UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to____
Commission file number 001-38266
SPERO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
675 Massachusetts Avenue, 14th Floor
Cambridge, Massachusetts
(Address of principal executive offices)
46-4590683
(I.R.S. Employer
Identification No.)
02139
(Zip Code)
Registrant’s telephone number, including area code (857) 242-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Trading Symbol(s)
SPRO
Securities registered pursuant to Section 12(g) of the Act:
None
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of Common Stock held by non-affiliates of the registrant computed by reference to the price of the registrant’s Common Stock as
of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $76.0 million (based on the last
reported sale price on the Nasdaq Global Select Market as of such date). As of March 8, 2024, there were 53,869,139 shares of the registrant’s Common
Stock, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Table of Contents
PART I
Item 1.
Business ......................................................................................................................................................................
Item 1A. Risk Factors ................................................................................................................................................................
Item 1B. Unresolved Staff Comments.......................................................................................................................................
Item 1C. Cybersecurity..............................................................................................................................................................
Properties ....................................................................................................................................................................
Item 2.
Legal Proceedings.......................................................................................................................................................
Item 3.
Mine Safety Disclosures .............................................................................................................................................
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ...............................................................................................................................................................
[Reserved]...................................................................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.....................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...................................................................................
Financial Statements and Supplementary Data ..........................................................................................................
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ...................................
Item 9A. Controls and Procedures .............................................................................................................................................
Item 9B. Other Information .......................................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .......................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .........................................................................................
Executive Compensation ............................................................................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..................
Item 12.
Certain Relationships and Related Transactions, and Director Independence ...........................................................
Item 13.
Principal Accounting Fees and Services.....................................................................................................................
Item 14.
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PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules....................................................................................................................
Form 10-K Summary..................................................................................................................................................
146
149
i
Forward-Looking Information
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. We make such
forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other
federal securities laws. All statements other than statements of historical facts contained in this Annual Report on Form 10-K are
forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,”
“should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of
these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
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the initiation, timing, design, progress and results of, including interim data from, our preclinical studies and clinical
trials, and our research and development programs;
the regulatory path forward for tebipenem HBr and the potential approval of tebipenem HBr by the U.S. Food and
Drug Administration (“FDA”);
the potential receipt of milestone payments and royalties on future sales under our License Agreement (the “GSK
License Agreement”) with GlaxoSmithKline Intellectual Property (No. 3) Limited (“GSK”), and the potential receipt of
milestone payments under our other various license and collaboration agreements;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified
professionals;
our ability to advance product candidates into, and successfully complete, clinical trials;
the timing or likelihood of regulatory filings and approvals;
the future development and commercialization of our product candidates, if approved;
the pricing, coverage and reimbursement of our product candidates, if approved;
the implementation of our business model and strategic plans for our business and product candidates;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product
candidates;
our ability to enter into strategic arrangements and/or collaborations and the potential benefits of such arrangements;
our estimates regarding expenses, capital requirements and needs for additional financing;
our financial performance;
developments relating to our competitors and our industry; and
other risks and uncertainties, including those listed under Part II, Item 1A. “Risk Factors”.
Any forward-looking statements in this Annual Report on Form 10-K reflect our current views with respect to future events or
to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations
include, among other things, those listed under Part I Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we
assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available
in the future.
This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our
business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and
prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar
methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and
circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other
data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry,
medical and general publications, government data and similar sources.
1
Risk Factor Summary
We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the
readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this
Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our
securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:
• Our ability to realize the value of tebipenem HBr depends on our commercial partner, GSK, obtaining FDA approval. Even if
such approval is obtained, the timeline of, and any requirements imposed as part of, such approval may impact the
attractiveness of eventual commercialization of tebipenem HBr through our partnership with GSK.
• Analyses of preliminary or interim data from our clinical studies that we announce or publish from time to time may change
as more patient data become available and are subject to audit and verification procedures that could result in material
changes in the final data.
•
•
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Serious adverse events or undesirable side effects or other unexpected properties of any of our product candidates may be
identified during development or after approval that could delay, prevent or cause the withdrawal of regulatory approval,
limit the commercial potential, or result in significant negative consequences following marketing approval.
Even if a product candidate does obtain regulatory approval, it may never achieve the market acceptance by physicians,
patients, hospitals, third-party payors and others in the medical community that is necessary for commercial success and the
market opportunity may be smaller than we estimate.
If we or our collaborators are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing
and distribution agreements with third parties, we may not be successful in commercializing any of our product candidates if
such product candidates are approved.
• We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may
suffer if we fail to compete effectively.
• We have not generated any revenue from the sale of our products, have a history of losses and expect to incur substantial
future losses; if we are unable to obtain additional capital, we may not be able to continue our operations on the scope or
scale as currently conducted, and that could have a material adverse effect on our business, results of operations and financial
condition.
• We expect that we will need substantial additional funding. If we are unable to raise capital when needed, or do not receive
payment under our government awards, we could be forced to delay, reduce or eliminate our product development programs.
• We and certain current and former of our executive officers have been named as defendants in two initiated lawsuits, which
were ordered consolidated, that could result in substantial costs and divert management’s attention.
• We may not achieve the milestones triggering payments to us in our license and collaboration agreements with third parties.
• We contract with third parties for the manufacture of preclinical and clinical supplies of our product candidates and expect to
continue to do so in connection with any future commercialization and for any future clinical trials and commercialization of
our other product candidates and potential product candidates. This reliance on third parties increases the risk that we will not
have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or
impair our development or commercialization efforts.
• Our use of government funding for certain of our programs adds complexity to our research and commercialization efforts
with respect to those programs and may impose requirements that increase the costs of commercialization and production of
product candidates developed under those government-funded programs.
•
If we are unable to obtain and maintain sufficient patent protection for our technology or our product candidates, or if the
scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and
products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates
may be adversely affected.
• We have registered trademarks and pending trademark applications. Failure to enforce our registered marks or secure
registration of our pending trademark applications could adversely affect our business.
•
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to
commercialize our product candidates, and our ability to generate revenue will be materially impaired.
2
Item 1. Business.
Overview
PART I
We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying and developing novel treatments for rare
diseases and diseases caused by multi-drug resistant (“MDR”) bacterial infections with high unmet need. Our wholly-owned lead
product candidate, SPR720, is an oral antimicrobial agent in development for the treatment of nontuberculous mycobacterial (“NTM”)
pulmonary disease, a rare orphan disease. We believe that SPR720, if successfully developed and approved, has the potential to be the
first approved oral agent for first-line treatment of NTM pulmonary disease in treatment-naïve and treatment-experienced non-
refractory patients. Our partnership-directed programs consist of tebipenem HBr and SPR206. Tebipenem HBr is designed to be the
first oral carbapenem-class antibiotic for use to treat complicated urinary tract infections (“cUTIs”), including pyelonephritis, caused
by certain microorganisms, in adult patients who have limited oral treatment options. SPR206 is an intravenous (“IV”)-administered
antibiotic that has shown activity in preclinical studies against MDR Gram-negative pathogens, including carbapenem-resistant
Enterobacterales (“CRE”), Acinetobacter baumannii and Pseudomonas aeruginosa. We are developing SPR206 to treat MDR Gram-
negative bacterial infections in the hospital setting.
We believe that our novel product candidates, if successfully developed and approved, could provide meaningful benefits to
patients suffering from serious rare orphan diseases and life-threatening bacterial infections, in both the community and hospital
settings. Since our inception in 2013, we have focused substantially all of our efforts and financial resources on acquiring and
developing product and technology rights, building our intellectual property portfolio and conducting research and development
activities for our product candidates. We do not have any products approved for sale and have not generated any revenue from product
sales.
Antibiotic Background
Antibiotics are a class of medications used to treat diseases caused by bacterial infections.
There are two main groups of bacteria, Gram-positive bacteria and Gram-negative bacteria, which are distinguished by
structural differences in their cellular envelope. Gram-positive bacteria are surrounded by a single lipid-based cell membrane and a
thick cell wall, while Gram-negative bacteria are encircled by two lipid membranes, an inner membrane and an outer membrane, with
a thinner cell wall in between, as shown in the illustration below.
Antibiotics that target Gram-negative bacteria must be specifically designed to cross both the inner and outer membranes to
enter the bacterial cells. The outer membrane represents a significant barrier to the entry into the bacteria and is one factor for the
reduced potency of many agents used to treat Gram-negative bacterial infections. Recent studies have found that Gram-negative
bacteria in certain patient types, such as those with sepsis and interstitial lung disease (“ILD”), are associated with higher mortality
and increased intensive care unit (“ICU”) admission, with only limited therapeutic options available.
Antibiotics are evaluated according to several criteria, including:
•
•
Spectrum. Antibiotics that are effective against a wide variety of bacteria are considered to be broad-spectrum, while
those that act upon only a limited number of bacteria are considered to be narrow-spectrum.
Potency. Potency refers to the amount of an antibiotic required to kill or inhibit growth of bacteria in vitro. Potency is
commonly expressed as the minimum inhibitory concentration (“MIC”) in µg/mL or mg/L, which is the lowest
3
concentration at which the drug inhibits growth of the bacteria. Antibiotics with lower MICs are considered to be more
potent.
•
Resistance. Antibiotic resistance refers to the inability of an antibiotic to effectively control bacterial growth. Some
bacteria are naturally resistant to certain types of antibiotics. Antibiotic resistance can also occur due to genetic
mutations or changes in gene expression. There are numerous mechanisms responsible for antibiotic resistance, and
resistance mechanisms are often found together and can be transferred between different bacteria, leading to multi-drug
resistance.
Growing Antibiotic Resistance in the Hospital and Community Settings
Antibiotic resistance is one of the largest threats to global health as resistance rates are increasing. In a systematic analysis
examining the global burden of bacterial resistance published in The Lancet, there were an estimated 4.95 million deaths (95%
Uncertainty Interval 3.62–6.57) associated with drug-resistant infections in 2019, of which 1.27 (0.911–1.71) million deaths were
directly attributable to drug resistance. The Centers for Disease Control and Prevention (“CDC”) estimates that the annual impact of
antibiotic-resistant infections on the United States economy is $20–$35 billion in direct health care costs.
The challenges posed by bacteria resistant to antibiotics include Gram-positive and Gram-negative pathogens. New antibiotics
are needed for infections caused by Gram-positive and atypical bacteria. For example, NTM pulmonary infection that occurs through
inhalation of mycobacteria from environmental sources, especially in water and soil, may cause a chronic and progressive pulmonary
disease. The estimated total NTM pulmonary disease prevalence in the United States, Europe and Japan is approximately 245,000
diagnosed patients, with approximately 95,000 of these diagnosed patients in the United States. NTM pulmonary disease has a higher
frequency in older individuals, particularly women. Most NTM pulmonary disease is due to Mycobacterium avium complex (“MAC”),
followed byMy cobacterium abscessus and Mycobacterium kansasii.
According to the CDC, among all bacterial resistance problems, Gram-negative pathogens are particularly worrisome because
they are becoming resistant to most drugs that would be considered for treatment. In 2019, the CDC designated antibiotic-resistant
Gram-negative bacteria such as carbapenem-resistant Acinetobacter baumannii (“CRAB”), CRE, extended-spectrum-β-lactamase-
producing Enterobacterales, and MDR Pseudomonas aeruginosa (“MDR PA”) as urgent or serious threats. These pathogens are
associated with significant mortality because of the increased incidence of antibiotic resistance and the lack of effective treatment
options.
Our Clinical Programs
The below table summarizes our anticipated development plans for our product candidates:
1.
Contingent on non-dilutive funding availability.
SPR720: Novel Oral Antibiotic in Phase 2 Development for First-Line Treatment of NTM Pulmonary Disease
Disease Overview
We are developing SPR720, a novel class of antibacterial agent that targets enzymes essential for bacterial DNA replication, for
the treatment of NTM pulmonary disease. NTM infections cause chronic and serious pulmonary disease with debilitating symptoms
4
that worsen over time. As the disease progresses, patients experience a decline in lung function. SPR720 is in development to be the
potential first oral drug for first-line treatment of NTM pulmonary disease in treatment-naïve and treatment-experienced non-
refractory patients.
NTMs are ubiquitous environmental organisms that can cause progressive lung damage and respiratory failure, particularly in
patients with compromised immune systems or underlying pulmonary disorders. NTM pulmonary disease is associated with a five-
year all-cause morality rate of 35% and high healthcare costs. NTM infections represent a growing global health concern and major
unmet medical need because of the lack of new medications to combat these bacteria. MAC is the most common NTM to cause
human infection, making up around 80% of all NTM infections.
Limitations of Current Therapies
The current treatment for NTM pulmonary disease is lengthy and involves combination therapy, often three or more antibiotics.
In addition, many patients go undiagnosed and could benefit from additional testing. The most common treatment for NTM infections
is prolonged combination therapy (continuing for approximately 12–24 months) with drugs traditionally used for tuberculosis (“TB”)
that have limited efficacy and poor tolerability. Treatment failure is common and is often due to inability to tolerate the regimen or
poor adherence.
SPR720 Key Attributes
•
•
•
•
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Novel mechanism. SPR720 employs a novel mechanism with no evidence of cross-resistance with marketed antibiotics
and low propensity for selection of resistance. Drug resistance to currently available treatments in NTM species
threatens adequate control of the disease. A novel mechanism may help evade existing modes of resistance. SPR720 is
applicable to both non-refractory and refractory disease.
Broad spectrum of activity. SPR720 has demonstrated a broad spectrum of activity in preclinical studies against the
most common organisms causing NTM infections, including MAC, Mycobacterium abscessus and Mycobacterium
kansasii.
Lung exposure. SPR720 is an oral drug that penetrates the pulmonary space. A bronchoalveolar lavage (“BAL”) study
in non-human primates (“NHPs”) supports lung exposure. Furthermore, data from a 28-day hollow-fiber model of
infection demonstrates the intracellular and extracellular activity of the drug.
Acceptable safety and tolerability within therapeutic dose range. Data from the SPR720 Phase 1 trial, in vitro models
and pharmacokinetic/pharmacodynamic (“PK/PD”) analyses indicated that predicted therapeutic exposures could be
attained with a 500 mg to 1000 mg once daily oral dose. These doses in the Phase 1 trial were associated with a low
incidence of adverse events with no serious adverse events reported. The most common adverse event among all
cohorts was mild diarrhea not requiring discontinuation of therapy.
Oral Administration. SPR720 has high oral bioavailability, which may offer patients and prescribers with convenient
dosing and administration options, especially as current first-line standard of care (“SOC”) regimen are administered
orally.
Market Opportunity for SPR720
NTM infection occurs in many different types of patients. NTM pulmonary disease often occurs in people with compromised
immune systems or those with respiratory conditions such as bronchiectasis, chronic obstructive pulmonary disease, cystic fibrosis and
asthma. Increasing prevalence of NTM pulmonary disease in the United States is estimated at 6%–10% annually. The estimated total
NTM pulmonary disease prevalence in the United States, Europe and Japan is approximately 245,000 diagnosed patients. Women and
people aged 65 years or older (a population that is growing in number) have higher incidence and prevalence rates. We believe there is
a need for new, potent, orally available therapies for NTM pulmonary disease.
SPR720 Clinical Development Overview
Ongoing Clinical Trials
SPR720 is currently being evaluated in a Phase 2a clinical trial that is expected to enroll up to 35 treatment-naïve or treatment-
experienced patients with NTM pulmonary disease, who do not have treatment-refractory NTM pulmonary disease, due to MAC. The
primary endpoint is evaluating changes in bacterial load in sputum samples from baseline to the end of the 56-day treatment period.
5
Key secondary endpoints include assessments of clinical response, PK, safety and tolerability and quality of life. We continue to
screen and enroll participants at 27 active sites, with topline data expected in the second half of 2024.
Additionally, we have two ongoing Phase 1 clinical trials – one to assess intrapulmonary PK of SPR719 (the active moiety of
the prodrug SPR720) in a BAL study and another to evaluate the effect on the PK of SPR720, azithromycin and ethambutol when co-
administered together in healthy volunteers.
Completed Clinical Trials
The doses selected for the Phase 2a trial of SPR720 were supported by PK/PD analyses, as well as data from the Phase 1 clinical
trial of SPR720, which evaluated the safety, tolerability and PK of orally administered SPR720 at single doses ranging from 100 mg to
2000 mg and repeat total daily doses ranging from 500 mg to 1500 mg for up to 7 to 14 days. Across seven single ascending dose
(“SAD”) and five multiple ascending dose (“MAD”) cohorts, a total of 96 healthy volunteers (including a cohort of healthy elderly
(age ≥ 65 years) volunteers) were randomized to receive SPR720 or placebo. There were no serious adverse events reported and all
participants completed the trial. SPR720 was generally well-tolerated at doses up to 1000 mg over the maximum studied duration of
14 days. PK data across the cohorts showed no significant impact of either advanced age or administration with food on PK variables.
At doses of 500 mg or higher, the mean plasma drug exposures of SPR719, the active metabolite of SPR720, are consistent with those
suggested by in vivo and in vitro models of SPR720 to be necessary for clinical efficacy against target NTM pathogens. Data from this
Phase 1 trial was presented at ID Week 2020 with the conclusion that SPR720 is generally well-tolerated with predicted therapeutic
exposures attainable with a 500 mg to 1000 mg once daily oral dose, supporting further development of SPR720 in NTM pulmonary
disease.
In December 2020, we initiated a Phase 2a dose-ranging clinical trial (SPR720-201) of SPR720 in patients with NTM
pulmonary disease following the acceptance of our investigational new drug (“IND”) application for SPR720 in August 2020. The
Phase 2a clinical trial was designed as a multi-center, partially blinded, placebo-controlled proof-of-concept clinical trial of SPR720
that was expected to enroll approximately 90 treatment-inexperienced patients with NTM pulmonary disease due to MAC. Patients
were randomized to receive either 500 mg or 1,000 mg of oral SPR720 once daily, placebo or SOC, consisting of a macrolide and
ethambutol, plus the option of adding a rifamycin. The objectives of the trial were to evaluate the plasma pharmacokinetics, safety,
tolerability, and microbiological response of SPR720 compared with placebo over 28 days of treatment, with the inclusion of the SOC
arm to assess and ensure assay sensitivity for the trial design.
On February 5, 2021, we announced that the FDA informed us that a clinical hold had been placed on our Phase 2a clinical
trial of SPR720, following our notification to the FDA of our decision to pause dosing in our ongoing Phase 2a clinical trial of
SPR720 as a precautionary measure related to events in our ongoing animal toxicology study of SPR720. We worked with the FDA
throughout 2021 to evaluate the findings and determine the future development pathway for the SPR720 clinical program. The NHP
study was completed in the third quarter of 2021, a study report was finalized and a complete response to the clinical hold was
submitted to the FDA in the fourth quarter of 2021.
On January 4, 2022, we announced that the FDA lifted the clinical hold on the Phase 2a trial of SPR720. The FDA’s decision
to lift the clinical hold followed our submission of the comprehensive study report with detailed analyses from the NHP toxicology
study. We engaged with the FDA in the first quarter of 2022 to discuss the re-initiation and planned protocol of the SPR720 Phase 2a
trial in NTM pulmonary disease patients.
On November 14, 2022, we announced the re-initiation of a Phase 2a clinical trial of SPR720 (SPR720-202) and that we
opened clinical trial sites.
Preclinical Findings
SPR720 has shown potent activity against most common NTM infection species, such as M. avium, M. abscessus and M.
kansasii. As shown in the exhibit below, SPR720 showed pulmonary activity against M. avium ATCC 700898 in a murine chronic
infection model. In this model, SPR720 was effective as a monotherapy, with dose response exhibited, and in combination with SOC
agents.
6
Regulatory Designations
In March 2020, the FDA granted orphan drug designation for SPR720, a designation that is given to drugs intended to treat a
rare disease or condition that affects fewer than 200,000 persons in the United States. An orphan drug designation can provide specific
benefits including up to seven years of market exclusivity in the United States upon regulatory approval. In February 2019, we
received qualified infectious disease product (“QIDP”) designation for SPR720 for the treatment of lung infections caused by
nontuberculous mycobacteria and for the treatment of lung infections caused by M. TB. QIDP designation entitles a future marketing
application for SPR720 for this indication to priority review by the FDA. In September 2020, SPR720 was awarded Fast Track
designation by the FDA for treatment of adult patients with NTM pulmonary disease. Neither the QIDP nor orphan drug designation
nor Fast Track designation, however, guarantee a faster development process or ensure FDA approval.
We believe that our intellectual property portfolio for SPR720, which includes multiple issued patents and patent applications
pending, will provide SPR720 protection globally, including in the United States and Europe, through July 2033.
Tebipenem HBr (tebipenem pivoxil hydrobromide): Potential First Oral Carbapenem in Phase 3 trial for Use in Adults with cUTI
Disease Overview
Tebipenem HBr is an oral carbapenem being developed to treat cUTI, including pyelonephritis, caused by certain
microorganisms, in adult patients who have limited oral treatment options.
Urinary tract infections (“UTIs”) are among the most common bacterial diseases worldwide and have significant clinical and
economic burden. cUTIs are UTIs that fail to respond to a standard course of treatment associated with the presence of any number of
underlying factors in patients, such as anatomical or functional abnormalities of the urinary tract, ahighe r likelihood of resistant
pathogens, and/or medical comorbidities, which put patients at higher risk of complications. Patients with cUTI have a higher risk of
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recurrence and progression to severe infection, as well as a greater risk of morbidity and mortality, when compared to uncomplicated
UTI.
Limitations of Current Therapies
Currently, fluoroquinolones are the most widely used antibiotic class in treating community and hospital Gram-negative
infections, including UTIs, but they have encountered increasing resistance among MDR Gram-negative bacteria and are associated
with significant adverse effects. In particular, Escherichia coli (“E. coli”) non-susceptibility to fluoroquinolones,
trimethoprim/sulfamethoxazole, and oral cephalosporins range from 25% to 36%, based on isolates collected from both nosocomial,
or hospital-acquired, and community-acquired infections. Co-resistance further compounds the issue of antibiotic resistance, for
instance more than 40% of E. coli isolates with trimethoprim/sulfamethoxazole resistance were co-resistant to levofloxacin.
As such, current UTI treatment guidelines published by the Infectious Diseases Society of America identify fluoroquinolones as
an appropriate empirical therapy option. This recommendation is contingent on local resistance rates being less than 10%. However,
the high rates of fluoroquinolone-resistant E. coli found in the United States today in the community and hospital settings, as shown in
the table below, would suggest that there is a need for an antibiotic that is effective on fluoroquinolone-resistant infections.
The table below reflects resistance rates in the United States in the community and hospital settings.
cUTIs in the United States
Community Setting
Hospital Setting
2019-2022 E. coli Resistance
Rates to Fluoroquinolones
21.5%
37.9%
2013-2014 E. coli Resistance
Rates to Fluoroquinolones
11.7%
34.5%
2000-2004 E. coli Resistance
Rates to Fluoroquinolones
0%
3.5%
In addition, the FDA has issued several warnings against the use of fluoroquinolones in certain patients. In particular, an FDA
Advisory Committee stated in November 2015 that the risk of serious side effects caused by fluoroquinolones generally outweighs the
benefits for patients with acute bacterial sinusitis, acute exacerbation of chronic bronchitis and uncomplicated UTIs, and the agency
subsequently issued a drug safety communication to the public and required safety labeling revisions be made to all products within
this drug class. The FDA has determined that fluoroquinolones should be reserved for use in patients with these conditions who have
no alternative treatment options and safety warnings in the labeling of fluoroquinolone class products have been further strengthened
over the past several years.
Tebipenem HBr Key Attributes
Tebipenem HBr is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat cUTI,
including pyelonephritis. Unlike other carbapenems on the U.S. market, which are only available as IV-administered infusions,
tebipenem HBr is an orally administered tablet. Oral administration may potentially allow physicians to avoid IV-administered
antibiotics for otherwise healthy or stable patients, and the avoidance of IV administration could lead to reduced healthcare resource
utilization. This attribute supports our confidence in tebipenem HBr’s commercial prospects, if tebipenem HBr receives regulatory
approval. We may pursue future studies of tebipenem HBr to treat other serious and life-threatening infections.
Market Opportunity for Tebipenem HBr
With an estimated 3 million cases each year in the United States, cUTI is a leading cause of infection-related hospitalization.
According to Simmering et al., there has been a concerning 52% (population-adjusted) increase in the incidence of hospital admission
for UTI over the course of a decade (1998-2011) which is associated with additional costs. In a nationwide cohort study, the total
median 30-day post index all-cause total healthcare costs for cUTI care ranged from $1,531 for patients initially identified in the
outpatient setting to $13,028 for patients initially identified in the inpatient setting. While drugs such as
trimethoprim/sulfamethoxazole and fluoroquinolones (levofloxacin, ciprofloxacin) have been the primary oral options for treatment of
UTIs caused by Gram-negative organisms, nearly 30% to 35% of UTIs are resistant, which has led to increased use of IV-
administered therapeutics such as carbapenems. Carbapenems have been utilized for more than 30 years and are considered the
standard of care for many serious MDR Gram-negative bacterial infections but have only been available as IV-administered
formulations. Currently, there are no commercially available oral carbapenems for use in adults.
The growing challenges of limited effective oral treatment options for cUTI and pyelonephritis due to increasing rates of
resistance amongst uropathogens place undue burden on both patients and the healthcare system, in terms of recurrent infections,
hospitalizations, and cost, which can be significant.
A significant majority of cUTI are caused by a group of MDR Gram-negative bacteria called Enterobacterales, against which
tebipenem HBr has demonstrated antibacterial activity. Given the observed activity of tebipenem HBr against a broad spectrum of
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bacterial pathogens, healthcare providers may prescribe tebipenem HBr, if approved, for use in the following uses, if approved
therefor:
•
•
Community setting: Treating cUTI acquired in the community setting without the need for patient hospitalization.
Hospital setting: Transitioning appropriate patients hospitalized for cUTI to an appropriate oral therapy as they are
discharged from the hospital.
We believe tebipenem HBr is well positioned to meet an unmet need for an oral therapy for patients with cUTI, including
pyelonephritis, caused by certain microorganisms. Physicians may prescribe tebipenem HBr, if approved, to treat MDR cUTI and
patients prescribed tebipenem HBr may avoid hospitalization.
Tebipenem HBr Clinical Development Overview
GSK License Agreement
In September 2022, we entered into the GSK License Agreement with GSK for tebipenem HBr. Pursuant to the GSK License
Agreement, we received a $66.0 million upfront payment from GSK and are eligible to receive up to $525.0 million in development,
sales, and commercial milestones payments, as well as low single-digit to low double-digit tiered royalties on net product sales. In
exchange, GSK received an exclusive license to develop and commercialize tebipenem pivoxil and tebipenem pivoxil HBr in all
territories, except Japan, and certain other Asian countries, territories which are retained by our partner Meiji Seika Pharma Co. Ltd.
(“Meiji”). Concurrent with the GSK License Agreement, an affiliate of GSK purchased 7,450,000 shares of our common stock at a
purchase price of approximately $1.20805 per share for an aggregate purchase price of $9.0 million.
Under the License Agreement, we are responsible for the execution and costs of the follow-up Phase 3 clinical trial of
tebipenem HBr. GSK is responsible for the execution and costs of any additional further development, including additional Phase 3
regulatory filing and commercialization activities for tebipenem HBr in the GSK Territory (as defined below). See “Collaboration,
License and Service Agreements - Tebipenem HBr Agreements - GSK License Agreement” below for additional information.
Ongoing Clinical Trials
On July 31, 2023, we announced that we received written agreement from the FDA, under a Special Protocol Assessment
(“SPA”), on the design and size of PIVOT-PO, a pivotal Phase 3 clinical trial of tebipenem HBr in patients with cUTI, including AP.
PIVOT-PO is a global, randomized, double-blind, pivotal Phase 3 clinical trial of oral tebipenem HBr vs. IV imipenem
cilastatin, in hospitalized adult patients with cUTI/AP. Patients will be randomized 1:1 to receive tebipenem HBr (600 mg) orally
every six hours, or imipenem cilastatin (500 mg) IV every six hours, for a total of seven to ten days. The primary efficacy endpoint
will be overall response (composite of clinical cure plus microbiological eradication) at the test-of-cure visit. The primary analysis for
the trial will be an assessment of NI in the microbiological intention-to-treat population, based on a 10% NI margin. The trial is
designed to enroll approximately 2,648 patients, which we expect to be completed in 2025. Randomization is stratified by age,
baseline diagnosis (cUTI or AP), and the presence or absence of urinary tract instrumentation.
In December 2023, we commenced enrollment in PIVOT-PO and anticipate completing enrollment in the second half of 2025.
Completed Clinical Trials
In September 2020, we announced positive data from the ADAPT-PO Phase 3 trial evaluating an oral regimen of tebipenem
HBr head-to-head versus an IV regimen of ertapenem for the treatment of adults with cUTI, including acute pyelonephritis (“AP”).
The global, randomized, placebo-controlled ADAPT-PO Phase 3 clinical trial evaluated the safety and efficacy of tebipenem HBr in
hospitalized adult patients with cUTI or AP. Patients were randomized (1:1) to receive tebipenem HBr (600 mg) orally every 8 hours,
or ertapenem (1 g) IV every 24 hours, for a total of 7 to 10 days.
The primary analysis and assessment of non-inferiority were evaluated using a pre-specified -12.5% non-inferiority (“NI”)
margin. The primary efficacy endpoint was overall response (composite of clinical cure and microbiologic response) at the test-of-cure
(“TOC”) in the microbiological intent-to-treat population. This NI margin was a modification of the original NI margin of -10% that
was discussed and agreed upon with the FDA because of concern that the COVID-19 pandemic could have an adverse effect on the
trial. As a result, the NI margin was modified prior to the database lock from the original NI margin.
Data presented at IDWeek 2020 demonstrated that all secondary endpoints, including both the clinical cure and microbiological
eradication rates were comparable between treatment groups at the end of treatment, TOC and at late follow-up (“LFU”), visits.
Specifically, clinical cure rates, which are the key determinant in routine clinical management of cUTI/AP patients, were >93% in
both treatment groups at TOC. The high clinical cure rates at TOC were sustained through LFU (88.6% and 90% for tebipenem HBr
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and ertapenem, respectively), demonstrating a durable clinical response in patients with cUTI and AP. Favorable microbiological
response rates at TOC were likewise comparable between treatment groups and were similarly sustained up to LFU in both treatment
groups (57.2% and 58.2% for tebipenem HBr and ertapenem, respectively). There were no statistically significant differences between
treatment groups in overall response rates across key subgroups of interest, including those determined by age, baseline diagnosis, and
presence of bacteremia at baseline. Pathogen microbiological response rates were generally balanced across treatment groups for the
predominant uropathogens observed.
Comparative safety and tolerability data from 1,372 hospitalized adult patients enrolled in the study were similar between the
tebipenem HBr and ertapenem treatment groups. Treatment-emergent adverse events (“TEAEs”) were reported in approximately 26%
of patients in both treatment groups and the most commonly reported TEAEs in both treatment groups were diarrhea (5.0%) and
headache (3.8%). Serious TEAEs were infrequent (1.3% for tebipenem HBr vs. 1.7% for ertapenem) and no deaths were reported in
the trial. Three Clostridioides difficile associated TEAEs were observed in the ertapenem group, while none were observed in the
tebipenem HBr group.
FDA Status
We included data from our completed ADAPT-PO Phase 3 clinical trial of tebipenem HBr, together with requisite safety data,
chemistry, manufacturing and controls ("CMC") information, clinical pharmacology and nonclinical studies, in our New Drug
Application (“NDA”) submission to the FDA, which was accepted by the FDA in late December 2022. The NDA was seeking
approval for tebipenem HBr oral tablets for treatment of cUTI, including pyelonephritis, caused by certain microorganisms in adult
patients who have limited oral treatment options. The FDA granted Priority Review designation with a PDUFA target action date of
June 27, 2022.
Based upon feedback from an FDA Late Cycle Meeting in late April 2022, we determined to discontinue our own near-term
commercialization activities for tebipenem HBr and to restructure our business, including focusing on potential partnership or other
opportunities for tebipenem HBr.
In June 2022, we received a Complete Response Letter ("CRL") from the FDA regarding our NDA. In the CRL, the FDA
communicated that it had completed its review of the NDA and determined that the NDA could not be approved in its present form.
The FDA ultimately concluded that the Phase 3 cUTI clinical trial of tebipenem HBr (ADAPT-PO) was insufficient to support
approval and that additional clinical study would be required.
On August 2, 2022, we held a Type A meeting with the FDA to gain further insights as to the pathway forward towards a
potential regulatory approval for tebipenem HBr. The FDA indicated that positive results from a single additional Phase 3 clinical trial
supported by confirmatory nonclinical evidence of efficacy could be sufficient to support the approval of tebipenem HBr for the
treatment of cUTI, including pyelonephritis, for a limited use indication. We believe we also achieved alignment with the FDA on key
components of the proposed pivotal Phase 3 trial design. We engaged with the FDA by means of a SPA in the first half of 2023. On
July 31, 2023, we announced that we received written agreement from the FDA, under the SPA, on the design and size of the PIVOT-
PO trial.
Regulatory Designations
The FDA has also designated tebipenem HBr as a QIDP for the treatment of cUTI, Community-acquired pneumonia (“CABP”)
and diabetic foot infections (“DFI”) under the Generating Antibiotic Incentives Now (“GAIN”) Act. Among other benefits of a QIDP
designation, the first marketing application for the QIDP-designated drug qualifies for priority review by the FDA. The QIDP
designation for tebipenem HBr, however, does not guarantee a faster development process or ensure FDA approval. Further, if
tebipenem HBr is approved for the treatment of cUTI, CABP or DFI, the FDA’s QIDP designation previously granted to tebipenem
HBr for those indications will entitle the drug product to receive a one-time five-year extension to any non-patent exclusivity period
awarded to tebipenem HBr in the United States, such as a five-year New Chemical Entity exclusivity granted under the Hatch-
Waxman Act, among other possible periods of regulatory exclusivity that would qualify for a GAIN exclusivity extension.
SPR206: IV-administered product candidate being developed as an innovative option to treat multi-drug resistant (MDR) Gram-
negative bacterial infections in the hospital setting.
Disease Overview
SPR206 is an IV-administered product candidate being developed as an innovative option to treat MDR Gram-negative bacterial
infections in the hospital setting. Gram-negative bacteria represent a subset of bacterial organisms distinguished by the presence of an
outer cell membrane. SPR206 is designed to treat MDR Gram-negative bacterial infections through interactions with the bacteria’s
outer cell membrane.
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SPR206 is a direct acting IV-administered agent that has demonstrated single-agent antibacterial activity in both in vitro and in
vivo models of infection against Gram-negative bacteria, including organisms identified by the CDC as urgent or serious threats to
human health, including CRAB, CRE, MDR PA and ESBL-producing Enterobacterales.
Limitations of Current Therapies
Current SOC involves drug combinations that are often associated with nephrotoxicity.
SPR206 Key Attributes
We believe that with the following key attributes, SPR206 has the potential to become a safe and effective treatment for serious
Gram-negative infections:
•
•
Potential to Expand the Potency of Standard-of-Care (SOC) Antibiotics. SPR206 is designed to expand the potency
of SOC antibiotics by restoring and expanding their Gram-negative activity. We believe that this novel mechanism
could provide a new option for patients with resistant Gram-negative infections, thereby improving therapeutic
outcomes, decreasing physicians’ reliance on older poorly tolerated and ineffective drugs.
SPR206 appears to be asafe and potent IV-administered direct-acting agent. SPR206 is designed to interact with
lipopolysaccharide (“LPS”) to disrupt the outer membrane. SPR206 is also designed to have direct antibiotic activity,
while retaining potentiator activity, including activity against P. aeruginosa and A. baumannii. Data from SPR206 in
vitro and in vivo GLP safety pharmacology and absorption, distribution, metabolism, and excretion (“ADME”) studies
and 14-day, two-species GLP toxicology studies provide support for an acceptable safety profile, which led to
SPR206’s designation as acl inical candidate and the initiation of Phase 1 clinical trial in December 2018. Phase 1da ta
demonstrates that SPR206 is well-tolerated at doses that are likely to be within a therapeutic range for target MDR
Gram-negative bacterial infections and has a safety profile that we believe supports the further development of
SPR206. We are developing SPR206 as a treatment for high-risk patients with suspected or known Gram-negative
infections such as CRE, CRAB and MDR PA to prevent mortality and reduce the length of stay in the hospital setting.
Market Opportunity for SPR206
SPR206 completed non-clinical, IND-enabling studies supporting its advancement as apotenti al clinical candidate designed to
treat MDR and extensively drug-resistant (“XDR”) bacterial strains. Based on microbiological and in vivo testing, we believe that
SPR206 has the potential to offer abroad-sp ectrum of activity, including against XDR bacterial strains.
In Vitro Activity of SPR206 against Carbapenem-Resistant Gram-Negative Bacteria
Results from multiple susceptibility studies against contemporary clinical isolates suggest that SPR206 possesses potent activity
against CRAB, carbapenem-resistant P. aeruginosa and carbapenem-resistant K. pneumoniae.
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SPR206 Clinical Development Overview
Phase 2 Clinical Trial Update
In February 2024, we announced clearance by the FDA for our IND application to evaluate SPR206 in a Phase 2 clinical study.
The Phase 2 study will be a randomized, double-blinded, controlled, multicenter study to evaluate the safety, tolerability, efficacy, and
pharmacokinetics of SPR206 in combination with select antibiotics for the treatment of patients diagnosed with hospital-acquired and
ventilator-associated bacterial pneumonia ("HABP/VABP"), caused by carbapenem-resistant Acinetobacter baumannii-calcoaceticus
complex or carbapenem-resistant Pseudomonas aeruginosa. Approximately 60 adult hospitalized patients are expected to be enrolled.
Patients will receive treatment for 7−14 days and will be evaluated through assessment of post-baseline clinical outcomes.
The Phase 2 trial is supported by preclinical data as well as the results of multiple Phase 1 clinical trials. These Phase 1 trials
have demonstrated SPR206's lack of nephrotoxicity at predicted therapeutic dose levels and its ability to achieve mean lung epithelial
lining fluid (“ELF”) exposures above the MIC for targeted Gram-negative pathogens, when administered three times daily at 100 mg.
The initiation of the Phase 2 trial is contingent on availability of non-dilutive funding.
Completed Clinical Trials
In January 2020, we reported results from a Phase 1 clinical trial designed as a double-blind, placebo-controlled, ascending
dose, multi-cohort study in healthy subjects. In the Phase 1 clinical trial, SPR206 was well-tolerated at doses that are likely to be
within a therapeutic range for target MDR Gram-negative bacterial infections and demonstrated a safety profile that we believe
supports the further development of SPR206. In this SAD and MAD Phase 1 clinical trial, a total of 96 healthy volunteers were
randomized to receive SPR206 or a placebo. All reported adverse events were mild to moderate and there were no reported severe or
serious adverse events. There were no subjects with clinically significant changes in laboratory tests during the study. SPR206 was
well-tolerated at doses up to 100 mg administered three times a day, a total of 300 mg daily, for 14 consecutive days and no evidence
of nephrotoxicity was observed at this dose and duration. PK data across the cohorts indicate dose linearity and dose proportionality as
well as mean plasma drug exposures of SPR206 that are concordant with preclinical models predictive for clinical efficacy against
target Gram-negative pathogens.
In June 2021, we initiated a Phase 1 BAL clinical trial assessing the penetration of SPR206 into the pulmonary compartment
and a RIS clinical trial of SPR206. Both studies were completed in the fourth quarter of 2021. On February 16, 2022, we announced
positive topline results from the Phase 1 BAL clinical trial. Results showed that SPR206 was generally well-tolerated with a mean
lung ELF to plasma concentration ratio of 0.264, with AUC from 0-8 hours used to estimate the total uptake of SPR206. Importantly,
the mean concentration of SPR206 in the lung ELF exceeded the SPR206 MIC for targeted gram-negative pathogens for the entirety
of the 8-hour dosing period. The Phase 1 RIS trial for SPR206 has been completed. Final dose recommendations, including any
adjustments for patients with renal impairment, are expected after completion of ongoing nonclinical studies and pharmacology
analyses.
The Phase 1 BAL clinical trial was an open-label study that enrolled thirty healthy volunteers into five cohorts. Subjects
received three 100 mg doses of SPR206 infused every eight hours over one day. The objectives of the study were to evaluate the
intrapulmonary PK, including ELF and alveolar macrophage (“AM”) concentrations of SPR206 compared to plasma concentrations.
These data are important to establish dose requirements for clinical efficacy of SPR206 in the setting of hospital-acquired pneumonia
(“HAP”)/ventilator-associated pneumonia (“VAP”). This study was conducted in collaboration with, and with financial support from,
the United States Department of Defense ("DoD") (Award No. W81XWH1910295). The initiation of this clinical trial triggered the
first of two milestone payments related to the study from our development partner, Everest Medicines II Limited (“Everest”).
The Phase 1 RIS clinical trial was an open-label study that enrolled forty volunteers into five cohorts. Cohort 1 was healthy
volunteers, cohorts 2-4 were clinically stable subjects with various degrees of renal impairment, and cohort 5 was clinically stable
subjects with end stage renal disease (“ESRD”) on hemodialysis. Subjects received a single 100 mg infusion of SPR206. The
objectives of the study were to evaluate the PK of SPR206 in healthy subjects and in those with various degrees of renal impairment,
including ESRD. These data are important to establish if the concentrations of SPR206 are impacted by differences in renal function
and whether dose adjustments for SPR206 would be recommended in such context. This study was conducted in collaboration with,
and with financial support from, the DoD (Award No. W81XWH1910295).
Regulatory Designations
SPR206 has been granted QIDP designation by the FDA for the treatment of cUTI and hospital-acquired bacterial pneumonia
and ventilator-associated bacterial pneumonia (HABP/VABP). We have multiple patent applications pending for SPR206 that we
12
believe will provide SPR206 protection globally through 2039, including the United States and Europe. In October 2022, the United
States Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 11,459,357, which covers the SPR206 composition of matter
and formulations thereof as well as methods of treating a bacterial infection with SPR206. The patent is assigned to us and has a
lifespan extending into at least June 2039.
Our Strategy
Our goal is to identify and develop novel treatments for rare diseases and MDR bacterial infections, focusing on areas of high
unmet medical need for safe and effective treatments. Key elements of our strategy are as follows:
•
•
•
•
•
Advance our lead product candidate SPR720 to regulatory approval for first-line treatment of patients with NTM
pulmonary disease. We believe there is a significant opportunity to develop products for underserved “orphan” infectious
disease areas, such as NTM pulmonary disease. These markets offer the attributes of fewer branded or generic
competitors, as well as chronic therapy. If approved, we believe SPR720 has the potential to be the first oral agent for
NTM pulmonary disease in treatment-naïve and treatment-experienced non-refractory patients. We may seek to acquire
other product candidates for other underserved, debilitating orphan infectious diseases.
In partnership with GSK, advance tebipenem HBr through completion of the Phase 3 clinical trial and advise and
consult with GSK through the regulatory approval process. We granted GSK an exclusive license to develop and
commercialize tebipenem pivoxil and tebipenem pivoxil HBr in all territories, except Japan, and certain other Asian
countries, territories which are retained by our partner Meiji. We are responsible for execution and costs of the tebipenem
HBr Phase 3 clinical trial in the United States. GSK is responsible for the execution and costs of regulatory and
commercial activities for tebipenem HBr in the United States, as well as territories outside of the United States (not
including the Meiji Territory (as defined below)).
Maximize the value of our pipeline through collaborations with other pharmaceutical companies. We may elect to
pursue strategic collaborations with other pharmaceutical companies to leverage our pipeline. We believe it may be
beneficial to develop and commercialize one or more of our product candidates through partnering opportunities. Such
collaborations may include regional collaborations to advance our pipeline products, or product-specific deals.
Continue to pursue collaborations with non-commercial organizations for scientific expertise and funding support. We
have received funding support from BARDA, the United States National Institute of Allergy and Infectious Diseases
(“NIAID”), the DoD and the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”) a
public-private partnership funded by BARDA within the United States Department of Health and Human Services. We
intend to continue to collaborate with government agencies and non-profit foundations to support the development of our
product candidates.
Selectively expand our portfolio of product candidates for the treatment of rare infectious diseases. Since our inception,
we have focused on identifying and developing antibiotics to treat bacterial infections, including MDR infections, and we
are using our expertise to actively build and expand a portfolio of product candidates for the treatment of such infections
where unmet need exists. In addition, we are leveraging our deep-rooted relationships in the academic, medical and
corporate communities to identify and develop new and innovative therapies in other tangential disease areas. Assessing
our product candidates relies on three principles: 1) unmet medical need, 2) novel mechanism to overcome current
therapeutic challenges, and 3) convenience for patients.
Collaboration, License and Service Agreements
In addition to our own patents and patent applications, we have acquired or licensed patents, patent applications and know-how
from various third parties to access intellectual property covering product candidates that we are developing. We have certain
obligations under these acquisitions or licensing agreements, including diligence obligations and payments, which are contingent upon
achieving various development, regulatory and commercial milestones. Also, pursuant to the terms of some of these license
agreements, when and if commercial sales of a product commence, we may be obligated to pay royalties to such third parties on net
sales of the respective products. Some of our license agreements include sublicenses of rights owned by third-party head licensors. In
addition, we have entered into license agreements (described below) pursuant to which we have granted certain development,
manufacturing and commercialization rights with respect to certain of our product candidates.
SPR720 Agreements
Gates MRI Collaboration
In June 2019, we entered into a collaboration with the Bill and Melinda Gates Medical Research Institute (the “Gates MRI”), a
nonprofit research institution wholly owned by the Bill and Melinda Gates Foundation, to develop SPR720 for the treatment of lung
13
infections caused by Mycobacterium TB. In furtherance of the Gates MRI’s charitable purposes, we also granted the Gates MRI a no
cost, exclusive license to develop, manufacture and commercialize SPR720 for the treatment of TB in low- and middle-income
countries. The Gates MRI was to conduct and fund preclinical and clinical studies for the development of SPR720 against TB, as well
as certain collaborative research activities performed by us. As of December 31, 2023, the Gates MRI completed its preliminary
development plans for SPR720 and no further development work is planned, thus the relationship was concluded in the fourth quarter
of 2023.
Vertex Assignment and License Agreement
In May 2016, we entered into an agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) pursuant to which Vertex
assigned to us rights to patents relating to the oral prodrug SPR720 and SPR719 (an active metabolite). The acquired patent portfolio
includes protection for composition of matter, method of use, and specific key intermediates used in the manufacture of SPR719 and
SPR720. We also obtained certain know-how and a license to research, develop, manufacture and sell products for a proprietary
compound, as well as a transfer of materials as part of the transaction. In return, we granted Vertex an exclusive license to the assigned
patents and know-how for use outside of the diagnosis, treatment or prevention of bacterial infections. In exchange for the assigned
patents, we paid Vertex an upfront, one-time, non-refundable, non-creditable fee of $0.5 million, which was recognized as research
and development expense, and we also agreed to pay Vertex future clinical, regulatory and commercial milestones up to $81.3 million
in the aggregate and a royalty on the net sales of licensed products ranging from mid-single digits to low double digits. During the
year ended December 31, 2020, we paid and recorded $0.9 million in expenses related to the achievement of regulatory milestones for
SPR720. The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment
obligations continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale
of such product in such country or the date of expiration in such country of the last to expire applicable patent. Further, Vertex has the
right to terminate the agreement if provided with notification from us of our intent to cease all development or if no material
development or commercialization efforts occur for a period of 12 consecutive months.
Tebipenem HBr Agreements
GSK License Agreement
On November 7, 2022, we closed the transactions contemplated by the GSK License Agreement, which was entered into on
September 21, 2022. Pursuant to the terms of the GSK License Agreement, we granted GSK an exclusive royalty-bearing license, with
the right to grant sublicenses, under our intellectual property and regulatory documents and a sublicense under certain intellectual
property of Meiji and Meiji’s regulatory documents to develop, manufacture and commercialize tebipenem pivoxil and tebipenem
HBr and products that contain tebipenem pivoxil and tebipenem HBr (the “GSK Licensed Products”) in all territories, except certain
Asian countries previously licensed to Meiji (Japan, Bangladesh, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam (collectively, the “Meiji Territory”)) (the “GSK Territory”). If
our license with Meiji is terminated, or if Meiji forfeits or loses its rights to develop, manufacture and commercialize tebipenem HBr
and products that contain tebipenem HBr in any countries in the Meiji Territory, then GSK will have an exclusive first right to
negotiate with us to add any such countries to the GSK Territory.
Under the terms of the GSK License Agreement, we received an upfront payment of $66.0 million for GSK to secure rights to
the medicine, and GSK also invested $9.0 million in our common stock.
In July 2023, we received written agreement from the FDA, under a SPA, on the design and size of PIVOT-PO, a pivotal Phase
3 clinical trial of tebipenem HBr in patients with cUTI, including AP. Under the terms of the GSK License Agreement, we received a
$30.0 million development milestone payment during the third quarter of 2023.
In December 2023, we commenced enrollment in PIVOT-PO with its first patient, first visit. Under the terms of the GSK
License Agreement, we are entitled to receive a $95.0 million development milestone that is payable in four equal semi-annual
installments. In February 2024, we received the first installment payment of $23.8 million for such development milestone.
Remaining potential payments are milestone and royalty based, and are as follows (in millions):
Event
GSK's submission of a NDA with the FDA for tebipenem HBr
Total commercial milestone payments based on first sale (US/EU)
Total potential sales milestone payments
Royalties
Milestone payments (up to)
$25.0
$150.0
$225.0
Low-single digit to low-double digit (if sales exceed $1.0
billion) tiered royalties on net product sales
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In July 2023, we entered into Amendment 1 to the GSK License Agreement, which updated the technology transfer terms of
the GSK License Agreement. In December 2023, we entered into Amendment 2 to the GSK License Agreement, which added a
country to the locations for PIVOT-PO. Under the terms of Amendment 2 we may receive up to an additional $4.3 million in tranched
milestones based on activities in such country.
Royalties are subject to reduction in the event of third-party licenses, entry of a generic product or expiration of patent and
regulatory exclusivity prior to the tenth anniversary of the first commercial sale of a GSK Licensed Product in a particular country.
We are responsible for the execution and costs of the Phase 3 clinical trial of tebipenem HBr. GSK is responsible for the
execution and costs of any additional development, including additional Phase 3 trials, regulatory filings and commercialization
activities for tebipenem HBr in the GSK Territory. We will also be responsible for providing and paying for the clinical supply of
tebipenem HBr while GSK will be responsible for the costs of the commercial supply of tebipenem HBr. A joint development
committee has been established between GSK and us to coordinate and review development activities for tebipenem HBr in the
United States.
Unless earlier terminated due to certain material breaches of the GSK License Agreement or by GSK for convenience, or
otherwise, the GSK License Agreement will expire on a jurisdiction-by-jurisdiction and GSK Licensed Product-by-GSK Licensed
Product basis on the latest to occur of (i) loss of patent exclusivity, (ii) loss of regulatory exclusivity or (iii) ten years following the
date of the first commercial sale of such licensed product in such country (the “GSK Royalty Term”). During the GSK Royalty Term,
we have agreed not to develop, manufacture or commercialize any oral carbapenem for any indication or any oral antibiotic for cUTI;
this restriction does not apply to any third party which acquires control of us after the date of the GSK License Agreement if certain
conditions are met.
We have the right to terminate the GSK License Agreement upon a material breach by, or bankruptcy of, GSK. GSK has the
right to terminate the GSK License Agreement at any time upon a specified number of days’ notice or upon a material breach by, or
bankruptcy of, us. In addition, in the event that GSK has the right to terminate the GSK License Agreement due to a breach by us,
GSK may elect not to terminate the GSK License Agreement and in lieu thereof may assume the responsibility and expense of
development of tebipenem HBr in the United States, in which event GSK’s obligation to make further development payments to us
would cease, and/or to reduce all subsequent commercial and sales milestone payments and royalty payments otherwise due by GSK
to us under the GSK License Agreement by 50%.
The GSK License Agreement contains representations and warranties, other covenants, indemnification provisions and other
terms and conditions customary for transactions of the type contemplated by the GSK License Agreement. In support of certain of its
rights to indemnification, GSK also has certain rights to suspend payments otherwise owed to us, as well as the right to offset
payments otherwise owed to the Company against certain indemnifiable claims.
Meiji Agreements
To support our development of tebipenem HBr, in June 2017 we entered into an exclusive License Agreement with Meiji (the
“Meiji License”). Pursuant to the Meiji License, we obtained know-how, data and regulatory documents that have supported the
development of tebipenem HBr and which we believe will help support the regulatory approval of tebipenem HBr.
We and our collaboration partners, including GSK, retain exclusive rights to commercialize tebipenem HBr throughout the
world, except in Japan, Bangladesh, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,
South Korea, Taiwan, Thailand and Vietnam, where Meiji will have exclusive rights to commercialize tebipenem HBr. With Meiji, we
have established a joint development committee for the management of the development of tebipenem HBr, including any joint, cross-
territory studies that may be undertaken by the parties, if any. In addition, the parties have established a joint commercialization
committee to coordinate information sharing relative to the commercialization of tebipenem HBr.
Meiji and we have granted each other exclusive cross-licenses to our respective tebipenem intellectual property, including
know-how and regulatory documentation. The license granted to us by Meiji includes certain know-how that Meiji received from a
global pharmaceutical company, to which we refer as Global Pharma, as described below. As such, our rights to the Global Pharma
know-how component are non-exclusive.
Under the Meiji License, we have paid Meiji a one-time non-refundable upfront fee of $0.6 million, a $1.0 million milestone
payment to Meiji upon the enrollment of the first patient in our Phase 1 clinical trial of tebipenem HBr in October 2017 and a $1.0
million milestone payment upon submission of the NDA for tebipenem HBr in October 2021. We are obligated to pay Meiji future
clinical and regulatory milestone payments up to an aggregate of $1.0 million and royalties of a low single-digit percentage based on
net sales of tebipenem HBr. Additionally, we are obligated to pay Meiji a percentage of certain amounts received from any
sublicensees, up to an aggregate of $7.5 million, of which we paid $6.6 million in the fourth quarter of 2022. Upon receipt of the $30.0
million milestone payment from GSK, we accrued the remaining $0.9 million in the third quarter of 2023. We recorded these amounts
as research and development expenses in our consolidated statement of operations.
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Some of the know-how that we received under the Meiji License to support tebipenem HBr development was originally
obtained by Meiji through a license from Global Pharma, which we refer to as the head license. Prior to entering into the Meiji
License with us, Meiji received written approval from Global Pharma permitting Meiji to enter into the Meiji License with us.
Specifically, in a letter agreement between Global Pharma and Meiji entered into in January 2017, Global Pharma consented to Meiji
assisting us with the transfer or license of the Global Pharma know-how and Meiji know-how on a non-exclusive basis outside of
those Asian countries identified above, as well as certain related matters. This letter agreement did not contemplate us having any right
to sublicense the Global Pharma know-how. Prior to our entering into the GSK License Agreement, in February 2022, Meiji received
written approval from Global Pharma permitting Meiji to provide us the right to sublicense the Global Pharma know-how.
The Meiji License continues in effect until the expiration of all payment obligations thereunder (including royalty payments and
licensee revenue) on a product-by-product and country-by-country basis, unless earlier terminated by the parties. Pursuant to the terms
of the Meiji License, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured
within a specified period after receipt of notice) or insolvency, we also have unilateral termination rights (i) in the event that we
abandon the development and commercialization of tebipenem HBr for efficacy, safety, legal or business factors, and (ii) under certain
circumstances arising out of the head license with Global Pharma.
SPR206 Agreements
Cantab Agreements
In June 2016, we entered into a stock purchase agreement (the “Cantab Agreement”) with Pro Bono Bio PLC, a corporation
organized under the laws of England, and its affiliates, including PBB Distributions Limited (“PBB”), Cantab Anti-Infectives Ltd.
(“CAI”) and New Pharma License Holdings Limited (“NPLH”). This agreement allows us to acquire NPLH and its intellectual
property rights and assets relating to our polymyxin products, and our next-generation potentiating agents in particular. The
intellectual property portfolio we acquired includes patents that cover SPR206 as well as other novel potentiating agents, polymyxin
derivatives and other LPS or outer-membrane bacterial disrupting agents. In exchange for the acquisition of NPLH, we paid PBB
upfront consideration in the amount of $0.3 million and also agreed to make milestone payments of up to $5.8 million upon the
achievement of specified clinical and regulatory milestones and a payment of £5.0 million ($6.4 million as of December 31, 2023)
upon the achievement of a specified commercial milestone. We also agreed to pay royalties of a low single-digit percentage based on
net sales of products licensed under the agreement. In addition, Spero Cantab issued equity interest in Spero Cantab and entered into a
subscription agreement and stockholders agreement with PBB. In July 2017, we repurchased PBB’s minority equity interest in Spero
Cantab in exchange for a one-time non-refundable upfront fee of approximately $0.2 million and we also amended the Cantab
Agreement to increase the contingent milestone payments to PBB by an aggregate of $0.1 million. The Cantab Agreement continues
indefinitely, with royalty payment obligations thereunder continuing on a product-by-product and country-by-country basis until the
later of ten years after the first commercial sale of such product in such country or the expiration in such country of the last to expire
valid claim of any of the applicable patents.
Everest Medicines License Agreement
On January 4, 2019, we, through NPLH, entered into a license agreement (the “Original Everest License Agreement”) with
Everest, which Original Everest License Agreement also included an option granted by our wholly-owned subsidiary, Spero
Potentiator, Inc., a Delaware corporation. Under the terms of the Original Everest License Agreement, we granted Everest an
exclusive license to develop, manufacture and commercialize SPR206 or products that contain SPR206 (“Everest Licensed Products”)
in Greater China (which includes Mainland China, Hong Kong and Macau), South Korea and certain Southeast Asian countries,
collectively referred to as the “Everest Territory.” We retained development, manufacturing and commercialization rights with respect
to SPR206 and Everest Licensed Products in the rest of the world and also retained the right to develop or manufacture SPR206 and
Everest Licensed Products in the Everest Territory for use outside the Everest Territory. In addition to the license grant to SPR206, we
granted Everest a 12-month exclusive option to negotiate with us for an exclusive license to develop, manufacture and commercialize
SPR741 in the Everest Territory. For the reasons discussed above, following an evaluation of the potentiator product candidates, we
discontinued the development of SPR741, effective January 1, 2020, and decided to move forward with SPR206 as our lead
potentiator product candidate. In addition, on October 29, 2019, Everest notified us that it did not intend to exercise its option with
respect to SPR741 under the Original Everest License Agreement. Accordingly, effective January 1, 2020, we no longer have any
intellectual property rights with respect to SPR741 and we no longer have any obligations for the cost of maintaining such intellectual
property.
Under the terms of the Original Everest License Agreement, we received an upfront payment of $3.0 million. We also received
a milestone payment of $2.0 million in the fourth quarter of 2020 upon completion and delivery of the results of a clinical study.
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On January 15, 2021, we entered into an amended and restated license agreement (the “Amended Everest License Agreement”)
with Everest and Spero Potentiator, Inc., which amended and restated in its entirety the Original Everest License Agreement. The
Amended Everest License Agreement modifies the dates and values of certain milestone events related to development and
commercialization of SPR206. Everest will now be making more significant investments in the development of SPR206 beyond what
was contemplated at the time of the Original Everest License Agreement. The Original Everest License Agreement provided that we
could receive up to $59.5 million upon achievement of certain milestones. The Amended Everest License Agreement provides that we
may receive up to $38.0 million upon achievement of certain milestones, of which $2.0 million has been received to date. In addition,
under the Amended Everest License Agreement, we assigned patents in the Everest Territory to Everest, rather than licensing such
patents to Everest, and the option related to SPR741 and the related provisions have been removed. Under the terms of the Amended
Everest License Agreement, we are also entitled to receive high single-digit to low double-digit royalties on net sales, if any, of
Everest Licensed Products in the Everest Territory following regulatory approval of SPR206. Everest has the right to sublicense to
affiliates and third parties in the Everest Territory.
Everest is responsible for all costs related to developing, obtaining regulatory approval of and commercializing SPR206 and
Everest Licensed Products in the Everest Territory, and is obligated to use commercially reasonable efforts to develop, manufacture
and commercialize Everest Licensed Products, including to achieve certain specified diligence milestones within agreed-upon periods.
A joint development committee has been established between us and Everest to coordinate and review the development,
manufacturing and commercialization plans with respect to Everest Licensed Products in the Everest Territory.
Unless earlier terminated due to certain material breaches of the contract, or otherwise, the Amended Everest License
Agreement will expire on a jurisdiction-by-jurisdiction and Licensed Product-by-Licensed Product basis until the latest to occur of
expiration of the last valid claim under a licensed patent in such jurisdiction, the expiration of regulatory exclusivity in such
jurisdiction or ten years after the first commercial sale of such Licensed Product in such jurisdiction. The Amended Everest License
Agreement may be terminated in its entirety by Everest upon 90 or 180 days prior written notice, depending on the stage of
development of the initial Licensed Product.
Pfizer License and Share Purchase Agreements
On June 30, 2021, we entered into a License Agreement (the “Pfizer License Agreement”) and a Share Purchase Agreement (the
“Pfizer Purchase Agreement”) with Pfizer, Inc. (“Pfizer”). Under the terms of the Pfizer License Agreement, we granted Pfizer an
exclusive royalty-bearing license to develop, manufacture and commercialize SPR206 or products that contain SPR206 (the “Pfizer
Licensed Products”) globally with some territorial exceptions (the “Pfizer Territory”). The Pfizer Territory excludes the United States
and the Asian markets previously licensed to Everest in the Everest Territory.
Under the terms of the Pfizer Purchase Agreement, Pfizer purchased 2,362,348 shares of our common stock at a price of $16.93
per share for a total investment of $40.0 million. Under the terms of the Pfizer License Agreement, we received no other upfront
payments but are eligible to receive up to $80.0 million in development and sales milestones, and we may also receive high single-
digit to low double-digit royalties on net sales of SPR206 in the Pfizer Territory. Achievement of these payments cannot be
guaranteed. We and Pfizer agree that upon Pfizer’s request, the parties will negotiate in good faith regarding procuring a clinical or
commercial supply of the compound.
In September 2022, we received a $5.0 million payment from Pfizer in connection with the achievement of a regulatory
milestone specified in the Pfizer License Agreement.
We are responsible for all costs related to developing and obtaining regulatory approval of SPR206 and Pfizer Licensed
Products in the Pfizer Territory, with a focus on the European market, and are obligated to use commercially reasonable efforts,
including to achieve certain specified diligence milestones within agreed-upon periods. A joint development committee was
established between Pfizer and us to coordinate and review the development, manufacturing and commercialization plans with respect
to Pfizer Licensed Products in the Pfizer Territory. Pfizer is responsible for commercializing SPR206 and the Licensed Products in the
Pfizer Territory.
Unless earlier terminated due to certain material breaches of the contract or by Pfizer’s convenience, or otherwise, the Pfizer
License Agreement will expire on a jurisdiction-by-jurisdiction and licensed product-by-licensed product basis after ten years from the
effective date. The Pfizer License Agreement will automatically renew for an additional ten-year term unless terminated.
Government Awards
Through December 31, 2023, we have committed funding support of up to an aggregate of $70.2 million in non-dilutive funding
from BARDA and NIAID, and concluded awards from CARB-X, SBIR and the DoD, with the potential to receive a total of up to
$99.3 million (inclusive of amounts we have already received) if certain options are exercised. The awards are subject to termination
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for convenience at any time by the granting government agency, and the granting government agency is not obligated to provide
funding to us beyond the base period amounts from Congressionally approved annual appropriations. These awards are structured in
the following manner:
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BARDA award to support the further clinical development of tebipenem HBr. The BARDA award provides total
reimbursement to us of up to $60.3 million for qualified expenses for tebipenem HBr development. The award initially
committed funding of $15.7 million over a three-year base period from July 2018 to June 30, 2021 for cUTI
development activities. In May 2019, the contract was modified to include additional funding of approximately $2.5
million for tebipenem HBr, increasing the amount of initial committed funding from $15.7 million to approximately
$18.2 million. In January 2020, BARDA exercised its first option under the contract, committing $15.9 million for
tebipenem HBr. In December 2023, BARDA extended the period of performance for the first contract option through
December 31, 2025 and the contract was modified to include additional funding of $0.6 million for tebipenem HBr,
increasing the amount of the first contract option to $16.5 million. As of December 31, 2023 the committed funding for
the base period and first contract option under the BARDA award was $34.7 million.
There is a second option exercisable by BARDA for $12.7 million of funding, subject to the achievement of specified
milestones under the award agreement and program direction. In January 2022, BARDA added, and exercised, a third
option to the original award, increasing the total amount of committed funding by $12.9 million. In September 2022,
remaining funding from the $12.9 million option was reprogrammed into a fourth contract option to support clinical
trials for patients with cUTI, including AP. As of December 31, 2023 the total amount of committed funding under the
BARDA award was $47.6 million and the total potential contract value was $60.3 million.
The Defense Threat Reduction Agency (“DTRA”) may provide up to $10.0 million in addition to the total potential
$60.3 million from BARDA, to cover the cost of the nonclinical biodefense aspects of the collaboration program.
While such funding would be for the purpose of developing tebipenem HBr in these areas, we will not receive any
funds directly from DTRA.
NIAID funding for SPR206. A NIAID contract for SPR206 awarded in 2016 provided for total development funding
of up to $6.5 million over a base period and three option periods. To date, funding for the base period and the first two
option periods, totaled $5.9 million before the contract was closed out in June 2021.
In May 2021, a new NIAID contract was awarded for SPR206 providing total development funding of up to $23.4
million, of which $7.1 million has been committed. The award initially committed funding of $2.1 million over a two-
year base period from May 2021 to January 2023 for nonclinical, regulatory, and CMC activities. In December 2022,
NIAID extended period of performance for the base period until August 16, 2023. In December 2022, the contract was
modified to include additional funding of approximately $0.1 million, increasing the amount of base period committed
funding to $2.2 million. In October 2022, NIAID exercised its first option under the contract, committing $4.0 million
for SPR206 through April 2025. In June 2023, NIAID extended the period of performance for the base period until
January 16, 2024 and in August 2023, the contract was modified to include additional funding of approximately $0.1
million increasing the amount of base period committed funding to $2.3 million. In August 2023, NIAID exercised its
third option under the contract, committing $0.8 million for SPR206 through August 2024. In December 2023, the
period of performance for the base period was extended through September 16, 2024.
DoD funding for SPR206. In July 2019, we were awarded a $5.9 million award from the DoD Congressionally
Directed Medical Research Programs (“CDMRP”) Joint Warfighter Medical Research Program, which supported, over
a four-year period, the development of SPR206. The funding covered the costs of select Phase 1 pharmacology studies,
a 28-day GLP NHP toxicology study, and microbiological surveillance studies that would be required for a potential
NDA submission with the FDA for SPR206. As of December 31, 2023, all activities under this award were completed
and this award was closed out.
Intellectual Property
We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining
patents intended to cover our product candidates and compositions, their methods of use and processes for their manufacture and any
other inventions that are commercially important to the development of our business. We also rely on trade secrets to protect aspects
of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will significantly depend on our ability to obtain and maintain patent and other proprietary protection for
commercially important technology and inventions and know-how related to our business, defend and enforce our patents, preserve
the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third
parties. We also rely on the know-how and continuing technological innovation to develop and maintain our proprietary position.
Spero-Owned Intellectual Property Relating to Compounds Under Development
We have patent applications directed to the composition of matter, formulation and/or use of SPR720, tebipenem HBr and
SPR206 pending in the United States, Europe, Japan and other countries.
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NTM Pulmonary Disease Program (SPR720)
Our intellectual property portfolio for our DNA Gyrase Inhibitor program includes issued patents and a pending patent
application directed to composition of matter for SPR720, a prodrug of SPR719. The SPR719 and SPR720 patents include patents to
close analogs, novel solid forms, methods of manufacture for both compounds, and methods of treatment using SPR720 alone and in
combination with other antibiotic compounds. All patents and patent applications in the portfolio are wholly owned by us. As of
December 31, 2023, we owned 11 issued United States patents, 98 issued foreign patents, and one pending Patent Cooperation Treaty
(“PCT”) application. The issued foreign patents are in a number of jurisdictions including the European Union and its member states,
Argentina, Australia, Brazil, Canada, China, Hong Kong, Indonesia, Israel, India, Japan, South Korea, Mexico, New Zealand, the
Philippines, Russia, Singapore, South Africa, and Taiwan. Issued United States and foreign patents, and patents issuing from the
pending PCT application, will have statutory expiration dates of January 2032, June 2032, July 2033 and October 2042. Patent term
adjustments or patent term extensions could result in later expiration dates.
Tebipenem HBr Oral Carbapenem (Tebipenem Pivoxil Hydrobromide)
Our tebipenem HBr program contains one issued and three pending United States patent applications, and 34 issued and 36
pending foreign patent applications covering novel solid forms of tebipenem pivoxil hydrobromide and novel pharmaceutical
formulations of tebipenem pivoxil hydrobromide as of December 31, 2023, all wholly owned by us. The issued foreign patents are
issued in Australia, Brazil, Canada, the Eurasian Patent Office ("EAPO"), which includes Armenia, Azerbaijan, Belarus, Kazakhstan,
Kyrgyzstan, Russia, Tajikistan and Turkmenistan, Indonesia, Israel, Japan, Mexico, New Zealand, South Korea, and South Africa.
Foreign patent applications are pending in Australia, Brazil, Canada, China, Colombia, the European Patent Office, Egypt, Indonesia,
Israel, India, Japan, South Korea, Mexico, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. United States and foreign
patents covering our tebipenem pivoxil hydrobromide preparations will have statutory expiration dates of December 2037, February
2038, and November 2041. Patent term adjustments or patent term extensions could result in later expiration dates.
In January 2021, the USPTO issued U.S. Patent No, 10,889,587, which is directed to the crystalline formulation of tebipenem
HBr, our oral carbapenem in development for the treatment of cUTI and AP. This patent covers a crystalline form of tebipenem
pivoxil HBr, pharmaceutical compositions of tebipenem pivoxil HBr and methods of use. The patent expires in February 2038.
Next-Generation Potentiator Product (SPR206)
The intellectual property portfolio for our next-generation polymyxin program contains patent applications and issued patents
directed to a composition of matter for polymyxin-like compounds with different structural features, pharmaceutical compositions
comprising the same, and methods of use for these novel compounds and compositions. As of December 31, 2023, we owned two
United States patent and three pending United States patent applications, 64 foreign patents, and 26 pending foreign patent
applications in a number of jurisdictions including Argentina, Australia, Brazil, Canada, China, Colombia, the European Patent Office,
India, Israel, Japan, Mexico, New Zealand, the Philippines, Russia, Singapore, South Africa, Taiwan, Ukraine and Venezuela. Issued
United States or foreign patents and any patents issued from pending United States or foreign applications covering our next-
generation polymyxin program will have a statutory expiration date of May 2034, March 2035, November 2035 or June 2039. Patent
term adjustments or patent term extensions could result in later expiration dates.
In October 2022, the USPTO issued U.S. Patent No. 11,459,357, which covers the SPR206 composition of matter and
formulations thereof, as well as methods of treating a bacterial infection with SPR206. The patent is assigned to us and has a lifespan
extending into at least June 2039.
In 2019, we entered into an agreement with Everest, by which Everest would develop, manufacture, and commercialize SPR206
in China, South Korea, and certain Southeast Asian countries. Our agreement with Everest has since been amended to include an
obligation by us to assign its SPR206 patent rights to Everest in these countries and assignments to Everest have now been executed.
Patent Term and Patent Term Extensions
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most
countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application.
In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative
delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed
patent. The term of a patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval may
also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. The
length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The
Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension
cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable
to each regulatory review period may be granted an extension and only those claims reading on the approved drug are extended.
Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug.
Russian and Eurasian Patent Office and Ukrainian Patents
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Due to the war in Ukraine and sanctions between the United States and Russia, patents and patent applications in Russia, the
Eurasian Patent Office ("EAPO") and Ukraine currently have an uncertain fate. Further, the Kremlin has stated it will no longer
enforce patents held by businesses in “unfriendly” countries, in effect giving a royalty free license to all patents and patent
applications filed by United States entities in Russia. Until the conflict with Ukraine ends, our Russian and EAPO patents will not be
enforced.
Trade Secrets
We rely, in some circumstances, on trade secrets to protect our unpatented technology. However, trade secrets can be difficult to
protect. We seek to protect our trade secrets and proprietary technology and processes, in part, by confidentiality agreements with our
employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and
trade secrets by maintaining the physical security of our premises and the physical and electronic security of our information
technology systems. While we have confidence in these individuals, organizations, and systems, agreements or security measures may
be breached. We may not have adequate remedies for any breach and could lose our trade secrets through such a breach. In addition,
our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants,
contractors, or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related
or resulting trade secrets, know-how, and inventions.
Competition
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include
large pharmaceutical and biotechnology companies, specialty pharmaceutical companies, and generic drug companies. Many of our
potential competitors have greater financial, technical, and human resources than we do, as well as greater experience in the discovery
and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of
those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA approval of drugs and
achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the
market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are
targeting could render our product candidates non-competitive or obsolete.
We are developing SPR720 to be the first approved oral treatment for NTM pulmonary disease. There are currently no oral
agents approved to treat NTM pulmonary disease. Only one drug is approved to treat NTM infection that would potentially compete
with SPR720 called Arikayce from Insmed, an inhaled version of a commonly used drug in the hospital setting called amikacin. It
should be noted that combination therapy is recommended for treating this condition. There are also a number of late-stage product
candidates in clinical development by Paratek Pharmaceuticals, Inc., AN2 Therapeutics, Inc. and Insmed, Inc. that are intended to treat
refractory disease and first-line treatment of disease due to MAC or M. absesssus.
We believe the key competitive factors that will affect the development and commercial success of our partnered product
candidate, tebipenem HBr, if approved, will be efficacy, coverage of drug-resistant strains of bacteria, safety, and tolerability profile,
reliability, the convenience of oral dosing, price, availability of reimbursement from governmental and other third-party payers and
susceptibility to drug resistance.
We are developing tebipenem HBr as an oral antibiotic for use as a monotherapy for the treatment of resistant and MDR
infections. If approved, there are a variety of available oral therapies for the treatment of cUTIs that we expect would compete with
tebipenem HBr, such as levofloxacin, ciprofloxacin and trimethoprim/sulfamethoxazole and several antibiotics currently in clinical
development for cUTI. We also expect that tebipenem HBr, if approved, would compete with future and current generic versions of
marketed antibiotics. If approved, we believe that tebipenem HBr would compete effectively against these compounds on the basis of
tebipenem HBr’s potential:
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broad range of activity against a wide variety of resistant and MDR Gram-negative bacteria;
low probability of drug resistance;
a favorable safety and tolerability profile supported by years of post-marketing experience in Japan;
oral dosing regimen and opportunity to step-down from IV-administered therapy; and
as a monotherapy treatment for MDR Gram-negative infections.
We are also developing SPR206 as an innovative IV-administered agent for Gram-negative infections in the hospital. If
approved, SPR206 would compete with several IV-administered products marketed for the treatment of Gram-negative infections,
including ceftazidime-avibactam (Avycaz) from Allergan plc and Pfizer Inc., ceftolozane-tazobactam (Zerbaxa) from Merck & Co.,
plazomicin (Zemdri) from Cipla Therapeutics, Inc., eravacycline (Xerava) from Tetraphase Pharmaceuticals, Inc., meropenem-
vaborbactam (Vabomere) from Melinta Therapeutics, Inc, cefiderocol (Fetroja) from Shionogi & Co. Ltd., and imipenem-relebactam
(Recarbrio) from Merck & Co. Each of these products and product candidates employs a mechanism of action that differs from the
mechanism of action employed by SPR206.
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Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and in other countries, extensively regulate,
among other things, the research, development, clinical trials, testing, manufacture, including any manufacturing changes,
authorization, pharmacovigilance, adverse event reporting, recalls, packaging, storage, recordkeeping, labeling, advertising,
promotion, distribution, marketing, import and export of pharmaceutical products and product candidates such as those we are
developing. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent
compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
United States Government Regulation
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and implementing
regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local
statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable
United States requirements at any time during the product development process, approval process or after approval, may subject an
applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an
approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil and/or criminal
penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with GLPs and other
applicable regulations;
submission to the FDA of an IND which must become effective before human clinical trials may begin;
approval by an independent institutional review board (“IRB”) before each trial may be initiated;
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCPs”)
to establish the safety and efficacy of the proposed drug product for each indication;
submission to the FDA of an NDA and payment of user fees;
satisfactory completion of an FDA advisory committee review, if applicable;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the
product is produced to assess compliance with current good manufacturing practices (“cGMPs”) and to assure that the
facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;
satisfactory completion of audits of clinical trial sites conducted by FDA to assure compliance with GCPs and the
integrity of clinical data; and
FDA review and approval of the NDA.
Preclinical Studies
Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to
assess potential safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a product candidate
must be conducted in compliance with GLP regulations and the United States Department of Agriculture’s Animal Welfare Act. The
Consolidated Appropriations Act for 2023, signed into law on December 29, 2022, (P.L. 117-328), amended the FDCA to specify that
nonclinical testing for drugs may, but is not required to, include in vivo animal testing. According to the amended language, a sponsor
may fulfill nonclinical testing requirements by completing various in vitro assays (e.g., cell-based assays, organ chips, or
microphysiological systems), in silico studies (i.e., computer modeling), other human or non-human biology-based tests (e.g.,
bioprinting), or in vivo animal tests.
A drug sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any
available clinical data or literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even
after the IND is submitted and human clinical trials have begun. An IND automatically becomes effective 30 days after receipt by the
FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the
clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical
trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. A clinical hold may
occur at any time during the life of an IND and may affect one or more specific studies or all studies conducted under the IND.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified
investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed
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consent in writing for their participation in any clinical trial along with the requirement to ensure that the data and results reported
from the clinical trials are credible and accurate. Clinical trials are conducted under protocols detailing, among other things, the
objectives of the trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety,
the procedure for timely reporting of adverse events, and the effectiveness criteria to be evaluated. A protocol for each clinical trial
and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB must review and
approve the plan for any clinical trial before it commences at that institution.
Information about certain clinical trials and clinical trial results must be submitted within specific timeframes to the National
Institutes of Health (“NIH”) for public dissemination on the Clinicaltrials.gov registry. Failure to timely register a covered clinical
study or to submit study results as provided for in the law can give rise to civil monetary penalties and also prevent the non-compliant
party from receiving future grant funds from the federal government. The government has recently begun enforcing these registration
and results reporting requirements against non-compliant clinical trial sponsors.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested
for safety, dosage tolerance, ADME and, if possible, to gain an early indication of its effectiveness. During Phase 1 clinical trials,
sufficient information about the investigational drug’s PK and pharmacological effects may be obtained to permit the design of well-
controlled and scientifically valid Phase 2 clinical trials.
Phase 2: The drug is administered to a larger, but still limited patient population to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance and
optimal dosage. Phase 2 clinical trials are typically well-controlled and closely monitored.
Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in
well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to
establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. Phase 3
clinical trials usually involve a larger number of participants than a Phase 2 clinical trial.
Congress recently amended the FDCA to require sponsors of a Phase 3 clinical trial, or other “pivotal study” of a new drug to
support marketing authorization, and to design and submit a diversity action plan for such clinical trial. The action plan must include
the sponsor’s diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet them.
Sponsors must submit a diversity action plan to the FDA by the time the sponsor submits the relevant clinical trial protocol to the
agency for review. The FDA may grant a waiver for some or all of the requirements for a diversity action plan. It is unknown at this
time how the diversity action plan may affect Phase 3 trial planning and timing or what specific information the FDA will expect in
such plans, but if the FDA objects to a sponsor’s diversity action plan or otherwise requires significant changes to be made, it could
delay initiation of the relevant clinical trial.
Post-approval trials, sometimes referred to as “Phase 4” clinical trials, may be conducted after initial marketing approval. These
trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
FDA may mandate the performance of Phase 4 clinical trials.
Interactions with FDA During the Clinical Development Program
Following the clearance of an IND and the commencement of clinical trials, the sponsor will continue to have interactions with
the FDA. Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if
serious AEs occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected
suspected adverse reactions; findings from other studies or potentially animal studies to assess toxicity or in vitro testing that suggest a
significant risk in humans exposed to the product; and any clinically important increase in the occurrence of a serious suspected
adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be
completed successfully within any specified period, or at all. Results from one trial may not be predictive of results from subsequent
trials. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a
finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate
approval of a clinical trial if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been
associated with unexpected serious harm to patients.
In addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program.
Specifically, sponsors may meet with the FDA prior to the submission of an IND (pre-IND meeting), at the end of Phase 2 clinical
trial (EOP2 meeting) and before an NDA is submitted (pre-NDA meeting). Meetings at other times may also be requested. There are
six types of meetings that occur between sponsors and the FDA. Type A meetings are those that are necessary for an otherwise stalled
product development program to proceed or to address an important safety issue. Type B meetings include pre-IND and pre-NDA
meetings, as well as end of phase meetings such as EOP2 meetings. A Type C meeting is any meeting other than a Type A or Type B
meeting regarding the development and review of a product, including, for example, meetings to facilitate early consultations on the
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use of a biomarker as a new surrogate endpoint that has never been previously used as the primary basis for product approval in the
proposed context of use. Type D meetings are focused on a narrow set of issues that may be critical to move a program forward, while
so-called “INTERACT” meetings are intended for novel products and development programs that present unique challenges in early
development.
These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and
for the FDA to provide advice on the next phase of development. For example, at an EOP2, a sponsor may discuss its Phase 2 clinical
results and present its plans for the pivotal Phase 3 clinical trial(s) that it believes will support the approval of the new product. Such
meetings may be conducted in person face-to-face, virtual face-to-face (video conference), or written response only with minutes
reflecting the questions that the sponsor posed to the FDA and the agency’s responses. The FDA has indicated that its responses, as
conveyed in meeting minutes and advice letters, only constitute mere recommendations and/or advice made to a sponsor and, as such,
sponsors are not bound by such recommendations and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to
follow the FDA’s recommendations for design of a clinical program may put the program at significant risk of failure.
Acceptance of NDAs
Assuming successful completion of the required clinical testing, the results of the nonclinical studies and clinical trials, along
with information relating to the product’s chemistry, manufacturing, controls, safety updates, patent information, abuse information
and proposed labeling, are submitted to the FDA as part of an application requesting approval to market the product candidate for one
or more indications. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use
or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data
submitted must be sufficient in quality and quantity to establish the safety and efficacy of a drug product. The fee required for the
submission and review of an application under the Prescription Drug User Fee Act (the “PDUFA”), is substantial (for example, for
fiscal year 2024 this application fee is over $4.0 million), and the sponsor of an approved application is also subject to an annual
program fee, currently more than $416,000 per eligible prescription product. These fees are typically adjusted annually, and
exemptions and waivers may be available under certain circumstances, such as where a waiver is necessary to protect the public
health, where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first
human therapeutic application for review.
The application review process begins upon receipt of the application. The PDUFA time clock begins on the FDA receipt date
except for products submitted under “The Program” (i.e., new molecular entity (“NME”) NDAs and original biologics license
applications (“BLAs”)). For these applications, the PDUFA time clock begins 60 days after the application receipt date if the
application is filed; however, the review timeline for all applications begins on the day of submission. The FDA conducts a
preliminary review of all applications within 60 days of receipt and must inform the sponsor at that time or before whether an
application is sufficiently complete to permit substantive review. In pertinent part, the FDA’s regulations state that an application
“shall not be considered as filed until all pertinent information and data have been received” by the FDA. In the event that FDA
determines that an application does not satisfy this standard, it will issue a Refuse to File (“RTF”) determination to the applicant.
Typically, an RTF will be based on administrative incompleteness, such as clear omission of information or sections of required
information; scientific incompleteness, such as omission of critical data, information or analyses needed to evaluate safety and
efficacy or provide adequate directions for use; or inadequate content, presentation, or organization of information such that
substantive and meaningful review is precluded. The FDA may request additional information rather than accept an application for
filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to
review before the FDA accepts it for filing.
Review of NDAs
After the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. The FDA reviews
the application to determine, among other things, whether the proposed product is safe and effective for its intended use, whether it
has an acceptable purity profile and whether the product is being manufactured in accordance with cGMP.
Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months from the filing date in which to
complete its initial review of a standard application that is a NME, and six months from the filing date for an application with “priority
review”. The review process may be extended by the FDA for three additional months to consider new information or in the case of a
clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
Despite these review goals, it is not uncommon for FDA review of an application to extend beyond the PDUFA target action date.
In connection with its review of an application, the FDA will typically submit information requests to the applicant and set
deadlines for responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new
product to determine whether the manufacturing processes and facilities comply with cGMPs. The FDA will not approve the product
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unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to
assure consistent production of the product within required specifications.
The FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements
and the integrity of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party
contractors, an applicant may incur significant expenditure of time, money and effort in the areas of training, record keeping,
production and quality control. The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were
conducted under an IND. If a foreign clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in
support of an NDA if the study was conducted in accordance with GCPs and the FDA is able to validate the data through an on-site
inspection, if deemed necessary. Although the FDA generally requests that marketing applications be supported by some data from
domestic clinical trials, the FDA may accept foreign data as the sole basis for marketing approval if (1) the foreign data are applicable
to the United States population and United States medical practice, (2) the studies were performed by clinical investigators with
recognized competence, and (3) the data may be considered valid without the need for an on-site inspection or, if the FDA considers
the inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.
Additionally, the FDA may refer an application, including applications for novel product candidates which present difficult
questions of safety or efficacy, to an advisory committee for review, evaluation and recommendation as to whether the application
should be approved and under what conditions. Typically, an advisory committee is a panel of independent experts, including
clinicians and other scientific experts that reviews, evaluates and provides a recommendation as to whether the application should be
approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it considers such
recommendations when making final decisions on approval.
Data from clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than
the sponsor interprets the same data. The FDA may also re-analyze the clinical trial data, which could result in extensive discussions
between the FDA and the applicant during the review process or delay, limit or prevent regulatory approval. The FDA may not grant
approval on a timely basis, or at all.
The FDA also may require submission of a Risk Evaluation and Mitigation Strategy ("REMS") if it determines that a REMS is
necessary to ensure that the benefits of the product outweigh its risks and to assure the safe use of the product. The REMS could
include medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted
distribution methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as
the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the application must
submit a proposed REMS and the FDA will not approve the application without a REMS.
In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an
NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant
pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and
effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric
data until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements. Unless
otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
Decisions on NDAs
The FDA reviews an applicant to determine, among other things, whether the product is safe and whether it is effective for its
intended use(s), with the latter determination being made on the basis of substantial evidence. The term “substantial evidence” is
defined under the FDCA as “evidence consisting of adequate and well-controlled investigations, including clinical investigations, by
experts qualified by scientific training and experience to evaluate the effectiveness of the product involved, on the basis of which it
could fairly and responsibly be concluded by such experts that the product will have the effect it purports or is represented to have
under the conditions of use prescribed, recommended, or suggested in the labeling or proposed labeling thereof.”
The FDA has interpreted this evidentiary standard to require at least two adequate and well-controlled clinical investigations to
establish effectiveness of a new product. Under certain circumstances, however, the FDA has indicated that a single trial with certain
characteristics and additional information may satisfy this standard. This approach was subsequently endorsed by Congress in 1998
with legislation providing, in pertinent part, that “If [FDA] determines, based on relevant science, that data from one adequate and
well-controlled clinical investigation and confirmatory evidence (obtained prior to or after such investigation) are sufficient to
establish effectiveness, the FDA may consider such data and evidence to constitute substantial evidence.” This modification to the law
recognized the potential for the FDA to find that one adequate and well controlled clinical investigation with confirmatory evidence,
including supportive data outside of a controlled trial, is sufficient to establish effectiveness. In December 2019, the FDA issued draft
guidance further explaining the studies that are needed to establish substantial evidence of effectiveness. It has not yet finalized that
guidance. It subsequently issued a complementary draft guidance on demonstrating substantial evidence of effectiveness based on one
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adequate and well-controlled clinical investigation plus confirmatory evidence in September 2023. Together these two FDA guidance
documents provide additional information for industry on the flexibility in the amount and type of evidence needed to establish the
effectiveness of new drug products.
After evaluating the application and all related information, including the advisory committee recommendations, if any, and
inspection reports of manufacturing facilities and clinical trial sites, the FDA will issue either a CRL or an approval letter. To reach
this determination, the FDA must determine that the drug is effective and that its expected benefits outweigh its potential risks to
patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s safety and efficacy in the
NDA. This assessment is also informed by other factors, including: the severity of the underlying condition and how well patients’
medical needs are addressed by currently available therapies; uncertainty about how the premarket clinical trial evidence will
extrapolate to real-world use of the product in the post-market setting; and whether risk management tools are necessary to manage
specific risks. In connection with this assessment, the FDA review team will assemble all individual reviews and other documents into
an “action package,” which becomes the record for FDA review. The review team then issues a recommendation, and a senior FDA
official makes a decision.
A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present
form. A CRL generally outlines the deficiencies in the submission and may require substantial additional testing or information in
order for the FDA to reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase 3
clinical trial(s) and/or other significant and time- consuming requirements related to clinical trials, preclinical studies or
manufacturing. If a CRL is issued, the applicant will have one year to respond to the deficiencies identified by the FDA, at which time
the FDA can deem the application withdrawn or, in its discretion, grant the applicant an extension to respond and resubmit. The FDA
has committed to reviewing resubmissions in response to an issued CRL in either two or six months depending on the type of
information included. Even with the submission of this additional information, however, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval. The FDA has taken the position that a CRL is not final agency action
making the determination subject to judicial review.
An approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for
specific indications. That is, the approval will be limited to the conditions of use (e.g., patient population, indication) described in the
FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications,
warnings or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical trials, be
conducted to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after
commercialization or impose other conditions, including distribution and use restrictions or other risk management mechanisms under
a REMS which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further
marketing of a product based on the results of post-marketing trials or surveillance programs. After approval, some types of changes to
the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further
testing requirements and FDA review and approval.
Under the Ensuring Innovation Act, which was signed into law in April 2021, the FDA must publish action packages
summarizing its decisions to approve new drugs within 30 days of approval of such products. To date, CRLs are not publicly available
documents.
FDA Expedited Review Programs
The FDA is authorized to designate certain products for expedited development or review if they are intended to address an
unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs include fast track
designation, breakthrough therapy designation, QIDP designation, and priority review designation. The purpose of these programs is
to make important new drugs available to patients earlier than under standard FDA review procedures.
To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended
to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need, or if the
drug qualifies as a QIDP under the GAIN Act. The FDA will determine that a product will fill an unmet medical need if it will provide
a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety
factors. Fast track designation provides additional opportunities for interaction with the FDA’s review team and may allow for a
rolling review of NDA components before the completed application is submitted, if the sponsor provides a schedule for the
submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable,
and the sponsor pays any required user fees upon submission of the first section of the NDA. In addition, fast track designation may be
withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging in the clinical trial
process. Tebipenem HBr has been granted fast track designation by the FDA for the treatment of cUTI, including pyelonephritis,
caused by certain microorganisms in adult patients who have limited oral treatment options. In September 2020, SPR720 received fast
track designation for treatment of adult patients with NTM pulmonary disease.
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In addition, with the enactment of the FDA Safety and Innovation Act ("FDASIA") in 2012, Congress created a regulatory
program for therapeutic candidates designated by FDA as “breakthrough therapies” upon a request made by the IND sponsors. A
breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or
life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed
early in clinical development. The FDA must take certain actions with respect to breakthrough therapies, such as holding timely
meetings with and providing advice to the product sponsor, intended to expedite the development and review of an application for
approval of a breakthrough therapy.
FDASIA also included the Generating Antibiotics Incentives Now Act (the "GAIN Act") which directed the FDA to implement
the QIDP designation program. The GAIN Act created incentives for the development of antibacterial and antifungal drug products
for the treatment of serious or life-threatening infections. A therapeutic candidate designated as a QIDP is eligible for fast track
designation, and the first marketing application submitted for a specific drug product and indication for which QIDP designation was
granted will be granted priority review. A subsequent application from the same sponsor for the same product and indication will
receive priority review designation only if it otherwise meets the criteria for priority review. As discussed further below under
“Qualified Infectious Disease Product Exclusivity,” the GAIN Act also provides the possibility of a five-year exclusivity extension
that is added to any other marketing exclusivity for which a QIDP-designated drug qualifies upon FDA approval.
Finally, the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved,
would provide a significant improvement in safety or effectiveness. The FDA determines at the time that the marketing application is
submitted, on a case-by-case basis, whether the proposed drug represents a significant improvement in treatment, prevention or
diagnosis of disease when compared with other available therapies. Significant improvement may be illustrated by evidence of
increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction,
documented enhancement of patient compliance that may lead to improvement in serious outcomes, or evidence of safety and
effectiveness in a new subpopulation. A priority review designation is intended to direct overall attention and resources to the
evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six
months for an NDA for a NME from the date of filing.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the
conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track
designation, breakthrough therapy designation and priority review do not change the standards for approval and may not ultimately
expedite the development or approval process.
Accelerated Approval Pathway
In addition, a product studied for its safety and effectiveness in treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may receive accelerated approval, meaning that it may be approved on (i) the
basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is
reasonably likely to predict clinical benefit, or (ii) on an intermediate clinical endpoint that can be measured earlier than irreversible
morbidity or mortality ("IMM") and that is reasonably likely to predict an effect on IMM or other clinical benefits, taking into account
the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the
FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the
predicted effect on IMM or other clinical endpoints, and the drug may be subject to expedited withdrawal procedures. Drugs granted
accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional
post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a therapeutic candidate approved on
this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical
trials to confirm the effect on the clinical endpoint. In addition, Congress recently provided FDA additional statutory authority to
mitigate potential risks to patients from continued marketing of ineffective drugs previously granted accelerated approval. Under these
recent amendments to the FDCA, the agency may require a sponsor of a product granted accelerated approval to have a confirmatory
trial underway prior to approval. The sponsor must also submit progress reports on a confirmatory trial every six months until the trial
is complete, and such reports will be published on the FDA’s website. Failure to conduct required post-approval studies, or to confirm
the predicted clinical benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of the drug. All
promotional materials for drug products being considered and approved under the accelerated approval program are subject to prior
review by the FDA. Lawmakers, FDA officials, and other stakeholders have recently been evaluating the accelerated approval
program and have proposed potential reforms to improve certain aspects. Scrutiny of the accelerated approval pathway is likely to
continue and may lead to legislative and/or administrative changes in the future.
Special Protocol Assessment
A company may reach an agreement with FDA under the SPA process as to the required design and size of clinical trials
intended to form the primary basis of an efficacy claim. Under the FDCA and FDA guidance implementing the statutory requirement,
an SPA is generally binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue
essential to determining safety or efficacy after the clinical trial begins, public health concerns emerge that were unrecognized at the
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time of the protocol assessment, the sponsor and FDA agree to the change in writing, or if the clinical trial sponsor fails to follow the
protocol that was agreed upon with the FDA.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA,
including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution,
advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved
product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. Certain modifications
to the product, including changes in indications or manufacturing processes or facilities, may require the applicant to develop
additional data or conduct additional nonclinical studies and clinical trials to support the submission to FDA. There also are
continuing, annual user fee requirements for any marketed products, as well as new application fees for supplemental applications
with clinical data.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA
may require post-marketing testing, including, but not limited to, Phase 4 clinical trials, and surveillance to further assess and monitor
the product’s safety and effectiveness after commercialization.
In addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with
cGMPs. The cGMP regulations include requirements relating to the organization of personnel, buildings and facilities, equipment,
control of components and drug product containers and closures, production and process controls, packaging and labeling controls,
holding and distribution, laboratory controls, records and reports and returned or salvaged products. Drug manufacturers and other
entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and
some state agencies and are subject to periodic unannounced inspections by the FDA for compliance with cGMP requirements and
other laws. Changes to the manufacturing process are strictly regulated and, depending on the significance of the change, may require
prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from
cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers. Accordingly,
manufacturers must continue to expend time, money, and effort in production and quality control to maintain compliance with cGMP
and other aspects of quality control and quality assurance.
The FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. A
product cannot be commercially promoted before it is approved, and approved drugs may generally be promoted only for their
approved indications and for use in patient populations described in the product’s approved labeling. Promotional claims must also be
consistent with the product’s FDA-approved label, including claims related to safety and effectiveness. The government also closely
scrutinizes the promotion of prescription drugs in specific contexts such as direct-to-consumer advertising, industry-sponsored
scientific and educational activities, and promotional activities involving the Internet and social media. Although physicians may
prescribe legally available products for off-label uses, manufacturers may not market or promote such uses. After approval is granted,
the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur
after the product reaches the market.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or
frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to
the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or
imposition of distribution or other restrictions under a REMS program. Other potential consequences of regulatory non-compliance
include, among other things:
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restrictions on, or suspensions of, the marketing or manufacturing of the product, complete withdrawal of the product
from the market or product recalls;
interruption of production processes, including the shutdown of manufacturing facilities or production lines or the
imposition of new manufacturing requirements;
fines, warning letters or other enforcement letters or clinical holds on post-approval clinical trials;
mandated modification of promotional materials and labeling and the issuance of corrective information;
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of
product approvals;
product seizure or detention, or refusal to permit the import or export of products;
injunctions or the imposition of civil or criminal penalties; or
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consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act
("PDMA") which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the
registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription
pharmaceutical product samples and impose requirements to ensure accountability in distribution. More recently, the Drug Supply
Chain Security Act (the "DSCSA"), was enacted with the aim of building an electronic system to identify and trace certain
prescription drugs distributed in the United States. The DSCSA mandated phased-in and resource-intensive obligations for
pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year period that culminated in November 2023.
However, the FDA announced a one-year stabilization period, until November 2024, to give entities subject to the DSCSA additional
time to finalize interoperable tracking systems and to ensure supply chain continuity. From time to time, new legislation and
regulations may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and
marketing of products regulated by the FDA. For example, FDA released proposed regulations in February 2022 to amend the national
standards for licensing of wholesale drug distributors by the states; establish new minimum standards for state licensing third-party
logistics providers; and create a federal system for licensure for use in the absence of a State program, each of which is mandated by
the DSCSA. It is impossible to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance
or interpretations changed or what the impact of such changes, if any, may be.
Regulatory Exclusivity and Approval of Follow-on Products
Hatch-Waxman Exclusivity
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress enacted Section 505(b)(2) of the FDCA and
also established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same
active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a
generic drug, an applicant must submit an abbreviated new drug application ("ANDA") to the agency. An ANDA is a comprehensive
submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence,
drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process
validation data and quality control procedures. ANDAs are “abbreviated” because they cannot include preclinical and clinical data to
demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer must rely on the preclinical and
clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug
("RLD").
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with
respect to the active ingredients, the route of administration, the dosage form, the strength of the drug and the conditions of use of the
drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute,
a generic drug is bioequivalent to an RLD if “the rate and extent of absorption of the drug do not show a significant difference from
the rate and extent of absorption of the listed drug.”
Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its
publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians
and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of
certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in
substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.
In contrast, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes
from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. A Section
505(b)(2) applicant may eliminate the need to conduct certain preclinical or clinical studies if it can establish that reliance on studies
conducted for a previously-approved product is scientifically appropriate. Unlike the ANDA pathway used by developers of
bioequivalent versions of innovator drugs, which does not allow applicants to submit new clinical data other than bioavailability or
bioequivalence data, the 505(b)(2) regulatory pathway does not preclude the possibility that a follow-on applicant would need to
conduct additional clinical trials or nonclinical studies; for example, it may be seeking approval to market a previously approved drug
for new indications or for a new patient population that would require new clinical data to demonstrate safety or effectiveness.
As part of the NDA review and approval process, applicants are required to list with the FDA each patent that has claims that
cover the applicant’s product or method of therapeutic use. Upon approval of a new drug, each of the patents listed in the application
for the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential follow-on
competitors in support of approval of an ANDA or 505(b)(2) NDA.
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When an ANDA applicant submits its application to the FDA, it is required to certify to the FDA concerning any patents listed
for the reference product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information
has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and
approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. Moreover, to
the extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant
also is required to certify to the FDA concerning any patents listed for the NDA-approved product in the Orange Book to the same
extent that an ANDA applicant would.
If the follow-on applicant does not challenge the innovator’s listed patents, the FDA will not approve the ANDA or 505(b)(2)
application until all the listed patents claiming the referenced product have expired. A certification that the new product will not
infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the
follow-on applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV
certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders
may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the
ANDA or 505(b)(2) NDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the
infringement case that is favorable to the follow-on applicant.
An ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivities listed in the Orange
Book for the referenced product have expired. The Hatch-Waxman Amendments to the FDCA provided a five-year period of non-
patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity ("NCE").
For the purposes of this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in
any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug
substance. In cases where such NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until
the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may
submit its application four years following the original product approval.
The FDCA also provides for a period of three years of data exclusivity if an NDA or NDA supplement includes reports of one
or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted or sponsored by the
applicant are deemed by the FDA to be essential to the approval of the application. This three-year exclusivity period often protects
changes to a previously approved drug product, such as new indications, dosage forms, route of administration or combination of
ingredients. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided
the statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year
exclusivity does not block the FDA from accepting ANDAs or 505(b)(2) NDAs seeking approval for follow-on versions of the drug as
of the date of approval of the original drug product; rather, this three-year exclusivity covers only the conditions of use associated with
the new clinical investigations and, as a general matter, does not prohibit the FDA from approving follow-on applications for drugs
containing the original active ingredient.
Five-year and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section
505(b)(1) of the FDCA; however, an applicant submitting a traditional NDA would be required to conduct or obtain a right of
reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and
effectiveness. For drug products that contain an “antibiotic” ingredient approved prior to 1997, the statute imposes certain limitations
on the award of non-patent exclusivity. However, we do not believe these limitations would apply to tebipenem HBr or any of our
other investigational antibiotics currently in preclinical and clinical development.
Qualified Infectious Disease Product Exclusivity
Under the GAIN Act, the FDA may designate a qualified product as a QIDP. In order to qualify for designation as a QIDP, the
drug product candidate must be an antibiotic or antifungal drug for human use intended to treat serious or life-threatening infections,
including those caused by either (i) an antibiotic or antifungal resistant pathogen, including novel or emerging infectious pathogens, or
(ii) a so-called “qualifying pathogen” found on a list of potentially dangerous, drug-resistant organisms to be established and
maintained by the FDA. We obtained a QIDP designation for the oral formulation of tebipenem HBr for cUTI in November 2016 and
for CABP and DFI in April 2017. We were granted QIDP designation by the FDA for SPR206 in October 2018 for the treatment of
cUTI and hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP). In February 2019, we
were granted QIDP designation for SPR720 capsule for oral use for the treatment of lung infections caused by nontuberculous
mycobacteria and for the treatment of lung infections caused byMy cobacterium TB.
In addition to the expedited review benefits for which a QIDP-designated drug candidate may be eligible, such a drug that is
approved for the use for which the QIDP designation was granted will receive a five-year extension to any non-patent marketing
exclusivity period for which the drug qualified upon approval, such as five-year NCE exclusivity, three-year new clinical data
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exclusivity, seven-year orphan exclusivity, or six-month pediatric exclusivity. This so-called GAIN exclusivity extension is not
available to a QIDP-designated drug that has previously received the five-year extension period, such as when an applicant is seeking
approval for a new indication or new strength of an FDA-approved and commercially marketed drug.
Orphan Drug Designation and Exclusivity
In March 2020, the FDA granted orphan drug designation for SPR720 for the treatment of NTM infection. Under the Orphan
Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a
disease or condition that affects either (i) fewer than 200,000 individuals in the United States, or (ii) more than 200,000 individuals in
the United States and for which there is no reasonable expectation that the cost of developing and making available in the United
States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Legislative proposals
are currently being considered that would revise or revoke the second option available for a drug candidate to receive an orphan
designation, the so-called “cost recovery” pathway. Orphan drug designation must be requested before submitting an NDA. After the
FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the
FDA; the posting will also indicate whether a drug is no longer designated as an orphan drug.
More than one product candidate may receive an orphan drug designation for the same indication, and the same product
candidate can be designated for more than one qualified orphan indication. The benefits of orphan drug designation include research
and development tax credits and exemption from FDA prescription drug user fees. Orphan drug designation does not convey any
advantage in or shorten the duration of the regulatory review and approval process if or when an NDA for the drug candidate is filed.
If a product that has orphan drug designation subsequently receives the first FDA approval for the indication for which it has
such designation, the product is entitled to orphan product exclusivity, which means that for seven years, the FDA may not approve
any other marketing applications for the same drug for the same indication, except under limited circumstances described further
below. Orphan exclusivity does not block the approval of a different drug for the same rare disease or condition, nor does it block the
approval of the same drug for different conditions. As a result, even if one of our product candidates receives orphan drug exclusivity,
the FDA can still approve different drugs for use in treating the same indication or disease, which could create a more competitive
market for our drug products, if approved for marketing in the future. Additionally, if a drug designated as an orphan product receives
marketing approval for an indication broader than what was designated, it may not be entitled to orphan drug exclusivity. Recent court
cases have challenged FDA’s approach to determining the scope of orphan drug exclusivity; however, at this time the agency
continues to apply its long-standing interpretation of the governing regulations and has stated that it does not plan to change any
orphan drug implementing regulations. Congress may also act to amend the law in this area at some point in the future.
Orphan exclusivity will not bar approval of another product with the same drug for the same condition under certain
circumstances, including if a subsequent product with the same drug for the same condition is shown to be clinically superior to the
approved product on the basis of greater efficacy or safety or a major contribution to patient care, or if the company with orphan drug
exclusivity cannot assure the availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition
for which the drug was designated. The FDA is now required to publish a summary of the clinical superiority findings when a drug is
eligible for orphan product exclusivity on the basis of a demonstration of clinical superiority.
In addition, the FDA has finalized guidance indicating that it does not expect to grant any additional orphan drug designation to
products for pediatric subpopulations of common diseases. Nevertheless, FDA intends to still grant orphan drug designation to a drug
that otherwise meets all other criteria for designation when it prevents, diagnoses or treats either (i) a rare disease that includes a rare
pediatric subpopulation, (ii) a pediatric subpopulation that constitutes a valid orphan subset, or (iii) a rare disease that is, in fact, a
different disease in the pediatric population as compared to the adult population.
Pediatric Exclusivity
Pediatric exclusivity is another type of non-patent marketing exclusivity available in the United States and, if granted, it
provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity or
listed patents. Under the Best Pharmaceuticals for Children Act ("BPCA"), certain therapeutic candidates may obtain an additional six
months of exclusivity if the sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to
the use of the active moiety of the product candidate in children. The data do not need to show the product to be effective in the
pediatric population studied; rather, the additional protection is granted if the pediatric clinical trial is deemed to have fairly responded
to the FDA’s Written Request. Although the FDA may issue a Written Request for studies on either approved or unapproved
indications, it may only do so where it determines that information relating to that use of a product candidate in a pediatric population,
or part of the pediatric population, may produce health benefits in that population. The issuance of a Written Request does not require
the sponsor to undertake the described trials. This is not a patent term extension, but it effectively extends the regulatory period during
which the FDA cannot approve another application.
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Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by
the comparable regulatory authorities of foreign countries or economic areas, such as the European Union ("EU") and Australia,
before we may commence clinical trials or market products in those countries or areas. The approval process and requirements
governing the conduct of clinical trials, product authorization, pricing and reimbursement vary greatly from place to place, and the
time may be longer or shorter than that required for FDA approval.
Before clinical trials may be conducted in any EU Member State, a sponsor must submit a clinical trial authorization application
(“CTA”), which must be approved in each country in which the sponsor intends to perform a clinical trial. The procedure for
submitting a CTA was set forth in an existing EU Clinical Trial Directive. However, the way clinical trials are conducted in the EU
underwent a major change when the Clinical Trial Regulation became effective, which occurred on January 31, 2022. The Regulation
harmonizes the assessment and supervision processes for clinical trials throughout the EU, via an EU portal and database. Under the
EU Clinical Trials Regulation, a harmonized assessment and supervision processes was implemented as of January 31, 2022 for
clinical trials throughout the EU, via a Clinical Trials Information System (“CTIS”). The CTIS contains the centralized EU portal and
database for clinical trials conducted in the EU and will allow for a centralized review process. This harmonized submission process
became mandatory for new CTA submissions as of February 1, 2023. For ongoing clinical trials, if a clinical trial continues for more
than three years from the day on which the Clinical Trials Regulation became applicable, the Clinical Trials Regulation will at that
time begin to apply to the clinical trial.
The goal of Clinical Trial Regulation is to create an environment that is favorable to conducting clinical trials in the EU, with
the highest standards of safety for participants and increased transparency of trial information. The Regulation will require consistent
rules for conducting clinical trials throughout the EU and information on the authorization, conduct and results of each clinical trial
carried out in the EU to be publicly available.
The United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”), with a transitional
period that expired on December 31, 2020. The United Kingdom and the European Union entered into a trade agreement known as the
Trade and Cooperation Agreement, which went into effect on January 1, 2021. We will continue to evaluate the potential impacts on
our business of the Trade and Cooperation Agreement and guidance issued to date by the United Kingdom’s Medicines and
Healthcare products Regulatory Agency (“MHRA”) regarding the requirements for licensing and marketing medicinal products and
drugs in the United Kingdom. Since the regulatory framework in the United Kingdom covering the quality, safety and efficacy of
pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of medicinal products is derived
from EU Directives and Regulations, Brexit could materially impact the future regulatory regime which applies to products and the
approval of product candidates in the United Kingdom. More recently, in March 2023, the UK government and the European
Commission reached agreement on a regulatory framework to replace the Northern Ireland Protocol, referred to as the Windsor
Framework. The Windsor Framework is expected to apply as of January 1, 2025 and will change the existing system under the
Northern Ireland Protocol, including the regulation of pharmaceutical products in the UK. Specifically, the MHRA will be responsible
for approving all medicines intended to be marketed in the UK (i.e., Great Britain and Northern Ireland), while the EMA will no
longer be involved in approving medicines intended for sale in Northern Ireland.
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Under EU regulatory systems, a company may submit marketing authorization applications either under a centralized or
decentralized procedure. The centralized procedure is compulsory for medicinal products produced by biotechnology or those
medicinal products containing new active substances for specific indications such as the treatment of AIDS, cancer, neurodegenerative
disorders, diabetes, viral diseases and designated orphan medicines, and optional for other medicines which are highly innovative.
Under the centralized procedure, a marketing application is submitted to the EMA where it will be evaluated by the Committee for
Medicinal Products for Human Use and a favorable opinion typically results in the grant by the European Commission of a single
marketing authorization that is valid for all EU Member States within 67 days of receipt of the opinion. The initial marketing
authorization is valid for five years, but once renewed is usually valid for an unlimited period. The decentralized procedure provides
for approval by one or more “concerned” member states based on an assessment of an application performed by one member state,
known as the “reference” member state. Under the decentralized approval procedure, an applicant submits an application, or dossier,
and related materials to the reference member state and concerned member states. The reference member state prepares a draft
assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the
reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and
related materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the
European Commission, whose decision is binding on all member states.
In April 2023, the European Commission issued a proposal that will revise and replace the existing general pharmaceutical
legislation. If adopted and implemented as currently proposed, these revisions will significantly change several aspects of drug
development and approval in the European Union.
Pharmaceutical Coverage, Pricing and Reimbursement
Sales of our products, if approved for marketing, will depend, in part, on the availability and extent of coverage and
reimbursement by third-party payors, such as government health programs, including Medicare and Medicaid, commercial insurance
and managed healthcare organizations. These third-party payors are increasingly challenging the price and limiting the coverage and
reimbursement amounts for medical products and services. There may be significant delays in obtaining coverage and reimbursement
for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or
regulatory authorities in other countries. It is time-consuming and expensive to seek reimbursement from third-party payors.
Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs,
including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be
sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the
clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed and may be
incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates
required by third-party payors and by any future relaxation of laws that presently restrict imports of products from countries where
they may be sold at lower prices than in the United States. In the United States, third-party payors often rely upon Medicare coverage
policy and payment limitations in setting their own reimbursement policies, but they also have their own methods and approval
process apart from Medicare coverage and reimbursement determinations. Accordingly, one third-party payor’s determination to
provide coverage for a product does not assure that other payors will also provide coverage for the product.
In addition, the containment of healthcare costs has become a priority for federal and state governments, and the prices of drugs
have been a focus in this effort. The United States government, state legislatures and foreign governments have shown significant
interest in implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and
requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in
third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could
reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial
condition. Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation
designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Individual states in
the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost
disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk
purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to
regulate pharmacy benefit managers ("PBMs") and other members of the health care and pharmaceutical supply chain, an important
decision that has led to more aggressive efforts by states in this area. The Federal Trade Commission in mid-2022 also launched
sweeping investigations into the practices of the PBM industry that could lead to additional federal and state legislative or regulatory
proposals targeting such entities’ operations, pharmacy networks, or financial arrangements. During the current congressional session,
numerous PBM reforms are being considered in both the Senate and the House of Representatives; they include diverse legislative
proposals such as eliminating rebates; divorcing service fees from the price of a drug, discount, or rebate; prohibiting spread pricing;
limiting administrative fees; requiring PBMs to report formulary placement rationale; promoting transparency. Significant efforts to
change the PBM industry as it currently exists in the United States may affect the entire pharmaceutical supply chain and the business
of other stakeholders, including pharmaceutical product developers like us.
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In the United States, the federal government provides health insurance for people who are 65 years or older, and certain people
with disabilities or certain conditions irrespective of their age, through the Medicare program, which is administered by the Centers
for Medicare & Medicaid Services ("CMS"). Coverage and reimbursement for products and services under Medicare are determined
in accordance with the Social Security Act and pursuant to regulations promulgated by CMS, as well as the agency’s coverage and
reimbursement guidance and determinations. Drugs and other products that are utilized within the hospital in-patient setting are
typically reimbursed under a prospective payment system, or a predetermined payment amount that is based on diagnosis-related
groups ("DRGs") for Medicare patients and under a bundled payment for commercially insured patients. These payment amounts
differ by type of diagnoses, procedures performed and the severity of the patient’s condition, among other things. A drug that is used
in a treatment or procedure under a specific DRG or bundled payment is generally not eligible for any separate payment. For
catastrophic cases where costs greatly exceed the bundled payment amount, the hospital may be eligible for an outlier payment that is
intended to cover part of the expense above the standard payment.
Medicaid is a health insurance program for low-income children, families, pregnant women, and people with disabilities that is
jointly funded by the federal and state governments but administered by the states. In general, state Medicaid programs are required to
cover drugs of manufacturers that have entered into a Medicaid Drug Rebate Agreement, although such drugs may be subject to prior
authorization or other utilization controls.
The United States Congress and state legislatures from time to time propose and adopt initiatives aimed at cost containment,
which could impact our ability to sell our products profitably. For example, the federal Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of 2010, known collectively as the ACA, among other things, contains
provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs,
an extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and
annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of general controls and
measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments
for pharmaceutical drugs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect
a national rebate agreement with the Secretary of the Department of Health and Human Services ("DHHS") as a condition for states to
receive federal matching funds for manufacturers’ outpatient drugs furnished to Medicaid patients. The ACA also expanded the
universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid
managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. As another example, the
2021 Consolidated Appropriations Act signed into law on December 27, 2020, incorporated extensive healthcare provisions and
amendments to existing laws, including a requirement that all manufacturers of drug products covered under Medicare Part B report
the product’s average sales price ("ASP") to DHHS beginning on January 1, 2022, subject to enforcement via civil money penalties.
The American Rescue Plan Act of 2021 also included a provision that eliminated the statutory cap on rebates that drug manufacturers
pay to Medicaid. Beginning in January 2024, Medicaid rebates are no longer be capped at 100 percent of the quarterly average
manufacturer price (“AMP”).
In August 2022, President Biden signed into the law the Inflation Reduction Act of 2022 (“IRA”). Among other things, the IRA
has multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout the
United States. Starting in 2023, a manufacturer of drugs or biological products covered by Medicare Parts B or D must pay a rebate to
the federal government if their drug product’s price increases faster than the rate of inflation. This calculation is made on a drug
product by drug product basis and the amount of the rebate owed to the federal government is directly dependent on the volume of a
drug product that is paid for by Medicare Parts B or D. Additionally, starting for payment year 2026, CMS will negotiate drug prices
annually for a select number of single source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug
prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is
expected that the revenue generated from such drug will decrease. CMS has begun to implement these new authorities and entered
into the first set of agreements with pharmaceutical manufacturers to conduct price negotiations in October 2023. However, the IRA’s
impact on the pharmaceutical industry in the United States remains uncertain, in part because multiple large pharmaceutical
companies and other stakeholders (e.g., the U.S. Chamber of Commerce) have initiated federal lawsuits against CMS arguing the
program is unconstitutional for a variety of reasons, among other complaints. Those lawsuits are currently ongoing.
We expect that federal, state and local governments in the United States will continue to consider legislation directed at
lowering the total cost of health care. Individual states in the United States have increasingly passed legislation and implemented
regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. For example, in recent years, several states have formed prescription
drug affordability boards (“PDABs”). Much like the IRA’s drug price negotiation program, these PDABs have attempted to
implement upper payment limits on drugs sold in their respective states in both public and commercial health plans. For example, in
August 2023, Colorado’s PDAB announced a list of five prescription drugs that would undergo an affordability review. The effects of
these efforts remain uncertain pending the outcomes of several federal lawsuits challenging state authority to regulate prescription
drug payment limits.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For example, in the EU, the sole legal instrument at the
EU level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC (the "Price Transparency
Directive"). The aim of this Directive is to ensure that pricing and reimbursement mechanisms established in the EU Member States
are transparent and objective, do not hinder the free movement of and trade in medicinal products in the EU, and do not hinder,
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prevent or distort competition on the market. The Price Transparency Directive does not provide any guidance concerning the specific
criteria on the basis of which pricing and reimbursement decisions are to be made in the individual EU Member States, nor does it
have any direct consequence for pricing or reimbursement levels in the individual EU Member States. The EU Member States are free
to restrict the range of medicinal products for which their national health insurance systems provide reimbursement, and to control the
prices and/or reimbursement levels of medicinal products for human use. An EU Member State may approve a specific price or level
of reimbursement for the medicinal product, or alternatively adopt a system of direct or indirect controls on the profitability of the
company responsible for placing the medicinal product on the market, including volume-based arrangements, caps and reference
pricing mechanisms.
Health Technology Assessment ("HTA") of medicinal products is becoming an increasingly common part of the pricing and
reimbursement procedures in some EU Member States, including France, Germany, Ireland, Italy and Sweden. The HTA process in
the EU Member States is governed by the national laws of these countries. HTA is the procedure according to which the assessment of
the public health impact, therapeutic impact, and the economic and societal impact of the use of a given medicinal product in the
national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness,
safety, cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system.
Those elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA
regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by
the competent authorities of individual EU Member States. The extent to which pricing and reimbursement decisions are influenced
by the HTA of the specific medicinal product vary between the EU Member States. A negative HTA of one of our products by a
leading and recognized HTA body could not only undermine our ability to obtain reimbursement for such product in the EU Member
State in which such negative assessment was issued, but also in the other EU Member States. For example, EU Member States that
have not yet developed HTA mechanisms could rely to some extent on the HTA performed in countries with a developed HTA
framework when adopting decisions concerning the pricing and reimbursement of a specific medicinal product.
Other Healthcare Laws
Our current and future business operations are subject to healthcare regulation and enforcement by the federal government
and the state and foreign governments where we research, and, if approved, market, sell and distribute our therapeutic candidates.
These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, physician
sunshine and drug pricing transparency laws and regulations such as:
•
•
•
•
The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering,
soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for
an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal
healthcare programs such as the Medicare and Medicaid programs. The federal Anti-Kickback Statute is subject to
evolving interpretations. In the past, the government has enforced the federal Anti-Kickback Statute to reach large
settlements with healthcare companies based on sham consulting and other financial arrangements with physicians. A
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation. In addition, the government may assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False
Claims Act;
The federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalty laws,
prohibit, among other things, knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim
for payment to the U.S. government, knowingly making, using, or causing to be made or used a false record or
statement material to a false or fraudulent claim to the U.S. government, or from knowingly making a false statement to
avoid, decrease or conceal an obligation to pay money to the U.S. government. Actions under these laws may be
brought by the Attorney General or as a qui tam action by a private individual in the name of the government. The
federal government uses these laws, and the accompanying threat of significant liability, in its investigation and
prosecution of pharmaceutical and biotechnology companies throughout the U.S., for example, in connection with the
promotion of products for unapproved uses and other allegedly unlawful sales and marketing practices;
The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") created new federal, civil and
criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a
scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully
embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare
offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially
false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or
services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the
statute or specific intent to violate it in order to have committed a violation;
The Physician Payments Sunshine Act, enacted as part of the ACA, among other things, imposes reporting
requirements on manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare
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or Medicaid to report, on an annual basis, to CMS information related to payments and other transfers of value to
physicians (defined to include doctors, dentists, optometrists, podiatrists, chiropractors and certain advanced non-
physician health care practitioners) and teaching hospitals, as well as ownership and investment interests held by
physicians and their immediate family members;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and
their respective implementing regulations impose specified requirements relating to the privacy and security of
individually identifiable health information that is protected under HIPAA, called “protected health information” or
“PHI”. HIPAA, as amended by HITECH, also requires notification to affected individuals and to federal regulators in
the event of a breach of unsecured protected health information. HIPAA applies to “covered entities” or health care
providers engaging in certain electronic standard transactions, such as electronic billing; health plans and healthcare
clearinghouses. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to
“business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or
transmit protected health information in connection with providing a service for or on behalf of a covered entity.
HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business
associates and third parties who acquire PHI unlawfully, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated
with pursuing federal civil actions;
State and federal consumer protection laws, including the Federal Trade Commission Act, govern the collection, use,
disclosure and protection of health and other personal information and could apply to our operations and the operations
of our collaborators; and
Analogous state laws and regulations, such as state anti-kickback and false claims laws which may apply to sales or
marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party
payors, including private insurers; state laws which require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the
federal government in addition to requiring drug and therapeutic biologics manufacturers to report information related
to payments to physicians and other healthcare providers or marketing expenditures and pricing information; state and
local laws which require the registration of pharmaceutical sales representatives; and state laws and non-United States
laws and regulations that govern the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways, thus complicating compliance efforts.
Healthcare Reform
Healthcare Trends Affecting Pharmaceutical Pricing, Reimbursement and Access
In the United States and some foreign jurisdictions, there have been, and continue to be, legislative and regulatory policy
proposals focused on controlling pharmaceutical pricing. Key issues include:
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Proposals to alter to how Medicare Part B and Part D drugs are priced and roles of the CMS in controlling growth rates,
coverage, and access;
Proposals related to the Medicare drug benefit and the role and application of manufacturer and pharmacy rebates;
Proposals to disclosure proprietary information related to price setting, price increases and associated manufacturing and
marketing expenses;
Proposals to reduce patent and non-patent exclusivity periods; and
State-level policy regarding pricing, access and rebates.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory
changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates,
restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates that obtain marketing approval.
The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our current or future product candidates.
Antimicrobial Policy
Efforts to respond to the growth of antimicrobial resistance ("AMR") have taken various forms, from non-dilutive financing
of discovery, research, and development to proposals to reward innovation and enhance reimbursement. Several pending efforts in the
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U.S. Congress include the: Pioneering Antimicrobial Subscriptions to End Upsurging Resistance ("PASTEUR") Act that would direct
large federal payments for critical need antimicrobials and the Developing an Innovative Strategy for Antimicrobial Resistant
Microorganisms (DISARM) Act that would provide for separate market-rate payments for antimicrobials used in hospital settings; as
well as additional funding streams provided in pandemic response efforts linked to the coronavirus. AMR remains a focus of the many
policymakers internationally as well, including efforts in the United Kingdom to discover new antibacterial and a recent G7 Finance
Ministers statement supporting new product development.
Manufacturing
We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to
develop our own manufacturing operations in the foreseeable future. We currently rely on a limited number of third-party contract
manufacturers for all of our required raw materials, drug substance, and finished drug product for our preclinical research and clinical
trials. We currently employ internal resources to manage our manufacturing. We currently have two suppliers for tebipenem HBr’s
active pharmaceutical ingredient. Each supplier would be capable of producing kilogram quantities for commercial scale and would be
able to produce over 10kg of an active pharmaceutical ingredient under cGMP conditions.
Human Capital
As of December 31, 2023, we had 46 employees, including a total of 12 employees with M.D. or Ph.D. degrees. Of these
employees, 30 employees were primarily engaged in research and development activities, and 16 provide administrative, business and
operations support. All of these employees were based in the United States. None of our employees are represented by labor unions or
covered by collective bargaining agreements. We consider our employee relations to be good.
We hire and maintain an experienced, committed, diverse, inclusive and highly motivated workforce. Effective attraction,
development, and retention of human resource talent, or human capital, is vital to the success of our mission-driven growth strategy.
We face a competitive market for qualified individuals from numerous pharmaceutical and biotechnology companies, universities,
governmental entities and other research institutions, and we believe that our future success will depend in large part on our continued
ability to attract and retain highly skilled employees. To attract qualified applicants to our company and retain our employees, we offer
a competitive rewards package consisting of base salary and cash target bonus, a comprehensive benefits package and equity
compensation.
We want our employees to learn, grow and look for ways to help develop skills through industry, company and functional
training, as well as mentoring opportunities. We offer a robust set of career-enhancing learning experiences and initiatives to all
employees, aligned with our mission, vision, and values.
Our Corporate Information
We were formed as Spero Therapeutics, LLC in December 2013 under the laws of the State of Delaware. On June 30, 2017,
through a series of transactions, Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc. (formerly known as Spero
OpCo, Inc.), a Delaware corporation. Our principal executive offices are located at 675 Massachusetts Avenue, Cambridge,
Massachusetts 02139, and our telephone number is (857) 242-1600. Our website address is www.sperotherapeutics.com.
Available Information
Financial and other information about us is available on our website. We make available on our website, free of charge, copies
of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the United States Securities and Exchange Commission (the "SEC"). The information contained in
our website is not intended to be a part of this filing.
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Item 1A. Risk Factors.
Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual
Report on Form 10-K, including the section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and related notes, and in other documents
that we file with the SEC, in evaluating our company and our business. Investing in our securities involves a high degree of risk. If any
of the events described in the following risk factors and the risks described elsewhere in this Annual Report on Form 10-K actually
occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected,
and the trading price of our securities could decline. Our actual results could differ materially from those anticipated in the forward-
looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K.
Risks Related to Product Development and Commercialization
Our ability to realize the value of tebipenem HBr depends on us obtaining FDA approval. Even if such approval is obtained, the
timeline of, and any requirements imposed as of part of, such approval may impact the attractiveness of eventual
commercialization of tebipenem HBr through our partnership with GSK.
We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in
the development of tebipenem HBr as a product candidate for the treatment of bacterial infections causing cUTI. Our ability to realize
the value of tebipenem HBr depends on the potential FDA approval, and the expected timeline and other requirements that would
affect the attractiveness of eventual commercialization of tebipenem HBr through our partnership with GSK. Further, as part of any
approval, the FDA could impose labeling requirements restricting the use of tebipenem HBr, which could reduce its commercial
prospects, unless such requirements are subsequently modified to reduce such restrictions. If any of these outcomes occur, our
business could be materially harmed.
If our clinical trials fail to produce favorable results, we may incur additional costs or experience delays in completing, or
ultimately be unable to complete, the development and commercialization of such product candidates.
We may not commercialize, market, promote or sell any product candidate in the United States without obtaining marketing
approval from the FDA or in other countries without obtaining approvals from comparable foreign regulatory authorities, such as the
EMA, and we may never receive such approvals. We must complete extensive preclinical development and clinical trials to
demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals. Clinical
testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.
The clinical development of any of our product candidates is susceptible to the risk of failure inherent at any stage of drug
development, including failure to demonstrate efficacy in a trial or across a broad population of patients, the occurrence of severe
adverse events, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any
comparable foreign regulatory authority that a drug product is not approvable. A number of companies in the pharmaceutical industry,
including biotechnology companies, have suffered significant setbacks in clinical trials, even after promising results in earlier
nonclinical studies or clinical trials. The results of preclinical and other nonclinical studies and/or early clinical trials of our product
candidates may not be predictive of the results of later-stage clinical trials. Notwithstanding any promising results in early nonclinical
studies or clinical trials, we cannot be certain that we will not face similar setbacks.
In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that
believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain
marketing approval for the product candidates. Even if we believe that the results of our clinical trials warrant marketing approval, the
FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same
product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type
of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial
participants, among others. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not
be detected during clinical evaluation as a result of one of the factors listed or otherwise. Conversely, as a result of the same factors,
our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any.
Similarly, in our clinical trials, we may fail to detect toxicity of or intolerability of our product candidates or may determine that our
product candidates are toxic or not well tolerated when that is not in fact the case. In the case of our clinical trials, results may differ
on the basis of the type of bacteria with which patients are infected. We cannot make assurances that any clinical trials that we may
conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.
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We may encounter unforeseen events prior to, during, or as a result of, clinical trials that could delay or prevent us from
obtaining regulatory approval for any of our product candidates, including:
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the FDA or other comparable foreign regulatory authorities may disagree as to the design or implementation of our
clinical trials;
we may be delayed in or fail to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the
terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
clinical trials of our product candidates may produce unfavorable or inconclusive results;
we may decide, or regulators may cause us, to conduct additional clinical trials or abandon product development
programs;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate,
enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at
a higher rate than we anticipate or we may fail to recruit suitable patients to participate in clinical trials;
our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our
behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner,
or at all;
the FDA or institutional review boards may not authorize us or our investigators to commence a clinical trial or
conduct a clinical trial at a prospective trial site;
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical trials of
our product candidates for various reasons, including noncompliance with regulatory requirements or a finding that the
participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics
of the product candidate;
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of
third-party manufacturers with which we enter into agreements for clinical and commercial supplies;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product
candidates may be insufficient or inadequate; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change
in a manner rendering our clinical data insufficient for approval.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards (“IRBs”)
responsible for overseeing such trials, by the Data Safety Monitoring Board (“DSMB”) if any, for such trial or by the FDA or other
regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to
conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations
or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse
side effects, failure to demonstrate a benefit from using a drug or changes in governmental regulations or administrative actions.
If we are required to conduct additional clinical trials or other testing of any of our product candidates beyond the trials and
testing that we contemplate, if we are unable to successfully complete clinical trials or other testing of our product candidates, if the
results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with any of our
product candidates, we may:
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incur additional unplanned costs;
be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings,
including boxed warnings;
be subject to additional post-marketing testing or other requirements; or
be required to remove the product from the market after obtaining marketing approval.
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Our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and
safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business. Our
product candidate development costs will also increase if we experience delays in testing or marketing approvals and we may be
required to obtain additional funds to complete clinical trials. We cannot make assurances that our clinical trials will begin as planned
or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial
delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow
our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates,
which may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays of clinical trials
may ultimately lead to the denial of regulatory approval of any of our product candidates.
If we experience delays or difficulties in the enrollment of patients in clinical trials, clinical development activities could be delayed
or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a
sufficient number of patients who remain in the study until its conclusion. We may not be able to initiate, continue or complete clinical
trials of our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical
trials as required by the FDA or comparable foreign regulatory authorities, such as the EMA. Patient enrollment is a significant factor
in the timing of clinical trials, and is affected by many factors, including:
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the size and nature of the target patient population;
the severity of the disease under investigation;
the proximity of patients to clinical sites;
the patient eligibility criteria for participation in the clinical trial;
the design of the clinical trial;
our ability to recruit clinical trial investigators with appropriate competencies and experience;
competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product
candidate being studied in relation to other available therapies, including any new drugs that may be approved for the
indications that we are investigating;
our ability to obtain and maintain patient consents; and
the risk that participants enrolled in clinical trials will drop out of the trials before completion.
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us
to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for
our product candidates, slow down or halt our product candidate development and approval process and jeopardize our ability to seek
and obtain the marketing approval required to commence product sales and generate revenue, which would cause the value of our
company to decline and limit our ability to obtain additional financing if needed.
Congress also recently amended the FDCA to require sponsors of a Phase 3 clinical trial, or other “pivotal study” of a new drug
to support marketing authorization, to design and submit a diversity action plan for such clinical trial. The action plan must describe
appropriate diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet them. In
the future, we will be required to submit a diversity action plan to the FDA by the time we submit a Phase 3 trial, or pivotal study,
protocol to the agency for review, unless we are able to obtain a waiver for some or all of the requirements for a diversity action plan.
It is unknown at this time how the diversity action plan may affect the planning and timing of any future Phase 3 trial for our product
candidates or what specific information FDA will expect in such plans. However, initiation of such trials may be delayed if the FDA
objects to our proposed diversity action plans for any future Phase 3 trial for our product candidates, and we may experience
difficulties recruiting a diverse population of patients in attempting to fulfill the requirements of any approved diversity action plan.
Analyses of preliminary or interim data from our clinical studies that we announce or publish from time to time may change as
more patient data become available and are subject to audit and verification procedures that could result in material changes in
the final data.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Clinical
failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any
future collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. We will be
required to demonstrate through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse
population before we can seek marketing approvals for their commercial sale. Success in preclinical studies and early-stage clinical
trials does not mean that future larger registration clinical trials will be successful. This is because product candidates in later-stage
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clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory
authorities despite having progressed through preclinical studies and early-stage clinical trials.
Analyses of preliminary or interim data from our clinical studies are not necessarily predictive of analyses of final data.
Analyses of preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change, as
more patient data become available and we issue our final clinical study report. Preliminary or interim data also remain subject to
audit and verification procedures that may result in the final data being materially different from the preliminary data we previously
published. As a result, analyses of interim and preliminary data should be viewed with caution until the analyses of final data are
available. Adverse differences between preliminary or interim data and final data could affect our planned clinical path for any of our
product candidates we advance into clinical trials, including potentially increasing cost and/or causing delay in such development.
In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same
product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations,
differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants.
We therefore do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety
sufficient to obtain marketing approval to market our product candidates.
Serious adverse events or undesirable side effects or other unexpected properties of any of our product candidates may be
identified during development or after approval that could delay, prevent or cause the withdrawal of regulatory approval, limit the
commercial potential, or result in significant negative consequences following marketing approval.
Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could
cause us, an IRB, or regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label, the
imposition of distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory
authorities. If any of our other product candidates are associated with serious or unexpected adverse events or undesirable side effects,
the FDA, the IRBs responsible for overseeing our studies, or a DSMB, could suspend or terminate our clinical trials or the FDA or
comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or
all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to
complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition
and prospects significantly.
If unexpected adverse events occur in any of our ongoing or planned clinical trials, we may need to abandon development of our
product candidates, or limit development to lower doses or to certain uses or subpopulations in which the undesirable side effects or
other unfavorable characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds
that initially showed promise in clinical or earlier stage testing are later found to cause undesirable or unexpected side effects that
prevented further development of the compound.
Undesirable side effects or other unexpected adverse events or properties of any of our other product candidates could arise or
become known either during clinical development or, if approved, after the approved product has been marketed. If such an event
occurs during development, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities
could order us to cease further development of, or could deny approval of our product candidates. If such an event occurs after such
product candidates are approved, a number of potentially significant negative consequences may result, including:
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regulatory authorities may withdraw or limit their approval of such product;
we may decide to or be required to recall a product or change the way such product is administered to patients;
regulatory authorities may require additional warnings on the label, such as a “black box” warning or a
contraindication, or impose use restrictions;
regulatory authorities may require one or more post-market studies to monitor the safety and efficacy of the product;
we may be required to implement a REMS, which may include the creation of a medication guide outlining the risks of
such side effects for distribution to patients or restrictions on distribution;
we could be sued and held liable for harm caused to patients exposed to or taking our product candidates;
our product may become less competitive; and
our reputation may suffer.
We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product
candidate, if approved, or could substantially increase commercialization costs and expenses, which could delay or prevent us from
generating revenue from the sale of our products and harm our business and results of operations.
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Even if a product candidate does obtain regulatory approval, it may never achieve the market acceptance by physicians, patients,
hospitals, third-party payors and others in the medical community that is necessary for commercial success and the market
opportunity may be smaller than we estimate.
Even if we obtain FDA or other regulatory approvals and are able to launch any of our product candidates commercially, the
approved product candidate may nonetheless fail to gain sufficient market acceptance among physicians, patients, hospitals (including
pharmacy directors) and third-party payors and, ultimately, may not be commercially successful. For example, physicians are often
reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter
the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their
physicians recommend switching products or they are required to switch therapies due to lack of coverage and reimbursement for
existing therapies. If an approved product candidate does not achieve an adequate level of acceptance, we may not generate significant
product revenues or any profits from operations. The degree of market acceptance of any product candidate for which we receive
approval depends on a number of factors, including:
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the efficacy and safety of the product candidate as demonstrated in clinical trials;
relative convenience and ease of administration;
the clinical indications for which the product candidate is approved;
the potential and perceived advantages and disadvantages of the product candidates, including cost and clinical benefit
relative to alternative treatments;
the willingness of physicians to prescribe the product and of the target patient population to try new therapies;
the willingness of hospital pharmacy directors to purchase the product for their formularies;
acceptance by physicians, patients, operators of hospitals and treatment facilities and parties responsible for coverage
and reimbursement of the product;
the availability of coverage and adequate reimbursement by third-party payors and government authorities;
the effectiveness of our sales and marketing efforts;
the strength of marketing and distribution support;
limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling or an
approved REMS;
whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-
line therapy for particular infections;
the approval of other new products for the same indications;
the timing of market introduction of the approved product as well as competitive products;
adverse publicity about the product or favorable publicity about competitive products;
the emergence of bacterial resistance to the product; and
the rate at which resistance to other drugs in the target infections grows.
Any failure of any of our product candidates that obtains regulatory approval to achieve market acceptance or commercial
success would adversely affect our business prospects.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product
candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific
indications that we identify as most likely to succeed, in terms of both their potential for marketing approval and commercialization.
As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to
have greater commercial potential.
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future research and development programs and product candidates for specific indications
may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market
for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other
royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and
commercialization rights to the product candidate.
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If we or our collaborators are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and
distribution agreements with third parties, we may not be successful in commercializing any of our product candidates if such
product candidates are approved.
To achieve commercial success for any approved product, we must either develop a sales and marketing organization or
outsource those functions to third parties. The development of sales, marketing and distribution capabilities will require substantial
resources, will be time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we
recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have
prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment would be lost if we
cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire a sales force in the United States
that is sufficient in size or has adequate expertise in the medical markets that we intend to target. If we or our collaborators are unable
to establish a sales force and marketing and distribution capabilities, our operating results may be adversely affected.
Factors that may inhibit our efforts to commercialize our products on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future
products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage
relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
We intend to use collaborators to assist with the commercialization of any of our product candidates, including the GSK License
Agreement for the development and commercialization of tebipenem HBr. As a result of entering into arrangements with third parties
to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us would
likely be lower than if we were to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering
into the necessary arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we likely
would have little control over such third parties, and any of them might fail to devote the necessary resources and attention to sell and
market our products effectively.
If we or our collaborators do not establish sales and marketing capabilities successfully, either on our own or in collaboration
with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if
we fail to compete effectively.
The development and commercialization of new drug products is highly competitive. We face competition from major
pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to our product
candidates that we may seek to develop and commercialize in the future. There are a number of large pharmaceutical and
biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the
treatment of resistant infections. Potential competitors also include academic institutions, government agencies and other public and
private research organizations. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that
are more effective or less costly than the product candidates that we are currently developing or that we may develop, which could
render our product candidates obsolete and noncompetitive.
There are a variety of available oral therapies marketed for the treatment of cUTIs that we would expect would compete with
tebipenem HBr, if approved, such as Levaquin, Cipro and Bactrim. Many of the available therapies are well established and widely
accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic
products, for example in the fluoroquinolone class. However, the susceptibility of urinary tract pathogens to the existing treatment
alternatives is waning. If tebipenem HBr is approved, the pricing may be at a significant premium over other competitive products.
This may make it difficult for tebipenem HBr to compete with these products.
There are also a number of oral product candidates in clinical development by third parties that are intended to treat cUTIs. One
such product candidate is ceftibuten/clavulanate ("C-Scape") from Cipla Therapeutics, Inc. If our competitors obtain marketing
approval from the FDA or comparable foreign regulatory authorities for their product candidates more rapidly than us, it could result
in our competitors establishing a strong market position before we are able to enter the market.
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There are several IV-administered products marketed for the treatment of infections resistant to first-line therapy for Gram-
negative infections, including ceftazidime-avibactam ("Avycaz") from Allergan plc and Pfizer Inc., ceftolozane-tazobactam
("Zerbaxa") from Merck & Co., imipenem/cilastatin and relebactam ("Recarbrio") from Merck & Co., plazomicin ("Zemdri") from
Cipla Therapeutics, Inc., cefiderocol ("Fetroja") from Shionogi & Co. Ltd., eravacycline ("Xerava") from Tetraphase Pharmaceuticals,
Inc. and meropenem-vaborbactam ("Vabomere") from Melinta Therapeutics, Inc.
Many of our competitors have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we
do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated
among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established companies. These third parties compete with us in
recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for
clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Even if we or our partners are able to commercialize any of our product candidates, the product may become subject to
unfavorable pricing regulations, or third-party payor coverage and reimbursement policies that could harm our business.
Marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Some
countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins
after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject
to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a
product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for
lengthy time periods, which may negatively affect the revenues that we are able to generate from the sale of the product in that
country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our
product candidates obtain marketing approval.
We currently expect that some of our product candidates, if approved, will be administered in a hospital inpatient setting. In the
United States, governmental and other third-party payors generally reimburse hospitals a single bundled payment established on a
prospective basis intended to cover all items and services provided to the patient during a single hospitalization. Hospitals bill third-
party payors for all or a portion of the fees associated with the patient’s hospitalization and bill patients for any deductibles or co-
payments. Because there is typically no separate reimbursement for drugs administered in a hospital inpatient setting, some of our
target customers may be unwilling to adopt our product candidates in light of the additional associated cost. If we are forced to lower
the price we charge for our product candidates, if approved, our gross margins may decrease, which would adversely affect our ability
to invest in and grow our business.
To the extent any of our product candidates we develop are used in an outpatient setting, the commercial success of our product
candidates will depend substantially, both domestically and abroad, on the extent to which coverage and reimbursement for these
products and related treatments are available from government health programs and third-party payors. If coverage is not available, or
reimbursement is limited, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the
approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient
return on our investments. Government authorities and third-party payors, such as health insurers and managed care organizations,
publish formularies that identify the medications they will cover and the related payment levels. The healthcare industry is focused on
cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control
costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our
product candidates profitably.
Increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies
and are challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we
commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for outpatient drug
products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries
where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates
from both government-funded and private payors for any approved products used on an outpatient basis that we develop could have a
material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial
condition.
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We cannot predict whether bacteria may develop resistance to our product candidates, if approved, which could affect their
revenue potential.
Certain of our product candidates are designed to treat bacterial infections, including drug-resistant infections. The bacteria
responsible for these infections evolve quickly and readily transfer their resistance mechanisms within and between species. We
cannot predict whether or when bacterial resistance to any of such product candidates may develop.
For example, as a carbapenem, tebipenem HBr is not active against organisms expressing a resistance mechanism mediated by
enzymes known as carbapenemases. Although occurrence of this resistance mechanism is currently rare, we cannot predict whether
carbapenemase-mediated resistance will become widespread in regions where we tebipenem HBr may be marketed if it is approved.
The growth of drug resistant infections in community settings or in countries with poor public health infrastructures, or the potential
use of any of our product candidates outside of controlled hospital settings, could contribute to the rise of resistance. If resistance to
any of our product candidates becomes prevalent, our ability to generate revenue from such product candidates could suffer.
If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our
business and achieve our strategic objectives would be impaired.
Although a substantial amount of our efforts will focus on our ongoing and planned clinical trials and potential approval of our
product candidates, SPR720, tebipenem HBr and SPR206, a key element of our strategy is to discover, develop and commercialize a
portfolio of therapeutics to treat drug resistant bacterial infections. We are seeking to do so through our internal research programs and
are exploring, and intend to explore in the future, strategic partnerships for the development of new product candidates.
Research programs to identify product candidates require substantial technical, financial and human resources, whether or not
any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product
candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:
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the research methodology used may not be successful in identifying potential product candidates;
we may be unable to successfully modify candidate compounds to be active in Gram-negative bacteria or defeat
bacterial resistance mechanisms or identify viable product candidates in our screening campaigns;
competitors may develop alternatives that render our product candidates obsolete;
product candidates that we develop may nevertheless be covered by third parties’ patents or other exclusive rights;
a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it
is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;
a product candidate may not be accepted as safe and effective by patients, the medical community or third-party
payors; and
the development of bacterial resistance to potential product candidates may render them ineffective against target
infections.
If we are unsuccessful in identifying and developing additional product candidates, our potential for growth may be impaired.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization
of any products that we may develop.
We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates despite obtaining
appropriate informed consents from our clinical trial participants. We will face an even greater risk if we obtain marketing approval
for and commercially sell any of our product candidates. For example, we may be sued if any product that we develop allegedly
causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the
product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we
cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit
commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
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reduced resources for our management to pursue our business strategy;
decreased demand for our product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
initiation of investigations by regulators;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
significant costs to defend resulting litigation;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any products that we may develop.
Although we maintain general liability insurance and clinical trial liability insurance, this insurance may not fully cover
potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor,
could be substantial. We will need to increase our insurance coverage if and when we receive marketing approval for and begin selling
any of our product candidates. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or
maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could
prevent or inhibit the development and commercial production and sale of our product candidates, which could adversely affect our
business, financial condition, results of operations and prospects.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could have a material adverse effect on our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory
procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the
future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and
may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we
cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury
resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our
resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such
laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses that we may incur due to injuries to our
employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential
liabilities. Moreover, we do not currently maintain insurance for environmental liability or toxic tort claims that may be asserted
against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and
regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which
could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these
laws and regulations may result in substantial fines, penalties or other sanctions.
Our internal computer systems, or those of our contract research organizations or other contractors or consultants, may fail or
suffer cybersecurity incidents, which could result in a material disruption of our product development programs, and could subject
us to liability.
We utilize information technology systems and networks to process, transmit and store electronic information in connection
with our business activities. As the use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts
to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a
risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. There can be no
assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects.
Despite the implementation of security measures, our internal computer systems and those of our contract research organizations
and other contractors and consultants are vulnerable to damage or disruption from hacking, computer viruses, malware, including
ransomware, software bugs, unauthorized access, natural disasters, terrorism, war, and telecommunication, equipment and electrical
failures. We have measures in place that are designed to prevent, and if necessary, to detect and respond to such cybersecurity
incidents and breaches of privacy and security mandates. Our measures to prevent, respond to, and minimize such risks may be
unsuccessful. While we have not, to our knowledge, experienced any significant system failure, accident or material cybersecurity
incident to date, if such an event were to occur and cause interruptions in our operations or the operations of those third parties with
which we contract, it could result in a material disruption of our programs and our business operations, as well as our financial
condition. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our product candidates could
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result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. Such a loss could also expose us to regulatory enforcement, civil liability and reputational damage. To the extent that any
disruption or cybersecurity incident results in a loss of or damage to our data or applications, or inappropriate disclosure or theft of
confidential or proprietary information, in addition to incurring liability, the further development of our product candidates could be
delayed or our competitive position could be compromised. Additionally such disruptions or cybersecurity incidents could result in
enforcement actions by United States or foreign regulatory authorities, regulatory penalties, and other legal liabilities such as but not
limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business
operations and collaborations, diversion of management efforts and damage to our reputation, all of which could harm our business
and operations.
Our actual or perceived failure to comply with data protection laws and regulations could lead to government enforcement actions,
private litigation and/or adverse publicity and could negatively affect our business.
We are subject to domestic and international data protection laws and regulations that address privacy and data security and
may affect our collection, use, storage, and transfer of personal information. The legislative and regulatory landscape for data
protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues with the
potential to affect our business. In the United States, numerous federal and state laws and regulations, including state data breach
notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use,
disclosure and protection of health-related and other personal information. Failure to comply with data protection laws and
regulations, where applicable, could result in government enforcement actions, which could include civil or criminal penalties, private
litigation and/or adverse publicity and could negatively affect our operating results and business. For example, California has enacted
the California Consumer Privacy Act (“CCPA”), which went into effect in January of 2020. The CCPA gives California residents
expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and
receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as
well as a private right of action for data breaches that may increase data breach litigation. Although the CCPA includes exemptions for
certain clinical trials data, and HIPAA protected health information, the law may increase our compliance costs and potential liability
with respect to other personal information we collect about California residents. Additionally in 2020, California voters passed the
California Privacy Rights Act (“CPRA”), which went into full effect on January 1, 2023. The CPRA significantly amends the CCPA,
potentially resulting in further uncertainty, additional costs and expenses in an effort to comply and additional potential for harm and
liability for failure to comply. Among other things, the CPRA established a new regulatory authority, the California Privacy Protection
Agency, which is tasked with enacting new regulations under the CPRA and will have expanded enforcement authority. In addition to
California, more U.S. states are enacting similar legislation, increasing compliance complexity and increasing risks of failures to
comply. In 2023, comprehensive privacy laws in Virginia, Colorado, Connecticut, and Utah all took effect, and laws in Montana,
Oregon, and Texas will take effect in 2024. In addition, laws in other U.S. states are set to take effect beyond 2024, and additional
U.S. states have proposals under consideration, all of which are likely to increase our regulatory compliance costs and risks, exposure
to regulatory enforcement action and other liabilities.
Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal
information as well. For example, the European Parliament and the Council of the European Union adopted a comprehensive general
data privacy framework called the General Data Protection Regulation ("GDPR") , which took effect in May 2018 and governs the
collection and use of personal data in the European Union, including by companies outside of the European Union. The GDPR, which
is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the
information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of
third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of
personal data out of the European Union to the United States, enhances enforcement authority and imposes large penalties for
noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever
is greater.
The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with
supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.
Compliance with the GDPR has been and will continue to be a rigorous and time-intensive process that has increased and will
continue to increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk
that we or our collaborators may be subject to fines and penalties, litigation and reputational harm in connection with any European
activities, which could adversely affect our business, prospects, financial condition and results of operations.
Applicable data privacy and data protection laws may conflict with each other, and by complying with the laws or regulations
of one jurisdiction, we may find that we are violating the laws or regulations of another jurisdiction. Despite our efforts, we may not
have fully complied in the past and may not in the future. That could require us to incur significant expenses, which could
significantly affect our business. Failure to comply with data protection laws may expose us to risk of enforcement actions taken by
data protection authorities or other regulatory agencies, private rights of action in some jurisdictions, and potential significant
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penalties if we are found to be non-compliant. Furthermore, the number of government investigations related to data security
incidents and privacy violations continue to increase and government investigations typically require significant resources and
generate negative publicity, which could harm our business and reputation.
We or third parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our
business, financial condition and results of operations could be adversely affected.
Natural disasters could severely disrupt our operations and have a material adverse effect on our business operations. If a natural
disaster, health epidemic or other events beyond our control occurred that prevented us from using all or a significant portion of our
office, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that
otherwise disrupted operations, it may be difficult for us to continue our business for a substantial period of time.
Risks Related to Our Financial Position and Need for Additional Capital
We have not generated any revenue from the sale of our products, have a history of losses and expect to incur substantial future
losses; if we are unable to obtain additional capital, we may not be able to continue our operations on the scope or scale as
currently conducted, and that could have a material adverse effect on our business, results of operations and financial condition.
We have not generated any revenue from the sale of our products and have incurred losses in each year since our inception in
2013 through 2022. Our net income was $22.8 million during the year ended December 31, 2023. All of our product candidates are in
development, none have been approved for sale and we may never have a product candidate approved for commercialization.
In accordance with ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
(Subtopic 205-40), we are required to evaluate whether there are conditions and events, considered in the aggregate, that raise
substantial doubt about our ability to continue as a going concern from the issuance date of our financial statements. We believe that
our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least
12 months from the issuance of the financial statements included in this report. Based on our cash and cash equivalents as of
December 31, 2023, we believe that our cash runway will be sufficient to fund us into late 2025. Beyond this point we will need
additional funding, which primarily consist of raising additional capital through some combination of equity or debt financings,
potential new collaborations or partnerships, additional grant funding and/or reducing cash expenditures. If we are not able to secure
adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or eliminate
some or all of our planned clinical trials, research stage programs and commercial activities.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future; if we are
unable to achieve commercialization, revenue from product sales, and, ultimately, profitability, the market value of our common
stock will likely decline.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue to
advance our product candidates through preclinical and clinical development and marketing approval for such candidates whose
clinical trials are successful. Our expenses will also increase substantially if and as we:
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conduct additional clinical trials and studies of our product candidates;
continue to discover and develop additional product candidates;
establish manufacturing and supply chain capacity sufficient to provide commercial quantities of any product
candidates for which we may obtain marketing approval;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, scientific and commercial personnel;
add operational, financial and management information systems and personnel, including personnel to support our
product development and planned future commercialization efforts, face competing technological and market
developments; and
acquire or in-license other product candidates and technologies.
If our product candidates fail to demonstrate safety and efficacy in clinical trials, do not gain regulatory approval, or do not
achieve market acceptance following regulatory approval and commercialization, we may never become profitable. Even if we
achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with
expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. If we are
unable to achieve and sustain profitability, the market value of our common stock will likely decline.
Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to
predict the extent of any future losses or when, if ever, we will become profitable. Our expenses could increase if we are required by
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the FDA, or any comparable foreign regulatory authority to perform studies in addition to those currently expected, or if there are any
delays in completing our clinical trials or the development of any of our product candidates.
We expect that we will need substantial additional funding. If we are unable to raise capital when needed, or do not receive
payment under our government awards, we could be forced to delay, reduce or eliminate our product development programs.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive
and uncertain process that takes years to complete. We expect that our expenses will continue to increase as we commence and
advance our ongoing and planned clinical trials and other studies of SPR720, tebipenem HBr and SPR206. If we obtain marketing
approval for any product candidate, we expect to incur significant expenses related to development, product sales, marketing,
distribution and manufacturing. Some of these expenses may be incurred in advance of marketing approval, and could be substantial.
Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations,
licensing arrangements, government funding or other sources. Adequate additional financing may not be available to us on acceptable
terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability
to pursue our business strategy.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure
requirements for at least 12 months from the issuance of the financial statements included in this report. Based on our cash and cash
equivalents as of December 31, 2023, we believe that our cash runway will be sufficient to fund us into late 2025. Our cash forecasts
are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently
expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need
to spend more than currently expected because of circumstances beyond our control. Our future funding requirements, both short-term
and long-term, will depend on many factors, including:
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the timing and terms of the potential FDA approval of tebipenem HBr;
the timing, costs and results of our ongoing, planned and potential clinical trials for our product candidates;
the amount of funding that we receive under our government awards;
the number and characteristics of product candidates that we pursue;
the outcome, timing and costs of seeking regulatory approvals;
the costs of commercialization activities for our product candidates if we receive marketing approval, including the
costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
the terms and timing of any future collaborations, licensing or other arrangements that we may establish;
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the
licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including
milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license
agreements;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property
rights and defending against any intellectual property related claims;
the costs of our continued operation as a public company; and
the extent to which we in-license or acquire other products and technologies.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our
technologies or product candidates.
Unless and until we can generate a substantial amount of revenue from our product candidates, we expect to finance our future
cash needs through public or private equity offerings, debt financings, collaborations, licensing arrangements and government funding
arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we
believe that we have sufficient funds for our current or future operating plans. We filed a universal shelf registration statement on
Form S-3 (Registration No. 333-254170) with the SEC on March 11, 2021, which was declared effective on March 29, 2021, and
pursuant to which we registered for sale up to $300.0 million of any combination of our common stock, preferred stock, debt
securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, including up to $75.0
million of our common stock available for issuance pursuant to the Controlled Equity Offering Sales Agreement (“Sales Agreement”)
that we entered into with Cantor Fitzgerald & Co. (“Cantor”). The 2021 Form S-3 will expire on March 29, 2024. Under the Sales
Agreement, Cantor may sell shares of our common stock by any method permitted by law deemed to be an “at the market” offering as
defined in Rule 415 of the Securities Act, subject to the terms of the Sales Agreement.
We may seek to raise additional capital at any time. To the extent that we raise additional capital through the sale of common
stock, convertible securities or other equity securities, the ownership interest of our then existing stockholders may be materially
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diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could
adversely affect the rights of our stockholders. In addition, debt financing, if available, would result in increased fixed payment
obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends, which could adversely affect our ability to conduct our
business. In addition, securing additional financing would require a substantial amount of time and attention from our management
and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our
management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant
licenses on terms that may not be favorable to us.
Our ability to use our net operating loss carryforwards may be limited.
As of December 31, 2023, we had United States federal, state and foreign net operating loss carryforwards ("NOLs") of $94.7
million, $90.9 million and $4.6 million, respectively. All Federal NOLs can be carried forward indefinitely. The state NOLs begin to
expire in 2033 and will expire at various dates through 2043. The foreign NOLs do not expire. Utilization of these NOLs depends on
many factors, including our future income, which cannot be assured. These state NOLs could expire unused and be unavailable to
offset our future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code")
and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater
than 50% change, by value, in its equity ownership by 5% stockholders over a three-year period, the corporation’s ability to use its
pre-change NOLs and other pre-change tax attributes to offset its post-change income may be limited. We recently completed a
Section 382 study and concluded that we underwent several ownership changes as defined by the Code, the last of which occurred
during the year ended December 31, 2018. Any carryforwards that will expire prior to utilization were removed from deferred tax
assets, with a corresponding reduction of the valuation allowance. Future ownership changes may limit our ability to utilize remaining
tax attributes.
Under current United States federal tax legislation, although the treatment of NOLs arising in tax years beginning on or before
December 31, 2017 has generally not changed, NOLs arising in tax years beginning after December 31, 2017 may be used to offset
only 80% of taxable income. In addition, net operating losses arising in tax years beginning after December 31, 2017 may be carried
forward indefinitely, as opposed to the 20-year carryforward under prior law.
We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to
evaluate the prospects for our future viability.
We were established in 2013 and began operations in 2014. Our operations to date have been limited to financing and staffing
our company, developing our technology and our product candidates. We have not yet demonstrated an ability to successfully obtain
marketing approval, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and
marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or
viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and
commercializing pharmaceutical products.
We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving
our business objectives. We have begun to transition from a company with a development focus to a company capable of supporting
commercial activities. We may not be successful in such a transition.
We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to
year due to a variety of factors, many of which are beyond our control. Accordingly, stockholders should not rely upon the results of
any quarterly or annual periods as indications of future operating performance.
We and certain of our current and former executive officers have been named as defendants in two initiated lawsuits, which were
ordered consolidated, that could result in substantial costs and divert management’s attention.
We, and certain of our executive officers, were named as defendants in two purported class action lawsuits that generally allege
that we and certain of our current and former officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the NDA for tebipenem HBr
in an effort to lead investors to believe that the drug would receive approval from the FDA. The parties moved to consolidate the two
complaints on July 22, 2022, which were ordered consolidated on August 5, 2022. The parties filed an Amended Complaint on
December 5, 2022, purported to be brought on behalf of stockholders who purchased our common stock from September 8, 2020
through May 2, 2022. The Amended Complaint generally alleges that we and certain of our current and former officers violated
Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading
statements concerning the NDA for tebipenem HBr in an effort to lead investors to believe that the drug would receive approval from
the FDA. Plaintiffs seek unspecified damages, interest, attorneys’ fees, and other costs. We filed a fully-briefed Motion to Dismiss on
June 21, 2023. The Court has not yet ruled on the Motion.
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We intend to engage in a vigorous defense of the lawsuit. However, we are unable to predict the outcome of this matter at this
time. Moreover, any conclusion of this matter in a manner adverse to us would have a material adverse effect on our financial
condition and business. We could incur substantial costs not covered by our directors’ and officers’ liability insurance, suffer a
significant adverse impact on our reputation and divert management’s attention and resources from other priorities, including the
execution of business plans and strategies that are important to our ability to grow our business, any of which could have a material
adverse effect on our business. In addition, this matter could require payments that are not covered by, or exceed the limits of, our
available directors’ and officers’ liability insurance, which could have a material adverse effect on our operating results or financial
condition.
Risks Related to Our Dependence on Third Parties
We may not achieve the milestones triggering payments to us in our license and collaboration agreements with third parties.
We have and may continue to seek third-party collaborators for development and commercialization of certain of our product
candidates. Currently we are party to license and collaboration agreements with third parties as described in Note 14 (“License,
Collaboration and Service Agreements”) to our consolidated financial statements appearing elsewhere in this Annual Report on Form
10-K. Our likely collaborators for any other marketing, distribution, development, licensing or broader collaboration arrangements we
may pursue include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology
companies.
We may derive revenue from research and development fees, license fees, milestone payments and royalties under any
collaborative arrangement into which we enter. Our ability to generate revenue from these arrangements will depend on our
collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators
may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations,
prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the
future success of a product candidate that we license to a third party.
We face significant competition in seeking and obtaining appropriate collaborators. Collaborations involving our product
candidates may pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these
collaborations;
collaborators may not perform their obligations as expected;
collaborators may not pursue development and commercialization of our product candidates or may elect not to
continue or renew development or commercialization programs based on clinical trial results, changes in the
collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or
create competing priorities;
collaborators may not be able to develop, manufacture, market and sell our product candidates and use our intellectual
property without infringing or misappropriating the intellectual property and other proprietary rights of third parties;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or
abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate
for clinical testing;
product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their
own product candidates or products, which may cause collaborators to cease to devote resources to the
commercialization of our product candidates;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to
the marketing and distribution of such product or products;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the
preferred course of development, might cause delays or termination of the research, development or commercialization
of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result
in litigation or arbitration, any of which would be time-consuming and expensive;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary
information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or
proprietary information or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and
potential liability; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further
development or commercialization of the applicable product candidates.
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner
or at all. If a collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the
development or commercialization of any product candidate licensed to it by us.
We may have to alter our development and commercialization plans if we are not able to establish collaborations.
We will require additional funds to complete the development and potential commercialization of our product candidates. For
some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development
and potential commercialization of those product candidates. Moreover, we intend to utilize a variety of types of collaboration
arrangements for the potential commercialization of our product candidates outside the United States. Whether we reach a definitive
agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the
terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors
may include:
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the design or results of clinical trials;
the likelihood of approval by the FDA or comparable foreign regulatory authorities;
the potential market for the subject product candidate;
the costs and complexities of manufacturing and delivering such product candidate to patients;
the potential for competing products;
our patent position protecting the product candidate, including any uncertainty with respect to our ownership of our
technology or our licensor’s ownership of technology we license from them, which can exist if there is a challenge to
such ownership without regard to the merits of the challenge;
the need to seek licenses or sub-licenses to third-party intellectual property; and
industry and market conditions generally.
The collaborator may also consider alternative product candidates or technologies for similar indications that may be available
for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may
also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. In
addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have
resulted in a reduced number of potential future collaborators.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to
curtail the development of a product candidate, reduce or delay its development program or one or more of our other development
programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or
commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be
available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to
undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates
or bring them to market and our business may be materially and adversely affected.
We rely on third parties to conduct all of our nonclinical studies and all of our clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or
commercialize any of our product candidates. If they do not perform satisfactorily, our business may be materially harmed.
We do not independently conduct nonclinical studies that comply with GLP requirements. We also do not have the ability to
independently conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research
organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials of
our product candidates and potential product candidates. Any of these third parties may terminate their engagements with us at any
time. If we need to enter into alternative arrangements, it would delay our product development activities and increase our costs.
Our reliance on these third parties for clinical development activities limits our control over these activities but we remain
responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and
scientific standards. For example, notwithstanding the obligations of a contract research organization for a trial of one of our product
candidates, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general
investigational plan and protocols for the trial and applicable regulatory requirements. While we will have agreements governing their
activities, we control only certain aspects of their activities and have limited influence over their actual performance. The third parties
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with whom we contract for execution of our GLP studies and our clinical trials play a significant role in the conduct of these studies
and trials and the subsequent collection and analysis of data. Although we rely on these third parties to conduct our GLP-compliant
nonclinical studies and clinical trials, we remain responsible for ensuring that each of our nonclinical studies and clinical trials are
conducted in accordance with applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory
responsibilities. The FDA and regulatory authorities in other jurisdictions also require us to comply with standards, commonly
referred to as good clinical practices for conducting, monitoring, recording and reporting the results of clinical trials to assure that data
and reported results are accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical
trials. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and
institutional review boards. If we or our third-party contractors fail to comply with applicable GCP standards, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before
approving our product candidates, which would delay the regulatory approval process. We cannot make assurances that, upon
inspection, the FDA will determine that any of our clinical trials comply with GCP. We are also required to register clinical trials and
post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure
to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available
to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time and resources to our
ongoing development programs. These contractors may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their
ability to devote appropriate time to our clinical programs. If these third parties do not successfully carry out their contractual duties,
meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not
be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we may not be able
to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and
the commercial prospects for our product candidates could be harmed, our costs could increase and our ability to generate revenue
could be delayed, impaired or foreclosed.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the
part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of any
resulting products, producing additional losses and depriving us of potential product revenue.
We contract with third parties for the manufacture of preclinical and clinical supplies of our product candidates and expect to
continue to do so in connection with any future commercialization and for any future clinical trials and commercialization of our
other product candidates and potential product candidates. This reliance on third parties increases the risk that we will not have
sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our
development or commercialization efforts.
We do not currently have nor do we plan to build the internal infrastructure or capability to manufacture our product candidates
for use in the conduct of our preclinical research, our clinical trials or for commercial supply. We currently rely on and expect to
continue to rely on third-party contract manufacturers to manufacture supplies of our product candidates, and we expect to rely on
third-party contract manufacturers to manufacture commercial quantities of any product candidate that we commercialize following
approval for marketing by applicable regulatory authorities, if any. Reliance on third-party manufacturers entails risks, including:
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manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our
product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between us;
the possible termination or nonrenewal of the agreement by the third-party at a time that is costly or inconvenient for
us;
the possible breach of the manufacturing agreement by the third-party;
the failure of the third-party manufacturer to comply with applicable regulatory requirements; and
the possible misappropriation of our proprietary information, including our trade secrets and know-how.
We currently rely on a small number of third-party contract manufacturers and one supplier for all of our required raw materials,
drug substance and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of
these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our
product candidates. If any of our existing manufacturers should become unavailable to us for any reason, we may incur delays in
identifying or qualifying replacements.
In addition, because some of our manufacturers have manufacturing facilities in Taiwan, their ability to provide us with
adequate supplies of high-quality products on a timely and cost-efficient basis is subject to a number of additional risks and
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uncertainties, including political, social and economic instability and factors that could impact the shipment of supplies. If our
manufacturers are unable to provide us with adequate supplies of high-quality products on a timely and cost-efficient basis, our
operations would be disrupted and our net revenue and profitability would suffer.
Our third-party contract manufacturers are based in Asia. Recently, our third-party contract manufacturers have been subject to
various supply chain disruptions. These supply chain disruptions have increased the price of certain materials due to the significant
increase in costs of raw materials and shipping costs. Our ability to produce and timely deliver our products may be materially
impacted in the future if these supply chain disruptions continue or worsen.
Further, a major catastrophe, such as an earthquake or other natural disaster, labor strike, or work stoppage at any of our
manufacturing facilities, or a manufacturing facility of our suppliers or customers, could result in a prolonged interruption of our
business. A disruption resulting from any one of these events could cause significant delays in shipments of our products and the loss
of revenue and customers, which could have a material adverse effect on our financial position, results of operations, and cash flows.
Our facilities in Japan and Taiwan are located in seismically-active areas.
If any of our product candidates are approved by any regulatory agency, we intend to enter into agreements with third-party
contract manufacturers for the commercial production of those products. This process is difficult and time consuming and we may
face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs
that are capable of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party
manufacturers on satisfactory terms, which could delay our commercialization.
Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States.
Facilities used by our third-party manufacturers must be approved by the FDA after we submit an NDA and before potential approval
of the product candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We
do not control the manufacturing process and are completely dependent on our third-party manufacturers for compliance with the
applicable regulatory requirements for the manufacture of our product candidates. The inability or failure of our manufacturers to
successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign
regulatory authority, may require us to find alternative manufacturing facilities, which could result in delays in obtaining approval for
the applicable product candidate. In addition, our manufacturers are subject to ongoing periodic unannounced inspections by the FDA
and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our
manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in
supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and have a
material adverse effect on our business, financial condition and results of operations.
Our current and anticipated future dependence upon others for the manufacture of our product candidates and potential product
candidates may adversely affect our future profit margins and our ability to commercialize any products for which we receive
marketing approval on a timely and competitive basis.
If we fail to comply with our obligations in the agreements under which we in-license or acquire development or
commercialization rights to products, technology or data from third parties, we could lose such rights that are important to our
business.
We are a party to agreements with Meiji and GSK for tebipenem HBr, Vertex Pharmaceuticals for SPR720 and Pfizer, Everest
and PBB Distributions Limited for SPR206, and we may enter into additional agreements, including license agreements, with other
parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance
and other obligations on us.
For example, we have the Meiji License that gives us rights outside of the Meiji Territory to develop, manufacture, and
commercialize tebipenem HBr as well as the right to use, cross-reference, file or incorporate by reference any information and
relevant Meiji regulatory documentation to support any regulatory filings outside of the Meiji Territory. In addition, we have the right
to develop, manufacture and have manufactured tebipenem HBr in the Meiji Territory solely for the purpose of furthering
development, manufacturing and commercialization of tebipenem HBr outside of the Meiji Territory. In exchange for those rights, we
are obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize
tebipenem HBr and to implement a specified development plan, meeting specified development milestones and providing an update
on progress on an annual basis. The Meiji License requires us to pay future milestone payments of up to $1.0 million upon the
achievement of specified regulatory milestones and royalties of a low single-digit percentage on net sales on a country-by-country
basis.
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In addition, pursuant to our GSK License Agreement, we granted GSK an exclusive royalty-bearing license, with the right to
grant sublicenses, under our intellectual property and regulatory documents and a sublicense under certain intellectual property of
Meiji and Meiji’s regulatory documents to develop, manufacture and commercialize the GSK Licensed Products in the GSK Territory.
Under the terms of the GSK License Agreement, we received an upfront payment of $66.0 million for GSK to secure rights to the
medicine, a $30.0 million milestone payment upon achievement of a development milestone in the third quarter of 2023, and are
entitled to receive a $95.0 million development milestone that is payable in four equal semi-annual installments. Remaining potential
payments are milestone based and are (i) approximately $25.0 million in payments for the achievement of development milestones,
(ii) up to $150.0 million in commercial milestone payments, (iii) up to $225.0 million in sales milestone payments, and (iv) tiered low
single-digit to low double-digit royalties (if sales exceed $1.0 billion) tiered on net sales of GSK Licensed Products in the GSK
Territory.
We are responsible for the execution and costs of the follow-up Phase 3 clinical trial of tebipenem HBr. GSK is responsible for
the execution and costs of additional further development, including Phase 3 regulatory filing and commercialization activities for
tebipenem HBr in the balance of the GSK Territory outside of the United States. We will also be responsible for providing and paying
for the clinical supply of tebipenem HBr while GSK will be responsible for the costs of the commercial supply of tebipenem HBr.
If we fail to comply with our obligations to Meiji, GSK, or any of our other partners, our counterparties may have the right to
terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is
covered by these agreements, which could materially adversely affect the value of the product candidate being developed under any
such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our
having to negotiate new or reinstated agreements with less favorable terms or cause us to lose our rights under these agreements,
including our rights to important intellectual property or technology.
Risks Related to Our United States Government Contracts and to Certain Grant Agreements
Our use of government funding for certain of our programs adds complexity to our research and commercialization efforts with
respect to those programs and may impose requirements that increase the costs of commercialization and production of product
candidates developed under those government-funded programs.
We have received significant non-dilutive financing from various government agencies for the further development of our
product candidates. Such funding sources may pose risks to us not encountered in other commercial contracts, including significant
regulatory compliance risks. Contracts funded by the United States government and its agencies include provisions that reflect the
government’s substantial public policy and compliance requirements, and substantial rights and remedies, many of which are not
typically found in commercial contracts, including powers of the government to:
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terminate agreements, in whole or in part, for any reason or no reason;
reduce or modify the government’s obligations under such agreements without the consent of the contractor;
claim rights, including intellectual property rights, in products and data developed under such agreements;
audit contract-related costs and fees, including allocated indirect costs;
suspend the contractor from receiving new contracts pending resolution of alleged violations of procurement laws or
regulations;
impose United States manufacturing requirements for products that embody inventions conceived or first reduced to
practice under such agreements;
suspend or debar the contractor or grantee from doing future business with the government;
control and potentially prohibit the export of products; and
pursue criminal or civil remedies under the False Claims Act (the "FCA"), the False Statements Act and similar remedy
provisions specific to government agreements.
We may not have the right to prohibit the United States government from using certain technologies developed by us, and we
may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and
services to the United States government. The United States government generally takes the position that it has the right to royalty-
free use of technologies that are developed under United States government contracts.
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In addition, government contracts and grants, and subcontracts and subawards awarded in the performance of those contracts
and grants, normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us
to liability for failure to comply with these terms and conditions. These requirements include, for example:
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specialized accounting systems unique to government awards;
mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such
funds have been spent;
public disclosures of certain award information, which may enable competitors to gain insights into our research
program; and
mandatory socioeconomic compliance requirements, including labor standards, anti-human-trafficking, non-
discrimination and affirmative action programs, energy efficiency and environmental compliance requirements.
If we fail to maintain compliance with these requirements, we may be subject to potential contract or FCA liability and to
termination of our contracts.
United States government agencies have special contracting requirements that give them the ability to unilaterally control our
contracts.
United States government contracts typically contain unfavorable termination provisions and are subject to audit and
modification by the government at its sole discretion, which will subject us to additional risks. These risks include the ability of the
United States government to unilaterally:
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audit and object to our government contract-related costs and fees, and require us to reimburse all such costs and fees;
suspend or prevent us for a set period of time from receiving new contracts or extending our existing contracts based on
violations or suspected violations of laws or regulations;
cancel, terminate or suspend our contracts based on violations or suspected violations of laws or regulations;
terminate our contracts if in the government’s interest, including if funds become unavailable to the applicable
governmental agency;
reduce the scope and value of our contract; and
change certain terms and conditions in our contract.
The United States government will be able to terminate any of its contracts with us, either for convenience or if we default by
failing to perform in accordance with or to achieve the milestones set forth in the contract schedules and terms. Termination-for-
convenience provisions generally enable us to recover only our costs incurred or committed and settlement expenses on the work
completed prior to termination. Except for the amount of services received by the government, termination-for-default provisions do
not permit these recoveries and would make us liable for excess costs incurred by the United States government in procuring
undelivered items from another source.
Our business is subject to audit by the United States government and other potential sources for grant funding, including under
our contracts with BARDA, NIAID and DoD, and a negative outcome in an audit could adversely affect our business.
United States government agencies such as the DHHS and the Defense Contract Audit Agency (the "DCAA") routinely audit
and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and
compliance with applicable laws, regulations and standards.
The DHHS and the DCAA also review the adequacy of, and a contractor’s compliance with, its internal control systems and
policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs
found to be improperly allocated to a specific contract will not be paid, while such costs already paid must be refunded. If an audit
uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including:
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termination of contracts;
forfeiture of profits;
suspension of payments;
fines; and
suspension or prohibition from conducting business with the United States government.
In addition, we could suffer serious reputational harm if allegations of impropriety were made against us, which could cause our
stock price to decrease.
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Laws and regulations affecting government contracts make it more expensive and difficult for us to successfully conduct our
business.
We must comply with numerous laws and regulations relating to the formation, administration and performance of government
contracts, which can make it more difficult for us to retain our rights under our government contracts. These laws and regulations
affect how we conduct business with government agencies. Among the most significant government contracting regulations that affect
our business are:
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the Federal Acquisition Regulations (the "FAR") and agency-specific regulations supplemental to the FAR, which
comprehensively regulate the procurement, formation, administration and performance of government contracts;
business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government
employees, restrict the granting of gratuities and funding of lobbying activities and include other requirements such as
the Anti-Kickback Statute and the Foreign Corrupt Practices Act;
export and import control laws and regulations; and
laws, regulations and executive orders restricting the use and dissemination of information classified for national
security purposes and the exportation of certain products and technical data.
These requirements change frequently, such as through appropriations bills or executive orders. Any changes in applicable laws
and regulations could restrict our ability to maintain our existing BARDA and other government contracts and obtain new contracts,
which could limit our ability to conduct our business and materially adversely affect our results of operations.
Provisions in our United States government contracts, including our contracts with BARDA, may affect our intellectual property
rights.
Certain of our activities have been funded, and may in the future be funded, by the United States government, including through
our contracts with BARDA. When new technologies are developed with United States government funding, the government obtains
certain rights in any resulting patents, including the right to a nonexclusive license authorizing the government to use the invention
and rights that may permit the government to disclose our confidential information to third parties and to exercise “march-in” rights.
The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical
application of the United States government-funded technology, because action is necessary to alleviate health or safety needs, to meet
requirements of federal regulations or to give preference to United States industry. In addition, United States government-funded
inventions must be reported to the government, United States government funding must be disclosed in any resulting patent
applications, and our rights in such inventions may be subject to certain requirements to manufacture products in the United States.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain sufficient patent protection for our technology or our product candidates, or if the scope of
the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar
or identical to ours, and our ability to successfully commercialize our technology and product candidates may be adversely
affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries
with respect to our proprietary chemistry technology and product candidates. If we do not adequately protect our intellectual property,
competitors may be able to use our technologies and erode or negate any competitive advantage that we may have, which could harm
our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States
and abroad related to our novel technologies and product candidates that are important to our business. The patent application and
approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and
development before it is too late to obtain patent protection.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy
regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in
many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds and technologies
commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the
issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Furthermore, changes in patent
laws in the United States, including those made by the America Invents Act of 2011, may affect the scope, strength and enforceability
of our patent rights or the nature of proceedings which may be brought by us related to our patent rights.
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Our pending and future patent applications may not result in patents being issued which protect our technology or product
candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value
of our patents or narrow the scope of our patent protection.
The laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United
States. For example, in the US there is an exception for one’s own publication of an invention prior to filing a patent application for
the invention. Most other countries have no such exception and any publication prior to filing is an absolute bar to patentability.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United
States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot
be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first
to file for patent protection of such inventions. As a result of the America Invents Act of 2011, the United States transitioned to a first-
inventor-to-file system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file
a patent application is entitled to the patent. However, as a result of the lag in the publication of patent applications following filing in
the United States, we are still not be able to be certain upon filing that we are the first to file for patent protection for any invention.
Moreover, we may be subject to a third-party preissuance submission of prior art to the USPTO or become involved in opposition,
derivation, reexamination, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent
rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope
of, or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly
with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party
patent rights.
Due to the war in Ukraine and sanctions between the United States and Russia, patents and patent applications in Russia, the
EAPO and Ukraine currently have an uncertain fate. Unless the conflict with Ukraine ends quickly it is unlikely our Russian and
EAPO patent and patent applications will remain in effect. Ukraine is currently under martial law and not processing patent
applications. It is expected all patent deadlines in Ukraine will be extended.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors
may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-
infringing manner. Our competitors may seek to market generic versions of any approved products by submitting ANDAs to the FDA
in which they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, our
competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these
circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of
these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we
have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to
achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed
patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of
exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which
could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration
of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing
and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such
candidates are commercialized.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time
consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter
infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and
divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could
provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement
proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do
not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents
is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using
the invention at issue on the grounds that our patents do not cover the invention. An adverse outcome in a litigation or proceeding
involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude
our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely
affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement
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claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have
asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of
such trademarks.
In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will
have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are
concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our
management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
If we are sued for infringing intellectual property rights of third parties, or otherwise become involved in disputes regarding our
intellectual property rights, such litigation could be costly and time consuming and could prevent or delay us from developing or
commercializing our product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates and use
our proprietary chemistry technology without infringing the intellectual property and other proprietary rights of third parties.
Numerous third-party United States and non-United States issued patents and pending applications exist in the area of antibacterial
treatment, including compounds, formulations, treatment methods and synthetic processes that may be applied towards the synthesis
of antibiotics. If any of their patents or patent applications cover our product candidates or technologies, we may not be free to
manufacture or market our product candidates as planned.
There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may
become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to
our technology or product candidates, including interference proceedings before the USPTO. Intellectual property disputes arise in a
number of areas including with respect to patents, use of other proprietary rights and the contractual terms of license arrangements.
Third parties may assert claims against us based on existing or future intellectual property rights. The outcome of intellectual property
litigation is subject to uncertainties that cannot be adequately quantified in advance. With respect to our Meiji License of certain
know-how and regulatory documents concerning tebipenem pivoxil, we are neither a party to, nor an express third-party beneficiary
of, the letter agreements, which were signed in January 2017 and in February 2022, between Meiji and Global Pharma consenting to
Meiji’s arrangements with us. As such, if any dispute among the parties were to occur, our direct enforcement rights with respect to
the letter agreements may be limited or uncertain.
If we are found to infringe a third party’s intellectual property rights, we or our third party collaborators could be forced,
including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product.
Alternatively, we or they may be required to obtain a license from such third party in order to use the infringing technology and
continue developing, manufacturing or marketing the infringing product candidate. However, we or such collaborators may not be
able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be
non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for
monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations,
which could materially harm our business. Claims that we or our third party collaborators have misappropriated the intellectual
property, confidential information or trade secrets of third parties could have a similar negative effect on our business.
We may be subject to claims that we or our employees, consultants or contractors have misappropriated the intellectual property of
a third party, or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants and contractors are currently, or were previously, employed at universities or other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that these
individuals do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may
be subject to claims that we or these individuals have used or disclosed such intellectual property or other proprietary information.
Litigation may be necessary to defend against these claims.
In addition, while we typically require our employees, consultants and contractors who may be involved in the development of
intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an
agreement with each party who in fact develops intellectual property that we regard as our own. To the extent that we fail to obtain
such assignments or such assignments are breached, we may be forced to bring claims against third parties, or defend claims they may
bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any
such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are
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successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our
management and scientific personnel.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely
affected and our business would be harmed.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, in seeking to develop and maintain a competitive position. We seek to
protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to
them, such as our consultants, independent contractors, advisors, corporate collaborators, outside scientific collaborators, contract
manufacturers, suppliers and other third parties. We, as well as our licensors, also enter into confidentiality and invention or patent
assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may
breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive
and time-consuming, and the outcome is unpredictable. In addition, if any of our trade secrets were to be lawfully obtained or
independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate
such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be
disclosed to or independently developed by a competitor, our business and competitive position could be harmed.
We have registered trademarks and pending trademark applications. Failure to enforce our registered marks or secure registration
of our pending trademark applications could adversely affect our business.
We have registered our trademarks for our name and logo in the United States and other countries and have a number of pending
trademark applications in the United States and other countries. As of December 31, 2023, we have two registered United States
trademarks, 23 registered foreign trademarks, and no pending foreign trademark applications. If our registered trademarks are
invalidated, we may be unable to exclusively use our name or logo in certain jurisdictions or may need to change our name or logo in
certain jurisdictions, which could affect our business. If we do not secure registrations for our pending trademark applications, we may
encounter more difficulty in enforcing them against third parties, which could adversely affect our business.
We have applied to register our product candidate name as a trademark in the United States, where it has been allowed for
registration, and have applied to register the mark in three foreign jurisdictions. We have also applied to register additional product
candidate names as trademarks in the United States. When we file trademark applications for our product candidates, those
applications may not be allowed for registration, and registered trademarks may not be obtained, maintained, or enforced. During
trademark registration proceedings in the United States and foreign jurisdictions, we may receive rejections. We are given an
opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition, in the United States Patent
and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose
pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed
against our trademarks, and our trademarks may not survive such proceedings.
In addition, any proprietary name we propose to use with any product candidate in the United States must be approved by the
FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of
proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our
proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable
proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be
acceptable to the FDA.
Risks Related to Regulatory Approval and Other Legal Compliance Matters
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize
our product candidates, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design,
testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable foreign
regulatory authorities, with regulations differing from country to country. Failure to obtain marketing approval for a product candidate
will prevent us from commercializing the product candidate.
We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and have relied
on third-party contract research organizations to assist us in this process.
The time required to obtain approval, if any, by the FDA and comparable foreign authorities is unpredictable but typically takes
many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of
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the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain
approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not
obtained regulatory approval for any product candidate and it is possible that none of our product candidates we seek to develop in the
future will ever obtain regulatory approval. Neither we nor any future collaborators are permitted to market any of our product
candidates in the United States until we or they receive regulatory approval of an NDA from the FDA.
In order to obtain approval to commercialize a product candidate in the United States or abroad, we or our collaborators must
demonstrate to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their
intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe that the
nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA
and other regulatory authorities. The FDA may also require us to conduct additional nonclinical studies or clinical trials for our
product candidates either prior to or post-approval, and it may otherwise object to elements of our clinical development program.
An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s
safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry,
manufacturing and controls for the product candidate. Foreign regulatory authorities have differing requirements for approval of drugs
with which we must comply with prior to marketing. Obtaining marketing approval for marketing of a product candidate in one
country does not ensure that we will be able to obtain marketing approval in other countries, but the failure to obtain marketing
approval in one jurisdiction could negatively affect our ability to obtain marketing approval in other jurisdictions. The FDA or any
foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional nonclinical or
clinical testing or abandon a program for many reasons, including:
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the FDA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our clinical
trials;
negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory agencies for approval;
serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals
using drugs similar to our product candidates;
our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that our product
candidates are safe and effective for the proposed indication;
the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical
studies or clinical trials;
our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety or other
perceived risks;
the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;
the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling and/or the
specifications for our product candidates; or
the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to
significantly change in a manner rendering our clinical data insufficient for approval.
Of the large number of drugs in development, only a small percentage complete the FDA or foreign regulatory approval
processes and are successfully commercialized. The lengthy review process as well as the unpredictability of future clinical trial
results may result in our failing to obtain regulatory approval, which would significantly harm our business, financial condition,
results of operations and prospects.
Even if we eventually receive approval of an NDA or foreign marketing application for our product candidates, the FDA or the
applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, often
referred to as Phase 4 clinical trials, and the FDA may require the implementation of a REMS which may be required to ensure safe
use of the drug after approval. The FDA or the applicable foreign regulatory agency also may approve a product candidate for a more
limited indication or patient population than we originally requested, and the FDA or applicable foreign regulatory agency may not
approve the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay
in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate
and would materially adversely impact our business and prospects.
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A fast track designation may not actually lead to a faster development or regulatory review or approval process.
We have received fast track designation for tebipenem HBr for the treatment of cUTIs, including pyelonephritis, in adult
patients who have limited oral treatment options, as well as fast track designation for SPR720 for treatment of adult patients with
NTM pulmonary disease, and we may seek fast track designation for one or more of our other product candidates in the future. If a
drug is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet
medical need for this condition, a drug sponsor may apply for fast track designation by the FDA for the particular indication under
study. If fast track designation is obtained, the FDA may initiate review of sections of an NDA before the application is complete.
This “rolling review” is available if the applicant provides and the FDA approves a schedule for the remaining information. If we seek
fast track designation for a product candidate, we may not receive it from the FDA. However, even if we receive fast track
designation, fast track designation does not ensure that we will receive marketing approval or that approval will be granted within any
particular timeframe. We may not experience a faster development or regulatory review or approval process with fast track
designation compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation if it believes that
the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee
qualification for the FDA’s priority review procedures.
Priority review designation by the FDA may not lead to a faster regulatory review or approval process and, in any event, does not
assure FDA approval.
If the FDA determines that a product candidate intended to treat a serious disease, if approved, would provide a significant
improvement in safety or effectiveness of the treatment of the disease, the FDA may designate the drug application for that product
candidate for priority review. A priority review designation means that the goal for the FDA to review the marketing application is six
months from the date of NDA acceptance for filing, rather than the standard review period of ten months from the date of NDA
acceptance for filing. A priority review designation does not necessarily mean a faster regulatory review process or necessarily confer
any advantage with respect to approval compared to conventional FDA procedures. Receiving a priority review designation from the
FDA does not guarantee approval of the drug application within the six-month review cycle or any time thereafter.
While we have negotiated a SPA agreement with the FDA relating to our pivotal Phase 3 clinical trial of tebipenem HBr in
patients with cUTI, including AP, this agreement does not guarantee approval of tebipenem HBr or any other particular outcome
from regulatory review of the clinical trial or the product candidate.
On July 31, 2023, the Company announced that it received written agreement from the FDA, under a SPA, on the design and
size of PIVOT-PO, a pivotal Phase 3 clinical trial of tebipenem HBr in patients with cUTI, including AP. The FDA’s SPA process is
designed to allow the FDA to evaluate the proposed design and size of clinical trials that are intended to form the primary basis for
determining a drug product’s efficacy, among other eligible protocols. Upon specific written request by a clinical trial sponsor, the
FDA will evaluate the planned protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy
endpoints, trial conduct and data analysis. The FDA ultimately assesses whether the protocol design and planned analysis of the trial
adequately address scientific and regulatory requirements for the particular purposes identified by the sponsor, which in this case was
that the PIVOT-PO protocol can be considered an adequate and well-controlled study in support of our future resubmission of the
tebipenem HBr marketing application. All agreements between the FDA and the sponsor regarding an SPA must be clearly
documented in writing, either in the form of an SPA letter or minutes of a meeting between the sponsor and the FDA at which the SPA
agreement was reached.
However, an SPA agreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design,
execution and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain
circumstances. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at
the time of the SPA agreement, if other new scientific concerns regarding product safety or efficacy arise, if the sponsor fails to
comply with the agreed upon trial protocols or modifies such protocols without prior FDA agreement, or if the relevant data,
assumptions or information provided by the sponsor change or are found to be false or omit relevant facts. In addition, even after an
SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review
division, except under the circumstances described above, so long as the FDA and the sponsor agree in writing to modify the protocol
and such modification is intended to improve the study.
The FDA retains significant latitude and discretion in interpreting the terms of an SPA agreement, as well as the data and results
obtained from any study that is the subject of the SPA agreement. We cannot assure you that our pivotal Phase 3 clinical trial will
succeed, or that the SPA agreement will ultimately be binding on the FDA or will result in any FDA approval of tebipenem HBr. We
expect that the FDA will review our compliance with the protocol that is subject to the SPA agreement, and, as with all NDA reviews,
evaluate the results of the trial and conduct inspections of some of the sites where the trial will be conducted. We cannot assure you
that the FDA will deem each of the clinical trial sites to have complied with applicable laws and regulations, and negative inspection
results could significantly delay or prevent any potential approval for tebipenem HBr. If the FDA revokes or alters its agreement under
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the SPA, or interprets the data collected from the clinical trial differently than we do, the FDA may not deem the data sufficient to
support an application for regulatory approval, which could materially adversely affect our business, financial condition and results of
operations.
In March 2020, the FDA granted orphan drug designation for SPR720. We may seek orphan drug designation for certain of our
other product candidates. We may not be able to obtain or maintain orphan drug designations for any of our other product
candidates, and we may be unable to take advantage of the benefits associated with orphan drug designation, including the
potential for market exclusivity.
Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient
populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan product if it is
intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the
United States, or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable
expectation that the cost of developing the drug will be recovered from sales in the United States. There can be no assurance that the
FDA will grant orphan designation for any indication for which we apply.
In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards
clinical trial costs, tax advantages and user-fee waivers. In addition, if a product candidate that has orphan drug designation
subsequently receives the first FDA approval for the disease for which it has such designation, it is entitled to orphan drug exclusivity,
which means that the FDA may not approve any other applications, including an NDA, to market the same drug for the same
indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug
exclusivity or where the manufacturer is unable to assure sufficient product quantity.
Even though we have obtained orphan drug designation for SPR720 and may seek orphan drug designation for other product
candidates in the future, there is no assurance that we will be the first to obtain marketing approval for NTM infection or for any
particular rare indication. Further, even though we have obtained orphan drug designation for SPR720, or even if we obtain orphan
drug designation for other product candidates, such designation may not effectively protect us from competition because different
drugs can be approved for the same condition and the same drug can be approved for different conditions and potentially used off-
label in the orphan indication. Even after an orphan drug is approved, the FDA can subsequently approve a competing drug for the
same condition for several reasons, including, if the FDA concludes that the later drug is safer or more effective or makes a major
contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor
gives the drug any advantage in the regulatory review or approval process.
If approved for commercial marketing in the United States, our product candidates may face generic competition sooner than
anticipated.
Even if we are successful in achieving regulatory approval to commercialize a product candidate, it may face competition from
generic products earlier or more aggressively than anticipated, depending upon how well our future products perform in the United
States prescription drug market. In addition to creating the 505(b)(2) NDA pathway, the Hatch-Waxman Amendments to the FDCA
authorized the FDA to approve generic drugs that are the same as drugs previously approved for marketing under the NDA provisions
of the statute pursuant to ANDAs. An ANDA relies on the preclinical and clinical testing conducted for a previously approved RLD,
and must demonstrate to the FDA that the generic drug product is identical to the RLD with respect to the active ingredients, the route
of administration, the dosage form, and the strength of the drug and also that it is “bioequivalent” to the RLD. The FDA is prohibited
by statute from approving an ANDA when certain marketing or data exclusivity protections apply to the RLD.
If the FDA ultimately approves tebipenem HBr for the treatment of cUTI, including pyelonephritis, caused by certain
microorganisms in adult patients who have limited oral treatment options, we expect that it will be designated by the agency as an
RLD and that it will be eligible for five-year new chemical entity exclusivity under the Hatch-Waxman provisions of the FDCA. This
exclusivity period would block FDA from approving either a subsequent ANDA or 505(b)(2) NDA that references our future NDA, if
approved. The QIDP designation granted by FDA to this drug product and indication also make it eligible for a further five-year
extension of that Hatch-Waxman exclusivity. We cannot predict the interest of potential generic competitors in the future market for
such an approved treatment for cUTI, whether someone will attempt to invalidate our period of exclusivity or otherwise force the FDA
to take other actions, or how quickly others may seek to come to market with competing products after the applicable exclusivity
period ends. Future product candidates may also receive marketing exclusivity under the FDCA after approval that may similarly be
subject to challenge or uncertainty.
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If we or our partners are unable to obtain marketing approval in international jurisdictions, we will not be able to market our
product candidates abroad.
In order to market and sell our product candidates in the European Union and many other jurisdictions, we or our partners must
obtain separate marketing approvals and comply with numerous and varying regulatory requirements. Approval by the FDA does not
ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the
United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. The approval
procedure varies among countries and can involve additional testing. In addition, clinical trials conducted in one country may not be
accepted by regulatory authorities in other countries. Further, in April 2023, the European Commission issued a proposal to revise and
replace the existing general pharmaceutical legislation. If adopted and implemented as currently proposed, these revisions will
significantly change several aspects of drug development and approval in the European Union. The time required to obtain approval
from regulatory authorities in other countries may differ substantially from that required to obtain FDA approval. The regulatory
approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in
many countries outside the United States, it is required that the product be approved for reimbursement before the product can be
approved for sale in that country. We or our partners may not obtain approvals from regulatory authorities outside the United States on
a timely basis or at all.
If we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continuing
regulatory review, which may result in significant additional expense. Our product candidates, if approved, could be subject to
restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or
if we experience unanticipated problems with our product candidates, when and if approved.
Any product candidate for which we obtain marketing approval will also be subject to ongoing regulatory requirements for
labeling, packaging, storage, distribution, advertising, promotion, record keeping and submission of safety and other post-market
information. For example, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA
requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs. As such, we and our contract
manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMPs. We and others with
whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing,
production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the
FDA and to comply with requirements concerning advertising and promotion for our products.
In addition, even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the
indicated uses for which the product may be marketed, may be subject to significant conditions of approval or may impose
requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA may also
require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide,
physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and
other risk minimization tools. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that drugs are
marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory
requirements. The FDA also imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not
restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label
marketing.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity
or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, it may impose restrictions on that product or us. In addition, if any product fails to comply with applicable regulatory
requirements, a regulatory agency may:
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issue warning letters, untitled letters or impose holds on clinical trials if any are still on-going;
mandate modifications to promotional materials or require provision of corrective information to healthcare
practitioners;
impose restrictions on the product or its manufacturers or manufacturing processes;
impose restrictions on the labeling or marketing of the product;
impose restrictions on product distribution or use;
require post-marketing studies or clinical trials;
require withdrawal of the product from the market;
refuse to approve pending applications or supplements to approved applications that we submit;
require recall of the product;
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require entry into a consent decree, which can include imposition of various fines (including restitution or
disgorgement of profits or revenue), reimbursements for inspection costs, required due dates for specific actions and
penalties for noncompliance;
suspend or withdraw marketing approvals;
refuse to permit the import or export of the product;
seize or detain supplies of the product; or
issue injunctions or impose civil or criminal penalties.
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay
marketing approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of
new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we
may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other
healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational
harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any
product candidates for which we may obtain marketing approval. Our future arrangements with third-party payors and customers will
expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval and
reimbursement. These laws and regulations include, for example, the false claims and anti-kickback statutes and regulations. At such
time as we market, sell and distribute any products for which we obtain marketing approval and reimbursement, it is possible that our
business activities could be subject to challenge under one or more of these laws and regulations. Restrictions under applicable federal
and state healthcare laws and regulations include the following:
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the federal healthcare Anti-Kickback Statute, among other things, prohibits persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward
either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which
payment may be made under federally funded healthcare programs such as Medicare and Medicaid. A person or entity
does not need to have actual knowledge of the statute or specific intent to violate the statute in order to have committed
a violation. In addition, the government may assert that a claim that includes items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims
Act;
the federal False Claims Act imposes criminal and civil penalties, which can be enforced by private citizens through
civil whistleblower and qui tam actions, against individuals or entities for knowingly presenting, or causing to be
presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to
avoid, decrease or conceal an obligation to pay money to the federal government;
HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or for
making any false statements relating to healthcare matters; as in the case of the federal healthcare Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate the statute
in order to have committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes
obligations on certain covered entities as well as their business associates that perform services involving the use or
disclosure of protected health information, including mandatory contractual terms, with respect to safeguarding the
privacy and security of protected health information, and requires notification to affected individuals and regulatory
authorities of certain breaches of security of protected health information;
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits,
items or services;
the federal Physician Payments Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies
covered by Medicare or Medicaid to report, on an annual basis, to the DHHS, information related to payments and
other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, chiropractors and
certain advanced non-physician health care practitioners), teaching hospitals, as well as ownership and investment
interests held by physicians and their immediate family members;
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state and federal consumer protection laws, including the Federal Trade Commission Act, govern the collection, use,
disclosure and protection of health and other personal information and could apply to our operations and the operations
of our collaborators; and
analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require pharmaceutical companies to implement compliance programs
and to track and report gifts, compensation and other remuneration provided to physicians, in addition to requiring drug
manufacturers to report information related to payments to physicians and other healthcare providers or marketing
expenditures and pricing information. State laws also govern the privacy and security of health information in some
circumstances, and many such state laws differ from each other in significant ways and often are not preempted by
HIPAA, thus complicating compliance efforts.
We will be required to spend substantial time and money to ensure that our business arrangements with third parties, and our
business generally, comply with applicable healthcare laws and regulations. Even then, governmental authorities may conclude that
our business practices, including arrangements we may have with physicians and other healthcare providers, do not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If
governmental authorities find that our operations violate any of these laws or any other governmental regulations that may apply to us,
we may be subject to significant civil, criminal and administrative penalties, damages, imprisonment, fines, exclusion from
government funded healthcare programs, such as Medicare and Medicaid, and we may be required to curtail or restructure our
operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that
could affect our operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud and
abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains
uncertain.
Recently enacted and future policies and legislation may increase the difficulty and cost for us to obtain marketing approval of and
commercialize our product candidates and may affect the reimbursement made for any product candidate for which we receive
marketing approval.
The pricing and reimbursement environment may become more challenging due to, among other reasons, policies advanced by
the presidential administration, federal agencies, new healthcare legislation passed by the United States Congress or fiscal challenges
faced by all levels of government health administration authorities. Among policy makers and payors in the United States and foreign
countries, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in
connection with the sale of any products for which we obtain marketing approval, due to the trend toward managed healthcare, the
increasing influence of health maintenance organizations and additional legislative proposals. Resulting legislative, administrative, or
policy changes from payors may reduce payments for any products for which we obtain marketing approval and could affect future
revenues.
The ACA became law in the United States in March 2010 with the goals of broadening access to health insurance, reducing or
constraining the growth of healthcare spending, enhancing remedies against fraud and abuse, adding new transparency requirements
for the health care and health insurance industries and imposing additional health policy reforms. Provisions of ACA may negatively
affect our future revenues. For example, the ACA requires, among other things, that annual fees be paid by manufacturers for certain
branded prescription drugs, that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D,
and that manufacturers provide increased rebates under the Medicaid Drug Rebate Program for outpatient drugs dispensed to
Medicaid recipients. The ACA also addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug
Rebate Program are calculated for line extensions and expands oversight and support for the federal government’s comparative
effectiveness research of services and products.
Beginning on April 1, 2013, Medicare payments for all items and services under Part A and B, including drugs and biologicals,
and most payments to plans under Medicare Part D were reduced by 2%, or automatic spending reductions, required by the Budget
Control Act of 2011 ("BCA"), as amended by the American Taxpayer Relief Act of 2012. The BCA requires sequestration for most
federal programs, excluding Medicaid, Social Security, and certain other programs. The BCA caps the cuts to Medicare payments for
items and services and payments to Part D plans at 2%. As long as these cuts remain in effect, they could adversely affect payment for
our product candidates, if approved for commercial marketing. We expect that additional state and federal healthcare reform measures
will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products
and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed
products. There have been several United States Congressional inquiries and proposed bills designed to, among other things, bring
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more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Individual states in the
United States have also become increasingly active in passing legislation and implementing regulations designed to control
pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access
and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries
and bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’
ability to regulate PBMs and other members of the health care and pharmaceutical supply chain, an important decision that may lead
to further and more aggressive efforts by states in this area. The Federal Trade Commission in mid-2022 also launched sweeping
investigations into the practices of the PBM industry that could lead to additional federal and state legislative or regulatory proposals
targeting such entities’ operations, pharmacy networks, or financial arrangements. During the current congressional session, numerous
PBM reforms are being considered in both the Senate and the House of Representatives; they include diverse legislative proposals
such as eliminating rebates; divorcing service fees from the price of a drug, discount, or rebate; prohibiting spread pricing; limiting
administrative fees; requiring PBMs to report formulary placement rationale; promoting transparency. Significant efforts to change the
PBM industry as it currently exists in the U.S. may affect the entire pharmaceutical supply chain and the business of other
stakeholders, including biopharmaceutical developers like us.
Further, in August 2022, President Biden signed into the law the IRA. Among other things, the IRA has multiple provisions that
may impact the prices of drug products that are both sold into the Medicare program and throughout the United States. A manufacturer
of drugs covered by Medicare Parts B or D must now pay a rebate to the federal government if their drug product’s price increases
faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate owed to
the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally,
starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without
generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year
2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease.
CMS has begun to implement these new authorities, including with its publication of the first list of 10 Medicare Part D drugs for
negotiation in September 2023 and entering into agreements to conduct negotiations with the relevant manufacturers of those selected
drugs in October 2023. However, the impact of this program on the biopharmaceutical industry in the United States remains uncertain,
in part because multiple large pharmaceutical companies and other stakeholders (e.g., the U.S. Chamber of Commerce) have initiated
federal lawsuits against CMS arguing the program is unconstitutional for a variety of reasons, among other complaints. Those lawsuits
are currently ongoing.
Legislative and regulatory proposals also have been made to expand post-approval requirements and restrict sales and
promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or
whether the FDA regulations, guidance or interpretations will be changed, or what the effect of such changes on the marketing
approvals of our product candidates, if any, may be.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative or executive action, either in the United States or abroad. We expect that additional state and federal health care reform
measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for health
care products and services.
If we successfully commercialize one of our product candidates, failure to comply with our reporting and payment obligations
under United States governmental pricing programs could have a material adverse effect on our business, financial condition and
results of operations.
If we participate in the Medicaid Drug Rebate Program if and when we successfully commercialize a product candidate, we will
be required to report certain pricing information for our product to the Centers for Medicare & Medicaid Services, the federal agency
that administers the Medicaid and Medicare programs. We may also be required to report pricing information to the United States
Department of Veterans Affairs. If we become subject to these reporting requirements, we will be liable for errors associated with our
submission of pricing data, for failure to report pricing data in a timely manner, and for overcharging government payers, which can
result in civil monetary penalties under the Medicaid statute, the federal civil False Claims Act, and other laws and regulations.
Additionally, the 2021 Consolidated Appropriations Act signed into law on December 27, 2020 incorporated extensive
healthcare provisions and amendments to existing laws, which includes a requirement that all manufacturers of drug products covered
under Medicare Part B report the product’s ASP to DHHS beginning on January 1, 2022, subject to enforcement via civil money
penalties.
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Our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may
engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, contract research organizations,
consultants or vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional,
reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: FDA regulations, including those laws
requiring the reporting of true, complete and accurate information to the FDA; manufacturing standards; federal and state healthcare
fraud and abuse laws and regulations; or laws that require the true, complete and accurate reporting of financial information or data.
Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a
wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course
of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. It is not always possible to identify and deter misconduct by our employees and other third parties, and
the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or
in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such
laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none
occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties,
damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,
contractual damages, reputational harm, diminished potential profits and future earnings, and curtailment of our operations, any of
which could adversely affect our business, financial condition, results of operations or prospects.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key
leadership and other personnel, prevent our product candidates from being developed or commercialized in a timely manner or
otherwise prevent those agencies from performing normal business functions on which the operation of our business relies, which
could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget
and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy
changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC
and other government agencies on which our operations may rely, including those that fund research and development activities is
subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by
necessary government agencies, which would adversely affect our business. For example, over the last several years, the United States
government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical
FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could
significantly affect the ability of the FDA to timely review and process our regulatory submissions, which could have a material
adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability
to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and
motivate qualified personnel.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the
development, regulatory, commercialization and business development expertise of Satyavrat Shukla, our President and Chief
Executive Officer, as well as the other principal members of our management, scientific and clinical team. Although we have formal
employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us
at any time.
If we lose one or more of our other executive officers or key employees, our ability to implement our business strategy
successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take
an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience
required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this
limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms
given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on
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consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and
commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under
consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and
retain high quality personnel, our ability to develop and commercialize product candidates will be limited.
If foreign approvals are obtained, we will be subject to additional risks in conducting business in international markets.
Even if we are able to obtain approval for commercialization of a product candidate in a foreign country, we will be subject to
additional risks related to international business operations, including:
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potentially reduced protection for intellectual property rights;
the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local
prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting a product candidate and/or finished drug product supply or
manufacturing capabilities abroad;
business interruptions resulting from geo-political actions, including war and terrorism, health epidemics or natural
disasters, including earthquakes, hurricanes, typhoons, floods and fires; and
failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act.
These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.
Risks Related to Our Common Stock
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for our
stockholders.
Our stock price may be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology
companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. As a result of this volatility, our stockholders may not be able to sell their shares at or above the price they paid for their
shares. The market price for our common stock may be influenced by many factors, including:
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the success of existing or new competitive products or technologies;
the timing of clinical trials of our product candidates;
results of clinical trials of any of our product candidates;
failure or discontinuation of any of our development programs;
results of clinical trials of product candidates of our competitors;
regulatory or legal developments in the United States and other countries;
the perception of the pharmaceutical and biotechnology industry by the public, legislatures, regulators and the
investment community;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our product candidates or clinical development programs;
the results of our efforts to develop, in-license or acquire additional product candidates or products;
actual or anticipated changes in estimates as to financial results or development timelines;
announcement or expectation of additional financing efforts;
sales of our common stock by us, our insiders or other stockholders;
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variations in our financial results or those of companies that are perceived to be similar to us;
changes in estimates or recommendations by securities analysts, if any, that cover our stock;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
In addition, the stock market has experienced significant volatility, particularly with respect to pharmaceutical, biotechnology
and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often
does not relate to the operating performance of the companies represented by the stock. In the past, securities class action litigation has
often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in
substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to
satisfy judgments or to settle litigation.
We have in the past failed to satisfy certain continued listing requirements of the Nasdaq Global Select Market and could fail to
satisfy those requirements again in the future, which could negatively affect the market price of our common stock, our liquidity
and our ability to raise capital. Our potential failure to meet the continued listing requirements of Nasdaq Global Select Market in
the future could result in a delisting of our common stock.
Our common stock is listed on the Nasdaq Global Select Market (“Nasdaq GS”), which imposes, among other requirements, a
minimum $1.00 per share bid price requirement for continued inclusion on the Nasdaq GS pursuant to Nasdaq Listing Rule 5450(a)(1)
(the “Bid Price Requirement”). The closing bid price for our common stock must remain at or above $1.00 per share to comply with
the Bid Price Requirement for continued listing. On August 8, 2022 we received a deficiency letter (the “Notice”) from the Listing
Qualifications Department of the Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the preceding 30 consecutive trading
days, the closing bid price of our common stock was below the Bid Price Requirement. In accordance with Nasdaq Listing Rule
5810(c)(3)(A), we had until February 6, 2023 to regain compliance with the Bid Price Requirement. On October 6, 2022, we received
a letter from Nasdaq notifying us that the closing bid price of our common stock was at least $1.00 per share for a minimum of 10
consecutive trading days and that we had regained compliance with the Bid Price Requirement. Our common stock continues to be
eligible for listing on the Nasdaq GS.
There can be no assurance that we will be able to keep the closing bid price above $1.00 per share. If we fail to satisfy the
continued listing requirements of Nasdaq GS, including the Bid Price Requirement, Nasdaq may provide us with another deficiency
letter regarding the continued listing requirement. If we are unable to regain compliance with the Nasdaq Listing Rules in the future,
Nasdaq may take steps to delist our common stock. Such a delisting from the Nasdaq GS could make trading our common stock more
difficult for investors, potentially leading to declines in our share price and liquidity. If our common stock is delisted by the Nasdaq
GS, our common stock may be eligible to trade on the Nasdaq Capital Market or an over-the-counter quotation system, where an
investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock. We
cannot assure you that our common stock, if delisted from the Nasdaq GS, will be listed on another national securities exchange or
quoted on an over-the counter quotation system.
We intend to actively monitor the closing bid price of our common stock and may, if appropriate, consider implementing
available options to maintain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
share price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that securities or industry analysts publish
about us or our business. If few analysts provide coverage of us, the trading price of our stock would likely decline. If one or more of
the analysts covering our business downgrade our stock or change their opinion of our stock, our share price would likely decline. In
addition, if one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which could cause our share price or trading volume to decline.
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We can issue and have issued shares of preferred stock, which may adversely affect the rights of holders of our common stock.
Our Amended and Restated Certificate of Incorporation, as amended, authorizes us to issue up to 10,000,000 shares of preferred
stock with designations, rights and preferences determined from time-to-time by our board of directors. Accordingly, our board of
directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other
rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:
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adversely affect the voting power of the holders of our common stock;
make it more difficult for a third party to gain control of us;
discourage bids for our common stock at a premium;
limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
otherwise adversely affect the market price or our common stock.
As of December 31, 2023, all of our previously issued Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, and Series D Convertible Preferred stock has been converted into shares of our common
stock. If any future holders of our shares of preferred stock convert their shares into common stock, existing holders of our common
stock will experience dilution.
We have broad discretion in the use of our cash reserves and may not use them effectively.
Our management has broad discretion in the application of our cash reserves and could spend these funds in ways that do not
improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds
effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common
stock to decline and delay the development of our product candidates. Pending their use, we may invest our cash reserves in a manner
that does not produce income or that loses value.
We are a smaller reporting company and the reduced disclosure requirements applicable to smaller reporting companies may make
our common stock less attractive to investors.
We are subject to Section 404 of The Sarbanes-Oxley Act of 2002 ("Section 404") and the related rules of the SEC, which
generally require our management and independent registered public accounting firm to report on the effectiveness of our internal
control over financial reporting. However, for so long as we remain a "smaller reporting company" ("SRC") and non-accelerated filer,
we intend to take advantage of certain exemptions from various reporting requirements, including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404. Once we do not meet the definition of a SRC and non-
accelerated filer or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to
include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial
reporting. We could continue to qualify as a SRC and non-accelerated filer if the market value of our common stock held by non-
affiliates is below $75.0 million (or $700.0 million if our annual revenue is less than $100.0 million) as of June 30 in any given year.
We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management
will be required to devote substantial time to compliance initiatives and corporate governance practices.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company.
Sarbanes-Oxley, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq GS and
other applicable securities rules and regulations impose various requirements on public companies, including establishment and
maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel
devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and
financial compliance costs and have made some activities more time-consuming and costly. For example, these rules and regulations
have made it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more
difficult for us to attract and retain qualified members of our board of directors. These rules and regulations are often subject to
varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Failure to maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley in the future could have a
material adverse effect on our ability to produce accurate financial statements and on our stock price.
Section 404 of Sarbanes-Oxley requires us, on an annual basis, to review and evaluate our internal controls. To maintain
compliance with Section 404, we are required to document and evaluate our internal control over financial reporting, which is both
costly and challenging. We will need to continue to dedicate internal resources, continue to engage outside consultants and follow a
detailed work plan to continue to assess and document the adequacy of internal control over financial reporting, continue to improve
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control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous
reporting and improvement process for internal control over financial reporting. If we identify one or more material weaknesses, it
could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
A significant portion of our total outstanding shares may be sold into the market at any time, which could cause the market price
of our common stock to decline significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market
price of our common stock. Our outstanding shares of common stock may be freely sold in the public market at any time to the extent
permitted by Rules 144 and 701 under the Securities Act of 1933, or to the extent that such shares have already been registered under
the Securities Act and are held by non-affiliates of ours. Moreover, holders of a substantial number of shares of our common stock
have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in
registration statements that we may file for ourselves or other stockholders. We also have registered all shares of common stock that
we may issue under our equity compensation plans or that are issuable upon exercise of outstanding options. These shares can be
freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates. If any of these
additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could
decline.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly, stockholders must rely
on capital appreciation, if any, for any return on their investment.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if
any, to finance the operation, development and growth of our business. To the extent that we enter into any future debt agreements, the
terms of such agreements may also preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock
will be our stockholders’ sole source of gain for the foreseeable future.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial
to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws may
discourage, delay or prevent a merger, acquisition or other change in control of us that our stockholders may consider favorable,
including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit
the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of
our common stock. In addition, because our board of directors is responsible for appointing the members of our management team,
these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that all members of the board are not elected at one time;
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from our board of directors;
establish advance notice requirements for nominations for election to our board of directors or for proposing matters
that can be acted on at stockholder meetings;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our
stockholders by written consent;
limit who may call a special meeting of stockholders;
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute
a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing
acquisitions that have not been approved by our board of directors; and
require the approval of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast to
amend or repeal certain provisions of our Amended and Restated Certificate of Incorporation, as amended, or Amended
and Restated Bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"), which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging
or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our
outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or
prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders.
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In addition, our Amended and Restated Certificate of Incorporation, as amended, to the fullest extent permitted by law, provides
that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on
our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our
Amended and Restated Certificate of Incorporation, as amended, or our Amended and Restated Bylaws; or any action asserting a
claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to
enforce a duty or liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the
categories enumerated in the exclusive forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the
Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created
by the Securities Act or the rule and regulations thereunder. There is uncertainty as to whether a court would enforce such provision
with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the
federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
Alternatively, if a court were to find the choice of forum provisions contained in our Amended and Restated Certificate of
Incorporation, as amended, to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving
such action in other jurisdictions, which could harm our business, results of operations and financial condition.
Provisions in our charter and other provisions of Delaware law could limit the price that investors are willing to pay in the future
for shares of our common stock.
We may become involved in securities litigation that could divert management’s attention and harm the company’s business, and
insurance coverage may not be sufficient to cover all costs and damages.
In the past, securities litigation has often followed certain significant business transactions, such as the announcement of a
strategic restructuring, or the announcement of negative events, such as negative results from clinical trials. We may be exposed to
such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources,
which could adversely affect our business and cash resources and our ability to execute on our partnership with GSK to eventually
commercialize tebipenem HBr, or the ultimate value our stockholders receive in such partnership or other opportunity.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
We recognize the critical importance of maintaining the trust and confidence of customers, clients, patients, business partners
and employees toward our business and are committed to protecting the confidentiality, integrity and availability of our business
operations and systems. Our board of directors is actively involved in oversight of our risk management activities, and cybersecurity
represents an important element of our overall approach to risk management. Our cybersecurity policies, standards, processes and
practices are based on recognized frameworks established by applicable industry standards. In general, we seek to address
cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and
availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively
responding to cybersecurity incidents when they occur.
Cybersecurity Risk Management and Strategy; Effect of Risk
We face risks related to cybersecurity such as unauthorized access, cybersecurity attacks and other security incidents,
including events perpetrated by hackers and unintentional damage or disruption to hardware and software systems, loss of data, and
misappropriation of confidential information. To identify and assess material risks from cybersecurity threats, we maintain a
comprehensive cybersecurity program to ensure our systems are effective and prepared for information security risks, which includes
regular oversight of our programs for security monitoring for internal and external threats to ensure the confidentiality and integrity of
our information assets. We consider risks from cybersecurity threats alongside other company risks as part of our overall risk
assessment process. We employ a range of tools and services, including network and endpoint monitoring, audits, vulnerability
assessments, penetration testing and threat modeling to inform our risk identification and assessment. We also work with trusted third-
party information security providers to deploy technologies designed to detect any unusual activities in our systems, attempts to access
our systems, and guard against other security threats. As discussed in more detail under “Cybersecurity Governance” below, our audit
committee provides oversight of our cybersecurity risk management and strategy processes, which are led by our Head of Information
Technology (“IT”).
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We also identify our cybersecurity threat risks by comparing our processes to industry standards, as well as by engaging
experts to attempt to infiltrate our information systems. To provide for the availability of critical data and systems, maintain regulatory
compliance, manage our material risks from cybersecurity threats, and protect against and respond to cybersecurity incidents, we
undertake the following activities:
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monitor emerging data protection laws and implement changes to our processes that are designed to comply with such
laws;
through our policies, practices and contracts (as applicable), require employees, as well as third parties that provide
services on our behalf, to treat confidential information and data with care;
employ technical safeguards that are designed to protect our information systems from cybersecurity threats, including
firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated
and improved through vulnerability assessments and cybersecurity threat intelligence;
provide training for our employees regarding cybersecurity threats as a means to equip them with effective tools to
address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and
practices;
leverage incident handling framework to help us identify, protect, detect, respond and recover when there is an actual or
potential cybersecurity incident; and
carry information security risk insurance that provides protection against the potential losses arising from a cybersecurity
incident.
Our incident response plan coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity
incidents, which include processes to triage, assess severity for, escalate, contain, investigate and remediate the incident, as well as to
comply with potentially applicable legal obligations and mitigate damage to our business and reputation. As part of our processes, we
regularly engage with consultants, auditors and other third parties, including having a third-party review our cybersecurity program to
help identify areas for continued focus, improvement and compliance. Our incident response plan requires that suspected
cybersecurity incidents are promptly reported to our Controller and Chief Human Resource Officer and includes an escalation path to
our Chief Executive Officer, executive leadership team, and board of directors.
We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity
incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of
operations, or financial condition, under the heading “Our internal computer systems, or those of our contract research organizations
or other contractors or consultants, may fail or suffer cybersecurity incidents, which could result in a material disruption of our
product development programs, and could subject us to liability,” which disclosures are incorporated by reference herein.
In the last three fiscal years, we have not experienced any material cybersecurity incidents.
Cybersecurity Governance; Management
Cybersecurity is an important part of our risk management processes and an area of focus for our board of directors and
management. In general, our board of directors oversees risk management activities designed and implemented by our management,
and considers specific risks, including, for example, risks associated with our strategic plan, business operations, and capital structure.
Our board of directors executes its oversight responsibility for risk management both directly and through delegating oversight of
certain of these risks to its committees, and our board of directors has authorized our audit committee to oversee risks from
cybersecurity threats.
Our audit committee receives updates from management of our cybersecurity threat risk management and strategy processes.
The audit committee receives information regarding current and emerging material cybersecurity threat risks and our ability to
mitigate those risks. Our board of directors receives prompt and timely information regarding any cybersecurity incident that meets
established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed.
Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Head
of IT. This individual has over ten years of information technology and cybersecurity work experience. This risk management team
member is informed about and monitors the prevention, mitigation, detection, and remediation of cybersecurity incidents through their
management of, and participation in, the cybersecurity risk management and strategy processes described above, including the
operation of our incident response plan. This risk management team member reports to the audit committee of our board of
directors about cybersecurity threat risks, among other cybersecurity related matters.
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Item 2. Properties.
Our headquarters are located in Cambridge, Massachusetts, where we lease approximately 23,400 square feet of office space.
Our lease extends through July 2027. We believe that our existing facilities will be sufficient to meet our current needs.
Item 3. Legal Proceedings.
Two putative class action lawsuits were filed against us and certain of our officers in the United States District Court for the
Eastern District of New York, one captioned Richard S. Germond v. Spero Therapeutics, Inc., Ankit Mahadevia, and Satyavrat
Shukla, Case No. 1:22-cv-03125, filed on May 26, 2022, and the other captioned Kashif Memon v. Spero Therapeutics, Inc., Ankit
Mahadevia, and Satyavrat Shukla Case No. 1:22-cv-04154, filed on July 15, 2022. The parties moved to consolidate the two
complaints on July 22, 2022, which were ordered consolidated on August 5, 2022 (“Consolidated Putative Class Action”). The parties
filed an Amended Complaint on December 5, 2022, purported to be brought on behalf of stockholders who purchased our common
stock from September 8, 2020 through May 2, 2022. The Amended Complaint generally alleges that we and certain of our current and
former officers violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by making allegedly
false and/or misleading statements concerning the NDA for tebipenem HBr in an effort to lead investors to believe that the drug would
receive approval from the FDA. Plaintiffs seek unspecified damages, interest, attorneys’ fees, and other costs. We filed a fully-briefed
Motion to Dismiss on June 21, 2023. The Court has not yet ruled on the Motion.
A stockholder derivative action was filed against us, as nominal defendant, and certain of our officers in the United States
District Court for the District of Delaware, captioned Marti v. Mahadevia, et al., Case. No. 1:23-cv-01133-RGA (the “Derivative
Complaint”), on October 11, 2023. The plaintiffs both purport to be current stockholders, and the allegations are primarily the same as
those made in the Consolidated Putative Class Action. The Derivative Complaint was transferred to the Eastern District of New York
on November 13, 2023, and stayed by party agreement pending outcome of the Motion to Dismiss the class action on November 20,
2023. A second stockholder derivative action was filed against us, as nominal defendant, and certain of our officers in the Supreme
Court of the State of New York, Kings County, captioned Heil v. Mahadevia, et al., Case. No. 505153/2024 (the “Second Derivative
Complaint”), on February 21, 2024. The Second Derivative Complaint makes primarily the same allegations as the First Derivative
Complaint, and the Consolidated Putative Class Action
We deny any allegations of wrongdoing and intend to vigorously defend against these lawsuits. However, there is no assurance
that we will be successful in our defense or that insurance will be available or adequate to fund any settlement or judgment or the
litigation costs of these actions. Moreover, we are unable to predict the outcomes or reasonably estimate a range of possible loss at this
time.
Additional lawsuits against us and certain of our officers or directors may be filed in the future. If additional similar complaints
are filed, absent new or different allegations that are material, we will not necessarily announce such additional filings.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been publicly traded on the Nasdaq Global Select Market under the symbol “SPRO” since the initial
public offering of our common stock on November 2, 2017. Prior to that time, there was no public market for our common stock.
Holders of Record
As of March 8, 2024, we had approximately eight stockholders of record of our common stock. The actual number of
stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are
held in street name by brokers and other nominees.
Dividends
We have never declared or paid cash dividends on our capital stock since our inception. We currently intend to retain all
available funds and future earnings, if any, for use in the operation of our business and do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of
our board of directors and will depend on various factors, including applicable laws, our results of operations, our financial condition,
our capital requirements, general business conditions, our future prospects and other factors that our board of directors may deem
relevant. Additionally, our ability to pay dividends on our capital stock could be limited by terms and covenants of any future
indebtedness.
Purchases of Equity Securities by the Issuer
None.
Item 6. [Reserved]
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Item 7. 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 together with our
consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including
information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and
uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on
Form 10-K, our actual results could differ materially from the results described in, or implied by, the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying and developing novel treatments for rare
diseases and and diseases caused by MDR bacterial infections with high unmet need. Our wholly-owned lead product candidate,
SPR720, is an oral antimicrobial agent in development for the treatment of NTM pulmonary disease, a rare orphan disease. We
believe that SPR720, if successfully developed and approved, has the potential to be the first approved oral agent for NTM pulmonary
disease in treatment-naïve and treatment-experienced and non-refractory patients. Our partner-directed programs consist of tebipenem
HBr and SPR206. Tebipenem HBr is designed to be the first oral carbapenem-class antibiotic for use to treat cUTIs, including
pyelonephritis, caused by certain microorganisms, in adult patients who have limited oral treatment options. SPR206 is an IV-
administered antibiotic that has shown activity in preclinical studies against MDR Gram-negative pathogens, including carbapenem-
resistant Enterobacterales, Acinobacter baumannii and Pseudomonas aeruginosa. We are developing SPR206 to treat MDR Gram-
negative bacterial infections in the hospital setting.
We believe that our novel product candidates, if successfully developed and approved, could provide meaningful benefits to
patients suffering from serious rare orphan diseases and life-threatening bacterial infections, in both the community and hospital
settings. Since our inception in 2013, we have focused substantially all of our efforts and financial resources on acquiring and
developing product and technology rights, building our intellectual property portfolio and conducting research and development
activities for our product candidates. We do not have any products approved for sale and have not generated any revenue from product
sales.
We have experienced net losses and significant cash outflows from cash used in operating activities since our inception through
2022. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and
eventual commercialization of one or more of our product candidates. As of December 31, 2023, we had an accumulated deficit of
$391.1 million, and cash and cash equivalents of $76.3 million. We expect to continue to incur significant expenses and increasing
operating losses for at least the next several years. We believe that our existing cash and cash equivalents will enable us to fund our
operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included
in this report. Based on our current operating plans, we believe that our cash runway will be sufficient to fund us into late 2025.
During this period, we plan to prioritize advancing SPR720 to key Phase 2 milestones, advancing the Phase 3 clinical trial activities
for tebipenem HBr under our GSK License Agreement and advancing SPR206 Phase 2 activities contingent on obtaining non-dilutive
financing. Beyond this point we will need additional funding, which we expect will primarily consist of raising additional capital
through some combination of equity or debt financings, potential new collaborations or additional grant funding. If we are not able to
secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or
eliminate some or all of our planned clinical trials and research stage programs.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain
regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter
into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization
capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with our
continued operation as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a
combination of equity offerings, debt financings, government funding arrangements, collaborations, strategic alliances and marketing,
distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or
arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed,
we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product
candidates.
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Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to
accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even
if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or
terminate our operations.
Components of Our Results of Operations
Sales Revenue
To date, we have not generated any revenue from product sales. If our development efforts for our product candidates are
successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or
to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in
obtaining regulatory approval for any of our product candidates.
Grant Revenue
We expect a portion of our revenue for the next few years will continue to be derived from payments under our active
government awards and any awards that we may enter into in the future.
Collaboration Revenue
Collaboration revenue relates to our agreements with Everest, Pfizer and GSK.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery
efforts, and the development of our product candidates, which include:
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employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for
employees engaged in research and development functions;
expenses incurred in connection with the preclinical and clinical development of our product candidates, including
under agreements with contract research organizations (“CROs”);
costs incurred in connection with our government awards;
the cost of consultants and contract manufacturing organizations (“CMOs”) that manufacture drug products for use in
our preclinical studies and clinical trials;
facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of
facilities, insurance and supplies; and
payments made under third-party licensing agreements.
We expense research and development costs as incurred. Nonrefundable advance payments we make for goods or services to be
received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are
expensed as the related goods are delivered or the services are performed.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external
costs, such as fees paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development
activities. License fees and other costs incurred after a product candidate has been designated and that are directly related to the
product candidate are included in direct research and development expenses for that program. License fees and other costs incurred
prior to designating a product candidate are included in early stage research programs. We do not allocate employee costs, costs
associated with our preclinical programs or facility expenses, including depreciation or other indirect costs, to specific product
development programs because these costs are deployed across multiple product development programs and, as such, are not
separately classified.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of
clinical development, primarily due to the increased size and duration of later-stage clinical trials.
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At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete
the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our
product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:
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successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or
any comparable foreign regulatory authority, including on account of the disruptive impacts of the COVID-19
pandemic;
receipt of marketing approvals from applicable regulatory authorities;
establishment of arrangements with third-party manufacturers to obtain manufacturing supply;
obtainment and maintenance of patent, trade secret protection and regulatory exclusivity, both in the United States and
internationally, including our ability to maintain our license agreement with Meiji with respect to tebipenem HBr;
protection of our rights in our intellectual property portfolio;
launch of commercial sales of our product candidates, if approved, whether alone or in collaboration with others;
acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;
competition with other therapies; and
a continued acceptable safety profile of our product candidates, if approved.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would
significantly change the costs and timing associated with the development of that product candidate. We may never succeed in
obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for
personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated
facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit
services. We also anticipate that we will continue to incur accounting, audit, legal, regulatory, compliance, infrastructure and director
and officer insurance costs, as well as investor and public relations expenses associated with our continued operation as a public
company.
Restructuring
In light of our prior decision to suspend commercialization activities for tebipenem HBr and our strategic restructuring, as
announced in May 2022, our operating expenses were substantially reduced during the year ended December 31, 2022. We expect to
continue to incur research and development and general and administrative expenses in 2024 to support activities under our
subsequently announced GSK License Agreement that closed in November 2022. In connection with our restructuring, during the year
ended December 31, 2022 we incurred approximately $11.6 million of costs in connection with the reduction in workforce related to
severance pay and other restructuring costs. We incurred the majority of the costs associated with our restructuring during the second
quarter of 2022. As of December 31, 2023, all of these costs were paid.
Other Income (Expense)
Interest Income (Expense)
Interest income (expense) consists of interest expense related to the sale of future royalties and interest earned on our cash
equivalents, which are primarily invested in money market accounts, as well as interest earned on our investments in marketable
securities.
Other Income (Expense), Net
Other income (expense), net, consists of insignificant amounts of miscellaneous income, as well as the loss on extinguishment
of liability related to the sale of future royalties, the change in the fair value of our derivative liability, realized and unrealized gains
and losses from foreign currency-denominated cash balances, vendor payables and receivables related to the Australian research and
development tax incentive.
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Income Taxes
We have not recorded any income tax benefits for the net losses we have incurred in each year or for our earned research and
development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net
operating loss carryforwards and tax credits will not be realized. As of December 31, 2023, we had federal and state net operating loss
carryforwards of $94.7 million and $90.9 million, respectively, which may be available to offset future income tax liabilities. All
federal NOLs can be carried forward indefinitely. The state NOLs begin to expire in 2033 and will expire at various dates through
2043. In addition, as of December 31, 2023, we had foreign net operating loss carryforwards of $4.6 million, which may be available
to offset future income tax liabilities and do not expire. As of December 31, 2023, we also had federal and state research and
development tax credit carryforwards of $6.0 million and $2.1 million, respectively, which begin to expire in 2033 and 2028,
respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United
States (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates,
assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures.
We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results
may differ from these estimates under different assumptions or conditions.
We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation
of our financial statements.
Funding Received from Government Contracts and Collaborations
Since our inception, we have been able to obtain partial funding for our research and development activities from government
contracts, government tax incentives and collaboration arrangements. The classification within our statement of operations and
comprehensive loss of the funding received under these arrangements is subject to management judgment based on the nature of the
arrangements we enter into, the source of the funding and whether the funding is considered central to our business operations.
Government Contracts
We generate revenue from government contracts that reimburse us for certain allowable costs for funded projects. For contracts
with government agencies, when we have concluded that we are the principal in conducting the research and development expenses
and where the funding arrangement is considered central to our ongoing operations, we classify the recognized funding received as
revenue. Revenue from government grants is recognized as the qualifying expenses related to the contracts are incurred, provided that
there is reasonable assurance of recoverability. Revenue recognized upon incurring qualifying expenses in advance of receipt of
funding is recorded as unbilled receivables, a component of prepaid expenses and other current assets, in the consolidated balance
sheet.
We recognize funding received from BARDA, the DoD and the NIAID of the NIH, as revenue, rather than as a reduction of
research and development expenses, because we are the principal in conducting the research and development activities and these
contracts are central to our ongoing operations. We recognize revenue only after the qualifying expenses related to the contracts have
been incurred, we are reasonably assured that the expenses will be reimbursed and the revenue is collectible. We record revenue
recognized upon incurring qualifying expenses in advance of billing as unbilled revenue, which is included in other receivables in our
consolidated balance sheet. The related costs incurred by us are included in research and development expense in our consolidated
statements of operations and comprehensive loss.
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Collaboration Agreements
For collaboration agreements with a third party, to determine the appropriate statement of operations classification of the
recognized funding, we first assess whether the collaboration arrangement is within the scope of the accounting guidance for
collaboration arrangements. If it is, we evaluate the collaborative arrangement for proper classification in the statement of operations
based on the nature of the underlying activity and we assess the payments to and from the collaborative partner. If the payments to and
from the collaborative partner are not within the scope of other authoritative accounting guidance, we base the statement of operations
classification for the payments received on a reasonable, rational analogy to authoritative accounting guidance, applied in a consistent
manner. Conversely, if the collaboration arrangement is not within the scope of accounting guidance for collaboration arrangements,
we assess whether the collaboration arrangement represents a vendor/customer relationship. If the collaborative arrangement does not
represent a vendor/customer relationship, we then classify the funding payments received in the statement of operations and
comprehensive loss as a reduction of the related expense that is incurred.
Revenue Recognition - GSK License Agreement
In determining the accounting treatment for the GSK License Agreement, we developed assumptions to determine the stand-
alone selling price for each performance obligation in the contract. We developed the estimated standalone selling price for the license
using a discounted cash flow model. To develop this model, we applied significant judgment in the determination of the significant
assumptions relating to forecasted future revenues, development timelines, the discount rate, and probabilities of technical and
regulatory success. We developed the estimated standalone selling price for the research and development services using a discounted
cash flow model. The assumptions to develop the estimated standalone selling price for the related research and development services
include estimates of costs to be incurred to fulfill its obligations associated with the performance of the research and development
services, plus a reasonable margin.
When an arrangement contains payment terms that are extended beyond one year, a significant financing component may exist.
We assessed our revenue-generating arrangements in order to determine whether a significant financing component exists and
concluded that a significant financing component does exist in certain arrangements. The significant financing component is
calculated as the difference between the stated value and present value of the milestones payable and is recognized as interest income
over the extended payment period. Judgment is used in determining: (1) whether the financing component in a license agreement is
significant and, if so, (2) the discount rate used in calculating the significant financing component.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and
development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable
personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service
providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however,
some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated
financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates
with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses
include fees paid to:
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vendors in connection with the preclinical development activities;
CMOs in connection with the production of preclinical and clinical trial materials;
CROs in connection with preclinical and clinical studies; and
investigative sites in connection with clinical trials.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts
expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies
and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and
may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services
provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be
performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of
effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be
materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the
actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any
particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development
expenses.
80
Share-Based Compensation
We issue stock-based awards to employees and directors in the form of stock options and restricted stock units. We measure and
recognize compensation expense for our stock-based awards granted to our employees and directors based on the estimated grant date
fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718 (“ASC
718”), Compensation—Stock Compensation. We determine the fair value of restricted stock units based on the fair value of our
common stock. We measure all share-based options granted to employees and directors based on the fair value on the date of grant
using the Black-Scholes option-pricing model, and we recognize compensation expense of those awards over the requisite service
period, which is generally the vesting period of the respective award. Generally, we issue awards with only service-based vesting
conditions and record the expense for these awards using the straight-line method. The Black-Scholes option-pricing model uses as
inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our
common stock options and performance-based awards, the risk-free interest rate for a period that approximates the expected term of
our common stock options and performance-based awards, and our expected dividend yield. We have also granted certain awards with
performance-based criteria.
Restructuring
We made estimates and judgments regarding the amount and timing of our restructuring expense and liability, including one-
time termination benefits and other exit costs accounted for upon the announcement of our restructuring in May 2022. Restructuring
charges are reflected in our consolidated statements of income.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:
Year Ended December 31,
2022
2023
$ Change
Revenues:
Grant revenue
Collaboration revenue - related party
Collaboration revenue
Total revenues
Operating expenses:
Research and development
General and administrative
Impairment of long-term asset
Restructuring
Total operating expenses
Income (loss) from operations
Other income (expense):
Interest income
Other income (expense), net
Interest expense related to the sale of future royalties
Loss on extinguishment of liability related to the sale of future
royalties
Change in fair value of derivative liability
Total other income (expense), net
Net income (loss) before income taxes
Income tax expense
Net income (loss)
$
81
$
$
7,046
95,802
933
103,781
$
4,930
46,076
2,503
53,509
51,440
25,554
5,306
—
82,300
21,481
3,937
(14)
—
—
—
3,923
25,404
(2,598)
22,806
47,593
36,483
—
11,630
95,706
(42,197)
1,106
(55)
(2,605)
(3,581)
917
(4,218)
(46,415)
—
(46,415) $
$
2,116
49,726
(1,570)
50,272
3,847
(10,929)
5,306
(11,630)
(13,406)
63,678
2,831
41
2,605
3,581
(917)
8,141
71,819
(2,598)
69,221
Grant Revenue
BARDA Contract (Tebipenem HBr)
NIAID Contract (SPR206)
DoD Agreement (SPR206)
Total revenue
Year Ended December 31,
2022
2023
$
$
4,361
2,685
—
7,046
$
$
2,178
1,736
1,016
4,930
$
$
$ Change
2,183
949
(1,016)
2,116
Grant revenue recognized during 2023 and 2022 consisted of the reimbursement of qualifying expenses incurred in connection
with our various government awards. The increase in revenue during 2023 was primarily due to an increase of $2.2 million in funding
under our BARDA contract for tebipenem HBr and an increase of $0.9 million in qualified expenses incurred under our NIAID award
relating to SPR206, partially offset by a decrease funding of $1.0 million under our DoD agreement relating to SPR206.
Collaboration Revenue - Related Party
During the years ended December 31, 2023 and 2022, collaboration revenue - related party related to revenue recognized under
the GSK License Agreement. During the year ended December 31, 2023, we recognized $95.8 million in collaboration revenue -
related party, of which $21.2 million was recognized upon achievement of the $30.0 million milestone under the GSK License
Agreement and $64.7 million upon achievement of the $95.0 million milestone under the GSK License Agreement. During the year
ended December 31, 2022 we recognized collaboration revenue - related party of $46.1 million.
Collaboration Revenue
During the year ended December 31, 2023 we recognized $0.9 million in collaboration revenue related to our agreement with
Pfizer. During the year ended December 31, 2022 we recognized collaboration revenue of $1.8 million related to our agreement with
Pfizer and $0.7 million related to milestones earned under our agreement with Everest.
Research and Development Expenses
Direct research and development expenses by program:
SPR720
Tebipenem HBr
SPR206
Unallocated expenses:
Personnel related (including share-based compensation)
Facility related and other
Total research and development expenses
Year Ended December 31,
2022
2023
$ Change
$
$
13,031
16,695
3,240
13,788
4,686
51,440
$
$
2,793
17,064
4,424
18,918
4,394
47,593
$
$
10,238
(369)
(1,184)
(5,130)
292
3,847
Direct costs related to our SPR720 program increased by $10.2 million during 2023 compared to 2022, due to increased clinical
activity during the period related to our ongoing Phase 2a clinical trial of SPR720, which we initiated in the fourth quarter of 2022.
We expect to continue to incur direct costs related to SPR720 as we continue to screen and enroll patients and progress clinical
activities.
Direct costs related to our tebipenem HBr program decreased by $0.4 million during 2023 compared to 2022 as we progressed
clinical and preclinical activities related to our PIVOT-PO Phase 3 trial of tebipenem HBr, which we initiated in the fourth quarter of
2023. We expect to continue to incur direct costs related to tebipenem HBr as we continue to progress PIVOT-PO. During the years
ended December 31, 2023 and 2022, direct costs related to tebipenem HBr included $0.9 million and $6.6 million paid to Meiji,
respectively, as a percentage of certain amounts received from any sublicensees, out of the $7.5 million we were obligated to pay
under the Meiji License.
Direct costs related to our SPR206 program decreased by $1.2 million during the year ended December 31, 2023, primarily due
to decreased preclinical activity and expenses associated with formulation development, manufacturing process and manufacturing of
clinical trial material during the period. We expect to continue to incur direct costs related to SPR206 as we progress preclinical and
clinical activities.
The decrease in personnel-related costs of $5.1 million was primarily due to decreased research and development headcount
costs related to our strategic restructuring. Personnel-related costs for the years ended December 31, 2023 and 2022 included share-
based compensation expenses of $2.7 million and $3.7 million, respectively.
82
Facility-related and other costs primarily reflect costs related to supporting our research and development staff.
General and Administrative Expenses
Personnel related (including share-based compensation)
Professional and consultant fees
Facility related and other
Total general and administrative expenses
Year Ended December 31,
2022
2023
$
$
15,324
8,151
2,079
25,554
$
$
20,433
12,140
3,910
36,483
$
$
$ Change
(5,109)
(3,989)
(1,831)
(10,929)
The decrease in personnel-related costs of $5.1 million was primarily a result of decreased headcount costs in our commercial
and general and administrative functions as a result of our strategic restructuring. Personnel-related costs for the years ended
December 31, 2023 and 2022 included share-based compensation expense of $5.3 million and $5.4 million, respectively.
The decrease in professional and consultant fees of $4.0 million was primarily due to decreased commercial operation expenses,
offset by legal and consulting expenses incurred during the year ended December 31, 2023.
Facility-related and other costs primarily reflect costs related to supporting our general and administrative staff.
Impairment of Long-Term Asset
In 2023, we concluded that we have no future use for the Savior facility (further described in Note 14 – License, Collaboration
and Service Agreements to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K). As such,
we fully impaired this long-term asset and recorded an impairment expense of $5.3 million on the consolidated statement of operations
during the year ended December 31, 2023.
Income Tax Expense
During the year ended December 31, 2023, we recorded $2.6 million of income tax expense primarily related to a change in
estimate with respect to the tax treatment of the GSK License Agreement.
Restructuring
During the year ended December 31, 2022, we incurred restructuring expenses of $11.6 million related to our strategic
restructuring that we announced in May 2022. Restructuring expenses for the period were primarily comprised of $8.6 million of
severance and other employee costs and $3.0 million of discontinuation costs such as contract termination fees and lease impairment
expenses. For further information, refer to Note 10 – Restructuring to the consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K.
Other Income (Expense), Net
Other income (expense), net was $3.9 million during 2023, compared to $(4.2) million during 2022. Total other income for the
year ended December 31, 2023 included $3.9 million of interest income, offset by fluctuations in unrealized foreign currency. Total
other expense for the year ended December 31, 2022 included $2.6 million in interest expense related to the sale of future royalties,
$3.6 million in loss on extinguishment of liability related to the sale of future royalties and net immaterial changes primarily due to
fluctuations in unrealized foreign currency gains, offset by a $0.9 million net change in derivative liability and $1.1 million in interest
income.
83
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have recognized revenue to date from funding
arrangements with the DoD, NIAID, CARB-X and BARDA, the GSK License Agreement and our license agreements with Everest
and Pfizer. We have not yet commercialized any of our product candidates and we may not generate revenue from sales of any
product candidates. To date, we have funded our operations with payments received under license and collaboration agreements and
funding from government contracts, and from the proceeds of multiple common stock offerings. As of December 31, 2023, we had
cash and cash equivalents of $76.3 million.
Below is a summary of some of the items impacting our liquidity and capital resources in 2023:
In July 2023, we received written agreement from the FDA, under a SPA, on the design and size of PIVOT-PO, a pivotal
Phase 3 clinical trial of tebipenem HBr in patients with cUTI, including AP. Under the terms of the GSK License
Agreement, we received a $30.0 million development milestone payment during the third quarter of 2023.
During the year ended December 31, 2023, we sold 144,476 shares of our common stock under the Sales Agreement at an
average price of approximately $1.58 per share for aggregate gross proceeds of approximately $0.2 million prior to
deducting sales commissions.
•
•
Cash Flows
The following table summarizes our sources and uses of cash for the years ended December 31, 2023 and 2022:
Cash used in operating activities
Cash provided by investing activities
Cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
Year Ended December 31,
2022
2023
$
$
(32,995) $
—
221
(32,774) $
(7,731)
33,807
(29,553)
(3,477)
Net cash used in operating activities for the year ended December 31, 2023 was $33.0 million, primarily resulting from our net
income of $22.8 million, adjusted for net non-cash items of $14.6 million (primarily due to stock-based compensation and asset
impairment). Net cash used by our operating assets and liabilities was $70.4 million and consisted primarily of a $95.7 million
increase in our related party collaboration receivable, $29.0 million net increase in deferred revenue and a decrease of $1.7 million in
accrued expenses and accounts payable.
Net cash used in operating activities for the year ended December 31, 2022 was $7.7 million, primarily resulting from our net
loss of $46.4 million, adjusted for net non-cash items of $16.6 million (primarily stock-based compensation, interest expense
associated with the sale of future royalties, loss on extinguishment of liability related to the sale of future royalties, change in the value
of derivative liabilities and depreciation and amortization expense). Net cash provided by changes in our operating assets and
liabilities was $22.1 million and consisted primarily of a $21.9 million net increase in deferred revenue, a decrease of $5.9 million in
accrued expenses and accounts payable, a $5.2 million decrease in prepaid expenses and other current assets and a $1.5 million net
decrease in receivables related to our tax incentive receivables and government awards.
Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other current assets in all
periods were generally due to the advancement of our development programs, the timing of vendor invoicing and payments and write-
offs during the second quarter of 2022 related to our strategic restructuring. Changes in deferred revenue are primarily related to the
GSK License Agreement and our license agreement with Pfizer. Changes in collaboration receivable related to the GSK License
Agreement.
Investing Activities
We did not undertake any investing activities during the year ended December 31, 2023.
Net cash provided by investing activities for the year ended December 31, 2022 was $33.8 million, primarily related to the
maturities of marketable securities of $60.8 million, offset by purchases of marketable securities of $27.0 million.
84
Financing Activities
Cash provided by financing activities during the year ended December 31, 2023 was $0.2 million, due to the $0.2 million net
sales of common stock under our Sales Agreement.
Net cash used in financing activities for the year ended December 31, 2022 was $29.6 million, consisting primarily of the $54.5
million repayment of our liability related to the sales of future royalties, partially offset by net proceeds of $14.2 million from the sale
of common stock under our “at-the-market” offering program Sales Agreement, proceeds of $9.0 million related to our GSK SPA, and
proceeds of $0.4 million from the exercise of employee stock options.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we advance our clinical programs
and prepare for possible commercialization of one or more of our product candidates. In addition, we expect to incur additional costs
associated with our continued operation as a public company. The timing and amount of our operating expenditures will depend
largely on:
•
•
•
•
•
•
•
•
•
•
•
the timing and costs of our ongoing and planned clinical trials;
the initiation, progress, timing, costs and results of preclinical studies and clinical trials of our product candidates and
potential new product candidates;
the amount of funding that we receive under government contracts that we have applied for;
the number and characteristics of product candidates that we pursue;
the outcome, timing and costs of seeking regulatory approvals;
the costs of commercialization activities for our product candidates if we receive marketing approval, including the
costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
the terms and timing of any future collaborations, licensing or other arrangements that we may establish;
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the
licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including
milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license
agreements;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property
rights and defending against any intellectual property related claims;
the costs of operating as a public company; and
the extent to which we in-license or acquire other products and technologies.
As of December 31, 2023, we had cash and cash equivalents of $76.3 million. In accordance with ASU 2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we are required to evaluate whether there
are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern
from the issuance date of our financial statements. We believe that our existing cash and cash equivalents will enable us to fund our
operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included
in this report. Based on our current operating plans, we believe that our cash runway will be sufficient to fund us into late 2025.
Beyond this point we will need additional funding, which primarily consist of raising additional capital through some
combination of equity or debt financings, potential new collaborations, additional grant funding and/or reducing cash expenditures. If
we are not able to secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay,
scale back, or eliminate some or all of our planned clinical trials and research stage programs.
We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources
sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization
of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future
funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a
combination of equity offerings, debt financings, government funding, collaborations, strategic alliances and marketing, distribution or
85
licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our
stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or
marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. There is
ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of
developments in financial markets, including relating to the COVID-19 pandemic, our operations and financial condition could be
adversely impacted. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed,
we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant
rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2023 and the effects that such obligations are
expected to have on our liquidity and cash flows in future periods:
Payments Due by Period
Total
Less Than 1
Year
1 to 3 Years
(in thousands)
4 to 5 Years
More than 5
Years
Operating lease commitments (1)
Total
$
6,576
6,576
$
1,718
1,718
$
4,858
4,858
$
1,156
1,156
$
—
—
(1) Reflects payments due for our lease of office space under an operating lease agreement that expires in 2027.
As further described below, under various licensing and related agreements with third parties, we have agreed to make milestone
payments and pay royalties to third parties. We have not included any contingent payment obligations, such as milestones or royalties,
in the table above as the amount, timing and likelihood of such payments are not known.
Under our license agreement with Meiji, we are obligated (i) to make future milestone payments of up to $1.0 million upon the
achievement of specified clinical and regulatory milestones for tebipenem HBr and (ii) to pay royalties, on a product-by-product and
country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.
Under an agreement we entered into with PBB, we are obligated to make milestone payments of up to $5.8 million upon the
achievement of specified clinical milestones and a payment of £5.0 million ($6.4 million as of December 31, 2023) upon the
achievement of a specified commercial milestone for SPR206. In addition, we have agreed to pay to PBB royalties, on a product-by-
product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.
Under our agreement with Vertex, we are obligated to make future milestone payments of up to $80.2 million upon the
achievement of specified clinical, regulatory and commercial milestones related to SPR720 and to pay to Vertex tiered royalties, on a
product-by-product and country-by-country basis, of a mid single-digit to low double-digit percentage based on net sales of products
licensed under the agreement.
We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical
research studies and testing, manufacturing and other services. These contracts are cancelable by us upon prior notice. Payments due
upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our
service providers, up to the date of cancellation. These payments are not included in the table of contractual obligations and
commitments above.
Recently Adopted Accounting Pronouncements
Please refer to Note 2 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our
business.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As of December 31, 2023, we had cash and cash equivalents of $76.3 million, consisting of cash and money market accounts.
The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without
86
significantly increasing risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the
general level of United States interest rates. We did not have any assets classified as marketable securities as of December 31, 2023.
As we incur research expenses in foreign countries, we face exposure to movements in foreign currency exchange rates, primarily the
Euro, British Pound and Australian dollar against the United States dollar. Historically, foreign currency fluctuations have not had a
material impact on our consolidated financial statements.
87
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) .............................................................................
Consolidated Balance Sheets..........................................................................................................................................................
Consolidated Statements of Operations and Comprehensive Loss ................................................................................................
Consolidated Statements of Convertible Preferred Shares and Stockholders’ Equity ...................................................................
Consolidated Statements of Cash Flows ........................................................................................................................................
Notes to Consolidated Financial Statements ..................................................................................................................................
Page
89
91
92
93
94
95
88
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Spero Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Spero Therapeutics, Inc. and its subsidiaries (the “Company”) as of
December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, of convertible preferred
shares and stockholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, the Company will require additional financing to fund future
operations. Management’s evaluation of the events and conditions and management’s plans to mitigate these matters are also
described in Note 1.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
External Research and Development Costs
As described in Note 2 to the consolidated financial statements, research and development costs are expensed as incurred. The
Company’s research and development expense for the year ended December 31, 2023 was $51.4 million, a significant portion of
which relates to external research and development costs. Management recognizes external research and development costs based on
an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers. This
process involves reviewing open contracts and purchase orders, communicating with applicable personnel to identify services that
have been performed on the Company’s behalf, and estimating the level of service performed and the associated cost incurred for the
service when the Company has not yet been invoiced or otherwise notified of actual costs.
89
The principal consideration for our determination that performing procedures relating to external research and development costs is a
critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s external research and
development costs.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included, among others, testing external research and development costs on
a sample basis, by obtaining and inspecting source documentation such as the underlying contract research organization and contract
manufacturing organization agreements, purchase orders, invoices received, and information received from certain third-party service
providers, where applicable.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 13, 2024
We have served as the Company’s auditor since 2016.
90
SPERO THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit, share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Collaboration receivable, current - related party
Other receivables
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Collaboration receivable, non-current - related party
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities
Income taxes payable
Deferred revenue, current
Deferred revenue, current - related party
Total current liabilities
Non-current operating lease liabilities
Deferred revenue, non-current
Deferred revenue, non-current - related party
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued and
outstanding as of December 31, 2023 and 2022
Common stock, $0.001 par value; 120,000,000 shares authorized as of December 31,
2023 and 2022; 52,999,680 shares issued and outstanding as of December 31, 2023
and 52,456,195 shares issued and outstanding as of December 31, 2022
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2023
December 31,
2022
$
$
$
$
$
$
$
76,333
49,152
1,545
4,178
131,208
2
4,155
46,590
435
182,390
1,378
6,557
1,718
387
2,132
24,981
37,153
3,825
10,825
23,606
87
75,496
109,107
—
1,084
3,379
113,570
368
5,124
—
5,740
124,802
617
8,973
1,690
—
4,149
6,220
21,649
4,957
9,741
12,425
96
48,868
—
—
53
497,913
(391,072)
—
106,894
182,390
$
52
489,760
(413,878)
—
75,934
124,802
The accompanying notes are an integral part of these consolidated financial statements.
91
SPERO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Revenues:
Grant revenue
Collaboration revenue - related party
Collaboration revenue
Total revenues
Operating expenses:
Research and development
General and administrative
Impairment of long-term asset
Restructuring
Total operating expenses
Income (loss) from operations
Other income (expense):
Interest income
Other income (expense), net
Interest expense related to the sale of future royalties
Loss on extinguishment of liability related to the sale of future royalties
Change in fair value of derivative liability
Total other income (expense), net
Net income (loss) before income taxes
Income tax expense
Net income (loss)
Net income (loss) per share attributable to common stockholders, basic
Net income (loss) per share attributable to common stockholders, diluted
Weighted average common shares outstanding, basic:
Weighted average common shares outstanding, diluted:
Comprehensive income (loss):
Net income (loss)
Other comprehensive gain (loss):
Unrealized gain on marketable securities
Net unrealized gains (losses) on securities
Total comprehensive income (loss)
Year Ended December 31,
2022
2023
$
7,046
95,802
933
103,781
51,440
25,554
5,306
—
82,300
21,481
3,937
(14)
—
—
—
3,923
25,404
(2,598)
22,806
0.43
0.43
52,703,467
52,989,030
22,806
—
—
22,806
$
$
$
$
4,930
46,076
2,503
53,509
47,593
36,483
—
11,630
95,706
(42,197)
1,106
(55)
(2,605)
(3,581)
917
(4,218)
(46,415)
—
(46,415)
(1.23)
(1.23)
37,585,075
37,585,075
(46,415)
2
2
(46,413)
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
92
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93
SPERO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
Non-cash lease cost
Impairment of assets
Share-based compensation
Unrealized foreign currency transaction (gain) loss
Accretion of premium (discount) on marketable securities
Change in fair value of derivative liabilities
Non-cash interest expense associated with the sale of future royalties
Loss on extinguishment of liability related to the sale of future royalties
Changes in operating assets and liabilities:
Collaboration receivable, current and non-current - related party
Other receivables
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue, current and non-current
Other long-term liabilities
Operating lease liabilities
Income taxes payable
Net cash used in operating activities
Cash flows from investing activities:
Purchases of marketable securities
Proceeds from maturities of marketable securities
Net cash provided by investing activities
Cash flows from financing activities:
Repayment of liability related to the sale of future royalties
Proceeds from the issuance of common stock, net of issuance costs
Proceeds from the issuance of common stock related to the GSK Share Purchase Agreement
Proceeds from stock option exercises
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information
Cash paid for income taxes
$
$
Year Ended December 31,
2023
2022
$
22,806
$
(46,415)
367
969
5,306
7,932
—
—
—
—
—
(95,742)
(461)
(799)
(1)
761
(2,416)
29,009
(9)
(1,104)
387
(32,995)
—
—
—
—
221
—
—
221
(32,774)
109,107
76,333
2,212
$
$
869
678
635
9,123
10
13
(917)
2,605
3,581
—
1,547
5,242
(3)
(484)
(5,377)
21,892
(42)
(688)
—
(7,731)
(26,970)
60,777
33,807
(54,485)
14,234
10,278
420
(29,553)
(3,477)
112,584
109,107
—
The accompanying notes are an integral part of these consolidated financial statements.
94
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business and Basis of Presentation
Spero Therapeutics, Inc., together with its consolidated subsidiaries (the “Company” or “Spero”), is a multi-asset, clinical-stage
biopharmaceutical company focused on identifying and developing novel treatments for rare diseases and diseases caused by multi-
drug resistant (“MDR”) bacterial infections with high unmet need. The Company's wholly-owned lead product candidate, SPR720, is
an oral antimicrobial agent in development for the treatment of nontuberculous mycobacterial (“NTM”) pulmonary disease, a rare
orphan disease. The Company's partnership-directed programs consist of SPR206 and tebipenem HBr. SPR206 is an IV-administered
antibiotic being developed as an innovative option to treat MDR Gram-negative bacterial infections in the hospital setting. Tebipenem
HBr is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use to treat complicated urinary tract infections
(“cUTIs”) including pyelonephritis, caused by certain microorganisms, in adult patients who have limited oral treatment options.
The Company was formed as Spero Therapeutics, LLC in December 2013 under the laws of the State of Delaware. On June 30,
2017, through a series of transactions, Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc. (formerly known as
Spero OpCo, Inc.), a Delaware corporation.
The Company is subject to risks and uncertainties common to companies in the biotechnology industry, including, but not
limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary
technology, compliance with government regulations, risks of failure or unsatisfactory results of nonclinical studies and clinical trials,
the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance
of its product candidates and the ability to secure additional capital to fund operations. The Company’s product candidates will require
additional preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts
of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s
product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product
sales.
The accompanying consolidated financial statements of the Company have been prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its
consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Since inception, the Company has funded its operations with proceeds from sales of preferred units (including bridge units,
which converted into preferred units), payments received in connection with its collaboration and licensing agreements, funding from
government contracts and through the sale of the Company’s common and preferred stock. The Company has incurred recurring
losses since inception through 2022. During the years ended December 31, 2023 and 2022, the Company had net income of $22.8
million and net loss of $46.4 million, respectively. In addition, as of December 31, 2023, the Company had an accumulated deficit of
$391.1 million. The Company expects to continue to generate operating losses for the foreseeable future.
In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in
the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date
that the consolidated financial statements are issued. As of the issuance date of these annual consolidated financial statements, the
Company expects its current operating plan, existing cash and cash equivalents will be sufficient to fund its operating expenses and
capital expenditure requirements for at least 12 months from the issuance date of these annual consolidated financial statements. The
Company will require additional funding to fund the development of its product candidates through regulatory approval and
commercialization, and to support its continued operations. The Company may seek additional funding through public or private
financings, debt financing, collaboration agreements, government grants or other avenues. There is no assurance that the Company
will be successful in obtaining sufficient funding on acceptable terms, if at all, and it could be forced to delay, reduce or eliminate
some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could
materially adversely affect its business prospects or its ability to continue operations.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these
consolidated financial statements include, but are not limited to, revenue recognition, the accrual for clinical trial costs and other
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
research and development expenses and the valuation of share-based awards. There may be changes to those estimates in future
periods. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual
results may differ from those estimates or assumptions.
Segment Information
The Company manages its operations as a single segment for the purposes of assessing performance and making operating
decisions. The Company’s singular focus is on identifying and developing novel treatments for bacterial infections, including MDR
bacterial infections, and rare diseases. All of the Company’s tangible assets are held in the United States.
Concentrations of Credit Risk and of Significant Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash
equivalents. The Company maintains most of its cash and cash equivalents at one accredited financial institution. The Company does
not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company is dependent on third-party manufacturers to supply products for research and development activities in its
programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its
requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be
adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs. As of
December 31, 2023, and 2022, the Company had no off-balance sheet risks, including but not limited to, foreign exchange contracts,
option contracts, or other hedging arrangements.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to
be cash equivalents. Cash and cash equivalents include cash held in banks and money market instruments.
Marketable Securities
Marketable securities consist of investments in corporate obligations with original maturities greater than 90 days. The
Company considers its portfolio of investments to be available-for-sale. Accordingly, these investments are recorded at fair value,
which is based on quoted market prices. Investments with maturities beyond one year are generally classified as short term, based on
their highly liquid nature and because such marketable securities represent the investment of cash that is available for current
operations. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in
stockholders’ equity. Realized gains and losses and declines in value are included as a component of other income (expense), net
based on the specific identification method. Any credit impairments are recorded through an allowance account.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization
expense are recognized using the straight-line method over the estimated useful life of each asset as follows:
Laboratory equipment
Computer software and equipment
Office furniture and equipment
Manufacturing equipment
Leasehold improvements
Estimated Useful Life
5 years
3 years
7 years
5 years
Shorter of life of
lease or 5 years
Costs for capital assets not yet placed into service are capitalized as construction in progress and are depreciated in accordance
with the above guidelines once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated
depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations.
Expenditures for repairs and maintenance are charged to expense as incurred. The Company periodically evaluates whether events and
circumstances have occurred that may warrant revision of the estimated useful life of property and equipment.
96
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique
facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheets as
right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company has elected not to recognize on the
balance sheets leases with terms of one year or less. As of December 31, 2023 and 2022, the Company had no short-term leases with
terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is
reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments
over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives
received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its
incremental borrowing rate (“IBR”), which reflects the fixed rate at which the Company could borrow on a collateralized basis the
amount of the lease payments in the same currency, for a similar term, and in a similar economic environment. Since the Company
does not have any debt and has not been rated by any major credit rating agency, the Company’s IBR was estimated by developing a
synthetic credit rating for the Company.
The Company has elected to account for lease and non-lease components together as a single lease component.
Other Assets
Other assets consist of long-term prepayments and deposits.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment and operating lease right-of-use assets. Long-lived assets to be held and
used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets
may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include
significant underperformance of the business in relation to expectations, significant negative industry or economic trends and
significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset
group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual
disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be
based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must
maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair
value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are
considered observable and the last is considered unobservable:
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or
liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are
observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the
fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above (see
Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-
term nature of these liabilities.
Revenue Recognition - Collaboration Revenue
97
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has entered into licensing agreements that are evaluated under Accounting Standards Codification, Topic 606
(“Topic 606”), Revenue from Contracts with Customers, through which the Company licenses certain of its product candidates’ rights
to a third party. Terms of these arrangements include various payment types, typically including one or more of the following: upfront
license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and/or
royalties on net sales of licensed products.
Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount
that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps:
(i) identify the contract with a customer; (ii) identify the performance obligations under the agreement; (iii) determine the transaction
price, including constraint on variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the
contract; and (v) determine how the revenue will be recognized for each performance obligation. The Company only applies the five-
step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the
goods or services it transfers to a customer.
Once a contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within
each contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services
that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a
material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be
accounted for as a contract modification or as a continuation of the contract for accounting purposes.
The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance
obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the
individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised
goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii)
the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that
is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or
service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, the Company considers factors such as the
research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise
in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or
service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, the Company is
required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is
distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone
selling prices (“SSP”) on a relative SSP basis. The SSP is determined at contract inception and is not updated to reflect changes
between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations
requires significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market
conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the
customer and estimated costs. In certain circumstances, the Company may apply the residual method to determine the SSP of a good
or service if the standalone selling price is considered highly variable or uncertain. The Company validates the SSP for performance
obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the
allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to
which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the
amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the
unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is
constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the
end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction
price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are
recorded on a cumulative catch-up basis in the period of adjustment.
98
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are
considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount
method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the
transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory
approvals, are generally not considered probable of being achieved until those approvals are received.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing
of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a
significant financing component if the expectation at contract inception is such that the period between payment by the licensees and
the transfer of the promised goods or services to the licensees will be one year or less. When an arrangement contains payment terms
that are extended beyond one year, a significant financing component may exist. The Company assessed its revenue-generating
arrangements in order to determine whether a significant financing component exists and concluded that a significant financing
component does exist in certain arrangements. The significant financing component is calculated as the difference between the stated
value and present value of the milestones payable and is recognized as interest income over the extended payment period. Judgment is
used in determining: (1) whether the financing component in a license agreement is significant and, if so, (2) the discount rate used in
calculating the significant financing component.
For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based
on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes
royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to
which the royalty has been allocated has been satisfied.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance
obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use
of an output or input method.
In determining the accounting treatment for these arrangements, the Company develops assumptions to determine the stand-
alone selling price for each performance obligation in the contract. The Company develops the estimated standalone selling price for
the license using a discounted cash flow model. To develop this model, the Company applies significant judgment in the
determination of the significant assumptions relating to forecasted future revenues, development timelines, the discount rate, and
probabilities of technical and regulatory success. The Company develops the estimated standalone selling price for the research and
development services using a discounted cash flow model. The assumptions to develop the estimated standalone selling price for the
related research and development services include estimates of costs to be incurred to fulfill its obligations associated with the
performance of the research and development services, plus a reasonable margin.
Government Tax Incentives
For available government tax incentives that the Company may earn without regard to the existence of taxable income and that
require the Company to forego tax deductions or the use of future tax credits and net operating loss carryforwards, the Company
classifies the funding recognized as a reduction of the related qualifying research and development expenses incurred.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred
in performing research and development activities, including personnel salaries, share-based compensation and benefits, allocated
facilities costs, depreciation, manufacturing expenses, costs related to the Company’s government contract and grant arrangements,
and external costs of outside vendors engaged to conduct preclinical development activities, clinical trials as well as the cost of
licensing technology. Upfront payments and milestone payments made for the licensing of technology are expensed as research and
development in the period in which they are incurred. Advance payments for goods or services to be received in the future for use in
research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are
delivered or the services are performed.
External Research and Development Costs and Accruals
The Company has entered into various research and development contracts with clinical research organizations and other
companies both inside and outside of the United States. These agreements are generally cancelable, and related payments are recorded
as research and development expenses as incurred. The Company recognizes external research and development costs based on an
evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers. This
99
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
process involves reviewing open contracts and purchase orders, communicating with applicable personnel to identify services that
have been performed on the Company’s behalf, and estimating the level of service performed and the associated cost incurred for the
service when the Company has not yet been invoiced or otherwise notified of actual costs. There may be instances in which payments
made to these vendors exceed the level of service provided and will result in a prepayment of the expense. The Company records
accruals for estimated ongoing research and clinical trial costs based on the services received and efforts expended pursuant to
multiple contracts with these vendors. When evaluating the adequacy of the accrued liabilities, the Company analyzes the progress of
the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and
estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the
Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.
Restructuring
The Company made estimates and judgments regarding the amount and timing of its restructuring expense and liability,
including one-time termination benefits and other exit costs accounted for upon the announcement of the restructuring in May 2022.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to
the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.
Share-Based Compensation
The Company issues stock-based awards to employees and directors in the form of stock options and restricted stock units. The
Company measures and recognizes compensation expense for its stock-based awards granted to its employees and directors based on
the estimated grant date fair value in accordance with ASC 718, Compensation—Stock Compensation, and determines the fair value
of restricted stock units based on the fair value of its common stock. The Company measures all share-based options granted to
employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. Compensation
expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award.
The Company records the expense for awards with service-based conditions using the straight-line method over the requisite service
period, net of any actual forfeitures. The Company has also granted certain awards subject to performance-based vesting eligibility
and a subsequent partial time-based vesting schedule. The Company classifies share-based compensation expense in its consolidated
statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in
which the award recipient’s service payments are classified.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss), as well as other changes in stockholders’ equity that result from
transactions and economic events other than those with stockholders. There were no changes during the year ended December 31,
2023. For the year ended December 31, 2022, these changes related to unrealized gains and losses on the Company’s available-for-
sale marketable securities. There were no reclassifications out of comprehensive loss for the years ended December 31, 2023 and
2022.
Net Income (Loss) per Share
The Company follows the two-class method when computing net income (loss) per share, as the Company has issued shares that
meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common
and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The
two-class method requires income available to common stockholders for the period to be allocated between common and participating
securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Net income (loss)
per share attributable to common stockholders is calculated based on net income (loss) attributable to Spero Therapeutics, Inc.
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable
to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income
(loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to
reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to
common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted
average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect
of common stock equivalents.
100
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial
statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between
the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company
assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based
upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized,
a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated
by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-
step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-
not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial
statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being
realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized
tax benefits, that are considered appropriate as well as the related net interest and penalties.
On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law. Under the TCJA provisions, effective with
tax years beginning on or after January 1, 2022, taxpayers can no longer immediately expense qualified research and development
expenditures, including all direct, indirect, overhead and software development costs. Taxpayers are now required to capitalize and
amortize these costs over five years for research conducted within the United States or 15 years for research conducted abroad.
Derivative Liability
In connection with certain transactions, the Company identified certain embedded derivatives, which were recorded as liabilities
on the Company’s consolidated balance sheet and were remeasured to fair value at each reporting date until the derivative was settled.
Changes in the fair value of the derivative liabilities were recognized as other income (expense) in the consolidated statement of
operations and comprehensive loss.
Recently Issued and Adopted Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other
standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise noted, the Company believes
that the impact of recently issued standards that are not yet effective will not have a material impact on its condensed consolidated
financial statements and disclosures.
On March 6, 2024, the SEC approved a rule that will require registrants to provide certain climate-related information in their
registration statements and annual reports. The rule requires information about a registrant's climate-related risks that are reasonably
likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-
related risks also includes disclosure of a registrant's greenhouse gas emissions. In addition, the rules will require registrants to present
certain climate-related financial metrics in their audited financial statements. The Company is evaluating the potential impact of this
rule on the consolidated financial statements and related disclosures.
In December 2023, the FASB ASU 2023-09, Improvements to Income Tax Disclosures. This ASU is related to the disclosure of
rate reconciliation and income taxes paid. This guidance becomes effective for annual periods beginning after December 15, 2024
with early adoption permitted and should be applied on a prospective basis. The Company does not expect this standard to have a
material impact on its consolidated financial statements, but it will require increased disclosures within the notes to the consolidated
financial statements.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. This ASU is related to
reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This
guidance becomes effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15,
2024, with early adoption permitted and should be applied on a retrospective basis. The Company does not expect this standard to
have a material impact on its consolidated financial statements, but it will require increased disclosures within the notes to the
consolidated financial statements.
101
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale
Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of
account of the equity security and, therefore, is not considered in measuring fair value. The ASU also clarifies that an entity cannot, as
a separate unit of account, recognize and measure a contractual sale restriction and requires specific disclosures for equity securities
subject to contractual sale restrictions. The amendments in ASU 2022-03 are effective for fiscal years beginning after December 15,
2023. The Company early adopted this standard during the fourth quarter of 2022 and it did not have a material impact on its
consolidated financial statements and related disclosures.
3. Fair Value Measurements and Marketable Securities
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a
recurring basis (in thousands):
Assets:
Cash equivalents:
Money market funds
Total cash equivalents
Assets:
Cash equivalents:
Money market funds
Total cash equivalents
$
$
Fair Value Measurements at December 31, 2023 Using:
Level 1
Level 2
Level 3
Total
— $
—
75,628 $
75,628
— $
—
75,628
75,628
Fair Value Measurements at December 31, 2022 Using:
Level 1
Level 2
Level 3
Total
— $ 108,227 $
—
108,227
— $ 108,227
108,227
—
Excluded from the tables above is cash of $0.7 million and $0.9 million as of December 31, 2023 and 2022, respectively. During
the years ended December 31, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3 categories.
Embedded Derivative
Liability related to change of control
In connection with the termination of the Revenue Interest Financing Agreement (“Revenue Interest Agreement”) with
HealthCare Royalty Management, LLC (“HCR”), the Company recorded a derivative liability on its condensed consolidated balance
sheet because of an embedded feature that represented a conditional obligation to pay HCR an additional cash amount upon a change
of control. The Company remeasured the derivative liability to fair value at each reporting date until it expired on December 31, 2022,
and at that time the fair value of the derivative liability was reduced to zero. The Company valued the change of control provision
under the Revenue Interest Termination Agreement, dated June 7, 2022, by and between the Company and HCR, using a series of
Black-Scholes-Merton option pricing models. The assumptions used in the valuation model include (1) the Company's estimates of the
probability of a change of control event occurring prior to or as of December 31, 2022, (2) the Company's common stock closing stock
price as of June 7, 2022, (3) the Company's fully-diluted number of shares of common stock outstanding as of June 7, 2022, (4)
volatility, (5) risk-free rate, and (6) the Company's credit-risk-adjusted discount rate.
Liability related to the sale of future royalties
During the year ended December 31, 2021, in connection with the liability related to the sale of future royalties, the Company
recorded a derivative liability on its consolidated balance sheet at inception of its Revenue Interest Agreement because there were
embedded instruments that represented a conditional obligation to pay HCR the final payment. The Revenue Interest Agreement was
terminated on June 7, 2022, and as such, the fair value of this derivative liability was reduced to zero.
The fair value for the liability related to the sale of future royalties at the time of the initial transaction was based on the
Company's current estimates of future royalties expected to be paid to HCR over the remaining patent life of the product, which were
considered Level 3 inputs.
102
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Leasehold improvements
Manufacturing equipment
Computer software and equipment
Office furniture and equipment
Less: Accumulated depreciation and amortization
Total property and equipment, net
December 31,
2023
2022
$
$
1,636 $
1,338
437
209
3,620
(3,618)
2 $
1,636
1,338
437
209
3,620
(3,252)
368
Depreciation and amortization expense related to property and equipment was $0.4 million and $0.7 million for the years ended
December 31, 2023 and 2022, respectively.
5. Leases
Operating Leases
The Company has entered into, and subsequently amended, an operating lease agreement with respect to its corporate
headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts where the Company leases approximately
23,400 square feet of office space. The Company's lease extends through July 2027.
For the years ended December 31, 2023 and 2022, the components of operating lease expense were as follows (in thousands):
Operating lease expense
Fixed operating lease expense
Statement of Operations Location
Research and development expense
General and administrative expense
December 31, 2023
1,048
$
559
December 31, 2022
824
$
772
Variable operating lease expense
Research and development expense
General and administrative expense
12
7
56
59
Total operating lease expense
$
1,626
$
1,711
Supplemental cash flow information related to the Company’s operating leases for the years ended December 31, 2023 and
2022, was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
1,690
$
1,514
December 31,
2023
December 31,
2022
103
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the lease balances within the consolidated balance sheet, weighted average remaining lease term,
and the weighted average discount rates related to the Company’s operating and finance leases as of December 31, 2023 and 2022 (in
thousands, except for the weighted average remaining lease term and the weighted average discount rate):
Lease Assets and Liabilities
Assets
Operating
Financing
Total leased assets
Liabilities
Current
Operating
Non-Current
Operating
Total lease liabilities
Weighted average remaining lease term
(in years)
Weighted average discount rate
Classification
December 31, 2023
December 31, 2022
Operating lease right-of-use assets $
Property and equipment, net
Operating lease liabilities
Non-current operating lease
liabilities
$
$
$
4,155
—
4,155
$
$
5,124
201
5,325
1,718
$
1,690
3,825
5,543
$
4,957
6,647
3.6
9.8%
4.6
9.8%
The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2023 (in thousands):
Years Ending December 31,
2024
2025
2026
2027
Total future minimum lease payments
Less imputed interest
Total operating lease liabilities
1,718
1,746
1,956
1,156
6,576
(1,033)
5,543
$
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued payroll and related expenses
Accrued external research and development expenses
Accrued professional fees
Accrued restructuring expenses
Accrued other
Total Accrued expenses and other current liabilities
December 31,
2023
December 31,
2022
$
$
3,339
2,274
708
—
236
6,557
$
$
5,797
1,823
696
448
209
8,973
7. Equity
Convertible Preferred Shares
Series A, Series B, Series C, and Series D Convertible Preferred Stock
The Company has designated 2,220 of the 10,000,000 authorized shares of preferred stock as Series A Preferred Stock, 1,000
of the 10,000,000 authorized shares of preferred stock as Series B Preferred Stock, 3,333 of the 10,000,000 authorized shares of
preferred stock as Series C Preferred Stock, and 3,215,000 of the 10,000,000 authorized shares of preferred stock as Series D
Preferred Stock. As of December 31, 2023, all of the Company's shares of preferred stock have been converted to common stock.
104
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each share of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock was convertible into 1,000
shares of common stock at any time at the option of the holder, provided that the holder was prohibited from converting the Series A
Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock into shares of common stock if, as a result of such conversion,
the holder, together with its affiliates, would own more than 9.99% of the total number of shares of common stock then issued and
outstanding, subject to certain exceptions. The shares of Series D Preferred Stock were convertible on a one-to-one basis into shares of
common stock at any time at the option of the holder, provided that the holder was prohibited from converting the Series D Preferred
Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than
9.99% of the total number of shares of common stock then issued and outstanding, subject to certain exceptions. Shares of Series A
Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock generally had no voting rights, except as required by law and
except that the consent of holders of a majority of the then outstanding Series A Preferred Stock, Series B Preferred Stock, or Series C
Preferred Stock was required to amend the terms of the Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock, respectively. As such, the Company classified the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred
Stock within permanent equity in its consolidated balance sheet.
Conversions
In February 2021, a holder of the Company’s Series B Preferred Stock elected to convert 62 shares of Series B Preferred Stock
into 62,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such
Series B Preferred Stock. In addition, a holder of the Company’s Series C Preferred Stock elected to convert 73 shares of Series C
Preferred Stock into 73,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of
designation for such Series C Preferred Stock.
In June 2022, a holder of the Company’s Series B Preferred Stock elected to convert 938 shares of Series B Preferred Stock into
938,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series B
Preferred Stock. In addition, a holder of the Company’s Series D Preferred Stock elected to convert 942,000 shares of Series D
Preferred Stock into 942,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of
designation for such Series D Preferred Stock.
In September 2022, a holder of the Company’s Series C Preferred Stock elected to convert the remaining 2,214 shares of Series
C Preferred Stock into 2,214,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of
designation for such Series C Preferred Stock. In addition, a holder of the Company’s Series D Preferred Stock elected to convert the
remaining 2,273,000 shares of Series D Preferred Stock into 2,273,000 shares of the Company’s common stock, pursuant to such
holder’s rights under the certificate of designation for such Series D Preferred Stock.
As of December 31, 2023, all of the Company's shares of preferred stock have been converted to common stock.
Common Stock
“At-the-Market” Offering
On March 11, 2021, the Company entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.
(“Cantor”) and filed a universal shelf registration statement on Form S-3 (Registration No. 333-254170), which became effective on
March 29, 2021, and pursuant to which the Company registered for sale up to $300.0 million of any combination of its common stock,
preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may
determine, including up to $75.0 million of its common stock available for issuance pursuant to the “at-the-market” offering program
Sales Agreement. The Form S-3 will expire on March 29, 2024.
Under the Sales Agreement, Cantor may sell shares of the Company’s common stock by any method permitted by law deemed
to be an “at the market” offering as defined in Rule 415 of the Securities Act, subject to the terms of the Sales Agreement.
During year ended December 31, 2023, the Company sold 144,476 shares of its common stock under the Sales Agreement at an
average price of approximately $1.58 per share for aggregate gross proceeds of approximately $0.2 million prior to deducting sales
commissions. During year ended December 31, 2022 the Company sold 5,963,294 shares of its common stock under the Sales
Agreement at an average price of approximately $2.46 per share for aggregate gross proceeds of approximately $14.7 million prior to
deducting sales commissions.
105
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to December 31, 2023, the Company did not sell any shares of its common stock under the Sales Agreement.
GSK License and Share Purchase Agreements
Concurrently with the execution of the GSK License Agreement, on September 21, 2022 (the “GSK Effective Date”), the
Company entered into a stock purchase agreement (the “GSK SPA”) with Glaxo Group Limited (“GGL”), an affiliate of GSK, which
closed on November 7, 2022 (the “GSK Closing Date”), and pursuant to which GGL purchased on the GSK Closing Date 7,450,000
shares (the “GSK Shares”) of the Company’s common stock at a purchase price of approximately $1.20805 per share, which
represented a discount on the closing price of the Company's common stock on November 4, 2022, for an aggregate purchase price of
$9.0 million. The GSK SPA contains certain standstill, lock-up and registration rights provisions. Upon closing, the Company
recorded the fair market value of the shares issued in stockholders’ equity in its condensed consolidated balance sheets.
The fair market value of 7,450,000 GSK Shares issued under the GSK SPA was $10.3 million. The GSK Shares were valued
using an option pricing valuation model as the shares are subject to certain holding period restrictions. The Company accounted for
the associated discount of $1.3 million as a freestanding equity-linked instrument under ASC 815. The discount was allocated as
consideration for the GSK License Agreement and evaluated under ASC 606. The discount was determined not to be constrained and
was included in the calculation of the total transaction price related to the GSK License Agreement as of the GSK Effective Date of
the transaction. Refer to Note 14 for further discussion.
The GSK Shares were issued and sold without registration under the Securities Act in reliance on the exemptions provided by
Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under
applicable state laws. Refer to Note 14 for further discussion.
8. Share-Based Compensation
2017 Stock Incentive Plan
On June 28, 2017, the Company’s stockholders approved the 2017 Stock Incentive Plan (the “2017 Plan”). The 2017 Plan
provides for the grant of incentive stock options, nonstatutory stock options, stock grants and stock-based awards. The 2017 Plan is
administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices,
vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that
the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the
date of grant and the term of stock option may not be greater than ten years. The number of shares initially reserved for issuance under
the 2017 Plan was 1,785,416 shares of common stock. The shares of common stock underlying any awards that are forfeited,
cancelled, repurchased or are otherwise terminated by the Company under the 2017 Plan will be added back to the shares of common
stock available for issuance under the 2017 Plan.
On October 18, 2017, the Company’s stockholders approved an amendment to the 2017 Plan, which became effective upon the
completion of the Company’s initial public offering, to increase the total number of shares reserved for issuance under the 2017 Plan
from 1,785,416 to 2,696,401. Additionally, the number of shares of common stock that may be issued under the 2017 Plan would be
automatically increased on each January 1, beginning with the fiscal year ending December 31, 2019 and continuing for each fiscal
year until, and including, the fiscal year ending December 31, 2027, equal to the lowest of (i) 607,324 shares of common stock, (ii)
4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors or
compensation committee.
On August 17, 2021, the Company's stockholders approved amendments to the 2017 Plan. The amendments provided for the
following: (i) increased the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by
3,170,254 shares, (ii) removed the “evergreen” provision historically included in the 2017 Plan, and (iii) made certain other
amendments. In September 2022, the Company's stockholders approved an amendment to the 2017 Plan to increase the number of
shares of the Company’s common stock authorized for issuance under the 2017 Plan by 2,000,000 shares.
On October 5, 2023, the Company's stockholders approved an amendment to the 2017 Plan to increase the number of shares of
the Company’s common stock authorized for issuance under the 2017 Plan by 2,500,000 shares.
As of December 31, 2023, there were 4,882,868 shares remaining available to be issued under the 2017 Plan, as amended.
2019 Equity Incentive Plan
106
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 11, 2019, the Company adopted the 2019 Inducement Equity Incentive Plan (the “2019 Inducement Plan”) to reserve
331,500 shares of its common stock to be used exclusively for grants of awards to individuals that were not previously employees or
directors of the Company as a material inducement to such individuals’ entry into employment with Spero within the meaning of Rule
5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2019 Inducement Plan are substantially similar to those of the
2017 Plan.
In June 2020, the Board of Directors approved an amendment to the 2019 Inducement Plan to increase the number of shares of
common stock authorized for issuance under the 2019 Inducement Plan by 700,000 shares. In December 2022, the Board of Directors
approved an amendment to the 2019 Inducement Plan to increase the number of shares of common stock authorized for issuance under
the 2019 Inducement Plan by 875,000 shares.
In July 2023, the Board of Directors approved an amendment to the 2019 Inducement Plan to increase the number of shares of
common stock authorized for issuance by 250,000 shares and in November 2023, the Board of Directors approved an amendment to
the 2019 Inducement Plan to increase the number of shares of common stock authorized for issuance by 500,000 shares.
As of December 31, 2023, there were 356,190 shares remaining available to be issued under the 2019 Inducement Plan, as
amended.
The following table summarizes stock option activity for all of our plans during 2023:
Outstanding as of December 31, 2022
Granted
Exercised
Forfeited or cancelled
Outstanding as of December 31, 2023
2017 Plan
3,632,832
46,413
—
(1,109,824)
2,569,421
2019 Inducement
Plan
Total Number of
Stock Options
346,267
—
—
(50,094)
296,173
3,979,099
46,413
—
(1,159,918)
2,865,594
As of December 31, 2023, a total of 14,845,127 shares have been authorized and reserved for issuance under all equity plans
and 5,239,058 shares were available for future issuance under such plans.
Stock Option Valuation
The fair value of stock options is estimated using the Black-Scholes option-pricing model. The Company does not have
sufficient company-specific historical and implied volatility information and it therefore estimates its expected share volatility based
on the historical volatility of a set of publicly traded peer companies. The Company has estimated the expected term of the Company’s
stock option awards utilizing the “simplified” method for awards that qualify as “plain-vanilla.” The risk-free interest rate is
determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately
equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends
and does not expect to pay any cash dividends in the foreseeable future.
The assumptions that the Company used in the Black-Scholes option-pricing model to determine the fair value of stock option
awards granted to employees and directors were as follows, presented on a weighted average basis:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
Year Ended December 31,
2022
2023
4.0%
5.5
90.7%
0.0%
1.7%
6.2
82.7%
0.0%
107
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes details regarding stock options granted under our equity incentive plans for the year ended
December 31, 2023:
Outstanding as of December 31, 2022
Granted
Exercised
Forfeited or cancelled
Outstanding as of December 31, 2023
Outstanding as of December 31, 2023 - vested and
expected to vest
Exercisable at December 31, 2023
Number of
Shares
3,979,099
46,413
—
(1,159,918)
2,865,594
2,865,594
2,403,190
Weighted
Average
Exercise Price
$
$
$
$
10.99
1.74
—
10.88
10.89
10.89
10.29
Weighted
Average
Contractual
Term
(in years)
5.27
Aggregate
Intrinsic
Value
(in thousands)
1
$
5.76
5.76
5.44
$
$
$
1
1
0
The weighted average grant-date fair value of stock options granted during the year ended December 31, 2023 was $1.29 per
share. The weighted average grant-date fair value of awards granted during the year ended December 31, 2022 was $7.94 per share.
No stock options were exercised during the year ended December 31, 2023. The aggregate intrinsic value of stock options exercised
during the year ended December 31, 2022 was approximately $0.1 million. The Company satisfies stock option exercises with newly
issued shares of its common stock.
As of December 31, 2023, total unrecognized compensation cost related to unvested stock option grants was approximately $4.5
million. This amount is expected to be recognized over a weighted average period of approximately 1.59 years.
Restricted Stock Units
The Company granted 4,907,199 restricted stock units (“RSUs”) to employees during the year ended December 31, 2023.
The following table summarizes RSU activity under all equity plans (excluding performance-based RSUs) during the year
months ended December 31, 2023:
Outstanding as of December 31, 2022
Granted
Vested and released
Forfeited or cancelled
Outstanding as of December 31, 2023
Number of
RSU Shares
1,160,397
4,907,199
(329,008)
(369,781)
5,368,807
Weighted Average
Grant Date Fair Value
8.29
$
1.72
7.31
6.80
2.45
$
As of December 31, 2023, there was approximately $10.3 million of total unrecognized compensation expense related to RSUs,
which is expected to be recognized over a weighted-average period of approximately 3.04 years.
The fair value of the RSUs is determined on the date of grant based on the market price of the Company’s common stock on that
date. Each RSU represents the right to receive one share of the Company’s common stock, $0.001 par value per share, upon vesting.
Other than RSUs granted as retention awards, the RSUs vest in four equal annual installments, subject to the individual’s continued
service to the Company through the applicable vesting date, and are subject to the terms and conditions of the Company’s form of
RSU agreement under the 2017 Plan and 2019 Inducement Plan.
Performance-Based awards
In September 2022, the Company approved an award of 140,000 performance-based stock units as part of an executive
inducement grant ("Inducement PSUs"). The Inducement PSUs were awarded based on certain performance criteria relating to
pipeline execution, business development, and financial stewardship. As these performance criteria were deemed to be achieved by
May 31, 2023, 70,001 of the Inducement PSUs vested in September 2023 and the remaining 69,999 of the Inducement PSUs will vest
108
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in September 2024. The Company recognized $0.1 million of expense associated with the Inducement PSUs during the year ended
December 31, 2023.
The following table summarizes Inducement PSU activity under all equity plans during the year ended December 31, 2023:
Outstanding as of December 31, 2022
Granted
Vested and released
Forfeited or cancelled
Outstanding as of December 31, 2023
Share-Based Compensation Expense
Number of
Performance Based
Option Shares
Weighted Average
Grant Date Fair
Value
140,000
—
(70,001)
—
69,999
1.08
—
1.08
—
1.08
The Company recorded share-based compensation expense, for both RSUs and stock options in the following expense
categories of its consolidated statements of operations and comprehensive loss (in thousands):
Research and development expenses
General and administrative expenses
Total
9. Liability Related to the Sale of Future Royalties
Year Ended December 31,
2023
2022
$
$
2,654
5,278
7,932
$
$
3,678
5,445
9,123
On September 29, 2021, the Company entered into a Revenue Interest Agreement with certain entities managed by HCR,
pursuant to which the Company sold to HCR the right to receive certain royalty payments from the Company for a purchase price of
up to $125.0 million. The Company evaluated the terms of the Revenue Interest Agreement and concluded that the features of the
investment amount were similar to those of a debt instrument. The Company received gross proceeds of $50.0 million from HCR at an
initial funding on October 19, 2021. As such, the Company accounted for this transaction as long-term debt as of December 31, 2021.
The Company was entitled to receive an additional $50.0 million upon U.S. Food and Drug Administration (“FDA”) approval of
tebipenem HBr on or before December 31, 2022, and an additional $25.0 million subject to the mutual agreement of the Company and
HCR and if the Company met certain minimum tebipenem HBr product sales thresholds in the United States within 12 months from
commercial launch.
On June 7, 2022, the Company entered into a Revenue Interest Termination Agreement (the “Termination Agreement”) with
HCR and HCR Collateral Management, LLC, as collateral agent for HCR under the Revenue Interest Agreement, pursuant to which
the parties mutually agreed to terminate the Revenue Interest Agreement between the parties, and certain other related ancillary
agreements, arrangements or understandings under or contemplated by the Revenue Interest Agreement and Security Agreement
between the Company and HCR. The Company was released from all of its obligations and the rights to any future revenues and
collateral reverted back to the Company in return for a cash payment of $54.5 million and a potential additional cash amount
contingent upon the occurrence of a change of control event. The Company recognized a loss on the extinguishment of $3.6 million,
as reported on the associated condensed consolidated statement of operations and comprehensive loss.
If a change of control event had occurred on or prior to December 31, 2022, the Company would have been obligated to pay to
HCR an additional amount within 15 days following the consummation of such change of control transaction, calculated based on the
fully-diluted equity value of the Company.
The rights to this contingent payment expired on December 31, 2022.
10. Restructuring
On May 3, 2022, the Company implemented a strategic restructuring initiative and corresponding reduction in workforce. The
restructuring initiative and corresponding reduction in workforce was designed to reduce costs and reallocate resources towards the
109
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company’s clinical development programs for SPR720 and SPR206, while maintaining key personnel needed to help preserve the
value of the Company’s tebipenem HBr program. The restructuring reduced the Company’s workforce from 146 full-time employees
as of December 31, 2021 to 41 full-time employees following the restructuring.
The Company did not recognize any restructuring charges during the year ended December 31, 2023. The following tables
summarize the restructuring related charges by line item within the Company’s consolidated statements of operations where they were
recorded during the year ended December 31, 2022:
Severance and other employee costs
Other
Total restructuring charges
Year Ended December 31, 2022
Research and
development
General and
administrative
$
$
3,872
488
4,360
$
$
4,680
2,590
7,270
$
$
Total
8,552
3,078
11,630
The restructuring charge was included in accrued expenses and other current liabilities in the Company’s condensed
consolidated balance sheet. As of December 31, 2023, the Company had no remaining amounts in accrued expenses related to
restructuring costs on its condensed consolidated balance sheet. Activity for the period is summarized as follows (amounts in
thousands):
Balance as of December 31, 2022
Charge to expense
Payments made
Write-offs and impairments
Balance as of December 31, 2023
Retention Awards
As of December 31, 2023
448
—
(409)
(39)
—
$
$
In June 2022, upon recommendation of the Company's Compensation Committee, the Board of Directors approved retention
awards for employees of the Company. Subject to remaining actively employed with the Company through May 31, 2023, the
aggregate retention awards included (i) a cash bonus of $1.1 million, which was paid on November 30, 2022 and $0.2 million as fully
vested RSU grants of the same value which were issued on November 30, 2022 and (ii) a cash bonus of $4.0 million, which was paid
in June 2023. These amounts were accrued as services were performed through May 31, 2023.
Executive Retention Awards
On July 1, 2022, upon recommendation of the Company's Compensation Committee, the Board of Directors approved a cash
and RSU retention award to certain members of the Company's executive leadership team. Subject to those certain members of the
Company's executive leadership team remaining actively employed with the Company through May 31, 2023, they were to receive an
aggregate of: (i) a cash bonus equal to $0.9 million, which was paid on November 30, 2022 and (ii) if certain performance criteria
were achieved by May 31, 2023, a number of fully vested RSUs to be issued having a value of $1.7 million based on the common
stock price at such time, subject to the discretion of the Board of Directors or the Compensation Committee to be paid in cash or a
combination of cash and stock.
The executive retention awards were eligible for vesting based on the achievement of certain performance criteria by May 31,
2023 relating to pipeline execution, business development, and financial stewardship. The Compensation Committee deemed that the
performance criteria were achieved, and the Company paid the executive retention awards in cash in June 2023. These expenses
related to awards were accrued as services were incurred through May 31, 2023.
11. Income Taxes
The Company recorded $2.6 million of income tax expense during the year ended December 31, 2023, primarily related to a
change in estimate with respect to the tax treatment of the GSK License Agreement, which resulted in taxable income and the
utilization of $235.9 million of U.S. federal net operating losses and $7.1 million of U.S. federal R&D tax credits in its 2022 U.S.
federal tax return.
110
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the years ended December 31, 2023 and 2022, the Company recorded no income tax benefits for the net operating
income (losses) incurred in each year or interim period due to its uncertainty of realizing a benefit from those items.
The Company’s provision for income taxes is comprised of the following for the periods ended December 31, 2023 and 2022 (in
thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Year Ended December 31,
2023
2022
$
$
2,488
110
—
2,598
—
—
—
—
Provision for income taxes
$
2,598
$
The domestic and foreign components of income (loss) before income taxes were as follows (in thousands):
—
—
—
—
—
—
—
—
—
Domestic
Foreign
Income (loss) before income taxes
Year Ended December 31,
2022
2023
$
$
25,404
—
25,404
$
$
(46,249)
(166)
(46,415)
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
Federal statutory income tax rate
Federal and state research and development tax credit
State taxes, net of federal benefit
Nondeductible stock compensation
Other nondeductible items
Other
Reduction in tax attributes
Increase in deferred tax asset valuation allowance
Effective income tax rate
Year Ended December 31,
2022
2023
21.0
(4.9)
(0.4)
8.5
0.3
(1.0)
13.9
(27.2)
10.2 %
(21.0)
(4.3)
(2.3)
—
1.0
—
—
26.6
—
Net deferred tax assets as of December 31, 2023 and 2022 consisted of the following (in thousands):
Net operating loss carryforwards
Deferred revenue
Research and development tax credit carryforwards
Capitalized research and development expenses, net
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
111
December 31,
$
2023
25,646
47,014
7,612
21,342
6,264
107,878
(107,878)
— $
2022
78,619
—
14,294
11,613
10,264
114,790
(114,790)
—
$
$
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2023, the Company had U.S. federal, state and foreign net operating loss carryforwards of $94.7 million,
$90.9 million and $4.6 million respectively. All federal NOLs can be carried forward indefinitely. The state NOLs begin to expire in
2033 and will expire at various dates through 2043. The foreign NOLs do not expire. As of December 31, 2023, the Company also had
federal and state research and development tax credit carryforwards of $6.0 million and $2.1 million, respectively, which may be
available to offset future income tax liabilities and begin to expire in 2033 and 2028, respectively.
Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to
a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law,
due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the
amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by
Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation
by more than 50% over a three-year period. If the Company experiences a change of control, as defined by Section 382, at any time
since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be
subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the
time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as
required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax
credit carryforwards before utilization. The Company recently completed a Section 382 study and concluded that the Company
underwent several ownership changes as defined by the Code, the last of which occurred during the year ended December 31, 2018.
Any carryforwards that will expire prior to utilization were removed from deferred tax assets, with a corresponding reduction of the
valuation allowance. Future ownership changes may limit the Company's ability to utilize remaining tax attributes.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.
Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of
commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more
likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has
been established against the deferred tax assets as of December 31, 2023 and 2022. Management reevaluates the positive and negative
evidence at each reporting period.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023 and 2022 related
primarily to the increase in net operating loss carryforwards and research and development tax credit carryforwards, and were as
follows (in thousands):
Valuation allowance as of beginning of year
Increases recorded to income tax provision
Valuation allowance as of end of year
December 31,
2023
(114,790) $
6,912
(107,878) $
2022
(102,444)
(12,346)
(114,790)
$
$
The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2023 or 2022. The Company’s
policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2023 or 2022,
the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the
Company’s statement of operations and comprehensive loss.
The Company has not, as yet, conducted a study of its research and development credit carryforwards. This study may result in
an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any
adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided
against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an
adjustment to the valuation allowance.
The Company had filed separate U.S. income tax returns return for each of its subsidiaries prior to its reorganization in 2015.
The Company now files U.S. income tax returns as a U.S. consolidated group. In Massachusetts, the Company files income tax returns
as a combined group except for its Massachusetts Securities Corporation subsidiary, which is a separate income tax filing. The statute
of limitations for assessment by the Internal Revenue Service and Massachusetts tax authorities remains open for all years since 2019.
To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted
upon examination by the Internal Revenue Service or state authorities to the extent utilized in a future period. No federal or state tax
audits are currently in process.
112
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), was signed
into law in the United States in March 2020. The CARES Act adjusted a number of provisions of the tax code, including the
calculation and eligibility of certain deductions and the treatment of net operating losses and tax credits. The enactment of the CARES
Act did not result in any material adjustments to the Company’s income tax provision for the year ended December 31, 2023, or to the
Company’s net deferred tax assets as of December 31, 2023.
On December 22, 2017, the TCJA was signed into law. Under the TCJA provisions, effective with tax years beginning on or
after January 1, 2022, taxpayers can no longer immediately expense qualified research and development expenditures, including all
direct, indirect, overhead and software development costs. Taxpayers are now required to capitalize and amortize these costs over five
years for research conducted within the United States or fifteen years for research conducted abroad.
12. Commitments and Contingencies
As a public biotechnology company, the Company operates in a regulated environment, and from time to time, is party to
various legal proceedings and receives regulatory inquiries arising in the ordinary course of business. The costs and outcome of
litigation, regulatory, investigatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or
proceedings may be disposed of unfavorably to the Company and could have a material adverse effect on the Company’s results of
operations or financial condition. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed
against the Company, could materially and adversely affect its financial condition or results of operations. If a matter is both probable
to result in a material liability and the amount of loss can be reasonably estimated, the Company estimates and discloses the possible
material loss or range of loss. If such loss is not probable or cannot be reasonably estimated, a liability is not recorded in its condensed
consolidated financial statements. As of December 31, 2023 and 2022, no material accruals have been recorded for potential
contingencies related to these matters.
License Agreements
The Company has entered into license agreements with various parties under which it is obligated to make contingent and non-
contingent payments (see Note 14).
Operating Leases
The Company has entered into an operating lease agreement with respect to its corporate headquarters located at 675
Massachusetts Avenue, Cambridge, Massachusetts (see Note 5).
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors,
business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such
agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into
indemnification agreements with members of its board of directors and its executive officers that will require the Company, among
other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or executive
officers. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such
indemnifications. The Company is not aware of any claims under indemnification arrangements that will have a material effect on its
financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its
consolidated financial statements as of December 31, 2023 or 2022.
Legal Proceedings
Two putative class action lawsuits were filed against the Company and certain of its current and former executive officers in the
United States District Court for the Eastern District of New York, one captioned Richard S. Germond v. Spero Therapeutics, Inc.,
Ankit Mahadevia, and Satyavrat Shukla, Case No. 1:22-cv-03125, filed on May 26, 2022, and the other captioned Kashif Memon v.
Spero Therapeutics, Inc., Ankit Mahadevia, and Satyavrat Shukla Case No. 1:22-cv-04154, filed on July 15, 2022. The parties moved
to consolidate the two complaints on July 22, 2022, which were ordered consolidated on August 5, 2022 (“Consolidated Putative Class
Action”). The parties filed an Amended Complaint on December 5, 2022, purported to be brought on behalf of stockholders who
purchased our common stock from September 8, 2020 through May 2, 2022. The Amended Complaint generally alleges that the
Company and certain of its officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the New
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Drug Application (“NDA”) for tebipenem HBr in an effort to lead investors to believe that the drug would receive approval from the
FDA. Plaintiffs seek unspecified damages, interest, attorneys’ fees, and other costs. The Company filed a fully-briefed Motion to
Dismiss on June 21, 2023. The Court has not yet ruled on the Motion.
A stockholder derivative action was filed against the Company, as nominal defendant, and certain of the Company's officers in
the United States District Court for the District of Delaware, captioned Marti v. Mahadevia, et al., Case. No. 1:23-cv-01133-RGA (the
“Derivative Complaint”), on October 11, 2023. The plaintiffs both purport to be current stockholders, and the allegations are primarily
the same as those made in the Consolidated Putative Class Action. The Derivative Complaint was transferred to the Eastern District of
New York on November 13, 2023, and stayed by party agreement pending outcome of the Motion to Dismiss the class action on
November 20, 2023. A second stockholder derivative action was filed against the Company, as nominal defendant, and certain of its
officers in the Supreme Court of the State of New York, Kings County, captioned Heil v. Mahadevia, et al., Case. No. 505153/2024
(the “Second Derivative Complaint”), on February 21, 2024. The Second Derivative Complaint makes primarily the same allegations
as the First Derivative Complaint, and the Consolidated Putative Class Action.
The Company denies any allegations of wrongdoing and intends to vigorously defend against these lawsuits. However, there is
no assurance that the Company will be successful in its defense or that insurance will be available or adequate to fund any settlement
or judgment or the litigation costs of these actions. Moreover, the Company is unable to predict the outcomes or reasonably estimate a
range of possible loss at this time.
Additional lawsuits against the Company and certain of its officers or directors may be filed in the future. If additional similar
complaints are filed, absent new or different allegations that are material, the Company will not necessarily announce such additional
filings.
13. Government Contracts
BARDA
In July 2018, the Company was awarded a contract from Biomedical Advanced Research and Development Authority
(“BARDA”) of up to $44.2 million to develop tebipenem HBr for the treatment of cUTI caused by antibiotic resistant Gram-negative
bacteria and for assessment against biodefense pathogens. The award committed initial funding of $15.7 million over a three-year base
period from July 1, 2018 to June 30, 2021 for cUTI development activities. In May 2019, the contract was modified to include
additional funding of approximately $2.5 million for the development of tebipenem HBr, increasing the amount of the initial
committed funding from $15.7 million to approximately $18.2 million and increasing the overall potential award to $46.8 million. In
January 2020, BARDA exercised its first contract option for additional committed funding of $15.9 million and extended the period of
performance through November 1, 2021. BARDA subsequently committed additional funding of $0.6 million, increasing the total
committed funding for the base period and first contract option to $34.7 million and extended the period of performance for this first
contract option through December 31, 2025.
On January 19, 2022, the Company announced that BARDA exercised a third option under the contract. The new option
increased the total amount of committed funding by $12.9 million to approximately $47.6 million, increasing the total potential
contract value to $60.3 million. On September 30, 2022, remaining funding from the $12.9 million option was reallocated to a new
option to support upcoming clinical trials. The period of performance for this new option extends through December 31, 2025 and
does not change the total amount of committed funding or potential contract value.
As of December 31, 2023, the balance of the award was subject to BARDA exercising a second option which would entail
funding of $12.7 million and is exercisable by BARDA subject to, among other things, satisfactory progress and results from the
biodefense studies described below.
As part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency (“DTRA”), a series of
studies to assess the efficacy of tebipenem HBr in the treatment of infections caused by biodefense threats such as anthrax, plague and
melioidosis will be conducted under the direction of Spero. DTRA provides up to $10.0 million, in addition to the total potential
award from BARDA, to cover the cost of the nonclinical biodefense aspects of the collaborative program for tebipenem HBr.
Together, BARDA and DTRA may provide up to $69.7 million in total funding for the clinical development and biodefense
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assessment of tebipenem HBr, of which $12.7 million is subject to the exercise of options by BARDA and the Company's
achievement of specified milestones.
During the years ended December 31, 2023 and 2022, the Company recognized $4.4 million and $2.2 million of revenue under
this agreement, respectively.
NIAID
In May 2021, the Company was awarded a five-year contract from the U.S. National Institute of Allergy and Infectious Diseases
(“NIAID”) under the Agency’s Omnibus Broad Agency Announcement No. HHS-NIH-NIAID-BAA2020-1 award mechanism to
support further development of SPR206. Funding will be used to offset certain expenses related to manufacturing, clinical, non-
clinical and regulatory activities. The Company can receive up to $23.5 million over a base period and six option periods. As of
December 31, 2023, funding for the base period totaling $2.3 million, funding for Option 1 of $4.0 million and funding for Option 3 of
$0.8 million has been committed. The Company recognized $2.7 million and $1.7 million under this agreement during the years ended
December 31, 2023 and 2022, respectively.
U.S. Department of Defense
On July 1, 2019, the Company received a $5.9 million award from the U.S. Department of Defense (“DoD”) Congressionally
Directed Medical Research Programs (“CDMRP”) Joint Warfighter Medical Research Program. The funding supported the further
clinical development of SPR206. The award committed non-dilutive funding of $5.9 million over a four-year period to cover the costs
of select Phase 1 pharmacology studies, a 28-day good laboratory practice non-human primate toxicology study, and microbiological
surveillance studies that would be required for a potential NDA submission with the FDA for SPR206. During the year ended
December 31, 2022, all activities under this award were completed and this award was closed out. The Company did not recognize
revenue under this agreement during the year ended December 31, 2023 and recognized $1.0 million in revenue under this agreement
during the year ended December 31, 2022.
14. License, Collaboration and Service Agreements
The Company has certain obligations under license agreements with third parties that include annual maintenance fees and
payments that are contingent upon achieving various development, regulatory and commercial milestones. Pursuant to these license
agreements, the Company is required to make milestone payments if certain development, regulatory and commercial milestones are
achieved, and may have certain additional research funding obligations. Also, pursuant to the terms of each of these license
agreements, when and if commercial sales of a product commence, the Company will pay royalties to its licensors on net sales of the
respective products.
SPR720 Agreements
Gates MRI Collaboration Agreement
In June 2019, the Company entered into a collaboration with the Bill and Melinda Gates Research Institute (the “Gates MRI”) to
develop SPR720 for the treatment of lung infections caused by Mycobacterium tuberculosis. In furtherance of the Gates MRI’s
charitable purposes, the Company also granted to Gates MRI a no-cost, exclusive license to develop, manufacture and commercialize
SPR720 for the treatment of tuberculosis (“TB”) in low- and middle- income countries. The Gates MRI is responsible for formulating
and funding its own research plan for the development of SPR720 for TB. As such, Gates MRI will conduct and fund preclinical and
clinical studies for the development of SPR720 against TB. In addition, Gates MRI and the Company will jointly design and manage
certain collaborative research activities, which the Company will perform and which will be funded by the Gates MRI. Due to the
cost-funded nature of the payments and the Company’s assessment that it does not have a vendor/customer relationship with the Gates
MRI, the Company will recognize the funding received under the agreement as a reduction to the research and development expenses
incurred, as the related expenses are incurred.
As of December 31, 2023, the Gates MRI completed its preliminary development plans for SPR720 and no further development
work is planned, thus the relationship was concluded in the fourth quarter of 2023. In the fourth quarter of 2023, the Company agreed
to buy back certain materials from Gates MRI for $0.7 million, which was recorded within research and development expenses.
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Vertex License Agreement
In May 2016, the Company entered into an agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) whereby Vertex
granted the Company certain know-how and a sublicense to research, develop, manufacture and sell products for a proprietary
compound, as well as a transfer of materials. In exchange for the know-how, sublicense and materials, the Company paid Vertex an
upfront, one-time, nonrefundable, non-creditable fee of $0.5 million, which was recognized as research and development expense. As
part of the agreement, the Company is obligated to make future milestone payments of up to $80.2 million upon the achievement of
specified clinical, regulatory and commercial milestones and to pay Vertex tiered royalties, on a product-by-product and country-by-
country basis, of a mid-single-digit to low double-digit percentage based on net sales of products licensed under the agreement.
During the years ended December 31, 2023 and 2022, the Company did not record any research and development expense under this
agreement and the next milestone under this agreement is not accrued because it is not yet probable.
The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment obligations
continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such
product in such country or the date of expiration in such country of the last to expire applicable patent. Further, Vertex has the right to
terminate the agreement if provided with notification from the Company of intent to cease all development or if no material
development or commercialization efforts occur for one year.
Tebipenem HBr Agreements
GSK License and Share Purchase Agreement
On November 7, 2022, the Company closed the transactions contemplated by the GSK License Agreement, which was entered
into on September 21, 2022. Pursuant to the terms of the GSK License Agreement, the Company granted GSK an exclusive royalty-
bearing license, with the right to grant sublicenses, under the Company’s intellectual property and regulatory documents and a
sublicense under certain intellectual property of Meiji Seika Pharma Co. Ltd. (“Meiji”) and Meiji’s regulatory documents to develop,
manufacture and commercialize tebipenem pivoxil and tebipenem HBr and products that contain tebipenem pivoxil and tebipenem
HBr (the “GSK Licensed Products”) in all territories, except certain Asian countries previously licensed to Meiji (Japan, Bangladesh,
Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam
(the “Meiji Territory”)) (the “GSK Territory”). If the Company's license with Meiji is terminated, or if Meiji forfeits or loses its rights
to develop, manufacture and commercialize tebipenem HBr and products that contain tebipenem HBr in any countries in the Meiji
Territory, then GSK will have an exclusive first right to negotiate with Spero to add any such countries to the GSK Territory.
Under the terms of the GSK License Agreement, the Company received an upfront payment of $66.0 million for GSK to secure
rights to the medicine.
In July 2023, the Company received written agreement from the FDA, under a SPA, on the design and size of PIVOT-PO, a
pivotal Phase 3 clinical trial of tebipenem HBr in patients with cUTI, including acute pyelonephritis. Under the terms of the GSK
License Agreement, the Company received a $30.0 million development milestone payment during the third quarter of 2023.
In December 2023, the Company commenced enrollment in PIVOT-PO with its first patient, first visit. Under the terms of the
GSK License Agreement, the Company will be entitled to receive a $95.0 million development milestone that is payable in four equal
semiannual installments. In February 2024, the Company received the first installment payment of $23.8 million for such development
milestone.
Remaining potential payments are milestone and royalty based, and are as follows (in millions):
Event
GSK's submission of a new drug application with the FDA for
tebipenem HBr
Total potential commercial milestone payments based on first sale
(US/EU)
Total potential sales milestone payments
Royalties
Milestone payments (up to)
$25.0
$150.0
$225.0
Low-single digit to low-double digit (if sales exceed $1.0
billion) tiered royalties on net product sales
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SPERO THERAPEUTICS, INC.
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In July 2023, the Company entered into Amendment 1 to the GSK License Agreement, which updated the technology
transfer terms of the GSK License Agreement. In December 2023, the Company entered into Amendment 2 to the GSK License
Agreement, which added a country to the locations for PIVOT-PO. Under the terms of Amendment 2, the Company may receive up to
an additional $4.3 million in tranched milestones based on activities in such country.
Royalties are subject to reduction in the event of third-party licenses, entry of a generic product or expiration of patent and
regulatory exclusivity prior to the tenth anniversary of the first commercial sale of a GSK Licensed Product in a particular country.
The Company will be responsible for the execution and costs of the follow-up Phase 3 clinical trial of tebipenem HBr. GSK will
be responsible for the execution and costs of any additional further development, including additional Phase 3 regulatory filing and
commercialization activities for tebipenem HBr in the GSK Territory. The Company will also be responsible for providing and paying
for the clinical supply of tebipenem HBr while GSK will be responsible for the costs of the commercial supply of tebipenem HBr. A
joint development committee has been established between GSK and the Company to coordinate and review development activities
for tebipenem HBr in the United States.
Unless earlier terminated due to certain material breaches of the GSK License Agreement or by GSK for convenience, or
otherwise, the GSK License Agreement will expire on a jurisdiction-by-jurisdiction and GSK Licensed Product-by-GSK Licensed
Product basis on the latest to occur of (i) loss of patent exclusivity, (ii) loss of regulatory exclusivity or (iii) ten years following the
date of the first commercial sale of such licensed product in such country (the “GSK Royalty Term”). During the GSK Royalty Term,
the Company has agreed not to develop, manufacture or commercialize any oral carbapenem for any indication or any oral antibiotic
for cUTI; this restriction does not apply to any third party which acquires control of Spero after the date of the GSK License
Agreement if certain conditions are met.
The Company has the right to terminate the GSK License Agreement upon a material breach by, or bankruptcy of, GSK. GSK
has the right to terminate the GSK License Agreement at any time upon a specified number of days’ notice or upon a material breach
by, or bankruptcy of, the Company. In addition, in the event that GSK has the right to terminate the GSK License Agreement due to a
breach by the Company, GSK may elect not to terminate the GSK License Agreement and in lieu thereof may assume the
responsibility and expense of development of tebipenem HBr in the United States, in which event GSK’s obligation to make further
development payments to the Company would cease, and/or to reduce all subsequent commercial and sales milestone payments and
royalty payments otherwise due by GSK to the Company under the GSK License Agreement by 50%.
The GSK License Agreement contains representations and warranties, other covenants, indemnification provisions and other
terms and conditions customary for transactions of the type contemplated by the GSK License Agreement. In support of certain of its
rights to indemnification, GSK also has certain rights to suspend payments otherwise owed to the Company, as well as the right to
offset payments otherwise owed to the Company against certain indemnifiable claims.
Accounting Analysis and Revenue Recognition
The Company determined that GSK is a customer and that the GSK License Agreement is within the scope of ASC 606 as
licensing intellectual property and performing ongoing research and development services are ordinary activities that are ongoing and
central to the Company’s operations. Accordingly, in determining the appropriate amount of revenue to be recognized, the Company
performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised
goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the
transaction price, including the constraint on variable consideration; (iv) allocated the transaction price to the identified performance
obligations in proportion to their standalone selling prices (“SSP”); and (v) recognized revenue when each performance obligation was
deemed to be satisfied.
Based on that evaluation, the Company identified two performance obligations, related to the license and to research and
development services.
The Company developed the estimated SSP for the license using a discounted cash flow model. In developing this estimate, the
Company applied significant judgment in the determination of the significant assumptions relating to forecasted future cash flows, the
discount rate, and the probability of success. The SSP for the research and development services was estimated based on the
Company's estimate of costs to be incurred to fulfill its obligations associated with the performance of the research and development
services, plus a reasonable margin.
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SPERO THERAPEUTICS, INC.
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As a result of the purchase of the GSK Shares, GSK has become a related party of the Company.
At contract inception, the total transaction price was $64.7 million, which included the initial payment of $66.0 million in the
fourth quarter of 2022 and the discount of $1.3 million related to the GSK SPA (see Note 7). At contract inception, $45.7 million of
the initial $64.7 million was allocated to the license transfer performance obligation, which was fully satisfied and recognized as
revenue upon delivery of the license. The remaining $19.0 million was allocated to the research and development services obligation
and is being recognized over time as services are delivered, estimated to be over a three-year period.
The Company recognized revenue for the license performance obligation at a point in time, which is upon transfer of the
license to GSK. Control of the license was transferred on the GSK Effective Date and GSK could begin to use and benefit from the
license at the GSK Effective Date.
The $30.0 million milestone payment received by the Company under the GSK License Agreement was accounted for as
variable consideration under ASC 606 and was added to the transaction price in the third quarter of 2023. Of this $30.0 million
milestone, $21.2 million was recognized upon achievement of the milestone and the remaining $8.8 million was allocated to the
research and development services performance obligation and will be recognized over time as the services are delivered, on a
cumulative catch-up basis.
The Company is entitled to receive the $95.0 million milestone payment in four equal semiannual installments under the GSK
License Agreement. This milestone was accounted for as variable consideration under ASC 606 and was added to the transaction price
in the fourth quarter of 2023. The Company determined that a significant financing component of $2.5 million exists related to
extended payments terms granted to GSK. The Company will present the effects of the financing component separately from
collaboration revenue - related party as a component of interest income in its consolidated statement of operations. Of this
$95.0 million milestone, $64.7 million was recognized upon achievement of the milestone and the remaining amount was allocated to
the research and development services performance obligation and will be recognized over time as the services are delivered, on a
cumulative catch-up basis.
The milestone installment payments are classified as collaboration receivable - related party on the Company's consolidated
balance sheet as of December 31, 2023. The Company invoiced the first installment payment of $23.8 million during the fourth
quarter of 2023 and received the milestone installment payment in the first quarter of 2024.
The potential future development milestone payments from the GSK License Agreement will be accounted for as variable
consideration under ASC 606. Given the uncertain nature of these payments, the Company determined they were fully constrained as
of December 31, 2023 and not included in the transaction price. The Company can also earn sales-based royalties.
Pursuant to Amendment 2 to the GSK License Agreement, the Company allocated $3.2 million of the total potential additional
milestones to the research and development services obligation, as those development milestones were considered probable of
achievement. These potential milestones were accounted for as variable consideration under ASC 606 and was added to the
transaction price in the fourth quarter of 2023 and will be recognized over time as services are delivered.
In total and inclusive of the above, the Company recognized $95.8 million during the year ended December 31, 2023 related to
the performance obligations, which was recorded as collaboration revenue - related party on its consolidated statement of operations.
The Company recognized $46.1 million during the year ended December 31, 2022 related to the GSK License Agreement, which
included $45.7 million recognized upfront upon the license and know-how transfer and $0.4 million related to the research and
development service obligation.
The remaining transaction price balance of approximately $48.6 million from the GSK License Agreement allocated to the
research and development services performance obligation has been recorded as deferred revenue - related party in the condensed
consolidated balance sheets. As of December 31, 2023, the research and development services related to the second performance
obligation were expected to be recognized as costs are incurred over the project development timeframe.
Meiji License Agreement
In June 2017, the Company entered into agreements with Meiji, whereby Meiji granted to the Company a license under certain
patents, know-how and regulatory documentation to research, develop, manufacture and sell products containing a proprietary
compound in the licensed territory. In exchange for the license, the Company paid Meiji an upfront, one-time, nonrefundable, non-
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SPERO THERAPEUTICS, INC.
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creditable fee of $0.6 million, which was recognized as research and development expense. In October 2017, the Company paid a $1.0
million milestone payment to Meiji upon the enrollment of the first patient in the Company’s Phase 1 clinical trial of tebipenem HBr.
The payment was recorded as research and development expense in the statement of operations and comprehensive loss for the year
ended December 31, 2017. The Company paid Meiji approximately $1.6 million during the fourth quarter of 2018 related to fixed
assets which will be used in manufacturing related activities at Meiji. This equipment has been capitalized as property and equipment
in the consolidated balance sheets as of December 31, 2022. In October 2021, the Company paid a $1.0 million milestone payment to
Meiji upon submission of a NDA to the FDA for tebipenem HBr.
As part of the agreement, the Company is obligated to make future milestone payments of up to $1.0 million as of December 31,
2023 upon the achievement of specified regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis,
of a low single-digit percentage based on net sales of products licensed under the agreement. The Company was obligated to pay Meiji
a low double-digit percentage of any sublicense fees received by the Company up to a maximum amount of $7.5 million, of which the
Company paid $6.6 million during the year ended December 31, 2022. Subsequent to receipt of the $30.0 million milestone payment
from GSK in the third quarter of 2023, the Company paid the remaining $0.9 million in the fourth quarter of 2023. The Company
recorded these amounts as research and development expenses in the Company's consolidated statement of operations.
The agreement continues in effect until the expiration of all payment obligations thereunder (including royalty payments and
licensee revenue) on a product-by-product and country-by-country basis, unless earlier terminated by the parties. Pursuant to the terms
of the agreement, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured
within a specified period after receipt of notice) or insolvency, the Company also has unilateral termination rights (i) in the event that
the Company abandons the development and commercialization of tebipenem HBr for efficacy, safety, legal or business reasons, and
(ii) under certain circumstances arising out of the head license with a global pharmaceutical company.
Savior Service Agreement
In November 2018, the Company entered into a service agreement with Savior Lifetec Corporation (“Savior”) to perform
technology transfer, process development, analytical method development and testing and formulation development for tebipenem
HBr. Per the terms of the agreement, the Company paid Savior a non-refundable supervision fee of approximately $2.0 million to
manage the buildout of a commercial manufacturing facility. The supervision fee was classified as a prepaid asset on the Company’s
condensed consolidated balance sheets and was fully amortized as of December 31, 2021. The Company paid Savior an additional
$5.3 million for facility build out costs between 2019 and 2021. In the third quarter of 2023, the Company concluded that it had no
future use for the Savior facility and in October 2023, the Company terminated the service agreement. As such, the Company fully
impaired this long-term asset and recorded an impairment expense of $5.3 million on its consolidated statement of operations during
the year ended December 31, 2023.
SPR206 Agreements
Cantab License Agreement
Under the Cantab Agreement, the Company is obligated to make future milestone payments of up to $5.8 million upon the
achievement of specified clinical and regulatory milestones and a payment of £5.0 million ($6.4 million as of December 31, 2023)
upon the achievement of a specified commercial milestone. In addition, the Company agreed to pay to PBB royalties, on a product-by-
product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.
During both the years ended December 31, 2023 and 2022, the Company did not record any research and development expense related
to the achievement of regulatory milestones for SPR206, as no milestones were met or are probable of being met as of the balance
sheet date.
The Cantab Agreement continues indefinitely, with royalty payment obligations thereunder continuing on a product-by-product
and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the
expiration in such country of the last to expire valid claim of any of the applicable patents.
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Everest Medicines License Agreement
On January 4, 2019, the Company, through its wholly owned subsidiary New Pharma License Holdings Limited (“NPLH”),
entered into a license agreement (the “Original Everest License Agreement”), with Everest. Under the terms of the Original Everest
License Agreement, the Company granted Everest an exclusive license to develop, manufacture and commercialize SPR206 or
products that contain SPR206 (the “Everest Licensed Products”), in Greater China (which includes Mainland China, Hong Kong and
Macau), South Korea and certain Southeast Asian countries (the “Everest Territory”). The Company retained development,
manufacturing and commercialization rights with respect to SPR206 and Everest Licensed Products in the rest of the world and also
retained the right to develop or manufacture SPR206 and Everest Licensed Products in the Everest Territory for use outside the
Everest Territory. In addition to the license grant with respect to SPR206, the Company, through its wholly owned subsidiary, Spero
Potentiator, Inc., a Delaware corporation, granted Everest a 12-month exclusive option to negotiate with it for an exclusive license to
develop, manufacture and commercialize SPR741 in the Everest Territory.
On January 15, 2021, the Company entered into an amended and restated license agreement (“the Amended Everest License
Agreement”) with Everest and Spero Potentiator, Inc., which amended and restated in its entirety the Original Everest License
Agreement. The Amended Everest License Agreement modifies the dates and values of certain milestone events related to
development and commercialization of SPR206. Everest will now be making more significant investments in the development of
SPR206 beyond what was contemplated at the time of the Original Everest License Agreement. The Original Everest License
Agreement provided that the Company could receive up to $59.5 million upon achievement of certain milestones. The Amended
Everest License Agreement provides that the Company may receive up to $38.0 million upon achievement of certain milestones, of
which $2.0 million has been received to date. In addition, under the Amended Everest License Agreement, the Company assigned
patents in the Everest Territory to Everest, and the option related to SPR741 and the related provisions have been removed. Under the
terms of the Amended Everest License Agreement, the Company is also entitled to receive high single-digit to low double-digit
royalties on net sales, if any, of Everest Licensed Products in the Everest Territory following regulatory approval of SPR206. Everest
has the right to sublicense to affiliates and third parties in the Everest Territory.
Everest is responsible for all costs related to developing, obtaining regulatory approval of and commercializing SPR206 and
Everest Licensed Products in the Everest Territory, and is obligated to use commercially reasonable efforts to develop, manufacture
and commercialize Everest Licensed Products, including to achieve certain specified diligence milestones within agreed-upon periods.
A joint development committee has been established between the Company and Everest to coordinate and review the development,
manufacturing and commercialization plans with respect to Everest Licensed Products in the Everest Territory.
Unless earlier terminated due to certain material breaches of the contract, or otherwise, the Amended Everest License
Agreement will expire on a jurisdiction-by-jurisdiction and Licensed Product-by-Licensed Product basis upon the latest to occur of
expiration of the last valid claim under a licensed patent in such jurisdiction, the expiration of regulatory exclusivity in such
jurisdiction or ten years after the first commercial sale of such Licensed Product in such jurisdiction. The Amended Everest License
Agreement may be terminated in its entirety by Everest upon 90 or 180 days’ prior written notice, depending on the stage of
development of the initial Licensed Product.
To date, all performance obligations under the contract were fully satisfied.
As of December 31, 2023 remaining future milestone payments of $34.0 million are fully constrained, and will be recognized
when and if achievement of those milestones becomes probable.
During the year ended December 31, 2023, the Company did not recognize revenue under this agreement. During the year ended
December 31, 2022, the Company recognized approximately $0.7 million of revenue under this agreement related to certain milestone
achievements.
Pfizer License and Share Purchase Agreements
On June 30, 2021, the Company and Pfizer entered into the Pfizer License Agreement and the Pfizer Purchase Agreement.
Under the terms of the Pfizer License Agreement, the Company granted Pfizer an exclusive royalty-bearing license to develop,
manufacture and commercialize SPR206 or products that contain SPR206 (the “Pfizer Licensed Products”) in the Pfizer Territory. The
Pfizer Territory excludes the United States and the Asian markets previously licensed to Everest, those being the People’s Republic of
China, including Hainan Island, the Hong Kong Special Administrative Region of the People’s Republic of China, and the Macau
Special Administrative Region of the People’s Republic of China, Taiwan, the Republic of Korea (South Korea), the Republic of
120
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Singapore, Malaysian Federation, Kingdom of Thailand, the Republic of Indonesia, Socialist Republic of Vietnam and the Republic of
the Philippines).
Under the terms of the Pfizer Purchase Agreement, Pfizer purchased 2,362,348 shares of the Company’s common stock at a
price of $16.93 per share for a total investment of $40.0 million. The Company received no other upfront payments but is eligible to
receive up to $80.0 million in development and sales milestones, and may also receive high single-digit to low double-digit royalties
on net sales of SPR206 in the Pfizer Territory. Achievement of these payments cannot be guaranteed. The Company and Pfizer agree
that upon Pfizer’s request, the parties will negotiate in good faith regarding procuring a clinical or commercial supply of the
compound.
The fair market value of 2,362,348 shares of the Company's common stock issued to Pfizer under the Pfizer Purchase
Agreement was determined to be $27.5 million. The common stock issued under the Pfizer Purchase Agreement were valued using an
option pricing valuation model as the shares are subject to certain holding period restrictions. The Company accounted for the
associated premium of $12.5 million as a freestanding equity-linked instrument under ASC 815. The premium was allocated as
consideration for the Pfizer License Agreement and evaluated under ASC 606. The premium was determined not to be constrained and
was included in the calculation of the total transaction price related to the Pfizer License Agreement as of June 30, 2021.
The Company is responsible for all costs related to developing and obtaining regulatory approval of SPR206 and Pfizer
Licensed Products in the Pfizer Territory, with a focus on the European market, and is obligated to use commercially reasonable
efforts, including to achieve certain specified diligence milestones within agreed-upon periods. A joint development committee was
established between the Company and Pfizer to coordinate and review the development, manufacturing and commercialization plans
with respect to Pfizer Licensed Products in the Pfizer Territory. Pfizer is responsible for commercializing SPR206 and the Pfizer
Licensed Products in the Pfizer Territory.
Unless earlier terminated due to certain material breaches of the contract or by Pfizer’s convenience, or otherwise, the Pfizer
License Agreement will expire on a jurisdiction-by-jurisdiction and licensed product-by-licensed product basis after ten years from the
effective date. The Pfizer License Agreement will automatically renew for an additional ten-year term unless terminated.
Accounting Analysis and Revenue Recognition
The Company determined that Pfizer is a customer and that the Pfizer License Agreement is within the scope of ASC 606 as
licensing intellectual property and performing ongoing research and development services are ordinary activities that are ongoing and
central to the Company’s operations. Accordingly, in determining the appropriate amount of revenue to be recognized, the Company
performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised
goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the
transaction price, including the constraint on variable consideration; (iv) allocated the transaction price to the identified performance
obligations in proportion to their SSP; and (v) recognized revenue when each performance obligation was deemed to be satisfied.
Based on that evaluation, the Company identified two performance obligations, license and know-how transfer and research
and development services related to upcoming milestones. The Company determined that the supply agreement is a customer option
and not a material right, as the pricing to Pfizer is not at a significant discount. Furthermore, Pfizer has the right to use third parties to
manufacture the compound, or to manufacture the compound itself.
At contract inception, $1.4 million of the then transaction price of $12.5 million was allocated to the license and know-how
transfer performance obligations, which was fully satisfied and recognized as revenue upon delivery of the license. The additional
$11.1 million was allocated to the research and development services obligation and is being recognized over time as services are
delivered.
In the third quarter of 2022, upon the completion of a milestone related to regulatory engagement for SPR206, Pfizer
communicated its approval that the milestone was achieved, and the Company received $5.0 million under the Pfizer License
Agreement, which the Company accounted for as variable consideration under ASC 606 and was added to the transaction price in the
third quarter of 2022. Of this $5.0 million milestone, $0.9 million was recognized during the third quarter of 2022 and the remaining
$4.1 million was allocated to the research and development services performance obligation and will be recognized over time as the
services are delivered.
121
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The potential license maintenance fees and development milestone payments from the Pfizer License Agreement will be
accounted for as variable consideration under ASC 606. Given the uncertain nature of these payments, the Company determined they
were fully constrained as of December 31, 2022 and not included in the transaction price. The Company can also earn sales-based
royalties.
The Company recognizes revenue for the license performance obligation at a point in time, that is upon transfer of the license
to Pfizer. Control of the license was transferred on the Effective Date and Pfizer could begin to use and benefit from the license at the
Effective Date.
In total, and inclusive of the above, the Company recognized $0.9 million and $1.8 million of revenue from the contract during
the years ended December 31, 2023 and 2022, respectively.
The remaining transaction price balance of approximately $13.0 million from the Pfizer Purchase Agreement allocated to the
research and development services performance obligation has been recorded as deferred revenue in the condensed consolidated
balance sheets. As of December 31, 2023, the research and development services related to the second performance obligation were
expected to be recognized as costs are incurred over the project development timeframe.
15. Net Income (Loss) per Share
Basic and diluted net income (loss) per share attributable to common stockholders of Spero Therapeutics, Inc. was calculated as
follows (in thousands, except share and per share amounts):
Numerator:
Net income (loss)
Denominator:
Basic weighted average common shares outstanding
Effect of dilutive securities
Diluted weighted-average common shares outstanding
Net income (loss) per share, basic
Net income (loss) per share, diluted
Year Ended December 31,
2023
2022
$
$
$
22,806
$
(46,415)
52,703,467
285,563
52,989,030
37,585,075
—
0.43
0.43
$
$
(1.23)
(1.23)
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end,
from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because
including them would have had an anti-dilutive effect:
Options to purchase common stock
Unvested RSUs and PSUs
Total
16. Retirement Plan
Year Ended December 31,
2023
3,485,373
3,462,595
6,947,968
2022
3,979,099
1,300,397
5,279,496
The Company has a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The
401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion
of their annual compensation on a pre-tax basis. As currently established, the Company is not required to make any contributions to
the 401(k) Plan. The Company made matching contributions to the 401(k) Plan of $0.3 million and $0.4 million during the years
ended December 31, 2023 and 2022, respectively.
122
SPERO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Subsequent Events
On March 6, 2024, the board of directors approved an amendment to the 2019 Inducement Plan to increase the number of
shares of common stock authorized for issuance thereunder by 500,000 shares. The 2019 Inducement Plan was adopted without
stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). The 2019 Inducement Plan provides for the grant of equity-based
awards, including options, restricted and unrestricted stock awards, and other stock-based awards, and its terms are substantially
similar to the 2017 Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception.
The 2019 Inducement Plan was previously amended in June 2020, December 2022, July 2023 and November 2023.
123
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive
officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of
December 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls
and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with general accepted accounting principles. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation under that framework, our management concluded that our internal control over financial reporting was effective as
of December 31, 2023.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
occurred during the three months ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
124
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Set forth below are the names of our directors as of March 8, 2024, their ages, their offices, if any, their principal occupations
or employment for at least the past five years, the length of their tenure as directors and the names of other public companies in which
such persons hold or have held directorships during the past five years. Additionally, information about the specific experience,
qualifications, attributes or skills that led to our Board of Directors’ conclusion that each person listed below should serve as a director
is set forth below:
Name
Milind Deshpande, Ph.D.
Scott Jackson
Ankit Mahadevia, M.D.
John C. Pottage, Jr., M.D.
Satyavrat Shukla
Cynthia Smith
Frank E. Thomas
Kathleen Tregoning
Patrick Vink, M.D.
Age
67
59
43
71
51
55
54
53
60
Position with the Company
Director
Director
Chairman
Director
Chief Executive Officer, President and Director
Director
Director
Director
Lead Director
Our Board of Directors has reviewed the materiality of any relationship that each of our directors has with Spero
Therapeutics, Inc., either directly or indirectly. Based upon this review, our Board of Directors has determined that the following
members of the Board of Directors are “independent directors” as defined by The Nasdaq Stock Market: Milind Deshpande, Ph.D.,
Scott Jackson, John C. Pottage, Jr., M.D., Cynthia Smith, Frank E. Thomas, Kathleen Tregoning and Patrick Vink, M.D. See “Item 13.
Certain Relationships and Related Transactions, and Director Independence.”
Milind Deshpande, Ph.D. has served on our Board of Directors since January 2014 and previously served as Chairman of
our Board of Directors from January 2014 to August 2023. Dr. Deshpande is the President and Chief Executive Officer at Nayan
Therapeutics since February 2019, and previously served as President and Chief Executive Officer of Avilar Therapeutics from
January 2020 to June 2021. He is also a Venture Partner at RA Capital, where he has served since October 2018. Dr. Deshpande
served as President and Chief Executive Officer of Achillion Pharmaceuticals, Inc. and served on the board of directors from May
2013 until May 2018. He joined Achillion in September 2001 as Vice President of Chemistry, was named Head of Drug Discovery in
April 2002, Senior Vice President of Drug Discovery in December 2002, Senior Vice President and Chief Scientific Officer in
December 2004, Executive Vice President of Research and Chief Scientific Officer in June 2007 and President of Research and
Development in October 2010. Prior to joining Achillion, Dr. Deshpande was Associate Director of Lead Discovery and Early
Discovery Chemistry at the Pharmaceutical Research Institute at Bristol-Myers Squibb Co. from 1991 to 2001, where he managed the
identification of new clinical candidates to treat infectious and neurological diseases. From 1988 to 1991, he held a faculty position at
Boston University Medical School. Dr. Deshpande currently serves as the chairman of the board of directors of Avilar Therapeutics
and as a member of the board of directors of Triana Biomedicines and Clear Creek Bio. Dr. Deshpande received his Ph.D. in Organic
Chemistry from Ohio University, following his undergraduate education in India. We believe that Dr. Deshpande is qualified to serve
on our Board of Directors due to his extensive experience in the life sciences industry.
Scott Jackson has served on our Board of Directors since April 2020. Mr. Jackson served as Chief Executive Officer and as a
member of the board of directors of Celator Pharmaceuticals, Inc. from April 2008 until July 2016, when the company was acquired
by Jazz Pharmaceuticals plc. Mr. Jackson has more than thirty years of corporate leadership experience in the pharmaceutical and
biotechnology industry and has held positions of increasing responsibility in sales, marketing and commercial development at Eli Lilly
& Company, SmithKline Beecham plc, ImClone Systems Incorporated, Centocor Inc., a division of Johnson & Johnson, Eximias
Pharmaceutical Corporation and YM BioSciences Inc. Mr. Jackson presently serves on the boards of Philabundance Food Bank,
MacroGenics, Inc. and GlycoMimetics, Inc. Mr. Jackson holds a B.S. in pharmacy from the Philadelphia College of Pharmacy and
Science and an M.B.A. from the University of Notre Dame. We believe that Mr. Jackson’s extensive executive leadership experience
in the pharmaceutical industry and his experience as a member of the board of directors of other publicly traded biotechnology
companies, as well as his broad life sciences industry knowledge qualifies him to serve on our Board of Directors.
Ankit Mahadevia, M.D. has been a member of our Board of Directors since September 2013 and currently serves as
Chairman of our Board of Directors, a position he has held since August 2023. Dr. Mahadevia formerly served as our Chief Executive
Officer and President from March 2015 until August 2023. He was formerly a Venture Partner in the life sciences group at Atlas
Venture, located in Cambridge, Massachusetts. In that capacity, he supported the formation of eight companies focused on novel drug
125
discovery platforms and therapeutic products, including Nimbus Therapeutics, Arteaus Therapeutics (acquired by Lilly), and Translate
Bio (Nasdaq: TBIO). He led three of these companies as acting chief executive officer, including Synlogic (Nasdaq: SYBX). Prior to
joining Atlas Venture in 2008, Dr. Mahadevia worked on product and business development with the founding team at Arcion
Therapeutics, Inc. He has also held positions in business development both at Genentech, Inc. and at Vanda Pharmaceuticals Inc.
Previously, he worked in the health care groups of McKinsey & Company and Monitor Group. Dr. Mahadevia began his career in
health care policy, with roles in the U.S. Senate Health, Education, Labor, and Pensions committees, the U.S. Government
Accountability Office and the Mexican Institute of Social Security. He has spoken widely on entrepreneurship, including at Harvard
University, Columbia University, Northwestern University, and the Berkeley Forum. Dr. Mahadevia has also been active in the policy
of life science innovation, including service on the Advisory Council at the NIH National Center for Advancing Translational
Sciences. Dr. Mahadevia holds an M.D. from the Johns Hopkins School of Medicine, an M.B.A. from the Wharton School at the
University of Pennsylvania and a B.A. in Economics and Biology from Northwestern University. We believe that Dr. Mahadevia is
qualified to serve on our Board of Directors due to his experience serving as our Chief Executive Officer and President and his
extensive experience in the life sciences industry.
John C. Pottage, Jr., M.D. has served on our Board of Directors since September 2018. Dr. Pottage served as Senior Vice
President and Chief Scientific and Medical Officer of ViiV Healthcare from November 2009 to October 2019. From September 2008
to November 2009, Dr. Pottage served as Senior Vice President, Head of Infectious Disease Medicine Development Center and, from
June 2007 to September 2008, as the Vice President, Global Clinical Development of Antivirals, at GlaxoSmithKline. Prior to joining
GlaxoSmithKline, Dr. Pottage served as Chief Medical Officer and Senior Vice President of Drug Development of Achillion
Pharmaceuticals from May 2002 to May 2007. From July 1998 to May 2002, Dr. Pottage served as Medical Director of Vertex
Pharmaceuticals (Nasdaq: VRTX) (“Vertex”). Dr. Pottage currently serves on the board of directors of Pardes Biosciences, Inc. We
believe that Dr. Pottage’s extensive industry and executive experience, his broad experience within the biopharmaceutical sector and
his knowledge of the life sciences industry qualifies him to serve on our Board of Directors.
Satyavrat Shukla has served as our Chief Executive Officer and President since August 2023 and has been a member of our
Board of Directors since August 2023. He previously served as our Chief Financial Officer and Treasurer from January 2021 to
August 2023. He has over 20 years of strategic and financial leadership experience. He was most recently Chief Financial Officer at
Ziopharm Oncology, Inc. from July 2019 to December 2020, where he directed all of Ziopharm’s financial aspects, including financial
planning, analysis and reporting, treasury and tax functions, capital strategy and investor relations. Prior to Ziopharm, Mr. Shukla was
Vice President and Global Head of Corporate Finance for Vertex. from July 2012 to July 2019, where he managed financial planning,
analysis and budgeting, and led the annual long-range planning process encompassing Vertex’s entire portfolio and operations across
more than 30 countries. Previously, Mr. Shukla was a Principal at Cornerstone Research, where he led teams providing consulting
services for life science clients ranging from start-ups to multi-billion-dollar corporations. Prior to Cornerstone, he worked for finance
consulting firms LECG Corporation and Putnam, Hayes & Bartlett, Inc. Mr. Shukla earned a B.A. in Economics from Harvard
University and an M.B.A. in Finance and Strategy from Yale University. He also holds the Chartered Financial Analyst designation.
Cynthia Smith has served on our Board of Directors since March 2019. Ms. Smith was Chief Commercial Officer of ZS
Pharma, from June 2013 to December 2016. ZS Pharma became a subsidiary of AstraZeneca after its acquisition in December 2015.
Prior to joining ZS Pharma, Ms. Smith was Vice President, Market Access & Commercial Development at Affymax, Inc., a
biotechnology company focused on the development and commercialization of novel renal therapies, including a new anemia drug for
chronic kidney disease patients. Ms. Smith was employed at Affymax from October 2008 to March 2013. Prior to Affymax,
Ms. Smith was Executive Director of Healthcare Systems and Medicare Strategy at Merck. During her tenure at Merck from June
2000 to October 2008, she also held various leadership positions in corporate strategy, public policy, and external affairs, including
global crisis management for the Vioxx recall. Before joining the pharmaceutical industry, she served in the White House Office of
Management and Budget (OMB) in the Clinton Administration. Ms. Smith earned an M.B.A. from the Wharton School of the
University of Pennsylvania, an MS in public policy from the Eagleton Institute of Politics at Rutgers University, and a BA from the
University of North Carolina at Chapel Hill. Ms. Smith also serves on the boards of directors of Agios Pharmaceuticals, Akebia
Therapeutics and Protara Therapeutics, Inc. We believe that Ms. Smith’s extensive management experience in the healthcare industry
and her experience as a member of the board of directors of other publicly traded biotechnology companies, as well as her broad life
sciences industry knowledge, qualifies her to serve on our Board of Directors.
Frank E. Thomas has served on our Board of Directors since July 2017. Mr. Thomas is currently President and Chief
Operating Officer of Orchard Therapeutics, a development-stage biotechnology company based in the United Kingdom, where he
served as Chief Financial Officer and Chief Business Officer from January 2018 to March 2020. Prior to Orchard, Mr. Thomas served
as the President and Chief Operating Officer of AMAG Pharmaceuticals, Inc., a commercial-stage pharmaceutical company, which
was a publicly traded company that was subsequently acquired by Covis Pharmaceuticals, Inc., from April 2015 to April 2017, as
AMAG’s Executive Vice President and Chief Operating Officer from May 2012 through April 2015 and as Executive Vice President,
Chief Financial Officer and Treasurer from August 2011 through May 2012. Prior to AMAG, he served as Senior Vice President,
Chief Operating Officer and Chief Financial Officer for Molecular Biometrics, Inc., a commercial-stage medical diagnostics company,
126
from October 2008 to July 2011. Prior to Molecular Biometrics, Mr. Thomas spent four years at Critical Therapeutics, Inc., which was
a publicly traded company that subsequently merged with Cornerstone Therapeutics Inc., from April 2004 to March 2008, where he
was promoted to President in June 2006 and Chief Executive Officer in December 2006 from the position of Senior Vice President
and Chief Financial Officer. He also served on the board of directors of Critical Therapeutics from 2006 to 2008. Prior to 2004,
Mr. Thomas served as the Chief Financial Officer and Vice President of Finance and Investor Relations at Esperion Therapeutics, Inc.,
a public biopharmaceutical company (Nasdaq: ESPR). Mr. Thomas was a member of the board of directors of the Massachusetts
Biotechnology Council from 2007 to 2015. Mr. Thomas currently serves as a member of the board of directors of Larimar
Therapeutics Inc (Nasdaq: LRMR). Mr. Thomas holds a B.B.A. from the University of Michigan, Ann Arbor. We believe that
Mr. Thomas’ extensive commercial and operational management experience at biopharmaceutical companies and with financial
matters qualifies him to serve on our Board of Directors.
Kathleen Tregoning has served on our Board of Directors since October 2021. Ms. Tregoning has served as Chief Corporate
Affairs Officer of Cerevel Therapeutics Holdings, Inc. since July 2020. Previously, from February 2017 to March 2020,
Ms. Tregoning served as Executive Vice President for External Affairs at Sanofi S.A., a French multinational pharmaceutical
company, where she was responsible for leading an integrated organization that brought together market access, communications,
public policy, government affairs, patient advocacy and corporate social responsibility. Prior to joining Sanofi, Ms. Tregoning spent
more than a decade at Biogen Inc., a multinational biotechnology company, first as Vice President, Public Policy & Government
Affairs, from 2006 to 2015, and then as Senior Vice President, Corporate Affairs, from December 2015 to February 2017. Previously,
Ms. Tregoning served as a professional staff member in the United States Congress, where she held health policy roles with the Senate
Budget Committee, the House Energy & Commerce Committee, and the House Ways & Means Committee. Ms. Tregoning began her
career with Andersen Consulting, where she developed business strategies and processes for clients in a range of industries, and later
served as an Assistant Deputy Mayor for Policy & Budget in the office of the Mayor of Los Angeles. Ms. Tregoning graduated from
Stanford University with a B.A. in International Relations and holds an M.A. in Public Policy from the Kennedy School of
Government at Harvard University. We believe that Ms. Tregoning is qualified to serve on our Board of Directors because of her
senior and executive leadership experience in several biopharmaceutical companies.
Patrick Vink, M.D. has served on our Board of Directors since September 2015 and currently serves as our Lead Director, a
position he has held since August 2023. Dr. Vink has been an advisor to the pharmaceutical industry since 2015 and board member of
several companies. Previously, Dr. Vink was employed at Cubist Pharmaceuticals, Inc. (“Cubist”). Most recently, he served as
Executive Vice-President and Chief Operating Officer, overseeing all worldwide commercial and technical operations as well as
global alliance management and managing the company’s profit and loss. He joined Cubist in 2012 as Senior Vice President and Head
of all International Business Operations. In this role, he was responsible for the business activities in international markets outside
USA. Prior to joining Cubist, Dr. Vink served as Senior Vice President, Global Head of Hospital Business and Global Head of
Biologics for Mylan Inc. In this role, Dr. Vink managed the global hospital business of the company. He joined Mylan in 2008 and
established a number of global functions for the company in Switzerland. Before joining Mylan, Dr. Vink held several leadership
positions across the industry, including Head of Global Business Franchise Biopharmaceuticals for Novartis Sandoz; Vice President
International Business for Biogen, Inc.; and Head of Worldwide Marketing, Cardiovascular and Thrombosis for Sanofi-Synthélabo
SA. Dr. Vink served as a member of the Executive Committee of the European Federation of Pharmaceutical Industries and
Associations (EFPIA) between 2013 and 2015. Dr. Vink graduated as a medical doctor from the University of Leiden, Netherlands in
1988 and obtained his M.B.A. in 1992 from the University of Rochester. Dr. Vink serves on the boards of directors of Santhera
Pharmaceuticals AG, Amryt Pharma PLC., and is chairman of the board of directors of two privately held companies. We believe that
Dr. Vink is qualified to serve on our Board of Directors because of his extensive operational business experience, significant
knowledge of the activities of our company, and diverse background serving on the board of directors of various public and private
life science companies.
Term of Office of Directors
Our Amended and Restated Bylaws provide that our business is to be managed by or under the direction of our Board of
Directors. Our Board of Directors is divided into three classes for purposes of election. One class is elected at each annual meeting of
stockholders to serve for a three-year term. Our Board of Directors currently consists of eight members, classified into three classes as
follows:
(1)
(2)
Cynthia Smith, Scott Jackson and John C. Pottage, Jr., M.D. constitute our Class I directors with a term ending at the 2024
annual meeting of stockholders;
Patrick Vink, M.D., Frank E. Thomas and Satyavrat Shukla constitute our Class II directors with a term ending at the 2025
annual meeting of stockholders; and
127
(3) Milind Deshpande, Ph.D., Ankit Mahadevia, M.D. and Kathleen Tregoning constitute our Class III directors with a term
ending at the 2026 annual meeting of stockholders.
Committees of the Board of Directors and Meetings
Meeting Attendance. During the fiscal year ended December 31, 2023, there were five meetings of our Board of Directors,
and the various committees of the Board of Directors met a total of 12 times. No director attended fewer than 75% of the total number
of meetings of the Board of Directors and of committees of the Board of Directors on which such director served during the fiscal year
ended December 31, 2023. The Board of Directors has adopted a policy under which each member of the Board of Directors makes
every effort to but is not required to attend each annual meeting of our stockholders.
Audit Committee. Our Audit Committee met six times during the fiscal year ended December 31, 2023. This committee
currently has three members, Frank E. Thomas (Chair), Scott Jackson and John C. Pottage, Jr., M.D. During the period of January 1,
2023 through September 15, 2023, our Audit Committee consisted of Mr. Thomas (Chair), Mr. Jackson, Dr. Pottage, and Dr. Vink.
Our Audit Committee’s role and responsibilities are set forth in the Audit Committee’s written charter and include the authority to
retain and terminate the services of our independent registered public accounting firm. In addition, the Audit Committee reviews
annual financial statements, considers matters relating to accounting policy and internal controls and reviews the scope of annual
audits. All members of the Audit Committee satisfy the current independence standards promulgated by the SEC and by The Nasdaq
Stock Market, as such standards apply specifically to members of audit committees. The Board of Directors has determined that Mr.
Thomas is an “audit committee financial expert,” as the SEC has defined that term in Item 407 of Regulation S-K. Please also see the
report of the Audit Committee set forth elsewhere in this proxy statement.
A copy of the Audit Committee’s written charter is publicly available on our website at www.sperotherapeutics.com.
Compensation Committee. Our Compensation Committee met four times during the fiscal year ended December 31, 2023.
This committee currently has three members, Cynthia Smith (Chair), Patrick Vink, M.D., and Kathleen Tregoning. During the period
of January 1, 2023 through September 15, 2023, our Compensation Committee consisted of Dr. Vink (Chair), Dr. Deshpande, Ms.
Smith, and Ms. Tregoning. Our Compensation Committee’s role and responsibilities are set forth in the Compensation Committee’s
written charter and include reviewing, approving and making recommendations regarding our compensation policies, practices and
procedures to ensure that legal and fiduciary responsibilities of the Board of Directors are carried out and that such policies, practices
and procedures contribute to our success. Our Compensation Committee also administers the Spero Therapeutics, Inc. 2017 Stock
Incentive Plan, as amended (the “2017 Plan”), and our 2019 Inducement Equity Incentive Plan, as amended (the “2019 Inducement
Plan”). The Compensation Committee is responsible for the determination of the compensation of our chief executive officer and shall
conduct its decision-making process with respect to that issue without the chief executive officer present. All members of the
Compensation Committee qualify as independent under the definition promulgated by The Nasdaq Stock Market
The Compensation Committee retains Meridian Compensation Partners, LLC (“Meridian”) as an independent advisor to the
Compensation Committee to provide executive compensation consulting services. Meridian did not provide any services to us other
than executive compensation consulting services during the fiscal year ended December 31, 2023. In compliance with the SEC and the
corporate governance rules of The Nasdaq Stock Market, Meridian provided the Compensation Committee with a letter addressing
each of the six independence factors. Their responses affirm the independence of Meridian and the partners, consultants, and
employees who service the Compensation Committee on executive compensation matters and governance issues.
A copy of the Compensation Committee’s written charter is publicly available on our website at www.sperotherapeutics.com.
Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee (“Nominating
Committee”) met two times during the fiscal year ended December 31, 2023 and has three members, Patrick Vink, M.D. (Chair),
Milind Deshpande, Ph.D., and Scott Jackson. During the period of January 1, 2023 through September 15, 2023, our Nominating
Committee consisted of Dr. Deshpande (Chair), Mr. Jackson, Mr. Thomas. Our Board of Directors has determined that all members
of the Nominating Committee qualify as independent under the definition promulgated by The Nasdaq Stock Market. The Nominating
Committee’s responsibilities are set forth in the Nominating Committee’s written charter and include:
•
•
•
•
•
•
identifying and recommending candidates for membership on our Board of Directors;
recommending directors to serve on board committees;
reviewing and recommending our corporate governance guidelines and policies;
reviewing proposed waivers of the code of conduct for directors and executive officers;
evaluating, and overseeing the process of evaluating, the performance of our Board of Directors and individual directors;
and
assisting our Board of Directors on corporate governance matters.
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Generally, our Nominating Committee considers candidates recommended by stockholders as well as from other sources
such as other directors or officers, third party search firms or other appropriate sources. Once identified, the Nominating Committee
will evaluate a candidate’s qualifications in accordance with the criteria set forth in our Corporate Governance Guidelines. Our
Nominating Committee has not adopted a formal diversity policy in connection with the consideration of director nominations or the
selection of nominees. However, the Nominating Committee will consider issues of diversity among its members in identifying and
considering nominees for director, and strive where appropriate to achieve a diverse balance of backgrounds, perspectives, experience,
age, gender, ethnicity and country of citizenship on the Board of Directors and its committees.
If a stockholder wishes to propose a candidate for consideration as a nominee for election to the Board of Directors, it must
follow the procedures described in our Amended and Restated Bylaws and in “Stockholder Proposals and Nominations For Director”
at the end of this proxy statement. Any such recommendation should be made in writing to the Nominating and Governance
Committee, care of our Secretary at our principal office and should be accompanied by the following information concerning each
recommending stockholder and the beneficial owner, if any, on whose behalf the nomination is made:
•
•
•
•
all information relating to such person that would be required to be disclosed in a proxy statement;
certain biographical and share ownership information about the stockholder and any other proponent, including a
description of any derivative transactions in our securities;
a description of certain arrangements and understandings between the proposing stockholder and any beneficial owner and
any other person in connection with such stockholder nomination; and
a statement whether or not either such stockholder or beneficial owner intends to deliver a proxy statement and form of
proxy to holders of voting shares sufficient to carry the proposal.
The recommendation must also be accompanied by the following information concerning the proposed nominee:
•
•
•
•
•
certain biographical information concerning the proposed nominee;
all information concerning the proposed nominee required to be disclosed in solicitations of proxies for election of
directors;
certain information about any other security holder who supports the proposed nominee;
a description of all relationships between the proposed nominee and the recommending stockholder or any beneficial
owner, including any agreements or understandings regarding the nomination; and
additional disclosures relating to stockholder nominees for directors, including completed questionnaires and disclosures
required by our Amended and Restated Bylaws.
Development Committee. Our Development Committee met one time during the fiscal year ended December 31, 2023 and
has three members, John C. Pottage, Jr., M.D. (Chair), Milind Deshpande, Ph.D., and Ankit Mahadevia, M.D. Our Development
Committee provides additional Board of Directors oversight and engagement with respect to the ongoing development of our product
candidates and our research and development programs.
Corporate Governance Guidelines. Our Board of Directors has adopted corporate governance guidelines, which apply to
our principal executive officer, our principal financial and accounting officer and all of our other employees, to assist in the exercise
of its duties and responsibilities and to serve the best interests of us and our stockholders. The guidelines provide that:
•
•
•
•
•
our Board of Directors’ principal responsibility is to oversee our management;
except as required by Nasdaq rules, a majority of the members of our Board of Directors must be independent directors;
the independent directors meet in executive session at least twice a year;
directors have full and free access to management and, as necessary, independent advisors; and
our nominating and corporate governance committee will oversee periodic self-evaluations of the Board of Directors to
determine whether it and its committees are functioning effectively.
While we have no formal policy regarding diversity of our board members, our Corporate Governance Guidelines provide
that the background and qualifications of the members of our Board of Directors considered as a group should provide a significant
breadth of experience, knowledge, and ability to assist our Board of Directors in fulfilling its responsibilities. Our priority in selection
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of board members is the identification of members who will further the interests of our stockholders through their established records
of professional accomplishment, the ability to contribute positively to the collaborative culture among our board members, knowledge
of our business, understanding of the competitive landscape in which we operate and adherence to high ethical standards.
Copies of the Nominating Committee’s written charter and our Corporate Governance Guidelines are publicly available on our
website at www.sperotherapeutics.com.
Code of Business Conduct and Ethics. We have adopted a Code of Business Conduct and Ethics that applies to all of our
employees, including our chief executive officer and chief financial and accounting officers. The text of the Code of Business Conduct
and Ethics is posted on our website at www.sperotherapeutics.com and will be made available to stockholders without charge, upon
request, in writing to our Secretary at Spero Therapeutics, Inc., 675 Massachusetts Avenue, 14th Floor, Cambridge, Massachusetts
02139. Disclosure regarding any amendments to, or waivers from, provisions of the Code of Business Conduct and Ethics that apply
to our directors, principal executive and financial officers will be included in a Current Report on Form 8-K within four business days
following the date of the amendment or waiver, unless website posting or the issuance of a press release of such amendments or
waivers is then permitted by the rules of The Nasdaq Stock Market.
Compensation Committee Interlocks and Insider Participation. None of the members of our Compensation Committee
has at any time during the prior three years been one of our officers or employees. None of our executive officers currently serves, or
in the past fiscal year has served, as a member of our Board of Directors or Compensation Committee of any entity that has one or
more executive officers serving on our Board of Directors or Compensation Committee. For a description of transactions between us
and members of our Compensation Committee and affiliates of such members, see “Certain Relationships and Related Person
Transactions.”
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors is currently chaired by Ankit Mahadevia, M.D. As a general policy, our Board of Directors believes
that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of our Board of Directors from
management, creates an environment that encourages objective oversight of management’s performance and enhances the
effectiveness of our Board of Directors as a whole. As such, Mr. Shukla serves as our Chief Executive Officer, while Dr. Mahadevia
serves as the Chairman of our Board of Directors but is not an officer and Patrick Vink, M.D. serves as Lead Director as he is an
“independent” director.
Our Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of
our business strategies. Our Board of Directors performs this oversight role by using several different levels of review. In connection
with its reviews of our operations and corporate functions, our Board of Directors addresses the primary risks associated with those
operations and corporate functions. In addition, our Board of Directors reviews the risks associated with our business strategies
periodically throughout the year as part of its consideration of undertaking any such business strategies.
Each of our board committees also oversees the management of our risk that falls within the committee’s areas of
responsibility. In performing this function, each committee has full access to management, as well as the ability to engage advisors.
Our Chief Executive Officer reports to the Audit Committee and is responsible for identifying, evaluating and implementing risk
management controls and methodologies to address any identified risks. In connection with its risk management role, our Audit
Committee meets privately with representatives from our independent registered public accounting firm and our Chief Executive
Officer. The Audit Committee oversees the operation of our risk management program, including the identification of the primary
risks associated with our business and periodic updates to such risks, and reports to our Board of Directors regarding these activities.
Stockholder Communications to the Board of Directors
Generally, stockholders who have questions or concerns should contact our Investor Relations department at 857-242-1547
or ir@sperotherapeutics.com. However, any stockholders who wish to address questions regarding our business directly with the
Board of Directors, or any individual director, should direct his or her questions in writing to the Chairman of the Board of Directors
at Spero Therapeutics, Inc., 675 Massachusetts Avenue, 14th Floor, Cambridge, Massachusetts 02139. Communications will be
distributed to the Board of Directors, or to any individual director or directors as appropriate, depending on the facts and
circumstances outlined in the communications. Items that are unrelated to the duties and responsibilities of the Board of Directors may
be excluded, such as: junk mail and mass mailings; resumes and other forms of job inquiries; surveys; and solicitations or
advertisements. In addition, any material that is unduly hostile, threatening, or illegal in nature may be excluded, provided that any
communication that is filtered out will be made available to any outside director upon request.
Executive Officers
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The following table sets forth certain information regarding our executive officers who are not also directors as of March 8,
2024. We have employment agreements or consulting agreements with each of our executive officers.
Name
Kamal Hamed, M.D.
Timothy Keutzer
Esther Rajavelu
Age
63
56
45
Position
Chief Medical Officer
Chief Operating Officer
Chief Financial Officer and Chief Business Officer
Kamal Hamed, M.D. has served as our Chief Medical Officer since September 2022. Dr. Hamed has over 20 years of
experience leading various anti-infective clinical development programs in antibacterials, antivirals, antimalarials, and antifungals.
Before joining us, he was the CMO at Lysovant Sciences, a subsidiary of Roivant Sciences. Prior to his time at Lysovant, Dr. Hamed
was Head of Clinical Development & Medical Affairs at Basilea Pharmaceutica. Earlier in his career, he held senior positions in
clinical development and medical affairs at Novartis (including Therapeutic Area Head for Anti-infectives), Bristol-Myers Squibb,
and Bayer, spearheading the successful global development, approval, and post-marketing medical affairs support of multiple anti-
infective products. Prior to joining the pharmaceutical industry, Dr. Hamed worked as an academic physician for 14 years. He holds
an M.D. degree from the American University of Beirut, an M.P.H. degree from Johns Hopkins University, and an M.B.A. degree
from the University of South Florida. Dr. Hamed completed a residency in Internal Medicine at UMDNJ–Robert Wood Johnson
Medical School and a fellowship in Infectious Diseases at Stanford University School of Medicine. He is a fellow of both the
American College of Physicians and the Infectious Diseases Society of America and has published over 120 manuscripts in peer-
reviewed journals.
Timothy Keutzer has served as our Chief Operating Officer since February 2023 and previously served as our Chief
Development Officer from June 2019 until February 2023 and as our Senior Vice President, Development from September 2015 to
June 2019. He has over 20 years’ experience in the pharmaceutical industry, spanning multiple functional and therapeutic areas. Prior
to joining Spero, Mr. Keutzer served in various roles at Cubist Pharmaceuticals, including Vice President of Program and Portfolio
Management from May 2014 to July 2015. At Cubist Mr. Keutzer was the program leader for ceftolozane/tazobactam, which
progressed rapidly from Phase 1 to Phase 3, and was approved in the FDA in December of 2014. Prior to that role, he also led several
of Cubist’s inlicensed development programs, and also led the commercial supply chain for Cubicin. His experience before Cubist
spans multiple drug classes and includes preclinical PK/PD and clinical operations at Genetics Institute, as well as global strategic
marketing and program management at Wyeth. Tim began his career in contract toxicology labs. Mr. Keutzer earned his bachelor’s
degree from the University of Kentucky.
Esther Rajavelu has served as our Chief Financial Officer and Chief Business Officer since November 2023. Ms. Rajavelu
most recently served as Chief Financial Officer of Fulcrum Therapeutics, Inc. (“Fulcrum”) from January 2022 to April 2023. Prior to
joining Fulcrum, Ms. Rajavelu’s career in the biotechnology sector includes her time as an equities research analyst, investment
banker, and strategy consultant. She served as a senior equities research analyst at UBS Securities ("UBS”) from July 2020 to
December 2021. Prior to joining UBS, Ms. Rajavelu served as a senior equities research analyst at Oppenheimer & Co. Inc.
("Oppenheimer”) from June 2018 to July 2020. Prior to joining Oppenheimer, Ms. Rajavelu served as an equities research analyst at
Deutsche Bank from June 2014 to June 2018. Prior to joining Deutsche Bank, she served as vice president, life sciences M&A and
capital & debt advisory at Ernst & Young Capital Advisors, LLC ("EY Capital Advisors”) from 2011 to 2014. Prior to joining EY
Capital Advisors, she worked at Bank of America Merrill Lynch from 2006 to 2011 in the healthcare investment banking group where
she focused on financing and strategic transactions in the biotechnology and medical devices sectors. Ms. Rajavelu received a MBA
from The Wharton School of the University of Pennsylvania and a B.A. in Economics and International Relations from Wesleyan
University
Director or Officer Involvement in Certain Legal Proceedings
Our directors and executive officers have not been involved in any legal proceedings as described in Item 401(f) of
Regulation S-K in the past ten years.
Item 11. Executive Compensation.
The following table shows the total compensation paid or accrued during the last two fiscal years ended December 31, 2023
and 2022 to our current President and Chief Executive Officer, our former President and Chief Executive Officer, and our two next
most highly compensated executive officers who earned more than $100,000 during the fiscal year ended December 31, 2023 and
were serving as executive officers as of such date (the “named executive officers”).
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Name and Principal Position
Year
Salary
($)
Bonus
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)(3)
Satyavrat Shukla 2023
2022
Chief Executive Officer and
President
524,383
478,333
336,000
168,000
904,319
424,997
—
424,807
Non-Equity
Incentive Plan
Compensation
($)(4)
249,462
172,800
All other
Compensation
($)(5)
Total ($)
10,483
4,133
2,024,647
1,673,070
Ankit Mahadevia, M.D. 2023 379,220
2022 633,750
Former Chief Executive
Officer and President (6)
508,000
254,000
999,998
1,499,998
—
1,499,324
—
342,900
498,687
9,733
2,385,905
4,239,705
Tamara Joseph 2023
2022
Former Chief Legal Officer
(7)
458,250
448,740
315,000
157,500
499,999
424,997
—
424,807
174,420
162,000
7,457
7,314
1,455,126
1,625,358
Timothy Keutzer 2023
Chief Operating Officer 2022
456,167
423,750
297,500
148,750
499,999
424,997
—
424,807
174,420
153,000
10,483
9,733
1,438,569
1,585,037
1.
2.
3.
4.
5.
Consists of retention bonuses paid to Mr. Shukla, Dr. Mahadevia, Ms. Joseph and Mr. Keutzer during the years ended
December 31, 2023 and 2022.
These amounts represent the aggregate grant date fair value for RSU awards computed in accordance with ASC 718. A
discussion of the assumptions used in determining grant date fair value may be found in Note 8 to our consolidated
financial statements for the year ended December 31, 2023.
These amounts represent the aggregate grant date fair value for option awards computed in accordance with ASC 718. A
discussion of the assumptions used in determining grant date fair value may be found in Note 8 to our consolidated
financial statements for the year ended December 31, 2023.
Amounts represent annual cash bonuses earned for the applicable fiscal year. The annual cash bonuses are paid in the first
quarter of the calendar year following the year to which the cash bonus relates.
Amounts in this column include for the year ended December 31, 2023 (i) in the case of Mr. Shukla, $583 consists of the
dollar value of life insurance premiums we paid with respect to term life insurance and $9,900 in a matching contribution
under our 401(k) plan, (ii) in the case of Dr. Mahadevia, $340 consists of the dollar value of life insurance premiums we
paid with respect to term life insurance, and $9,419 in a matching contribution under our 401(k) plan, $225,719 consists
of the pro-rata bonus for calendar year 2023, paid pursuant to the Mahadevia Separation Agreement (as defined below),
$11,509 consists of COBRA payments pursuant to the Mahadevia Separation Agreement, $197,250 consists of
compensation earned during the year ended December 31, 2023 pursuant to the Mahadevia Consulting Agreement (as
defined below), and $31,250 consists of cash compensation earned for his services as a member of our board of directors
during the year ended December 31, 2023, and $23,200 consists of RSUs granted for service on our board of directors,
each as further described below under “Director Compensation,” (iii) in the case of Ms. Joseph, $583 consists of the dollar
value of life insurance premiums we paid with respect to term life insurance and $6,874 in a matching contribution under
our 401(k) plan and (iv) in the case of Mr. Keutzer, $583 consists of the dollar value of life insurance premiums we paid
with respect to term life insurance and $9,900 in a matching contribution under our 401(k) plan.
6.
Dr. Mahadevia served as our Chief Executive Officer and President until August 2023. Thereafter, Dr. Mahadevia
continued to serve as a member of the Board and serves as a consultant to the Company.
7. Ms. Joseph’s employment as our Chief Legal Officer ended effective March 6, 2024.
Narrative Disclosure to Summary Compensation Table
Our employment and consulting arrangements with the named executive officers are described below.
Satyavrat Shukla
On December 9, 2020, we entered into an employment agreement with Mr. Shukla with respect to his employment as our
Chief Financial Officer, as amended on November 10, 2022. The terms of Mr. Shukla’s agreement provided for an annual base salary
of $425,000 prorated for fiscal year 2021, and eligibility for an annual incentive bonus, with a target bonus opportunity of 40% of his
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then-current base salary, subject to adjustment by the Board of Directors or Compensation Committee. Mr. Shukla’s annual base
salary has been subsequently increased over time. As of July 1, 2021, Mr. Shukla's base salary was increased to $460,000, with a
target bonus opportunity of 40% of his base salary. In December 2021, Mr. Shukla’s base salary was increased, effective February 1,
2022, to $480,000 with a target bonus opportunity of 40% of his base salary. In January 2023, Mr. Shukla’s base salary was increased,
effective February 1, 2023, to $489,600 with a target bonus opportunity of 40% of his base salary.
On June 13, 2023, we entered into an Amended and Restated Employment Agreement with Mr. Shukla with connection with
his appointment as our Chief Executive Officer and President (the “Shukla Amended Employment Agreement”). Under the terms of
the Shukla Amended Employment Agreement, (i) the Company shall pay Mr. Shukla an annual base salary (the “Base Salary”) of
$575,000; (ii) Mr. Shukla shall be eligible to receive an annual cash bonus (the “Annual Performance Bonus”), with the target amount
of such Annual Performance Bonus equal to 50% of Mr. Shukla’s Base Salary in the year to which the Annual Performance Bonus
relates; provided that the actual amount of the Annual Performance Bonus may be greater or less than such target amount; provided
further that Mr. Shukla’s Annual Performance Bonus for the 2023 performance year shall be pro-rated such that it shall be based on a
Base Salary of $489,600 for the period from January 1, 2023 to July 31, 2023 and on a Base Salary of $575,000 for the period from
the Transition Date to December 31, 2023; and (iii) the Company awarded Mr. Shukla 266,000 restricted stock units (the “Shukla
RSUs”) under the Plan on the Transition Date; the Shukla RSUs are subject to the terms and conditions of the Plan and the restricted
stock unit agreement between Mr. Shukla and Company entered into pursuant thereto (the “Shukla RSU Agreement”); and the Shukla
RSUs shall vest in four equal annual installments beginning on the first anniversary of the Transition Date, except as otherwise
provided in the Shukla RSU Agreement. In January 2024, Mr. Shukla’s base salary was increased, effective January 1, 2024, to
$603,750 with a target bonus opportunity remaining at 50% of his base salary.
The Shukla Amended Employment Agreement also provides for the following severance payments upon termination by the
Company without Cause (as defined in the Shukla Amended Employment Agreement) or by Mr. Shukla for Good Reason (as defined
in the Shukla Amended Employment Agreement): (i) payment of his then-current Base Salary for a period of 12 months following
termination; (ii) a pro-rated target bonus for the period during which Mr. Shukla was employed in the year of termination; and (iii)
continued coverage under the Company’s group health insurance plan until the earlier of 12 months from termination or the date Mr.
Shukla becomes eligible for medical benefits with another employer. Further, the Shukla Amended Employment Agreement provides
that upon termination by the Company without Cause or by Mr. Shukla for Good Reason within (i) 90 days prior to the earlier to occur
of a Change of Control (as defined in the Shukla Amended Employment Agreement) or the execution of a definitive agreement, the
consummation of which would result in a Change of Control or (ii) one year following a Change of Control, Mr. Shukla will be
entitled to receive: (i) a lump sum payment equal to 18 months of his then-current Base Salary plus an amount equal to one-and-one-
half times the target amount of his Annual Performance Bonus; (ii) acceleration of all unvested equity awards as of the date of
termination; and (iii) continued coverage under the Company’s group health insurance plan until the earlier of 18 months from
termination or the date Mr. Shukla becomes eligible for medical benefits with another employer. Payment in each case is subject to
Mr. Shukla’s execution of a release satisfactory to the Company following such termination. In addition, if Mr. Shukla’s employment
terminates as a result of disability or death, he will be entitled to receive a pro-rated target bonus for the period during which he was
employed in the year of termination.
Ankit Mahadevia, M.D.
On October 20, 2017, we entered into an employment agreement with Dr. Mahadevia with respect to his employment as our
Chief Executive Officer, as amended on November 10, 2022. The terms of Dr. Mahadevia’s agreement provided for an annual base
salary of $400,000, and eligibility for an annual incentive bonus, with a target bonus opportunity of 30% of his then-current base
salary, subject to adjustment by the Board of Directors or Compensation Committee. Dr. Mahadevia’s annual base salary and target
bonus opportunity were subsequently increased over time. In December 2021, Dr. Mahadevia’s base salary was increased, effective
February 1, 2022, to $635,000, with a target bonus opportunity of 60% of his base salary. In January 2023, Dr. Mahadevia’s base
salary was increased, effective February 1, 2023, to $647,700, with a target bonus opportunity of 60% of his base salary.
Dr. Mahadevia stepped down as Chief Executive Officer effective August 1, 2023. On June 13, 2023, we entered into a (i) Transition
and Separation Agreement with Dr. Mahadevia (the “Mahadevia Separation Agreement”) and (ii) Consulting Agreement with
Dr. Mahadevia (the “Mahadevia Consulting Agreement”), each as described below.
Dr. Mahadevia’s employment agreement provided for the following increased severance payments upon termination by us
without Cause (as defined below) or by Dr. Mahadevia for Good Reason (as defined below): (i) payment of his then current base
salary for a period of 12 months following termination; (ii) a pro-rated target bonus for the period during which Dr. Mahadevia was
employed in the year of termination; and (iii) continued coverage under our group health insurance plan until the earlier of 12 months
from termination or the date Dr. Mahadevia becomes eligible for medical benefits with another employer. Further, the agreement
provided that upon termination by us without Cause or by Dr. Mahadevia for Good Reason within 90 days prior to the earlier to occur
of a Change of Control (as defined below) or the execution of a definitive agreement the consummation of which would result in a
Change of Control or one year following a Change of Control (a “Change of Control Termination”), Dr. Mahadevia was entitled to
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receive (i) a lump sum payment equal to 18 months of his then-current base salary plus the amount of his then-current target
performance bonus; (ii) acceleration of all unvested equity awards as of the date of termination; and (iii) continued coverage under our
group health insurance plan until the earlier of 12 months from termination or the date Dr. Mahadevia becomes eligible for medical
benefits with another employer. Payment in each case was subject to Dr. Mahadevia’s execution of a release satisfactory to us
following such termination. In addition, if Dr. Mahadevia’s employment terminated as a result of disability or death, he was entitled to
receive a pro-rated target bonus for the period during which Dr. Mahadevia was employed in the year of termination. The agreement
also provided that Dr. Mahadevia shall serve as a member of our Board of Directors during his employment with us until the term of
his directorship expires and he is not re-elected or his earlier resignation or removal from our Board of Directors.
On June 13, 2023, we entered into the Mahadevia Separation Agreement. Pursuant to the terms of the Mahadevia Separation
Agreement, (i) Dr. Mahadevia remained eligible to receive a bonus amount representing a pro-rata bonus for calendar year 2023,
subject to the discretion of the Board, calculated through August 1, 2023 (the “Transition Date”), which was paid within ten days
following the Transition Date; (ii) if Dr. Mahadevia is eligible for and elects to continue his health insurance coverage under the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”) following the Transition Date, then the Company shall pay his
monthly premium under COBRA until the earliest of (A) January 31, 2024; (B) the expiration of his continuation coverage under
COBRA; or (C) the date when he becomes eligible to receive health insurance coverage in connection with new employment or self-
employment; (iii) that the Company enter into the Mahadevia Consulting Agreement; (iv) notwithstanding any terms of the
Company’s 2017 Plan, or any award agreements to the contrary, in the event of a Change of Control (as defined in the Mahadevia
Consulting Agreement) and provided Dr. Mahadevia is a member of the Board on the effective date of the Change of Control,
Dr. Mahadevia shall become fully vested in any and all equity awards outstanding as of the effective date of the Change of Control;
and (v) Dr. Mahadevia was appointed by the Board of Directors to serve as Chairman of the Board, effective as of the Transition Date.
On June 13, 2023, we entered into the Mahadevia Consulting Agreement. Pursuant to the terms of the Mahadevia Consulting
Agreement, Dr. Mahadevia will perform certain consulting services for the Company which commenced on the Transition Date and
continues through July 31, 2025, including advising the Company on general operational and strategic matters (the “Mahadevia
Services”). Under the Mahadevia Consulting Agreement, the Company shall pay Dr. Mahadevia (i) $54,000 per month for the
Mahadevia Services from the Transition Date through January 31, 2024 and (ii) an hourly rate of $310.00 per hour beginning on
February 1, 2024 and continuing through July 31, 2025. Further, the equity that Dr. Mahadevia received under the 2017 Plan and any
Stock Option Agreement or Restricted Stock Unit Agreement executed pursuant thereto prior to the Transition Date (collectively, the
“Mahadevia Award Agreements”) shall continue to vest in accordance with the terms of the Plan and the Mahadevia Award
Agreements during the term of the Mahadevia Consulting Agreement. Dr. Mahadevia may exercise any vested options during the term
of the Mahadevia Consulting Agreement and for 90 days following a termination event triggering an exercise period applicable to
same (but no later than the date such award expires) in accordance with the terms of the Plan and the applicable Mahadevia Award
Agreements. In addition, in the event of a Change of Control (as defined in Mahadevia Consulting Agreement) on or before July 31,
2025, Dr. Mahadevia shall become fully vested in any and all equity awards outstanding as of the effective date of such Change of
Control, provided that the Mahadevia Consulting Agreement remains in effect as of the effective date of such Change of Control.
Tamara Joseph
On November 6, 2020, we entered into an employment agreement with Ms. Joseph with respect to her employment as our
Chief Legal Officer, as amended on November 10, 2022. The terms of Ms. Joseph’s agreement provided for an annual base salary of
$385,000 prorated for fiscal year 2020, and eligibility for an annual incentive bonus, with a target bonus opportunity of 40% of her
then-current base salary, subject to adjustment by the Board of Directors or Compensation Committee. Ms. Joseph’s annual base
salary has been subsequently increased over time. As of July 1, 2021, Ms. Joseph's base salary was increased to $435,000, with a
target bonus opportunity of 40% of her base salary. In December 2021, Ms. Joseph’s base salary was increased, effective February 1,
2022, to $450,000 with a target bonus opportunity of 40% of her base salary. In January 2023, Ms. Joseph’s base salary was increased,
effective February 1, 2023, to $459,000 with a target bonus opportunity of 40% of her base salary. In January 2024, Ms. Joseph’s base
salary was increased, effective January 1, 2024, to $475,065 with a target bonus opportunity of 40% of her base salary.
The agreement also provides for the following severance payments upon termination by us without Cause or by Ms. Joseph
for Good Reason: (i) payment of her then-current base salary for a period of nine months following termination; (ii) a pro-rated target
bonus for the period during which Ms. Joseph was employed in the year of termination; and (iii) continued coverage under our group
health insurance plan until the earlier of 12 months from termination or the date Ms. Joseph becomes eligible for medical benefits with
another employer. Further, the agreement provides that upon termination by us without Cause or by Ms. Joseph for Good Reason
within 90 days prior to the earlier to occur of a Change of Control or a Change of Control Termination, Ms. Joseph will be entitled to
receive: (i) a lump sum payment equal to 12 months of her then-current base salary plus the amount of her then-current target
performance bonus; (ii) acceleration of all unvested equity awards as of the date of termination; and (iii) continued coverage under our
group health insurance plan until the earlier of 12 months from termination or the date Ms. Joseph becomes eligible for medical
benefits with another employer. Payment in each case is subject to Ms. Joseph’s execution of a release satisfactory to us following
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such termination. In addition, if Ms. Joseph’s employment terminates as a result of disability or death, she shall be entitled to receive a
pro-rated target bonus for the period during which Ms. Joseph was employed in the year of termination.
Effective as of March 6, 2024, Ms. Joseph’s employment as our Chief Legal Officer ended. In connection with Ms. Joseph
stepping down, she is entitled to receive severance pay in the amount of $356,298.75, payable as continued salary in accordance with
the our regular payroll dates and a pro rated cash bonus equal to $34,266.98 for the year ending December 31, 2024, which will be
paid to Ms. Joseph when we pay the 2024 annual bonuses to our employees in 2025, but in any event no later than March 15, 2025. To
implement the foregoing, we and Ms. Joseph entered into a Separation Agreement. We also entered into the Joseph Consulting
Agreement, effective as of March 6, 2024, pursuant to which Ms. Joseph will provide consulting services to us on an hourly, as
needed basis, for a term of nine months following March 6, 2024 at a rate of $395.00 per hour. Ms. Joseph’s employee stock options
and RSUs will continue to vest during the term of the Joseph Consulting Agreement and after the term of the Joseph Consulting
Agreement ends, all of Ms. Joseph’s then vested and unexercised options and RSUs will be exercisable for 90 days in accordance with
the terms of such options and RSUs and the 2017 Plan and the 2019 Inducement Plan, as applicable.
Timothy Keutzer
On January 1, 2020, we entered into an employment agreement with Mr. Keutzer with respect to his employment as our
Chief Development Officer, as amended on November 10, 2022. The terms of Mr. Keutzer’s agreement provided for an annual base
salary of $ 330,000 and eligibility for an annual incentive bonus, with a target bonus opportunity of 40% of his then-current base
salary, subject to adjustment by the Board of Directors or Compensation Committee. Mr. Keutzer’s annual base salary has been
subsequently increased over time. In December 2021, Mr. Keutzer’s base salary was increased, effective February 1, 2022, to
$425,000 with a target bonus opportunity of 40% of his base salary.
On February 1, 2023, we entered into an Amended and Restated Employment Agreement with Mr. Keutzer with connection
with his appointment as our Chief Operating Officer (the “Keutzer Amended Employment Agreement”). Under the terms of the
Keutzer Amended Employment Agreement, the Company shall pay Mr. Keutzer an annual base salary of $459,000, with a target
bonus opportunity of 40% of his base salary. In January 2024, Mr. Keutzer’s base salary was increased, effective January 1, 2024, to
$475,065 with a target bonus opportunity remaining at 40% of his base salary.
The agreement also provides for the following severance payments upon termination by us without Cause or by Mr. Keutzer
for Good Reason: (i) payment of his then-current base salary for a period of nine months following termination; (ii) a pro-rated target
bonus for the period during which Mr. Keutzer was employed in the year of termination; and (iii) continued coverage under our group
health insurance plan until the earlier of 12 months from termination or the date Mr. Keutzer becomes eligible for medical benefits
with another employer. Further, the agreement provides that upon termination by us without Cause or by Mr. Keutzer for Good
Reason within 90 days prior to the earlier to occur of a Change of Control or a Change of Control Termination, Mr. Keutzer will be
entitled to receive: (i) a lump sum payment equal to 12 months of his then-current base salary plus the amount of his then-current
target performance bonus; (ii) acceleration of all unvested equity awards as of the date of termination; and (iii) continued coverage
under our group health insurance plan until the earlier of 12 months from termination or the date Mr. Keutzer becomes eligible for
medical benefits with another employer. Payment in each case is subject to Mr. Keutzer ‘s execution of a release satisfactory to us
following such termination. In addition, if Mr. Keutzer’s employment terminates as a result of disability or death, he shall be entitled
to receive a pro-rated target bonus for the period during which Mr. Keutzer was employed in the year of termination.
Under each of the employment agreements, Cause means (i) the executive’s conviction of (A) a felony or (B) any
misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (ii) the executive’s willful failure or refusal to comply with lawful
directions of our Board of Directors (or, for Mr. Keutzer and Ms. Joseph, the lawful directions of the Chief Executive Officer), which
failure or refusal continues for more than thirty days after written notice is given to the executive by our Board of Directors (or, for
Mr. Keutzer and Ms. Joseph, by the Chief Executive Officer), which notice sets forth in reasonable detail the nature of such failure or
refusal; (iii) willful and material breach by the executive of a written company policy applicable to the executive or the executive’s
covenants and/or obligations under his or her employment agreement or the material breach of the executive’s proprietary information
and inventions assignment agreement; and/or (iv) material misconduct by the executive that seriously discredits or damages us or any
of our affiliates.
Under each of the employment agreements, Good Reason means (i) relocation of the executive’s principal business location
to a location more than thirty (30) miles from the executive’s then-current business location; (ii) a material diminution in the
executive’s duties, authority or responsibilities; (iii) a material reduction in the executive’s base salary; (iv) willful and material breach
by us of our covenants and/or obligations under the executive’s employment agreement; or (v) within one year following a Change of
Control, the executive is not an executive of the parent company, provided that the executive’s roles responsibilities and scope of
authority within the subsidiary is not comparable to the executive’s roles, responsibilities and scope of authority with us prior to the
Change of Control.
135
Under each of the employment agreements, Change of Control means (i) any person (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities (excluding for this
purpose any such voting securities held by the Company, or any affiliate, parent or subsidiary of the Company, or by any employee
benefit plan of the Company) pursuant to a transaction or a series of related transactions; (ii) a merger or consolidation of the
Company other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving
entity or the parent of such corporation) at least fifty percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or
consolidation; (iii) our stockholders approve an agreement for the sale or disposition by the Company of all or substantially all of our
assets; or (iv) a change in the composition of our Board of Directors, as a result of which fewer than a majority of the directors are
incumbent directors.
All of our executive officers have entered into our standard proprietary information and inventions assignment agreement.
Outstanding Equity Awards at 2023 Fiscal Year-End
The following table shows grants of stock options and awards outstanding on the last day of the fiscal year ended December
31, 2023 to each of the named executive officers.
136
Name
Satyavrat Shukla
Ankit Mahadevia, M.D.
Tamara Joseph
Timothy Keutzer
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
54,688 (2)
24,378 (3)
—
—
—
—
22,213 (8)
101,488 (9)
118,888 (10)
244,220 (11)
125,079 (12)
180,000 (13)
172,500 (14)
127,017 (15)
86,043 (3)
—
—
—
56,250 (16)
24,378 (3)
—
—
—
55,943 (11)
25,016 (12)
25,000 (13)
52,708 (14)
40,681 (15)
24,378 (16)
—
—
—
20,312 (2)
28,812 (3)
—
—
—
—
—
—
—
—
—
—
7,500 (14)
52,302 (15)
101,687 (3)
—
—
—
56,250 (16)
28,812 (3)
—
—
—
—
—
—
2,292 (14)
16,751 (15)
28,812 (16)
—
—
—
17.93
11.18
—
—
—
—
5.90
5.90
5.90
5.90
11.63
6.26
9.34
19.18
11.18
—
—
—
17.28
11.18
—
—
—
5.90
11.63
6.26
9.34
19.18
11.18
—
—
—
Option
Expiration
Date
1/4/2031
1/31/2032
—
—
—
—
7/5/2027
7/5/2027
7/5/2027
7/5/2027
12/12/2027
1/1/2029
2/2/2030
1/31/2031
1/31/2032
—
—
—
12/2/2030
1/31/2032
—
—
—
7/5/2027
12/12/2027
1/1/2029
2/2/2030
1/31/2031
1/31/2032
—
—
—
Number of
Shares or
Units of
Stock That
Have not
Vested (#)
Market
Value of
Shares or
Units of
Stock that
Have not
Vested
($) (1)
—
—
12,033 (4)
28,510 (5)
265,957 (6)
266,000 (7)
—
—
—
—
—
—
—
—
—
39,109 (4)
100,626 (5)
531,914 (6)
—
—
12,033 (4)
28,510 (5)
265,957 (6)
—
—
—
—
—
—
12,033 (4)
28,812 (5)
265,957 (6)
—
—
17,689
41,910
390,957
391,020
—
—
—
—
—
—
—
—
—
57,490
147,920
781,914
—
—
17,689
41,910
390,957
—
—
—
—
—
—
17,689
42,354
390,957
1.
2.
3.
The market value of the stock awards is based on the closing price of our common stock of $1.47 per share on December
29, 2023.
25% of the options vested on January 4, 2022 and an additional 1/36th of the remaining shares vest monthly until the
option is fully vested. In addition, in the event of a Change of Control Termination, the vesting of these options will
accelerate in accordance with the terms of the option and his or her employment agreement.
25% of the options vested on February 1, 2023 and an additional 1/36th of the remaining shares vest monthly until the
option is fully vested. In addition, in the event of a Change of Control Termination, the vesting of these options will
accelerate in accordance with the terms of the option and his or her employment agreement.
137
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Consists of RSUs. Each RSU represents the right to receive one share of common stock upon vesting. The RSUs vest in
four equal annual installments beginning on August 26, 2022, subject to the individual's continued service through the
applicable vesting date.
Consists of RSUs. Each RSU represents the right to receive one share of common stock upon vesting. The RSUs vest in
four equal annual installments beginning on February 1, 2023, subject to the individual's continued service through the
applicable vesting date.
Consists of RSUs. Each RSU represents the right to receive one share of common stock upon vesting. The RSUs vest in
four equal annual installments beginning on February 1, 2024, subject to the individual's continued service through the
applicable vesting date.
Consists of RSUs. Each RSU represents the right to receive one share of common stock upon vesting. The RSUs vest in
four equal annual installments beginning on August 1, 2024 subject to the individual's continued service through the
applicable vesting date.
100% of these options vested on August 24, 2019.
100% of these options vested on April 28, 2020.
100% of these options vested on July 6, 2017.
100% of these options vested on July 6, 2021.
100% of these options vested on December 13, 2021.
100% of these options vested on January 2, 2023.
25% of the options vested on February 3, 2021 and an additional 1/36th of the remaining shares vest monthly until the
option is fully vested. In addition, in the event of a Change of Control Termination, the vesting of these options will
accelerate in accordance with the terms of the option and his or her employment agreement.
25% of the options vested on February 1, 2022 and an additional 1/36th of the remaining shares vest monthly until the
option is fully vested. In addition, in the event of a Change of Control Termination, the vesting of these options will
accelerate in accordance with the terms of the option and his or her employment agreement.
25% of the options vested on December 2, 2021 and an additional 1/36th of the remaining shares vest monthly until the
option is fully vested. In addition, in the event of a Change of Control Termination, the vesting of these options will
accelerate in accordance with the terms of the option and his or her employment agreement.
During the year ended December 31, 2023, the named executive officers did not exercise any stock options.
2022 Retention Cash Bonus and Performance Awards
On July 1, 2022, upon recommendation of the Compensation Committee, the Board of Directors approved a cash and RSU
retention award for the Company’s executive officers, including awards to Mr. Shukla, Dr. Mahadevia, Ms. Joseph and Mr. Keutzer
consisting of the following:
•
•
•
•
Mr. Shukla received: (i) a cash bonus of $168,000, which was paid on November 30, 2022, and (ii) upon the achievement
of certain performance criteria as of May 31, 2023, a cash payment of $336,000, which was paid in June 2023.
Dr. Mahadevia received: (i) a cash bonus of $254,000, which was paid on November 30, 2022, and (ii) upon the
achievement of certain performance criteria as of May 31, 2023, a cash payment of $508,000, which was paid in June
2023.
Ms. Joseph received: (i) a cash bonus of $157,500, which was paid on November 30, 2022, and (ii) upon the achievement
of certain performance criteria as of May 31, 2023, a cash payment of $315,000, which was paid in June 2023.
Mr. Keutzer received: (i) a cash bonus of $148,785, which was paid on November 30, 2022, and (ii) upon the achievement
of certain performance criteria as of May 31, 2023, a cash payment of $297,500, which was paid in June 2023.
The payments were based on the achievement of certain performance criteria by May 31, 2023 relating to pipeline execution,
business development, and financial stewardship.
Potential Payments upon Termination or Change-In-Control
138
The employment agreements provide for the following severance payments upon termination by us without Cause or by the
employee for Good Reason: (i) payment of the employee’s then-current base salary for a period of nine months following termination
(12 months in the case of the Chief Executive Officer); (ii) a pro-rated target bonus for the period during which the employee was
employed in the year of termination; and (iii) continued coverage under our group health insurance plan until the earlier of 12 months
from termination or the date the employee becomes eligible for medical benefits with another employer.
Further, the agreements provide that upon termination by us without Cause or by the employee for Good Reason within 90
days prior to or one year following the earlier to occur of a Change of Control (as defined in the executive’s employment agreements)
or the execution of a definitive agreement the consummation of which would result in a Change of Control, the employee will be
entitled to receive: (i) a lump sum payment equal to 12 months of the employee’s then-current base salary plus a pro-rated target
bonus for the period during which the employee was employed in the year of termination; (ii) acceleration of unvested equity awards
as of the date of termination in accordance with the terms of the executive’s employment agreement, as described above under
“Narrative Disclosure to Summary Compensation Table;” and (iii) continued coverage under our group health insurance plan until the
earlier of 12 months from termination or the date the employee becomes eligible for medical benefits with another employer. Payment
in each case is subject to the employee’s execution of a release satisfactory to us following such termination. In addition, if the
employee’s employment terminates as a result of disability or death, he or she shall be entitled to receive a pro-rated target bonus for
the period during which the employee was employed in the year of termination.
Director Compensation
The following table shows the total compensation paid or accrued during the fiscal year ended December 31, 2023 to each of
our current non-employee directors. Directors who are employed by us are not compensated for their service on our Board of
Directors.
Name
Milind Deshpande, Ph.D.
Scott Jackson
Ankit Mahadevia, M.D. (3)
John C. Pottage, Jr., M.D.
Cynthia Smith
Frank E. Thomas
Kathleen Tregoning
Patrick Vink, M.D.
Fees Earned or
Paid in Cash ($)
82,500
57,500
—
60,000
50,000
65,625
10,000
50,000
Stock
Awards ($) (1)
23,200
23,200
—
23,200
23,200
23,200
23,200
23,200
Option
Awards* ($) (2)(6)
—
—
—
—
—
—
39,974
19,987
(4)
(5)
Total($)
105,700
80,700
—
83,200
73,200
88,825
73,174
93,187
1.
2.
3.
4.
5.
6.
These amounts represent the aggregate grant date fair value for RSU awards computed in accordance with ASC 718. A
discussion of the assumptions used in determining grant date fair value may be found in Note 8 to our consolidated
financial statements, included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
These amounts represent the aggregate grant date fair value of options granted to each director in the fiscal year ended
December 31, 2023, computed in accordance with FASB ASC Topic 718. A discussion of the assumptions used in
determining grant date fair value may be found in Note 8 to our consolidated financial statements, included in this Annual
Report on Form 10-K for the fiscal year ended December 31, 2023.
Dr. Mahadevia served as our President and Chief Executive Officer for part of 2023; as such, his compensation earned as
a director is disclosed in the Summary Compensation Table above.
Represents an option to purchase 30,942 shares of common stock at an exercise price of $1.74. The shares underlying the
option award vested and became fully exercisable on December 31, 2023.
Represents an option to purchase 15,471 shares of common stock at an exercise price of $1.74. The shares underlying the
option award vested and became fully exercisable on December 31, 2023.
As of December 31, 2023, the aggregate number of options held by each of our current non-employee directors was as
follows (representing both exercisable and unexercisable option awards, none of which have been exercised):
Name
Milind Deshpande, Ph.D.
139
Number of Shares
Underlying
Outstanding
Stock Options
83,664
Scott Jackson
Ankit Mahadevia, M.D.
John C. Pottage, Jr., M.D.
Cynthia Smith
Frank E. Thomas
Kathleen Tregoning
Patrick Vink, M.D.
Non-Employee Director Compensation Policy
30,000
1,338,937
33,219
35,848
63,893
50,370
82,067
Under our Non-Employee Director Compensation Policy, as amended (the “Non-Employee Director Compensation Policy”),
each non-employee director is eligible to receive compensation for his or her service consisting of annual cash retainers and equity
awards. Our non-employee directors received the following annual retainers for their service as of December 31, 2023:
Position
Board Member
Board Chairperson (additional retainer)
Lead Director, if any (additional retainer)
Audit Committee Chair
Compensation Committee Chair
Nominating and Governance Committee Chair
Development Committee Chair
Audit Committee Member
Compensation Committee Member
Nominating and Governance Committee Member
Development Committee Member
$
Retainer
40,000
30,000
18,750
20,000
20,000
15,000
10,000
10,000
10,000
7,500
5,000
Our Non-Employee Director Compensation Policy provides the following with respect to equity awards to non-employee
directors: (i) the initial equity award consisting of a non-qualified stock option to purchase shares of our common stock upon first
appointment to our Board of Directors and vesting in equal monthly installments until the third anniversary of the grant date subject to
the non-employee director’s continued service in the amount of 15,000 shares, and (ii) annual equity awards consisting of a grant of
20,000 RSUs (each RSU relating to one share of our common stock) on the date of our annual meeting of stockholders. The RSUs
vest on the first anniversary of the grant date, subject to the director’s continued service, and are issued under, and are subject to the
terms of, the 2017 Plan. The policy also provides that, prior to the beginning of each calendar year, a non-employee director may elect
to receive all or a portion of his or her base annual fee for service on our Board of Directors in the form of a non-qualified stock option
to purchase a number of shares of our common stock based on the Black-Scholes value of such option, which option will be granted
on the first business day of the calendar year. These options vest in four quarterly installments on the last day of each calendar quarter
during the calendar year, subject to the continued service of the non-employee director.
Directors may be reimbursed for travel, food, lodging and other expenses directly related to their service as directors.
Directors are also entitled to the protection provided by their indemnification agreements and the indemnification provisions in our
Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March
8, 2024 for (a) the executive officers named in the Summary Compensation Table on Item 11 of this Amendment, (b) each of our
directors and director nominees, (c) all of our current directors and executive officers as a group and (d) each stockholder known by us
to own beneficially more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to the securities. We deem shares of common stock that may be acquired by an
individual or group within 60 days of March 8, 2024 pursuant to the exercise of options to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but not outstanding for the purpose of computing the percentage
ownership of any other person shown in the table. Except as indicated in footnotes to this table, we believe that the stockholders
named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned
by them based on information provided to us by these stockholders. Percentage of ownership is based on 53,869,139 shares of
common stock outstanding on March 8, 2024.
140
Name of Beneficial Owner
Principal Stockholders
GSK Equity Investments, Limited (1)
Anson Funds Management, LP (2)
Named Executive Officers and Directors
Satyavrat Shukla (3)
Timothy Keutzer (4)
Tamara Joseph (5)
Milind Deshpande, Ph.D. (6)
Scott Jackson (7)
Ankit Mahadevia, M.D. (8)
John C. Pottage, Jr., M.D. (9)
Cynthia Smith (10)
Frank E. Thomas (11)
Kathleen Tregoning (12)
Patrick Vink, M.D. (13)
All current executive officers and directors as a group
(11 persons) (14)
*
Indicates beneficial ownership of less than 1%.
Number of Shares
Beneficially
Owned
Percent of Shares
Beneficially Owned
9,190,606
4,297,599
92,419
301,355
155,360
100,118
30,000
1,443,052
33,219
35,848
63,893
56,354
82,067
2,359,745
17.06%
7.98%
*
*
*
*
*
2.62%
*
*
*
*
*
4.32%
1.
2.
3.
4.
5.
6.
7.
8.
9.
Consists of shares of common stock owned by GSK Equity Investments, Limited (formerly S.R. One, Limited), and Glaxo
Group Limited, each of which is an indirect wholly owned subsidiary of GSK plc. The address for GSK plc is 980 Great
West Road, Brentford, Middlesex TW8 9GS, England. This information is based solely on a Schedule 13D/A filed by
GlaxoSmithKline plc with the SEC on January 20, 2023, which reported ownership as of November 14, 2022.
Consists of shares of common stock owned by Anson Funds Management LP. The address for Anson Funds Management
LP is 16000 Dallas Parkway, Suite 800, Dallas, Texas 75248. This information is based solely on a Schedule 13G filed by
Anson Funds Management LP with the SEC on February 14, 2024, which reported ownership as of December 31, 2023.
Consists of 92,419 shares of common stock underlying options that are exercisable as of March 8, 2024 or will become
exercisable within 60 days after such date held by Mr. Shukla.
Consists of (i) 63,813 shares of common stock and (ii) 237,542 shares of common stock underlying options that are
exercisable as of March 8, 2024 or will become exercisable within 60 days after such date held by Mr. Keutzer.
Consists of (i) 61,378 shares of common stock and (ii) 93,982 shares of common stock underlying options that are
exercisable as of March 8, 2024 or will become exercisable within 60 days after such date held by Ms. Joseph, our former
Chief Legal Officer.
Consists of (i) 16,454 shares of common stock and (ii) 83,664 shares of common stock underlying options that are
exercisable as of March 8, 2024 or will become exercisable within 60 days after such date held by Dr. Deshpande.
Consists of 30,000 shares of common stock underlying options that are exercisable as of March 8 , 2024 or will become
exercisable within 60 days after such date held by Mr. Jackson.
Consists of (i) 65,817 shares of common stock held by Mahadevia-Mehta Family Trust, of which Dr. Mahadevia is the
trustee, and (ii) 154,052 shares of common stock and (iii) 1,223,183 shares of common stock underlying options that are
exercisable as of March 8, 2024 or will become exercisable within 60 days after such date held by Dr. Mahadevia.
Consists of 33,219 shares of common stock underlying options that are exercisable as of March 8, 2024 or will become
exercisable within 60 days after such date held by Dr. Pottage.
10. Consists of 35,848 shares of common stock underlying options that are exercisable as of March 8, 2024 or will become
exercisable within 60 days after such date held by Ms. Smith.
11. Consists of 63,893 shares of common stock underlying options that are exercisable as of March 8, 2024 or will become
exercisable within 60 days after such date held by Mr. Thomas.
12. Consists of 56,354 shares of common stock underlying options that are exercisable as of March 8, 2024 or will become
exercisable within 60 days after such date held by Ms. Tregoning.
141
13. Consists of 82,067 shares of common stock underlying options that are exercisable as of March 8, 2024 or will become
exercisable within 60 days after such date held by Dr. Vink.
14.
See 3 and 4 and 6 through 13 above; also includes shares of common stock underlying options that are exercisable as of
March 8, 2024 or will become exercisable within 60 days after such date held by Dr. Hamed, who is an executive officer
but not a named executive officer.
Equity Compensation Plan Information
The following table provides certain aggregate information with respect to all of our equity compensation plans in effect as of
December 31, 2023:
Plan category
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (#) (3)
Weighted-average exercise
price of outstanding
options, warrants and
rights ($) (4)
Number of securities
remaining for future issuance
under equity compensation
plans (excluding securities
reflected in column (a) (#)
Equity compensation plans approved
by stockholders(1)
Equity compensation plans not
approved by stockholders(2)
Total:
6,151,728
2,152,672
8,304,400
10.32
15.85
10.89
4,382,875
1,030,096
5,412,971
1.
2.
3.
4.
This plan category consists of our 2017 Plan.
This plan category consists of our 2019 Inducement Plan.
Represents shares of common stock issuable upon the exercise of outstanding stock options and vesting of outstanding
RSUs.
Represents the weighted-average exercise price of outstanding options to purchase shares of common stock issued under
our plans.
Benefits Programs
Each named executive employee is eligible to participate in our benefits programs, which include health, life, disability and
dental insurance and a 401(k) retirement savings plan.
Spero Therapeutics, Inc.’s 2017 Stock Incentive Plan
We adopted the Spero Therapeutics, Inc. 2017 Plan on June 28, 2017, as amended on October 18, 2017 and August 17, 2021,
September 15, 2022 and October 5, 2023. The 2017 Plan will expire on June 30, 2027. Under the 2017 Plan, we may grant incentive
stock options, non-qualified stock options, restricted and unrestricted stock awards and other stock-based awards.
Since its adoption, there have been 12,188,627 shares of our common stock authorized for issuance under the 2017 Plan. As
of March 8, 2024, a total of 1,930,722 shares are available for future grant under the 2017 Plan.
Our Board of Directors is authorized to administer the 2017 Plan. In accordance with the provisions of the 2017 Plan, our
Board of Directors determines the terms of the options and other awards issued pursuant thereto, including the following:
•
•
•
•
•
•
which employees, directors and consultants shall be granted awards;
the number of shares of common stock subject to options and other awards;
the exercise price of each option, which generally shall not be less than fair market value of the common stock on the date
of grant;
the termination or cancellation provisions applicable to the options;
the terms and conditions of other awards, including conditions for repurchase, termination or cancellation, issue price and
repurchase price; and
all other terms and conditions upon which each award may be granted in accordance with the 2017 Plan.
142
No participant may receive awards for more than 1,000,000 shares of our common stock in any fiscal year.
In addition, our Board of Directors or any committee to which our Board of Directors delegates authority may, with the consent of the
affected plan participants, amend outstanding awards consistent with the terms of the 2017 Plan.
Upon a merger, consolidation, or sale of all or substantially all of our assets, our Board of Directors or any committee to
which our Board of Directors delegates authority, or the Board of Directors of any corporation assuming the our obligations, may, in
its sole discretion, take any one or more of the following actions pursuant to the 2017 Plan, as to some or all outstanding awards, to the
extent not otherwise agreed under any individual agreement:
•
•
•
•
•
provide that outstanding options will be assumed or substituted for options of the successor corporation;
provide that the outstanding options must be exercised within a certain number of days, either to the extent the options are
then exercisable, or at our Board of Directors’ discretion, any such options being made partially or fully exercisable;
terminate outstanding options in exchange for a cash payment of an amount equal to the difference between (a) the
consideration payable upon consummation of the corporate transaction to a holder of the number of shares into which
such option would have been exercisable to the extent then exercisable, or in our Board of Directors’ discretion, any such
options being made partially or fully exercisable, and (b) the aggregate exercise price of those options;
provide that outstanding stock grants will be substituted for shares of the successor corporation or consideration payable
with respect to our outstanding stock in connection with the corporate transaction; and
terminate outstanding stock grants in exchange for payment of an amount equal to the consideration payable upon
consummation of the corporate transaction to a holder of the same number of shares comprising the stock grant, to the
extent the stock grant is no longer subject to any forfeiture or repurchase rights, or at our Board of Directors’ discretion,
all forfeiture and repurchase rights being waived upon the corporate transaction. For purposes of determining such
payments, in the case of a corporate transaction the consideration for which, in whole or in part, is other than cash, the
consideration other than cash shall be valued at the fair market value thereof as determined in good faith by our Board of
Directors.
Spero Therapeutics, Inc.’s 2019 Inducement Equity Incentive Plan
On March 11, 2019, the Board of Directors adopted Spero Therapeutics, Inc.’s 2019 Inducement Plan, as amended on June
23, 2020, December 22, 2022, July 27, 2023, and October 30, 2023. The Board of Directors initially reserved 331,500 shares of our
common stock under the 2019 Inducement Plan to be used exclusively for grants of awards to individuals that were not previously our
employees or directors, as an inducement to the individual’s entry into employment with us within the meaning of Rule 5635(c)(4) of
the Nasdaq Listing Rules. As previously disclosed, in June 2020, the Board of Directors approved an amendment to the 2019
Inducement Plan to increase the number of shares of common stock authorized for issuance thereunder by 700,000 shares. In
December 2022, the Board of Directors approved an amendment to the 2019 Inducement Plan to increase the number of shares of
common stock authorized for issuance thereunder by 875,000 shares. In July 2023, the Board of Directors approved an amendment to
the 2019 Inducement Plan to increase the number of shares of common stock authorized for issuance thereunder by 250,000 shares. In
October 2023, the Board of Directors approved an amendment to the 2019 Inducement Plan to increase the number of shares of
common stock authorized for issuance thereunder by 500,000 shares. The 2019 Inducement Plan was adopted without stockholder
approval pursuant to Rule 5635(c)(4). The 2019 Inducement Plan provides for the grant of equity-based awards, including options,
restricted and unrestricted stock awards, and other stock-based awards, and its terms are substantially similar to the 2017 Plan, but
with such other terms and conditions intended to comply with the Nasdaq inducement award exception.
As of March 8, 2024, there were 2,102,141 shares outstanding and 2,421,112 shares available for grant under the 2019
Inducement Plan.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a
broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to
parameters established by the director or officer when entering into the plan, without further direction from the director or officer. The
director or officer may amend or terminate the plan in limited circumstances. Our directors and executive officers may also buy or sell
additional shares of our common stock outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic
information.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
143
Related Party Transactions
The following is a description of transactions since January 1, 2022, to which we have been a party, in which the amount
involved exceeds $120,000, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or
an affiliate or immediate family member thereof, had or will have a direct or indirect material interest. We refer to such transactions as
“related party transactions” and such persons as “related parties.” With the approval of our Board of Directors, we have engaged in the
related party transactions described below. We believe the terms obtained or consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to terms available or the amounts that would be paid or received,
as applicable, from unaffiliated third parties.
Transactions with GSK
License Agreement
On September 21, 2022, we entered into the GSK License Agreement with GSK. Pursuant to the terms of the GSK License
Agreement, we granted GSK an exclusive royalty-bearing license, with the right to grant sublicenses, under our intellectual property
and regulatory documents and a sublicense under certain intellectual property of Meiji and Meiji’s regulatory documents to develop,
manufacture and commercialize the GSK Licensed Products in the GSK Territory. Under the terms of the GSK License Agreement,
we received an upfront payment of $66.0 million for GSK to secure rights to the medicine and are eligible to receive up to $525.0
million in development, sales, and commercial milestones payments, as well as low single-digit to low double-digit tiered royalties on
net product sales. Royalties are subject to reduction in the event of third-party licenses, entry of a generic product or expiration of
patent and regulatory exclusivity prior to the tenth anniversary of the first commercial sale of a GSK Licensed Product in a particular
country.
In July 2023, we entered into Amendment 1 to the GSK License Agreement, which updated the technology transfer terms of
the GSK License Agreement. In December 2023, we entered into Amendment 2 to the GSK License Agreement, which added a
country to the locations for PIVOT-PO. Under the terms of Amendment 2, we may receive up to an additional $4.3 million in tranched
milestones based on activities in such country.
The terms of the License Agreement are described further above under “Business - Collaboration, License and Service
Agreements - Tebipenem HBr Agreements - GSK License Agreement.”
Share Purchase Agreement
Concurrently with the execution of the GSK License Agreement, on the GSK Effective Date, we entered into the GSK SPA
with GGL, an affiliate of GSK, pursuant to which GGL purchased on the GSK Closing Date 7,450,000 shares of our common stock at
a purchase price of approximately $1.20805 per share, for an aggregate purchase price of $9.0 million. The GSK SPA contains certain
standstill, lock-up and registration rights provisions.
Indemnification Agreements with Officers and Directors and Directors’ and Officers’ Liability Insurance
We have entered into indemnification agreements with each of our executive officers and directors. The indemnification
agreements, our Amended and Restated Certificate of Incorporation, as amended, and our Amended and Restated Bylaws require us to
indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our Amended and Restated
Certificate of Incorporation, as amended, also requires us to advance expenses incurred by our directors and officers, subject to limited
exceptions. We also maintain a general liability insurance policy which covers certain liabilities of our directors and officers arising
out of claims based on acts or omissions in their capacities as directors or officers.
Policies and Procedures for Related Party Transactions
We have adopted a written policy that requires all future transactions between us and any director, executive officer, holder
of 5% or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of them, or
any other related persons, as defined in Item 404 of Regulation S-K, or their affiliates, in which the amount involved is equal to or
greater than the threshold amount proscribed by Item 404 of Regulation S-K, be approved in advance by our Audit Committee. Any
request for such a transaction must first be presented to our Audit Committee for review, consideration and approval. In approving or
rejecting any such proposal, our Audit Committee is to consider the relevant facts and circumstances available and deemed relevant to
the Audit Committee, including, but not limited to, the extent of the related party’s interest in the transaction, and whether the
144
transaction is on terms no less favorable to us than terms we could have generally obtained from an unaffiliated third party under the
same or similar circumstances.
Director Independence
Our Board of Directors undertook a review of the composition of our Board of Directors and independence of each director.
Based upon information requested from and provided by each director concerning his or her background, employment and affiliations,
including family relationships, our Board of Directors has determined that each of Milind Deshpande, Ph.D., Scott Jackson, John C.
Pottage, Jr., M.D., Cynthia Smith, Frank E. Thomas, Kathleen Tregoning and Patrick Vink, M.D. would qualify as “independent” as
that term is defined by Nasdaq Listing Rule 5605(a)(2). Satyavrat Shukla would not qualify as “independent” under applicable Nasdaq
Listing Rules applicable to the Board of Directors generally or to separately designated Board committees because he currently serves
as our Chief Executive Officer. Additionally, Ankit Mahadevia, M.D. would not qualify as “independent” under applicable Nasdaq
Listing Rules applicable to the Board of Directors generally or to separately designated Board committees because he previously
served as our Chief Executive Officer within the past three years. In making such determinations, our Board of Directors considered
the relationships that each of our non-employee directors has with our company and all other facts and circumstances deemed relevant
in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Item 14. Principal Accountant Fees and Services.
PricewaterhouseCoopers LLP was our independent registered public accounting firm for the fiscal years ended December 31,
2023 and 2022.
The following table presents fees for professional audit services and other services rendered by PricewaterhouseCoopers LLP
to us for the fiscal years ended December 31, 2023 and December 31, 2022:
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees
All Other Fees(3)
Total
Fiscal Year
2023
$
$
864,000 $
75,000
100,000
5,737
1,044,737 $
Fiscal Year
2022
1,024,500
75,000
—
956
1,100,456
1.
2.
3.
Audit fees consisted of audit work performed in the preparation of financial statements, the review of the interim
consolidated financial statements, and related services that are normally provided in connection with registration
statements.
Audit related fees consist of fees billed by PricewaterhouseCoopers LLP for assurance and related services that are
reasonably related to the performance of the audit or review of our consolidated financial statements.
All other fees represent payment for access to the PricewaterhouseCoopers LLP online accounting research and financial
disclosure databases.
Policy on Audit Committee Pre-Approval of Services
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting
compensation and overseeing the work of our independent registered public accounting firm. In recognition of this responsibility, the
Audit Committee reviews and pre-approves all audit and permissible non-audit services provided by our independent registered public
accounting firm; provided, however, that de minimis non-audit services may instead be approved in accordance with applicable SEC
rules.
145
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
(2)
Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial
statements or notes thereto.
(3) Exhibits
The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
Exhibit
Number
3.1
3.2
Exhibit Description
Amended and Restated Certificate of Incorporation of
the Registrant
Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of the Registrant
3.3
Amended and Restated Bylaws of the Registrant
3.4
3.5
3.6
3.7
Certificate of Designation of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock
Certificate of Designation of Preferences, Rights and
Limitations of Series B Convertible Preferred Stock
Certificate of Designation of Preferences, Rights and
Limitations of Series C Convertible Preferred Stock
Certificate of Designation of Preferences, Rights and
Limitations of Series D Convertible Preferred Stock
4.1
Form of Common Stock Certificate
4.2
Description of Registrant’s Securities
10.1#
2017 Stock Incentive Plan, as amended
10.2#
10.3#
Form of Stock Option Agreement under the 2017
Stock Incentive Plan, as amended
Form of Restricted Stock Unit Agreement under the
2017 Stock Incentive Plan, as amended
10.4#
2019 Inducement Equity Incentive Plan, as amended
X
10.5#
10.6#
Form of Stock Option Agreement under the 2019
Inducement Equity Incentive Plan, as amended
Form of Restricted Stock Unit Agreement under the
2019 Inducement Equity Incentive Plan, as amended
146
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
SEC File /
Registration
Number
Filing Date
11/6/2017
001-38266
8/18/2021
001-38266
11/13/2023
001-38266
7/17/2018
001-38266
11/16/2018
001-38266
2/28/2020
001-38266
9/14/2020
001-38266
10/6/2017
333-220858
3/30/2023
001-38266
10/10/2023
001-38266
9/20/2021
333-259662
8/30/2021
001-38266
8/10/2023
333-273880
8/10/2023
333-273880
Form 8-K
(Exhibit 3.1)
Form 8-K
(Exhibit 3.1)
Form 10-Q
(Exhibit 3.1)
Form 8-K
(Exhibit 3.1)
Form 8-K
(Exhibit 3.1)
Form 8-K
(Exhibit 3.1)
Form 8-K
(Exhibit 3.1)
Form S-1
(Exhibit 4.1)
Form 10-K
(Exhibit 4.2)
Form 8-K
(Exhibit 10.1)
Form S-8
(Exhibit 4.6)
Form 8-K
(Exhibit 10.1)
Form S-8
(Exhibit 4.6)
Form S-8
(Exhibit 4.7)
Form of Director and Officer Indemnification
Agreement
Form S-1
(Exhibit 10.4)
10/6/2017
333-220858
10.7#
10.8#
10.9#
Non-Employee Director Compensation Policy, as
amended
X
Consulting Agreement, dated June 13, 2023, by and
between the Registrant and Ankit Mahadevia, M.D.
10.10# Amended and Restated Employment Agreement, dated
June 13, 2023, by and between the Registrant and
Satyavrat Shukla
10.11#
Employment Agreement, dated August 11, 2022, by
and between the Registrant and Kamal Hamed
10.12# Amendment to Employment Agreement, dated
November 10, 2022, by and between the Registrant
and Kamal Hamed, M.D.
10.13#
Employment Agreement, dated January 1, 2020, by
and between the Registrant and Timothy Keutzer
10.14# Amendment to Employment Agreement, dated
November 10, 2022, by and between the Registrant
and Timothy Keutzer
10.15#
Second Amendment to Employment Agreement, dated
as of February 1, 2023, by and between the Registrant
and Timothy Keutzer
10.16#
Employment Agreement, dated November 6, 2020, by
and between the Registrant and Tamara Joseph
10.17# Amendment to Employment Agreement, dated
November 10, 2022, by and between the Registrant
and Tamara Joseph
10.18#
10.19#
10.20
10.21
10.22
10.23
Separation Agreement, dated February 9, 2024, by and
between the Registrant and Tamara Joseph
Consulting Agreement, dated February 9, 2024, by and
between the Registrant and Tamara Joseph
X
X
Lease Agreement, dated August 24, 2015, by and
between the Registrant and U.S. REIF Central Plaza
Massachusetts, LLC
First Amendment to Lease Agreement, dated January
17, 2018, by and between the Registrant and U.S.
REIF Central Plaza Massachusetts, LLC
Second Amendment to Lease Agreement, dated
December 16, 2019, by and between the Registrant
and U.S. REIF Central Plaza Massachusetts, LLC
Third Amendment to Lease Agreement, dated May 4,
2020, by and between the Registrant and U.S. REIF
Central Plaza Massachusetts, LLC
Form 10-Q
(Exhibit 10.2)
Form 10-Q
(Exhibit 10.3)
Form 10-Q
(Exhibit 10.5)
Form 10-Q
(Exhibit 10.8)
Form 10-K
(Exhibit 10.12)
Form 10-Q
(Exhibit 10.9)
Form 10-Q
(Exhibit 10.1)
Form 10-K
(Exhibit 10.13)
Form 10-Q
(Exhibit 10.10)
8/10/2023
001-38266
8/10/2023
001-38266
11/14/2022
001-38266
11/14/2022
001-38266
3/16/2020
001-38266
11/14/2022
001-38266
5/11/2023
001-38266
3/11/2021
001-38266
11/14/2022
001-38266
Form S-1
(Exhibit 10.11)
Form 8-K
(Exhibit 99.1)
Form 8-K
(Exhibit 99.1)
Form 10-Q
(Exhibit 10.4)
10/6/2017
333-220858
1/23/2018
001-38266
12/19/2019
001-38266
8/6/2020
001-38266
10.24
Sublease, dated July 6, 2016, by and between the
Registrant and Tetraphase Pharmaceuticals, Inc.
Form S-1
(Exhibit 10.12)
10/6/2017
333-220858
147
10.25† Stock Purchase Agreement, dated June 6, 2016, by and
among Spero Cantab, Inc., the Registrant, Spero
Cantab UK Limited, PBB Distributions Limited, New
Pharma License Holdings Limited, Cantab Anti-
Infectives Ltd and Pro Bono Bio PLC, as amended by
Amendment to Stock Purchase Agreement, dated July
18, 2017
10.26† Assignment and License Agreement, dated May 9,
2016, by and among Spero Trinem, Inc., the Registrant
and Vertex Pharmaceuticals Incorporated
10.27† License Agreement, dated June 14, 2017, by and
between the Registrant and Meiji Seika Pharma Co.,
Ltd., as supplemented by Addendum to License
Agreement, dated June 14, 2017
10.28† Contract Award, dated July 12, 2018, issued by the
Biomedical Advanced Research and Development
Authority of the United States Department of Health
and Human Services
10.29†† Amended and Restated License Agreement, dated
January 15, 2021, by and between the Registrant and
Everest Medicines II Limited
10.30
Exchange Agreement, dated November 15, 2018, by
and among the Registrant and Biotechnology Value
Fund, L.P., Biotechnology Value Fund II, L.P.,
Biotechnology Value Trading Fund OS, L.P. and MSI
BVF SPV LLC
10.31†† License Agreement, dated June 30, 2021, by and
between the Registrant and Pfizer Inc.
10.32
Share Purchase Agreement, dated June 30, 2021, by
and between the Registrant and Pfizer Inc.
10.33†† Exclusive License Agreement, dated September 21,
2022, by and between the Registrant and
GlaxoSmithKline Intellectual Property (No. 3) Limited
10.34†† Amendment 1 to Exclusive License Agreement, dated
July 4, 2023, by and between the Registrant and
GlaxoSmithKline Intellectual Property (No. 3) Limited
10.35†† Amendment 2 to Exclusive License Agreement, dated
December 20, 2023, by and between the Registrant
and GlaxoSmithKline Intellectual Property (No. 3)
Limited
10.36
10.37
Share Purchase Agreement, dated September 21, 2022,
by and between the Registrant and Glaxo Group
Limited
Controlled Equity Offering Sales Agreement, dated
March 11, 2021, by and between the Registrant and
Cantor Fitzgerald & Co.
10.38
Form of Proprietary Information and Inventions
Assignment Agreement
21.1
List of Subsidiaries of the Registrant
148
X
X
Form S-1
(Exhibit 10.13)
10/6/2017
333-220858
Form S-1/A
(Exhibit 10.14)
Form S-1
(Exhibit 10.15)
10/23/2017
333-220858
10/6/2017
333-220858
Form 10-Q
(Exhibit 10.1)
11/8/2018
001-38266
Form 10-K
(Exhibit 10.25)
Form 8-K
(Exhibit 10.1)
Form 10-Q
(Exhibit 10.1)
Form 10-Q
(Exhibit 10.2)
Form 10-Q
(Exhibit 10.3)
3/11/2021
001-38266
11/16/2018
001-38266
8/5/2021
001-38266
8/5/2021
001-38266
11/14/2022
001-38266
Form 10-Q
(Exhibit 10.4)
Form 10-K
(Exhibit 10.28)
Form S-1/A
(Exhibit 10.17)
Form 10-K
(Exhibit 21.1)
11/14/2022
001-38266
3/11/2021
001-38266
10/23/2017
333-220858
3/16/2020
001-38266
23.1
31.1
31.2
32*
Consent of PricewaterhouseCoopers LLP, independent
registered public accounting firm
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by Principal Executive Officer and
Principal Financial Officer
97.1
Clawback Policy, effective as of November 12, 2023
101.INS
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X
X
X
X
X
X
X
X
X
X
X
X
† Confidential treatment received as to portions of the exhibit. Confidential materials omitted and filed separately with the SEC.
†† Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the
identified confidential portions (i) are not material and (ii) is the type that the Registrant treats as private or confidential.
# Management contract or compensatory plan.
* The certification attached as Exhibit 32 that accompanies this Annual Report on Form 10-K is not deemed filed with the Securities
and Exchange Commission and is not to be incorporated by reference into any filing of Spero Therapeutics, Inc. under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-
K, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary.
None.
149
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 13, 2024
SPERO THERAPEUTICS, INC.
By:
/s/ Satyavrat Shukla
Satyavrat Shukla
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
each of Satyavrat Shukla and Esther Rajavelu his or her true and lawful attorney-in-fact and agent, with full power of substitution, for
him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his or
her name.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates indicated.
Name
/s/ Satyavrat Shukla
Satyavrat Shukla
/s/ Esther Rajavelu
Esther Rajavelu
/s/ Milind Deshpande, Ph.D.
Milind Deshpande, Ph.D.
/s/ Scott Jackson
Scott Jackson
/s/ Ankit Mahadevia, M.D.
Ankit Mahadevia, M.D.
/s/ John C. Pottage, M.D.
John C. Pottage, M.D.
/s/ Cynthia Smith
Cynthia Smith
/s/ Frank E. Thomas
Frank E. Thomas
/s/ Kathleen Tregoning
Kathleen Tregoning
/s/ Patrick Vink, M.D.
Patrick Vink, M.D.
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date
March 13, 2024
Chief Financial Officer, Chief Business Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
Director
Director
Chairman
Director
Director
Director
Director
Director
150