Spero Therapeutics(US:SPRO)2022-05-16 20:03PART I – FINANCIAL INFORMATION This section details the unaudited financial statements, key notes, management's discussion, and market risk disclosures for the quarter ended March 31, 2022 Financial Statements (Unaudited) This chapter presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2022, including balance sheet, statements of operations, and cash flows, with key accompanying notes Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $72,111 | $112,584 | | Total current assets | $132,704 | $157,872 | | Total assets | $145,830 | $171,072 | | Liability related to the sale of future royalties, current | $50,902 | $0 | | Total current liabilities | $69,199 | $18,670 | | Total liabilities | $83,357 | $82,783 | | Total stockholders' equity | $62,473 | $88,289 | Condensed Consolidated Statements of Operations (in thousands) | Account | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Total revenues | $2,069 | $7,300 | | Research and development | $16,971 | $18,404 | | General and administrative | $15,305 | $8,299 | | Loss from operations | $(30,207) | $(19,403) | | Net loss | $(32,829) | $(19,423) | | Net loss per share, basic and diluted | $(1.01) | $(0.66) | Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(28,223) | $(15,479) | | Net cash (used in) provided by investing activities | $(16,064) | $3,003 | | Net cash provided by financing activities | $3,814 | $4,309 | | Net decrease in cash and cash equivalents | $(40,473) | $(8,167) | Key Notes to Financial Statements - The company's product pipeline includes tebipenem HBr for complicated urinary tract infections (cUTIs), SPR720 for non-tuberculous mycobacterial (NTM) infections, and SPR206 for multi-drug resistant (MDR) Gram-negative infections29 - The company entered into a Revenue Interest Agreement with HealthCare Royalty Management (HCR), receiving $50.0 million upfront, with a requirement to repay the $50.0 million plus interest at a 13.5% annual rate if tebipenem HBr is not approved by the FDA by December 31, 2022, which is accounted for as debt138140 - The liability related to the sale of future royalties to HCR stood at $50.9 million as of March 31, 2022, with an effective interest rate of 20.8%143145 - The company has various government contracts, including a BARDA award for tebipenem HBr development, which was increased by $12.9 million in January 2022 to a total committed funding of approximately $46.9 million102 - On May 3, 2022, following FDA feedback, the company suspended commercialization activities for tebipenem HBr, initiated a restructuring, and reduced its workforce by approximately 75% to focus on its SPR720 and SPR206 programs31149150 - Management has determined that there is substantial doubt regarding the company's ability to continue as a going concern within one year, citing recurring losses and uncertainty surrounding the approval of tebipenem HBr34154290 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic restructuring, financial performance for Q1 2022, and liquidity, highlighting the going concern uncertainty and future funding outlook - The company announced a strategic restructuring on May 3, 2022, to reduce costs and reallocate resources to its clinical programs for SPR720 and SPR206, while continuing dialogue with the FDA on a path forward for tebipenem HBr159160 - Existing cash, cash equivalents, and marketable securities of $122.0 million as of March 31, 2022, are expected to fund the restructured operating plan through late 2023, though this projection is subject to uncertainty and assumes the repayment of the HCR debt154204 Comparison of Operating Results (in thousands) | Line Item | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,069 | $7,300 | $(5,231) | | R&D Expenses | $16,971 | $18,404 | $(1,433) | | G&A Expenses | $15,305 | $8,299 | $7,006 | | Loss from Operations | $(30,207) | $(19,403) | $(10,804) | | Net Loss | $(32,829) | $(19,423) | $(13,406) | - The decrease in grant revenue was primarily due to a $5.6 million reduction in qualified expenses under the BARDA contract for tebipenem HBr as related activities concluded181 - General and Administrative expenses increased by $7.0 million year-over-year, mainly due to higher personnel costs and professional fees to support the potential commercialization of tebipenem HBr prior to the decision to suspend these activities188189 Quantitative and Qualitative Disclosures About Market Risk This section details the company's primary market risk exposures, focusing on interest rate sensitivity and foreign currency fluctuations affecting its financial instruments - As of March 31, 2022, the company held $122.0 million in cash, cash equivalents, and marketable securities213 - The primary market risk is interest rate sensitivity, where a 50 basis point increase in rates would hypothetically decrease the portfolio's fair value by $0.1 million213 PART II – OTHER INFORMATION This section outlines various other information, including significant risk factors impacting the company's operations, financial position, and future prospects Risk Factors This chapter details significant risks related to product development, financial position, dependence on third parties, government contracts, and regulatory compliance Risks Related to Product Development and Commercialization - The company has suspended commercialization efforts for tebipenem HBr based on FDA feedback suggesting the data package may be insufficient for approval during the current review cycle, making the timing and terms of any potential approval uncertain219220221 - The strategic shift to focus on earlier-stage programs, SPR720 and SPR206, carries significant risk, as clinical trials may fail to produce favorable results, encounter delays, or ultimately not lead to commercial products219222 - The company faces substantial competition for tebipenem HBr from established oral therapies like Levaquin and Cipro, as well as other product candidates in development255256 Risks Related to Financial Position and Need for Additional Capital - The Revenue Interest Agreement with HCR requires repayment of the $50.0 million initial investment plus 13.5% annual interest if tebipenem HBr does not receive FDA approval for cUTI by December 31, 2022284 - The company has a history of losses and its auditor's report expresses substantial doubt about its ability to continue as a going concern, indicating additional funding will be necessary but may not be available on acceptable terms289290295 - The company's ability to use its $303.7 million in federal net operating loss (NOL) carryforwards may be limited by Section 382 ownership change rules303 Risks Related to Dependence on Third Parties and Government Contracts - The company relies entirely on third-party contract research organizations (CROs) to conduct all nonclinical studies and clinical trials, limiting control over these critical activities318 - Manufacturing of all product candidates is outsourced to a small number of third-party contract manufacturers (CMOs), primarily in Asia, creating supply chain, quality control, and geopolitical risks323324325 - Government contracts, such as the BARDA award, are subject to unilateral termination or modification by the government and may grant the government 'march-in' rights to intellectual property developed with federal funds336341348 Risks Related to Regulatory and Legal Compliance - The company must navigate a complex, lengthy, and unpredictable regulatory approval process with the FDA and foreign authorities, where failure to obtain approval will prevent commercialization369371 - Special designations like Fast Track (for tebipenem HBr and SPR720) and Priority Review (for tebipenem HBr) do not guarantee or necessarily lead to a faster approval process378379 - Even if approved, products will be subject to extensive ongoing regulatory requirements, including for manufacturing (cGMPs), labeling, promotion, and potentially costly post-marketing studies or Risk Evaluation and Mitigation Strategies (REMS)387388