DEFA14A: Spruce Biosciences Postpones Annual Meeting, Seeks Reverse Stock Split Amid Nasdaq Delisting and Going Concern Warning

Spruce Biosciences, Inc. has announced a supplement to its proxy statement, delaying its annual meeting to July 22, 2025, and proposing a significant reverse stock split to address its Nasdaq delisting and critical financial viability concerns.

Summary

• Spruce Biosciences, Inc. (the Company) has filed a supplement to its definitive proxy statement for the Annual Meeting of Stockholders.
• The Annual Meeting has been rescheduled from June 9, 2025, to July 22, 2025, at 11:00 a.m. Pacific Time, and will be held virtually.
• The Record Date for voting has been changed to May 30, 2025, and proxy materials were distributed on or about June 6, 2025.
• A key proposal (Proposal 3) is to amend the Company's Certificate of Incorporation to effect a reverse stock split of common stock by a ratio of between one-for-fifty (1:50) and one-for-one hundred (1:100).
• The primary reason for the reverse stock split is to raise the per-share trading price to meet Nasdaq's minimum $1.00 listing requirement, following the Company's delisting from Nasdaq on April 29, 2025.
• The Company's common stock is now trading on the over-the-counter market under the symbol SPRB.
• The Company's independent registered public accounting firm's report for the year ended December 31, 2024, included an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern.
• As of December 31, 2024, the Company had $38.8 million in cash and cash equivalents, which is insufficient to fund planned operations and debt obligations for at least 12 months.
• The Company is appealing Nasdaq's delisting determination, but trading suspension was not stayed.
• The reverse stock split is also intended to attract a broader range of investors, improve the perception of the stock, and increase the number of shares available for future financings and strategic transactions.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to the Nasdaq delisting, the 'going concern' warning from auditors, and the urgent need for capital, all of which indicate severe financial distress and operational challenges. While the reverse stock split is a proposed solution, its success is uncertain and carries its own risks.

Negatives

• The Company's common stock was delisted from Nasdaq on April 29, 2025, due to failure to comply with the minimum bid price rule ($1.00 per share).
• Trading in the Company's stock was suspended on Nasdaq and it now trades on the over-the-counter market, which generally has less trading volume and is less efficient.
• The report of the independent registered public accounting firm for the year ended December 31, 2024, contained an explanatory paragraph regarding 'substantial doubt about our ability to continue as a going concern'.
• Cash and cash equivalents of $38.8 million as of December 31, 2024, are insufficient to fund planned operations and debt obligations for at least 12 months.
• The Company needs to raise additional capital 'in the very near term' to continue operations.
• There is no assurance that additional financing will be available or on terms acceptable to the Company.
• Certain executive officers and directors (Dr. Szwarcberg, Dr. Charlton, and Mr. Gharib) failed to timely file three Form 4 reports reflecting RSU vesting and net settlement due to administrative delays.

Risks

• The reverse stock split may not result in a lasting increase in the per-share price of the common stock.
• There is no assurance that the Company will regain listing on Nasdaq or meet other listing requirements.
• The market price per share after the reverse stock split may not rise in proportion to the reduction in outstanding shares.
• The reverse stock split may not attract brokers and investors who do not trade in lower-priced stocks or stocks not traded on a national securities exchange.
• The reverse stock split may not increase the Company's ability to attract and retain employees or promote greater liquidity.
• The effective increase in authorized but unissued shares due to the reverse stock split could have anti-takeover implications, allowing the Board to issue shares to oppose hostile takeover attempts or delay changes in control.
• Future issuance of additional shares of common stock or convertible securities may result in a dilutive effect on earnings per share, book value per share, voting power, and percentage interest of current stockholders.
• If stockholders do not approve the reverse stock split, the Company will be limited in its ability to raise additional capital, which would materially and adversely affect its financial condition and ability to continue as a going concern.
• Even if the reverse stock split is approved, there is no assurance that the Company will be successful in raising additional financing.

Future Outlook

The Company's future outlook is highly dependent on its ability to successfully implement the proposed reverse stock split to regain Nasdaq listing compliance and, critically, to raise additional capital in the very near term to fund its operations and address the substantial doubt about its ability to continue as a going concern. The Board believes a higher stock price post-split could facilitate future financings and attract a broader investor base, but there is no assurance of success in these endeavors.

Management Comments

• "You are cordially invited to attend the 2025 Annual Meeting of Stockholders (the Annual Meeting) of Spruce Biosciences, Inc., a Delaware corporation (the Company)."
• "The Reverse Stock Split is a key component in our plan to regain and sustain compliance with the Nasdaq listing requirements."
• "Accordingly, if our stockholders do not approve this proposal, we will be limited in our ability to raise additional capital, which would materially and adversely affect our financial condition and our ability to continue as a going concern may be materially and adversely affected."
• "Even if this proposal is approved by our stockholders, there is no assurance that we will be successful in raising additional financing."

Industry Context

This announcement reflects a common challenge faced by small-cap biotechnology companies, particularly those in clinical development, which often struggle with maintaining stock exchange listing requirements, especially the minimum bid price. Delisting to the over-the-counter market is a significant setback, typically leading to reduced liquidity, investor interest, and difficulty in raising capital. The proposed reverse stock split is a standard, albeit often temporary, measure employed by companies in similar situations to attempt to regain compliance and improve market perception, but it does not address underlying operational or financial performance issues.

Comparison to Industry Standards

• Spruce Biosciences' delisting from Nasdaq due to failing the $1.00 bid price rule is a common occurrence for small-cap biotech companies, particularly those with limited revenue and significant cash burn, as seen with numerous other companies that have faced similar compliance issues.
• The move to the over-the-counter (OTC) market is typical for delisted companies, but it significantly reduces visibility and liquidity compared to national exchanges like Nasdaq, impacting investor access and capital-raising efficiency.
• The proposed reverse stock split, with a ratio range of 1:50 to 1:100, is an aggressive measure, indicating a substantial need to increase the per-share price to meet listing requirements, a strategy employed by many companies in similar distress, though its long-term effectiveness in sustaining a higher price is often uncertain.
• The 'going concern' warning from the independent auditor is a critical red flag, indicating that the Company's current cash position is insufficient for its operations for the next 12 months, a situation that places it in a high-risk category compared to financially stable industry peers.

Corporate Governance

Legal Proceedings

• The Company is appealing Nasdaq's determination to delist its common stock from the exchange due to non-compliance with the minimum bid price rule. The Company submitted an initial written submission on May 8, 2025, responded to Nasdaq's Hearing Memorandum on May 27, 2025, and appeared before the Hearing Panel on May 29, 2025. The Company is awaiting Nasdaq's determination.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential future capital raises, reduced liquidity and difficulty in trading shares on the over-the-counter market, and uncertainty regarding the long-term effectiveness of the reverse stock split. Fractional shares will be cashed out.
• **Employees**: The Company's ability to attract and retain qualified employees may be adversely impacted if the reverse stock split does not improve stock perception or if the Company cannot raise additional capital, limiting future equity incentive opportunities.
• **Creditors**: The 'going concern' warning indicates increased financial risk, potentially affecting the Company's ability to meet debt obligations.
• **Customers/Suppliers**: While not directly addressed, the Company's financial instability and potential curtailment of operations could indirectly impact its ability to maintain relationships and fulfill commitments.

Next Steps

• Hold the Annual Meeting of Stockholders on July 22, 2025, to vote on director elections, auditor ratification, and the reverse stock split proposal.
• Await Nasdaq's determination regarding the appeal of the delisting.
• If approved by stockholders, the Board will determine the exact ratio and timing for implementing the reverse stock split.
• The Company will continue to explore various sources of financing, including potential future sales of common stock or other securities.

Key Dates

Recommendation

Keywords

Reverse Stock Split, Nasdaq Delisting, Going Concern, SEC Filing, Proxy Statement, Annual Meeting, Capital Raise, Stock Price, Corporate Governance, Financial Health, Biotechnology