Business context and reporting period
Spruce Biosciences, Inc. is a clinical-stage biopharmaceutical company developing tildacerfont, its sole product candidate, for rare endocrine disorders. This Form 10-Q covers the quarter and six months ended June 30, 2023; financial amounts below are in millions of dollars unless stated otherwise. The company had no approved products or product sales. Revenue was from its Japan collaboration with Kaken.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $2.2 | $0 | $4.1 | $0 |
| Research and development expense | $13.1 | $9.1 | $24.8 | $17.6 |
| General and administrative expense | $3.0 | $2.8 | $6.5 | $6.0 |
| Operating loss | $(14.0) | $(11.9) | $(27.2) | $(23.6) |
| Net loss | $(12.8) | $(11.9) | $(25.6) | $(23.6) |
| Basic and diluted loss per share | $(0.32) | $(0.51) | $(0.71) | $(1.01) |
- Six-month net cash used in operating activities was $9.8, versus $21.4 in 2022. The improvement included the $15.0 Kaken upfront payment; cash flow should not be read as a comparable reduction in underlying operating costs.
- Six-month investing cash flow was positive $32.5, mainly reflecting $44.4 of investment maturities less $11.9 of purchases. Financing cash flow was positive $50.1, primarily from the February private placement.
- At June 30, cash and cash equivalents were $97.5 and short-term investments were $23.0, totaling approximately $120.5. Total current assets were $124.1 and current liabilities $22.7.
- Term-loan principal outstanding was $4.2 (carrying value $4.1); the stated rate was 8.75%, with maturity in January 2026. Future principal and interest payments were estimated at $4.7. The company reported covenant compliance.
- Accumulated deficit was $174.9. Common shares outstanding increased to 40.7 million from 23.6 million at year-end 2022.
Material changes versus the prior comparable period
- Quarterly and six-month R&D expense increased by $4.1 and $7.3, respectively, mainly from advancing tildacerfont trials, higher personnel costs and manufacturing activity.
- Net loss increased by $1.0 for Q2 and $2.0 for the first half, despite new collaboration revenue and higher interest income. Interest and other income rose as investment yields increased.
- Cash, cash equivalents and investments rose from $79.1 at December 31, 2022 to $120.5 at June 30, 2023. Key sources included the private placement and Kaken payment.
- The February 2023 private placement generated $53.6 gross proceeds and included 16.1 million common shares and warrants for 12.687 million additional shares at a $3.96 exercise price. All 0.8 million pre-funded warrants were exercised during Q2.
Outlook, management commentary and risks
- Management said available cash, cash equivalents and investments were expected to fund planned operations and debt obligations for at least 12 months after the financial statements’ issuance; it also projected funding into the first half of 2025 under its current operating plan. These estimates depend on assumptions, and additional financing will be needed to execute longer-term plans.
- CAHmelia-203, a Phase 2b adult classic CAH trial, had exceeded 75% enrollment; topline results were anticipated in the second half of 2023. CAHmelia-204, focused on glucocorticoid reduction, was approaching 75% enrollment, with topline results anticipated in the second half of 2024.
- The pediatric CAH trial CAHptain had fully enrolled Cohort 1, with Cohort 2 nearly complete and Cohort 3 screening underway. Adolescent topline data were anticipated in the second half of 2023.
- In August 2023, after quarter-end, the company reported preliminary interim POWER trial data from 20 of 27 participants. It said the data supported target engagement and suggested DHEAS reduction; treatment was described as well tolerated, with no serious adverse reactions, dose toxicities or evidence of adrenal insufficiency. These interim findings are preliminary and subject to further review.
- The January 2023 Kaken agreement licenses tildacerfont for CAH in Japan. Kaken paid $15.0 upfront; Spruce may receive up to approximately $65.0 in contingent milestones plus sales-based royalties or product purchase payments. The upfront is recognized over an estimated two-year performance period, contributing to deferred revenue of $10.9 at June 30.
- Important risks include dependence on a single clinical candidate; uncertain trial efficacy, enrollment and regulatory requirements; the possibility regulators require additional trials, including Phase 3; reliance on third-party clinical and manufacturing providers; and the need for additional capital, which may dilute shareholders or be unavailable on acceptable terms. The term loan is secured by substantially all assets other than intellectual property.
- Management cited macroeconomic and geopolitical uncertainty, including inflation, the Russia-Ukraine conflict and potential banking disruptions. Spruce reported no material legal proceedings and said disclosure controls were effective; no material changes in internal control over financial reporting were reported for the quarter.
Important facts for investors to verify
- Whether CAHmelia-203 results and pediatric trial data were ultimately reported on schedule, and whether outcomes support further development or regulatory discussions.
- How regulators assess the Phase 2b data and safety database, including whether additional or Phase 3 trials are required.
- Actual cash use, trial spending and runway versus management’s projections, including the assumptions behind funding into the first half of 2025.
- Potential dilution from the 12.687 million outstanding standard warrants, equity plans, and any further financing.
- Progress and terms of Kaken’s development obligations, as well as the timing and conditions of any future milestone or royalty receipts.