On November 14, 2018 Sutro Biopharma, Inc. (NASDAQ: STRO), a clinical-stage drug discovery, development and manufacturing company focused on the application of precise protein engineering and rational design to create next-generation oncology therapeutics, reported its financial results for the third quarter ended September 30, 2018 (Press release, Sutro Biopharma, NOV 14, 2018, View Source [SID1234531319]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

"This has been an outstanding third quarter for Sutro. We have completed our initial public offering and achieved multiple milestones in the development of our own clinical programs for treatment of multiple myeloma and ovarian cancer," said Bill Newell, Sutro’s Chief Executive Officer. "We look forward to working with our newest partners and collaborators as the Sutro team continues to execute at a high level to advance our vision of transforming the lives of patients."

Business Highlights and Recent Developments

STRO-001 Clinical Program

STRO-001 granted Orphan Drug Designation by the U.S. Food and Drug Administration (FDA) for the treatment of multiple myeloma.
The Leukemia & Lymphoma Society (LLS) agreed to contribute clinical development funding for STRO-001 through its Therapy Acceleration Program, which forges collaborations with biotechnology companies to help bring innovative therapies to patients faster.
Potential first-in-class antibody-drug conjugate (ADC) directed against CD74 is currently being studied in a Phase 1 clinical trial enrolling separate dose escalation cohorts for myeloma and B-cell lymphoma.
STRO-002 Clinical Program

The FDA has concluded their 30-day review of Sutro’s Investigational New Drug (IND) application for STRO-002, a targeted antibody-drug conjugate directed against folate receptor-alpha. Sutro expects to commence a Phase 1 clinical trial focused on ovarian and endometrial cancers in early 2019.
Corporate Highlights

Collaboration and licensing agreement signed with Merck to discover and develop novel immune-modulating therapies for cancer and autoimmune disorders.
Sutro is primarily responsible for preclinical research and Merck will obtain exclusive worldwide rights to therapeutic candidates derived from the collaboration.
Sutro received from Merck an upfront payment of $60 million, a $20 million investment in its Series E preferred stock, and $10 million investment in a private placement of common stock concurrent with the IPO.
Sutro is eligible for milestone payments totaling up to $1.6 billion, assuming the development and sale of all therapeutic candidates and all possible indications identified under the collaboration, as well as tiered royalties ranging from mid-single digit to low teen percentages on worldwide sales of commercial products that may result from the collaboration.
The initial public offering (IPO) that closed on October 1, 2018, provided Sutro with gross proceeds of $85.0 million, before deducting underwriting discounts and commissions and offering expenses. Additionally, Sutro received proceeds of $10.0 million from Merck in a private placement of common stock concurrent with the IPO.
Appointment of Stephen Worsley as Chief Business Officer and Linda Fitzpatrick as Chief People and Communications Officer.
Third Quarter 2018 Financial Highlights

Cash, Cash Equivalents and Marketable Securities

As of September 30, 2018, Sutro had cash, cash equivalents and marketable securities of $123.0 million.

In October 2018, Sutro announced the closing of its IPO of 5,667,000 shares of its common stock at a price of $15.00 per share. The gross proceeds to Sutro from the IPO, before deducting underwriting discounts and commissions and offering expenses, were $85.0 million. In addition to the IPO, Sutro concurrently sold in a private placement to Merck Sharp & Dohme Corp. (Merck) additional shares of common stock at the IPO offering price for gross proceeds of $10.0 million. Proceeds from the IPO and the concurrent private placement are not reflected in Sutro’s September 30, 2018 balance sheet.

Revenue

Revenue was $7.8 million for the third quarter of 2018, which included collaboration revenue of $6.9 million recognized primarily from Merck, Celgene and EMD Serono, in addition to other revenue of $0.9 million. During the third quarter of 2018, Sutro began recording revenue from Merck primarily from the $60.0 million upfront payment received by Sutro under the July 2018 collaboration and licensing agreement, for which revenue is being recognized ratably over an approximate four-year period. Future collaboration revenue from Merck, Celgene and EMD Serono, and from any future collaboration partners, will fluctuate as a result of the timing and amount of upfront, milestones and other collaboration agreement payments.

Operating Expenses

Total operating expenses for the third quarter of 2018 were $18.0 million, comprised of research and development expenses of $12.6 million and general and administrative expenses of $5.4 million. Total operating expenses for the quarter included non-cash stock-based compensation expense of $0.3 million and depreciation and amortization expense of $1.1 million. In future quarters, Sutro expects to incur additional general and administrative expenses as it operates as a public company following its IPO that closed on October 1, 2018.

Net Loss Per Share Calculation

The financial statements as of September 30, 2018, including share and per share amounts, do not give effect to the IPO, or the conversion of the redeemable convertible preferred stock, as the IPO and such conversions were completed on October 1, 2018. Relatedly, the weighted-average shares used in calculating net loss per share for the third quarter of 2018 include only common stock outstanding prior to the IPO.