assets and shifted from a legacy rare-disease biotechnology business to a preclinical inflammatory bowel disease platform focused on antibody therapeutics.
On June 22, 2023, the company acquired Spyre’s portfolio and related rights under the Paragon Agreement. The transaction was accounted for as an asset acquisition, with $130.5 million of acquired in-process research and development expensed because the assets had no alternative future use.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0.7 million, versus $0.6 million | $0.9 million, versus $2.0 million |
| Research and development expense | $17.4 million, versus $15.4 million | $31.2 million, versus $32.4 million |
| General and administrative expense | $12.1 million, versus $7.7 million | $17.3 million, versus $16.5 million |
| Acquired in-process R&D | $130.5 million | $130.5 million |
| Net loss | $217.1 million, versus $22.3 million | $235.5 million, versus $46.8 million |
| Net loss per share | $2.27 | $2.48 |
| Net cash used in operating activities | Not separately presented | $34.3 million, versus $46.9 million |
Operating loss was $159.2 million for the quarter and $178.1 million for the six-month period. Net margins and operating margins are not meaningful because revenue was minimal and results included the $130.5 million acquired IPR&D charge and a $58.2 million non-cash increase in the fair value of the forward contract liability.
- Cash and cash equivalents were $235.4 million at June 30, 2023, compared with $34.9 million at December 31, 2022.
- Cash, cash equivalents and restricted cash totaled $236.7 million at June 30, 2023.
- The company had no debt or credit facility disclosed.
- Current liabilities were $232.2 million, including a $164.4 million forward contract liability and a $10.5 million current CVR liability.
- Series A Preferred Stock was classified outside stockholders’ equity at $197.3 million and had a stated redemption value of approximately $325.0 million at June 30, 2023.
- Stockholders’ deficit was $207.4 million at June 30, 2023, versus equity of $50.3 million at year-end 2022.
- The company raised $210.0 million of gross proceeds in a June 2023 private placement of Series A Preferred Stock, receiving approximately $197.3 million net of offering costs.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased 10% to $0.7 million, but six-month revenue declined 55% to $0.9 million as legacy development activities wound down.
- Quarterly R&D expense increased 13%, primarily due to restructuring costs and $1.2 million of Paragon-related expenses, partially offset by lower toxicology and legacy development costs.
- Quarterly G&A expense increased 57%, primarily due to restructuring expenses.
- Net loss increased substantially due principally to the Spyre acquired IPR&D charge and the forward contract fair-value loss.
- Cash used in operations improved by $12.7 million year over year, while financing cash inflow increased substantially because of the Series A Preferred Stock private placement.
- The company reduced its workforce by approximately 83% in April 2023 after inconclusive interim results from the pegtarviliase Phase 1/2 trial and while exploring strategic alternatives.
- On June 30, 2023, the company abandoned its Austin facility and recorded $2.6 million of lease and leasehold-improvement impairment. It also recorded $6.4 million of severance and related cash restructuring charges and $1.0 million of non-cash accelerated stock compensation.
Guidance, Outlook, Risks and Unusual Items
Management describes the post-acquisition company as a preclinical-stage biotechnology business focused on inflammatory bowel disease. The company expects SPY001 to enter first-in-human studies in the first half of 2024 and SPY002 in the second half of 2024, subject to preclinical, manufacturing and regulatory requirements. SPY001’s option was exercised in July 2023; options for SPY002, SPY003 and SPY004 remained unexercised as of the filing.
- The company has no approved products, no product-sales revenue and has never achieved profitability. Management expects continued operating losses and increasing research and development spending.
- The company disclosed substantial doubt about its ability to continue as a going concern if stockholders do not approve conversion of the Series A Preferred Stock and holders require cash redemption.
- Each Series A Preferred share is generally convertible into 1,000 common shares following required stockholder approval, subject to beneficial ownership limitations. Failure to obtain approval could create a significant cash obligation.
- The company had $20.8 million of related-party accounts payable, including $20.5 million owed under the Paragon Agreement. Future Paragon obligations include research fees, reimbursable costs and potential development milestones.
- A non-transferable CVR was issued to legacy Aeglea stockholders. Its $29.5 million fair-value liability depends on uncertain proceeds from monetizing legacy assets and includes significant Level 3 valuation assumptions.
- On July 27, 2023, the company announced an agreement to sell global pegzilarginase rights to Immedica for $15.0 million upfront and up to $100.0 million in contingent milestones. Net proceeds are expected to be distributed to CVR holders.
- The company abandoned its Austin lease and subsequently agreed to pay a $2.0 million termination fee.
- Nasdaq granted an additional period through January 8, 2024 to regain compliance with the $1.00 minimum bid-price requirement. Management indicated that a reverse stock split may be used.
- Key operating risks include preclinical failure, uncertain translation of antibody half-life data from non-human primates to humans, regulatory delays, manufacturing dependence, competition in IBD, reliance on Paragon, intellectual-property risks and the need for additional capital.
Facts an Investor Should Verify
- Whether stockholders approved conversion of the Series A Preferred Stock and whether any redemption obligation arose.
- The post-quarter capitalization after issuance of the Spyre consideration shares, preferred shares and subsequent warrant exercises.
- Actual cash runway after incorporating Paragon payments, development spending, CVR-related obligations and the Austin lease termination fee.
- Terms and execution status of the SPY001 license agreement and the status of the remaining Paragon program options.
- Receipt and distribution of the $15.0 million Immedica upfront payment and the probability of contingent pegzilarginase milestones.
- Progress toward SPY001 and SPY002 IND-enabling work and first-in-human timelines.
- Nasdaq listing compliance, any reverse stock split and potential dilution from outstanding preferred stock, options and warrants.