Spero Therapeutics, Inc. Q2 FY2022 Earnings Call

Good afternoon, and welcome to the Spero Therapeutics Second Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. 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 today's announcement on the Spero Therapeutics website. 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 joining today's conference call. This afternoon, Spero Therapeutics shared financial results and an update on our pipeline for the second quarter of 2022. Our press release is available on the Investor page of the Spero Therapeutics website. Before we start, I want to remind you that some information in the news release and during this call may include forward-looking statements based on our current expectations. This includes statements about the review process, status, and likelihood of approval for tebipenem HBr, as well as its potential value if approved and possible partnership opportunities. Additionally, it covers our ongoing development plans for SPR720 and SPR206, the design, initiation, timing, progress, and results of our preclinical studies, clinical trials, and research and development programs. Management's evaluation of these results, our cash forecast, expected expenses, and the adequacy of our cash resources can also be found here. These forward-looking statements do not guarantee performance and actual results may differ significantly. Several factors contributing to this potential for difference are detailed in our SEC filings, particularly in the Risk Factors section of our annual report on Form 10-Q filed today. These statements are valid only as of the date of this call, and the company has no obligation to publicly update any forward-looking statements or provide new information after today. On today's call, we have Dr. Ankit Mahadevia, Chief Executive Officer; Sath Shukla, Chief Financial Officer; and Dr. David Melnick, Consultant and Senior Clinical Advisor. With that, I will now turn the call over to Dr. Ankit Mahadevia. Please go ahead, Ankit.

Thank you, Ted, and good afternoon to everyone listening to our call today. Those who have followed Spero over the past few months know about the company's decision during the second quarter to restructure and pursue a new strategic direction with SPR720 as our lead asset and tebipenem HBr and SPR206 as our designated partnership-directed programs. We made this decision promptly following our FDA late-cycle meeting during which the agency suggested the data from Spero's new drug application seeking approval for tebipenem HBr for the treatment of complicated urinary tract infections would likely be insufficient to support approval during the first review cycle. A subsequent complete response letter confirmed that this was the FDA's view, while also indicating additional clinical study would be required to support an approval. While ceasing tebipenem's commercial activities and restructuring was difficult, our swift decision to do so almost immediately after the late-cycle meeting set us on a path that leaves us well-positioned for future growth. We have strong data that clearly differentiates our three clinical-stage assets, a cash runway that takes us through key clinical milestones, and world-class partners to help us advance these assets. We have made progress this quarter against our core objectives to foster this growth. First, we continue to progress toward key clinical and regulatory milestones in our pipeline within our capital runway, and David will speak further about our progress on both SPR720 and 206. Second, we have requested and completed a Type A meeting with the FDA to gain further insights as to the pathway forward towards potential regulatory approval for tebipenem HBr. We believe the meeting was constructive, and we expect to receive written minutes during the third quarter of 2022. Finally, we continue to employ good stewardship of capital and seek creative partnerships that have been a hallmark of our history. With that as an introduction, I'd like to give a brief overview of today's call. I'll begin with additional commentary on tebipenem HBr; following that, Dr. David Melnick, our Senior Clinical Advisor, will provide an update on our progress advancing SPR720 and SPR206; finally, our Chief Financial Officer, Sath Shukla, will then close with a discussion of our current financials and cash runway; and then we'll follow up with Q&A. So let's shift gears briefly to tebipenem. The core components of tebipenem's value proposition have not changed. There remain millions of patients with complicated urinary tract infections who would benefit from an oral therapy that could replace IV treatments and allow them to potentially return home from the hospital sooner or possibly avoid hospitalization altogether. There's substantial economic incentives for healthcare providers and payers to treat patients out of a hospital. And tebipenem continues to have intellectual property protection extending into at least 2038. Additionally, tebipenem's potential to solve the challenges posed by the increasing prevalence of fluoroquinolone-resistant and ESBL-producing gram-negative bacteria has been thoroughly demonstrated by data from dozens of clinical studies as well as surveillance efforts in Japan where it has been marketed for over a decade. These data have been thoroughly vetted by leading experts and the peer review process of prestigious journals including the New England Journal of Medicine, which published the results of the Phase 3 ADAPT-PO trial in the second quarter. Accordingly, a key objective for us this quarter was clarifying the outstanding requirements for potential regulatory approval through continued engagement with the FDA. As I mentioned earlier, we've completed our Type A meeting, which we believe was constructive. Upon receipt of the Type A meeting minutes that will confirm our discussion, we plan to advance additional Phase 3 clinical development and eventual commercialization through external partnership. We believe gaining clarity on the requirements for tebipenem's approval will leave us well-positioned as we seek to work with existing and potentially new partners to chart its best course forward. We are optimistic about tebipenem's outlook and look forward to this program's continued advancement. With that, let's shift gears to 720 and 206 and I'll hand the call to David.

Thank you very much, Ankit. As you may recall, SPR720 is an orphan drug-designated oral agent that is being developed for nontuberculosis mycobacterial pulmonary disease or NTM-PD. NTM-PD is estimated to affect approximately 95,000 patients in the US and a total of approximately 245,000 patients across the US, Europe and Japan. Due to the limitations of the current treatment regimens, there is a substantial gap in the therapeutic paradigm for NTM-PD patients, most of whom have underlying lung disease, a compromised immune system or are of advanced age. These limitations stem from the suboptimal efficacy and the tolerability and/or toxicity issues associated with the off-label antibiotic combinations that are currently employed for treatment. This creates a poor risk-benefit profile that discourages physicians and patients from beginning pharmacotherapy early in disease and tends to pause until the disease is at an advanced stage. Even with the current treatments, which are generally given continuously for one to two years, many patients eventually progress to late-stage refractory pulmonary disease. This is often accompanied by permanent lung damage and disabling symptoms that can negatively impact a patient's ability to carry out daily activities such as shopping or walking. Looking at the current therapeutic paradigm for NTM-PD, one can conclude that there is a clear unmet need for effective and well-tolerated treatment for patients who are early in their disease journey, namely those who are treatment-naive or inexperienced. In contrast, the goal of our SPR720 program remains to develop a treatment for early-stage patients that can prevent progression to refractory disease, which we believe will lead to significant improvements in clinical outcomes and quality of life. The next step on our path is to achieve this goal with the expected initiation of a Phase 2 trial of SPR720 in the fourth quarter of 2022. This innovative trial will be a dose-ranging placebo-controlled monotherapy study in treatment-naive and treatment-inexperienced patients with NTM-PD caused by M. avium complex. The trial is expected to enroll approximately 35 patients across four cohorts. These will include a blinded placebo cohort, blinded SPR720 cohorts receiving 500 milligrams or 1,000 milligrams of study drug daily, and an open-label SPR720 cohort that will allow us to assess the plasma PK and the clinical pharmacodynamics of SPR720 in patients. The primary endpoint of the trial will evaluate changes in bacterial load in sputum samples from baseline to the end of the treatment period which will last 56 days. Our assessment will examine the slope of the change in the NTM bacterial burden in sputum over multiple time points measured during the study. This methodology is based on the early bactericidal activity assessment paradigm. EBA studies have traditionally been used over many years to assess the single-agent activity of antimycobacterial treatments, including recently approved drugs for drug-resistant mycobacterium tuberculosis. Key secondary endpoints will include multiple assessments of clinical response, quality of life, study drug pharmacokinetics, as well as safety and tolerability. For details on the trial design, the SPR720 Phase II protocol will be available for review. Interim data from the SPR720 Phase II trial are expected in mid-2023 with topline results expected early in 2024. If positive, these data would demonstrate SPR720's ability to drive early microbiologic response as a monotherapy versus placebo, a result that has not been accomplished with any other agent. These upcoming readouts therefore represent key potential catalysts for our lead program, especially when considering the strong link between early microbiologic response and patient outcomes in prior observational clinical studies. They will also inform plans for SPR720's long-term development, as an integral component of effective combination therapies for NTM pulmonary disease. As we move toward SPR720's anticipated interim data readout next year, we are highly encouraged by the strength of the data set supporting the program. This includes in vitro data demonstrating its potent activity against a range of clinically important NTM species, as well as data from a Murine Chronic Infection Model demonstrating its activity against pulmonary disease caused by both M. avium and M. abscessus, the two most prevalent strains of NTM. Additionally, Phase I clinical studies have shown 720 to be well tolerated at exposures above the predicted therapeutic levels. Together, these clinical and preclinical data provide a strong scientific foundation for our lead program. They importantly demonstrate SPR720's potential to provide early-stage NTM-PD patients with a well-tolerated therapy that can prevent disease progression and the associated decline in quality of life. Next, I'd like to discuss SPR206. This is a novel Phase II-ready IV polymyxin antibiotic candidate that we are developing to treat multidrug-resistant gram-negative bacterial infections in the hospital setting. Well-tolerated and effective treatments for these infections are a longstanding unmet need, as the physiology of gram-negative bacteria renders them resistant to most clinically useful antibiotics. As a result, the current treatment paradigm calls for combination regimens that generally include the older polymyxins that are associated with nephrotoxicity, resulting in poor risk-benefit profiles. The resistance of many gram-negative pathogens to currently available agents is conferred by the biochemical makeup of the bacteria's outer membrane, which is comprised primarily of phospholipid at the inner surface and negatively charged lipopolysaccharide at the outer leaflet. This lipopolysaccharide layer of the membrane effectively limits the activity of many current antibiotics utilized against gram-negative and gram-positive bacteria. Adding to the problem has been the inability of medicinal chemists to successfully alter the traditional antimicrobials in a way that allows them to gain entrance into gram-negative bacteria while still retaining antibacterial activity. Using our Potentiator platform, we developed SPR206 to disrupt the organization of the lipopolysaccharide layer on the outer membrane and also to act directly on multidrug-resistant gram-negative pathogens. In-vitro preclinical data suggests that we have been successful in these efforts, as SPR206 has shown potent broad-spectrum activity against difficult gram-negative pathogens including carbapenem-resistant enterobacterales, antibiotic-resistant acinetobacter baumannii, and pseudomonas aeruginosa. SPR206's activity against these carbapenem-resistant bacteria is quite noteworthy as infections caused by carbapenem-resistant acinetobacter baumannii have a mortality rate of 40% to 50%, while the mortality rate for carbapenem-resistant enterobacterales infections is two to four times that of carbapenem-susceptible infections. Adding to the promise of the SPR206 program are our Phase 1 data that show a lack of nephrotoxicity when SPR206 is administered at predictive therapeutic dose levels. This demonstrates the potential of SPR206 to overcome the key limitation of the polymyxins that is their nephrotoxicity providing clear differentiation. In addition, a Phase 1 bronchoalveolar lavage trial showed SPR206 lung exposures continuously exceeding the minimum inhibitory concentrations for the key targeted gram-negative pathogens for the entire dosing interval. In contrast, colistin, one of the most widely used polymyxins, was shown to be undetectable in the lungs in a prior BAL study. This provides another important point of differentiation for SPR206, especially when considering that approximately half of patients infected with these multidrug-resistant gram-negative pathogens suffer from lung infections. Looking forward, we are now working to advance SPR206 towards a Phase 2 cross-indication resistant pathogen study in patients with complicated urinary tract infections, both hospital acquired and ventilator-associated bacterial pneumonia and bloodstream infections. We are doing this with support from several noteworthy partners. In fact, partner support is allowing us to fully fund SPR206 through Phase 2 with external non-dilutive sources. Spero recently completed a pre-IND meeting with the FDA, precipitating a milestone payment under our license agreement with Pfizer, and we expect to initiate the Phase 2 study in the third quarter of 2023.

Thank you, David. As of June 30, 2022, Spero had approximately $45.4 million in cash, cash equivalents, and marketable securities. Given the cost savings achieved as expected from our restructuring and the cessation of tebipenem HBr's commercial activities, we believe our existing cash, cash equivalents, and marketable securities together with other non-dilutive funding commitments will be sufficient to fund our planned operating expenses and capital expenditures pursuant to the priorities of our strategic refocusing into late 2023. We believe that this anticipated runway, which does not account for any new potential business development for any of our assets, will take us through key clinical milestones including interim Phase 2 data readouts for SPR720 and the initiation of a Phase 2 trial of SPR206 in Q3 2023. Before detailing the rest of our Q2 financial results, I'll remind all listening that the decision to restructure our operations was made halfway into the second quarter. We therefore expect our total spend to further decrease in the quarters ahead compared to Q2. Total revenues for the second quarter of 2022 were $2 million compared with revenues of $5 million in the second quarter of 2021. The revenue decrease was primarily due to a $1.2 million decrease in qualified expenses incurred under our BARDA contract for tebipenem HBr, a decrease in funding under our DoD agreement relating to SPR206, and a decrease in collaboration revenues related to our Pfizer license agreement, offset by an increase under our NIAID agreement related to SPR206. Research and development expenses for the second quarter of 2022 were $8.2 million compared with $14.5 million of R&D expenses for the same period in 2021. This year-over-year decrease was primarily due to reduced program activity for tebipenem HBr, as a result of our strategic restructuring announced in May 2022, as well as reduced costs associated with our SPR720 and SPR206 programs, and a decrease in research and development headcount costs after our restructuring. General and administrative expenses for the second quarter of 2022 of $8.1 million were lower than the $9.2 million reported for the same period in 2021, primarily a result of a decrease in headcount in our commercial general and administrative functions due to our strategic restructuring as well as a decrease in professional and consultant fees. Restructuring expenses of $11.8 million were incurred during the quarter. These expenses were primarily comprised of $8.7 million of severance and other employee costs and $2.6 million of discontinuation costs, such as contract termination fees and $0.6 million of lease impairment expenses. We reported a net loss for the second quarter ended June 30, 2022, of $28.7 million or $0.87 per common share, compared to a net loss of $18.6 million or $0.63 per common share reported for the same period in 2021. For further details on our financials, please refer to our quarterly reports.

Thank you. Our first question comes from Ritu Baral with Cowen. Please proceed with your question.

Good afternoon, guys. Thanks for the detail on the 720 Phase 2. I wanted to ask about that bacterial burden reduction slope endpoint analysis. What negative slope do you think that you would need to achieve to be suggestive of improvements in outcomes? I know you mentioned that there have been studies associating slope with outcomes. What are you looking for? And then what will we get with the interim data that you mentioned in mid-2023? Is that the slope data alone or could there be clinical endpoints on that? Thanks.

Thank you for your question, Ritu. To address the EBA slope phenomenon, it is a trial framework that has been utilized in other mycobacterial diseases like tuberculosis for many years. The advantage of this focused study is that it provides substantial insights into how a specific agent impacts the bacterial burden in patients. It has been associated with approved drugs in the mycobacterial field as well. Our goal is to observe a negative slope relative to placebo, which means we are consistently seeing a reduction in the bacterial burden in patients over time compared to the placebo group. In the EBA framework, this observation indicates that the agent is contributing positively to the overall treatment plan and has been a basis for advancing drugs to pivotal combination studies. Regarding your second question about the interim analysis, I want to highlight two key points. First, data on the natural history of NTM, including clarithromycin, demonstrates that an effective intervention typically leads to an earlier reduction in bacterial burden during a patient's treatment cycle, while clinical outcomes tend to appear a bit later. Therefore, the interim analysis will reveal the EBA slope phenomenon for the subset of enrolled patients who have completed the study. At this moment, we cannot confirm if we will see clinical outcomes for those patients, but we will certainly observe the quantitative impact of what 720 is achieving.

Got it. And then, what are the most important clinical outcomes or clinical endpoints that are part of this study? Thank you, again.

I'm sorry. I was on mute. This is an important question because FDA has made it clear that they're quite interested in clinical outcomes. We will be piloting four separate PRO-type scales in the Phase I study, looking for an early signal of which may be most helpful. There is a bronchiectasis type scale which has been amended to account for NTM. Severity of symptoms scales change from baseline scale. So there are four separate clinical measures that had been built into this Phase I protocol. Two months of therapy will we see clinical change? Hard to tell. We certainly would expect to see changes in sputum bacterial load over that period of time.

Our next question comes from the line of Louise Chen with Cantor. Please proceed with your question.

Hi. Thank you for taking my questions here. So I had a few for you. First one, I wanted to ask you is, where are you with your partnership discussions with tebipenem and a potential partner? When do you think we might hear something? Would it be as early as this year? And then what kind of partner ideally are you looking for? And then, on SPR206 how do you view this opportunity to you? And what gives you confidence that you'll establish proof-of-concept here when you start the studies? And why not start the studies sooner? Thank you.

Thanks, Louise, for the great questions. As we noted on the call, tebipenem has a lot of great attributes going for it: patent life until 2038, full clinical and commercial supply and a very large addressable patient need. It shouldn't be a surprise that we've been engaging in constructive dialogues with partners throughout the journey of tebipenem. Of course, we're not going to be able to give you any explicit guidance on how or when we'll potentially consummate any of those discussions. In terms of the ideal partners we're looking for, we're looking for a partner that shares our conviction in the program, has the same conviction in terms of delivering tebipenem to patients as efficiently as possible, and ideally has the type of resources to enable us to move tebipenem expeditiously towards approval. So that's always been our criterion and we'll continue to prosecute that. Regarding your question on SPR206, yes, 206 has been an asset for us. It meets a need that's not addressed by the current standard of care for patients resistant to existing medications when they have highly resistant infections. Further, as David had mentioned, it's fully financed for us beyond a major inflection point, which is excellent. What gives us confidence about its ability to do something positive for patients is all the data we've built up to date. We can kill bugs that other standard-of-care agents can't, as we see in the right in vivo models, and we have a safe and well-tolerated drug. That's what's gotten us excited and our partners excited. In terms of the timing of the study, we've made the conscious decision to use outside funding to advance 206 to be good stewards of our resources. That means that certain things like the CMC needed for clinical supply happen in serial rather than parallel, and that's really the long pole in the tent. As the funding becomes available, we'll get underway.

Our next question comes from the line of Ram Selvaraju with H. C. Wainwright. Please proceed with your question.

Hi. This is Boobalan dialing in for Ram Selvaraju, and thanks for taking our questions. A couple of questions from us. With respect to the SPR720 Phase 2 trial design, you stated that you will enroll 35 patients. Given the small sample size, are you concerned about the variability of treatment response?

Yes. So thanks for the question. I'll note that the EBA paradigm lets us be more efficient with patients because realize that although that's the number of patients, we'll be taking data points in terms of a patient's microbiological trajectory multiple times. That design allows you to get a lot more out of the study size that you have. We believe that will give us a good ability to think about a tight data set. The quantitative culture methods we're using to assess bacterial burden continue to evolve in precision and speed. That allows us to get a fairly tight measure of where a patient is as well.

Thanks for the clarity. With respect to 720 again, has the clinical hold history made anyone nervous about the prospects for the drug going forward, or has the issue been resolved with the lifting of the clinical hold by the FDA?

Yes. Thanks for the question. The hold was an artifact of how we dosed the primates and not related to the drug itself. The FDA agreed with us and lifted the hold. The protocol you see to date is consistent with their lifting of the hold. We've engaged our key sites and investigators, and they are excited about the trial and making preparations to help us execute on it.

I'd just add that the FDA, based on the results of that study, has approved an extension in the duration of this Phase 2 study from 28 days to 56 days. So they're actually quite comfortable with the safety readout at this point.

Great. One final question from me. So you mentioned about non-dilutive funding for 206. Do you intend to explore a similar mechanism for 720 down the road?

Yes. Historically, we have looked for non-dilutive funding across all our programs. So certainly, it's something we will continue to look for opportunistically and see if it makes sense.

Thank you.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Thank you, operator, and thanks to everyone listening. We look forward to our company's continued advancement, and I wish everyone a nice evening.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.