SPRO - NASDAQ

Good afternoon, and welcome to Spero Therapeutics Fourth Quarter and Year-End 2022 Financial Results Conference Call. [Operator Instructions]. Please be advised that this call is being recorded, and the 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 www.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.

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 fourth quarter and full year 2022. 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 SPR720, SPR206 and tebipenem HBr, and the design, initiation, timing, progress and results of the company's preclinical studies and clinical trials and its research and developmental 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 annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC 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. Ankit Mahadevia, Chief Executive Officer; Dr. Kamal Hamed, Chief Medical Officer; and Sath Shukla, Chief Financial Officer. And with that, I'd like to turn the call over to Dr. Ankit Mahadevia. Please go ahead, Ankit.

Thanks, Ted, and thanks to everyone listening. Spero's off to a strong 2023, thanks to recent achievements that have provided us with a strong balance sheet and world-class partners to support the advancement of our multi-program pipeline of differentiated medicines. We remain committed to developing a pipeline of medicines that marry unmet need with high commercial potential, and we continue to do so while placing a premium on capital efficiency and complementing our efforts with those of our partners in pharma and in public agencies. Kamal will be providing an update on SPR720 and SPR206. So I'll focus my part of the call on tebipenem HBr, which we are developing as potentially the first oral carbapenem antibiotic for the treatment of complicated urinary tract infections or cUTI. As a reminder, tebipenem HBr is the subject of an exclusive license agreement with GSK, which closed last quarter. This agreement came with a $66 million upfront payment to us as well as a $9 million equity investment in our common stock, both of which have now been received. In addition, we are eligible for up to $525 million in development, sales and milestone payments as well as single-digit to low double-digit royalties on net product sales. In exchange for all this, GSK was granted an exclusive license for tebipenem HBr's development and commercialization in all territories except Japan and certain other Asian countries, where rights are being retained by our partner, Meiji Seika. Per the agreement, we hold responsibility for an upcoming Phase III trial of tebipenem HBr, while GSK will be responsible for additional development and commercialization activities outside of the Meiji Seika territory. We're engaged with the FDA on the planned protocol for tebipenem HBr's upcoming clinical trial. As you may recall, we had a Type A Meeting with the agency in 2022, during which we aligned on high-level aspects of the trial design and received feedback indicating the positive results from the trial, together with confirmatory, nonclinical evidence of efficacy could be sufficient to support tebipenem's approval in cUTI, including pyelonephritis for a limited use indication. We still anticipate providing an update on our engagement with the FDA in the first half of this year. This update will include details of the clinical trial design as well as granularity on the specific regulatory and development activities over the coming months that will trigger milestone payments from our GSK partnership. We'll continue to anticipate initiating the Phase III trial in the second half of 2023. And if all goes well with the program, we believe tebipenem HBr could reach commercialization by 2026, as noted by GSK on their earnings call last month. I'd like to thank GSK for their role in what's been a very productive partnership to date. As we work to advance tebipenem HBr through the regulatory process and complete the Phase III trial, it's the program's strong foundation that fuels our enthusiasm. This foundation consists of 3 key pillars. The first of these pillars is the extensive data set supporting tebipenem's safety and efficacy. Between our work and that of Meiji Seika, tebipenem has been evaluated in 24 clinical trials that have been collectively enrolled over 2,500 subjects. These are highlighted by our double-blind placebo-controlled Phase III trial ADAPT-PO. Moreover, post-marketing surveillance efforts on tebipenem in Japan where it's approved for pneumonia, otitis media and sinusitis have demonstrated its efficacy while noting no safety issues in a review of more than 3,300 patients. The second key pillar of tebipenem's foundation is its potential to address a clear and pressing unmet need. There are currently no oral carbapenem antibiotics available for millions of cUTI patients in the U.S., many of whom have no other option other than to receive an IV therapy in a hospital setting. By successfully developing tebipenem, we believe we can provide these patients with an at-home oral treatment that could provide health and economic benefits for them, while also improving costs for the health care system. The last key pillar making up tebipenem's foundation for success comes from the support of our partners. We believe GSK is the ideal partner to lead tebipenem's commercialization, if approved, given its well-established commercial organization and commitment to serving patients with infection, including urinary tract infections. We're also grateful for the continued support of BARDA for the advancement of tebipenem. With that, I'll turn the call over to Kamal to discuss SPR720 and SPR206.

Thanks, Ankit. I'll begin by providing a brief update on SPR720, our novel oral drug candidates being developed as a first-line treatment for the orphan-designated nontuberculous mycobacterial pulmonary disease or NTM-PD for short. An important aspect of our SPR720 program is a target patient population, which consists of patients who are treatment-naive or those who have received treatment but have nonrefractory disease. This is noteworthy because patients with NTM-PD who progress to refractory disease often suffer irreversible lung damage limiting the potential for pharmacotherapy to improve how they even function. With quite the inherent challenges of treating patients with refractory disease, there remain no FDA-approved first-line therapy for NTM-PD. Instead, patients were early in their disease journey are frequently treated with combinations of off-label therapies with limitations related to tolerability and effectiveness. In fact, published estimates indicate that 75% of patients with NTM-PD who receive standard-of-care treatment discontinue such treatment after about a year, mainly due to tolerability and effectiveness concerns. Even when they complete their course of therapy, a relatively large proportion of patients experience recurrent disease. Through SPR720 development, we hope to improve the first line standard of care for patients with NTM-PD. Towards this end, we initiated a Phase IIa clinical trial designed to establish proof of concept. We recently completed the successful investigator meeting, and we are conducting the appropriate development activities for the program, working to eventually advance SPR720 into clinicals.

I'll jump in for Kamal. I think he's having technical difficulties. These activities include ongoing toxicology work, CMC and quality initiatives, engagement with FDA and activities to expand into Japan as there is a large prevalence of Japanese patients with NTM-PD. Importantly, we are also actively progressing with the development and validation of relevant patient-reported outcomes for NTM-PD as part of the clinical endpoint work for follow-on clinical studies. The Phase II trial was designed to enroll approximately 35 patients with NTM-PD due to mycobacterium avium complex, implicated in approximately 80% of NTM-PD cases. Eligible participants are either treatment-naive or have received prior treatment but have nonrefractory disease. The study will compare 2 doses of oral SPR720 monotherapy of 500 and 1,000 milligrams versus placebo. The primary endpoint is slope change of weekly sputum bacterial burden from day 1 to the end of the trial's 56-day treatment period. We aim to see SPR720 treatment leading to a weekly sputum bacterial slope change, which is both negative and significantly better than placebo. Achieving this goal would make SPR720 the only agent in development that we're aware of with a demonstrated ability to drive early microbiological response against NTM as a stand-alone agent versus placebo. Pairing this result with safety data that are consistent with the favorable safety findings observed in SPR720's prior Phase I trial would strongly support advancement of the program. More broadly speaking, the goal of our Phase IIa proof-of-concept studies to inform the design of a later stage and longer-term trial evaluating SPR720 in combination with current standard-of-care agents. Although we do not expect to comment on enrollment this trial progresses, 10 U.S. sites are currently active and more sites are expected to come onboard in the coming months. This progress is in line with our target time lines and we remain on track to report top-line results from this Phase IIa trial in the first half of 2024. On behalf of Kamal, I'll now briefly discuss SPR206, our investigational next-generation polymyxin candidate being developed to treat multidrug-resistant gram-negative infections in the hospital setting. This program is supported by multiple collaborations, including Pfizer, Everest Medicine and the National Institute of Allergy and Infectious Disease and the U.S. Department of Defense. A major limitation of currently available polymyxins is the nephrotoxicity associated with these agents. With that as a premise, our team leveraged the understanding of the structure activity relationships to design 206 in a way that minimizes in vitro cytotoxicity in vivo kidney exposure. In animal models, this led to a substantial reduction of the nephrotoxicity profile compared to currently available polymyxins. Subsequent Phase I trials indicated that 206 was generally well tolerated at dose levels of both predictive therapeutic exposures in key tissues such as the lungs. These data, together with in vitro data demonstrating its potent activity against multidrug-resistant pathogens supports our belief that 206 has the potential to be a best-in-class polymyxine. Supported by encouraging clinical and preclinical results we have seen to date, we're now working to advance SPR206 into an externally funded Phase II trial in patients with hospital-acquired or ventilator-associated bacterial pneumonia. We expect to submit an IND application to the FDA to support this Phase II trial in the fourth quarter of this year. With that, I'll pass the call over now to Sath to review our financial results. Sath?

Thank you, Ankit, and good afternoon to all listening. It is my pleasure to now provide an overview of Spero's financial results for the fourth quarter and full year ended December 31, 2022. Total revenues for the fourth quarter of 2022 were $47.4 million compared with revenues of $2.7 million for the fourth quarter of 2021. The revenue increase for the fourth quarter of 2022 was primarily due to $46.1 million in collaboration revenue related to our agreements with GSK and Pfizer. Total revenue for the year ended December 31, 2022, was $53.5 million compared to $18.3 million for the year ended December 31, 2021. The revenue increase for the year ended December 31, 2022, was primarily due to the aforementioned partnership collaboration revenue. Research and development expenses for the fourth quarter of 2022 were $15.1 million compared to $17.2 million of research and development expenses for the same period in 2021. This year-over-year decrease was primarily due to a reduction in personnel-related costs following the strategic restructuring announced in May 2022. Research and development expenses for the year ended December 31, 2022, were $47.6 million compared to $64.5 million for the year ended December 31, 2021. The lower expenses in 2022 compared to 2021 primarily due to reduced program activity for tebipenem HBr as a result of the strategic restructuring last year. General and administrative expenses for the fourth quarter of 2022 were $6.5 million compared to $13 million of G&A expenses for the same period in 2021. This year-over-year decrease was primarily due to reduced headcount costs in our commercial, general and administrative functions as a result of the strategic restructuring. General and administrative expenses for the year ended December 31, 2022 were $36.5 million compared to $41.7 million for the year ended December 31, 2021. The lower expenses in 2022 compared to 2021, again, primarily as a result of the strategic restructuring. Restructuring expenses of $11.6 million were incurred during the year ended December 31, 2022. These expenses primarily comprised of $8.6 million of severance and other employee costs, $2.4 million of discontinuation costs such as contract termination fees and $0.6 million of lease impairment expenses. Spero reported net income of $26.8 million for the fourth quarter and a full year net loss of $46.4 million for the year ended December 31, 2022 or net income of $0.55 and net loss of $1.23 per share of common stock, respectively. Net losses for the fourth quarter and year ended December 31, 2021, were $29.2 million and $89.8 million or $0.90 and $2.91 per share of common stock, respectively. As of December 31, 2022, Spero had cash and cash equivalents of $109.1 million. Based on its current operating plan, Spero believes that its cash and cash equivalents, together with other nondilutive funding commitments, will be sufficient to fund its operating expenses and capital expenditure requirements beyond 2024. For further details on our financials, please refer to our 10-K filed with the SEC today. We will now open the call for questions. Operator?

[Operator Instructions]. Our first question comes from Louise Chen with Cantor.

Congratulations on all the progress this quarter. So I'm going to ask a few questions. First, on your cash balance, will it take you to the 720 Phase II readout? And then the other question I wanted to ask you was, if your drug, the 720 is approved for NTM, where do you expect to fit into the treatment paradigm? And then last question is just on OpEx. How we should think about that relative to 2022 and then with the potential increase in R&D expense, I guess, given the new programs that you're working on, how we should phase that in?

Thanks, Louise, for the questions. Your first and third question relates to some of our financials. So I'll have Sath answer those. But perhaps I'll start with the treatment paradigm for 720. So just to zoom out to 100,000 feet, NTM is a debilitating chronic disease. It affects about 0.25 million patients worldwide, half in the U.S., half in the rest of the world. It's a slow-growing, debilitating disease where patients would lose their quality of life slowly and the longer a patient has the disease, the more long term and lasting damage the lungs have. So we believe that the treatment paradigm for NTM drugs generally and also 720 is to be a solution for patients early in their disease journey. Now certainly, the drug has the microbiological characteristics to be useful throughout a patient's disease journey. We're starting with first line because it's 75% of the current patient population, number one. And number two, as we've looked at published literature suggests that 75% of patients that are on the current options they have discontinue within a year. And of the patients that actually stick with it, half of them don't find any relief. So the major unmet need right now is first-line treatment and something that patients can take throughout their disease journey to avoid becoming refractory patients that's where we'll start, and then we'll explore how we expand the story from there as we continue to generate clinical data. So that's perhaps the first part of your question. For the financial components of your question, I'll turn it to Sath.

Thanks for the question, Louise. So your first question on whether the cash balance will take us through the top-line data readout for 720. That is indeed the case our expected top-line data readout is in the first half of next year. Our expected cash runway is to beyond 2024, meaning beyond the end of 2024. So we expect to have this data readout with still a healthy balance of cash sitting on our books when it becomes available. So that -- unless you had questions on the cash, I can move on to the operating expense question.

Yes, that makes sense.

Great. On the operating expenses, Louise, if you look at our financials for this quarter, other than a onetime payment made to Meiji as disclosed in our 10-K, the run rate for OpEx is virtually the same as our burn on OpEx for 3Q of last year. So for 3Q of last year, we've been in the early teens in terms of dollars. If you extrapolate that early teens burn on [indiscernible] expenses on a $109 million cash balance that would give you the support for our disclosed cash runway to beyond 2024. For the in between R&D, you are, of course, right that we expect to scale that up and we start Phase III trials, but those will be funded by the milestones we received from GSK on development through that process. So indeed, R&D expenses will go up, but so will the cash and milestones coming in from our partners. And therefore, for GSK, we expect that to be a wash. Prior run rate will give you the calculations that would support our disclosed cash runway.

This concludes our question-and-answer session. I will now turn the call back to Dr. Mahadevia.

Thank you, operator, and thanks to everyone who joined us on the call today to hear about our recent progress. We look forward to the continued advancement of our programs and wish everyone a nice evening.