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The poetry of the earth is rarely dead.”― John Keats
Today, we put a small cap developmental firm within the highlight. This Busted IPO now trades for lower than the online money on its balance sheet because it looks to advance its primary pipeline asset. An evaluation follows below.
Searching for Alpha
Company Overview
Spruce Biosciences, Inc. (NASDAQ:SPRB) is a South San Francisco-based clinical-stage biotechnology concern focused on the event of therapies targeting rare endocrine disorders. The corporate 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 roughly $90 million.
It must also be noted that the corporate 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 present 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 gaggle of genetic disorders affecting the adrenal glands, positioned on top of every kidney. Adrenal glands produce the next hormones: cortisol, which regulates blood pressure and energy levels while also helping the body reply to illness, injury, and stress; aldosterone, which modifies blood pressure and volume, in addition to regulating levels of sodium and water; and androgens, that are male sex hormones akin to testosterone.
May Company Presentation
Classic CAH is driven by a mutation within the gene that encodes an enzyme (typically 21-hydroxylase (21OHD)) needed for the synthesis of the aforementioned hormones. Without cortisol, the body doesn’t properly respond to emphasize, resulting in adrenal crisis and possibly death. Specifically, its absence alters the traditional 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 those conditions, classic CAH patients suffer premature puberty, excessive body hair (hirsutism), impaired fertility, menstrual issues, and adrenal rest tumors, leading to a lower quality of life. This malady is currently treated with significant (supraphysiologic) doses of glucocorticoids, which may result in diabetes, heart problems, stunted growth, thin skin, osteoporosis, GI issues, and truncated life expectancy.
May Company Presentation
In a Phase 2 study, tildacerfont demonstrated the power to scale back 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 doesn’t reduce cortisol levels, but management believes it should allow for lower levels of prescribed glucocorticoids; thus, lessening their unwanted 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 as a consequence of supraphysiologic glucocorticoid dosing – defined as > 30mg/day and < 60mg/day. The previous is a three-part study involving three dose levels (50mg, 100mg, and 200mg) plus placebo, although the first 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 first 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 can be conducting a 20-patient, three-cohort, open-label Phase 2 trial (CAHptain-205) in pediatric subjects with classic CAH that ought to readout its first two cohorts in 2H23. Primary endpoint is safety, with secondary efficacy endpoints including the proportion of patients who achieve a discount in either A4 or every day glucocorticoid dosing at week 12.
Tildacerfont has received Orphan Drug designation from the FDA for CAH. With ~80,000 afflicted with classic CAH within the U.S. and EU, management places the worldwide market opportunity at $3 billion plus.
That said, Spruce isn’t the one 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 predicted to readout in early 4Q23. In a Phase 2 study encompassing 17 adult patients with classic CAH as a consequence of 21OHD deficiency, median reductions of 66% and 64% were achieved for ACTH and A4 (respectively) at day 14 within the twice-daily 100mg cohort. Although barely inferior to tildacerfont by way of dosing, it was superior by way 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 a component of the explanation for Spruce’s depressed share price. Also, Crinetics (CRNX) is scheduled to advance its oral ACTH antagonist right into a Phase 2 trial sometime in 2023. But that isn’t all. Unlike treatments (akin to 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 within the adrenal cortex undergoing assessment in a Phase 1/2 trial. Initial readout from that study is due in 2H23.
May Company Presentation
The opposite indication pursued by tildacerfont is PCOS, an endocrine disorder in females characterised by elevated levels of androgens, cysts within the ovaries, and irregular menstruation, in addition to hirsutism, alopecia, pimples, infertility, weight gain, fatigue, depression, and mood changes. Although its cause isn’t fully understood, it’s believed to not be the results of enzymatic deficiencies, but somewhat an altered responsivity to ACTH. Current therapies all act to treat symptoms of the condition, akin to 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 results 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 first 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 consider ~30% of roughly 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 opposite side of the equation, the corporate 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 as much as $65 million in milestones and tiered royalties peaking within the mid-twenties.
Balance Sheet & Analyst Commentary:
To assist 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 buy stock at $3.96 a share. Those transactions elevated the corporate’s money and investments to $118.6 million as of March 31, 2023, which doesn’t include the upfront payment from Kaken (April). It also holds debt of $4.6 million. This funding ought to be sufficient to support operations into 1H25.
The Street is usually positive on Spruce, featuring one buy, 4 outperform and hold rating on the stock. Prices targets from the five analyst firms including Oppenheimer and RBC Capital which have positive opinions on Spruce Biosciences range from $4 to $10 a share.
Verdict
Spruce’s approach isn’t curative and doesn’t obviate the necessity for glucocorticoids, but given the dearth of economic 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 value a market cap closer to $1 billion, representing significant multi-bagger upside.
May Company Presentation
That said, it’s uncertain whether biomarker success will translate to a halting (or reversal) of symptom progression in classic CAH or PCOS. Also, it’s value keeping track of BridgeBio’s initial results from its Phase 1/2 gene therapy study in 2H23. Those concerns notwithstanding, trading at a reduction to money with three upcoming readouts (classic CAH in adults with poor disease control, pediatric-adolescent classic CAH, and PCOS) in 2H23, Spruce appears value of a roll of the dice for aggressive investors inside a small ‘watch item’ position pending further developments.
Note: Investing in clinical-stage biotech firms all the time incorporates an ideal deal of risk. These include trial failures, FDA actions, the power to lift additional capital on favorable terms, competition from other firms targeting the identical disease area, etc. They need to only be considered for investment by aggressive, risk tolerant investors inside a well-diversified biotech portfolio.
The world’s big and I would like to have take a look at it before it gets dark.”― John Muir
Editor’s Note: This text covers a number of microcap stocks. Please concentrate on the risks related to these stocks.
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