Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes to those statements included later in this Annual Report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Item 1A. "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Unless otherwise indicated, all references in this Annual Report to "Spruce," the "company," "we," "our," "us" or similar terms refer to Spruce Biosciences, Inc.

Overview

We are a biopharmaceutical company focused on developing and commercializing novel therapies for neurological disorders with significant unmet medical need. We have a diverse portfolio of product candidates aimed at addressing diseases with high unmet medical need and clear biology for treatment, for which there are either no approved therapies treating the underlying disease or suboptimal treatment options. We were founded in April 2016 and are led by a management team experienced in the development and commercialization of groundbreaking therapeutics.

Since our inception in November 2014, we have focused primarily on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of, and manufacturing development for, our product candidate, tildacerfont. We have no products approved for commercial sale and have not generated any product revenue to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development of tildacerfont and any future product candidates.

Given that a relatively small number of clinicians and specialists treat a large proportion of the patients with MPS IIIB, we believe this market can be effectively addressed with a modest-sized and targeted patient-centric field team, alongside various high-touch patient initiatives. We plan to seek strategic collaborations to benefit from the resources of biopharmaceutical companies specialized in either relevant disease areas or geographies in markets outside the United States.

We rely, and expect to continue to rely, on third parties for the manufacture of our investigational products for preclinical studies and clinical trials, as well as for commercial manufacture if our investigational products, including TA-ERT, obtain marketing approval. We also rely, and expect to continue to rely, on third parties to package, label, store, and distribute tildacerfont, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of tildacerfont.

Since inception, we have incurred significant losses and negative cash flows from operations. During the years ended December 31, 2024 and 2023, we incurred net losses of $53.0 million and $47.9 million, respectively, and used $56.0 million and $33.3 million of cash in operations, respectively. As of December 31, 2024, we had an accumulated deficit of $250.3 million, and we do not expect positive cash flows from operations for the foreseeable future. We expect to continue to incur significant and increasing losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our planned research and development activities.

Since inception through December 31, 2024, we have raised aggregate gross proceeds of $293.1 million, including $103.5 million from our initial public offering ("IPO") in October 2020, $116.0 million from the sale of our redeemable convertible preferred stock, $5.0 million from the issuance of debt, $53.6 million from a private placement financing in February 2023, and the $15.0 million upfront payment from Kaken received in April 2023. As of December 31, 2024, we had cash and cash equivalents of $38.8 million.

Without alternative financing or proceeds from other strategic alternatives, we believe, based on our current operating plan, that our cash and cash equivalents as of December 31, 2024 will be insufficient to fund our operations and debt obligations for at least 12 months following the issuance date of our financial statements

included elsewhere in this Annual Report.

We expect our expenses will increase significantly in connection with our ongoing activities, as we:

Global economic and business activities continue to face widespread macroeconomic uncertainties, including recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, labor shortages, inflation and monetary supply shifts, recession risks and potential disruptions from the ongoing wars in Ukraine and the Middle East and related sanctions.

The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.

Material Agreements

Loan Agreement with Silicon Valley Bank

In September 2019, we entered into a Loan and Security Agreement, as subsequently amended (the "Loan Agreement"), with SVB providing for a term loan (the "Term Loan") for an aggregate principal amount of $4.5 million.

In March 2021, we entered into a First Amendment to Loan and Security Agreement (the "First Amendment") which increased the aggregate principal amount of the Term Loan to $30.0 million, of which $20.0 million was immediately available under the first tranche (the "First Tranche") and $10.0 million was available under the second tranche through December 31, 2022 (the "Second Tranche") subject to the completion of certain clinical or financial milestones. Pursuant to the First Amendment, the Term Loan will mature on January 1, 2026 (the "Maturity Date").

In May 2022, we entered into a Second Amendment to Loan and Security Agreement (the "Second Amendment") which amended the milestones for the Second Tranche, added a liquidity covenant for the Second Tranche and amended the interest and prepayment terms.

As of December 31, 2024 and 2023, the outstanding principal was comprised of $1.8 million and $3.4 million, respectively, under the First Tranche. Repayment of principal under the First Tranche commenced in January 2023. Commitments available under the Second Tranche of $10.0 million expired on December 31, 2022.

The Loan Agreement provided for monthly cash interest-only payments following the funding date of each respective tranche and continuing thereafter through December 31, 2022. The Term Loan is subject to a floating per annum interest rate equal to the greater of (a) 0.50% above the Prime Rate (as defined in the Loan Agreement) or (b)

3.75%. Following the interest-only period, the outstanding Term Loan balance is payable in (i) 37 consecutive monthly payments after the end of the interest-only period and continuing on the same day of each month thereafter, in amounts that would fully amortize such Term Loan balance, as of the first business day of the first month following the amended interest-only period, over the repayment period, plus (ii) monthly payments of accrued but unpaid interest.

The final payment is due on the Maturity Date and includes all outstanding principal plus accrued unpaid interest and an end of term payment totaling $0.3 million, which is 6.0% of the original funded principal amount of the First Tranche (the "Supplemental Final Payment"). We may prepay amounts outstanding under the Term Loan at any time provided certain notification conditions are met, in which case, all outstanding principal plus accrued and unpaid interest, the Supplemental Final Payment, a prepayment fee of 1% or 2% of the principal amount of the First Tranche, and any bank expenses become due and payable.

Components of Results of Operations

Collaboration Revenue

To date, all of our revenue has been derived from the Kaken License Agreement, pursuant to which we granted Kaken the exclusive right to develop and commercialize tildacerfont for CAH in Japan.

We will recognize royalty and milestone revenues under the Kaken License Agreement if and when appropriate under the relevant accounting rules (see Note 8 to our financial statements). We have not generated any revenues from the commercial sale of approved products and we do not expect to generate revenues from the commercial sale of our product candidates for at least the foreseeable future, if ever.

Operating Expenses

We classify operating expenses into two main categories: (i) research and development expenses and (ii) general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist of external and internal expenses incurred in connection with our research activities and development programs.

These expenses include:

To date, these expenses have been incurred primarily to advance tildacerfont and acquire TA-ERT. These expenses will primarily consist of personnel costs, expenses for the conduct of clinical trials, manufacturing costs for clinical drug supply, and in-process research and development. We expect that significant additional spending will be required to progress TA-ERT through clinical development and potential regulatory approval and advancing our other investigational product candidates through clinical and pre-clinical development.

Research and development expenses are recognized as they are incurred, including licenses of intellectual property that have no alternative future use at the time of the acquisition. If deposits are required by external vendors, a portion of the deposit is included as a prepaid expense until the activity has been performed or when the goods have been received to amortize the deposit to expense in the statements of operations and comprehensive loss.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation expense, for executive, finance, and other administrative functions. General and administrative expenses also include legal fees, professional fees, insurance costs, facility costs not otherwise included in research and development expenses, and public company expenses such as costs associated with compliance with the rules and regulations of the SEC, and those of the Nasdaq Stock Market LLC ("Nasdaq") listing rules.

We expect that our general and administrative expenses will continue to increase in the foreseeable future as additional administrative personnel and services are required to manage these functions of a public company, and as we advance tildacerfont through clinical development and potential regulatory approval.

Interest Expense

Interest expense consists of interest incurred and non-cash amortization of debt discount and issuance costs in connection with the Term Loan.

Interest and Other Income, Net

Interest and other income, net primarily consists of interest income earned on our cash, cash equivalents and investments.

Results of Operations

Comparisons of the Year Ended December 31, 2024 and 2023

The following table summarizes our results of operations for the periods presented (in thousands):

		Year Ended December 31,
		2024				2023				Change
Collaboration revenue		$	4,911			$	10,089			$	(5,178	)
Operating expenses:
Research and development			46,418				49,432				(3,014	)
General and administrative			14,644				12,650				1,994
Total operating expenses			61,062				62,082				(1,020	)
Loss from operations			(56,151	)			(51,993	)			(4,158	)
Interest expense			(307	)			(483	)			176
Interest and other income, net			3,422				4,557				(1,135	)
Net loss		$	(53,036	)		$	(47,919	)		$	(5,117	)

Collaboration Revenue

During the years ended December 31, 2024 and 2023, we recognized $4.9 million and $10.1 million, respectively, as collaboration revenue under the Kaken License Agreement.

Research and Development Expenses

The following table sets forth research and development expenses for the periods presented (in thousands):

		Year Ended December 31,
		2024				2023				Change
External expenses:
Clinical development		$	27,824			$	32,354			$	(4,530	)
Manufacturing			7,748				3,855				3,893
Preclinical studies			31				490				(459	)
Other research and development			860				1,272				(412	)
Internal expenses:
Personnel			9,637				11,130				(1,493	)
Facilities and other			318				331				(13	)
Total research and development expenses		$	46,418			$	49,432			$	(3,014	)

Research and development expenses decreased by $3.0 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease in clinical development expenses of $4.5 million was primarily driven by (i) a decrease of $8.5 million due to the termination of the CAHmelia-203 study, (ii) a decrease of $2.5 million due to completion of the POWER study, (iii) a decrease of $3.8 million due to completion of enrollment in the CAHmelia-204 study, partially offset by (iv) clinical development costs related to the Allievex asset purchase of $8.9 million and (v) an increase of $1.0 million related to additional dose ranging cohorts in the CAHptain-205 clinical trial.

The increase in manufacturing expenses of $3.9 million was primarily driven by manufacturing costs related to the Allievex asset purchase of $5.9 million, partially offset by a decrease of $1.0 million related to the termination of the CAHmelia-203 study.

The decrease in personnel related expenses of $1.5 million was primarily driven by a decrease of $1.3 million in salaries due to reduced headcount, partially offset by an increase of $0.5 million in stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses increased by $2.0 million during the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to an increase of $2.5 million in legal professional services, partially offset by a decrease of $0.3 million in insurance costs for directors and officers.

Interest Expense

Interest expense decreased by $0.2 million during the year ended December 31, 2024 compared to the year ended December 31, 2023 due to the decrease in the interest rate and the decrease in the principal balance on the Term Loan year over year.

Interest and Other Income, Net

Interest and other income, net decreased by $1.1 million during the year ended December 31, 2024 compared to the year ended December 31, 2023 due to a decrease in cash and cash equivalents year over year.

Liquidity and Capital Resources

Liquidity

Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations. We anticipate that we will continue to incur net losses for the foreseeable future. As of December 31, 2024, we had an accumulated deficit of $250.3 million. As of December 31, 2024, we had cash and cash equivalents of $38.8 million. Since inception through December 31, 2024, we have raised aggregate gross proceeds of $293.1 million, including $103.5 million from our IPO in October 2020, $116.0 million from the sale of our redeemable convertible preferred stock, $5.0 million from the issuance of debt, $53.6 million from a private placement financing in February 2023, and $15.0 million from the Kaken upfront payment received in April 2023.

Until we can generate sufficient revenue, if ever, to fund our operations, we will need to finance future cash needs through public or private equity offerings, license agreements, debt financings or restructurings, collaborations, strategic alliances and marketing or distribution arrangements, and there can be no assurance that such arrangements will be available to us on a timely basis, or, if available, will be available on terms acceptable to us. Without alternative financing or proceeds from other strategic alternatives, we believe, based on our current operating plan, that our cash and cash equivalents as of December 31, 2024 will be insufficient to fund our operations and debt obligations for at least 12 months following the issuance date of our financial statements included elsewhere in this Annual Report. These conditions raise substantial doubt about our ability to continue as a going concern.

Funding Requirements

To date, we have not generated any product revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval and commercialize TA-ERT or any future product candidates, and we do not know when, or if at all, that will occur. We will continue to require additional capital to develop tildacerfont and fund operations for the foreseeable future. Our primary uses of cash are to fund our operations, which consist

primarily of research and development expenses related to our clinical development programs, and to a lesser extent, general and administrative expenses.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, tildacerfont or any of our future product candidates. We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in activities related to the clinical development and commercialization of TA-ERT, as we pursue regulatory approval of TA-ERT for the treatment of MPSIIIB. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and we may never succeed in achieving regulatory approval for TA-ERT in patients with MPSIIIB.

We may seek to raise capital through equity or debt financings, collaborative agreements, potentially including agreements to out-license rights to develop and commercialize TA-ERT, or other arrangements with other companies, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. If we raise additional capital through debt financing, we may be subject to covenants that restrict our operations including

limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from macroeconomic events, the wars in Ukraine and Israel and related sanctions, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of our product candidates or other research and development initiatives. We also could be required to seek collaborators for our product candidates and any future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates and any future product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

The amount and timing of our future funding requirements will depend on many factors including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

Material Cash Requirements

As of December 31, 2024, future payments of principal and interest on the Term Loan, which commenced repayment in January 2023 and matures in January 2026, were $1.8 million. For a description of the terms of the Loan Agreement, see the section titled "Material Agreements - Loan Agreement with Silicon Valley Bank" above.

As of December 31, 2024, the total undiscounted lease payments for our non-cancelable operating lease for office space, which terminates in February 2028 unless renewed, was $1.2 million.

We enter into contracts in the normal course of business with third-party contract manufacturing organizations and CROs for clinical trials, non-clinical studies, drug substance and product manufacturing and other services for operating purposes. These contracts are generally cancelable by us upon prior written notice after a certain period. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.

We have also entered into license and collaboration agreements under which we are obligated to make aggregate milestone payments upon the achievement of specified milestones as well as royalty payments. As of December 31, 2024, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. For a description of the terms of our license and collaboration agreements, see "Item 1. Business - License and Collaboration Agreements" above.

Summary Statements of Cash Flows

The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for the periods presented below (in thousands):

		Year Ended December 31,
		2024				2023				Change
Net cash used in operating activities		$	(55,964	)		$	(33,275	)		$	(22,689	)
Net cash provided by investing activities			-				55,777				(55,777	)
Net cash provided by (used in) financing activities			(1,622	)			49,140				(50,762	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	(57,586	)		$	71,642			$	(129,228	)

Cash Used in Operating Activities

Net cash used in operating activities increased by $22.7 million during the year ended December 31, 2024 compared to the year ended December 31, 2023. Net cash used in fiscal 2024 includes cash paid of $10.6 million for the Allievex asset purchase which was offset by a decrease in payments driven by the termination of the CAHmelia-203 study and completion of the studies for CAHmelia-204, CAHmelia-205 and POWER. Additionally, cash used in fiscal 2023 was offset by the receipt of the $15.0 million upfront payment under the Kaken License Agreement in April 2023.

Cash Used in Investing Activities

For the year ended December 31, 2024, no cash was provided by investing activities.

For the year ended December 31, 2023, net cash provided by investing activities was $55.8 million, consisting primarily of proceeds from maturities of investments of $67.7 million offset by purchases of investments of $11.9 million.

Cash Provided by Financing Activities

For the year ended December 31, 2024, net cash used in financing activities was $1.6 million, consisting primarily of principal payments on the Term Loan of $1.6 million.

For the year ended December 31, 2023, net cash provided by financing activities was $49.1 million, consisting primarily of net proceeds received from the February 2023 private placement of $50.9 million, offset by principal payments on the Term Loan of $1.6 million.

Segments

We operate and manage our business as one operating segment, which is the business of developing and commercializing novel therapies for serious neurological disorders with significant unmet medical need.

Critical Accounting Estimates

Our accounting policies are more fully described in Note 2 of the financial statements to this Annual Report. As disclosed in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.

Contingent Liabilities in Accrued Research and Development Expenses

We evaluate contingencies based on information currently available and will establish accruals for those matters when a contingency is considered probable and the related amount is reasonably estimable. As of December 31, 2024, we have accrued contingent liabilities of $4.8 million related to the Allievex Purchase Agreement that are deemed both probable and estimable. We have estimated the amount of liabilities based on the amounts owed by Allievex to external vendors and through discussions with internal personnel and the external vendors. Accruals are periodically reviewed and may be adjusted as circumstances change. Although we do not expect our estimates to be materially different from amounts actually accrued, our estimates may materially vary.

Revenue Recognition

We recognize revenue allocated to the Kaken License Agreement from non-refundable, up-front fees at the point in time when the license is transferred to the licensee and the licensee can use and benefit from the license. As the license is bundled with other distinct or combined obligations, we use judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. As the performance obligation is satisfied over time, we evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. We utilize the cost-based input method over the respective performance period. If the actual costs vary from our estimates, we adjust the recognition of revenue based on the updated measure of progress each reporting period. Although we do not expect our

estimates to be materially different from amounts actually incurred, our projections of costs relative to the actual costs incurred may materially vary and may result in reporting amounts that are too high or too low in any particular period.

JOBS Act

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). The JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We could be an emerging growth company until December 31, 2025, although circumstances could cause us to lose that status earlier, including if we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act or if we have total annual gross revenue of $1.235 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three year period before that time, we would cease to be an emerging growth company immediately.