Spero Therapeutics Inc

NASDAQ:SPRO

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to the Spero Therapeutics Third Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please bronchiectasis advised that this call is being recorded, and a replay will be available. You can find information on the replay and further information related to today's announcement on the Spero Therapeutics website at sperotherapeutics.com. At this time, I would like to turn the call over to Ted Jenkins, Vice President, Investor Relations and Strategic Finance at Spero Therapeutics. Mr. Jenkins, please go ahead.

[Ted Jenkins, executive]

Thank you, operator, and thank you all for participating in today's conference call. This afternoon, Spero Therapeutics released financial results and provided a pipeline update for the third quarter of 2023. Our press release is available on the Investor page of the Spero Therapeutics website. Before we begin, I'd like to remind you that some of the information presented on this conference call contains forward-looking statements based on our current expectations, including statements about the future development and commercialization of tebipenem HBr, SPR720, SPR206 and the design, initiation, timing, progress and results of the company's preclinical studies and clinical trials and its research and development programs; management's assessment of the results of such preclinical studies and clinical trials, the company's cash forecast and anticipated expenses and the sufficiency of its cash resources.

Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Spero Therapeutics filings with the SEC, including in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended September 30, 2023, filed with the SEC today.

These forward-looking statements speak only as of the date of this conference call, November 13, 2023. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the company after the date of today's call. Participating in today's call are Sath Shukla President and Chief Executive Officer; Dr. Kamal Hamed, our Chief Medical Officer; Steve DiPalma, our Interim CFO and Treasurer; and although not having a speaking part today, I would also like to welcome special guests in attendance Ms. Esther Rajavelu, Spero's new Chief Financial Officer and Chief Business Officer. With that, I'd like to turn the call over to Spero's Chief Executive Officer, Sath Shukla. Please go ahead, Sath.

[Satyavrat Shukla, executive]

Thanks, Ted, and I thank you all for joining us this afternoon. 2023 has been a year of progress and execution for Spero. There a number of achievements across clinical, regulatory and financial related fronts. Each of our late-stage assets is moving forward. We have an experienced management team in place and a strong balance sheet positioning us well to deliver on our mission to develop differentiated medicines for patients with the rare orphan diseases and serious multi-drug-resistant bacterial infections. Let me begin with tebipenem HBr, which we have partnered with GSK and which we are developing as potentially the first oral carbapenem antibiotic for the treatment of complicated urinary tract infections or cUTI. We were very pleased to announce on July 31 that we had received written agreement from the U.S. FDA under a special protocol assessment, or SPA, on the design and size of our planned Phase III trial, PIVOT-PO.

And SBA typically represents a very high level of concordance on the overall protocol design between the FDA and the sponsor. So we believe the regulatory aspect with respect to the design of the program, have been derisked substantially. Enrollment and PIVOT-PO that first patient first visit is expected to begin in the current quarter, and Kamal will touch on additional details in a few minutes. We also received a $30 million cash payment from GSK during the quarter. In consideration for qualification of an additional development milestone as per our GSK agreement.

In addition to this payment, we are also eligible to receive the following additional milestone or royalty payments under our agreement. These comprise of up to $120 million in remaining development milestones up to $150 million in potential commercial milestones based on first commercial sales, up to $225 million and potential sales-based milestones and low single-digit to low double-digit tiered royalties if sales exceed $1 billion on net product sales of tebipenem HBr in all territories, Japan and certain other Asian countries.

Overall, we are very excited by our partnership with GSK. In addition to progress on tebipenem HBr, we continue to move our other assets forward. The Phase IIa proof-of-concept clinical trial for SPR720 continues patient enrollment and dosing with 26 sites having been initiated. SPR206, our investigational next-generation polymyxin continues to be on track for our Phase II IND in this current quarter. funded by grant and other nondilutive funding.

As a recap for the management changes that came into effect on August 1, which were described on our last quarterly call, I was proud to take on the role of the company's President and CEO on that date and my predecessor and co-founder of Spero, Dr. Ankit Mahadevia, transitioned to become Chairman of the Board of Directors. The prior Chairman, Dr. Milan Deshpande, has remained on the Board as an independent director and another Board member, Dr. Patrick Vink was appointed Lead Director. I would also like to highlight the recent appointment of Esther Rajavelu as Chief Financial Officer and Chief Business Officer, effective last week, November 6.

Esther has a strong track record in corporate finance from both industry and Wall Street and brings expertise and growth strategy, Investor Relations, financing and M&A. We are very excited to have her join the team, and I would like to formally welcome her to Spero. I also want to take this opportunity to thank Steve Dipalma, who has served as our interim CFO and Treasurer, during our recent management transition. I would now like to hand the call over to Dr. Kamal Hamed, who will provide more details on the clinical programs.

[Kamal Hamed, executive]

Thank you, Sath. Our immediate priority is to commence enrollment and dosing of patients in PIVOT-PO, our Phase III study to evaluate oral tebipenem in adult patients with cUTI including acute pyelonephritis. PIVOT-PO a global randomized double-blind pivotal Phase III clinical trial of oral tebipenem versus intravenous imipenem in hospitalized adult patients with cUTI, including acute pyelonephritis. Patients will be randomized 1:1 to receive tebipenem 600 milligrams only every 6 hours. Or imipenem 500 milligrams intravenous every 6 hours for a total of 7 to 10 days.

The primary efficacy end point will be overall response, which is a composite of clinical and microbiological response at the test of cure visit. The primary analysis for the trial will be an assessment of non-inferiority in the microbiological intention to treat population based on a 10% non-inferiority margin. The trial is designed to enroll approximately 2,648 patients. with randomization stratified by age, baseline diagnosis, i.e., cUTI or acute pyelonephritis and the presence or absence of urinary tract instrumentation. This study is covered by an SPA agreement, which we announced in late July, as Sath mentioned, the FDA indicated that positive and persuasive results from PIVOT-PO along with previously completed studies could be sufficient to support the approval of tebipenem as a treatment for cUTI, including pyelonephritis for limited use indication.

Again, enrollment is expected to begin soon and we will make an announcement when we have enrolled and dosed the first patient. Turning now to our SPR720 program, which we hope will deliver the first model, first line oral treatment for nontuberculous microbacterial [ polony ] disease or NTM PD. SPR720 is currently being evaluated in a Phase IIa proof-of-concept trial. The primary endpoint is slope change in sputum bacterial burden from baseline. We believe that the positive result on this endpoint, together with supportive evidence from the trial secondary endpoints will enable us to move confidently into late-stage development.

MPD is a debilitating rare infectious lung disease and the current standard of care is a prolonged combination regimen of drugs that have limited effectiveness and poor tolerability. Given these limitations, we believe SPR720 has the potential to address a clear unmet need and establish a new standard of care. The trial is expected to enroll up to 35 participants for either treatment naive or treatment experience but do not have treatment refractory disease. We currently have 26 active sites that are screening and enrolling patients. We continue to actively engage with all study sites to ensure they have the necessary resources. We've also partnered with the lead NTM patient advocacy group, NTMIR as well as with a third-party CRO specialized in rare diseases to support study sites.

We expect to announce top line data from this study in the second half of 2024. We are currently engaged in many additional development activities needed to support SPR720's advancement into late-stage clinical studies. These activities include ongoing foxicolity work [ EMC ] initiatives, engagement with the FDA and efforts to expand the SPR720 development program into Japan where NTMPD has a higher prevalence compared to other territories.

There are also 2 Phase I clinical studies underway. The first, to assess entrapment pharmacokinetics of SPR719 and the active moiety of the prodrug SPR720 and a bronchoalveolar lavage or BAL study and the second, to evaluate the effect on the pharmacokinetics of SPR720 when co-administered with azithromycin and ethambutol in healthy volunteers. We're also working to develop a relevant patient-reported outcome instruments for NTMPD which will lead to an increase in confidence that the primary efficacy endpoint within our future clinical studies will be in line with the FDA's published guidance on developing drugs for this indication.

There was also a recent paper published on NTMPD and the potential role of SPR720, which I would like to highlight. The lead offer was Dr. Kevin Winsor of Oregon Health & Science University, and it was published in the October 20 addition of expert to use anti-infective therapy. The article discusses the increasing prevalence of NTMPD and how the management of this disease has been challenging. Today, only half of diagnosed patients begin therapy with the current guideline regimen and only 18% or so are still able to maintain treatment after 12 months.

The offers review the encouraging in vitro and preclinical data supporting SPR720 and specifically SPR720's ability to demonstrate its activity against the main agents causing NTMPD, Mycobacterium avium complex and Mycobacterium abscessus. You can find a link of the publication and the earnings press release we issued today or in the publications and posters section of our corporate website. I would encourage those interested to read it.

Finally, some brief comments on our SPR206 program. SPR206 is an investigational next-generation polymyxin antibiotic with the potential for an improved safety profile of reduced nephrotoxicity compared to county available polymyxins being developed to treat multidrug-resistant gram-negative infections. We are currently working to advance SPR206 into a Phase II trial in patients with hospital-acquired or ventilator-associated bacterial pneumonia. We remain on track to submit an IND application by year-end. With that, I'll turn the call over to Steve to review our quarterly financial results. Steve?

[Unknown Executive]

Thank you, Kamal. Good evening to all of you joining us on the call. Spero was well capitalized with a strong financial position of [ $93.8 million ] in cash and cash equivalents as of September 30, 2023. This includes a $30 million milestone we announced on our last earnings call, which has now been received as part of the tebipenem HBr license agreement with GSK. We believe that our cash and cash equivalents will be sufficient to fund the company into the second half of 2025. We reported total third quarter revenues of $25.5 million compared with revenues of $2 million in the third quarter of 2022. A $23.5 million increase compared to the prior year period. That was primarily a result of the $23.2 million of collaboration revenue related to the license agreement with GSK.

Current revenue was $2.1 million in the third quarter of 2023 compared to $0.9 million in the same period in 2022. Research and development expenses for the third quarter of 2023 were $16.4 million compared with $7.4 million in research and development expenses for the same period in 2022. This $9 million year-over-year increase was primarily due to the higher direct costs related to tebipenem HBr and SBR720 programs. These included increased clinical activity related to the -- our ongoing Phase IIa trial of SPR720 and as well as start-up clinical activities and increased preclinical activities related to the planned Phase III trial of tebipenem HBr. General and administrative expenses for the third quarter of 2023 of $5.7 million were lower than the $6.6 million reported in the same period in 2022.

This year-over-year decrease was primarily a result of decreased personnel-related costs as well as lower facility and other related expenses, offset in part by an increase in professional and consulting fees. Impairment expense was incurred in the third quarter of 2023 as the company concluded that it no longer had need for the commercial manufacturing capacity for tebipenem HBr provided under a service agreement with Savier LifeTech Corporation. An impairment expense of $5.3 million was recorded to the company fully impaired the long-term asset related to the Saver service agreement. Reported a net loss for the third quarter of 2023 of $3.2 million or $0.06 per basic and diluted share of common stock compared to a net loss of $11.7 million or $0.33 per basic and diluted share of common stock reported for the same period in 2022.

For further details on Spero's financials, including results for the 9-month period ended September 30, 2023, I will refer you to Spero's quarterly report on Form 10-Q filed with the SEC today. This completes today's formal comments from our Q3 report.

I'd like to turn the call back to the operator, if there are any questions from those on the line.

[Operator]

[Operator Instructions] Our first question comes from the line of Louis Chen with Cantor Fitzgerald.

[Louise Chen, analyst]

So I wanted to ask you a few. First, could you give us more color on the $120 million in development milestones from GSK as the Phase III program progresses? Secondly, how are you thinking about peak sales potential of tebipenem? And then lastly, as the congratulations, and welcome to the new role. Just curious how you think about things a little bit differently than prior management teams and what you're bringing to the company here?

[Satyavrat Shukla, executive]

Louise, this is Sath. I can take your first 2 questions. Esther won't be speaking today, but we can line up that question for you separately. For your first question of the $120 million in development milestones, the expectation is that they come in through the duration of the trial. And so we expect those milestones over the next couple of years. as we are planning on a target commercialization date with our GSK partners of 2026, we expect those development milestones to come in over the next 2 years to fully fund the trial. Did that answer your question? Or was there anything that further that you wanted to know?

[Louise Chen, analyst]

Yes, that's good. And how does that happen? Is it based on certain milestones you hit in the trial or something like that? Or it's just basically amortized through the course of the trial?

[Satyavrat Shukla, executive]

So we should be able to give you some further clarity on that sometime soon. But the expectation is that it's not an expense reimbursement or a performance measure for the milestones. As the trial progresses as it continues to progress, we expect to be able to qualify for and obtain those milestones. Moving to your second question about peak sales for tebipenem. I think we have always considered that tebipenem has the potential to reach blockbuster statures because given the high prevalence of cUTI patients, you don't need very aggressive assumptions on expected penetration or pricing to see the value proposition for an oral carbapenem.

So this is something where we expect the commercial and economic opportunity to be commensurate with the scientific improvement. And therefore, we have high hopes for commercial performance if and when the drug is approved.

[Operator]

Our next question comes from the line of Boobalan Pachaiyappan with H.C. Wainwright.

[Boobalan Pachaiyappan, analyst]

This is Boobalan. So a couple from us. So as you think about advancing 206 into Phase II, can you discuss the regulatory path forward in the hospital-acquired or ventilator-associated bacterial pneumonia indication. So we wanted to know what the efficacy bar for sectors would look like. And in this indication, particularly, do you think you need to establish similar or better safety and efficacy related to standard of care? Or is efficacy differentiation enough to drive the uptake -- and more broadly, again, sorry, it's a long list of questions. How do you see 206 feeding into the competitive landscape in this indication?

[Satyavrat Shukla, executive]

Sorry, Boobalan could you repeat the last question on more time, please? You've cut out.

[Boobalan Pachaiyappan, analyst]

Yes, absolutely. The last question was how do you see 206 fitting into the competitive landscape?

[Unknown Executive]

Yes. Thanks, Boobalan, for the questions. In terms of indication Hafa, I mean, this is an area of great unmet medical need, and this is what we are targeting as far as the indication. Other indications such as complicated untrack infection, there's no medical need for the polymyxin derivative at this point in time. And certainly, when we talk about back to India, that's also a challenge because there's no indication that's approved bacteremia indication for gram-negative infections, therefore, the indication of hospital-acquired the bacterial pneumonia, ventilator-associated bacterial pneumonia is the area of great unmet medical need and therefore, makes great sense for us to pursue.

In terms of differentiation, efficacy versus safety, clearly, we have to demonstrate efficacy there. But our expectation is that we would demonstrate a safety benefit -- so we expect to demonstrate safety superiority because SPR206 was specifically designed to reduce nephrotoxicity. So it's designed to reduce exposure in the kidneys and therefore, as a result, nephrotoxicity because it's been demonstrated that if you reduce and cytotoxicity in the kidneys as well as exposure in the kidneys this would be -- would result or be associated with reduced nephrotoxicity. And so therefore, as consequence, again, while we would be demonstrating efficacy, we do expect to see a benefit on the safety side, specifically with respect to nephrotoxicity. Now in terms of the competitive landscape, as you know, they've been beta-lactam, beta-lactamase inhibitors that have been recently developed and are being used, but we also know from the field that there is emerging resistance to these beta-actin beta-lactamase inhibitors and polymyxin arcane used for treatment of very difficult to treat gram-negative infections caused by [indiscernible] or pseudomonas. And these polymicanes are highly toxic. And therefore, if you could substitute with a newer generation polymyxin that is a safer on the kidneys then clearly, there would be that need. But it is, again, hospital acquired bactammonia ventilator associated back pneumonia in the hospital.

[Boobalan Pachaiyappan, analyst]

Can you discuss the regulatory path forward in this indication?

[Satyavrat Shukla, executive]

Yes. We haven't given that guidance yet, Boobalan. If you'll bear with us as we get through the IND then, of course, we plan to give out a greater clarity on that path forward.

[Unknown Executive]

And again, Bo, I mean, as we've disclosed, the R&D is expected to be submitted by year-end. And with that -- in that IND the Phase II IND enabling study will be clearly reviewed and discussed with FDA. And as at we will be disclosing more details as time goes along.

[Boobalan Pachaiyappan, analyst]

And then if I can add one more. So with respect to the PIVOT-PO study, one of the exclusion criteria is create an inference. I see that you're excluding patients with less than real 30 mils per minute, so can you discuss the thought process began using this metric as an exclusion criteria?

[Ted Jenkins, executive]

Can you repeat the first part of that question, please?

[Boobalan Pachaiyappan, analyst]

Yes. So in the PIVOT-PO study, one of the exclusion criteria is creative in clearance, CRCI of less than or equal 30m per minute. So I would like to understand the thought process behind using this metric as an exclusion criteria in this indication.

[Unknown Executive]

Okay. So I mean we are excluding patients with severe renal impairment because for patients with mild or model renal impairment, we have a dose adjustment. And therefore, these patients will be allowed into the study and we have a dosing scheme in terms of adjusting according to creating clearance. But not for [indiscernible] clearance that's less than 30 miles per minute.

[Operator]

Thank you. And that concludes our question-and-answer session. I will now turn the call back over to Mr. Shukla.

[Satyavrat Shukla, executive]

Thank you, operator. Also many thanks to all listening and for your participation today. Have a nice evening.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.