UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 9, 2024, the registrant had
Table of Contents
Summary of Risks Associated With Our Business
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PART I. |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
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Item 1. |
26 |
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Item 1A. |
26 |
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Item 2. |
75 |
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Item 3. |
75 |
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Item 4. |
75 |
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Item 5. |
75 |
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Item 6. |
76 |
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77 |
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SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS
We face risks and uncertainties associated with our business, many of which are beyond our control. Some of the material risks associated with our business include the following:
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SPRUCE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)
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June 30, |
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December 31, |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Term loan, current portion |
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Deferred revenue, current portion |
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Total current liabilities |
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Lease liabilities, net of current portion |
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Term loan, net of current portion |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to the condensed financial statements.
1
SPRUCE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except share and per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Collaboration revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Interest expense |
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( |
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( |
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( |
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Interest income and other expense, net |
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Net loss |
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( |
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Other comprehensive gain, net of tax: |
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Unrealized gain on available for sale securities |
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Total comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
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$ |
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$ |
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Weighted-average shares of common stock outstanding, |
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See accompanying notes to the condensed financial statements.
2
SPRUCE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except share amounts)
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Additional |
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Accumulated Other |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance as of March 31, 2024 |
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$ |
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$ |
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$ |
— |
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$ |
( |
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$ |
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Issuance of common stock related to employee stock purchase plan |
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— |
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— |
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— |
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Issuance of common stock related to vesting of restricted stock units, net of tax withholdings |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2024 |
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$ |
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$ |
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$ |
— |
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$ |
( |
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$ |
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Additional |
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Accumulated Other |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance as of January 1, 2024 |
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$ |
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$ |
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$ |
— |
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$ |
( |
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$ |
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Exercise of common stock options |
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— |
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— |
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— |
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Issuance of common stock related to employee stock purchase plan |
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— |
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— |
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— |
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Issuance of common stock related to vesting of restricted stock units, net of tax withholdings |
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— |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2024 |
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$ |
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$ |
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$ |
— |
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$ |
( |
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$ |
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3
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Additional |
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Accumulated Other |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Gain (Loss) |
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Deficit |
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Equity |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of pre-funded warrants |
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— |
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— |
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— |
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Issuance of common stock related to employee stock purchase plan |
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— |
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— |
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— |
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Issuance of common stock related to vesting of restricted stock units, net of tax withholdings |
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— |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Unrealized gain on available for sale securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Additional |
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Accumulated Other |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Gain (Loss) |
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Deficit |
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Equity |
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Balance as of January 1, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of pre-funded warrants |
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— |
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— |
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— |
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Issuance of common stock related to employee stock purchase plan |
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— |
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— |
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— |
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Issuance of common stock related to vesting of restricted stock units, net of tax withholdings |
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— |
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( |
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— |
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— |
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( |
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Issuance of common stock and warrants, net of offering costs of $ |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Unrealized gain on available for sale securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to the condensed financial statements.
4
SPRUCE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Six Months Ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization |
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Net accretion of discount on available-for-sale securities |
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Non-cash lease expense |
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Loss on disposal of property and equipment |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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( |
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( |
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Accrued expenses and other current liabilities |
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( |
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Deferred revenue |
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( |
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Other liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities |
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Proceeds from maturities of investments |
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Purchases of investments |
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Net cash provided by investing activities |
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Cash flows from financing activities |
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Proceeds from issuance of common stock and warrants |
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Proceeds from exercise of common stock options |
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Proceeds from issuance of common stock related to employee stock purchase plan |
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Proceeds from exercise of pre-funded warrants |
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Payment of offering costs |
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( |
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Repayment of term loan |
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( |
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( |
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Tax withholding payments on restricted stock units |
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( |
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( |
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Net cash (used in) provided by financing activities |
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( |
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Net (decrease) increase in cash, cash equivalents, and restricted cash |
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( |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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$ |
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$ |
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Reconciliation of cash, cash equivalents, and restricted cash |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash, long-term (included in other assets) |
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Total cash, cash equivalents, and restricted cash |
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$ |
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$ |
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See accompanying notes to the condensed financial statements.
5
SPRUCE BIOSCIENCES, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Principal Activities
Description of Business
Spruce Biosciences, Inc. (the “Company”) is a late-stage biopharmaceutical company focused on developing and commercializing novel therapies for endocrine and neurological disorders with significant unmet medical need. The Company is developing its product candidate, tildacerfont, a second-generation CRF1 receptor antagonist, for the treatment of classic congenital adrenal hyperplasia (“CAH”), polycystic ovary syndrome (“PCOS”), and major depressive disorder (“MDD”). The Company is located in South San Francisco, California and was incorporated in the state of Delaware in April 2016.
Private Placement of Common Stock and Warrants
In February 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to sell and issue (i)
Open Market Sales Agreement
In February 2022, the U.S. Securities and Exchange Commission (“SEC”) declared effective a registration statement on Form S-3 (the “Shelf Registration”), covering the sale of up to $
Liquidity and Capital Resources
The Company believes that based on its current operating plan, its cash and cash equivalents of $
The Company has incurred significant losses and negative cash flows from operations. During the six months ended June 30, 2024, the Company incurred a net loss of $
The Company anticipates that it will need to raise substantial additional financing in the future to fund its operations. In order to meet these additional cash requirements, the Company may seek to out-license rights to develop and commercialize tildacerfont or sell additional equity or issue debt, convertible debt or other securities that may result in dilution to its stockholders. If the Company raises additional funds through the issuance of debt or convertible debt securities, these securities could have rights senior to those of its shares of Common Stock and could contain covenants that restrict its operations. There can be no assurance that the Company will be able to obtain additional equity or debt financing on terms acceptable to it, if at all. Additional debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. The Company’s failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on its business, results of operations, and financial condition.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC for interim reporting. As permitted under those rules and regulations, certain notes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The condensed balance sheet as of June 30, 2024, the condensed statements of operations and
6
comprehensive loss for the three and six months ended June 30, 2024 and 2023, the condensed statement of stockholders’ equity for the three and six months ended June 30, 2024 and 2023, and the condensed statements of cash flows for the six months ended June 30, 2024 and 2023 are unaudited. The interim condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the Company’s results for the interim periods presented. The condensed balance sheet as of December 31, 2023 is derived from the Company’s audited financial statements. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, or for any other future annual or interim period.
These interim condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 18, 2024 (“Annual Report”).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses as well as related disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, accrued research and development expenses, revenue recognition, stock-based compensation, and uncertain tax positions. The Company bases its estimates on its historical experience and on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.
Risks and Uncertainties
Any product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s current and future product candidates will meet desired efficacy and safety requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its financial statements.
The Company is subject to a number of risks similar to other late-stage biopharmaceutical companies including, but not limited to, dependency on the clinical success of the Company’s product candidate, tildacerfont, ability to obtain regulatory approval of tildacerfont, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, significant competition, untested manufacturing capabilities, and dependence on key individuals and sole source suppliers.
Global economic and business activities continue to face widespread macroeconomic and geopolitical uncertainties, including recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, labor shortages, inflation and monetary supply shifts, recession risks and potential disruptions from the ongoing wars in Ukraine and Israel and related sanctions. The Company continues to actively monitor the impact of these macroeconomic and geopolitical factors on its financial condition, liquidity, operations, and workforce. The extent of the impact of these factors on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact the Company’s business.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the condensed balance sheets.
Significant Accounting Policies
There have been no significant changes to the significant accounting policies during the six months ended June 30, 2024, as compared to the significant accounting policies described in the Annual Report.
Emerging Growth Company Status
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
7
companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards.
Recent Accounting Pronouncements - Not Yet Adopted
In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes - Improvements to Income Tax Disclosures (“ASU 2023-09”) requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact of the adoption of this standard on the Company’s financial statements and related disclosures.
3. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:
Level 1 — Quoted prices in active markets for identical assets and liabilities;
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company classifies money market funds and U.S. treasury securities as Level 1 investments as the Company uses quoted prices in active markets for identical assets to determine the fair value.
The following table summarizes the Company's financial assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
|
|
|
June 30, 2024 |
|
|||||||||||||
|
Fair Value |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Money market funds |
Level 1 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total cash equivalents |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
December 31, 2023 |
|
|||||||||||||
|
Fair Value |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Money market funds |
Level 1 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total cash equivalents |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
There have been
There were
8
The estimated fair value of the term loan was $
The Company did
4. Balance Sheet Components
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Accrued research and development expenses |
|
$ |
|
|
$ |
|
||
Accrued compensation and benefits |
|
|
|
|
|
|
||
Accrued general and administrative expenses |
|
|
|
|
|
|
||
Lease liabilities, current portion |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
Accrued research and development expenses were primarily related to clinical trials.
5. Leases
The Company leases space under a non-cancelable operating lease, which requires the Company to pay base rent, real estate taxes, insurance, general repairs, and maintenance. In December 2022, the Company entered into a non-cancelable operating lease for approximately
6. Term Loan
In September 2019, the Company entered into a Loan and Security Agreement, as subsequently amended (the “Loan Agreement”) with Silicon Valley Bank (“SVB”) providing for a term loan (the “Term Loan”) for an aggregate principal amount of $
In September 2019 and in connection with the Loan Agreement, the Company issued a warrant to purchase up to an aggregate of
In March 2021, the Company entered into a First Amendment to Loan and Security Agreement (the “First Amendment”), which increased the aggregate principal amount of the Term Loan to $
In May 2022, the Company entered into a Second Amendment to Loan and Security Agreement (the “Second Amendment”), which amended the milestones for the Second Tranche, added a liquidity covenant for the Second Tranche and amended the interest and prepayment terms.
As of June 30, 2024, the carrying value of the Term Loan was $
The Loan Agreement provided for monthly cash interest-only payments following the funding date of each respective tranche and continuing thereafter through December 31, 2022. The Term Loan is subject to a floating per annum interest rate equal to the greater of (a)
9
business day of the first month following the amended interest-only period, over the repayment period, plus (ii) monthly payments of accrued but unpaid interest. As of June 30, 2024 and December 31, 2023, the stated interest rate of the Term Loan was
The final payment is due on the Maturity Date and includes all outstanding principal plus accrued unpaid interest and an end of term payment totaling $
The Company is subject to customary affirmative and restrictive covenants under the Loan Agreement. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its current and future assets, other than intellectual property. The Company also agreed not to encumber its intellectual property assets, except as permitted by the Loan Agreement.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, the Company’s failure to fulfill certain obligations under the Loan Agreement and the occurrence of a material adverse change in its business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In the event of default by the Company under the Loan Agreement, the lender would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the Loan Agreement. As of June 30, 2024, the Company was in compliance with all covenants under the Loan Agreement and there has been no material adverse change.
As of June 30, 2024, future payments of principal and interest are as follows (in thousands):
Year ending December 31, |
|
|
|
|
2024 (remaining 6 months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total |
|
$ |
|
|
Less: interest |
|
|
( |
) |
Term loan, gross |
|
$ |
|
|
Less: unamortized debt issuance costs |
|
|
( |
) |
Less: term loan, current portion |
|
|
( |
) |
Term loan, net of current portion |
|
$ |
|
|
7. Collaboration and License Agreements
Eli Lily and Company
In May 2016, the Company entered into a license agreement (the “Lilly License Agreement”), with Eli Lilly and Company (“Lilly”). Pursuant to the terms of the Lilly License Agreement, Lilly granted the Company an exclusive, worldwide, royalty bearing, sublicensable license under certain technology, patent rights, know-how and proprietary materials related to certain compounds, to research, develop, and commercialize such compounds for all pharmaceutical uses.
As partial consideration for the rights granted to the Company under the Lilly License Agreement, the Company made a one-time upfront payment to Lilly of $
The Lilly License Agreement will remain in effect, unless earlier terminated, until the expiration of the royalty payment obligations. Royalties are payable on a product-by-product and country-by-country basis from the first commercial sale of the product until the later of (i) the tenth anniversary of the date of first commercial sale in such country, (ii) the expiration in such country of the last-to-expire licensed patent having a valid claim covering the manufacture, use or sale of the licensed product as commercialized in such country, and (iii) the expiration of any data or regulatory exclusivity period for the licensed product in such country.
10
Kaken Pharmaceutical Co, Ltd.
In January 2023, the Company entered into a collaboration and license agreement (the “Kaken License Agreement”) with Kaken Pharmaceutical Co, Ltd. (“Kaken”). Under the terms of the Kaken License Agreement, the Company granted to Kaken the exclusive right to develop, manufacture and commercialize the Company’s product candidate, tildacerfont, for the treatment of CAH in Japan. Pursuant to the Kaken License Agreement, Kaken will be responsible for securing and maintaining regulatory approvals necessary to commercialize tildacerfont in Japan. The Company will retain all rights to tildacerfont in all other geographies.
Pursuant to the Kaken License Agreement, Kaken made an upfront payment to the Company of $
The Company identified a combined performance obligation consisting of the license and know-how granted to Kaken as well as certain non-contingent research and development activities. The Company determined that the transaction price at the inception of the Kaken License Agreement consisted of the upfront payment of $
During the three months ended June 30, 2024 and 2023, the Company recognized collaboration revenue of $
HMNC Holding GmbH
In May 2024, the Company entered into a license, development and option agreement (the “HMNC Agreement”) with HMNC Holding GmbH (“HMNC”). Under the terms of the HMNC Agreement, HMNC will fund and conduct a Phase 2 proof-of-concept study of tildacerfont in MDD patients, who will be screened using Cortibon Genetic Selection Tool (“Cortibon”), HMNC’s proprietary genetic selection tool.
The Company has an option to in-license exclusive worldwide rights to Cortibon after completion of the study, if results are positive. If the Company exercises its option, it will be responsible for the future worldwide development and commercialization of tildacerfont and Cortibon for the treatment of MDD under a collaboration framework that leverages HMNC’s ongoing expertise in precision psychiatry and companion diagnostics. Pursuant to the license terms, HMNC would be entitled to receive certain milestone payments and tiered royalties on net sales of tildacerfont in MDD.
8. Capital Structure
Common Stock
As of June 30, 2024 and December 31, 2023, the Company was authorized to issue
11
Shares reserved for future issuance
Common Stock reserved for future issuance, on an as converted basis, consisted of the following:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Standard Warrants, issued and outstanding |
|
|
|
|
|
|
||
Restricted stock units, issued and outstanding |
|
|
|
|
|
|
||
Common stock options, issued and outstanding |
|
|
|
|
|
|
||
Shares available for future issuance under 2020 Equity Incentive Plan |
|
|
|
|
|
|
||
Shares available for future issuance under 2020 Employee Stock Purchase Plan |
|
|
|
|
|
|
||
Total shares reserved |
|
|
|
|
|
|
||
9. Stock-Based Compensation Expense
The following table summarizes the components of stock-based compensation expense recognized in the Company’s condensed statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
During the six months ended June 30, 2024, the Company granted stock options covering
Restricted Stock Units
10. Net Loss Per Share
T
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Basic net loss per share was the same as diluted net loss per share for all periods as the inclusion of potentially dilutive securities would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations were as follows:
|
|
June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Shares subject to outstanding Standard Warrants |
|
|
|
|
|
|
||
Shares subject to outstanding RSUs |
|
|
|
|
|
|
||
Shares subject to outstanding common stock options |
|
|
|
|
|
|
||
Estimated shares issuable under the 2020 Employee Stock Purchase Plan |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 18, 2024 (the “Annual Report”). Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “Spruce,” the “company,” “we,” “our,” “us” or similar terms refer to Spruce Biosciences, Inc.
Forward-Looking Statements
In addition to historical financial information, this Quarterly Report on Form 10-Q contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a late-stage biopharmaceutical company focused on developing and commercializing novel therapies for endocrine and neurological disorders with significant unmet medical need. We are developing our product candidate, tildacerfont, an oral antagonist of the CRF1 receptor, which is the receptor for corticotropin-releasing factor (“CRF”), for the treatment of classic congenital adrenal hyperplasia (“CAH”), polycystic ovary syndrome (“PCOS”), and major depressive disorder (“MDD”). Over 400 subjects across ten completed clinical trials to date have been administered tildacerfont with no drug-related serious adverse events (“SAEs”) reported.
Classic CAH is a serious and life-threatening disease with no known novel therapies approved in approximately 70 years. In March 2024, we reported topline results for CAHmelia-203, a placebo-controlled, double-blind Phase 2b clinical trial in adult patients with classic CAH and highly elevated levels of androstenedione (“A4”) at baseline. CAHmelia-203 enrolled 96 subjects with a mean baseline A4 level of 1,151 ng/dL, which is more than five times above the upper limit of normal (“ULN”). The clinical trial did not achieve the primary efficacy endpoint of change in A4 from baseline to week 12. 200mg once daily (“QD”) of tildacerfont demonstrated a placebo-adjusted reduction from baseline in A4 of -2.6% with a non-significant p-value at week 12. Compliance with study medication and glucocorticoid (“GC”) was low with approximately 50% of patients reporting 80% or greater compliance, resulting in lower-than-expected tildacerfont exposure. Tildacerfont was generally safe and well tolerated at all doses, with no treatment-related SAEs. Most adverse events were reported as mild to moderate. Based upon the outcome of the study, we terminated the CAHmelia-203 study.
We also initiated CAHmelia-204, a second Phase 2b clinical trial in 100 adult patients with classic CAH on mean daily dose of supraphysiologic GCs of 37 mg/day of hydrocortisone equivalents. Patients enrolled had a mean A4 level at baseline of 224 ng/dL (approximately the ULN) and 66% of patients enrolled had androgenic control, defined as having A4 values below the ULN at baseline. Topline results from CAHmelia-204 are anticipated in the fourth quarter of 2024.
We are also investigating tildacerfont for the treatment of classic CAH in children. We initiated CAHptain-205, a Phase 2 open-label clinical trial, which initially utilized a sequential three cohort design, to evaluate the safety, efficacy, and pharmacokinetics (“PK”) of tildacerfont in pediatric patients two to 17 years of age with classic CAH. The study characterized the safety and pharmacokinetic profiles of tildacerfont, as well as changes in androgen levels over 12 weeks of treatment, and the ability to reduce daily GC dose upon A4 normalization. In March 2024, we reported topline results from the first three cohorts of the clinical trial, which included 30 children between two and 17 years of age with a mean baseline GC dose of 14 mg/m2/day and mean baseline A4 level of 372 ng/dL. 73% of all patients (22 of 30 patients) met the efficacy endpoint of A4 or GC reduction from baseline at 12 weeks of treatment with tildacerfont. 70% of patients with elevated baseline A4 values (16 of 23 patients) demonstrated an A4 reduction at week 4. Tildacerfont was generally well tolerated at all doses with no treatment-related SAEs reported.
Although the CAHptain-205 clinical trial met the efficacy endpoints, the activity observed was less consistent than anticipated and without clear dose response. Preliminary PK analysis suggests that tildacerfont is cleared more rapidly in children than in adult CAH patients. The clinical trial was amended to include additional dose ranging cohorts in adults, adolescents and children. The maximum planned dose is 400mg BID, subject to adjustment based on safety and PK data obtained during the clinical trial. Dosing
13
will initiate at 200mg BID in adults and adolescents. All cohorts administered doses above 200mg BID will be adaptive, so that the determination to initiate a cohort, and at what increased dose, may be determined by the sponsor, within the guidelines of the protocol, based on recommendations by an independent Data Monitoring Committee and emerging safety and exposure data. Individual and study stopping criteria will further ensure safety of the participants. Topline results from these additional dose ranging cohorts in adults, adolescents, and children are anticipated in the fourth quarter of 2024. Assuming positive results from CAHmelia-204 and CAHptain-205, we plan to meet with the U.S. Food and Drug Administration (“FDA”) and comparable foreign regulatory authorities to outline the design of a registrational clinical program in adult and pediatric classic CAH. We have also submitted a pediatric investigational plan (“PIP”) to the Pediatric Committee (“PDCO”) of the European Medicines Agency (“EMA”) regarding a registrational program in children with classic CAH. PDCO issued an opinion on its agreement with the proposed PIP of tildacerfont for the treatment of CAH which endorsed the clinical program to evaluate the safety, tolerability and efficacy of tildacerfont for the treatment of CAH in patients from one year of age to less than 18 years of age. PDCO also granted a waiver for the treatment of CAH in patients less than one year of age.
Beyond classic CAH, we believe tildacerfont has potential utility in PCOS, and in a range of diseases where the underlying biology supports a need to reduce excess secretion of or hyperresponsiveness to adrenocorticotropic hormone (“ACTH”). PCOS is a hormonal disorder common among females of reproductive age affecting nearly five million females in the United States and approximately 115 million females worldwide. PCOS is characterized by elevated levels of androgens, cysts in the ovaries, and irregular periods. We believe that tildacerfont may present a novel mechanism to reduce ACTH and provide a therapeutic option for females with PCOS. In June 2024, we presented results from POWER, a Phase 2 proof-of-concept, placebo-controlled, dose escalation trial which will evaluate the safety and efficacy of tildacerfont titrated to 200mg QD compared to placebo at 12 weeks of treatment in subjects with PCOS and elevated adrenal androgens as measured by dehydroepiandrosterone sulfate (“DHEAS”) levels at baseline. In women with elevated baseline DHEAS, a significant reduction in DHEAS versus placebo was observed (p = 0.020). In study participants, a significant increase in sex hormone binding globulin (“SHBG”) versus placebo was also observed (p = 0.012). The Phase 2 study was not powered to test for statistical significance on the primary endpoint. However, the lowering of DHEAS, an adrenal androgen precursor, observed with 12-week exposure, suggests that tildacerfont may be of therapeutic benefit for some women with PCOS. Additionally, the observed increase in SHBG may potentially result in lower levels of free, bioactive sex hormones such as testosterone. Tildacerfont was well-tolerated with no safety signals observed. The majority of adverse events were mild to moderate. No SAEs were reported. We are currently evaluating strategic collaboration opportunities for the development and commercialization of tildacerfont for the treatment of PCOS.
In May 2024, we entered into a license, development and option agreement (the “HMNC Agreement”) with HMNC Holding GmbH (“HMNC”). Under the terms of the HMNC Agreement, HMNC will fund and conduct a Phase 2 proof-of-concept study of tildacerfont in MDD patients, who will be screened using Cortibon Genetic Selection Tool (“Cortibon”), HMNC’s proprietary genetic selection tool. Abnormal CRF neurotransmission and CRF1 receptor signal transduction has been proposed to be a critical mechanism for stress pathophysiology that leads to major depression. Markers of hyperactive brain CRF neurotransmission, including abnormally high cerebrospinal fluid (“CSF”) levels of CRF and aberrant functioning of the hypothalamic–pituitary-adrenal (“HPA”) axis, are present in major depression. The CRF1 receptor is abundantly expressed in the brain and pituitary gland, where it is the primary regulator of the HPA axis. By blocking the CRF1 receptor, tildacerfont has the potential to address hyperactive brain CRF neurotransmission and aberrant functioning of the HPA axis in patients with MDD. Additionally, by utilizing genetic markers, Cortibon aims to identify MDD patients who are more likely to respond to CRF1 receptor antagonism, thereby enhancing treatment outcomes and reducing the trial-and-error period typical in depression treatment. We have an option to in-license exclusive worldwide rights to Cortibon after completion of the study, if results are positive. If we exercise our option, we will be responsible for the future worldwide development and commercialization of tildacerfont and Cortibon for the treatment of MDD under a collaboration framework that leverages HMNC’s ongoing expertise in precision psychiatry and companion diagnostics. Pursuant to the license terms, HMNC would be entitled to receive certain milestone payments and tiered royalties on net sales of tildacerfont in MDD.
Since our inception in November 2014, we have focused primarily on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of, and manufacturing development for, our product candidate, tildacerfont. We have no products approved for commercial sale and have not generated any product revenue to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development of tildacerfont and any future product candidates.
We intend to build a highly specialized commercial organization to support the commercialization of tildacerfont, if approved, in the United States. Given a relatively small number of endocrinologists and specialists treat a large proportion of patients with classic CAH, we believe this market can be effectively addressed with a modest-sized targeted commercial sales force, alongside various high-touch patient initiatives. If tildacerfont is approved for additional indications, we plan to leverage our rare disorder commercial infrastructure and expertise to efficiently address those patient populations. We will seek strategic collaborations to benefit from the resources of biopharmaceutical companies specialized in either relevant disease areas or geographies in markets outside the United States. In January 2023, we and Kaken Pharmaceutical Co. Ltd. (“Kaken”) entered into an exclusive licensing
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agreement for the development and commercialization of tildacerfont for the treatment of CAH in Japan (the “Kaken License Agreement”). Under the terms of the Kaken License Agreement, we received an upfront payment of $15.0 million from Kaken in April 2023 and will be eligible to receive additional payments upon the achievement of future development and commercial milestones, as well as tiered double-digit royalties on net sales in Japan. Kaken will be responsible for the clinical development and commercialization of tildacerfont in Japan, and we will retain all rights to tildacerfont in all other geographies. Kaken will also be responsible for securing and maintaining regulatory approvals necessary to market and sell tildacerfont in Japan.
We rely, and expect to continue to rely, on third parties for the manufacture of tildacerfont for preclinical studies and clinical trials, as well as for commercial manufacture if tildacerfont obtains marketing approval. We also rely, and expect to continue to rely, on third parties to package, label, store, and distribute tildacerfont, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of tildacerfont.
Since inception, we have incurred significant losses and negative cash flows from operations. During the six months ended June 30, 2024 and 2023, we incurred net losses of $20.8 million and $25.6 million, respectively, and used $26.1 million and $9.8 million of cash in operations, respectively. As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $218.0 million and $197.2 million, respectively, and we do not expect positive cash flows from operations for the foreseeable future. We expect to continue to incur significant and increasing losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our planned research and development activities.
Since inception through June 30, 2024, we have raised aggregate gross proceeds of $293.1 million, including $103.5 million from our initial public offering (“IPO”) in October 2020, $116.0 million from the sale of our redeemable convertible preferred stock, $5.0 million from the issuance of debt, $53.6 million from a private placement financing in February 2023, and the $15.0 million upfront payment from Kaken received in April 2023. As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $69.7 million and $96.3 million, respectively.
We believe, based on our current operating plan, that our cash and cash equivalents as of June 30, 2024 will be sufficient to fund our operations and debt obligations for at least 12 months following the issuance date of our financial statements included elsewhere in this Quarterly Report. We have based this projection on assumptions that may be inaccurate and as a result, we may utilize our capital resources sooner than we expect. We expect our expenses will increase significantly in connection with our ongoing activities, as we:
In February 2022, the U.S. Securities and Exchange Commission (“SEC”) declared effective a registration statement on Form S-3 (the “Shelf Registration”), covering the sale of up to $200.0 million of our securities. Also, in February 2022, we entered into an Open Market Sales AgreementSM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which we may elect to issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $21.0 million under the Shelf Registration through Jefferies acting as the sales agent and/or principal. As of June 30, 2024, we have not issued any shares of common stock under the Sales Agreement.
In February 2023, we entered into a securities purchase agreement with several institutional and accredited investors, including holders of more than 5% of our total common stock outstanding on the date of the securities purchase agreement, pursuant to which we sold 16,116,000 shares of common stock, pre-funded warrants to purchase 800,000 shares of common stock, and warrants to purchase 12,687,000 shares of common stock for gross proceeds of $53.6 million, before deducting offering expenses payable by us. During the three months ended June 30, 2023, all of the pre-funded warrants were exercised for 800,000 shares of common stock.
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Global economic and business activities continue to face widespread macroeconomic uncertainties, including recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, labor shortages, inflation and monetary supply shifts, recession risks and potential disruptions from the ongoing wars in Ukraine and Israel and related sanctions. For example, on March 10, 2023, the Federal Deposit Insurance Corporation (“FDIC”) took control and was appointed receiver of Silicon Valley Bank (“SVB”). If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition.
The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.
Material Agreements
License Agreement with Eli Lilly and Company
In May 2016, we entered into a license agreement (the “Lilly License Agreement”) with Eli Lilly and Company (“Lilly”). Pursuant to the terms of the Lilly License Agreement, Lilly granted us an exclusive, worldwide, royalty bearing, sublicensable license under certain technology, patent rights, know-how, and proprietary materials, which we refer to collectively as the “Lilly IP”, and such patents (the “Lilly Licensed Patents”), relating to the CRF1 receptor antagonist compounds either listed in the Lilly License Agreement or covered by patent rights controlled by Lilly, which we refer to collectively as the “Lilly Compounds”, to research, develop, commercialize, make, have made, use, sell, offer to sell, and import the Lilly Compounds and any products containing a Lilly Compound, including any products containing a Lilly Compound and one or more additional active pharmaceutical ingredients (“APIs”) other than a Lilly Compound, which we refer to collectively as the “Lilly Licensed Products”, for all pharmaceutical uses, including all diagnostic, therapeutic, and prophylactic uses, for human or animal administration. Lilly retained rights under the Lilly IP and the Lilly Licensed Patents for internal research purposes.
As partial consideration for the rights granted to us under the Lilly License Agreement, we made a one-time upfront payment to Lilly of $0.8 million. We are also required to pay Lilly up to an aggregate of $23.0 million upon the achievement, during the time the Lilly License Agreement remains in effect, of certain milestones relating to the clinical development and commercial sales of the Lilly Licensed Products. Such payments are for predetermined fixed amounts, are paid only upon the first occurrence of each such event and are due shortly after achieving the applicable milestone. In addition, we are required to pay Lilly tiered royalties on annual worldwide net sales of Lilly Licensed Products, with rates ranging from mid-single-digits to sub-teens (the “Lilly Royalties”). The Lilly Royalties shall commence on a country-by-country basis on the date of the first commercial sale of Lilly Licensed Product in such country, and shall expire on a country-by-country basis on the latest of the following dates: (i) the tenth anniversary of the date of first commercial sale in such country, (ii) the expiration in such country of the last-to-expire Lilly Licensed Patent having a valid claim covering the manufacture, use, or sale of the Lilly Licensed Product as commercialized in such country, and (iii) the expiration of any data or regulatory exclusivity period for the Lilly Licensed Product in such country. Upon such expiration, the license granted to us with respect to such country shall become fully paid-up, royalty-free, perpetual and irrevocable. In addition, the Lilly Royalties may be reduced upon the occurrence of certain events.
License Agreement with Kaken
On January 5, 2023, we entered into the Kaken License Agreement with Kaken. Under the terms of the Kaken License Agreement, we granted to Kaken the exclusive right to develop, manufacture and commercialize our product candidate, tildacerfont, for the treatment of CAH in Japan. Pursuant to the Kaken License Agreement, Kaken will be responsible for securing and maintaining regulatory approvals necessary to commercialize tildacerfont in Japan. We will retain all rights to tildacerfont in all other geographies.
We have also granted to Kaken a right of first negotiation with respect to the development, manufacturing and commercialization of tildacerfont for CAH in China (including Hong Kong, Taiwan, and Macau), South Korea and other specified southeastern Asian countries, and for indications other than CAH.
Pursuant to the Kaken License Agreement, Kaken made an upfront payment to us of $15.0 million in April 2023. In addition to the upfront payment, we are entitled to receive up to an aggregate of approximately $65.0 million (at exchange rates in effect on the date of the Kaken License Agreement) upon the achievement of specified milestones related to the development, regulatory approval and commercialization of tildacerfont in Japan, including the achievement of specified net sales thresholds, if approved. Kaken has agreed to pay us a non-creditable, non-refundable specified purchase price for each unit of Company-manufactured product supplied to Kaken for commercial sale. In addition, we will also be entitled to receive a royalty for each unit of non-Company manufactured product sold equal to a range of double-digit percentages up to the mid-twenties based on annual net sales of tildacerfont in Japan. Both the purchase price for each unit and the royalty rate are subject to reduction in certain circumstances as specified in the Kaken License Agreement. Kaken’s obligation to pay royalties will continue for ten years after the first commercial sale in Japan or, if later,
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until the expiration of regulatory exclusivity of tildacerfont or the expiration of the last valid claim of a Company-licensed patent covering tildacerfont in Japan (the “Royalty Term”).
We have agreed to supply Kaken’s clinical drug supply requirements of tildacerfont pursuant to a clinical supply agreement that the parties plan to consummate. During the Royalty Term, we have agreed to supply Kaken’s requirements of tildacerfont pursuant to the Kaken License Agreement and a commercial supply agreement to be entered into by the parties, though Kaken may procure alternate suppliers. Following the Royalty Term, Kaken at its option may continue to purchase Company-manufactured tildacerfont at a purchase price equal to our manufacturing cost plus a low double-digit administrative fee.
Either party may terminate the Kaken License Agreement (i) in the event the other party shall have materially breached its obligations thereunder and such default shall have continued for a specified period after written notice thereof or (ii) upon the bankruptcy or insolvency of the other party. In addition, we may terminate the Kaken License Agreement upon prior written notice if Kaken ceases all development or commercialization activities for a specified period of time, subject to certain exceptions, or (iii) challenges the validity, enforceability or scope of any of the patents licensed by us to Kaken under the Kaken License Agreement, subject to certain conditions. Kaken may terminate the Kaken License Agreement at any time for convenience upon prior written notice provided within a specified period of time to us.
Loan Agreement with Silicon Valley Bank
In September 2019, we entered into a Loan and Security Agreement, as subsequently amended (the “Loan Agreement”), with SVB providing for a term loan (the “Term Loan”) for an aggregate principal amount of $4.5 million.
In March 2021, we entered into a First Amendment to Loan and Security Agreement (the “First Amendment”) which increased the aggregate principal amount of the Term Loan to $30.0 million, of which $20.0 million was immediately available under the first tranche (the “First Tranche”) and $10.0 million was available under the second tranche through December 31, 2022 (the “Second Tranche”) subject to the completion of certain clinical or financial milestones. Pursuant to the First Amendment, the Term Loan will mature on January 1, 2026 (the “Maturity Date”).
In May 2022, we entered into a Second Amendment to Loan and Security Agreement (the “Second Amendment”) which amended the milestones for the Second Tranche, added a liquidity covenant for the Second Tranche and amended the interest and prepayment terms.
As of June 30, 2024 and December 31, 2023, the outstanding principal was comprised of $2.6 million and $3.4 million, respectively, under the First Tranche. Repayment of principal under the First Tranche commenced in January 2023. Commitments available under the Second Tranche of $10.0 million expired on December 31, 2022.
The Loan Agreement provided for monthly cash interest-only payments following the funding date of each respective tranche and continuing thereafter through December 31, 2022. The Term Loan is subject to a floating per annum interest rate equal to the greater of (a) 0.50% above the Prime Rate (as defined in the Loan Agreement) or (b) 3.75%. Following the interest-only period, the outstanding Term Loan balance is payable in (i) 37 consecutive monthly payments after the end of the interest-only period and continuing on the same day of each month thereafter, in amounts that would fully amortize such Term Loan balance, as of the first business day of the first month following the amended interest-only period, over the repayment period, plus (ii) monthly payments of accrued but unpaid interest.
The final payment is due on the Maturity Date and includes all outstanding principal plus accrued unpaid interest and an end of term payment totaling $0.3 million, which is 6.0% of the original funded principal amount of the First Tranche (the “Supplemental Final Payment”). We may prepay amounts outstanding under the Term Loan at any time provided certain notification conditions are met, in which case, all outstanding principal plus accrued and unpaid interest, the Supplemental Final Payment, a prepayment fee of 1% or 2% of the principal amount of the First Tranche, and any bank expenses become due and payable.
We are subject to customary affirmative and restrictive covenants under the Loan Agreement. Our obligations under the Loan Agreement are secured by a first priority security interest in substantially all of our current and future assets, other than intellectual property. We also agreed not to encumber our intellectual property assets, except as permitted by the Loan Agreement.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain obligations under the Loan Agreement and the occurrence of a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In the event of default by us under the Loan Agreement, the lender would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement. As of June 30, 2024, management believes that we are in compliance with all covenants under the Loan Agreement and there has been no material adverse change.
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Components of Results of Operations
Collaboration Revenue
To date, our revenue has been derived from the Kaken License Agreement, pursuant to which we granted Kaken the exclusive right to develop and commercialize tildacerfont for CAH in Japan.
We will recognize royalty and milestone revenues under the Kaken License Agreement if and when appropriate under the relevant accounting rules (see Note 7 to our condensed financial statements). We have not generated any revenues from the commercial sale of approved products and we do not expect to generate revenues from the commercial sale of our product candidates for at least the foreseeable future, if ever.
Operating Expenses
We classify operating expenses into two main categories: (i) research and development expenses and (ii) general and administrative expenses.
Research and Development Expenses