Successful Phase III Trial Will Redefine Treatment For Complicated UTIs

Key Takeaways

• Successful PIVOT-PO trial and regulatory approval could propel revenue growth, leveraging a strategic partnership with GSK for commercialization.
  
• Focus on tebipenem HBr and solid cash reserves may boost investor confidence and optimize future financial performance.
  
• Clinical trial risks, reduced partner collaboration revenues, and pipeline issues could strain future earnings and liquidity, increasing reliance on successful drug approval.

Catalysts

A clinical-stage biopharmaceutical company, focuses on identifying, developing, and commercializing novel treatments for multi-drug resistant (MDR) bacterial infections and rare diseases in the United States.

• The Phase III PIVOT-PO clinical trial for tebipenem HBr could be a significant catalyst if successful, as the drug has the potential to change the treatment paradigm for complicated UTIs, thereby potentially boosting future revenue through a novel oral antibiotic offering.
  
• If the tebipenem HBr trial is positive and results in regulatory approval, Spero Therapeutics could receive approximately $400 million in contingent milestones from GSK, significantly impacting the company's future earnings and cash flow.
  
• Spero's strategic partnership with GSK for regulatory and commercialization efforts post-trial suggests a strong pathway to market for tebipenem HBr, which could drive future revenue growth and decrease operational costs associated with these activities.
  
• The company's current cash position and projected funding through mid-2026 provide a stable financial footing, which may improve investor confidence and potentially lead to an appreciation in stock value as development milestones are hit.
  
• Despite setbacks with SPR720, the prioritization of resources towards tebipenem HBr and strategic reassessment of the pipeline could streamline operational focus and optimize R&D expenses, potentially leading to improved net margins in the future.

Spero Therapeutics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Spero Therapeutics's revenue will decrease by 12.2% annually over the next 3 years.
• Analysts are not forecasting that Spero Therapeutics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Spero Therapeutics's profit margin will increase from -142.9% to the average US Biotechs industry of 15.9% in 3 years.
• If Spero Therapeutics's profit margin were to converge on the industry average, you could expect earnings to reach $5.2 million (and earnings per share of $0.08) by about May 2028, up from $-68.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 72.8x on those 2028 earnings, up from -0.5x today. This future PE is greater than the current PE for the US Biotechs industry at 20.4x.
• Analysts expect the number of shares outstanding to grow by 3.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.59%, as per the Simply Wall St company report.

Spero Therapeutics Future Earnings Per Share Growth

Risks

• Ongoing clinical trials pose a significant risk as any unfavorable results, particularly in the vital Phase III trial of tebipenem HBr, could impede its market approval, thereby affecting future revenue potential.
  
• The discontinuation of the SPR206 program and challenges with SPR720 (due to lack of significant results and safety concerns) highlight the risks in pipeline diversification, which could negatively impact future earnings if not addressed with successful new developments.
  
• The once high collaboration revenues from agreements with major partners like GSK and Pfizer have decreased significantly, which might suggest challenges in securing similar future collaborations, impacting potential revenue streams.
  
• The reported net loss for both the quarter and the full year 2024, alongside significant increases in R&D expenses, underscores potential financial strain if commercialization efforts do not succeed, putting pressure on net margins.
  
• The current cash and cash equivalents, while sufficient for the short term, suggest reliance on milestone payments from GSK and eventual drug approval; any delay or failure in meeting these milestones could threaten liquidity and financial sustainability.

Valuation

• The analysts have a consensus price target of $5.0 for Spero Therapeutics based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $32.5 million, earnings will come to $5.2 million, and it would be trading on a PE ratio of 72.8x, assuming you use a discount rate of 6.6%.
• Given the current share price of $0.67, the analyst price target of $5.0 is 86.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.