SPRUCE BIOSCIENCES, INC. You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our financial statements and the
related notes to those statements included later in this Annual Report. In
addition to historical financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, beliefs and
expectations that involve risks and uncertainties. Our actual results and the
timing of events could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report,
particularly in Item 1A. "Risk Factors" and "Special Note Regarding
Forward-Looking Statements." Unless otherwise indicated, all references in this
Annual Report to "Spruce," the "company," "we," "our," "us" or similar terms
refer to
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 classic congenital adrenal hyperplasia (CAH). Classic CAH is a serious and life-threatening disease with no known novel therapies approved in approximately 70 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 (SAEs) reported.
We have initiated CAHmelia-203, a placebo-controlled, double-blind Phase 2b
clinical trial in adult patients with classic CAH with highly elevated levels of
androstenedione (A4), 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 on supraphysiologic doses of
glucocorticoids with normal or near normal levels of A4 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 supraphysiologic
doses of glucocorticoids with normal or near normal levels of A4 at baseline or
highly elevated levels of A4 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 CAHptain, a Phase 2 open-label clinical trial, which will utilize
a sequential three cohort design, to evaluate the safety, efficacy, and
pharmacokinetics of tildacerfont in children two to 17 years of age with classic
CAH. We anticipate topline data from adolescents (cohorts 1 and 2) of the Phase
2 open-label clinical trial in the second half of 2023. We have also submitted a
pediatric investigational plan (PIP) to the Pediatric Committee (PDCO) of the
Beyond classic CAH, we believe tildacerfont has potential utility in polycystic
ovary syndrome (PCOS), and in a range of diseases where the underlying biology
supports a need to reduce excess secretion of or hyperresponsiveness to
adrenocorticotropic hormone (ACTH). PCOS is a hormonal disorder common among
females of reproductive age affecting nearly five million females in
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females worldwide. PCOS is characterized by elevated levels of androgens, cysts in the ovaries, and irregular periods. We have identified a subpopulation of patients where elevated levels of adrenal androgens are the cause of disease. We believe that tildacerfont may present a novel mechanism to reduce ACTH and provide a therapeutic option for females with PCOS. By leveraging our existing Phase 1 program, which includes safety, tolerability, and pharmacokinetics of tildacerfont, we have initiated P.O.W.E.R., a Phase 2 proof-of-concept, placebo-controlled, dose escalation trial which will evaluate the safety and efficacy of tildacerfont titrated to 200 mg QD compared to placebo at 12 weeks of treatment in subjects with PCOS and elevated adrenal androgens as measured by dehydroepiandrosterone sulfate (DHEAS) levels at baseline. We anticipate topline results from the Phase 2 proof-of-concept clinical trial in the first half of 2023.
Since our inception in
We intend to build a highly specialized commercial organization to support the
commercialization of tildacerfont, if approved, 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 years ended
In
We believe, based on our current operating plan, that our cash, cash equivalents
and investments as of
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upfront payment due to us under the Kaken License Agreement, will be sufficient to fund our operations and debt obligations for at least 12 months following the issuance date of our financial statements included elsewhere in this Annual Report. We have based this projection on assumptions that may be inaccurate and as a result, we may utilize our capital resources sooner than we expect. We expect our expenses will increase significantly in connection with our ongoing activities, as we:
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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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seek strategic collaborations to benefit from the resources of biopharmaceutical
companies specialized in either relevant disease areas or geographies in markets
outside
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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.
In
In
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 COVID-19 pandemic, global
economic and business activities continue to face widespread macroeconomic
uncertainties, including recent and potential future disruptions in access to
bank deposits or lending commitments due to bank failures, labor shortages,
inflation and monetary supply shifts, recession risks and potential disruptions
from the ongoing
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The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.
Material Agreements
License Agreement with Eli Lilly and Company (Lilly)
In
As partial consideration for the rights granted to us under the Lilly License
Agreement, we made a one-time upfront payment to Lilly of
License Agreement with Kaken Pharmaceutical Co. Ltd. (Kaken)
On
We have also granted to Kaken a right of first negotiation with respect to the
development, manufacturing and commercialization of tildacerfont for CAH in
Pursuant to the Kaken License Agreement, Kaken is required to make an upfront
payment to us of
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continue for ten years after the first commercial sale in
We have agreed to supply Kaken's clinical drug supply requirements of tildacerfont pursuant to a clinical supply agreement that the parties will enter into within ninety days of the effective date of the Kaken License Agreement. During the Royalty Term, we have agreed to supply Kaken's requirements of tildacerfont pursuant to the Kaken License Agreement and a commercial supply agreement to be entered into by the parties, though Kaken may procure alternate suppliers. Following the Royalty Term, Kaken at its option may continue to purchase Company-manufactured tildacerfont at a purchase price equal to our manufacturing cost plus a low double-digit administrative fee.
Either party may terminate the Kaken License Agreement (i) in the event the other party shall have materially breached its obligations thereunder and such default shall have continued for a specified period after written notice thereof or (ii) upon the bankruptcy or insolvency of the other party. In addition, we may terminate the Kaken License Agreement upon prior written notice if Kaken ceases all development or commercialization activities for a specified period of time, subject to certain exceptions, or (ii) challenges the validity, enforceability or scope of any of the patents licensed by us to Kaken under the Kaken License Agreement, subject to certain conditions. Kaken may terminate the Kaken License Agreement at any time for convenience upon prior written notice provided within a specified period of time to us.
Loan Agreement with
In
In
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
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.
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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:
o
clinical development-expenses associated with clinical research organizations (CROs) engaged to manage and conduct clinical trials and other outside services;
o
preclinical studies-expenses associated with preclinical studies and clinical pharmacology;
o
manufacturing-expenses associated with contract manufacturing; labeling, packaging, and distribution of clinical trial supplies, and consulting;
o
other research and development-expenses associated with business operations, 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.
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Table of Contents 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 Year Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Year Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 35,198 $ 30,698 $ 4,500
General and administrative 12,085 11,368 717
Total operating expenses 47,283 42,066 5,217
Loss from operations (47,283 ) (42,066 ) (5,217 )
Interest expense (420 ) (345 ) (75 )
Interest and other income, net 1,523 119 1,404
Net loss $ (46,180 ) $ (42,292 ) $ (3,888 ) Research and Development Expenses
The following table sets forth research and development expenses for the periods
presented (in thousands):
Year Ended December 31,
2022 2021 Change
External expenses:
Clinical development $ 24,085 $ 18,774 $ 5,311
Manufacturing 3,316 4,036 (720 )
Preclinical studies 397 1,591 (1,194 )
Other research and development 391 400 (9 )
Internal expenses:
Personnel 6,610 5,557 1,053
Allocated overhead 399 340 59
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 increased by
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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
We believe, based on our current operating plan, that our cash, cash equivalents
and investments as of
We have a banking relationship with SVB. SVB was closed on
Shelf Registration and Sales Agreement
In
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.
The shares will be sold pursuant to the Shelf Registration, and offerings of the shares will be made only by means of the prospectus supplement. This Annual Report on Form 10-K shall not constitute an offer to sell or
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solicitation of an offer to buy the shares, nor shall there be any sale of the shares in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of such state or jurisdiction.
Private Placement
In
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 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
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 Lilly 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 Lilly 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
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required to pay up to an aggregate of
Summary Statements of Cash Flows
The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for the periods presented below (in thousands):
Year Ended December 31,
2022 2021 Change
Net cash used in operating activities
23,692 (79,168 ) 102,860
Net cash provided by (used in)
financing activities (241 ) 643 (884 )
Net decrease in cash, cash
equivalents, and restricted cash $ (18,232 ) $ (114,402 ) $ 96,170 Cash Used in Operating Activities
Net cash used in operating activities increased by
Cash Used in Investing Activities
For the year ended
For the year ended
Cash Provided by Financing Activities
For the year ended
Segments
We operate and manage our business as one operating segment, which is the business of developing and commercializing novel therapies for rare endocrine disorders with significant unmet medical need.
Critical Accounting Policies and Estimates
Our accounting policies are more fully described in Note 2 of the financial statements to this Annual Report on Form 10-K. As disclosed in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are
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those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.
We record accruals for estimated costs of preclinical, clinical, and manufacturing development, within accrued expenses which are significant components of research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers, including CROs. Our contracts with CROs generally include fees such as initiation fees, investigator grants, clinical safety, data management, laboratory expenses, project management, and pass-through expenses. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.
If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impact research and development expenses. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.
Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred.
JOBS Act
We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). The JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We could be an emerging growth company until
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