SPRO - NASDAQ

Good afternoon and welcome to the Spero Therapeutics Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] 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 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 second quarter of 2023. Our press release is available on the Investor page of the Spero Therapeutics website. Before we begin, I’d like to remind you that some of the information presented on this conference call contains forward-looking statements based on our current expectations, including statements about the future development and commercialization at Tebipenem HBr, SPR720, SPR206 and the design, initiation, timing, progress and results of the company’s preclinical studies and clinical trials and its research and development programs. Management’s assessment of the results of such preclinical studies and clinical trials, the company’s cash forecast and anticipated expenses and the sufficiency of its cash resources. Such forward-looking statements are not a guarantee of performance and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Spero Therapeutics’ filings with the SEC, including in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended June 30, 2023 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. With that, I’d like to turn the call over to Spero’s Chief Executive Officer, Sath Shukla. Please go ahead, Sath.

Thanks, Ted and I thank you all for joining us this afternoon. This is my first earnings call since becoming the company’s President and CEO on August 1. I want to say how excited and honored I am to take on this role at a very exciting time for Spero. Each of our three late-stage clinical programs is making excellent progress. I am pleased to be working with such an experienced and talented management team to share a vision to advance our pipeline of differentiated investigational medicines that are designed to address important unmet needs in infectious disease. I believe that together, we have a great opportunity to create value for patients and stakeholders in the company. Joining me on the call today are Dr. Kamal Hamed, our Chief Medical Officer; and Steve Dipalma, our Interim CFO and Treasurer. Let me begin with Tebipenem HBr, which is partnered with GSK and which we are developing as potentially the first oral carbapenem antibiotic for treatment of complicated urinary tract infections or cUTI. As we have discussed previously, we have been engaged with the FDA to agree on a path forward for this investigational drug. And we were very pleased to announce on July 31 that we received written agreement from the agency under a special protocol assessment, or SPA on the design and size of our planned Phase 3 trial. We see the SPA agreement as a major milestone in the Tebipenem HBr program. As the SPA typically represents a very high level of concussion on the overall protocol design between the FDA and a sponsor, we believe the regulatory aspects with respect to the design of the program have been derisked substantially. We expect to begin enrollment in PIVOT-PO in the fourth quarter of this year and Kamal just provides further details in a few minutes. Under the terms of our exclusive license agreement with GSK, we are now entitled to receive the first $30 million of up to $150 million of development milestones. This first payment has been invoiced and is expected to be received in the current quarter. In addition to this payment, we are also eligible to receive the following additional milestone royalty payments under the GSK agreement. These comprise of up to $120 million in development milestones as the Phase 3 trial progresses, up to $150 million in potential commercial milestones based on first commercial sales, up to $225 million in potential sales milestones, and low single-digit to low double-digit tier royalties if sales exceed $1 billion, on net product sales of Tebipenem HBr at all territories, except Japan and certain other Asian countries. In addition to progress on Tebipenem HBr, we continue to move our other assets forward. The Phase 2a proof-of-concept clinical trial for SPR720 continues enrollment with sites open and patients enrolling and being dosed. SPR206, our investigational next-generation polymyxin continues to be on track for a Phase 2 IND in the fourth quarter of this year, funded by grant and other non-dilutive funding. On an organizational note, I want to spend a minute talking about the management changes we announced in June and that came into effect on August 1. On that date, following a 3-year tenure as Spero’s CFO, I took on the role of the company’s President and CEO. My predecessor, Dr. Ankit Mahadevia, who is a Co-Founder of Spero, transitioned to become Chairman of the Board of Directors. The prior Chairman, Dr. Milind Deshpande is remaining on the Board as an independent director, and another board member, Dr. Patrick Vink was appointed Lead Director. The net result here is that while some members of the executive team and the Board have changed roles, the company has retained all of its officers or directors in these transitions. On behalf of my fellow directors and the management team, I want to thank Ankit for his contributions and leadership in getting Spero to this advanced stage and we all look forward to continuing to work with him in his new role. Separately, we have launched a search for a permanent CFO. Until this process is completed, the Board has appointed Steve Dipalma as Interim CFO and Treasurer, who worked with Spero in the same capacity before I joined the company and who also is an experienced public company CFO. I would now like to hand the call over to Dr. Kamal Hamed, who will provide more details on the clinical programs.

Thank you, Sath. I am also very pleased that we now have an SPA agreement for the Tebipenem pivotal Phase 3 trial, PIVOT-PO and would like to thank our colleagues at GSK as well as the FDA for their engagement and support. PIVOT-PO is designed as a global randomized double-blind trial that will compare oral tebipenem with intravenous imipenem in hospitalized adult patients with cUTI, including acute pyelonephritis. The primary efficacy endpoint will be overall response based on a composite of clinical cure plus microbiological eradication at the test of cure visit. The primary analysis will be an assessment of non-inferiority in the microbiological intention to treat population based on a 10% margin, which is consistent with FDA guidance for non-inferiority studies in this patient population. The FDA has indicated that positive and persuasive results from PIVOT-PO along with previously completed studies could be sufficient to support approval of tebipenem as a treatment for cUTI, including pyelonephritis for a limited use indication. As Sath mentioned, we plan to initiate enrollment in the fourth quarter of this year and will provide more details, including target patient numbers, secondary endpoints and other relevant information around that point or as the study gets posted to clinicaltrials.gov. Turning now to our SPR720 program which aims to deliver the first novel first-line oral treatment for non-tuberculous mycobacterial pulmonary disease or NTMPD. SPR720 is currently being evaluated in a Phase 2a proof-of-concept trial. The primary endpoint is slow change in sputum bacterial burden from baseline. We believe pairing a positive result on this endpoint with supportive evidence from the trial secondary endpoints will enable us to derisk the program and move confidently into late-stage development in which we intend to evaluate SPR720 as part of a combination regimen. The current standard of care for NTMPD is prolonged combination therapy, including drugs traditionally used for tuberculosis and that have limited effectiveness and full tolerability. Given the limitations of these regimens, we believe our program has the potential to address a clear unmet need. We are currently engaged in a number of additional development activities needed to support SPR720’s advancement towards late-stage clinical studies. As noted on our last earnings call, these activities include ongoing toxicology work, CMC initiatives, engagement with the FDA and efforts to expand the SPR720 development program into Japan where NTMPD has sharply increased prevalence compared to other territories. We have also initiated two Phase 1 clinical studies. The first set intrapulmonary for microkinetic was SPR719, the active loyalty of the prodrug SPR720 and a bronchoalveolar Lavage or BAL study and the second, to evaluate the effect on the pharmacokinetics of SPR720, azithromycin and ethambutol when co-administered in healthy volunteers. In addition, we continue to execute on the steps needed to develop and validate a relevant patient reported outcome instrument for NTM-PD. This is to ensure that the primary efficacy end point within our future clinical studies is in line with the FDA’s published guidance on developing drugs for this indication. The trial is expected to enroll up to 35 participants what are the treatment naive or treatment experience but do not have treatment of refractory disease. We now have approximately 25 active sites that are currently screening or enrolling patients. We are actively engaging with all study sites to ensure that they have the necessary resources. We have also partnered with a third-party CRO specialized in rare diseases to support study sites and with the lead NTM patient advocacy group, NTMir, and we have launched a new Facebook page for patients and physician videos on our main website as a means of providing further education to our NTM patient constituents. With all of that, we are generally satisfied with the level of interest and enrollment However, based on the multitude of complexities, based on newly diagnosed patients with NTM-PD, we believe it is appropriate that we recently updated our guidance with respect to the timing of top line results from this Phase 2a trial, which we now expect to announce in the second half of 2024. Finally, a brief update on our SPR206 program. SPR206 is an investigational next-generation for mix in antibiotic with the potential for an improved safety profile impaired to count the available polymyxins. Being developed to treat multidrug-resistant gram-negative infections. We are currently working to advance SPR206 into a Phase 2 trial in patients with hospital-acquired or ventilator-associated bacterial pneumonia. We remain on track to submit an IND application in the fourth quarter of this year. With that, I’ll turn the call over to Steve to review our quarterly financial results. Steve?

Thank you, Kamal, and good evening to all of you joining us on the call. Spero is well capitalized and in a strong financial position with $77.7 million in cash and cash equivalents as of June 30, 2023. Based on our cash and cash equivalents as of June 30, 2023, and inclusive of the $30 million development milestone payment to be received from GSK pursuant to our exclusive license agreement, we believe that our cash runway will be sufficient to fund us into the second half of 2025. We reported total second quarter revenues of $2.7 million in the second quarter of 2023 compared with revenues of $2 million in the second quarter of 2022. Revenue was approximately $700,000 higher year-over-year due to revenue recognition associated with the GSK transaction. Research and development expenses for the second quarter of 2023 were $9.5 million compared with $8.2 million of research and development expenses for the same period in 2022. This $1.3 million year-over-year increase was primarily due to higher direct costs related to the SPR720 program, as well as higher direct costs related to the Tebipenem HBr and SPR206 6 programs. These increases were offset by lower R&D head count expenses associated with the strategic restructuring announced in May 2022. General and administrative expenses for the second quarter of 2023 of $6.1 million were lower than the $8.1 million reported in the same period in 2022 primarily as a result of decreased professional and consulting fees due to decreased commercial operation expenses and a decrease in facility related and other costs. We reported a net loss for the second quarter of 2023 of $11.9 million or $0.23 per basic and diluted share of common stock compared to a net loss of $28.7 million or $0.87 per basic and diluted share of common stock reported for the same period in 2022. For further details on Spero’s financials, including results for the 6-month period ended June 30, 2023, I would refer you to Spero’s quarterly report on Form 10-Q filed with the SEC today. We will now open the call for questions. Operator?

Thank you. [Operator Instructions] The first question comes from Louise Chen with Cantor. Please go ahead.

Hi, congrats on all the progress this quarter. And thank you for taking my questions here. So I wanted to ask you what else in addition to 720 and 206 might you explore in terms of pipeline? Do you plan to expand your pipeline beyond these two? Or do you have enough on your plate today. Secondly, Seth, I wanted to ask you, what is your vision for Spero and how might you do things differently? And then in terms of NTM opportunity with 720, if you do make it to the market, how do you plan to distinguish yourself from entrenched competitors? Thank you.

Thanks, Louise, for the questions. In somewhat out of order, in terms of the vision for the company as we go forward, I think we’ll focus on if it ain’t broke, don’t fix it. There are many, many great things that the company has executed in the past, and these will continue to be things that we focus on going forward, while also progressing our pipeline as it evolves more and more towards a later stage company. So execution is going to be come paramount and that’s just something that with the rest of the management team will be an area of intense focus for me. Transitioning from that – to your first question, actually, when we think about the pipeline, we do now have the continued flexibility and balance sheet strength to evaluate business development opportunities as they arise. We’ll apply a pretty stringent criteria on these opportunities. They have to fit with what we at Spero have considered our approach in the past a high unmet need and a potentially strong economic and commercial opportunity. If we are evaluating an asset that fails either one of those criteria that won’t fit in either with the strategic focus for the company, not with the expertise we think we have built here at the company. So from organizationally, we find ourselves with the recent management transitions for management and Board members as a place where we can continue to build on past strengths but also refresh ourselves as we go forward. So those are opportunities we really look forward to. On your last question on how we expect to distinguish our assets, SPR720 in a market with entrenched competitors, we would start off by noting that in the first line for NTM right now, there aren’t any entrenched competitors. There are no approved therapies. The single approved therapy as you know, is in refractory space, which is inhaled Arikayce. And so for how we progress the asset, we continue to believe that there is significant market opportunity for an oral very tolerated therapy in first-line NTM patients. ARIKAYCE success or the success of other players in this space, especially in the adjacent refractory space, we will continue to validate that this is a market with significant opportunity, but our ability to go on the first line, we believe will set us up with a differentiated profile and hopefully white space for us to execute on. Did I answer your question? Is there anything else you would like me to elaborate?

Thank you very much. Yes, it did.

[Operator Instructions] The next question comes from Boobalan Pachaiyappan with H.C. Wainwright. Please go ahead.

This is Boobalan dialing in for Ram Suraj. Congrats on the progress and thanks for taking my questions. So, a few questions from us. So firstly, how swiftly might the confirmatory pivotal trial of tebipenem could reach full enrollment?

We haven’t disclosed that as stated. But what we can tell you is that our colleagues at GSK have set a target commercialization date for tebipenem for 2026. So, obviously as you look backwards through a trial readout and an NDA process, you can draw your conclusions about the expected length of the trial. But we have also stated in the past is that we expect this trial to be larger than ADAPT-PO to ensure that the clinical data we would want – we would get would be sufficient, positive and persuasive to reach approval. So, the last trial took roughly 9 months to 12 months to enroll. This will be longer than that with constrained with the target timeline that we are working towards.

Great. Thanks for the clarity. And then of [indiscernible], how is tebipenem performing commercially these days in Japan?

It’s something that we don’t track on an active basis because it’s in a different indication entirely, which is pediatric pneumonia. And it’s been there since 2009, so 14 years and we feel that the performance of that drug in Japan has limited application for a different tablet form in at agilely different indication. But from what we know, going along well. At this point, to our understanding, millions of patients have been dosed and the drug has performed well.

Okay. Great. And then thirdly, this is probably a lengthy question. So, please confirm or deny whether meaningful milestones are likely to be payable to Spero from GSK upon achievement of the following a, enrollment of the first patient into the tebipenem Phase 3 trial, b, achievement of 50% enrollment in the tebipenem Phase 3 trial and c, completion of enrollment of this – in this trial.

Well, I think on a macro level, I can confirm that those payments will come through, through the beginning duration and ending of the trial. We haven’t disclosed very specific timelines and milestones on those. With that said, this will become self-evident over a period of time when – as we continue to report out the company’s progress as well as the cash influx into the company, you will gain a greater visibility into what achievements trigger these milestones and the timing of those milestones. But beyond our disclosures at this moment in time, we are not providing any deeper data at the moment.

Okay. Great. And then do you have any updated market research or epidemiological information with respect to 720 commercial opportunity in the U.S.? If so, what does this show?

Yes. What we have said in the past is roughly 100,000 patients domestically in the U.S., roughly 0.25 million patients in major markets worldwide. That includes Japan, where as Kamal pointed out earlier, the prevalence is very similar to that of the U.S. That continues to be at least from a top line perspective, our assessment of the market opportunity. What I would note is at least for the current trial, that is in first-line patients, which is three quarters roughly of that population. So, you are looking at somewhere approaching 200,000 patients for that market opportunity. Beyond that, just like our other stakeholders, we continue to evaluate a rising and more available epidemiological information and promos [ph] information and are tracking usually the growth rates in the diagnosis of the disease for future planning purposes. But at this stage, I think our findings are fairly consistent with what we have reported at before.

Thanks so much for taking our questions, congrats again.

Thank you.

This concludes – we have another caller on the line. The next question comes from Ritu Baral with Cowen. Please go ahead.

Hi guys. Thanks for taking the questions. Apologies for the poor connection. Sath, I wanted to ask you about the decision to include some subsection of refractory patients in the Phase 2. Can you talk to how it will – how it may impact top line data and whether you expect the two groups to behave differently on the primary endpoint? And if there is a way to sort of tease apart any differences to tell you what you need for Phase 3.

Yes. I think for the trial design, let me defer to Kamal to speak to it for a little bit, and I think then I can stay in on the top line data. Kamal, would you care to provide an opinion?

Sure. Thank you, Ritu, for the question. So, as Sath indicated, Spero has strategically – strategically pursuing development for first-line treatment. So, first-line treatment, that means patients for treatment naïve or treatment experienced, but do not have refractory disease. And again, that’s about 17% odd of the patient population. So, the current study is in treatment naïve or treatment experience, but patients who do not have refractory disease. So, this is the development path that Spero is currently pursuing. So, in this particular study, Ritu, there is no refractory disease patients who will be enrolled. As a matter of fact, they are being excluded from the study. And as a reminder, the study is a proof-of-concept study composed of about up to 35 patients.

So, there is a distinction between relapsed and refractory. And you believe that the disease course or at least the infectious burden and the ability to clear infection is different between the two populations?

It’s not that the ability to clear the infection using the drug is necessarily different. Just as a reminder, SPR720 is a novel drug and has no cross-resistance with other antibiotics, and we do not expect that in the clinic – we expect that it would work in the clinic for the factory disease patients. However, this strategy has been to pursue first-line treatment as the first path for development. So, given that this is our development path, so the study will enroll patients who do not have refractory disease. The only treatment naïve patients or patients who are treatment experience, but again are not considered to have refractory disease.

Okay. Thanks.

And we have not disclosed development beyond this current Phase 2a proof-of-concept study. But again, not to say that there would be a concern that SPR720 would not work in patients with refractory disease. Again, there is no cross resistance with existing robotics [ph], but it’s just a strategy that Spero has adopted again to pursuit development in first – for first line treatment first.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Shukla for any closing remarks. Please go ahead.

Thanks operator. We appreciated the opportunity to provide an update on our recent progress and look forward to the continued advancement of our clinical programs. Thanks to everybody listening and for your participation today. Have a nice evening.