November 5, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐	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: 001-38662

SUTRO BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	47-0926186
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

310 Utah Avenue, Suite 150 South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 392-8412

Not Applicable:

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common stock, $0.001 par value		STRO		Nasdaq Global Market

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. Yes ☒ No ☐

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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

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 October 30, 2020, the registrant had 38,604,176 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations	2
	Condensed Statements of Comprehensive Income (Loss)	3
	Condensed Statements of Stockholders’ (Deficit) Equity	4
	Condensed Statements of Cash Flows	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	89
Item 3.	Defaults Upon Senior Securities	89
Item 4.	Mine Safety Disclosures	89
Item 5.	Other Information	89
Item 6.	Exhibits	90
Signatures		91

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Sutro Biopharma, Inc.

Condensed Balance Sheets

(In thousands, except share and per share amounts)

	September 30,			December 31,
	2020			2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	64,370		$	4,960
Marketable securities		137,990			112,904
Investment in equity securities		78,872			—
Accounts receivable (including amounts from related parties of $0 and $1,050 as of September 30, 2020 and December 31, 2019, respectively)		7,483			6,298
Prepaid expenses and other current assets		3,583			4,406
Total current assets		292,298			128,568
Property and equipment, net		11,945			9,633
Marketable securities, non-current		—			15,609
Other non-current assets		2,122			2,545
Restricted cash		872			15
Total assets	$	307,237		$	156,370
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,879		$	5,584
Accrued compensation		5,890			6,017
Deferred revenue—current		15,703			19,465
Debt—current		—			1,000
Other current liabilities		3,438			901
Total current liabilities		29,910			32,967
Deferred revenue, non-current		8,366			16,195
Deferred rent		280			409
Debt—non-current		24,411			8,876
Other noncurrent liabilities		151			134
Total liabilities		63,118			58,581
Stockholders’ equity:
Preferred stock, $0.001 par value — 10,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019		—			—
Common stock, $0.001 par value — 300,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 38,092,978 and 23,098,969 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		38			23
Additional paid-in-capital		412,173			293,346
Accumulated other comprehensive income		237			165
Accumulated deficit		(168,329	)		(195,745	)
Total stockholders’ equity		244,119			97,789
Total Liabilities and Stockholders’ Equity	$	307,237		$	156,370

See accompanying notes to unaudited interim condensed financial statements.

Sutro Biopharma, Inc.

Condensed Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues (including amounts from related parties of $0 and $2,813 during the three and nine months ended September 30, 2020, respectively, and $6,274 and $16,687 during the three and nine months ended September 30, 2019, respectively) (1)	$	17,823		$	12,277		$	34,444		$	31,431
Operating expenses
Research and development		19,361			16,897			54,223			48,220
General and administrative		9,079			8,115			26,435			23,897
Total operating expenses		28,440			25,012			80,658			72,117
Loss from operations		(10,617	)		(12,735	)		(46,214	)		(40,686	)
Interest income		295			964			1,320			3,264
Unrealized gain on equity securities		29,778			—			78,638			—
Interest and other expense, net		(2,317	)		(1,141	)		(6,328	)		(3,533	)
Net income (loss)	$	17,139		$	(12,912	)	$	27,416		$	(40,955	)
Net income (loss) per share, basic	$	0.46		$	(0.56	)	$	0.91		$	(1.79	)
Net income (loss) per share, diluted	$	0.45		$	(0.56	)	$	0.90		$	(1.79	)

(1)

Includes $0 and $2.8 million, respectively, for the three months and nine months ended September 30, 2020 of related party revenue from Merck. Merck was a related party until the closing of the Company’s public offering on May 14, 2020.

See accompanying notes to unaudited interim condensed financial statements.

Sutro Biopharma, Inc.

Condensed Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020		2019
Net income (loss)	$	17,139		$	(12,912	)	$	27,416	$	(40,955	)
Other comprehensive income:
Unrealized (loss) gain on available-for-sale securities		(161	)		10			72		270
Comprehensive income (loss)	$	16,978		$	(12,902	)	$	27,488	$	(40,685	)

See accompanying notes to unaudited interim condensed financial statements.

Sutro Biopharma, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

													Accumulated
										Additional			Other						Total
	Preferred Stock				Common Stock					Paid-In-			Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Shares			Amount		Capital			Income (Loss)			Deficit			Equity
Balances at December 31, 2019		—	$	—		23,098,969		$	23	$	293,346		$	165		$	(195,745	)	$	97,789
Exercise of common stock options		—		—		12,937			—		56			—			—			56
Issuance of common stock under Employee Stock Purchase Plan		—		—		74,465			—		646			—			—			646
Vesting of restricted stock units		—		—		41,050			—		—			—			—			—
Stock-based compensation expense		—		—		—			—		2,707			—			—			2,707
Issuance of common stock warrants in connection with debt refinancing		—		—		—			—		619			—			—			619
Net unrealized loss on available-for- sale securities		—		—		—			—		—			(137	)		—			(137	)
Net loss		—		—		—			—		—			—			(19,595	)		(19,595	)
Balances at March 31, 2020		—		—		23,227,421			23		297,374			28			(215,340	)		82,085
Exercise of common stock options		—		—		1,257			—		8			—			—			8
Vesting of restricted stock units		—		—		250			—		—			—			—			—
Stock-based compensation expense		—		—		—			—		3,011			—			—			3,011
Issuance of common stock in connection with public offering, net of issuance costs of $6,626		—		—		12,650,000			13		91,398			—			—			91,411
Net unrealized gain on available-for- sale securities		—		—		—			—		—			370			—			370
Net income		—		—		—			—		—			—			29,872			29,872
Balances at June 30, 2020		—	$	—		35,878,928		$	36	$	391,791		$	398		$	(185,468	)	$	206,757
Exercise of common stock options		—		—		12,308			—		108			—			—			108
Issuance of common stock under Employee Stock Purchase Plan		—		—		121,527			—		639			—			—			639
Vesting of restricted stock units		—		—		110,676			—		—			—			—			—
Stock transaction associated with taxes withheld on restricted stock units		—		—		(30,461	)		—		(314	)		—			—			(314	)
Stock-based compensation expense		—		—		—			—		3,112			—			—			3,112
Issuance of common stock in connection with At-The-Market sale, net of issuance costs of $561		—		—		2,000,000			2		16,837			—			—			16,839
Net unrealized loss on available-for- sale securities		—		—		—			—		—			(161	)		—			(161	)
Net income		—		—		—			—		—			—			17,139			17,139
Balances at September 30, 2020		—	$	—		38,092,978		$	38	$	412,173		$	237		$	(168,329	)	$	244,119

Accumulated

Additional

Other

Total

Preferred Stock

Common Stock

Paid-In-

Form: 10-Q

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