Key points:
- Spero Thera has just landed a deal with Glaxo
- A cash upfront payment and an investment in stock
- Effectively, the corporate continuance is secured
Spero Therapeutics (NASDAQ: SPRO) stock is up 80% premarket on the back of a deal with GSK (NYSE: GSK). Of course, for Glaxo this is simply an interesting little bolt on to the general strategy, not even a material issue. But for Spero it's all rather game changing. The background lesson here being that this is an interesting example of how the research pharma world works. The little guys, funded by market and speculative capital, work on the basics of research. As and when there looks like there might be something marketable there then that's when the majors move in. Providing both the next slug of capital and also the distribution system for this newly invented thing that might work.
Spero also offers us an opportunity to see how important the FDA is in all of this. As a company SPRO develops treatments for muti-drug resistant bacterial infections. In other words, it's trying to find the next generation of antibiotics. As bugs evolve resistance to the ones currently used then more are required to be able to beat them. This then imposes a considerable economic problem upon developers.
For the one thing we don't want to happen is new antibiotics going into general usage – that would just encourage resistance development all over again. What we want to do is have them on the shelf to treat those multi-drug resistant infections only. So, by definition, such new developments aren't going to gain wide markets – certainly not within their 20 year patent protection.
Also Read: Five Best Pharmaceutical Stocks to Watch in 2022
The importance of the FDA though – back in Feb Spero suffered a price fall as the FDA delayed some Phase II clinical trials on one drug. That's just what happens, the FDA rules this entire area.
Then, much more recently, SPRO jumped 60% in a day as the FDA agreed that one single Phase III trial was all that was necessary for one of the new antibiotic candidates. That leap then faded back as it was indeed only an announcement about the regulatory path to be taken rather than a proof of effectiveness.
Today's announcement is that Glaxo has taken note of this. That same drug the FDA cleared the pathway for is the basis of this new deal. As the GSK announcement has it, Spero receives $66 million upfront, Glaxo invests $9 million in Spero and GSK gets to distribute the new drug in return.
Spero is up 85% premarket so far on the news. After all, $66 million is a lot for a company with a $30 million market capitalisation.
What this does do though is show us the ups and downs of this area of corporate life. For these clinical stage companies they have to live off capital from the markets while in development. What matters is the FDA authorisation on what they produce. Get through that bottleneck and then the interests of the majors is unblocked. Providing the reward and the capital to take matters to their conclusion.