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 discussion 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 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 poor disease control despite being on standard of care therapy achieved approximately 80% reductions in hormones that are key indicators of poor disease control. 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 poor disease control 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 good disease control 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 good disease control or poor disease control. 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 six months ended
In
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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.
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.
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
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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, or CROs, engaged to manage and conduct clinical trials and other outside services;
o
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;
o
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. If deposits are required by external vendors, a portion of the deposit is included as a prepaid expense until sufficient progress has occurred 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 personnel in 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, provided pursuant to the Loan and Security Agreement, as amended.
Other Income, Net
Other income, net primarily consists of interest income earned on our cash, cash equivalents and investments.
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Comparisons of the Three Months Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Three Months Ended
June 30,
2022 2021 Change
Operating expenses:
Research and development $ 9,060 $ 9,119 $ (59 )
General and administrative 2,822 2,595 227
Total operating expenses 11,882 11,714 168
Loss from operations (11,882 ) (11,714 ) (168 )
Interest expense (94 ) (80 ) (14 )
Other income, net 104 20 84
Net loss $ (11,872 ) $ (11,774 ) $ (98 ) Research and Development Expenses
Research and development expenses were
Three Months Ended
June 30,
2022 2021 Change
External expenses:
Clinical development $ 6,510 $ 4,798 $ 1,712
Manufacturing 768 1,425 (657 )
Preclinical studies and biometrics 6 848 (842 )
Other research and development 137 341 (204 )
Internal expenses:
Personnel 1,534 1,615 (81 )
Allocated overhead 105 92 13
Total research and development expenses $ 9,060 $ 9,119 $ (59 ) General and Administrative Expenses
General and administrative expenses were
Interest Expense
Interest expense was
Other Income, Net
Other income, net was
Comparisons of the Six Months Ended
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The following table summarizes our results of operations for the periods
presented (in thousands):
Six Months Ended
June 30,
2022 2021 Change
Operating expenses:
Research and development $ 17,568 $ 15,833 $ 1,735
General and administrative 6,048 5,698 350
Total operating expenses 23,616 21,531 2,085
Loss from operations (23,616 ) (21,531 ) (2,085 )
Interest expense (181 ) (169 ) (12 )
Other income, net 162 39 123
Net loss $ (23,635 ) $ (21,661 ) $ (1,974 ) Research and Development Expenses
Research and development expenses were
Six Months Ended
June 30,
2022 2021 Change
External expenses:
Clinical development $ 11,935 $ 8,442 $ 3,493
Manufacturing 1,479 1,970 (491 )
Preclinical studies and biometrics 615 1,429 (814 )
Other research and development 274 608 (334 )
Internal expenses:
Personnel 3,074 3,216 (142 )
Allocated overhead 191 168 23
Total research and development expenses
General and Administrative Expenses
General and administrative expenses were
Interest Expense
Interest expense was
Other Income, Net
Other income, net was
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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
Loan Agreement
In
In
The Second Amendment also reduced the interest rate on the outstanding First
Tranche Term Loan of
Further, in the event that the Supplemental Term Loans under the Second Tranche
become available and we obtain an advance thereunder, we will be required to
comply with a new liquidity covenant of at least
The Loan Agreement, as amended by the Deferral Agreement, the First Amendment,
and the Second Amendment, provides for monthly cash interest-only payments
following the funding date of each respective tranche and continuing thereafter
through
Following the interest-only period, the outstanding Term Loan balance will be payable in (i) 37 consecutive monthly payments (or 31 if the Company borrows under the Second Tranche) after the end of the interest-only period and continuing on the same day of each month thereafter, in amounts that would fully amortize such Term Loan balance, as of the first business day of the first month following the amended interest-only period, over the repayment period, plus (ii) monthly payments of accrued but unpaid interest.
The Second Amendment amended the Second Tranche Final Payment due on the maturity date, which payments shall include all outstanding principal and all accrued unpaid interest and an end of term payment, or the Supplemental Final Payment, totaling (x) 6.0% of the original funded principal amount of the First Tranche, and (y) 4.0% of the total original funded principal amount under the Second Tranche if the Company does borrow under the Second Tranche.
The Second Amendment also amended the prepayment amounts, so that 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
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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.
The Loan Agreement, as amended, contains certain covenants that limit our
ability to engage in certain transactions that may be in our long-term best
interest, including entering into a change in control transaction. The Loan
Agreement, as amended, also contains certain covenants that limit our ability to
obtain additional debt financing, including incurring debt from third parties
not permitted under the Loan Agreement, as amended, or incurring liens or
encumbrances on our property. While we have not previously breached and are
currently in compliance with the covenants contained in the Loan Agreement, as
amended, we may breach these covenants in the future. Our ability to comply with
these covenants may be affected by events and factors beyond our control. In the
event that we breach one or more covenants,
In connection with the first and second tranches under the Loan Agreement prior
to the First Amendment, we issued a warrant to purchase up to an aggregate of
49,609 shares of common stock at
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.
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
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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
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.
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