2023-06-23 13:04:00 ET
Summary
- Shares of endocrine biopharma Spruce Biosciences, Inc. (SPRB) are off 80% from their IPO pricing, due mostly to a lack of catalysts since going public in 2020.
- That dynamic will change in 2H23, when the company will provide topline data from three trials covering two indications for its sole candidate tildacerfont.
- Trading at a discount to cash with two significant market opportunities if tildacerfont is eventually approved, this busted IPO merited a deeper dive.
- A full investment analysis follows in the paragraphs below.
The poetry of the earth is never dead ."? John Keats
Today, we put a small cap developmental firm in the spotlight. This Busted IPO now trades for less than the net cash on its balance sheet as it looks to advance its primary pipeline asset. An analysis follows below.
Company Overview
Spruce Biosciences, Inc. (SPRB) is a South San Francisco-based clinical-stage biotechnology concern focused on the development of therapies targeting rare endocrine disorders. The company has one clinical asset (tildacerfont) pursuing two indications, with three readouts expected in 1H22. Spruce was formed in 2016 and went public in 2020, raising net proceeds of $93.4 million at $15 per share. Its stock trades around $2.250 a share, translating to a market cap of approximately $90 million.
It should also be noted that the company has issued 12.69 million five-year warrants with a strike price of $3.96.
Tildacerfont
May Company Presentation
Spruce's raison d'etre is tildacerfont, a non-steroidal, once-daily, oral antagonist of corticotropin-releasing factor 1 (CRF1) receptor found in the anterior pituitary gland. Tildacerfont is undergoing investigation in clinical trials for the treatment of classic congenital adrenal hyperplasia {CAH} and polycystic ovary syndrome (PCOS).
May Company Presentation
CAH is a group of genetic disorders affecting the adrenal glands, located on top of each kidney. Adrenal glands produce the following hormones: cortisol, which regulates blood pressure and energy levels while also helping the body respond to illness, injury, and stress; aldosterone, which modifies blood pressure and volume, as well as regulating levels of sodium and water; and androgens, which are male sex hormones such as testosterone.
May Company Presentation
Classic CAH is driven by a mutation in the gene that encodes an enzyme (typically 21-hydroxylase (21OHD)) necessary for the synthesis of the aforementioned hormones. Without cortisol, the body does not properly respond to stress, leading to adrenal crisis and possibly death. Specifically, its absence alters the normal feedback cycle of the hypothalamic-pituitary-adrenal axis, triggering excess secretion of adrenocorticotropic hormone (ACTH), hyperplasia (enlargement) of the adrenal gland, and consequent elevated levels of endogenous androgens. Owing to these conditions, classic CAH patients suffer premature puberty, excessive body hair (hirsutism), impaired fertility, menstrual issues, and adrenal rest tumors, resulting in a lower quality of life. This malady is currently treated with significant (supraphysiologic) doses of glucocorticoids, which can lead to diabetes, cardiovascular disease, stunted growth, thin skin, osteoporosis, GI issues, and truncated life expectancy.
May Company Presentation
In a Phase 2 study, tildacerfont demonstrated the ability to reduce excessive adrenal androgens. Specifically, it achieved a maximum reductions (at week 10 of a 12-week dosing period) in ACTH and androstenedione (A4) of 84% and 79% (respectively) in patients with substantially elevated A4 levels at baseline. It does not reduce cortisol levels, but management believes it should allow for lower levels of prescribed glucocorticoids; thus, lessening their side effects.
Tildacerfont is currently being assessed in two Phase 2b trials: one (CAHmelia-203) for 72 classic CAH patients with poor disease control; and one (CAHmelia-204) for 90 classic CAH patients with good disease control due to supraphysiologic glucocorticoid dosing - defined as > 30mg/day and < 60mg/day. The former is a three-part study involving three dose levels (50mg, 100mg, and 200mg) plus placebo, although the primary endpoint is change from baseline in A4 at week 12, which is end of Part A. The latter is a 24-week study with a single dose level (200mg) undergoing evaluation versus placebo with the primary endpoint the proportion of patients with a greater than 5mg / day reduction of glucocorticoid usage with A4 < upper limit of normal (ULN) at week 24. Topline results from CAHmelia-203 are expected in 2H23; a readout on CAHmelia-204 is anticipated in 2H24.
Spruce is also conducting a 20-patient, three-cohort, open-label Phase 2 trial (CAHptain-205) in pediatric subjects with classic CAH that should readout its first two cohorts in 2H23. Primary endpoint is safety, with secondary efficacy endpoints including the proportion of patients who achieve a reduction in either A4 or daily glucocorticoid dosing at week 12.
Tildacerfont has received Orphan Drug designation from the FDA for CAH. With ~80,000 afflicted with classic CAH in the U.S. and EU, management places the global market opportunity at $3 billion plus.
That said, Spruce is not the only biopharma pursuing the classic CAH indication. Neurocrine Biosciences (NBIX) has initiated Phase 3 studies in adult and pediatric patients for its CRF1 receptor antagonist (crinecerfont) that is expected to readout in early 4Q23. In a Phase 2 study encompassing 17 adult patients with classic CAH due to 21OHD deficiency, median reductions of 66% and 64% were achieved for ACTH and A4 (respectively) at day 14 in the twice-daily 100mg cohort. Although slightly inferior to tildacerfont in terms of dosing, it was superior in terms of ACTH and A4 reduction at day 14 (tildacerfont: geometric mean reductions of 58% and 23%, respectively). Either way, Neurocrine's potential first-mover advantage merits notice and is part of the reason for Spruce's depressed share price. Also, Crinetics ( CRNX ) is scheduled to advance its oral ACTH antagonist into a Phase 2 trial sometime in 2023. But that is not all. Unlike treatments (such as tildacerfont and crinecerfont) attempting to strike a balance between overtreatment and undertreatment, BridgeBio Pharma (BBIO) has a potentially curative AAV5 gene therapy candidate that replaces 21OHD in the adrenal cortex undergoing assessment in a Phase 1/2 trial. Initial readout from that study is due in 2H23.
May Company Presentation
The other indication pursued by tildacerfont is PCOS, an endocrine disorder in females characterized by elevated levels of androgens, cysts in the ovaries, and irregular menstruation, as well as hirsutism, alopecia, acne, infertility, weight gain, fatigue, depression, and mood changes. Although its cause is not fully understood, it's believed not to be the result of enzymatic deficiencies, but rather an altered responsivity to ACTH. Current therapies all act to treat symptoms of the condition, such as hormonal contraception or metformin.
May Company Presentation
Owing to its ability to lower ACTH levels, tildacerfont is being assessed as a therapeutic option in cases where PCOS is the result of elevated adrenal androgens. Specifically, Spruce has initiated a 27-patient, dose escalation, placebo controlled, proof-of-concept Phase 2 study in females 18-40 with dehydroepiandrosterone sulfate (DHEAS) levels above the ULN. The primary endpoint is absolute change in DHEAS levels at week 12. Topline data are anticipated in 3Q23.
May Company Presentation
With functional adrenal hyperandrogenism a contributing factor in ~30% of approximately five million PCOS cases domestically (~115 million globally), Spruce estimates the U.S. opportunity at $2.5 billion.
Licensing Agreements
The CRF1 receptor antagonist know-how for tildacerfont was in-licensed from Eli Lilly ( LLY ) in 2016 for an upfront consideration of $800,000. Spruce is potentially on the hook for $23 million of milestone payments and mid-single digits to sub-teens royalties on worldwide sales.
On the other side of the equation, the company inked an agreement with Kaken Pharmaceutical ( OTCPK:KKPCF ) in January 2023 to develop and commercialize tildacerfont in Japan. Spruce received $15 million upfront and is eligible for up to $65 million in milestones and tiered royalties peaking in the mid-twenties.
Balance Sheet & Analyst Commentary:
To help advance tildacerfont through the clinic, Spruce raised net proceeds of $51.0 million in a February 2023 private placement, consisting of 16.12 million shares of stock, 800,000 pre-funded warrants, and 12.69 million five-year warrants to purchase stock at $3.96 a share. Those transactions elevated the company's cash and investments to $118.6 million as of March 31, 2023, which does not include the upfront payment from Kaken (April). It also holds debt of $4.6 million. This funding should be sufficient to support operations into 1H25.
The Street is mostly positive on Spruce, featuring one buy, four outperform and hold rating on the stock. Prices targets from the five analyst firms including Oppenheimer and RBC Capital that have positive opinions on Spruce Biosciences range from $4 to $10 a share.
Verdict
Spruce's approach is not curative and does not obviate the need for glucocorticoids, but given the lack of commercial alternatives, two significant market opportunities, and no clear efficacy favorite vis a vie its more-advanced rival at Neurocrine in classic CAH, an FDA approval is worth a market cap closer to $1 billion, representing significant multi-bagger upside.
May Company Presentation
That said, it is uncertain whether biomarker success will translate to a halting (or reversal) of symptom progression in classic CAH or PCOS. Also, it is worth keeping an eye on BridgeBio's initial results from its Phase 1/2 gene therapy study in 2H23. Those concerns notwithstanding, trading at a discount to cash with three upcoming readouts (classic CAH in adults with poor disease control, pediatric-adolescent classic CAH, and PCOS) in 2H23, Spruce appears worth of a roll of the dice for aggressive investors within a small ' watch item ' position pending further developments.
Note: Investing in clinical-stage biotech firms always incorporates a great deal of risk. These include trial failures, FDA actions, the ability to raise additional capital on favorable terms, competition from other firms targeting the same disease area, etc. They should only be considered for investment by aggressive, risk tolerant investors within a well-diversified biotech portfolio.
The world's big and I want to have a good look at it before it gets dark ."? John Muir
For further details see:
Sizing Up Spruce Biosciences