Q3 2022 Spero Therapeutics Inc Earnings Call

Following the company's formal remarks, we will open up 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 todays announcement on the spirit Sparrow Therapeutics website Triple W. Sparrow Therapeutics Dot com.

At this time I would like to turn the conference call over to Ted Jenkins, Vice President Investor Relations and strategic finance, such Spero Therapeutics. Mr. Jenkins. Please go ahead.

Thank you operator, and thank you all for participating in today's conference call.

This afternoon, Spero Therapeutics released financial results and provide a pipeline update for the third quarter of 2022 press release is available on the Investor page. The Spero Therapeutics website before we begin I would 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 Spi 2012.

SPR.

Six until you've had in <unk>.

And the design initiation timing progress and results of the company's preclinical studies and clinical trials and its research and development programs Managements assessment of the results of preclinical studies and clinical trials, the company's cash forecast and anticipated expenses and 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.

Factors that could cause or contribute to such differences are described in detail in spirit therapeutics filings with the SEC, including in the risk factors section of our quarterly report on Form 10-Q for the quarter ended September 32022 filed today.

These forward looking statements speak only as of the date of this conference call and 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 Dr. <unk>, <unk>, Chief Executive Officer Dr.

Matt.

<unk> Medical officer, and Seth <unk>, our Chief Financial Officer.

With that I'd like to turn the call over to Dr. <unk>. Please go ahead on kit.

Okay.

Thank you Ted and good afternoon to everyone, who has joined US for a discussion of our third quarter financial results and company highlights.

The third quarter was an exciting time for <unk> as we successfully executed on our new strategic direction that we set forth in the second quarter.

When it became clear that <unk> would not received FDA approval on its first cycle of review the strategy. We laid out was to move forward with Spi 2020 is our lead asset and advanced <unk> and Spi 206, as our designated partnership directed programs. We made this decision because we felt it would.

Position us for future growth allow us to maintain good stewardship of our capital and ensure the medicines that we developed continue to advance towards potential regulatory approval.

In addition, our long track record of establishing creative partnerships with leading organizations gave us confidence that we will be able to able to successfully execute our new strategic approach.

Our confidence and our approach were validated this past September when we entered into an exclusive license agreement with GSK for <unk> kind of HDR.

As delineated in last week's press release, we have now closed this transaction.

<unk> has already received a $9 million associated with Gsk's equity investment and we will soon receive the $66 million upfront payment and will be eligible for up to $525 million in additional milestone payments as well as low single digit to low double digit tiered royalties on net product sales.

This collaboration adds even more strength to our balance sheet and shareholder base.

In exchange for the upfront payment and potential milestones and royalties GSK has been granted an exclusive license to develop and commercialize <unk> in all territories, except Japan and certain other Asian countries, which will be retained by <unk> partner Meiji Saker.

Under the agreement <unk> is responsible for the execution of an upcoming phase III study and GSK is responsible for the execution and cost of additional development commercialization activities for <unk> outside of the major sacred territory.

Given GSK has global reach and history as a leader in infectious diseases. We believe they are the ideal partner to fully unlock Kevin Panama value and expeditiously Delever the medicine patients following regulatory approval.

We therefore view the new partnership as a key step towards potentially providing millions of complicated urinary tract infection patients with an at home oral option that may also reduce hospital resource utilization.

It's our hope that <unk> may provide an alternative to the intravenous therapies, which currently are often a patients only auction.

Extensive clinical and market research data suggests that such an option would improve clinical care, while delivering substantial economic benefits to patients physicians and payers alike. We are eager to continue developing <unk> as a potential first oral carbo kind of antibiotic for the development of <unk>.

And are thrilled to be supportive in this endeavor by our world class partners at GSK.

Looking ahead for <unk>, we expect to initiate a new phase III clinical trial in 2023.

Prior to entering our agreement with GSK, we aligned with FDA on key components of the trial design at a recent type a meeting.

<unk> back from this meeting indicated that positive results from this single additional trial together with confirmatory non clinical evidence of efficacy could be sufficient to support Kevin kind of on <unk> approval for the treatment of complicated urinary tract infections, including pyelonephritis for a limited use indication.

Upcoming pivotal trial will build upon the extensive clinical and non clinical data previously generated with <unk>, which include the results of our prior phase II clinical trial adapt Po.

The results of this clinical trial, which were published in the New England Journal of Medicine demonstrated that <unk> was well tolerated and non inferior to IV <unk> to Panama in.

In the treatment of adult patients with complicated urinary tract infections or acute pyelonephritis as per the Prespecified Statistical protocol.

We are currently working to finalize the design of our upcoming trial, which will be the subject of a special protocol assessment request.

With review of our newly forged partnership compete.

Like to now introduce Spiros, our recently appointed Chief Medical Officer, Dr come all hummus.

Promote joint Spero in September , bringing with him an impressive range of experience within the biotech industry global pharmaceutical companies and as a practicing physician caring for patients with infectious diseases. He has a long track record in infectious disease drug development, including multiple drug approvals. These integrated seamlessly into his new <unk>.

<unk> Sparrow has displayed the expertise and commitment to our sparrow values that made him the ideal candidate to serve as our CMO.

With the added strength come all brings to our management team, our clinical pipeline and our GSK partnership we've laid the foundation for sustained growth into 2023 and beyond we have cash runway through key milestones for each of our clinical programs and are deeply talented team in place.

All of our programs are supported by clinical and non clinical data that provide clear differentiation over competing approaches and each has demonstrated the potential to deliver clear political and economic benefits with that I will now turn the call over to come all to speak about his decision to join US here at Sparrow and to provide an update on the <unk>.

720, <unk> hundred six programs I'll hand, it over to you <unk>.

Thank you very much on kit for the kind introduction.

The core drivers behind my decision to join Spiro, we're the clear strength of its pipeline.

Integrity and expertise of the management team as well as the guiding principles behind Kato's drug development strategy, which I view as the ideal approach for the ample Baltic field.

This approach focuses on developing medicines that first and foremost address the unmet medical needs of patients while simultaneously, providing clear benefits to the health care system more broadly.

By successfully executing on this approach I believe we can develop anti infectives that all positioned for rapid and widespread uptake following regulatory approval.

<unk> walked you through how we believe <unk>, Panama <unk> meets these criteria I'll focus on SPR 720, and STR to Asics.

I'll follow up with STR 720, <unk>, our novel oral candidate being developed as a first line treatment for non tuberculosis mycobacteria pulmonary disease or <unk> for short, which is an orphan disease.

<unk> is an area of high unmet medical need as there are currently no FDA approved options for first line treatment.

SPR 720 is the stable pro drug that's rapidly converted to the active moiety SPR 719.

In vitro studies have demonstrated SPR, 719th potent activity against a broad spectrum of MTM species, which is a result of its ability to inhibit atpase located on the drive as B subunit of the touch somatic dry days <unk> protein.

This mechanism of action is importantly distinct from that of slow a quinolone, thus avoiding cross resistance with <unk> loans and other marketed antibiotics, which has been corroborated in VITAS with in vitro surveillance data from recent MTM clinical isolates.

It is important to note that STR is 719 is highly concentrated in macrophages.

Bids were MTM survive and replicate.

In vivo data supporting SPR 700, Twenty's development come mainly from annuity in chronic infection model.

<unk> displayed preliminary activity against the most prevalent slowly growing in the most prevalent profitably growing MTM species.

And an approximately 100 subject phase one first in human study supporting its safety and Tolerability of the exposures above predicted levels.

Levels.

These data if you will my optimism for the program.

They are just one component of <unk> strong value proposition a second key components as they clinical development strategy that we are pursuing.

This strategy aims to maximize SPR 700, twenty's therapeutic and commercial potential by addressing patients with MTN PD, who are early in their disease journey and the treatment naive or treatment NXP as stages.

The off label therapies currently available for these patients have pool risk benefit profile and are frequently unable to prevent the progression to late stage refractory disease, even when administered continuously for one to two years.

In some instances because physicians view the risk benefit profile of the ample Baltic combinations currently employed as pud they choose to delay for micro therapy and instead initially only suggests steps to improve bronchial hygiene on.

Unfortunately, this approach does not prevent disease progression.

Patients, who progressed to refractory disease will often software irreversible lung damage leading to debilitating symptoms that may prevent them from performing with team daily activities.

Our recent virtual on day event featured in MTN, PD patient testimonials and expert perspective from a key opinion leader describing both the devastating effects of these symptoms as well as the thokk limitations of currently available therapies.

We encourage all of those who are interested to view the replay if all event on this page at our website.

Despite the permanent lung damage that comes with progression to frac to the MTM PD. Most all of the agents in development only seek to treat the disease at this late stage.

However, while taking a different approach our goal is to develop SPR 720 to intervene before patients progressed through refractory disease. So that we can help event a reversible lung damage from the infection.

We believe that this will allow SPR 720 to elicit more meaningful improvements in clinical outcomes and quality of life.

In addition, focusing on treatment naive and treatment inexperienced patients provides a larger addressable patient population for <unk> 720.

75% of MTM PD patients all within these concert vacations.

As referenced in todays press release, we have initiated the SPR phase Iia clinical trial designed to achieve early and robust.

The concept for this investigational medicine.

Topline data are expected in the first half of 2024, and we no longer plan to announce interim data.

Given that the trial will be relatively focused with a planned enrollment of 30 patients. We believe announcing data from all patients at one will allow us to make a disclosure that's more impactful from both the scientific and value.

<unk> perspective, given our newly extended cash runway due to the GSK agreement.

The trial design remains unchanged from what was discussed on saddle. His last earnings call. The Stahl deal compared two doses of oral SPR 720, mono therapy, 501000 milligrams versus placebo and treatment naive or treatment experienced patients.

Primary endpoint is slope change of weekly pizza bacterial burden from day, one to day 56.

Specifically, we hope to observe and I get this slope with SPR 720 treatment, that's significantly better than that with placebo.

This methodology for assessing monotherapy activity of an anti Mycobacterium <unk> is both well established and validated having previously been employed in the evaluation of drugs approved through a mycobacterium tuberculosis.

Demonstrating <unk> ability to drive an early microbiological response, as a standalone agent versus placebo would be a potential key catalyst towards the program.

Clearly differentiate SPR $7 20 from all those therapies as there are currently no existing agents that have accomplished this feat.

It was also provides clear proof of concept for <unk> long term development as a component of combination regimens for MTM PD.

I'll next discuss what I find most exciting thing about SP at 206, our phase II ready Aussie polymyxin end per Baltic candidates being developed to treat multi drug resistant gram negative bacterial infections within the hospital setting.

Background the development of treatments for Gram negative bacterial infections is an area of research that has been relatively stagnant.

With a number of novel therapies, gaining approval for these infections sharply decreasing over the past 40 years a major reason for this has been the inability to generate agents that can maintain antimicrobial activity. While also penetrating the negatively charged out to the membrane of Graham neck.

<unk> bacteria.

This lack of innovation has left patients with extensively drug resistant gram negative infections with sub optimal therapeutic options that consists of combination regimens, including older. Paul It makes sense such as call listing which is one of the most widely used volume makes sense today.

Unfortunately called <unk> and other pull that makes sense audit associated with remarkable net flip toxicity, creating a need for next generation agents that can take the place and combination regimens.

In addition.

I'll I'll call. This the Bronchoalveolar lavage.

Our clinical study showed that <unk> was unable to penetrate patients lungs with levels being on detectable conclusion for this study. This highlights on other key limitation of the agent as about half of the patients infected with multi drug resistant gram negative pathogens.

Software from lung infections.

Pneumonia.

Its mechanism of action, we believe that SP at two six can overcome that resistance and gram negative bacteria Talbot classes event, the baltics as well as the limitations of currently available Paul It makes sense.

This belief is supported by preclinical data demonstrating that SPR two six given its potent intrinsic activity and ability to put me realize gram negative bacterial membrane when combined with beta lactam <unk> and cobalt tenants is very effective in there.

Profound killing off several extensively drug resistant gram negative pathogens, including Cobre Panam resistant acinetobacter, bahmani, which have a mortality rate of 40% to 50%.

Further clinical data show that STR to Asics can achieve exposures of bulk predicted therapeutic levels, including concentrations in the lungs sufficient for killing these pathogens.

And clinical studies to date SPR, two six has been well tolerated and there has been no evidence of nephrotoxicity it multiple daily doses with exposures above <unk> levels.

When taken together, we believe these clinical and preclinical data clearly highlight SPR to asics as a potentially best in class polymyxin.

This best in class potential has helped SPR to six game to support that partners, including Pfizer.

<unk> recently made a $5 million payment all previously announced ex U S ex Asia license agreement.

Thanks to the support from Pfizer and other partners SPR to six is fully funded by external non dilutive sources through phase two development.

The upcoming Phase II study is designed to enroll patients with multidrug resistant pathogens and is expected to begin in the fourth quarter of 2023.

I am pleased to announce that the U S patent and trademark office issued a composition of matter patent with formulations that off.

And methods of use in treating bacterial infections with SPR to Asics. The patent is assigned to its payroll and has the lifespan extending into at least June 2013 line.

This completes my pipeline review I'll now turn the call over to our Chief Financial Officer.

Sue Clark to review our financial results stuff.

Thank you come out.

As of September 32022, better hedge approximately $54 million in cash cash equivalents and marketable securities.

This does not include the $75 million draw those in total gross proceeds from the upfront payment and equity investment being made by GSK in connection with the exclusive license agreement for.

<unk> H b.

Given that the GSK transaction has now closed these expected payments had been invoiced.

$9 million and equity investments has been received and the remaining $66 million upfront payment is expected to be delivered in November .

Based on our current projections.

I believe our existing cash cash equivalents in marketable securities.

Together with the other non diluted funding commitments and the anticipated proceeds from the GSK license agreement equity investment and milestones.

It would be sufficient to fund our planned operating expenses and capital expenditures beyond 2024.

This anticipated run rate is expected to.

To take us through key clinical milestones.

<unk> final topline phase III data for SBR 720.

The initiation of a phase III clinical trial of <unk> <unk>.

And the initiation of a phase two clinical trial for Spi two six.

Turning now to our remaining financial results.

Total revenues for the third quarter of 2022 with $2 million.

Compared with revenues of $3 1 million in the third quarter of 2021.

The revenue decrease was primarily due to a $1 $5 million decrease in funding.

Under our agreement relating to Spi two six.

0.2 million decrease in qualified expenses under the BARDA contract for <unk> H B.

Partially offset by an increase of 0.2 million under the <unk> agreement relating to Spi to Asics.

And recognition of $1 1 million in collaboration revenue relating to the Pfizer agreement.

Research and development expenses for the third quarter of 2022.

Seven $4 million compared with $14 $4 million.

Research and development expenses for the same period in 2021.

This year over year decrease was primarily due to a $4 5 million reduction in direct costs.

Associated with program activity for Terry Panama HBO.

A $1 2 million decreased due to reduced clinical activity during the period for SPR towards six.

And a decrease in personnel related costs of $2 7 million related to a reduction in research and development head count.

Due to the May 2022 strategically structuring.

Partially offset by $1 3 million of increased cost due to increased clinical and pre clinical activity for SBR 720.

General and administrative expenses for the third quarter of 2022.

$6 $6 million, but lower than the $11 2 million reported in the same period in 2021.

Primarily as a result of a decrease in personnel related costs.

Arising from a reduction in head count in commercial general and administrative functions due to our strategic restructuring.

And a decrease in professional and consulting fees of $2 $6 million.

<unk> reported a net loss for the third quarter ended September 32022.

$11 $7 million or 33 cents per common share.

Compared to a net loss of $22 5 million or.

70 per equivalent ship reported for the same period in 2021.

For further details on our financials.

Please refer to our 10-Q filed with the SEC today.

We will now open up the call for questions operator.

Thank you.

We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone.

Pat you will.

Here at home acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing and Keith.

To withdraw your question press.

And then Kim.

Well pause for a moment as callers join the queue.

Our first question is from Gavin clock Gardner from Evercore ISI. Please go ahead.

Right.

Hey, good afternoon, I was just hoping with all the recent political update if you could frame where the pasture ask them since this could potentially be irrelevant the SPR <unk>. Thanks.

Thanks, Kevin for the question.

Youre right the pasture Act, which just as a brief review would provide.

A very large nine figure subscription payment to drug developers that develop medicines that meet certain criteria such as those that potentially SPR two of six could meet.

Could be a nice addition to the value proposition for 206.

Right now.

Bill has made bipartisan progress it has bipartisan sponsorship and it's in a form where it could be appended to some of the larger vehicles for <unk>.

<unk>.

Certainly with the mid terms coming.

Where the prospects for the Bill I think will depend on ultimately who's in control of the house now that the Senate is.

Locked in on the Democratic side, So we will see in the coming days, though in terms of from a contract perspective pasture is in a good position to be appended to something to potentially perhaps.

Mr Gardner.

Correct correct and then did you have a follow up question.

No that was it I appreciate the color actually no alarm here, maybe you could just give us a little more color around the rationale to knock interim analysis for SPR 700000.

Yeah Gavin sure.

So a couple of points there first we decided to focus on topline data because for.

A couple of reasons first is that this study is relatively focused so.

It lends itself to the second reason, which is that we wanted to make sure that the data we do deliver is fulsome and clear about what 2020 can do for patients Theres, even been very recent examples in the marketplace, where interim data can sometimes paint that murky picture for our program in a study that's in progress.

Yes, and the final reason is that with the our newly extended cash runway. After our partnership with GSK, We do have the runway and the opportunity to allow the study to get to a more robust point and then finally operationally, there's some efficiencies and being able to push forward.

Into topline data rather than focusing on an interim result.

Got it thanks.

The next question is from Louise Chen with Cantor. Please go ahead.

Hi, congratulations on all the progress this quarter and thanks for taking my questions.

First question I had for you is if you could give more color on that $525 million in sales.

Commercial milestones and how those will get trigger or what will trigger them and win and then secondly, I wanted to ask you about opex in fourth quarter and 2023 should we use the third quarter as a run rate or is there something else that we should think about as nuance. There and then last question is you've got a lot going on to be very busy ended the year and then obviously <unk>.

'twenty three so Jeff.

Just curious if we were going to frame out what are the key catalysts and events, you'll be looking out for them, but let's say the next 12 to 18 months. Thank you.

Yeah. Thanks, Louise for the Great questions I'll answer number three first in terms of the overall calendar and then the other two questions you ask I will hand to Sop.

You are right that it is going to be a very eventful 'twenty three and 'twenty four.

You should expect US going program by program number one as we mentioned we're going to be going through the special protocol assessment process with epipen.

Have you kind of and starting that phase III trial, which will trigger.

Milestones within the GSK agreement secondly for four <unk>.

<unk> hundred six you'll you'll look for us to.

Do the work to advance 206 into the clinic again in a phase II study.

And then number three for 2020, we've gone through where the trial. Currently is we'll be actively enrolling patients they're looking to the first half of 'twenty four for a clinical readout. So in other words each of our programs will be.

In the clinic during that period of time, and we'll be looking for several important readouts as well as milestones from our collaborations.

For the other two.

Questions I'll hand, it over to Usama.

Great. Thanks.

Thanks for the questions Louise.

Our milestones.

Laid out some detail for the development and commercial milestones when we announced the transaction, but in rough terms roughly $115 million of those milestones associated with the phase III development program.

Haven't disclosed exactly when those payments come in but the expectation is that data will come in in time to actually fund the activity as part of the program.

Look at the next few quarters as we engage in running that trial again I dose that funding will come in through that idiot at certain points in time, that's the $115 million and develop and milestones.

We have also disclosed $150 million and first patient first sale associated milestones.

This is a U S and also ex U S program. So part of that is ex U S. But if you were to assume that the.

Majority of that amount concerned on the first patient for sale in the U S. You wouldnt be wrong.

So that's the majority our entirety of the $115 million of that first patient commercial milestone.

And then after that.

As laid out in our PR there a milestone associated with the decrease of revenues. So the first time the product sales hit a couple of hundred money onto others.

That's a milestone the first time, they had $300 million federal get some milestone.

In the initial sections of that ramp these sales milestones continue to be allocated just faro edge.

At higher levels of sales transition more into the royalties.

Anchor described earlier increase from low single digits at the lower end of sales to low double digits on the higher end.

Let me pause there and.

Hi.

First to confirm did that answer your question before I move to your run rate question.

Yes. It does thank you very much.

Great for.

For the run rate Louise for for Q.

A <unk> number but slightly higher probably the appropriate measure for what you should model in.

We will be investing a little bit and obviously the start of our.

Spy activities and preparing for the phase III <unk>.

Trial, when we restart that next year.

But in the interim it's all progressing 700 <unk> six just as we did in this quarter those bond rates are actually pretty similar to what we experienced in this quarter. So if you applied a slight markup, but assume that would be much more reflective of this quarter as opposed to Q2 for example.

That would probably be the appropriate I'd have to go.

Okay, and you mean for R&D or SG&A also.

For both.

Okay. Thank you.

Once again, if you have a question. Please press Star then one.

Our next question is from <unk> <unk> with Cowen. Please go ahead.

Good afternoon, guys. Thanks for taking the question.

To ask about the final phase III that was agreed upon.

Following the tightening and the minutes can you guys talk about the major differences between the upcoming study on your prior study specifically.

How many patients worth that.

<unk> will be handled.

Whether you have enough Paul.

P value point out five off work.

Steady.

And if you're using the same sites.

Yes.

Yeah. Thanks, Thanks, Ritu I'll I'll hand, this question over to <unk> to come out.

Yes. Thank you. Thank you for the question. So we're still in discussions about the final design of the final phase.

Of course, we have the type a meeting with FDA and that provided clarity on the.

<unk>.

How to approach the next phase III study, but we are currently in discussions with our partner GSK and the final protocol design will be disclosed after we've reached agreement with GSK.

Got it but that's the trial is still on track to start in 2023 is that correct.

It is correct.

Great.

Thanks, so much.

This concludes the question and answer session I'd now like to turn the conference back over to Dr. <unk> for any.

Closing remark.

Thank you operator, and thanks to everyone that listened today, we look forward to our pipelines continued advancement and I wish everyone a nice evening.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.