What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 139 added, 114 removed, 635 unchanged (28% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

20 unchanged sentences

Preferred stock, $ 0.001 par value;

10,000,000 shares authorized, 5,007 shares issued and outstanding as of June 30, 2020 and 2,720 shares issued and outstanding as of December 31, 2019

10,000,000 shares authorized, 3,220,007 shares issued and outstanding as of September 30, 2020 and 2,720 shares issued and outstanding as of December 31, 2019

Common stock, $ 0.001 par value;

60,000,000 shares authorized as of June 30, 2020 and December 31, 2019;

21,014,095 shares issued and outstanding as of June 30, 2020 and 19,190,695 shares issued and outstanding as of December 31, 2019

60,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

25,970,105 shares issued and outstanding as of September 30, 2020 and 19,190,695 shares issued and outstanding as of December 31, 2019

Additional paid-in capital

7 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Grant revenue

22 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

22 unchanged sentences

Proceeds from the issuance of common stock related to Rights Offering

Proceeds from issuance of Series C Preferred Shares

Proceeds from the issuance of common stock related to the Underwritten Public Offering

Proceeds from issuance of Series C Preferred Shares related to Rights Offering

Proceeds from issuance of Series D Preferred Shares related to the Underwritten Public Offering

Payment of offering costs

4 unchanged sentences

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosure of non-cash investing and financing activities:

Supplemental disclosure of non-cash activities:

Offering costs in accounts payable and accruals

Right of use assets and lease obligations recorded upon commencement of new lease

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands, except share amounts)

Series A, B and C

Series A, B, C and D

Spero Therapeutics, Inc.

4 unchanged sentences

Income (Loss)

Balances at March 31, 2020

Balances at June 30, 2020

Issuance of common stock upon the exercise of stock options

Issuance of common stock, net of issuance costs

Issuance of common stock, net of offering costs of $ 280 and net of issuance costs

Issuance of Series D preferred stock, net of offering costs of $ 186

Share-based compensation expense

Unrealized gain on available-for-sale securities

Balances at June 30, 2020

Series A, B and C

Balances at September 30, 2020

Series A, B, C and D

Spero Therapeutics, Inc.

9 unchanged sentences

Accretion of Series C preferred stock

Issuance of Series D preferred stock, net of offering costs of $ 186

Share-based compensation expense

Unrealized loss on available-for-sale securities

Balances at June 30, 2020

Balances at September 30, 2020

Series A, B and C

5 unchanged sentences

Income (Loss)

Balances at March 31, 2019

Balances at June 30, 2019

Issuance of common stock upon the exercise of stock options

3 unchanged sentences

Unrealized gain on available-for-sale securities

Balances at June 30, 2019

Balances at September 30, 2019

Series A, B and C

11 unchanged sentences

Unrealized gain on available-for-sale securities

Balances at June 30, 2019

Balances at September 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

15 unchanged sentences

However, to date, the Company has not experienced material impacts to liquidity, nor has it incurred impairment of any assets as a result of COVID-19.

The Company continues to monitor this situation and the possible effects on its business, results of operations and financial condition, including expenses, manufacturing, clinical trials, research and development costs and employee-related amounts.

The Company continues to monitor this situation and the possible effects on its business, results of operations and financial condition, including manufacturing, clinical trials, research and development costs and employee-related amounts.

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.

1 unchanged sentence

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 a concluded collaboration agreement, funding from government contracts, a licensing agreement and through the sale of the Company’s common and preferred stock.

The Company has incurred recurring losses since inception, including net losses attributable to Spero Therapeutics, Inc.

of $ 17.5 million and $ 13.2 million for the three months ended June 30, 2020 and 2019 , respectively, and $ 40.8 million and $ 18.2 million for the six months ended June 30, 2020 and 2019, respectively.

In addition, as of June 30, 2020, the Company had an accumulated deficit of $ 240.2 million.

The Company has incurred recurring losses since inception, including net losses of $ 18.9 million and $ 17.7 million for the three months ended September 30, 2020 and 2019 , respectively, and $ 59.7 million and $ 35.9 million for the nine months ended September 30, 2020 and 2019, respectively.

In addition, as of September 30, 2020, the Company had an accumulated deficit of $ 259.1 million.

The Company expects to continue to generate operating losses for the foreseeable future.

10 unchanged sentences

The consolidated balance sheet at December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP.

The accompanying unaudited condensed consolidated financial statements as of June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

The accompanying unaudited condensed consolidated financial statements as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, on file with the SEC.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2020, and results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019 have been made.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2020, and results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019 have been made.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

Summary of Significant Accounting Policies

25 unchanged sentences

These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

As of June 30, 2020 , and December 31, 2019, the Company had no off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

As of September 30, 2020 , and December 31, 2019, the Company had no off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering.

After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction to additional paid-in capital generated as a result of the offering.

Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statement of operations and comprehensive loss.

As of June 30, 2020 , and December 31, 2019, the Company had no capitalized deferred offering costs.

As of September 30, 2020 , and December 31, 2019, the Company had no capitalized deferred offering costs.

Cash Equivalents

29 unchanged sentences

The Company has elected not to recognize on the balance sheet leases with terms of one year or less.

As of June 30, 2020, the Company had no short-term leases with terms of one year or less.

As of September 30, 2020, 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.

15 unchanged sentences

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment.

Long-lived assets consist of property and equipment and operating lease right-of-use assets.

Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

46 unchanged sentences

Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award.

The Company has historically issued awards with only service-based vesting conditions.

In March 2019, the Company also granted awards with vesting tied to certain performance conditions.

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.

1 unchanged sentence

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with shareholders.

For the three and six months ended June 30, 2020 and 2019, these changes related to unrealized gains and losses on the Company’s available-for-sale marketable securities.

For the three and nine months ended September 30, 2020 and 2019, these changes related to unrealized gains and losses on the Company’s available-for-sale marketable securities.

Net Loss per Share

14 unchanged sentences

In addition, the CARES Act raises the corporate charitable deduction limit to 25 % of taxable income and makes qualified improvement property generally eligible for 15 -year cost-recovery and 100 % bonus depreciation.

The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and six months ended June 30, 2020, or to our net deferred tax assets as of June 30, 2020 .

The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and nine months ended September 30, 2020, or to our net deferred tax assets as of September 30, 2020 .

Recently Issued and Adopted Accounting Pronouncements

6 unchanged sentences

For available-for-sale securities, the updated guidance was applied prospectively.

During the six months ended June 30, 2020 , the impact of the COVID-19 pandemic on the Company’s available-for-sale securities was insignificant.

During the nine months ended September 30, 2020 , the impact of the COVID-19 pandemic on the Company’s available-for-sale securities was insignificant.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

29 unchanged sentences

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 June 30, 2020 Using:

Fair Value Measurements at September 30, 2020 Using:

Cash equivalents:

17 unchanged sentences

Total cash equivalents and marketable securities

Excluded from the tables above is cash of $ 2.6 million and $ 3.0 million as of June 30, 2020, and December 31, 2019, respectively.

During the six months ended June 30, 2020, there were no transfers between Level 1, Level 2 and Level 3 categories.

Excluded from the tables above is cash of $ 2.6 million and $ 3.0 million as of September 30, 2020, and December 31, 2019, respectively.

During the nine months ended September 30, 2020, there were no transfers between Level 1, Level 2 and Level 3 categories.

Marketable Securities

2 unchanged sentences

Additionally, the Company currently does not intend to and is not required to sell these investments prior to an anticipated recovery in value.

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of June 30, 2020, and December 31, 2019 (in thousands):

June 30, 2020

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of September 30, 2020, and December 31, 2019 (in thousands):

September 30, 2020

Amortized Cost

11 unchanged sentences

Commercial paper

As of June 30, 2020, and December 31, 2019 , all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the respective consolidated balance sheet date.

As of September 30, 2020, and December 31, 2019 , all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the respective consolidated balance sheet date.

Anti-Dilution Rights

3 unchanged sentences

The fair value of these derivative liabilities was determined using a discounted cash flow model.

As of June 30, 2019, the Company’s fair value of the anti-dilution rights of $ 0.2 million related only to the anti-dilution rights held by the minority investor in Spero Gyrase, Inc.

As of September 30, 2019, the Company’s fair value of the anti-dilution rights of $ 0.2 million related only to the anti-dilution rights held by the minority investor in Spero Gyrase, Inc.

In November 2019, the Company repurchased 100 % of the minority investor’s outstanding shares in Spero Gyrase, Inc.

at a price per share of $ 0.001 .

As a result, as of June 30, 2020, there are no anti-dilution rights outstanding.

As a result, as of September 30, 2020, there are no anti-dilution rights outstanding.

Operating Leases

15 unchanged sentences

On May 4, 2020, the Company entered into a third amendment to the Original Lease, as amended by the Second Amendment (the “Third Amendment”).

The Third Amendment made certain modifications, including (i) amending the commencement date of the Second Expansion Premises with a term beginning in August 2020 , and (ii) an extension of the expiration date of all existing leases through July 2027 .

The Third Amendment made certain modifications, including (i) amending the commencement date of the Second Expansion Premises with a term which began in August 2020 , and (ii) an extension of the expiration date of all existing leases through July 2027 .

In July 2016, the Company entered into an agreement to lease laboratory space through November 30, 2019 from a sublessor, which required annual lease payments of $ 0.3 million, subject to certain escalations.

This lease was terminated in August 2019.

For the three and six months ended June 30, 2020, the components of operating lease expense were as follows (in thousands):

For the three and nine months ended September 30, 2020, the components of operating lease expense were as follows (in thousands):

Operating lease expense

Statement of Operations Location

June 30, 2020

September 30, 2020

Fixed operating lease expense

5 unchanged sentences

Total operating lease expense

Supplemental cash flow information related to the Company’s operating leases for the six months ended June 30, 2020, was as follows (in thousands):

June 30, 2020

Supplemental cash flow information related to the Company’s operating leases for the nine months ended September 30, 2020, was as follows (in thousands):

September 30, 2020

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

(“Meiji”), the Company paid Meiji approximately $ 1.6 million during the three months ended December 31, 2018, related to fixed assets which will be used in manufacturing related activities at Meiji.

The Company determined this equipment to be an embedded finance lease and has been capitalized as property and equipment in the condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019.

As this equipment was fully paid in 2018, there is no corresponding lease liability as of June 30, 2020.

The following table presents the lease balances within the condensed 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 June 30, 2020 (in thousands, except for the weighted average remaining lease term and the weighted average discount rate):

The Company determined this equipment to be an embedded finance lease and has been capitalized as property and equipment in the condensed consolidated balance sheet as of September 30, 2020 and December 31, 2019.

As this equipment was fully paid in 2018, there is no corresponding lease liability as of September 30, 2020 or December 31, 2020.

The following table presents the lease balances within the condensed 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 September 30, 2020 (in thousands, except for the weighted average remaining lease term and the weighted average discount rate):

Lease Assets and Liabilities

Classification

June 30, 2020

September 30, 2020

Operating lease right of use assets

6 unchanged sentences

Weighted average discount rate

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020 (in thousands):

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2020 (in thousands):

Years Ending December 31,

3 unchanged sentences

Total operating lease liabilities

Total minimum future lease payments of approximately $ 4.3 million for a lease that has not commenced as of June 30, 2020 is not included in the table above or in the lease liability in consolidated financial statements, as the Company does not yet have control of the underlying asset.

The lease is expected to commence in the second half of 2020 , with a lease term of 7 years.

Rent expense during the three and six months ended June 30, 2020 was $ 0.3 million and $ 0.5 million, respectively.

Rent expense during the three and nine months ended September 30, 2020 was $ 0.4 million and $ 0.9 million, respectively.

Accrued Expenses and Other Current Liabilities

The following table presents the Company’s accrued expenses and other current liabilities as of June 30, 2020 (in thousands):

June 30, 2020

The following table presents the Company’s accrued expenses and other current liabilities as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020

December 31, 2019

4 unchanged sentences

Total Accrued expenses and other current liabilities

Underwritten Public Offering

On September 15, 2020, the Company completed an underwritten public offering of an aggregate of 4,785,000 shares of its common stock, and an aggregate of 3,215,000 shares of newly designated Series D Convertible Preferred Stock (“Series D Preferred Stock”).

The price to the public in the offering was $ 10.00 per share with respect to the common stock and the Series D Preferred Stock.

In addition, under the terms of the Underwriting Agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to 1,200,000 additional shares of common stock.

The shares of Series D Preferred Stock are convertible on a one-to-one basis into shares of common stock at any time at the option of the holder, provided that the holder will be prohibited from converting the Series D Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99 % of the total number of shares of common stock then issued and outstanding, subject to certain exceptions.

In the event of the Company’s liquidation, dissolution, or winding up, holders of Series D Preferred Stock will receive a payment equal to $ 0.001 per share of Series D Preferred Stock before any proceeds are distributed to the holders of common stock and equal to any distributions to the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.

Shares of Series D Preferred Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the then outstanding Series D Preferred Stock will be required to amend the terms of the Series D Preferred Stock.

As such, the Company has classified the Series D Preferred Stock within permanent equity in its consolidated balance sheet.

The offering closed on September 15, 2020 with an aggregate public offering price of $ 80.0 million.

Aggregate net proceeds from the offering were $ 74.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

Rights Offering

On February 11, 2020, the Company announced a rights offering pursuant to which it distributed to holders of its common stock and Series A Preferred Stock and Series B Preferred Stock, at no charge, non-transferable subscription rights to purchase shares of Spero common stock and Series C Convertible Preferred Stock (“Series C Preferred Stock”), with an aggregate offering value of $ 30.0 million.

For each share of common stock (including shares of common stock issuable upon conversion of the Company’s outstanding shares of Series A Preferred Stock and Series B Preferred Stock) owned by holders of record as of 5:00 p.m., New York time, on February 10, 2020, such holders received 0.152 rights to purchase shares of Spero common stock (subject to the aggregate offering threshold and certain ownership limitations).

On February 11, 2020, the Company announced a rights offering pursuant to which it distributed to holders of its common stock and Series A Convertible Preferred Stock (“Series A Preferred Stock”) and Series B Convertible Preferred Stock (“Series B Preferred Stock”), at no charge, non-transferable subscription rights to purchase shares of Spero common stock and Series C Convertible Preferred Stock (“Series C Preferred Stock”), with an aggregate offering value of $ 30.0 million.

For each share of common stock (including shares of common stock issuable upon conversion of the Company’s outstanding shares of Series A Preferred Stock and Series B Preferred Stock) owned by holders of record as of 5:00 p.m., New York time, on February 10, 2020, the holders of such shares received 0.152 rights to purchase shares of Spero common stock (subject to the aggregate offering threshold and certain ownership limitations).

Each whole right allowed holders to subscribe for one share of common stock at the subscription price equal to $ 9.00 per whole share (or an equivalent number of shares of Series C Preferred Stock).

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Each share of Series C Preferred Stock is convertible into 1,000 shares of Spero common stock at the election of the holder, subject to beneficial ownership conversion limits applicable to the Series C Preferred Stock.

In the event of the Company’s liquidation, dissolution, or winding up, holders of Series C Preferred Stock will receive a payment equal to $ 0.001 per share of Series C Preferred Stock before any proceeds are distributed to the holders of Common Stock and equal to any distributions to the holders of the Series A and Series B Convertible Preferred Stocks.

The Series C Preferred Stock have no voting rights, except as required by law.

The Series C Convertible Preferred Stock does not have any mandatory redemption rights or other redemption rights that would be outside of the Company’s control.

As such, the Company has classified the Series C Convertible Preferred Stock within permanent equity in its consolidated balance sheet.

The Series C Preferred Stock does not have any mandatory redemption rights or other redemption rights that would be outside of the Company’s control.

As such, the Company has classified the Series C Preferred Stock within permanent equity in its consolidated balance sheet.

Upon issuance, each share of Series C Preferred Stock included an embedded beneficial conversion feature.

5 unchanged sentences

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” (“ATM”) offering as defined in Rule 415 of the Securities Act, subject to the terms of the sales agreement.

The prospectus underlying the ATM offering program was terminated on September 9, 2020 in connection with the Company’s underwritten public offering that was completed in September 2020.

At such time, the Company had raised approximately $ 15.4 million in sales of its common stock under the ATM offering program, prior to deducting sales commissions, and had remaining available capacity of approximately $ 34.6 million.

On June 12, 2019, the Company entered into a securities purchase agreement with Novo Holdings A/S (“Novo”) to sell up to an aggregate of $ 10.0 million of its common stock, $ 0.001 par value per share, in two closings pursuant to the Company’s effective registration statement on Form S-3 (Registration No.

2 unchanged sentences

The number of shares sold in the second closing was determined by the volume weighted average trading price (“VWAP”) of the Company’s common stock prior to the date of the second closing, and consisted of 465,116 shares of common stock sold at a price of $ 10.75 per share for gross proceeds of approximately $ 5.0 million prior to deducting offering expenses.

In June 2019, a holder of the Company’s Series A Convertible Preferred stock elected to convert 500 shares into 500,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series A Convertible Preferred Stock.

In June 2019, a holder of the Company’s Series A Preferred stock elected to convert 500 shares into 500,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series A Preferred Stock.

In March 2020, at the closing of the rights offering, a total of 1,046,249 shares of the Company’s common stock were issued with total gross proceeds of $ 9.4 million.

The cost of offering incurred was $ 0.4 million.

During the six months ended June 30, 2020 the Company sold 645,218 shares of its common stock under the ATM agreement at an average price of approximately $ 11.62 per share for aggregate gross proceeds of approximately $ 7.5 million prior to deducting sales commissions.

Subsequent to June 30, 2020 and through and including July 30, 2020, the Company sold an additional 135,399 shares of its common stock under the ATM agreement at an average price of approximately $ 13.82 per share for aggregate gross proceeds of approximately $ 1.9 million prior to deducting sales commissions.

In September 2020, at the closing of the underwritten public offering, a total of 4,785,000 shares of common stock and 3,215,000 shares of Series D Preferred Stock were issued with an aggregate public offering price of $ 80.0 million.

Aggregate net proceeds from the offering were $ 74.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

During the nine months ended September 30, 2020 the Company sold 786,447 shares of its common stock under the ATM agreement at an average price of approximately $ 12.02 per share for aggregate gross proceeds of approximately $ 9.4 million prior to deducting sales commissions.

Share-Based Compensation

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(a) 50 % of the eligible award will vest immediately, and (b) the remaining eligible award will vest (i) in the case of options, in equal monthly installments ending two years after the Performance Period expiration, and (ii) in the case of RSUs, on such two year anniversary.

The following table summarizes the activity of options and RSUs under the 2017 Plan containing performance-based vesting criteria during the six months ended June 30, 2020:

Number of Performance Based Option Shares

Number of Performance Based RSU Shares

The following table summarizes the activity of options and RSUs under the 2017 Plan containing performance-based vesting criteria during the nine months ended September 30, 2020:

Performance Based

Option Shares

Performance Based

Outstanding as of December 31, 2019

Forfeited or cancelled

Outstanding as of June 30, 2020

No compensation expense was recognized associated with performance-based awards as the performance condition is not yet probable of achievement.

Outstanding as of September 30, 2020

Stock Options

The weighted-average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $ 6.70 and $ 4.93 per option for those options granted during the six months ended June 30, 2020 and 2019 respectively.

The weighted-average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $ 6.80 and $ 5.03 per option for those options granted during the nine months ended September 30, 2020 and 2019 respectively.

Key assumptions used to apply this pricing model were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Risk-free interest rate

2 unchanged sentences

Expected dividend yield

The following table summarizes stock option activity under all equity plans (excluding RSUs) during the six months ended June 30, 2020:

The following table summarizes stock option activity under all equity plans (excluding RSUs) during the nine months ended September 30, 2020:

(in thousands)

1 unchanged sentence

Forfeited or cancelled

Outstanding as of June 30, 2020

Outstanding as of June 30, 2020 - vested and expected to

Exercisable at June 30, 2020

As of June 30, 2020, a total of 4,675,226 shares have been authorized and reserved for issuance under all equity plans and 973,465 shares were available for future issuance under such plans.

Outstanding as of September 30, 2020

Outstanding as of September 30, 2020 - vested and

expected to vest

Exercisable at September 30, 2020

As of September 30, 2020, a total of 4,645,445 shares have been authorized and reserved for issuance under all equity plans and 935,501 shares were available for future issuance under such plans.

Share-Based Compensation Expense

The Company recorded share-based compensation expense related to incentive stock options, nonqualified stock options, stock grants, and stock-based awards in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development expenses

General and administrative expenses

No compensation expense was recognized associated with performance-based awards as none of the performance conditions were probable of achievement as of September 30, 2020.

Commitments and Contingencies

9 unchanged sentences

To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of June 30, 2020 or December 31, 2019.

Legal Proceedings

1 unchanged sentence

At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

The Company expenses as incurred the costs related to such legal proceedings.

The Company would expense, as incurred, the costs related to any such legal proceedings.

Government Contracts

8 unchanged sentences

DRTA provides up to $ 10.0 million, in addition to the total potential award from BARDA, to cover the cost of the nonclinical biodefense aspects of the collaboration program for tebipenem HBr.

Together, the two agencies will provide up to $ 56.8 million in total funding for the clinical development and biodefense assessment of tebipenem HBr, a portion of which, $ 12.7 million, is subject to the exercise of options by BARDA and Spero’s achievement of specified milestones.

The Company recognized $ 1.6 million and $ 1.5 million of revenue under the BARDA award during the three months ended June 30, 2020 and 2019, respectively.

The Company recognized $ 2.8 million and $ 5.1 million of revenue under the BARDA award during the six months ended June 30, 2020 and 2019, respectively.

Together, the two agencies will provide up to $ 56.8 million in total funding for the clinical development and biodefense assessment of tebipenem HBr, of which $ 12.7 million is subject to the exercise of options by BARDA and Spero’s achievement of specified milestones.

The Company recognized $ 3.8 million and $ 4.2 million of revenue under the BARDA award during the three months ended September 30, 2020 and 2019, respectively.

The Company recognized $ 6.6 million and $ 9.4 million of revenue under the BARDA award during the nine months ended September 30, 2020 and 2019, respectively.

Department of Defense

3 unchanged sentences

Food and Drug Administration for SPR206.

The Company recognized immaterial revenue under this agreement during the three and six months ended June 30, 2020.

The Company recognized immaterial revenue under this agreement during both the three and nine months ended September 30, 2020 and 2019 , respectively.

In September 2016, the Company was awarded a cooperative agreement with the DoD to further develop anti-infective agents to combat Gram-negative bacteria.

The agreement was initially structured as a single, two-year $ 1.5 million award.

The performance period has since then been extended through September 29, 2019.

The performance period was extended through September 29, 2019.

The Company is eligible for the full funding from the DoD, and there are no options to be exercised at a later date.

1 unchanged sentence

The Company recognizes revenue under this agreement as qualifying expenses are incurred.

The Company did no t recognize any revenue under this agreement during the three and six months ended June 30, 2020 and recognized less than $ 0.1 million of revenue under this agreement during both the three and six months ended June 30, 2019.

The Company did no t recognize any revenue under this agreement during the three and nine months ended September 30, 2020 and recognized $ 0.2 million of revenue under this agreement during both the three and nine months ended September 30, 2019.

In February 2017, the Company was awarded a grant from the U.S.

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In January 2019, the period of performance for this award was extended for an additional 12 -month period .

The Company did no t recognize revenue under this agreement during the three months ended June 30, 2020 and recognized less than $ 0.1 million of revenue under this agreement during the three months ended June 30, 2019.

The Company recognized approximately $ 0.1 million and less than $ 0.1 million of revenue under this agreement during the six months ended June 30, 2020 and 2019, respectively.

The Company did no t recognize revenue under this agreement during the three months ended September 30, 2020 and recognized less than $ 0.1 million of revenue under this agreement during the three months ended September 30, 2019.

The Company recognized approximately $ 0.1 million and less than $ 0.1 million of revenue under this agreement during the nine months ended September 30, 2020 and 2019, respectively.

In June 2016, the Company entered into agreements with Pro Bono Bio PLC (“PBB”), a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited and Cantab Anti-Infectives Limited (“CAI”), in order to acquire certain intellectual property and government funding arrangements relating to SPR206.

3 unchanged sentences

Spero shall pay PBB a percentage of funds received from NIAID up to a maximum of $ 1.3 million, of which $ 0.3 million was paid upfront to PBB as part of the agreement.

The Company recognized less than $ 0.1 million and $ 0.5 million of revenue under this agreement during the three months ended June 30, 2020 and 2019, respectively.

The Company recognized approximately $ 0.3 million and $ 0.8 million of revenue under this agreement during the six months ended June 30, 2020 and 2019, respectively.

Collaboration and License Agreements

The Company recognized $ 0.2 million and less than $ 0.1 million of revenue under this agreement during the three months ended September 30, 2020 and 2019, respectively.

The Company recognized approximately $ 0.5 million and $ 0.8 million of revenue under this agreement during the nine months ended September 30, 2020 and 2019, respectively.

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.

1 unchanged sentence

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.

Vaxart (formerly Aviragen) Agreement

Vaxart (formerly Aviragen) License Agreement

Under the Company’s agreement with Vaxart for certain intellectual property and know-how relating to developing a gyrase inhibitor to develop therapies for Gram-negative infections, the Company was obligated to make milestone payments of up to an aggregate of $ 12.0 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay royalties of low single-digit percentages based on net sales of products the Company acquired under the agreement.

1 unchanged sentence

Cantab License Agreements

Under the Cantab Agreements, the Company is obligated to make milestone payments of up to $ 5.8 million upon the achievement of specified clinical and regulatory milestones and a payment of £ 5.0 million ($ 6.2 million and $ 6.6 million as of June 30, 2020 and December 31, 2019, respectively) upon the achievement of a specified commercial milestone.

Under the Cantab Agreements, the Company is obligated to make milestone payments of up to $ 5.8 million upon the achievement of specified clinical and regulatory milestones and a payment of £ 5.0 million ($ 6.4 million and $ 6.6 million as of September 30, 2020 and December 31, 2019, respectively) upon the achievement of a specified commercial milestone.

In addition, the Company has 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 the three and six months ended June 30, 2020 , the Company did not record any research and development expense related to the achievement of regulatory milestones for SPR206.

During the three and nine months ended September 30, 2020 , the Company did not record any research and development expense related to the achievement of regulatory milestones for SPR206.

The Cantab Agreements continue indefinitely, with royalty payment obligations thereunder continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the expiration in such country of the last to expire valid claim of any of the applicable patents.

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As part of the agreement, the Company is obligated to make future milestone payments of up to $ 81.1 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 three and six months ended June 30, 2020 , the Company did not record any research and development expense related to the achievement of regulatory milestones for SPR720.

During the three and nine months ended September 30, 2020 , the Company did not record any research and development expense related to the achievement of regulatory milestones for SPR720.

The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment obligations continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the date of expiration in such country of the last to expire applicable patent.

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Additionally, 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 condensed consolidated balance sheet as of June 30, 2020.

This equipment has been capitalized as property and equipment in the condensed consolidated balance sheet as of September 30, 2020.

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.

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A joint development committee will be established between the Company and Everest to coordinate and review the development, manufacturing and commercialization plans with respect to Licensed Products in the Territory.

Unless earlier terminated due to certain material breaches of the contract, or otherwise, the Everest License Agreement will expire on a jurisdiction-by-jurisdiction and Licensed Product-by-Licensed Product basis until the latest to occur of expiration of the last valid claim under a licensed patent in such jurisdiction, the expiration of regulatory exclusivity in such jurisdiction or ten years after the first commercial sale of such Licensed Product in such jurisdiction.

Unless earlier terminated due to certain material breaches of the contract, or otherwise, the Everest License Agreement will expire on a jurisdiction-by-jurisdiction and Licensed Product-by-Licensed Product basis upon the latest to occur of expiration of the last valid claim under a licensed patent in such jurisdiction, the expiration of regulatory exclusivity in such jurisdiction or ten years after the first commercial sale of such Licensed Product in such jurisdiction.

The Everest License Agreement may be terminated in its entirety by Everest upon 90 or 180 days ’ prior written notice, depending on the stage of development of the initial Licensed Product.

Accounting Analysis and Revenue Recognition

The following table shows the performance obligations, along with their SSP and the transaction price allocated to the performance obligations (in thousands) identified by the Company:

The following table shows the performance obligations, along with their SSP and the transaction price allocated to the performance obligations (in thousands) identified by the Company for the Everest Medicines License Agreement:

Performance Obligations

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Research and development services (2)

Recognized over time as services are delivered through the expected completion date in the second half of 2020

Recognized over time as services are delivered through the completion date

The standalone selling price for the license and know-how transfer was determined using the residual approach, corroborated by internal cost estimates.

The standalone selling price for the research and development services was estimated using management’s best estimate of the cost of obtaining these services at arm’s length from a third-party provider and using internal full-time equivalent costs to support the development services.

During the three and six months ended June 30, 2020 , the Company recognized less than $ 0.1 million and $ 0.2 million of revenue, respectively, related to this agreement.

As of June 30, 2020, the aggregate amount of the transaction price allocated to performance obligations that are partially unsatisfied was less than $ 0.1 million.

The Company has a contract asset of $ 2.0 million, which is included in prepaid expenses and other current assets in the condensed consolidated balance sheet as of June 30, 2020.

During the three and nine months ended September 30, 2020 , the Company recognized less than $ 0.1 million and $ 0.3 million of revenue, respectively, related to this agreement.

As of September 30, 2020, the aggregate amount of the transaction price was fully allocated to satisfied performance obligations.

The Company has a contract asset of $ 2.0 million, which is included in prepaid expenses and other current assets in the condensed consolidated balance sheet as of September 30, 2020.

Gates MRI Collaboration Agreement

In June 2019, the Company entered into a collaboration with Gates MRI to develop SPR720 for the treatment of lung infections caused by Mycobacterium tuberculosis.

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Due to the cost-funded nature of the payments and the Company’s assessment that it does not have a vendor/customer relationship with the Gates MRI, the Company will recognize the funding received under the agreement as a reduction to the research and development expenses incurred, as the related expenses are incurred.

During the three and six months ended June 30, 2020, the Company recorded $ 0.4 million and $ 0.6 million, respectively, as a reduction to research and development expense related to activities funded by Gates MRI.

During the three and nine months ended September 30, 2020, the Company recorded $ 0.2 million and $ 0.7 million, respectively, as a reduction to research and development expense related to activities funded by Gates MRI.

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 is classified as a prepaid asset on the Company’s balance sheet and is being amortized over a 30 -month service period.

The Company has paid Savior an additional $ 5.1 million for facility build out costs, which is classified as a long-term asset on the Company’s balance sheet as of September 30, 2020.

Australia Research and Development Tax Incentive

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As this subsidiary meets the eligibility requirements of the Australian tax law, it is eligible to receive a 43.5 % tax incentive for qualified research and development activities.

The Company recorded less than $ 0.1 million and $ 0.3 million during the three and six months ended June 30, 2020, respectively and $ 0.2 million during both the three and six months ended June 30, 2019, respectively, as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss associated with this tax incentive, representing 43.5 % of the Company’s qualified research and development spending in Australia.

The Company recorded less than $ 0.1 million and $ 0.3 million during the three and nine months ended September 30, 2020, respectively, and $ 0.1 million and $ 0.3 million during the three and nine months ended September 30, 2019, respectively, as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss associated with this tax incentive, representing 43.5 % of the Company’s qualified research and development spending in Australia.

The tax incentive refund is denominated in Australian dollars and, therefore, the associated tax incentive receivable is re-measured to U.S.

dollars as of each reporting date.

The Company’s tax incentive receivables from the Australian government totaled $ 1.0 million and $ 0.8 million as of June 30, 2020, and December 31, 2019 , respectively.

The Company’s tax incentive receivables from the Australian government totaled $ 1.0 million and $ 0.8 million as of September 30, 2020, and December 31, 2019 , respectively.

Net Loss per Share

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was calculated as follows (in thousands, except share and per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Deemed dividend

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Net loss per share, basic and diluted

The net loss applicable to common stockholders for the six months ended June 30, 2020 did not equal net loss due to the accretion of the beneficial conversion feature of Series C Preferred Stock in the amount of $ 0.5 million.

The net loss applicable to common stockholders for the nine months ended September 30, 2020 did not equal net loss due to the accretion of the beneficial conversion feature of Series C Preferred Stock in the amount of $ 0.5 million.

The beneficial conversion feature was initially recorded as a discount on the Series C Preferred Stock with a corresponding amount recorded to Additional Paid-in Capital.

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The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Options to purchase common stock

3 unchanged sentences

Series C convertible preferred stock (as converted to common shares)

Series D convertible preferred stock (as converted to common shares)

Subsequent Events

The Company has evaluated, for potential recognition and disclosure, events that occurred prior to the date at which the condensed consolidated financial statements were available to be issued.

Other than as disclosed in Note 7, there were no material subsequent events.

Pursuant to the Underwriting Agreement entered into on September 10, 2020, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to 1,200,000 additional shares of its common stock.

On October 1, 2020, the Company issued and sold all 1,200,000 shares of common stock at the price of $ 10.00 per share pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of approximately $ 11.2 million after deducting underwriting discounts and commissions.

In October 2020, the Company delivered the Clinical Study Report covering the SAD/MAD Phase 1 Clinical Trial of SPR206, and pursuant to the Everest License Agreement, invoiced Everest for the $ 2.0 million milestone.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements