Sutro Biopharma - Earnings Call - Q4 2024

Executive Summary

• Sutro pivoted to prioritize wholly-owned next‑generation ADCs (STRO‑004 exatecan Tissue Factor ADC in 2H 2025; STRO‑006 integrin β6 ADC in 2026; first dual‑payload ADC in 2027) and deprioritized additional investment in luvelta, while actively seeking a partner.
• Cash, cash equivalents and marketable securities were $316.9M at 12/31/2024, with runway into at least Q4 2026, excluding anticipated milestones; restructuring cash payments are estimated at $40–$45M and headcount will be reduced ~50%.
• FY 2024 revenue was $62.0M and net loss was $227.5M; based on reported nine‑month results, Q4 2024 revenue was ~$14.8M and Q4 net loss was ~$72.4M; operating expenses rose on R&D intensity, then are guided to “dramatically decrease” post‑restructuring.
• CEO transition: Jane Chung appointed CEO and Director; former CEO Bill Newell stepped down and will advise during transition—viewed as aligning leadership with the new ADC focus.
• Near‑term catalysts: IND filing for STRO‑004 in 2H 2025; updates on partnering luvelta; execution of externalized manufacturing and restructuring—key to cash runway and expense trajectory.

What Went Well and What Went Wrong

What Went Well

• Strategic clarity: “Our strategic portfolio review determined that the best path forward is to prioritize our next‑generation exatecan and dual‑payload ADC programs… Over the next three years, we plan to file three INDs for our wholly‑owned programs.” — CEO Jane Chung.
• Strengthened runway via cost actions and focus: Cash runway extended “into at least the fourth quarter of 2026,” supported by externalized manufacturing and reduced operating costs.
• Platform/pipeline momentum: Management emphasized site‑specific conjugation, DAR8 exatecan designs, and dual‑payload innovation; STRO‑004 preclinical data showed greater anti‑tumor activity and lower toxicity than a TF benchmark ADC.

What Went Wrong

• Deprioritization of luvelta: Additional internal investment halted across indications; winding down luvelta‑related clinical and manufacturing functions while pursuing out‑licensing.
• Elevated 2024 operating expenses ($300.5M) with majority tied to luvelta; restructuring charges of $40–$45M will mostly be paid in 2025 and workforce reduction (~50%) creates execution risk during transition.
• Revenue compression vs 2023 (FY 2024: $62.0M vs $153.7M) and sustained losses underscore reliance on milestones/collaborations; 2024 included non‑cash interest expense related to sold future royalties ($31.1M).

Transcript

Operator (participant)

Welcome to the Sutro Biopharma 2025 Business Update webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jane Chung, Chief Executive Officer of Sutro. Please go ahead.

Jane Chung (President and COO)

Thank you, Operator. Good afternoon, and thank you all for joining us on the call today. Here with me are Dr. Hans-Peter Gerber, our Chief Scientific Officer, and Ed Albini, our Chief Financial Officer. Earlier today, we issued a press release reviewing the details of our strategic restructuring. You can find this release, as well as the presentation from today's webcast, on our website. Next slide. Before we begin, I want to remind you we will be making forward-looking statements in this presentation, as referenced here. Next slide. Today, the Sutro Board and Executive Management Team have announced the completion of a strategic portfolio review resulting in the prioritization of three wholly-owned preclinical programs in its next-generation ExitiCan and dual-payload ADC pipeline, with plans to submit three INDs in three years, starting in 2025 with STRO-004 and ExitiCan ADC targeting tissue factor.

While we are very excited to see the promise of our growing next-generation ADC pipeline, the strategic portfolio review also resulted in the deprioritization of additional investment in development of Luvelta by Sutro. This decision was not taken lightly. Given the challenging macro environment we find ourselves in, with our limited resources, we will not be able to bring Luvelta forward to realize its full potential on our own and move full speed ahead with our potentially best-in-class next-generation pipeline. We are continuing to explore global outlicensing opportunities for Luvelta as we still believe in its life-changing potential for patients of unmet need with many difficult-to-treat cancers. Further, Sutro is reducing our workforce by nearly 50% by year-end and will fully externalize our self-remanufacturing capabilities now that we have established external partners that can manufacture at scale.

With these changes, the company's cash runway extends into at least Q4 of 2026. Now, this does not include anticipated milestones from existing collaborators or non-dilutive capital we may receive from potential additional business development. Next slide. We remain deeply grateful for the many contributions of our departing employees and, of course, to Bill for his many years of dedication and leadership. Having joined Sutro with over 20 years of commercial, operational, and strategic leadership experience in both big pharma and biotech at Genentech, Onyx, and AstraZeneca, and as the previous COO at Sutro, I'm enthusiastic about leading the next phase of Sutro alongside an exceptional leadership team with deep industry oncology and ADC experience to successfully execute on our strategy and clinical plans.

This team has the collective experience, execution track record, and Sutro technology know-how to rapidly advance our ADC candidates in this strategic reprioritization, ultimately to benefit patients. Of note is my colleague, Dr. Hans-Peter Gerber, who is a pioneer in the ADC field and has been instrumental in securing the approvals of numerous life-changing ADCs at Seagen, Pfizer, and Genentech, among others. Next slide. Sutro's proprietary technology enables precise design of ADCs not possible with other conventional methods. The platform is highly flexible and scalable to commercial needs under good manufacturing practices. We can mix and match different payloads in different locations on the antibody and in different ratios using non-natural amino acids in a way that is not efficiently possible with cell-bound approaches or CHO-based manufacturing.

Our ADCs have unique design features like click chemistry and site-specific conjugation that lead to key advantages of improving the tolerability profile, PK, and efficacy. It also enables us to develop antibodies for challenging targets and overcome resistance. These qualities differentiate our ADC candidates to move beyond current standards of care and treat a broader range of patients. Next slide. Now, given our passion for transforming what science can do for patients, combined with the unique design features of our ADCs, we are excited about the next-generation pipeline of ADCs. In addition, our platform innovation has attracted world-class partners such as Astellas and Ipsen, and we remain enthusiastic about the long-term potential to continue attracting such partnerships in the future. We have reached a stage where our cell-free platform has been optimized, making this a crucial time to advance our innovative, highly differentiated ADCs. Next slide.

Let's take a closer look at our three wholly-owned ADC programs and why we believe they are highly differentiated. The unique capabilities of our XpressCF platform allow us to harness complex biology and pursue harder-to-treat targets with a differentiated product profile, and in doing so, ensuring future commercial viability. STRO-004 has been optimally designed to drive higher drug exposure and efficacy than first-generation tissue factor ADCs, while avoiding both on-target and off-target liabilities in the eye, skin, and coagulation, positioning this candidate with best-in-class potential. Next, STRO-006, revealed here for the first time, is our Integrin Beta-6 ADC designed for improved safety and efficacy. Historically, this has been a difficult target to reach, and we have successfully identified a selective antibody that has the potential to treat multiple tumor types with high unmet need. Lastly, is our dual-payload program.

We are particularly excited about this program because of its potential to be game-changing for the field of ADCs. Dual-payload ADCs enable delivery of not just targeted chemotherapy but targeted chemocombination therapy, allowing us to go after any identified targets, both old and new. By combining payloads, we have the opportunity to overcome resistance to single-payload ADCs, drive deeper and more durable responses, and provide greater control over drug delivery. In partnership with Astellas, our dual-payload program is already advancing towards the clinic as an immunostimulatory ADC or iADC, combining a cytotoxin and immune stimulator, potentially providing new treatment options for cold tumors and patients who are unresponsive to existing immunotherapies. Already, Astellas has selected two iADC programs to advance.

This is just the beginning, and there's a lot of momentum on the clinical side, with a significant number of programs on the horizon, giving us the potential to be highly selective in the programs we pursue and the optionality for business development. We are confident in our ability to deliver this growth based on our cell-free platform and strong R&D team. Next slide. Now, we have a lot of work ahead of us, but we're very excited about this opportunity to advance what we believe will be very important and very differentiated additions to the ADC treatment landscape. As I mentioned earlier, STRO-004 will be our first clinical program for which we will file an IND and initiate a first-in-human study in the second half of this year, with initial clinical data in 2026 and 2027.

INDs for STRO-006 and dual-payload ADCs will follow in 2026 and 2027 as well. Throughout this transition, we remain deeply committed, as we always have, to improving patient outcomes and believe these decisions will ultimately lead to transformative treatments that deliver the greatest benefit to patients. Thank you for your time and attention. We have time to take a few questions, so I'll turn it back over to the Operator. Operator?

Operator (participant)

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Roger Song from Jefferies.

Roger Song (Stock Analyst)

Okay. Yeah. Thanks for taking the question, Jane. Maybe the question relates to the Luvelta. What should we know in terms of the next step for Luvelta? How much the value can be realized through the partnership? Thank you.

Jane Chung (President and COO)

Roger, can you repeat the question? I think you're coming in very low volume.

Roger Song (Stock Analyst)

Sorry about that. Can you hear me now?

Jane Chung (President and COO)

Yes, we can hear you now.

Roger Song (Stock Analyst)

Excellent. Yeah. My question is related to the Luvelta. How should we see the value will be realized through the partnership, and then what will be the ideal situation for the Luvelta next step? Thank you.

Jane Chung (President and COO)

Yeah. For us at Sutro, I mean, we're looking to deprioritize and wind down our additional investment in Luvelta. At the same time, we're in active discussions with potential partners. We want to find the right partner that could realize the full potential of Luvelta. We have actually some exciting data that will be shared over the weekend at SGO, and I encourage everybody to go check it out. Our decision here in deprioritizing Luvelta is not because we don't believe in Luvelta and the potential of it benefiting patients, and that's what makes it further challenging to make this decision. We want to make sure that a partner can actually fully realize the potential.

Roger Song (Stock Analyst)

Excellent. Just quick follow-up on the follow-up question on the tissue factor V4. As you move into the IND and then clinical, how much data will we see this year to support IND? Also, should we see the initial data next year? Thank you.

Jane Chung (President and COO)

Yeah. Tissue factor is our next-generation DAR8 ExitiCan ADC. We selected the STRO-004 as our lead candidate because we're highly encouraged by the preclinical data, which points to its best-in-class potential. Based on its optimal design, we believe the treatment with STRO-004 may result in improved clinical benefits. We will be filing an IND and going to first-in-human trials later this year and hope to share sort of initial clinical data by 2026 and then 2027. Also, maybe HP, would you like to further expand on the tissue factor program?

Hans-Peter Gerber (CEO and Member of the Board of Directors)

Yeah. Happy to do that, Jane. Yeah. This is Hans-Peter Gerber, the CSO. As Jane explained, we are filing an IND later this year, and we have reported the preclinical data on this program previously at various meetings and will be doing that throughout the remainder of the year. We are particularly encouraged by the improvements we could do in the safety area for this ADC compared to benchmark ADCs that are already approved with this target tissue factor, but also in the efficacy sector of that IND. We are highly encouraged because of that superior TI to move as quickly as we can with this program towards an IND filing. Yeah. With that, back to the Operator.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Edward Tenthoff from Piper Sandler.

Edward Tenthoff (Biotech Equity Research Analyst)

Great. Thank you. When it comes to some of the layoffs, were these mostly in the discovery area? How much of a clinical effort is still in place as you guys take these exciting ADCs into the clinic? My second question is, with Sutro's track record of successful partnerships, would you look at partnering either these three now lead ADCs or doing other discovery-type deals? Is that still an effort, or is the primary focus on partnering with Luvelta? Thank you.

Jane Chung (President and COO)

Okay. I think Luvelta—and your question first was on the impact on the restructuring for us. Yes. Primarily, the majority of the folks and individuals that will be impacted in this restructuring will be tied to Luvelta workstreams. This is really wanting to make sure that we pivot and reallocate resources to align our resources to the new strategic priorities around the early pipeline. In addition, we will be externalizing our manufacturing and decommissioning our operations of San Carlos later this year as well, once we have made production of our early pipeline. In terms of the second question on partnership, we are in active discussions, partnering discussions now with Luvelta. We want to continue those. When we have an update, we will share that.

With respect to the Pipeline and platform, we have always been successful in partnering our product candidates, and we'll continue to do that as a way to secure non-dilutive capital.

Edward Tenthoff (Biotech Equity Research Analyst)

Great. Thank you very much, and good luck.

Jane Chung (President and COO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Jay Olson from Oppenheimer.

Jay Olson (Managing Director and Biotechnology Equity Research Analyst)

Oh, hey. Thanks for providing this update, and thanks for taking the questions. Can you describe how the deprioritization of Luvelta will work in terms of study enrollment? Are you pausing anything, and how much do you need to continue spending on Luvelta as it's paused? When it's partnered, will you be seeking a partnership where the partner will take over the clinical development, including the expenses, or how will that look? I have a follow-up, if I could, please.

Jane Chung (President and COO)

Thanks, Jay, for the question. Yeah. In terms of the deprioritization, we are looking to deprioritize and wind down our expenses as it relates to the development of Luvelta. At the same time, as you mentioned, we are actively in partner discussions, and we are seeking a partner that can actually take over and lead the development of Luvelta in the future.

Jay Olson (Managing Director and Biotechnology Equity Research Analyst)

Okay. Thank you. That's helpful. With regards to 006, it seems like Pfizer is moving a competing program that they acquired from Seagen into phase three. Can you just talk about any points of differentiation or areas of development that you want to focus on with 006? That would be great. Thanks.

Jane Chung (President and COO)

Yes. We are aware of the program for Pfizer's Seagen's program for 006, Integrin Beta-6 ADC. We recognize that the data for this target has been shown validated in lung cancer. Why don't I pass it over to HP to elaborate more on the opportunity there?

Hans-Peter Gerber (CEO and Member of the Board of Directors)

Yeah. Thank you, Jane. Jay, yes, we have been looking at this program developed by Pfizer very carefully, and we recognize that this is a target, Integrin Beta-6, that has a very complex target biology. The differentiation of Sutro is here that we were able to raise antibodies that bind to Integrin Beta-6 and the specific conformation of that Integrin that is present on the tumor cells, and which can be used—that antibody can be used to effectively shuttle the payload into the tumor cells but not to interfere with target biology. We benchmarked our antibody against competitor antibodies, and we ended up with a compound, an ADC, that we think has all the attributes needed to be competitive in this space. In particular, as you know, because we switched from a tubulin-inhibitor payload to an ExitiCan.

In fact, it is that difficult to get these antibodies right that we currently don't see any competitor on this target with an antibody with a DAR8 ExitiCan or any kind of ExitiCan of any kind of DAR. So we were encouraged to actually move very quickly because of our ability to develop these antibodies that don't interfere with target biology so efficiently and rapidly.

Jay Olson (Managing Director and Biotechnology Equity Research Analyst)

Great. Thank you so much for that explanation. That's super helpful. Thanks for taking the questions.

Jane Chung (President and COO)

Thank you, Jay.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Reni Benjamin from Citizens Bank.

Reni Benjamin (Managing Director and Senior Equity Research Analyst)

Hey. Good afternoon, guys. Thanks for taking the questions. And congratulations, Jane, on this new role as Sutro kind of restarts its efforts, if you will. Some big shoes to fill, but you'll do great. Maybe just to, I don't know, hone in a little bit more on the learnings regarding the Luvelta program. Can you maybe talk about, I guess, the key reasons for discontinuing the Luvelta program, and which of those kind of key criteria would you definitely want checked as you kind of move 004 through clinical development? Then I have a follow-up.

Jane Chung (President and COO)

Yeah. Reni, thank you for the question and for the congrats. As I mentioned, we recently completed a strategic portfolio review, made the decision to redirect resources to our next-generation pipeline. Our decision here to deprioritize Luvelta is based on capital required to take Luvelta to market, not as a result of any clinical findings. I think in terms of learnings, there's making sure that we have the capital funds in place to advance the programs. In fact, as I said earlier, our data is actually for Luvelta going to be shared at SGO, and it is quite encouraging. I think for 004, key criteria is for moving 004, we want to make sure that the product profile is clearly differentiated.

We recognize that the ovarian space is getting more crowded and that because—we're being very strategic here in how we're picking our ADCs on a single payload—to be those that have a bit more complex biology not easily made by other companies. We're going to be very strategic in how we select those, tissue factor being the first, and then Integrin Beta-6. That ensures that commercial viability by the time we can actually advance into the clinic and get to meaningful data. I hope that helps.

Reni Benjamin (Managing Director and Senior Equity Research Analyst)

Yep. That does. Just to follow up, we've been kind of dancing around this. I'm just going to ask it directly. How much should R&D and SG&A be going down this year? Because, I mean, kind of based on your hay up until the fourth quarter of 2026, how long our cash should last, at least, it seems like you're going to be burning around $150 million or so for the next two years, which still seems kind of steep to me. Can you maybe just help us understand or maybe guide us a little bit as to how long it'll take, how quickly you can wind down operations so that you can implement these savings this year, and maybe how much longer this current cash position could last?

Jane Chung (President and COO)

Yeah. Thanks for the question, Reni. Actually, Ed has been waiting for somebody to ask that question. I will pass it over to Ed.

Edward Albini (CFO)

Ren, thanks for the question. As Jane mentioned, you probably saw our financial results for 2024, where in a rough sense, our expenditures were around $300 million. The only clarifying on the quantification is the majority of that, the clear majority of that, was for Luvelta and Luvelta-related. I can't help you more specifically on your math. I will have you think about the fact that we spent on Luvelta in Q1, largely all of Q1 since we're almost through Q1. You will see the disclosure there where there's an estimated $40-$45 million of restructuring-related charges. You should factor that into 2025. We do expect, again, without quantifying it for you, we do expect a dramatic decrease in overall expenditures for the remainder of 2025 and into 2026 and beyond.

Reni Benjamin (Managing Director and Senior Equity Research Analyst)

Great. Thanks for taking the questions. Good luck.

Operator (participant)

Thank you. At this time, I would now like to turn the conference back over to Jane Chung for closing remarks.

Jane Chung (President and COO)

Okay. Thanks to everyone. Again, I sincerely appreciate your time today. This was a very difficult decision to deprioritize additional investments in Luvelta development as we continue to seek a partner. We're making this strategic pivot not because we don't believe in Luvelta; rather, this is being made in favor of prioritizing our early-stage pipeline, which represents the potential for realizing the advances we have made in our ADC platform. We're excited about the future of Sutro and the promise of our next-generation ADCs. We look forward to continuing the dialogue and seeing many of you at upcoming conferences. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now.