Sutro Biopharma, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Sutro is a clinical-stage oncology company developing antibody-drug conjugates and other therapeutics using its XpressCF and XpressCF+ platforms. It has no products approved for commercial sale; revenue is from collaborations, licenses, manufacturing, supply and services.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $28.1 million | $28.0 million | $34.0 million | $42.7 million |
| Research and development expense | $32.3 million | $25.3 million | $62.3 million | $47.9 million |
| General and administrative expense | $15.1 million | $12.5 million | $30.2 million | $23.7 million |
| Operating loss | $19.4 million | $9.8 million | $58.5 million | $28.8 million |
| Net loss | $26.0 million | $6.2 million | $65.1 million | $36.5 million |
| Basic and diluted loss per share | $0.55 | $0.13 | $1.39 | $0.79 |
There is no commercial-product gross margin to report. For the six months, operating expenses rose 29% while revenue fell 20%. Research and development increases reflected higher headcount, outside services, manufacturing, supplies and clinical activity; general and administrative costs also rose, principally with personnel and external services.
At June 30, cash and cash equivalents were $79.1 million and marketable securities were $112.5 million, or $191.6 million combined. Sutro also held $34.0 million of Vaxcyte stock, which is separate from the cash and marketable-securities total. Accounts receivable was $97.7 million, including the $90.0 million Astellas upfront payment; deferred revenue was $96.5 million. Total assets were $385.6 million and stockholders’ equity was $209.1 million. Debt was $22.3 million, including $12.5 million current; debt bears floating interest and matures March 1, 2024. The company was compliant with a new $10.0 million minimum-unrestricted-cash covenant.
Operating cash use was $38.4 million for the six months, compared with $35.7 million a year earlier. Investing activities provided $80.9 million, primarily from marketable-security maturities and sales; financing provided $6.2 million, including $8.6 million net ATM proceeds, partly offset by $3.1 million of debt repayment. Sutro reported an accumulated deficit of $398.5 million. Management believes available cash, cash equivalents and marketable securities will fund operations for at least 12 months after the filing date, but says additional capital will be needed.
Material changes and unusual items
- Q2 revenue included a $25.0 million Tasly upfront license payment for STRO-002 in Greater China. The amended agreement also provides for a $15.0 million payment to be placed in escrow in the second half of 2022, payable upon specified regulatory milestones, and potential additional development, regulatory and commercial milestone payments.
- Six-month revenue declined mainly because Merck revenue was $30.6 million lower than in 2021, when significant contingent and cumulative-catch-up revenue was recognized. Tasly’s $25.0 million payment partly offset the decrease.
- In June, Sutro entered an Astellas collaboration covering up to three immunostimulatory ADC targets, with a $90.0 million upfront payment. The amount was recorded as deferred revenue; no Astellas revenue was recognized in the quarter or six-month period.
- The Vaxcyte equity investment generated an unrealized loss of $3.7 million in Q2 and $3.2 million in the first half. The Q2 net loss also included a $2.5 million China withholding-tax charge on the Tasly payment.
- Sutro sold 1.72 million shares through its ATM facility in Q2 for approximately $8.2 million net. From July 1 through August 5, it sold a further 3.52 million shares for $19.9 million net.
- After quarter-end, the first patient was dosed in a Phase 1 study of a Merck-collaboration cytokine derivative; Sutro said this triggered a $10.0 million Merck payment.
Outlook, commentary and risks
Management expects substantial future losses and rising operating expenses as it advances its pipeline, clinical programs and manufacturing capabilities. No specific earnings or revenue guidance was provided. Sutro said COVID-19-related material shortages and higher costs have affected manufacturing and development activities; clinical enrollment and treatment were generally on track, although delays remain possible. Key risks include clinical and regulatory uncertainty for early-stage candidates, dependence on collaborators and milestone payments, manufacturing and supply constraints, the need for additional financing, potential dilution, and volatility in the Vaxcyte holding. STRO-002 was in Phase 1 dose expansion, and STRO-001 was in Phase 1 dose escalation; the company had discussed a potential registration-directed STRO-002 trial with the FDA but stated that accelerated approval is not assured. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. No material legal proceedings were reported.
Important facts for investors to verify
- Receipt and timing of the Astellas $90.0 million upfront payment, its revenue recognition, and the collaboration’s termination provisions.
- Whether Tasly places the $15.0 million in escrow and whether specified milestones are achieved; also monitor payment collection and any further agreement changes.
- Clinical progress, safety and efficacy data for STRO-001 and STRO-002, and the FDA’s response to proposed STRO-002 trial plans.
- Cash runway assumptions, operating cash use, future financing needs and dilution from ATM or other equity sales.
- Manufacturing input availability and any resulting clinical, supply or development delays, including COVID-19-related disruptions.
- Revenue dependence on collaboration partners and the potential volatility of the Vaxcyte investment.