Spero Therapeutics, Inc. 10-K

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 clinical-stage biopharmaceutical company focused on identifying and developing novel treatments for rare diseases and diseases caused by MDR bacterial infections with high unmet need. Since our inception in 2013, we have focused 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 believe that our novel product candidates, if successfully developed and approved, could provide meaningful benefits to patients suffering from serious rare diseases and life-threatening bacterial infections, in both the community and hospital settings. Our pipeline consists of mid-to late-stage clinical assets. Our most advanced clinical stage product candidate, tebipenem HBr, is in Phase 3 development, with the potential to be the first broad-spectrum oral carbapenem to treat adult patients with cUTIs, including pyelonephritis, caused by certain microorganisms. The other programs in our pipeline are SPR206 and SPR720. SPR206 is an IV-administered next generation polymyzin product candidate for the treatment of HABP/VABP caused by MDR Gram-negative bacterial infections. In March 2025, following a reprioritization of our programs, we announced that we are no longer pursuing a planned Phase 2 clinical trial for SPR206. SPR720 is a product candidate for first-line treatment of NTM pulmonary disease. In October 2024, we announced that results from a planned interim analysis of our Phase 2a clinical trial for SPR720 demonstrated the oral agent did not meet its primary endpoint and we elected to suspend development of SPR720 in its oral formulation. We are currently completing analysis of remaining data from all 25 patients dosed in the trial ahead of determining next steps. We have experienced mostly net losses and significant cash outflows from cash used in operating activities since our inception. 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, 2024, we had an accumulated deficit of $459.6 million, and cash and cash equivalents of $52.9 million. We expect to continue to incur significant expenses and operating losses for at least the next year. Based on our cash and cash equivalents as of December 31, 2024, together with earned and non-contingent development milestone payments from GSK, as well as other non-dilutive funding commitments, we believe that our cash runway will be sufficient to fund our operating expenses and required capital expenditures into the second quarter of 2026. During this period, we plan to prioritize advancing the Phase 3 clinical trial activities for tebipenem HBr under our GSK License Agreement and completing our analysis of the full dataset from the 25 treated patients in the Phase 2a proof-of-concept trial of SPR720. 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 further reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our planned development activities. The actions necessary to reduce spending under this plan at a level that mitigates the factors described above is not considered probable, as defined in the accounting standards and therefore, the full extent to which management may extend our funds through these actions may not be considered in management’s assessment of our ability to continue as a going concern. As a result, management has concluded that substantial doubt exists about our ability to continue as a going concern. 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. 79 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. Recent Developments Interim Leadership Changes In January 2025, the independent directors of our Board of Directors approved the following actions as a matter of corporate governance best practices and to enable the Company to maintain focus on pursuing our business objectives pending resolution of a “Wells Notice” received from the staff of the Boston Regional Office (the “Staff”) of the SEC. The Wells Notice was regarding the Staff's preliminary determination to recommend a civil enforcement action or administrative proceeding against the Company , its former Chief Executive Officer and Chairman of the Board of Directors, Ankit Mahadevia, M.D. (“Dr. Mahadevia”), and its former Chief Financial Officer and President and Chief Executive Officer, Satyavrat “Sath” Shukla (“Mr. Shukla”), relating to certain public disclosures by the Company from March 31, 2022 leading up to the announcement on May 3, 2022 that we had determined to cease commercialization of tebipenem HBr based on feedback from the FDA, and whether our disclosures may have violated the federal securities laws. • The Board of Directors appointed director Frank Thomas to serve as the Chairman of the Board of Directors, stepping in for Ankit Mahadevia, M.D. • Mr. Shukla agreed to a paid administrative leave from his role as President and Chief Executive Officer, pending resolution of the Investigation. During such leave, Mr. Shukla remains an employee and continues to serve as a member of the Board of Directors for the duration of his directorship term. • The Board of Directors appointed Esther Rajavelu, our Chief Financial Officer, Chief Business Officer and Treasurer, to serve as Interim President and Chief Executive Officer during the term of Mr. Shukla’s administrative leave. The terms of Ms. Rajavelu’s existing employment arrangement with the Company have been amended to provide that she will receive additional cash compensation of $20,000 per month while she serves as the Interim President and Chief Executive Officer, in addition to her role as Chief Financial Officer and Chief Business Officer. 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 will continue to be derived from payments under our active government awards and any awards that we may receive in the future. Collaboration Revenue Current collaboration revenue relates to our agreements with 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: • employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions; 80 • 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. 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: • 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 any global health, economic or political crises; • 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 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. 81 Restructuring In light of our decision to suspend planned development activities for our oral SPR720 program and our strategic restructuring, we expect that our future expenses relating to development activities with respect to SPR720 will be substantially reduced as we evaluate potential paths forward for SPR720 and implement our restructuring. In connection with our restructuring, we estimate that we will incur approximately $1.1 million of costs in connection with the reduction in workforce related to severance pay and other related termination benefits of which we incurred $0.9 million during the year ended December 31, 2024 and anticipate the remaining to be incurred in 2025. We may incur additional costs not currently contemplated due to events associated with or resulting from the workforce reduction. Most of the costs associated with our workforce reduction were incurred during the quarter ended December 31, 2024. Other Income (Expense) Interest Income (Expense) Interest income (expense) consists of interest income related to the significant financing component related to the GSK License Agreement 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 realized and unrealized gains and losses from foreign currency-denominated cash balances and vendor payables. Income Taxes Except for year ended December 31, 2022, 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, 2024, we had federal and state net operating loss carryforwards ("NOLs") of $165.2 million and $120.6 million, respectively which may be available to offset future income tax liabilities. $152.0 million of the federal NOLs can be carried forward indefinitely and $13.2 million of the federal NOLs begin to expire in 2034. The state NOLs begin to expire in 2034 and will expire at various dates through 2044. In addition, as of December 31, 2024, 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, 2024, we also had federal and state research and development tax credit carryforwards of $6.2 million and $2.1 million, respectively, which begin to expire in 2036 and 2033, 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 82 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 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. 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: • 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. 83 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. 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 accounted for upon the announcement of our restructuring in October 2024. Restructuring charges are reflected in our consolidated statements of income. Results of Operations Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of revenues and the satisfaction of liabilities in the normal course of business. We have incurred recurring cash outflows from operating activities, have an accumulated deficit and need to raise additional capital to fund future operations. These factors raise substantial doubt about our ability to continue as a going concern. 84 Comparison of the Years Ended December 31, 2024 and 2023 The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 $ Change Revenues: Grant revenue $ 20,581 $ 7,046 $ 13,535 Collaboration revenue - related party 27,025 95,802 (68,777 ) Collaboration revenue 371 933 (562 ) Total revenues 47,977 103,781 (55,804 ) Operating expenses: Research and development 96,757 51,440 45,317 General and administrative 23,704 25,554 (1,850 ) Restructuring 877 — 877 Impairment of long-term asset — 5,306 (5,306 ) Total operating expenses 121,338 82,300 39,038 Income (loss) from operations (73,361 ) 21,481 (94,842 ) Other income (expense): Interest income 4,735 3,937 798 Other income (expense), net 60 (14 ) 74 Total other income, net 4,795 3,923 872 Net income (loss) before income taxes (68,566 ) 25,404 (93,970 ) Income tax expense - (2,598 ) 2,598 Net income (loss) $ (68,566 ) $ 22,806 $ (91,372 ) Grant Revenue Year Ended December 31, 2024 2023 $ Change BARDA Contract (Tebipenem HBr) $ 20,200 $ 4,361 $ 15,839 NIAID Contract (SPR206) 381 2,685 (2,304 ) Total revenue $ 20,581 $ 7,046 $ 13,535 Grant revenue recognized during 2024 and 2023 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards. The increase in revenue during 2024 was primarily due to an increase of $15.8 million in funding under our BARDA contract related to our pivotal Phase 3 clinical trial of tebipenem HBr, partially offset by a decrease of $2.3 million in qualified expenses incurred under our NIAID award relating to SPR206. Collaboration Revenue - Related Party During the years ended December 31, 2024 and 2023, collaboration revenue - related party related to revenue recognized under the GSK License Agreement. During the year ended December 31, 2024, we recognized $27.0 million in collaboration revenue - related party 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. Collaboration Revenue During the year ended December 31, 2024 we recognized $0.4 million in collaboration revenue related to our agreement with Pfizer. During the year ended December 31, 2023 we recognized $0.9 million in collaboration revenue related to our agreement with Pfizer. 85 Research and Development Expenses Year Ended December 31, 2024 2023 $ Change Direct research and development expenses by program: Tebipenem HBr $ 60,502 $ 16,695 $ 43,807 SPR720 16,626 13,031 3,595 SPR206 570 3,240 (2,670 ) Unallocated expenses: Personnel related (including share-based compensation) 14,111 13,788 323 Facility related and other 4,948 4,686 262 Total research and development expenses $ 96,757 $ 51,440 $ 45,317 Direct costs related to our tebipenem HBr program increased by $43.8 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, due to increased clinical activities related to our Phase 3 clinical trial of tebipenem HBr, which we initiated in the fourth quarter of 2023. Direct costs related to our tebipenem HBr program during the year ended December 31, 2024 reflect a $3.6 million reduction to expense related to a purchase of drug substance material by GSK. Direct costs related to our SPR720 program increased by $3.6 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, due to clinical activity during the period related to our Phase 2a clinical trial of SPR720, which completed enrollment in the second quarter of 2024. Subsequently, in October 2024, we announced that we would suspend current development activities for SPR720 based on an interim analysis of the Phase 2a proof-of-concept study of SPR720 for the treatment of NTM-PD not meeting its primary endpoint. Direct costs related to our SPR206 program decreased by $2.7 million during the year ended December 31, 2024, primarily due to decreased preclinical activity. In light of the suspension of development activities for our SPR720 program and the discontinuation of development of SPR206, we expect that direct research and development costs related to those programs will be reduced in future periods. The increase in personnel-related costs of $0.3 million was primarily due to increased research and development personnel costs. Personnel-related costs for the years ended December 31, 2024 and 2023 included share-based compensation expenses of $2.6 million and $2.7 million, respectively. Facility-related and other costs primarily reflect costs related to supporting our research and development staff. General and Administrative Expenses Year Ended December 31, 2024 2023 $ Change Personnel related (including share-based compensation) $ 13,188 $ 15,324 $ (2,136 ) Professional and consultant fees 8,198 8,151 47 Facility related and other 2,318 2,079 239 Total general and administrative expenses $ 23,704 $ 25,554 $ (1,850 ) The decrease in personnel-related costs of $2.1 million was primarily a result of decreased headcount costs in our general and administrative functions during the period. Personnel-related costs for the years ended December 31, 2024 and 2023 included share-based compensation expense of $5.2 million and $5.3 million, respectively. The increase in professional and consultant fees was primarily due to increased legal and consulting expenses incurred during the year ended December 31, 2024. Facility-related and other costs primarily reflect costs related to supporting our general and administrative staff. Restructuring During the year ended December 31, 2024, we incurred restructuring expenses of $0.9 million related to our strategic restructuring that we announced in October 2024. Restructuring expenses for the period were primarily comprised of severance and other employee costs. For further information, refer to Note 9 – Restructuring to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. Impairment of Long-Term Asset 86 In 2023, we concluded that we have no future use for the Savior facility (further described in Note 13 – 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. Other Income, Net Other income, net was $4.8 million during 2024, compared to $3.9 million during 2023. Total other income for the year ended December 31, 2024 included $4.7 million of interest income, of which $1.5 million related to the significant financing component recognized under the GSK License Agreement, offset by immaterial fluctuations in unrealized foreign currency. Total other income for the year ended December 31, 2023 included $3.9 million of interest income, offset by fluctuations in unrealized foreign currency. 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, 2024, we had cash and cash equivalents of $52.9 million. Cash Flows The following table summarizes our sources and uses of cash for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 Cash used in operating activities $ (23,444 ) $ (32,995 ) Cash provided by financing activities — 221 Net decrease in cash and cash equivalents $ (23,444 ) $ (32,774 ) Operating Activities Net cash used in operating activities for the year ended December 31, 2024 was $23.4 million, primarily resulting from our net loss of $68.6 million, adjusted for net non-cash items of $8.8 million (primarily due to stock-based compensation). Net cash provided by changes in our operating assets and liabilities was $36.3 million and consisted primarily of a $46.4 million decrease in our related party collaboration receivable, primarily due to the receipt of the first and second installments of the development milestone payments from GSK (see Note 13 - License, Collaboration and Service Agreements), a $26.6 million net decrease in deferred revenue, offset by an increase of $17.1 million in accrued expenses and accounts payable. 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. 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 programs and the timing of vendor invoicing and payments. Changes in deferred revenue are related to the GSK License Agreement and our license agreement with Pfizer. Changes in collaboration receivable - related party related to the GSK License Agreement. Investing Activities We did not undertake any investing activities during either of the years ended December 31, 2024 or 2023. 87 Financing Activities We did not undertake any financing activities during the year ended December 31, 2024. 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. Funding Requirements Our future use of operating cash and capital requirements, and the timing and amount thereof, 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 or may apply for in the future; • 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; • the extent to which we in-license or acquire other products and technologies; and • costs associated with litigation and any government investigation. As of December 31, 2024, we had cash and cash equivalents of $52.9 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. Based on the Company’s current operating plan and existing cash and cash equivalents, the Company has determined that there is substantial doubt regarding its ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. Based on our cash and cash equivalents as of December 31, 2024, together with earned and non-contingent development milestone payments from GSK, as well as other non-dilutive funding commitments, we believe that our cash runway will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2026. This timeline is subject to uncertainty as to the timing of future expenditures. We have developed plans to mitigate this risk, which primarily consist of raising additional capital through some combination of equity or debt financings, potential new collaborations 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. The actions necessary to reduce spending under this plan at a level that mitigates the factors described above is not considered probable, as defined in the accounting standards and therefore, the full extent to which management may extend our funds through these actions may not be considered in management’s assessment of our ability to continue as a going concern. As a result, management has concluded that substantial doubt exists about our ability to continue as a going concern. 88 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 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. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets, 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. On February 25, 2025, we received a deficiency letter from the Listing Qualifications Department informing us that we were not in compliance with the continued listing requirements of the Nasdaq Global Select Market because the bid price for our common stock had closed below $1.00 per share for 30 consecutive business days. We have until August 25, 2025, to regain compliance with the bid price requirement. If we do not regain compliance with the bid price requirement, our common stock will be subject to delisting. Any potential delisting of our common stock could have a material adverse effect on the market for, and liquidity and price of, our common stock and would adversely affect our ability to raise capital on terms acceptable to us, or at all. Contractual Obligations and Commitments The following table summarizes our contractual obligations as of December 31, 2024 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 4 to 5 Years More than 5 Years (in thousands) Operating lease commitments (1) 4,858 1,746 3,112 — — Total $ 4,858 $ 1,746 $ 3,112 $ — $ — (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 ($6.3 million as of December 31, 2024) 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. 89 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 Qualitati ve Disclosures About Market Risk. As of December 31, 2024, we had cash and cash equivalents of $52.9 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 significantly increasing risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. Treasury interest rates. We did not have any assets classified as marketable securities as of December 31, 2024. 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 U.S. dollar. Historically, foreign currency fluctuations have not had a material impact on our consolidated financial statements. 90 Item 8. Financial Statement s and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 92 Consolidated Balance Sheets 94 Consolidated Statements of Operations and Comprehensive Loss 95 Consolidated Statements of Stockholders’ Equity 96 Consolidated Statements of Cash Flows 97 Notes to Consolidated Financial Statements 98 91 Report of Independent Regis tered 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, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, of 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, 2024 and 2023, 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. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring cash outflows from operating activities, has an accumulated deficit and needs to raise additional capital to fund future operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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. 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. 92 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, 2024 was $96.8 million, a significant portion of which relates to external research and development costs. 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 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. 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 27, 2025 We have served as the Company’s auditor since 2016. 93 SPERO THERAPEUTICS, INC. CONSOLIDATED B ALANCE SHEETS (In thousands, except unit, share and per share amounts) December 31, December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 52,889 $ 76,333 Collaboration receivable, current - related party 49,391 49,152 Other receivables 3,085 1,545 Prepaid expenses and other current assets 1,911 4,178 Total current assets 107,276 131,208 Property and equipment, net — 2 Operating lease right-of-use assets 3,114 4,155 Collaboration receivable, non-current - related party — 46,590 Other assets 153 435 Total assets $ 110,543 $ 182,390 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 7,306 $ 1,378 Accrued expenses and other current liabilities 17,724 6,557 Operating lease liabilities 1,746 1,718 Income taxes payable 174 387 Deferred revenue, current 368 2,132 Deferred revenue, current - related party 21,756 24,981 Total current liabilities 49,074 37,153 Non-current operating lease liabilities 2,551 3,825 Deferred revenue, non-current 12,219 10,825 Deferred revenue, non-current - related party 576 23,606 Other long-term liabilities — 87 Total liabilities 64,420 75,496 Commitments and contingencies (Note 11) Stockholders' equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2024 and 2023 — — Common stock, $ 0.001 par value; 120,000,000 shares authorized as of December 31, 2024 and 2023; 54,593,527 shares issued and outstanding as of December 31, 2024 and 52,999,680 shares issued and outstanding as of December 31, 2023 55 53 Additional paid-in capital 505,706 497,913 Accumulated deficit ( 459,638 ) ( 391,072 ) Total stockholders' equity 46,123 106,894 Total liabilities and stockholders' equity $ 110,543 $ 182,390 The accompanying notes are an integral part of these consolidated financial statements. 94 SPERO THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPER ATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) Year Ended December 31, 2024 2023 Revenues: Grant revenue $ 20,581 $ 7,046 Collaboration revenue - related party 27,025 95,802 Collaboration revenue 371 933 Total revenues 47,977 103,781 Operating expenses: Research and development 96,757 51,440 General and administrative 23,704 25,554 Restructuring 877 — Impairment of long-term asset — 5,306 Total operating expenses 121,338 82,300 Income (loss) from operations ( 73,361 ) 21,481 Other income (expense): Interest income 4,735 3,937 Other income (expense), net 60 ( 14 ) Total other income, net 4,795 3,923 Net income (loss) before income taxes ( 68,566 ) 25,404 Income tax expense — ( 2,598 ) Net income (loss) and comprehensive income (loss) $ ( 68,566 ) $ 22,806 Net income (loss) per share attributable to common stockholders, basic $ ( 1.27 ) $ 0.43 Net income (loss) per share attributable to common stockholders, diluted $ ( 1.27 ) $ 0.43 Weighted average common shares outstanding, basic: 54,037,917 52,703,467 Weighted average common shares outstanding, diluted: 54,037,917 52,989,030 The accompanying notes are an integral part of these consolidated financial statements. 95 SPERO THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQ UITY (In thousands, except unit and share amounts) Additional Total Common Stock Paid-in Accumulated Stockholders' Shares Par Value Capital Deficit Equity Balances at December 31, 2022 52,456,195 52 489,760 ( 413,878 ) 75,934 Issuance of common stock upon the vesting of restricted stock units and performance stock units 399,009 1 — — 1 Issuance of common stock, net of issuance costs 144,476 — 221 — 221 Share-based compensation expense — — 7,932 — 7,932 Net income — — — 22,806 22,806 Balances at December 31, 2023 52,999,680 53 497,913 ( 391,072 ) 106,894 Issuance of common stock upon the vesting of restricted stock units and performance stock units 1,593,847 2 — — 2 Share-based compensation expense — — 7,793 — 7,793 Net loss — — — ( 68,566 ) ( 68,566 ) Balances at December 31, 2024 54,593,527 55 505,706 ( 459,638 ) 46,123 The accompanying notes are an integral part of these consolidated financial statements. 96 SPERO THERAPEUTICS, INC. CONSOLIDATED STATEM ENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net income (loss) $ ( 68,566 ) $ 22,806 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 2 367 Non-cash lease cost 1,043 969 Impairment of assets — 5,306 Share-based compensation 7,793 7,932 Changes in operating assets and liabilities: Collaboration receivable, current and non-current - related party 46,351 ( 95,742 ) Other receivables ( 1,540 ) ( 461 ) Prepaid expenses and other current assets 2,267 ( 799 ) Other assets 282 ( 1 ) Accounts payable 5,928 761 Accrued expenses and other current liabilities 11,167 ( 2,416 ) Deferred revenue ( 370 ) ( 933 ) Deferred revenue - related party ( 26,255 ) 29,942 Other long-term liabilities ( 87 ) ( 9 ) Operating lease liabilities ( 1,246 ) ( 1,104 ) Income taxes payable ( 213 ) 387 Net cash used in operating activities ( 23,444 ) ( 32,995 ) Cash flows from financing activities: Proceeds from the issuance of common stock, net of issuance costs — 221 Net cash provided by financing activities — 221 Net decrease in cash and cash equivalents ( 23,444 ) ( 32,774 ) Cash and cash equivalents at beginning of period 76,333 109,107 Cash and cash equivalents at end of period $ 52,889 $ 76,333 Supplemental disclosure of cash flow information Cash paid for income taxes $ 99 $ 2,212 The accompanying notes are an integral part of these consolidated financial statements. 97 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation The Company is a 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. Since the Company’s inception in 2013, it has focused its efforts and financial resources on acquiring and developing product and technology rights, building our intellectual property portfolio and conducting research and development activities for its product candidates. The Company does not have any products approved for sale and has not generated any revenue from product sales. The Company believes that its novel product candidates, if successfully developed and approved, could provide meaningful benefits to patients suffering from serious rare diseases and life-threatening bacterial infections, in both the community and hospital settings. The Company’s pipeline consists of mid- to late-stage clinical assets. The Company’s most advanced clinical stage product candidate, tebipenem HBr, is in Phase 3 development, with the potential to be the first broad-spectrum oral carbapenem to treat adult patients with complicated urinary tract infections (“cUTIs”), including pyelonephritis, caused by certain microorganisms. The other programs in our pipeline are SPR206 and SPR720. SPR206 is an i ntravenously (“IV”) administered next generation polymyxin product candidate, for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia (“HABP/VABP”) caused by MDR Gram-negative bacterial infections. In March 2025, following a reprioritization of its programs, the Company announced that it is no longer pursuing a planned Phase 2 clinical study for SPR206. SPR720 is a product candidate for first-line treatment of nontuberculous mycobacterial (“NTM”) pulmonary disease. In October 2024, the Company announced that results from a planned interim analysis of its Phase 2a clinical trial for SPR720 demonstrated the oral agent did not meet its primary endpoint, and the Company elected to suspend development of SPR720 in its oral formulation. The Company is currently completing analysis of the remaining data from all 25 patients dosed in the trial ahead of determining next steps. 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 cash outflows from operating activities and losses in most years since its inception. During the years ended December 31, 2024 and 2023, the Company had net loss of $( 68.6 ) million and net income of $ 22.8 million, respectively. In addition, as of December 31, 2024, the Company had an accumulated deficit of $ 459.6 million. The Company expects to continue to generate operating losses for the foreseeable future. On February 25, 2025, the Company received a deficiency letter from the Listing Qualifications Department informing it that it was not in compliance with the continued listing requirements of the Nasdaq Global Select Market because the bid price for its common stock had closed below $1.00 per share for 30 consecutive business days. The Company has until August 25, 2025 to regain compliance with the bid price requirement. If the Company does not regain compliance with the bid price requirement, its common stock will be subject to delisting. Any potential delisting of the Company’s common stock could have a material adverse effect on the market for, and liquidity and price of, the Company’s common stock and would adversely affect the Company's ability to raise capital on terms acceptable to the Company, or at all. 98 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 these consolidated financial statements are issued. Based on the Company’s current operating plan and existing cash and cash equivalents, the Company has determined that there is substantial doubt regarding its ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. The Company will require additional funding to fund the development of its product candidates through regulatory approval and to support its continued operations. The Company will seek additional funding through public or private financings, debt financing, collaboration agreements, government grants or other venues. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets, our operations and financial condition could be adversely impacted. 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, or product portfolio expansion efforts, which could materially adversely affect its business prospects or its ability to continue operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. 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 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, 2024, and 2023, 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. 99 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: Estimated Useful Life Laboratory equipment 5 years Computer software and equipment 3 years Office furniture and equipment 7 years Manufacturing equipment 5 years Leasehold improvements 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. 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, 2024 and 2023, 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 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. 100 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. 101 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 exists 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. 102 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 October 2024. 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. 103 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. For the years ended December 31, 2024 and 2023 , there were no components of other comprehensive income (loss), and therefore comprehensive loss is the same as net loss. Net Income (Loss) per Share When the Company issues shares that meet the definition of participating securities, the Company follows the two-class method when computing net income (loss) per share. 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 the Company. 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. 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. 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 consolidated financial statements and disclosures. In November 2024, the FASB issued an amendment to the accounting guidance on income statement presentation to require disclosure, in the notes to the financial statements, of disaggregated information about certain costs and expenses, including purchases of inventory, employee compensation, and depreciation and amortization included in each relevant expense caption within continuing operations. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements. 104 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU is related to the disclosure of rate reconciliation and income taxes paid. This guidance became effective for annual periods beginning after December 15, 2024. This standard does not have a material impact on the Company's consolidated financial statements, but it requires 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 became effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, and is applied on a retrospective basis. Retrospective application is required, and early adoption is permitted. The Company adopted this guidance for the year ended December 31, 2024 and applied the guidance retrospectively for all periods presented. 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): Fair Value Measurements at December 31, 2024 Using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ — $ 52,258 $ — $ 52,258 Total cash equivalents — 52,258 — 52,258 Fair Value Measurements at December 31, 2023 Using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ — $ 75,628 $ — $ 75,628 Total cash equivalents — 75,628 — 75,628 Excluded from the tables above is cash of $ 0.6 million and $ 0.7 million as of December 31, 2024 and 2023, respectively. During the years ended December 31, 2024 and 2023, there were no transfers between Level 1, Level 2 and Level 3 categories. 4. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2024 2023 Leasehold improvements $ 1,636 $ 1,636 Manufacturing equipment 1,338 1,338 Computer software and equipment 437 437 Office furniture and equipment 209 209 3,620 3,620 Less: Accumulated depreciation and amortization ( 3,620 ) ( 3,618 ) Total property and equipment, net $ — $ 2 Depreciation and amortization expense related to property and equipment was less than $ 0.1 million and $ 0.4 million for the years ended December 31, 2024 and 2023, respectively. 105 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024 and 2023, the components of operating lease expense were as follows (in thousands): Operating lease expense Statement of Operations Location December 31, 2024 December 31, 2023 Fixed operating lease expense Research and development expense $ 757 $ 1,048 General and administrative expense 757 559 Variable operating lease expense Research and development expense 35 12 General and administrative expense 35 7 Total operating lease expense $ 1,584 $ 1,626 Supplemental cash flow information related to the Company’s operating leases for the years ended December 31, 2024 and 2023, was as follows (in thousands): December 31, 2024 December 31, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,718 $ 1,690 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, 2024 and 2023 (in thousands, except for the weighted average remaining lease term and the weighted average discount rate): Lease Assets and Liabilities Classification December 31, 2024 December 31, 2023 Assets Operating Operating lease right-of-use assets $ 3,114 $ 4,155 Total leased assets $ 3,114 $ 4,155 Liabilities Current Operating Operating lease liabilities $ 1,746 $ 1,718 Non-Current Operating Non-current operating lease liabilities 2,551 3,825 Total lease liabilities $ 4,297 $ 5,543 Weighted average remaining lease term (in years) 2.6 3.6 Weighted average discount rate 9.8 % 9.8 % 106 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2024 (in thousands): Years Ending December 31, 2025 1,746 2026 1,956 2027 1,156 Total future minimum lease payments 4,858 Less imputed interest ( 561 ) Total operating lease liabilities $ 4,297 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2024 December 31, 2023 Accrued payroll and related expenses $ 5,456 $ 3,339 Accrued external research and development expenses 9,493 2,274 Accrued professional fees 2,199 708 Accrued restructuring expenses 456 — Accrued other 120 236 Total Accrued expenses and other current liabilities $ 17,724 $ 6,557 7. Equity Convertible Preferred Stock Series A, Series B, Series C, and Series D Convertible Preferred Stock The Company previously 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, 2024, 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 Controlled Equity Offering 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 (the “2021 Form S-3”), 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 could determine, including up to $ 75.0 million of its common stock available for issuance pursuant to the “at-the-market” offering program under the Sales Agreement. The 2021 Form S-3 expired on March 29, 2024. The Company filed a new universal shelf registration statement on Form S-3 with the SEC on March 15, 2024, which became effective on March 22, 2024, 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 Sales Agreement. 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 of 1933, as amended (the “Securities Act”), subject to the terms of the Sales Agreement. 107 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended December 31, 2024, the Company did no t sell any shares of its common stock under the Sales Agreement. During the 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. Subsequent to December 31, 2024, 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 $ 1.20 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 The Company maintains two equity compensation plans, the 2017 Stock Incentive Plan, as amended (the “2017 Plan”) and the 2019 Inducement Equity Incentive Plan, as amended (the “2019 Inducement Plan”, and together with the 2017 Plan, the “Equity Plans”), which provide for the grant of stock-based awards to its directors, officers, consultants and other employees. The Equity Plans provide for the grant of non-qualified and incentive stock options, as well as restricted stock units (“RSUs”), restricted stock and other stock-based awards. 2017 Stock Incentive Plan On June 28, 2017, the Company’s stockholders approved 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 Compensation Committee of the Company’s Board of Directors. 108 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 thereunder 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 thereunder by 2,500,000 shares. On May 29, 2024, the stockholders of the Company approved an amendment to the 2017 Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 3,000,000 shares. As of December 31, 2024 , there were 5,707,847 shares remaining available to be issued under the 2017 Plan, as amended. 2019 Equity Incentive Plan On March 11, 2019, the Company adopted 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 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 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 thereunder by 500,000 shares. In March 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. As of December 31, 2024 , there were 888,182 shares remaining available to be issued under the 2019 Inducement Plan, as amended. The following table summarizes stock option activity under the Equity Plans (excluding RSUs) during the year ended December 31, 2024: 2017 Plan 2019 Inducement Plan Total Number of Stock Options Outstanding as of December 31, 2023 2,569,421 296,173 2,865,594 Granted 35,604 — 35,604 Exercised — — — Forfeited or cancelled ( 46,439 ) ( 39,909 ) ( 86,348 ) Outstanding as of December 31, 2024 2,558,586 256,264 2,814,850 As of December 31, 2024 , a total of 18,345,127 shares have been authorized and reserved for issuance under the Equity Plans and 6,596,029 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 109 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: Year Ended December 31, 2024 2023 Risk-free interest rate 3.8 % 4.0 % Expected term (in years) 5.5 5.5 Expected volatility 90.2 % 90.7 % Expected dividend yield 0.0 % 0.0 % The following table summarizes details regarding stock options granted under the Equity Plans (excluding RSUs) for the year ended December 31, 2024: Number of Shares Weighted Average Exercise Price Weighted Average Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding as of December 31, 2023 2,865,594 $ 10.89 5.76 $ 1 Granted 35,604 1.52 Exercised — — Forfeited or cancelled ( 86,348 ) 12.81 Outstanding as of December 31, 2024 2,814,850 $ 10.71 4.45 $ 0 Outstanding as of December 31, 2024 - vested and expected to vest 2,814,850 $ 10.71 4.45 $ 0 Exercisable at December 31, 2024 2,667,152 $ 10.60 4.33 $ 0 The weighted average grant-date fair value of stock options granted during the year ended December 31, 2024 was $ 1.12 per share. The weighted average grant-date fair value of awards granted during the year ended December 31, 2023 was $ 1.29 per share. No stock options were exercised during both the years ended December 31, 2024 and 2023. The Company satisfies stock option exercises with newly issued shares of its common stock. As of December 31, 2024 , total unrecognized compensation cost related to unvested stock option grants was approximately $ 1.1 million. This amount is expected to be recognized over a weighted average period of less than one year. Restricted Stock Units The following table summarizes RSU activity under the Equity Plans (excluding performance-based RSUs) during the year ended December 31, 2024: Number of RSU Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2023 5,368,807 $ 2.45 Granted 3,638,496 1.54 Vested and released ( 1,523,848 ) 2.72 Forfeited or cancelled ( 1,444,723 ) 1.88 Outstanding as of December 31, 2024 6,038,732 $ 1.97 As of December 31, 2024, there was approximately $ 8.5 million of total unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of approximately 2.5 years. 110 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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, as applicable. 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 (the “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 vested in September 2024 upon fulfillment of the service condition. The following table summarizes Inducement PSU activity under the Equity Plans during the year ended December 31, 2024: Number of Performance Based Option Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2023 69,999 1.08 Granted — — Vested and released ( 69,999 ) 1.08 Forfeited or cancelled — — Outstanding as of December 31, 2024 — — Share-Based Compensation Expense 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): Year Ended December 31, 2024 2023 Research and development expenses $ 2,605 $ 2,654 General and administrative expenses 5,188 5,278 Total $ 7,793 $ 7,932 9 . Restructuring On October 29, 2024, the Company implemented a strategic restructuring initiative and corresponding reduction in workforce. The Company restructured its operations to reduce costs and reallocate resources in support of the development of tebipenem HBr and other corporate activities. The restructuring reduced the Company’s workforce by 27 % from the headcount as of September 30, 2024. 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, 2024: Year Ended December 31, 2024 Research and development General and administrative Total Severance and other employee costs $ 660 $ 217 $ 877 Total restructuring charges $ 660 $ 217 $ 877 The Company did no t recognize any restructuring charges during the year ended December 31, 2023. 111 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The restructuring charge was included in accrued expenses and other current liabilities in the Company’s consolidated balance sheets as of December 31, 2024. Activity for the period is summarized as follows (amounts in thousands): As of December 31, 2024 Balance as of December 31, 2023 $ — Charge to expense 877 Payments made ( 421 ) Balance as of December 31, 2024 $ 456 The estimated charges that the Company expects to incur as a result of the restructuring are subject to several assumptions, and actual results may differ materially from these estimates. Retention Awards In connection with the restructuring, on October 29, 2024, the Board of Directors approved retention awards for non-executive employees of the Company. Subject to remaining actively employed and in good standing with the Company, aggregate retention awards of $ 4.4 million will be paid as a cash bonus with one half payable upon the achievement of each of two clinical execution milestones related to facilitating the clinical progress of the PIVOT-PO trial for tebipenem HBr. The awards contain certain clawback provisions in the event an employee voluntarily terminates his or her employment prior to the achievement of the second clinical execution milestone. Expenses related to these retention awards are being recognized over the employee service period from October 29, 2024 to the fourth quarter of 2025. Executive Retention Awards On November 8, 2024, the Compensation Committee of the Board of Directors approved a retention program for the Company’s executive leadership team (“ELT”), which consists of four executive officers, including the Chief Executive Officer, Chief Financial and Chief Business Officer, Chief Operating Officer and Chief Human Resources Officer. The purpose of the program is to ensure that the Company retains ELT members who are considered critical to the development of tebipenem HBr in its ongoing PIVOT-PO, global Phase 3 clinical trial of tebipenem HBr in patients with cUTI. The retention program provides these ELT members with the opportunity to earn a cash bonus in an amount equaling 75 % of the aggregate of their current base salary plus target annual bonus upon achievement of certain performance milestones related to facilitating the progress of PIVOT-PO and certain goals related to the Company’s stock price appreciation or financial stewardship. Specifically, one-third of the retention payout is payable upon the achievement of each of two clinical execution milestones. The remaining one-third is payable upon the achievement of the stock price appreciation or financial stewardship milestone by no later than the fourth quarter of 2026. If fully achieved, the total retention payments would aggregate to $ 2.1 million. The program contains certain clawback provisions in the event an executive voluntarily terminates his or her employment prior to the achievement of the second clinical execution milestone. The program also provides for full payment in the event of certain change in control transactions. If the Company terminates an executive’s employment, prior to the end of the performance period, other than for cause, then such executive will be entitled to payment of the clinical execution milestone payments. In the event that the Company’s collaboration partner materially alters the PIVOT-PO work plan with the effect of preventing or indefinitely delaying the achievement of the clinical execution milestones, then the clinical execution milestone payments will be accelerated and paid in full. Expenses related to the achievement of each of the two clinical milestones are being recognized over the employee service period from October 29, 2024 to the fourth quarter of 2025. Expenses related to the achievement of the Company's stock price appreciation or financial stewardship milestone will be recognized over an employee service period starting when achievement is deemed probable but not later than the fourth quarter of 2026. 112 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Income Taxes The Company’s provision for income taxes is comprised of the following for the periods ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Current: Federal $ — $ 2,488 State — 110 Foreign — — — 2,598 Deferred: Federal — — State — — Foreign — — — — Provision for income taxes $ — $ 2,598 The Company recorded $ 2.6 million of income tax expense in 2023 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 $ 236.5 million of U.S. federal net operating losses and $ 6.9 million of U.S. federal research and development tax credits on its amended 2022 U.S. federal tax return. During the years ended December 31, 2024 and 2023, 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 domestic and foreign components of income (loss) before income taxes were as follows (in thousands): Year Ended December 31, 2024 2023 Domestic $ ( 68,566 ) $ 25,404 Foreign - - Income (loss) before income taxes $ ( 68,566 ) $ 25,404 A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2024 2023 Federal statutory income tax rate ( 21.0 ) 21.0 Federal tax credits ( 4.3 ) ( 4.9 ) State taxes, net of federal benefit 1.6 ( 0.4 ) Nondeductible stock compensation 0.8 8.5 Other nondeductible items - 0.3 Other ( 1.0 ) ( 1.0 ) Reduction in tax attributes - 13.9 Increase in deferred tax asset valuation allowance 21.0 ( 27.2 ) Deferred true-up 2.9 - Effective income tax rate — % 10.20 113 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net deferred tax assets as of December 31, 2024 and 2023 consisted of the following (in thousands): December 31, 2024 2023 Net operating loss carryforwards $ 42,310 $ 25,646 Deferred revenue 41,745 47,014 Research and development and orphan drug tax credit carryforwards 10,952 7,612 Capitalized research and development expenses 21,149 21,342 Other 6,101 6,264 Total deferred tax assets 122,257 107,878 Valuation allowance ( 122,257 ) ( 107,878 ) Net deferred tax assets $ — $ — As of December 31, 2024, the company had United States federal, state and foreign net operating loss carryforwards ("NOLs") of $ 165.2 million, $ 120.6 million and $ 4.6 million, respectively. $ 152 million federal NOLs can be carried forward indefinitely and $ 13.2 million of NOLs begin to expire in 2034. The state NOLs begin to expire in 2034 and will expire at various dates through 2044. The foreign NOLs do not expire. As of December 31, 2024, the Company also had federal and state research and development tax credit carryforwards of $ 6.2 million and $ 2.1 million respectively, and federal orphan drug tax credit carryforwards of $ 2.9 million, which may be available to offset future income tax liabilities. The federal and state research and development tax credits begin to expire in 2036 and 2033 , respectively, and the federal orphan drug credits begin to expire in 2044. 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 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. 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, 2024 and 2023. 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, 2024 and 2023 related primarily to the increase in net operating loss carryforwards and research and development tax credit carryforwards partially offset by a reduction in deferred revenue, and were as follows (in thousands): December 31, 2024 2023 Valuation allowance as of beginning of year $ ( 107,878 ) $ ( 114,790 ) Increases recorded to income tax provision ( 14,379 ) 6,912 Valuation allowance as of end of year $ ( 122,257 ) $ ( 107,878 ) The Company has no t recorded any amounts for unrecognized tax benefits as of December 31, 2024 or 2023. 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, 2024 or 2023, 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. 114 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company conducted a study of its research and development (R&D) credit carryforwards for the years 2016 to 2023. We have updated the carryforwards for the result of the study and the changes were not material. 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 tax years 2021 and forward. 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. 11. 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 accrues the estimated loss. Disclosure is provided when a loss is considered probable, but the loss is not reasonably estimable and when a material loss is reasonably possible but not probable. If such a loss is not probable or cannot be reasonably estimated, a liability is not recorded. As of December 31, 2024 and 2023, 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 13). 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 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. The process surrounding the Investigation and the Wells Notice (both as defined below) has resulted in legal expenses and certain liabilities for the Company and the named individuals, and each of the named individuals, as directors and officers of the Company, are entitled to indemnification for certain costs associated with the Investigation and the Wells Notice. The Company maintains a general liability insurance policy that covers certain expenses and liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers (the “D&O Insurance”), however, the total expenses and liabilities in connection with the Investigation and the Wells Notice and the amount that will be covered by such D&O Insurance is unknown at this time. Legal Proceedings Securities Class Action Lawsuits and Derivative Actions Two putative class action lawsuits were filed against the Company and certain of its current and former 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 115 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 current and former 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 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. By Order entered on September 30, 2024, the Motion to Dismiss was granted, dismissing the Amended Complaint in its entirety. The Court ordered the case to be closed by Memorandum and Order entered on October 28, 2024. A stockholder derivative action was filed against the Company, as nominal defendant, and certain of the Company's current and former 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 “First 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 First Derivative Complaint was transferred to the Eastern District of New York on November 13, 2023. A second stockholder derivative action was filed against the Company, as nominal defendant, and certain of its current and former 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 plaintiffs in both derivative suits agreed to a stay pending decision on the class action, subject to court approval. By Order entered on September 30, 2024, the motion to stay the First Derivative Complaint was denied as moot due to the dismissal of the Consolidated Putative Class Action. On March 20, 2025, the Second Derivative Complaint was voluntarily dismissed by the plaintiff. 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. SEC Investigation and Wells Notice On January 9, 2025, the Company responded to a “Wells Notice” from the staff of the Boston Regional Office (“Staff”) of the SEC regarding its preliminary determination to recommend a civil enforcement action or administrative proceeding against the Company, its former Chief Executive Officer and Chairman of the Board of Directors, Ankit Mahadevia, M.D. (“Dr. Mahadevia”), and its former Chief Financial Officer and President and Chief Executive Officer, Satyavrat “Sath” Shukla (“Mr. Shukla”), relating to certain public disclosures by the Company from March 31, 2022 leading up to the Company’s announcement on May 3, 2022 that it had determined to cease commercialization of tebipenem HBr based on feedback from the U.S. Food and Drug Administration, and whether the Company’s disclosures may have violated the federal securities laws (the “Investigation”). Specifically, the contemplated civil enforcement action, if approved by the SEC Commissioners, could include allegations that the Company violated Section 17(a) of the Securities Act and Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, and 13a-1 thereunder; and could allege against Dr. Mahadevia and Mr. Shukla violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder. The Company, Dr. Mahadevia and Mr. Shukla continue to cooperate with the SEC, they have engaged in further dialogue with the staff and maintain that the Company’s disclosures were appropriate. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, but is a preliminary determination by the Staff to recommend to the SEC Commissioners that a civil enforcement action or administrative proceeding be brought against the recipients. It provides the recipients the opportunity to address in a non-public forum the issues raised by the Staff before a recommendation is made to the SEC regarding an enforcement action. If the SEC were to authorize an action against the Company and/or any of the identified individuals, it may seek an injunction or cease-and-desist order against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, disgorgement or other equitable relief. 116 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. 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 original 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. As of December 31, 2024, through a number of contract modifications and the exercise of additional contract options by BARDA, including an additional contract modification of $ 11.7 million executed in July 2024, the committed funding increased to $ 59.3 million and the period of performance extended through December 31, 2025. During the years ended December 31, 2024 and 2023, the Company recognized $ 20.2 million and $ 4.4 million of grant revenue under the BARDA agreement, respectively. As of December 31, 2024, of the $ 59.3 million of committed funding, the Company has cumulatively recognized $ 56.7 million of grant revenue under the BARDA agreement. Biodefense Study Option As of December 31, 2024, uncommitted funding of $ 12.7 million is outstanding under the award. This uncommitted funding is exercisable by BARDA, subject to the availability of funding as well as progress and results from biodefense studies, if initiated, as part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency. 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 $ 27.0 million over a base period and six option periods, including an additional contract modification of $ 3.4 million executed in August 2024 for SPR206 Phase 2 start up activities under Option 1 of the NIAID agreement. As of December 31, 2024, $ 10.5 million of funding has been committed under this award. The Company recognized $ 0.4 million and $ 2.7 million of grant revenue under this agreement during the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, of the $ 10.5 million of committed funding, the Company has cumulatively recognized $ 5.3 million of grant revenue under the NIAD agreement. 13. 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. Tebipenem HBr Agreements GSK License 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, 117 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 the Company to add any such countries to the GSK Territory. Under the terms of the GSK License Agreement, in November 2022, 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 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 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 is entitled to receive a $ 95.0 million development milestone that is payable in four equal semiannual installments. The Company received the first installment payment of $ 23.8 million for such development milestone in February 2024, the second installment payment of $ 23.8 million in August 2024 and the third installment payment in February 2025. The Company expects to receive the final payment of $ 23.8 million in the third quarter of 2025. Remaining potential payments under the GSK License Agreement are milestone and royalty based, and are as follows (in millions): Event Milestone payments (up to) GSK’s submission of a new drug application with the FDA for tebipenem HBr $ 25.0 Total potential commercial milestone payments based on first sale (US/EU) $ 150.0 Total potential sales milestone payments $ 225.0 Royalties Low-single digit to low-double digit (if sales exceed $ 1.0 billion) tiered royalties on net product sales Amendments to the GSK License Agreement In July 2023, the Company entered into Amendment 1 to the GSK License Agreement, which updated the timeframe for technology transfer in 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 enrollment. Under the terms of Amendment 2, the Company may receive up to an additional $ 4.3 million in milestones based on activities in such country. The Company received the first milestone payment under Amendment 2 of $ 1.2 million in August 2024 and received the second milestone payment of $ 1.3 million in October 2024. The third milestone was achieved in December 2024 and payment of the $ 0.7 million milestone was received in February 2025. In March 2024, the Company entered into Amendment 3 to the GSK License Agreement, which assigns its rights to Product Trademarks (as defined in Amendment 3 to the GSK License Agreement) to GSK. In October 2024, the Company entered into Amendment 4 to the GSK License Agreement, under which the Company will receive an additional $ 0.8 million upon completion of activities related to an additional Phase 1 clinical study. The Company received $ 0.4 million of the milestone in January 2025 and anticipates receipt of the remaining milestone in the second quarter of 2025. 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 is 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 118 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS commercialization activities for tebipenem HBr in the GSK Territory. The Company is also 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 the Company 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 material 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 (including unpaid installments of any earned milestone payments) 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 %. In the case of a Change of Control of Spero, GSK similarly may, in lieu of terminating the GSK License Agreement, assume responsibility and expense of development of tebipenem HBr in the United States and no development milestones would be payable to the Company, as described above. 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. 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 stock purchase agreement (“GSK SPA”) with Glaxo Group Limited, an affiliate of G SK (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. 119 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recognized revenue for the license performance obligation at a point in time, that is upon transfer of the license to GSK. Control of the license was transferred on September 21, 2022 (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 presents 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 the $ 95.0 million milestone, $ 64.7 million was recognized upon achievement of the milestone in the fourth quarter of 2023, and the remaining amount after the $ 2.5 million significant financing component 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, 2024. The Company received the first installment payment of $ 23.8 million during the first quarter of 2024, received the second installment payment of $ 23.8 million in the third quarter of 2024 and received the third installment payment of $ 23.8 million in the first quarter of 2025. The final payment of $ 23.8 million is due in the third quarter of 2025. 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, 2024 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 of $ 4.3 million 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 were added to the transaction price in the fourth quarter of 2023 and will be recognized over time as services are delivered. When and if the remaining $ 1.1 million milestone is deemed probable of being achieved, it will be added to the transaction price and will be recognized over time as services are delivered. Pursuant to Amendment 4 to the GSK License Agreement, the Company allocated $ 0.8 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 were added to the transaction price in the fourth quarter of 2024 and will be recognized over time as services are delivered. In total and inclusive of the above, the Company recognized $ 27.0 million and $ 95.8 million during the years ended December 31, 2024 and 2023, respectively, related to the performance obligations, which were recorded as collaboration revenue – related party on its consolidated statement of operations . The remaining transaction price balance of approximately $ 22.3 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 consolidated balance sheets. As of December 31, 2024, the research and development services related to the performance obligations are 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-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. 120 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024. In October 2021 , the Company paid a $ 1.0 million milestone payment to Meiji upon submission of an NDA to the FDA for tebipenem HBr. 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 and 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 Company is obligated to make future milestone payments of up to $ 1.0 million upon the achievement of specified regulatory milestones and 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 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 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. SPR720 Agreements 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, 2024 and 2023, the Company did no t 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. 121 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 . SPR206 Agreements Cantab License Agreement In June 2016, the Company 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. and New Pharma License Holdings Limited. 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 ( $ 6.3 million as of December 31, 2024 ) 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, 2024 and 2023, the Company did no t 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. 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 Medicines II Limited (“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. 122 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Everest Licensed Product-by-Everest 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 Everest 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 Everest Licensed Product. To date, all performance obligations under the contract were fully satisfied. As of December 31, 2024 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 both the years ended December 31, 2024 and 2023, the Company did no t recognize revenue under this agreement. Pfizer License and Share Purchase Agreements On June 30, 2021, the Company and Pfizer Inc. (“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”) globally with some territorial exceptions (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 Singapore, Malaysian Federation, Kingdom of Thailand, the Republic of Indonesia, Socialist Republic of Vietnam and the Republic of the Philippines). In connection with 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. Under the Pfizer Purchase Agreement, the fair market value of the 2,362,348 shares of the Company’s common stock issued to Pfizer was determined to be $ 27.5 million, which was 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. 123 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 is recognized over time as the services are delivered. 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, 2024 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 $ 0.4 million and $ 0.9 million of revenue from the contract during the years ended December 31, 2024 and 2023, respectively. The remaining transaction price balance of approximately $ 12.6 million from the Pfizer Purchase Agreement allocated to the research and development services performance obligation has been recorded as deferred revenue in the consolidated balance sheets. As of December 31, 2024 , the research and development services related to the second performance obligation are expected to be recognized as costs are incurred over the project development timeframe. 14. Segment Information The Company manages its operations as a single operating segment for the purpose of assessing performance and making operating decisions, resulting in a single reportable segment. The Company’s singular focus is on identifying and developing novel treatments for bacterial infections, including MDR bacterial infections, and rare diseases. The Company earns revenue from collaboration agreements with third parties and grant revenue in connection with various government awards. The Company has determined that its Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The CODM reviews the Company’s financial information on a consolidated basis for the purpose of allocating resources and assessing financial performance. The measure of segment assets is reported on the balance sheet as total consolidated assets. All of the Company’s tangible assets are held in the United States. 124 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The accounting policies for the operating segment are consistent with the Company’s policies for the Consolidated Financial Statements. The key measure of segment profit or loss that the CODM uses to allocate resources and assess performance is the Company’s consolidated profit or loss, as reported on the consolidated statements of operations and comprehensive loss. This is reviewed against budgeted expectations to assess segment performance and allocate resources. The Company's reportable segment net revenues, significant segment expenses and consolidated profit (loss) for the years ended December 31, 2024 and 2023, consisted of the following: Year Ended December 31, 2024 2023 Revenues: Grant Revenue $ 20,581 $ 7,046 Collaboration revenue - related party 27,025 95,802 Collaboration revenue 371 933 Total revenues 47,977 103,781 Less: Tebipenem HBr 60,502 16,695 SPR720 16,626 13,031 SPR206 570 3,240 Research and development personnel related (including share-based compensation) 14,111 13,788 Facility related and other, research and development 4,948 4,686 General and administrative personnel related (including share-based compensation) 13,188 15,324 Professional and consultant fees 8,198 8,151 Facility related and other, general and administrative 2,318 2,079 Other segment items* 817 5,320 Interest income ( 4,735 ) ( 3,937 ) Income tax expense - 2,598 Consolidated profit (loss) $ ( 68,566 ) $ 22,806 * Other segment items include restructuring charges (see Note 9), impairment of long-term asset and other income, net. 15. Net Income (Loss) per Share Basic and diluted net income (loss) per share attributable to common stockholders of the Company was calculated as follows (in thousands, except share and per share amounts): Year Ended December 31, 2024 2023 Numerator: Net income (loss) $ ( 68,566 ) $ 22,806 Denominator: Basic weighted average common shares outstanding 54,037,917 52,703,467 Effect of dilutive securities — 285,563 Diluted weighted-average common shares outstanding 54,037,917 52,989,030 Net income (loss) per share, basic $ ( 1.27 ) $ 0.43 Net income (loss) per share, diluted $ ( 1.27 ) $ 0.43 125 SPERO THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: Year Ended December 31, 2024 2023 Options to purchase common stock 2,814,850 3,485,373 Unvested RSUs and PSUs 6,038,732 3,462,595 Total 8,853,582 6,947,968 16. Retirement Plan 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 during both the years ended December 31, 2024 and 2023, respectively. 126 Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure. None.