SPRUCE BIOSCIENCES, INC. You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited condensed financial
statements and the related notes to those statements included elsewhere in this
Quarterly Report on Form 10-Q and our audited financial statements and notes
thereto and the related Management's Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K
for the year ended
Forward-Looking Statements
In addition to historical financial information, this Quarterly Report on Form 10Q contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "should," "will" or the negative of these terms or other similar expressions.
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a late-stage biopharmaceutical company focused on developing and commercializing novel therapies for rare endocrine disorders with significant unmet medical need. We are initially developing our wholly-owned product candidate, tildacerfont, as the potential first non-steroidal therapy to offer markedly improved disease control and reduce steroid burden for patients suffering from congenital adrenal hyperplasia, or CAH. Classic CAH is a serious and life-threatening disease with no known novel therapies approved in approximately 50 years. In a 12-week Phase 2a proof-of-concept clinical trial, tildacerfont-treated adult patients suffering from classic CAH who had elevated adrenal hormones at baseline despite being on standard of care therapy achieved approximately 80% reductions in hormones that are key indicators of elevated adrenal hormones at baseline. Furthermore, over 200 subjects across eight completed clinical trials to date have been administered tildacerfont with no drug-related serious adverse events, or SAEs, reported.
We have initiated CAHmelia-203, a placebo-controlled, double-blind Phase 2b
clinical trial in adult patients with classic CAH with elevated adrenal hormones
at baseline and anticipate topline results in the second half of 2023. We have
also initiated CAHmelia-204, a second Phase 2b clinical trial in adult patients
with classic CAH with elevated daily glucocorticoids at baseline focused on
glucocorticoid reduction and anticipate topline results in the second half of
2024. Based on post-hoc analyses of our clinical data to date, we have chosen to
target two distinct groups of classic CAH patients with either elevated daily
glucocorticoids at baseline or elevated adrenal hormones at baseline. These two
groups, which together make up the entire classic CAH patient population, have
differing disease challenges centered on excessive adrenal androgen levels or
excessive glucocorticoid usage, both of which have the potential to be addressed
by treatment with tildacerfont, if approved. We believe our strategy to study
CAH patients in these two enriched sub-populations may enable us to observe
clinically meaningful outcomes. Additionally, we believe these two clinical
trials will provide sufficient patient exposures for our registrational safety
database, which are designed to potentially support registration in
We are also investigating tildacerfont for the treatment of classic CAH in
children. We believe there is a significant medical need to provide
androgen-lowering and glucocorticoid-sparing therapies to pediatric classic CAH
patients to reduce the risk of premature puberty and the adverse effects of
glucocorticoids, including growth inhibition and short-stature as adults. We
have initiated a Phase 2 open-label clinical trial, which will utilize a
sequential three cohort design, to evaluate the safety and pharmacokinetics of
tildacerfont in children six to 17 years of age with classic CAH. We anticipate
topline safety results from cohort 1 of the Phase 2 open-label clinical trial in
the first half of 2023. We have also submitted a pediatric investigational plan,
or PIP, to the Pediatric Committee, or PDCO, of the
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Beyond classic CAH, we believe tildacerfont has potential utility in polycystic
ovary syndrome, or PCOS, and in a range of diseases where the underlying biology
supports a need to reduce excess secretion of or hyperresponsiveness to
adrenocorticotropic hormone, or ACTH. PCOS is a hormonal disorder common among
females of reproductive age affecting nearly five million females in
Since our inception in
We rely, and expect to continue to rely, on third parties for the manufacture of tildacerfont for preclinical studies and clinical trials, as well as for commercial manufacture if tildacerfont obtains marketing approval. We also rely, and expect to continue to rely, on third parties to package, label, store, and distribute tildacerfont, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of tildacerfont.
Since inception, we have incurred significant losses and negative cash flows
from operations. During the nine months ended
In
We believe, based on our current operating plan, that our cash, cash equivalents
and short-term investments as of
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advance tildacerfont through our ongoing Phase 2b clinical trials in adult patients with classic CAH;
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advance clinical development of tildacerfont in additional indications, including pediatric classic CAH and a subpopulation of females with PCOS;
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pursue regulatory approvals of tildacerfont in patients with classic CAH and a subpopulation of females with PCOS;
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build a highly specialized commercial organization to support the
commercialization of tildacerfont, if approved, in
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build a commercial infrastructure or opportunistically seek strategic collaborations to benefit from the resources of biopharmaceutical companies specialized in either relevant disease areas or geographies, if tildacerfont is approved for additional indications;
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identify additional indications and formulations for which to investigate tildacerfont in the future and expand our pipeline of product candidates;
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implement operational, financial, and management information systems;
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hire additional personnel; and
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obtain, maintain, expand, and protect our intellectual property portfolio.
Our business has been and could continue to be adversely affected by the
evolving COVID-19 pandemic. For example, the COVID-19 pandemic has resulted in
and could result in delays to our clinical trials for numerous reasons including
additional delays or difficulties in enrolling patients, diversion of healthcare
resources away from the conduct of clinical trials, interruption or delays in
the operations of the FDA or other regulatory authorities, and delays in
clinical sites receiving the supplies and materials to conduct our clinical
trials. While vaccines have become widely available in certain countries, and
businesses and economies have reopened, the status of global economic recovery
remains uncertain and unpredictable and will continue to be impacted by
developments in the pandemic including any subsequent waves of outbreak or new
variant strains of the COVID-19 virus which may require re-closures or other
preventative measures. At this time, the extent to which the COVID-19 pandemic
impacts our business will depend on future developments, which are highly
uncertain and cannot be predicted. In addition to the ongoing COVID-19 pandemic,
global economic and business activities continue to face widespread
macroeconomic uncertainties, including labor shortages, inflation and monetary
supply shifts, recession risks and potential disruptions from the
Material Agreements
License Agreement with Eli Lilly and Company
In
As partial consideration for the rights granted to us under the License
Agreement, we made a one-time upfront payment to Lilly of
Loan Agreement
In
In
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tranche (First Tranche) and
In
As of
The Loan Agreement provides for monthly cash interest-only payments following
the funding date of each respective tranche and continuing thereafter through
The final payment is due on the maturity date and includes all outstanding principal plus accrued unpaid interest and an end of term payment totaling (x) 6.0% of the original funded principal amount of the First Tranche, and (y) 4.0% of the original funded principal amount under the Second Tranche if we borrow under the Second Tranche (the Supplemental Final Payment). We may prepay amounts outstanding under the Term Loan at any time provided certain notification conditions are met, in which case, all outstanding principal plus accrued and unpaid interest, the Supplemental Final Payment, a prepayment fee of 1% or 2% of the principal amount of the First and Second Tranches, and any bank expenses become due and payable.
We are subject to customary affirmative and restrictive covenants under the Loan
Agreement. Our obligations under the Loan Agreement are secured by a first
priority security interest in substantially all of our current and future
assets, other than intellectual property. We also agreed not to encumber our
intellectual property assets, except as permitted by the Loan Agreement.
Further, in the event that the Second Tranche becomes available and we obtain an
advance thereunder, we will be required to comply with a liquidity covenant of
at least
The Loan Agreement also contains customary indemnification obligations and
customary events of default, including, among other things, our failure to
fulfill certain obligations under the Loan Agreement and the occurrence of a
material adverse change in our business, operations, or condition (financial or
otherwise), a material impairment of the prospect of repayment of any portion of
the loan, or a material impairment in the perfection or priority of lender's
lien in the collateral or in the value of such collateral. In the event of
default by us under the Loan Agreement, the lender would be entitled to exercise
their remedies thereunder, including the right to accelerate the debt, upon
which we may be required to repay all amounts then outstanding under the Loan
Agreement. As of
Components of Results of Operations
Operating Expenses
We classify operating expenses into two main categories: (i) research and development expenses and (ii) general and administrative expenses.
Research and Development Expenses
Our research and development expenses consist of external and internal expenses incurred in connection with our research activities and development programs.
These expenses include:
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external expenses, consisting of:
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clinical development-expenses associated with clinical research organizations, or CROs, engaged to manage and conduct clinical trials and other outside services;
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preclinical studies-expenses associated with preclinical studies performed by vendors;
o
manufacturing-expenses associated with contract manufacturing; labeling, packaging, and distribution of clinical trial supplies, and consulting;
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other research and development-expenses associated with quality and regulatory compliance; and
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internal expenses, consisting of personnel, including expenses for salaries, bonuses, benefits, stock-based compensation, as well as allocation of certain expenses.
To date, these expenses have been incurred to advance tildacerfont. These expenses will primarily consist of expenses for the conduct of clinical trials as well as manufacturing costs for clinical material supply. We expect that significant additional spending will be required to progress tildacerfont through clinical development and regulatory approval.
Research and development expenses are recognized as they are incurred, including licenses of intellectual property that have no alternative future use at the time of the acquisition. If deposits are required by external vendors, a portion of the deposit is included as a prepaid expense until the activity has been performed or when the goods have been received to amortize the deposit to expense in the statements of operations and comprehensive loss.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs
(including salaries, bonuses, benefits, and stock-based compensation expense)
for executive, finance, and other administrative functions. General and
administrative expenses also include legal fees, professional fees, insurance
costs, facility costs not otherwise included in research and development
expenses, and public company expenses such as costs associated with compliance
with the rules and regulations of the
We expect that our general and administrative expenses will continue to increase in the foreseeable future as additional administrative personnel and services are required to manage these functions of a public company, as we advance tildacerfont through clinical development and regulatory approval.
Interest Expense
Interest expense consists of interest incurred and non-cash amortization of debt discount and issuance costs in connection with the Term Loan.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest income earned on our cash, cash equivalents and investments.
Results of Operations
Comparisons of the Three Months Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Three Months Ended
September 30,
2022 2021 Change
Operating expenses:
Research and development $ 8,791 $ 8,607 $ 184
General and administrative 2,766 2,793 (27 )
Total operating expenses 11,557 11,400 157
Loss from operations (11,557 ) (11,400 ) (157 )
Interest expense (110 ) (88 ) (22 )
Interest and other income, net 266 41 225
Net loss $ (11,401 ) $ (11,447 ) $ 46
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Research and Development Expenses
The following table sets forth research and development expenses for the periods
presented (in thousands):
Three Months Ended
September 30,
2022 2021 Change
External expenses:
Clinical development $ 5,437 $ 4,868 $ 569
Manufacturing 1,094 1,430 (336 )Preclinical studies and biometrics 102 513 (411 ) Other research and development 675 440 235 Internal expenses: Personnel 1,396 1,268 128 Allocated overhead 87 88 (1 )
Total research and development expenses
Research and development expenses increased by
General and Administrative Expenses
General and administrative expenses were consistent during the three months
ended
Interest Expense
Interest expense was consistent during the three months ended
Interest and Other Income, Net
Interest and other income, net increased by
Comparisons of the Nine Months Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Nine Months Ended
September 30,
2022 2021 Change
Operating expenses:
Research and development $ 26,359 $ 24,440 $ 1,919
General and administrative 8,814 8,491 323
Total operating expenses 35,173 32,931 2,242
Loss from operations (35,173 ) (32,931 ) (2,242 )
Interest expense (291 ) (257 ) (34 )
Interest and other income, net 428 80 348
Net loss $ (35,036 ) $ (33,108 ) $ (1,928 )
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Research and Development Expenses
The following table sets forth the research and development expenses for the periods presented (in thousands):
Nine Months Ended
September 30,
2022 2021 Change
External expenses:
Clinical development $ 17,372 $ 13,311 $ 4,061
Manufacturing 2,573 3,399 (826 )Preclinical studies and biometrics 717 1,942 (1,225 ) Other research and development 949 1,047 (98 ) Internal expenses: Personnel 4,470 4,484 (14 ) Allocated overhead 278 257 21
Total research and development expenses
Research and development expenses increased by
General and Administrative Expenses
General and administrative expenses increased by
Interest Expense
Interest expense was consistent during the nine months ended
Interest and Other Income, Net
Interest and other income, net increased by
Liquidity and Capital Resources
Liquidity
Since our inception, we have not generated any revenue from product sales and
have incurred significant operating losses and negative cash flows from
operations. We anticipate that we will continue to incur net losses for the
foreseeable future. As of
Shelf Registration and Sales Agreement
In
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efforts basis consistent with its normal trading and sales practices and
applicable state and federal law, rules and regulations and the rules of Nasdaq.
We may instruct Jefferies to not sell the shares if the sales cannot be
transacted at or above the price we designate in any issuance notice. We are not
obligated to make any sales of the shares under the Sales Agreement. As of
We have agreed to pay Jefferies commissions for its services of acting as agent of 3.0% of the gross proceeds from the sale of the shares pursuant to the Sales Agreement. We have also agreed to provide Jefferies with customary indemnification and contribution rights.
Funding Requirements
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval and commercialize tildacerfont or any future product candidates, and we do not know when, or if at all, that will occur. We will continue to require additional capital to develop tildacerfont and fund operations for the foreseeable future. Our primary uses of cash are to fund our operations, which consist primarily of research and development expenses related to our clinical development programs, and to a lesser extent, general and administrative expenses.
At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, tildacerfont or any of our future product candidates. We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in research and development activities related to developing tildacerfont, as tildacerfont continues advancing in late stage studies for the treatment of classic CAH in adult patients, as we conduct clinical trials of tildacerfont in additional indications beyond classic CAH in adult patients, as we seek regulatory approvals for tildacerfont, and incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, the successful development of tildacerfont is highly uncertain, and we may never succeed in achieving regulatory approval for tildacerfont in classic CAH in adult patients or other indications.
We may seek to raise capital through equity or debt financings, collaborative agreements or other arrangements with other companies, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:
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the progress, costs, trial design, results of, and timing of our ongoing and planned clinical trials of tildacerfont;
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the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;
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the number and characteristics of product candidates that we may pursue;
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our ability to manufacture sufficient quantities of tildacerfont;
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our plan to expand our research and development activities;
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the costs associated with manufacturing tildacerfont and establishing clinical and commercial supplies and sales, marketing, and distribution capabilities;
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the costs associated with securing and establishing clinical and commercialization;
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the costs of acquiring, licensing, or investing in product candidates;
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our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense, and enforcement of any patents or other intellectual property rights;
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our need and ability to retain key management and hire scientific, technical, business, and medical personnel;
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the effect of competing products and product candidates and other market developments;
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the timing, receipt, and amount of sales from tildacerfont and any future product candidates, if approved;
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our need to implement additional internal systems and infrastructure, including financial and reporting systems;
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the economic and other terms, timing of, and success of any collaboration, licensing, or other arrangements which we may enter in the future; and
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the effects of the disruptions to and volatility in the credit and financial
markets in
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If we raise additional funds by issuing equity securities, our stockholders will experience dilution. If we raise additional capital through debt financing, we may be subject to covenants that restrict our operations including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.
We may be unable to raise additional funds or to enter into such agreements or
arrangements on favorable terms, or at all. Our ability to raise additional
funds may be adversely impacted by potential worsening global economic
conditions and the disruptions to, and volatility in, the credit and financial
markets in
The amount and timing of our future funding requirements will depend on many factors including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Material Cash Requirements
As of
As of
We enter into contracts in the normal course of business with third-party contract manufacturing organizations and CROs for clinical trials, non-clinical studies, drug substance and product manufacturing and other services for operating purposes. These contracts are generally cancelable by us upon prior written notice after a certain period. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.
We have also entered into the License Agreement under which we are obligated to
make aggregate milestone payments upon the achievement of specified milestones
as well as royalty payments. The payment obligations under the License Agreement
are contingent upon future events, such as our achievement of specified
milestones or generating product sales. In addition to royalty payments on
future sales, we are also required to pay up to an aggregate of
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