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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

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: 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.

i


 

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.

1


 

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.

2


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares