What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 119 added, 286 removed, 488 unchanged (45% 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, 3,220,007 shares issued and outstanding as of September 30, 2020 and 2,720 shares issued and outstanding as of December 31, 2019

10,000,000 shares authorized, 3,218,152 shares issued and outstanding as of March 31, 2021 and 3,218,287 shares issued and outstanding as of December 31, 2020

Common stock, $ 0.001 par value;

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

60,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

29,663,946 shares issued and outstanding as of March 31, 2021 and 29,260,247 shares issued and outstanding as of December 31, 2020

Additional paid-in capital

7 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Grant revenue

15 unchanged sentences

Unrealized gain (loss) on marketable securities

Reclassification adjustment for gains included in net loss

Net unrealized gains (losses) on securities

4 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

3 unchanged sentences

Share-based compensation

Realized (gain) loss on investments

Unrealized foreign currency transaction (gain) loss

7 unchanged sentences

Other long-term liabilities

Operating lease liability

Net cash used in operating activities

7 unchanged sentences

Proceeds from the issuance of common stock related to Rights Offering

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

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

Payment of offering and financing costs

Proceeds from stock option exercises

4 unchanged sentences

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

Offering and financing costs in accounts payable and accruals

Series C issuance costs in accounts payable

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

3 unchanged sentences

Series A, B, C and D

Spero Therapeutics, Inc.

Convertible Preferred Stock

1 unchanged sentence

Stockholders'

Income (Loss)

Balances at June 30, 2020

Issuance of common stock upon the exercise of stock options

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 September 30, 2020

Series A, B, C and D

Spero Therapeutics, Inc.

Convertible Preferred Stock

Other Comprehensive

Stockholders'

Income (Loss)

Balances at December 31, 2020

Issuance of common stock upon the exercise of stock options

Issuance of common stock, net of offering costs of $ 742 and net of issuance costs

Issuance of Series C preferred stock, net of offering costs of $ 41

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 September 30, 2020

Series A, B and C

Spero Therapeutics, Inc.

Convertible Preferred Stock

Other Comprehensive

Stockholders'

Income (Loss)

Balances at June 30, 2019

Issuance of common stock upon the exercise of stock options

Issuance of common stock, net of issuance costs

Issuance of common stock upon the exercise of stock option

Issuance of common stock, net of financing costs of $ 130 and net of issuance costs

Conversion of convertible preferred stock to common stock

1 unchanged sentence

Unrealized gain on available-for-sale securities

Balances at September 30, 2019

Balances at March 31, 2021

Series A, B and C

3 unchanged sentences

Stockholders'

Income (Loss)

1 unchanged sentence

Issuance of common stock upon the exercise of stock options

Issuance of common stock, net of issuance costs

Conversion of convertible preferred stock to common stock

Issuance of common stock, net of offering costs of $ 462

Issuance of Series C preferred stock, net of offering costs of $ 41

Beneficial conversion feature of Series C preferred stock

Deemed dividends related to immediate accretion of beneficial conversion feature of Series C preferred stock

Share-based compensation expense

Unrealized gain on available-for-sale securities

Balances at September 30, 2019

Balances at March 31, 2020

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

6 unchanged sentences

The Company is also developing SPR720, a novel oral antibiotic designed for the treatment of a rare, orphan disease caused by pulmonary non-tuberculous mycobacterial infections, or NTM disease.

In addition, the Company has a platform technology known as its Potentiator Platform, that includes an IV-administered product candidate, SPR206, being developed to treat MDR Gram-negative infections in the hospital.

The Company believes that our novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

In addition, the Company has a Potentiator technology, that includes an IV-administered product candidate, SPR206, being developed to treat MDR Gram-negative infections in the hospital.

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.

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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 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 has incurred recurring losses since inception, including net losses of $ 19.4 million and $ 23.3 million for the three months ended March 31, 2021 and 2020 , respectively.

In addition, as of March 31, 2021, the Company had an accumulated deficit of $ 297.1 million.

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

10 unchanged sentences

The consolidated balance sheet at December 31, 2020 was derived from audited financial statements, but does not include all disclosures required by GAAP.

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.

The accompanying unaudited condensed consolidated financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, 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, 2020, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, 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 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.

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 March 31, 2021, and results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the three months ended March 31, 2021 and 2020 have been made.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

Summary of Significant Accounting Policies

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All of the Company’s tangible assets are held in the United States.

Consolidation

The Company consolidates entities in which it has a controlling financial interest.

The Company evaluates each of its subsidiaries to determine whether the entity represents a variable interest entity (“VIE”), for which consolidation should be evaluated under the VIE model, or, alternatively, if the entity is a voting interest entity, for which consolidation should be evaluated using the voting interest model.

The Company has concluded that none of its subsidiaries is a VIE and has consolidated each subsidiary under the voting interest model because it has majority voting control of each subsidiary.

Ownership interests in the Company’s subsidiaries that are held by entities other than the Company are reported as non-controlling interests in the consolidated balance sheets.

Losses attributed to non-controlling interests and to the Company are reported separately in the consolidated statements of operations and comprehensive loss.

In November 2019, the Company repurchased 100 % of the minority investor’s outstanding shares in Spero Gyrase and as a result, as of December 31, 2019, the Company no longer reported a non-controlling interest in Spero Gyrase.

Concentrations of Credit Risk and of Significant Suppliers

5 unchanged sentences

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

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

As of March 31, 2021 , and December 31, 2020, the Company had no off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

Cash Equivalents

2 unchanged sentences

Marketable Securities

Marketable securities consist of investments with original maturities greater than 90 days.

Marketable securities consist of investments in corporate obligations with original maturities greater than 90 days.

The Company considers its portfolio of investments to be available-for-sale.

3 unchanged sentences

Realized gains and losses and declines in value are included as a component of other income (expense), net based on the specific identification method.

The Company evaluates debt securities with an unrealized loss to determine whether there may be a credit impairment.

The Company also assesses its intent to sell the security and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost.

Any credit impairments are recorded through an allowance account.

17 unchanged sentences

The Company has elected not to recognize on the balance sheet 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.

As of March 31, 2021, 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.

5 unchanged sentences

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.

In transitioning to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.

In accordance with ASC 842, components of a lease should be split into three categories:

lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.).

The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

Although separation of lease and non-lease components is required, certain practical expedients are available.

Entities may elect the practical expedient to not separate lease and non-lease components.

In making this election, entities would account for each lease component and the related non-lease component together as a single component.

For new and amended leases beginning in 2019 and after, the Company has elected to account for the lease and non-lease components together as a single lease component.

The Company has elected to account for lease and non-lease components together as a single lease component.

Other assets consist of long-term prepayments and deposits.

14 unchanged sentences

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 and derivative liabilities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3).

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.

37 unchanged sentences

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 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.

For the three months ended March 31, 2021 and 2020, 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 nine months ended September 30, 2020, or to our net deferred tax assets as of September 30, 2020 .

The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three months ended March 31, 2021, or to our net deferred tax assets as of March 31, 2021 .

Recently Issued and Adopted Accounting Pronouncements

6 unchanged sentences

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

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):

7 unchanged sentences

This standard modifies certain disclosure requirements on fair value measurements.

This standard became effective for us on January 1, 2020 , and did not have a material impact on our disclosures.

This standard became effective for the Company on January 1, 2020 , and did not have a material impact on its disclosures.

For the new disclosures regarding our Level 3 instruments, please read Note 3, Fair Value Measurements, to these condensed consolidated financial statements.

7 unchanged sentences

Precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

This standard became effective for us on January 1, 2020 , and did not have a material impact on our condensed consolidated financial statements and related disclosures.

This standard became effective for the Company on January 1, 2020 , and did not have a material impact on its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

6 unchanged sentences

The application of the amendments in the new guidance are to be applied on a retrospective basis, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings or prospectively, depending on the amendment.

The Company is currently evaluating the impact of adoption on its consolidated financial statements.

This standard became effective for the Company on January 1, 2021 , and did not have a material impact on its condensed consolidated financial statements and related disclosures.

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 September 30, 2020 Using:

Fair Value Measurements at March 31, 2021 Using:

Cash equivalents:

2 unchanged sentences

Marketable securities:

government securities

Corporate bonds

5 unchanged sentences

Money market funds

Commercial paper

Corporate bonds

Total cash equivalents

Marketable securities:

government securities

Corporate bonds

2 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 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.

Excluded from the tables above is cash of $ 3.4 million and $ 2.7 million as of March 31, 2021, and December 31, 2020, respectively.

During the three months ended March 31, 2021, 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 September 30, 2020, and December 31, 2019 (in thousands):

September 30, 2020

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of March 31, 2021, and December 31, 2020 (in thousands):

March 31, 2021

Amortized Cost

1 unchanged sentence

Gross Unrealized

government securities

Corporate bonds

4 unchanged sentences

Gross Unrealized

government securities

Corporate bonds

Commercial paper

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

In connection with the issuance of a non-controlling interest in Spero Gyrase, Inc., the Company granted anti-dilution rights to the minority investor.

The Company classified the anti-dilution rights as a derivative liability on its consolidated balance sheet because they were freestanding instruments that represent a conditional obligation to issue a variable number of shares.

The Company remeasured the derivative liability associated with the anti-dilution rights to fair value at each reporting date, and recognized changes in the fair value of the derivative liability as a component of other income (expense) in the consolidated statement of operations and comprehensive loss.

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

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 September 30, 2020, there are no anti-dilution rights outstanding.

Operating Leases

In August 2015, the Company entered into an operating lease agreement with U.S.

REIF Central Plaza Massachusetts, LLC (the “Landlord”) with respect to its corporate headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts (the “Original Lease”).

The term of the Original Lease commenced in January 2016 and was scheduled to expire in December 2020 .

Under the terms of the Original Lease, the Company provided a security deposit of $ 0.2 million to the Landlord, which is included in long-term assets in the accompanying condensed consolidated balance sheets.

The Original Lease provided for annual rent escalations as well as tenant incentives in the amount of $ 0.7 million, of which $ 0.3 million would be reimbursed to the Landlord over the initial term of the Original Lease.

On January 17, 2018, the Company entered into an amendment to the Original Lease (the “Amendment”).

The Amendment made certain modifications to the Original Lease, including the addition of approximately 7,800 square feet of office space in the same building (the “Expansion Premises”) and an extension of the expiration date of the Original Lease to seven years or December 2025 .

The Amendment also provided for $ 0.4 million from the Landlord for leasehold improvements on the Expansion Premises.

O n December 16, 2019, the Company entered into a second amendment to the Original Lease and the Amendment (the “Second Amendment”).

The Second Amendment made certain modifications, including (i) the addition of approximately 7,800 square feet of office space in the same building with a term beginning in June 2020 (the “Second Expansion Premises”), and (ii) an extension of the expiration date of all existing leases through May 2027 .

Under the Second Amendment, the Company has two consecutive options to extend the Lease Term for an additional period of five years (the “Option Terms”), subject to certain conditions, upon notice to the Landlord.

These renewal options were not included in the calculation of the operating lease assets and operating lease liabilities, as the renewal is not reasonably certain.

The Second Amendment provides for annual base rent for the Second Expansion Premises of approximately $ 0.6 million in the first year of the Lease Term, which increases on an annual basis to approximately $ 0.7 million in the final year of the Lease Term, and annual base rent during the Option Terms to be calculated based on the Landlord’s good faith determination of 100 % of the fair market rate for such Option Terms.

The Company is also obligated to pay the Landlord certain costs, taxes and operating expenses, subject to certain exclusions.

The Amendment also provides for $ 0.6 million from the Landlord for leasehold improvements on the Expansion Premises.

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

Operating lease expense

Statement of Operations Location

September 30, 2020

Fixed operating lease expense

Research and development expense

General and administrative expense

Variable operating lease expense

Research and development expense

General and administrative expense

Total operating lease expense

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:

Operating cash flows from operating leases

Embedded Finance Leases

As part of our agreement with Meiji Seika Pharma Co.

(“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 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

September 30, 2020

Operating lease right of use assets

Property and equipment, net

Total leased assets

Operating lease liabilities

Non-current operating lease liabilities

Total lease liabilities

Weighted average remaining lease term

Weighted average discount rate

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

Years Ending December 31,

2020 (remainder)

Total future minimum lease payments

Less imputed interest

Total operating lease liabilities

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

As of March 31, 2021, and December 31, 2020 , all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the respective consolidated balance sheet date.

Accrued Expenses and Other Current Liabilities

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

The following table presents the Company’s accrued expenses and other current liabilities as of March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

December 31, 2020

4 unchanged sentences

Total Accrued expenses and other current liabilities

Equity Transactions

Underwritten Public Offering

8 unchanged sentences

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

Additionally, pursuant to the Underwriting Agreement, on October 1, 2020, the Company issued and sold 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.

Rights Offering

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The Rights Offering was fully backstopped by certain affiliates of BVF Partners L.P.

(“BVF”), which agreed to purchase, at a minimum, their respective as-converted pro rata share of the offered shares under the Rights Offering, plus an additional amount of Common Stock or Series C Preferred Shares that are not subscribed by other purchasers in the Rights Offering, for a total of up to $ 30.0 million.

(“BVF”), which agreed to purchase, at a minimum, their respective as-converted pro rata share of the offered shares under the Rights Offering, plus an additional amount of Common Stock or Series C Preferred Stock that are not subscribed by other purchasers in the Rights Offering, for a total of up to $ 30.0 million.

At the closing of the rights offering on March 5, 2020, a total of 1,046,249 shares of the Company’s common stock and 2,287 shares of Series C Preferred Stock were issued for aggregate gross proceeds of $ 30.0 million.

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On December 3, 2018, the Company filed a universal shelf registration statement on Form S-3 (Registration No.

333-228661) with the SEC, which was declared effective on December 11, 2018, pursuant to which it registered for sale up to $ 200.0 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 $ 50.0 million of its common stock available for issuance pursuant to an at-the-market offering program sales agreement that it entered into with Cantor Fitzgerald & Co.

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.

The initial closing occurred on June 14, 2019 and consisted of 465,983 shares of common stock sold at a price of $ 10.73 per share for gross proceeds of $ 5.0 million prior to deducting offering expenses.

The second closing of approximately $ 5.0 million occurred on October 18, 2019, pursuant to the terms of the securities purchase agreement.

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 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.

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.

333-228661) with the SEC, which was declared effective on December 11, 2018, and pursuant to which the Company registered for sale up to $ 200.0 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 $ 50.0 million of its common stock available for issuance pursuant to an “at-the-market” offering program sales agreement that it entered into with Cantor Fitzgerald & Co.

Under the sales agreement, Cantor was permitted to sell shares of the Company’s common stock by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, subject to the terms of the sales agreement.

The prospectus underlying the “at-the-market” 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 “at-the-market” offering program, prior to deducting sales commissions, and had remaining available capacity of approximately $ 34.6 million.

On November 13, 2020, the Company reinstated the “at-the-market” offering program with a capacity of up to $ 34.0 million by filing an updated prospectus .

On March 11, 2021, the Company entered into a new sales agreement with Cantor and filed a new universal shelf registration statement on Form S-3 (Registration No.

333-254170) , 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 new “at-the-market” offering program sales agreement that it entered into with Cantor.

Under the new sales agreement, Cantor may sell shares of the Company’s common stock by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, subject to the terms of the new sales agreement.

The Company’s universal shelf registration statement on Form S-3 (Registration No.

333-254170) became effective on March 29, 2021 and its prior sales agreement with Cantor terminated automatically at such time..

During the three months ended March 31, 2021 the Company sold 257,185 shares of its common stock under the prior “at-the-market” offering sales agreement at an average price of approximately $ 17.05 per share for aggregate gross proceeds of approximately $ 4.4 million prior to deducting sales commissions.

In February 2021, a holder of the Company’s Series B Preferred Stock elected to convert 62 shares of Series B Preferred Stock into 62,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series B Preferred Stock.

In addition, a holder of the Company’s Series C Preferred Stock elected to convert 73 shares of Series C Preferred Stock into 73,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series C Preferred Stock.

Share-Based Compensation

11 unchanged sentences

(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 nine months ended September 30, 2020:

In January 2021, the Company cancelled the performance-based awards due to the non-achievement of the performance-based vesting criteria, and the awards were added back to the shares of common stock available for issuance under the 2017 Plan.

None of the outstanding options had vested and no compensation expense associated with performance-based awards was recognized as of March 31, 2021.

The following table summarizes the activity of options and RSUs under the 2017 Plan containing performance-based vesting criteria during the three months ended March 31, 2021:

Performance Based

3 unchanged sentences

Forfeited or cancelled

Outstanding as of September 30, 2020

Outstanding as of March 31, 2021

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 $ 6.80 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:

Nine Months Ended September 30,

Risk-free interest rate

Expected term (in years)

Expected volatility

Expected dividend yield

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

The weighted-average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $ 14.57 and $ 6.38 per option for those options granted during the three months ended March 31, 2021 and 2020 respectively.

The following table summarizes stock option activity under all equity plans (excluding RSUs) during the three months ended March 31, 2021:

(in thousands)

1 unchanged sentence

Forfeited or cancelled

Outstanding as of September 30, 2020

Outstanding as of September 30, 2020 - vested and

Outstanding as of March 31, 2021

Outstanding as of March 31, 2021 - 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.

Exercisable at March 31, 2021

As of March 31, 2021, a total of 5,549,873 shares have been authorized and reserved for issuance under all equity plans and 495,396 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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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

3 unchanged sentences

The Company has entered into an operating lease agreement with U.S.

REIF Central Plaza Massachusetts, LLC with respect to its corporate headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts (see Note 4).

REIF Central Plaza Massachusetts, LLC with respect to its corporate headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts.

Indemnification Agreements

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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 September 30, 2020 or December 31, 2019.

The Company is not aware of any claims under indemnification arrangements that will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of March 31, 2021 or December 31, 2020.

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

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

Government Contracts

1 unchanged sentence

The award committed initial funding of $ 15.7 million over a three-year base period from July 1, 2018 to June 30, 2021 for cUTI development activities.

In May 2019, the contract was modified to include additional funding of $ 2.5 million for tebipenem HBr, increasing the amount of initial committed funding from $15.7 million to $ 18.2 million and increasing the overall potential award to $ 46.8 million.

In January 2020, BARDA exercised its first contract option for additional committed funding of $ 15.9 million, increasing the total committed funding to $ 34.1 million.

In May 2019, the contract was modified to include additional funding of approximately $ 2.5 million for the development of tebipenem HBr, increasing the amount of initial committed funding from $15.7 million to approximately $ 18.2 million and increasing the overall potential award to $ 46.8 million.

In January 2020, BARDA exercised its first contract option for additional committed funding of $ 15.9 million, increasing the total committed funding to $ 34.1 million and extended the period of performance through November 1, 2021.

The balance of the award is subject to BARDA exercising a second option, which would entail funding of $ 12.7 million and is exercisable by BARDA subject to, among other things, satisfactory progress and results from the biodefense studies described below.

As part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency (“DTRA”), a series of studies to assess the efficacy of tebipenem HBr in the treatment of infections caused by biodefense threats such as anthrax, plague and melioidosis will be conducted by the U.S.

Army Medical Research Institute of Infectious Diseases (“USAMRIID”) under the direction of Spero.

Because the FDA requires data from a human pneumonic disease as supportive of use of an antibiotic to treat a biothreat infection, the scope of the BARDA award includes the assessment of tebipenem HBr levels in the lung of healthy volunteers as well as a proof of concept clinical trial in pneumonia patients.

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, 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.

The FDA requires data from a human pneumonic disease as supportive evidence of human efficacy when developing an antibiotic to treat a pulmonary biothreat infection under 21 CFR 314.600, “The Animal Rule,” the scope of which the BARDA award includes the assessment of tebipenem HBr levels in the lung of healthy volunteers as well as a proof of concept clinical trial in pneumonia patients.

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

Together, BARDA and DTRA 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 $ 6.3 million and $ 1.2 million of revenue under the BARDA award during the three months ended March 31, 2021 and 2020, respectively.

Department of Defense

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Food and Drug Administration for SPR206.

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 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.

The DoD funding supports next-generation potentiator discovery and screening of SPR741 partners.

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 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.

The Company recognized $ 0.6 million in revenue under this agreement during the three months ended March 31, 2021 and recognized immaterial revenue under this agreement during the three months ended March 31, 2020.

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

National Institute of Allergy and Infectious Diseases, or NIAID , under its Small Business Innovation Research program, to conduct additional preclinical studies of SPR720, the Company’s novel oral bacterial gyrase inhibitor, for the treatment of non-tuberculous mycobacterial infections.

The award is structured as a 12 -month $ 0.6 million base period and a $ 0.4 million option period.

Through December 31, 2017, only the base period funds had been committed.

National Institute of Allergy and Infectious Diseases, or NIAID , under its Small Business Innovation Research program, over a two-year period from March 1, 2017 to February 28, 2019, to conduct additional preclinical studies of SPR720, the Company’s novel oral bacterial gyrase inhibitor, for the treatment of non-tuberculous mycobacterial infections.

The award was structured as a 12 -month $ 0.6 million base period and a $ 0.4 million option period.

Through December 31, 2017, only the base period funds were committed.

In February 2018, NIAID exercised the $ 0.4 million 12 -month option period.

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 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 January 2019, the period of performance for this award was extended through February 28, 2020 and during the year ended December 31, 2020, this award was closed out .

The Company did no t recognize revenue under this agreement during the three months ended March 31, 2021 and recognized less than $ 0.1 million of revenue under this agreement during the three months ended March 31, 2020.

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.

Under these agreements, CAI agreed to submit a request to NIAID to assign the then CAI-held NIAID contract to Spero, which was finalized in December 2017.

Under these agreements, CAI agreed to submit a request to NIAID to novate the then CAI-held NIAID contract to Spero, which was finalized in December 2017.

The NIAID contract provides for development funding of up to $ 6.5 million over a base period and three option periods.

As of December 31, 2018, funding for the base period and the first two option periods totaling $ 5.9 million have been committed.

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 $ 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.

As of March 31, 2021, funding for the base period and the first two option periods totaling $ 5.9 million have been committed.

In March 2021, a contract modification was executed, and the period of performance for this award was extended until June 2021 .

The Company recognized $ 0.4 million and $ 0.3 million of revenue under this agreement during the three months ended March 31, 2021 and 2020, respectively.

License, Collaboration and Service Agreements

2 unchanged sentences

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) 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.

In November 2019, the Company and Vaxart entered into a stock repurchase agreement, which terminated all of the Company’s obligations to Vaxart.

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 ($ 6.4 million and $ 6.6 million as of September 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 ($ 6.9 million and $ 6.8 million as of March 31, 2021 and December 31, 2020, 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 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.

During both the three months ended March 31, 2021 and 2020, the Company did no t 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.

3 unchanged sentences

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 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.

During the three months ended March 31, 2021 , the Company did no t 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.

4 unchanged sentences

In exchange for the know-how and 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.

As part of the agreement, the Company is obligated to make milestone payments of up to $ 3.0 million upon the achievement of specified clinical and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement and to pay Meiji a low double-digit percentage of any sublicense fees received by the Company up to $ 7.5 million.

As part of the agreement, the Company is obligated to make future milestone payments of up to $ 2.0 million as of March 31, 2021 upon the achievement of specified clinical and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement and to pay Meiji a low double-digit percentage of any sublicense fees received by the Company up to $ 7.5 million.

In October 2017, the Company paid a $ 1.0 million milestone payment to Meiji upon the enrollment of the first patient in the Company’s Phase 1 clinical trial of tebipenem HBr.

The payment was recorded as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2017.

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 September 30, 2020.

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 March 31, 2021.

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 factors, and (ii) under certain circumstances arising out of the head license with a global pharmaceutical company.

Northern License Agreement

The Company and Northern terminated this agreement effective January 1, 2020.

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 “Everest License Agreement”), with Everest Medicines II Limited.

Under the terms of the Everest License Agreement, the Company granted Everest an exclusive license to develop, manufacture and commercialize SPR206 or products that contain SPR206 (the “Licensed Products”), in Greater China (which includes Mainland China, Hong Kong and Macau), South Korea and certain Southeast Asian countries (the “Territory”).

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 “Licensed Products”), in Greater China (which includes Mainland China, Hong Kong and Macau), South Korea and certain Southeast Asian countries (the “Territory”).

The Company retained development, manufacturing and commercialization rights with respect to SPR206 and Licensed Products in the rest of the world and also retained the right to develop or manufacture SPR206 and Licensed Products in the Territory for use outside the 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 Territory.

Under the terms of the Everest License Agreement, the Company received an upfront payment of $ 3.0 million that was recognized in the first quarter of 2019, comprised of a $ 2.0 million payment to license SPR206 and $ 1.0 million for the exclusive option to negotiate a license to develop SPR741.

The Company will receive a milestone payment of $ 2.0 million upon completion and delivery of the results of a clinical study and future milestones of up to $ 1.5 million if the Company chooses to complete a future clinical study.

The Company may also receive up to an additional $ 55.0 million in milestone payments upon Everest’s achievement of certain developmental, regulatory and sales milestone events related to SPR206, which achievement cannot be guaranteed.

The Company is also entitled to receive high single-digit to low double-digit royalties on net sales, if any, of Licensed Products in the Territory following regulatory approval of SPR206.

Under the terms of the Original Everest License Agreement and the Everest License Agreement, the Company received an upfront payment of $ 3.0 million that was recognized in the first quarter of 2019, comprised of a $ 2.0 million payment to license SPR206 and $ 1.0 million for the exclusive option to negotiate a license to develop SPR741.

The Company also received a milestone payment of $ 2.0 million in the fourth quarter of 2020 upon completion and delivery of the results of a clinical study.

On January 15, 2021, the Company entered into an amended and restated license agreement (“the Amended Everest License Agreement”) with Everest and Potentiator, 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 be 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.

The Company will receive milestones of up to $ 1.5 million if the Company chooses to complete a future clinical study, which the Company anticipates commencing in the second quarter of 2021.

In addition, under the Amended Everest License Agreement, the Company assigned patents in the Territory to Everest, rather than licensing such patents to Everest, and the option related to SPR741 and the related provisions have been removed.

Under the terms of the Amended Everest License Agreement, the Company is also entitled to receive high single-digit to low double-digit royalties on net sales, if any, of Licensed Products in the Territory following regulatory approval of SPR206.

Everest has the right to sublicense to affiliates and third parties in the Territory.

1 unchanged sentence

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 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 for the Everest Medicines License Agreement:

Performance Obligations

Recognition Method

License and know-how transfer (1)

Fully satisfied;

recognized upon delivery of the license

Exclusive option on SPR741

Recognized in Q4 2019 upon the return of the IP rights to Northern

Research and development services (2)

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 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.

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

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

Gates MRI Collaboration Agreement

5 unchanged sentences

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 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.

During the three months ended March 31, 2021, the Company recorded $ 0.6 million as a reduction to research and development expense related to activities funded by Gates MRI.

Savior Service Agreement

1 unchanged sentence

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.

The supervision fee is classified as a prepaid asset on the Company’s balance sheet and is being amortized over a service period of approximately 34 months.

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 March 31, 2021.

Australia Research and Development Tax Incentive

2 unchanged sentences

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 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 Company did not record a reduction during the three months ended March 31, 2021, and recorded $ 0.2 million during the three months ended March 31, 2020, 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 September 30, 2020, and December 31, 2019 , respectively.

The Company’s tax incentive receivables from the Australian government totaled $ 0.4 million and $ 1.2 million as of March 31, 2021, and December 31, 2020 , respectively.

Net Loss per Share

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Deemed dividend

2 unchanged sentences

Net loss per share, basic and diluted

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 net loss applicable to common stockholders for the three months ended March 31, 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.

3 unchanged sentences

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Options to purchase common stock

4 unchanged sentences

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

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