(SPRB) Spruce Bio.: Heads You Win, Tails You... Win?
Tue Oct 29 2024 / 2 minute read
Spruce Biosciences ($20.5MM market-cap) develops novel therapies for endocrine and neurological disorders and is currently trading well below its net cash value. In their latest 2Q24 10-Q, Spruce Bio. outlined two key milestones expected by the end of 2024:
Topline Data from CAHmelia-204 Study of Tildacerfont in Adult Congenital Adrenal Hyperplasia (CAH) Anticipated in Q4 2024
Topline Data from CAHptain-205 Study of Tildacerfont in Adult and Pediatric CAH Anticipated in Q4 2024
If these two catalysts fail, with nothing else in the pipeline, the company is likely to announce strategic alternatives. If not, well, the company could end up doing really well. So, what explains this asymmetric risk-reward profile? I think there are a couple possible reasons:
Firstly it appears that the market has little confidence in the success of 204 / 205 after the failure of 203. Secondly, and quite interestingly, SPRB participated in the Avextidie auction from EIGRQ (a bankruptcy special-situation I previously wrote about) and was willing to pay a substantial amount of cash for it. This potentially signals a lack of confidence from the management in the success of CAHmelia.
The auction bid for Avextidie is particularly noteworthy. Spruce was willing to pay $35M in cash which is much greater than the company’s entire market-cap. This further enforces the lack of confidence in the Tildacerfont readout in H2 2024 and possibly indicates that Spruce is already engaged in some form of strategic alternatives. Additionally, and possibly a nothing-burger, Spruce has an activist investor, Bradley Radoff, on the board with a 7% ownership.
Overall, I like the straightforward story here and the additional cash cushion. This is my rough back-of-the-envelope swag estimate:
Disclosure: I own shares of SPRB