Spero Therapeutics - Q4 2023

Transcript

Operator (participant)

Good afternoon and welcome to the Spero Therapeutics Full-Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the company's formal remarks, we will open the call for questions. Please be 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 announcements on the Spero Therapeutics website at www.sperotherapeutics.com. At this time, I would like to turn the call over to Michael Wood, Managing Director at LifeSci Advisors. Mr. Wood, please go ahead.

Michael Wood (Managing Director)

Thank you, operator, and thank you all for participating in today's conference call. This afternoon, Spero Therapeutics released financial results and provided a business update for the fourth quarter and full year 2023. The press release is available on the investors' page of the Spero Therapeutics website. Before I begin, I'd like to remind you that some of the information presented in 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 development programs.

Management's assessment of the results of such preclinical studies and clinical trials, the company's cash forward and anticipated expenses, the deficiency 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 its annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC today. These forward-looking statements speak only as of the date of this conference call, March 13, 2024, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the company after the date of this call.

Participating in today's conference call are Sath Shukla, Chief Executive Officer, Dr. Kamal Hamed, Chief Medical Officer, and Esther Rajavelu, Chief Financial and Chief Business Officer. With that, I'd like to turn the call over to Spero's CEO, Sath Shukla. Sath, please go ahead now.

Sath Shukla (President, CEO, and Member Board of Directors)

Thanks, Michael, and I thank you all for joining us this afternoon. Spero had a very productive 2023 with progress across its portfolio of development-stage assets. SPR720 is now in the latest stages of a proof-of-concept study in NTM-PD, and we are looking forward to reporting top-line data, which we expect to do in the second half of this year. The phase III clinical trial for tebipenem HBr is up and running. We recently received IND clearance for SPR206 for the treatment of patients diagnosed with hospital-acquired or ventilator-associated pneumonia. The company has a strong balance sheet with the financial flexibility to execute on its plans.

For me personally, 2023 was a particularly exciting year as I was honored to take on the CEO role and to be provided with the opportunity to lead a world-class team who share a vision to develop innovative therapies to help patients suffering from serious infections and rare orphan diseases. Let me begin with SPR720, which we are developing for nontuberculous mycobacterial pulmonary disease, or NTM-PD. We are developing SPR720 to be a first-line oral agent and believe it has exactly the right profile to address the unmet needs in NTM-PD. NTM-PD is a rare disease, but with a very well-identified patient population of approximately 245,000 diagnosed patients in developed markets. SPR720 is an oral drug with a novel mechanism of action that is not exploited by other associate agents or those in development for NTM-PD.

In the data we have seen so far, from completed in vitro and in vivo studies, there has been no evidence of cross-resistance against marketed antibiotics, and SPR720 has demonstrated a low propensity for selection of resistance. We have shown that it has potency against multiple NTM pathogens, and data support its potential for efficacy, safety and tolerability, and macrophage penetration. SPR720 has also been granted orphan drug, QIDP, and fast-track designations. The goal of our phase IIA proof-of-concept clinical trial is to understand SPR720's activity in NTM-PD patients and to inform the design of a later-stage and longer-term trial evaluating SPR720 in combination with current standard-of-care agents. As a potential first-line oral agent, we believe the commercial opportunity for SPR720 is compelling. Kamal will provide further details on this program in a few minutes.

Turning now to our partner programs, let me begin with tebipenem HBr, which is partnered with GSK. We are developing Tebi as potentially the first oral carbapenem antibiotic for the treatment of complicated urinary tract infections, or cUTI. We were pleased to announce in January of this year that the Phase III PIVOT-PO clinical trial is now underway, with the first patient first visit having occurred in the fourth quarter of 2023. During 2023, Spero received written agreement from the U.S. FDA with a special protocol assessment, or SPA, on the design and size of PIVOT-PO. SPA typically represents a very high level of concordance on the overall protocol design between the FDA and a sponsor, so we believe the regulatory aspects with respect to the design of the program have been de-risked substantially.

Moving on to SPR206, which is partnered with Pfizer for European markets, we submitted an IND for a phase II clinical trial in HAP/VAP patients and recently announced that the IND has been cleared with the FDA. With that, I would now like to hand the call over to Dr. Kamal Hamed, who will provide more details on the clinical programs.

Kamal Hamed (CMO)

Thank you, Sath. I will begin with our SPR720 program, which we hope will deliver the first oral first-line treatment for NTM-PD. SPR720 is currently being evaluated in a phase IIA proof-of-concept clinical trial, and as Sath mentioned, we are looking forward to sharing top-line data, which we expect to do in the second half of this year. NTM-PD is a debilitating rare infectious lung disease. There are currently no approved first-line therapies, and the current standard of care is a prolonged combination regimen of antibiotics, including azithromycin, ethambutol, and rifampin. These have serious tolerability issues and limited effectiveness. The unmet need is for a treatment that has better tolerability and effectiveness, fewer drug-drug interactions, as well as shorter treatment duration. We believe that SPR720 will meet these criteria and, if approved, has the potential to establish a new standard of care in NTM-PD.

The phase IIA clinical trial compares SPR720 monotherapy versus placebo. It is designed to enroll up to 35 patients who are either treatment naive or treatment experienced but do not have treatment-refractory disease. We currently have 27 active sites that are screening and enrolling patients. The primary endpoint is microbiological response. Specifically, we are measuring the slope change in sputum bacterial burden from baseline through day 56. Success on this endpoint would make SPR720 the only agent in development we are aware of to demonstrate early bactericidal activity in patients with NTM-PD. We believe that a positive result with supportive evidence from the 12 secondary endpoints will enable us to move confidently into late-stage development. We are working on additional development activities needed to support SPR720's advancement into late-stage clinical studies.

These include ongoing toxicology work, CMC initiatives, and two phase I clinical studies in healthy volunteers currently underway. The first, to assess intrapulmonary pharmacokinetics of SPR719, the active moiety of the prodrug SPR720, and a bronchoalveolar lavage study. This should give us a better understanding of the extent of drug penetration into the lungs. The second is to evaluate the effect on the pharmacokinetics of SPR720 when co-administered with azithromycin and ethambutol. We expect to have results from these studies in the second half of this year as well. Overall, the ongoing studies are expected to provide us with a robust dataset that may inform the registrational path for SPR720 as first-line treatment for NTM-PD. Now moving on to tebipenem HBr.

On January 2, we announced first patient first visit in PIVOT-PO, the global pivotal phase III clinical trial evaluating tebipenem HBr in hospitalized adult patients with complicated urinary tract infections, including acute pyelonephritis. Patients are being randomized 1-to-1 to receive tebipenem HBr at a dose of 600 milligrams orally every six hours or imipenem/cilastatin 500 milligrams intravenously every six hours for a total of 7-10 days. The primary efficacy endpoint is 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. Target enrollment will be 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.

Enrollment is expected to be completed in the second half of 2025. Spero is responsible for execution of the phase III clinical trial, and GSK will be responsible for submitting the NDA. If approved, tebipenem HBr would allow for treatment of cUTI in the outpatient setting. It is well established that patients and physicians generally prefer oral treatments, so we see tebipenem as a potentially new and unique paradigm shift from the current IV carbapenem standard of care for hard-to-treat pathogens associated with cUTI. Finally, to our SPR206 program, SPR206 is an investigational next-generation polymyxin antibiotic we are developing to treat multi-drug-resistant Gram-negative infections. SPR206 is designed to disrupt the lipopolysaccharide outer membrane in Gram-negative bacteria while reducing the nephrotoxicity potential of polymyxins.

Based on microbiological and in vivo testing, we believe that SPR206 has the potential to offer a broad spectrum of activity, including against multi-drug-resistant and extensively drug-resistant strains. It also has potential for an improved safety profile of reduced nephrotoxicity compared to currently available polymyxins. As Sath mentioned, we announced FDA clearance of the IND on February 28. With that, I'll turn the call over to Esther to review our quarterly financial results.

Esther Rajavelu (CFO and Chief Business Officer)

Thank you, Kamal, and good afternoon or evening to all of you joining us on the call today. Spero is well capitalized with $76.3 million in cash and cash equivalents as of December 31, 2023. As Sath mentioned, in December, upon dosing of the first patient in the phase III PIVOT-PO clinical trial, Spero qualified for $95 million in development milestone from GSK. It is payable in four equal installments during 2024 and 2025, beginning with the first tranche of $23.8 million that we received in the first quarter of 2024. We estimate that our cash and cash equivalents, together with other non-dilutive funding commitments, will be sufficient to fund our operating expenses and capital expenditure requirements into late 2025. Now, moving on to summarize our GAAP financials.

Total revenue for the fourth quarter of 2023 was $73.5 million compared with total revenue of $47.4 million for the fourth quarter of 2022. Total revenue for the year ended December 31, 2023, was $103.8 million compared to $53.5 million for the year ended December 31, 2022. The revenue increase for the year ended December 31, 2023, was primarily due to $96.7 million of collaboration revenue recognized related to our agreements with GSK and Pfizer during 2023. Research and development expenses for the fourth quarter of 2023 were $16.6 million compared to $15.1 million of R&D expenses for the same period in 2022. Research and development expenses for the year ended December 31, 2023, were $51.4 million compared to $47.6 million for the year ended December 31, 2022.

The increases in research and development expenses were primarily due to increased clinical activity during the period related to our ongoing phase IIA clinical trial of SPR720. G&A expenses for the fourth quarter of 2023 were $6.4 million compared to $6.5 million of G&A expenses for the same period in 2022. This year-over-year decrease was primarily due to changes in personnel-related costs, offset partially by increased professional and consulting fees during the period. G&A expenses for the year ended December 31, 2023, were $25.6 million compared to $36.5 million for the year ended December 31, 2022, primarily as a result of decreases in both personnel costs and professional and consulting fees. Spero reported net income of $51.2 million for the fourth quarter of 2023 and a full-year net income of $22.8 million for the year ended December 31, 2023, or diluted earnings per share of 0.96 and 0.43, respectively.

This compares with the net income in the fourth quarter of 2022 of $26.8 million or 0.55 of diluted earnings per share of common stock, and a net loss for the full-year ended December 31, 2022, of $46.4 million or $1.23 loss per share of common stock. For further details on our financials, please refer to our 10-K filed with the SEC today. With that, we will now open the call for questions. Operator.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is from Ritu Baral with TD Cowen. Please proceed with your question.

Ritu Baral (Managing Director and Senior Biotechnology Analyst)

Hi, guys. Thanks for taking the question. Just a couple from me, but one of them, of course, is a little complicated and may have a few parts. One, simple one: how is enrollment in 720 going, especially with the halt of enrollment in a competitive program? And my second question also has to do with 720. Specifically, I'm interested to know more about the 719 lavage study in healthy volunteers. Talking to KOLs, one of the concerns around an oral NTM compound is access to the site of NTM infection, especially when a patient has cavitary disease. How do you guys think of perfusion and access through the biofilm and sort of just location and activity at the site of infection? Thanks.

Sath Shukla (President, CEO, and Member Board of Directors)

Ritu, thanks for the question. For your first item on enrollment, we have said in the past that sites have been open, all 27 of them, and they continue to dose patients. And we are continuing to work towards our guidance of top-line data in the second half of this year. For your second question, I'll pass that on to Kamal.

Kamal Hamed (CMO)

Yeah, hello, Ritu, and thank you for the question. In terms of access of the drug to the site of infection, of course, these patients also have pulmonary hygiene as part of the management of this disease. And this also applies to inhaled therapy because inhaled therapy may have a problem with distributing to the site of infection. However, we have demonstrated in the hollow fiber infection model, as well as in non-human primate in monkeys, but we have not disclosed these data in non-human primates, lung penetration. And of course, we look forward to having lung penetration data in humans from the phase I bronchoalveolar lavage study that you have cited.

Ritu Baral (Managing Director and Senior Biotechnology Analyst)

Do you feel that the data may be or the access may be different with patients that have cavitary MAC versus, I guess, less large cavitary disease? Is that a consideration for oral therapy in 720?

Kamal Hamed (CMO)

No, that's certainly a good question. Honestly, this applies to both oral as well as inhaled forms of therapy. Typically speaking, in clinical trials to date, patients with large cavities, i.e., cavitary disease with cavity size larger than 2 cm, have been excluded from the clinical trials because these patients would require much longer treatment duration, one, and they may also require surgical treatment besides the medical treatment. This is a challenge for both oral as well as inhaled forms of therapy. These patients are excluded, again, for these reasons. The data that we have so far certainly suggests that the drug penetrates to where it needs to get, i.e., the lungs.

Of course, we expect to have data from the bronchoalveolar lavage in the second half of this year only to corroborate what we know from the hollow fiber in vitro data as well as the non-human primate data.

Ritu Baral (Managing Director and Senior Biotechnology Analyst)

Great. Thanks for taking all the questions. I'll hop back in the queue.

Operator (participant)

Thank you. Our next question is from Louise Chen with Cantor. Please proceed with your question.

Louise Chen (Senior Research Analyst and Managing Director)

Hi. Congratulations on the progress this quarter, and thank you for taking my questions here. So first question I had for you was, given some of the recent developments in the space, I think one of your competitors reported some data, has your thoughts on the market opportunity for SPR720 changed at all? And if it's approved, where do you expect it to fit in the treatment paradigm as the space gets a little bit more crowded with development assets? And then second question I had for you was on the market opportunity for SPR206. Do you actually plan to move this forward? And if so, what are the next steps here? Thank you.

Sath Shukla (President, CEO, and Member Board of Directors)

Thanks for asking, Louise. I'm glad to hear from you. I'll take the first half of your first question and then defer to Kamal on the second half of your first question. I can pick up the 206 question as well. For recent developments, our information is the same as your information, so we can't really comment on what actually has been the case for another player in the space. For the size of the market, we haven't actually seen them as competitors per se because, as you know, we were in First Line, which has a different market size than Refractory, which is where they were progressing their assets. What we used to say before some of these recent data was that we were very excited about the size of the market.

And what we say about these recent developments is that we continue to be very excited about the size of the market. What we have communicated internally and externally in light of these recent developments is that our program, as potentially the first oral therapy out there, certainly in First Line patients, is going to be under greater evaluation and scrutiny, arguably than ever before. And that's a great challenge and an opportunity for the organization as we progress this forward. Just on that SPR720 question, if you wouldn't mind rephrasing the second part of your question, and I'll pass that on to Kamal.

Louise Chen (Senior Research Analyst and Managing Director)

Oh, sorry, the 206 question, the one about the market opportunity.

Sath Shukla (President, CEO, and Member Board of Directors)

No, you had another question about 722, right, on where it fits in the line of treatment, I believe.

Louise Chen (Senior Research Analyst and Managing Director)

Yes, that is correct. Yes, if you were to get it approved.

Kamal Hamed (CMO)

Okay. No, thank you. Thank you, Louise. So, I mean, the recent news is certainly unfortunate for patients because patients need newer combination agents that have better tolerability and effectiveness. But having said that, we are targeting a different patient population than the patient population that's targeted by the other ongoing trial with oral therapy. So we aim to develop 720, as Sath said, as a first-line therapy for treatment-naïve patients or treatment-experienced patients with non-refractory disease. And as we know, this patient segment comprises the majority of patients, about 75% of the patient population. And I should note that 720 demonstrated potent activity against MAC, low propensity for selection of resistance in an in vitro resistance development study.

We've also proceeded with a phase IIA study, which is the ongoing clinical trial at this time, with the aim to assess the biological effect of SPR720 before we combine it with standard of care agents in later stage phase IIB3 program.

Louise Chen (Senior Research Analyst and Managing Director)

Okay. And anything on the market opportunity for 206?

Ritu Baral (Managing Director and Senior Biotechnology Analyst)

Yes, maybe I'll take that, Louise. I think 206 presents an interesting opportunity for patients because there is a high degree of unmet need in that patient population. However, we've always commented that we would continue developing that program contingent on non-dilutive sources of funding. As you know, we have a partnership with Pfizer for European markets and with Everest for China. And we also collaborate with government agencies to obtain funding. So we're looking at any and all of those sources for continued funding for that program.

Louise Chen (Senior Research Analyst and Managing Director)

Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I would like to hand the call back to Mr. Shukla for any closing comments.

Sath Shukla (President, CEO, and Member Board of Directors)

Well, I'd just like to thank everyone for dialing in today and have a wonderful day.

Operator (participant)

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