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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from                   to                     

Commission File Number: 001-38266

 

SPERO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-4590683

 

 

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

675 Massachusetts Avenue, 14th  Floor

Cambridge, Massachusetts

02139

 

 

(Address of principal executive offices)

(Zip Code)

 

(857) 242-1600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

SPRO

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 

As of April 29, 2021, the registrant had 29,665,165 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Forward-Looking STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

the initiation, timing, design, progress and results of, including interim data from, our preclinical studies and clinical trials, and our research and development programs;

 

the timing and outcome of the New Drug Application approval process for tebipenem HBr;

 

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

our ability to advance product candidates into, and successfully complete, clinical trials;

 

the timing or likelihood of regulatory filings and approvals;

 

the direct and indirect impact of the pandemic caused by an outbreak of a new strain of coronavirus, or COVID-19, on our business and operations, including manufacturing, research and development costs, clinical trials, regulatory processes and employee expenses;

 

the commercialization of our product candidates, if approved;

 

the pricing, coverage and reimbursement of our product candidates, if approved;

 

the implementation of our business model and strategic plans for our business and product candidates;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;

 

our ability to enter into strategic arrangements and/or collaborations and the potential benefits of such arrangements;

 

our estimates regarding expenses, capital requirements and needs for additional financing;

 

our ability to continue as a going concern;

 

our financial performance;

 

developments relating to our competitors and our industry; and

 

other risks and uncertainties, including those listed under Part II, Item 1A. “Risk Factors”.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 

 

 

i


 

Risk Factor Summary

We are providing the following summary of the risk factors contained in this Quarterly Report on Form 10-Q to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Quarterly Report on Form 10-Q in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:

 

The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our preclinical studies and clinical trials.

 

We have not generated any revenue from the sale of our products, have a history of losses and expect to incur substantial future losses. The report of our auditor on our consolidated financial statements expresses substantial doubt about our ability to continue as a going concern; if we are unable to obtain additional capital, we may not be able to continue our operations on the scope or scale as currently conducted, and that could have a material adverse effect on our business, results of operations and financial condition.

 

We expect that we will need substantial additional funding. If we are unable to raise capital when needed, or do not receive payment under our government awards, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

We are heavily dependent on the success of tebipenem HBr, which is still under development, and our ability to develop, obtain marketing approval for and successfully commercialize tebipenem HBr. If we are unable to develop, obtain marketing approval for and successfully commercialize tebipenem HBr, or if we experience significant delays in doing so, our business could be materially harmed.

 

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or comparable foreign regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.

 

To support our accelerated clinical development strategy for tebipenem HBr, we are relying, in part, on clinical data from two exploratory Phase 2 clinical trials conducted by Meiji (ME1211) and Global Pharma (L-084 04) in Japan, which were not conducted in accordance with FDA guidance for clinical trials in patients with cUTI. To the extent that these clinical trial design differences limit our use of the clinical data, our proposed clinical trial plan for tebipenem HBr with the FDA could be materially delayed and we may incur material additional costs.

 

Preliminary or interim data from our clinical studies that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

 

Serious adverse events or undesirable side effects or other unexpected properties of tebipenem HBr or any other product candidate may be identified during development or after approval that could delay, prevent or cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences following marketing approval.

 

Even if a product candidate does obtain regulatory approval, it may never achieve the market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community that is necessary for commercial success and the market opportunity may be smaller than we estimate.

 

If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing tebipenem HBr or any other product candidate if such product candidate is approved.

 

We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.

 

We expect to depend on collaborations with third parties for the development and commercialization of some of our product candidates. Our prospects with respect to those product candidates will depend in part on the success of those collaborations.

 

We contract with third parties for the manufacture of preclinical and clinical supplies of our product candidates and expect to continue to do so in connection with any future commercialization and for any future clinical trials and commercialization of our other product candidates and potential product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

ii


 

Our use of government funding for certain of our programs adds complexity to our research and commercialization efforts with respect to those programs and may impose requirements that increase the costs of commercialization and production of product candidates developed under those government-funded programs.

 

If we are unable to obtain and maintain sufficient patent protection for our technology or our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be adversely affected.

 

We have registered trademarks and pending trademark applications. Failure to enforce our registered marks or secure registration of our pending trademark applications could adversely affect our business.

 

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize tebipenem HBr or our other product candidates, and our ability to generate revenue will be materially impaired.

 

 

iii


 

Spero Therapeutics, Inc.

Table of Contents

 

 

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (Unaudited)

5

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

5

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

7

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020

8

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

 

Controls and Procedures

34

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1A.

 

Risk Factors

35

Item 6.

 

Exhibits

72

 

 

 

 

Signatures

73

 

 

 

iv


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SPERO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,042

 

 

$

85,209

 

Marketable securities

 

 

38,634

 

 

 

41,697

 

Other receivables

 

 

8,548

 

 

 

5,330

 

Tax incentive receivable, current

 

 

74

 

 

 

846

 

Prepaid expenses and other current assets

 

 

5,194

 

 

 

6,063

 

Total current assets

 

 

129,492

 

 

 

139,145

 

Property and equipment, net

 

 

1,510

 

 

 

1,669

 

Tax incentive receivable

 

 

311

 

 

 

311

 

Operating lease right of use assets

 

 

6,915

 

 

 

7,114

 

Other assets

 

 

5,212

 

 

 

5,212

 

Total assets

 

$

143,440

 

 

$

153,451

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,825

 

 

$

1,155

 

Accrued expenses and other current liabilities

 

 

12,958

 

 

 

12,241

 

Operating lease liabilities

 

 

980

 

 

 

947

 

Total current liabilities

 

 

17,763

 

 

 

14,343

 

Non-current operating lease liabilities

 

 

6,663

 

 

 

6,891

 

Other long-term liabilities

 

 

168

 

 

 

177

 

Total liabilities

 

 

24,594

 

 

 

21,411

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 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

 

 

3

 

 

 

3

 

Common stock, $0.001 par value; 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

 

 

30

 

 

 

29

 

Additional paid-in capital

 

 

415,946

 

 

 

409,722

 

Accumulated deficit

 

 

(297,130

)

 

 

(277,707

)

Accumulated other comprehensive gain (loss)

 

 

(3

)

 

 

(7

)

Total stockholders' equity

 

 

118,846

 

 

$

132,040

 

Total liabilities and stockholders' equity

 

$

143,440

 

 

$

153,451

 

 

 

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

5


SPERO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Grant revenue

 

$

7,300

 

 

$

1,532

 

Collaboration revenue

 

 

 

 

 

169

 

Total revenues

 

 

7,300

 

 

 

1,701

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

18,404

 

 

 

20,436

 

General and administrative

 

 

8,299

 

 

 

4,086

 

Total operating expenses

 

 

26,703

 

 

 

24,522

 

Loss from operations

 

 

(19,403

)

 

 

(22,821

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

98

 

 

 

237

 

Other income (expense), net

 

 

(118

)

 

 

(674

)

Total other income (expense), net

 

 

(20

)

 

 

(437

)

Net loss

 

$

(19,423

)

 

$

(23,258

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.66

)

 

$

(1.22

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted:

 

 

29,414,148

 

 

 

19,557,418

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

 

(19,423

)

 

 

(23,258

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

4

 

 

 

(35

)

Net unrealized gains (losses) on securities

 

 

4

 

 

 

(35

)

Total comprehensive loss

 

$

(19,419

)

 

$

(23,293

)

 

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

6


SPERO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(19,423

)

 

$

(23,258

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

159

 

 

 

189

 

Non-cash lease cost

 

 

199

 

 

 

110

 

Share-based compensation

 

 

2,009

 

 

 

1,110

 

Unrealized foreign currency transaction (gain) loss

 

 

(19

)

 

 

453

 

Accretion of discount on marketable securities

 

 

64

 

 

 

(53

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Other receivables

 

 

(3,218

)

 

 

5,036

 

Prepaid expenses and other current assets

 

 

869

 

 

 

(860

)

Tax incentive receivables

 

 

772

 

 

 

(233

)

Other assets

 

 

 

 

 

(1,224

)

Accounts payable

 

 

2,689

 

 

 

4,824

 

Accrued expenses and other current liabilities

 

 

624

 

 

 

(9,287

)

Other long-term liabilities

 

 

(9

)

 

 

(44

)

Operating lease liability

 

 

(195

)

 

 

(92

)

Net cash used in operating activities

 

 

(15,479

)

 

 

(23,329

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(2,997

)

 

 

(3,995

)

Proceeds from maturities of marketable securities

 

 

6,000

 

 

 

31,850

 

Purchases of property and equipment

 

 

 

 

 

(79

)

Net cash provided by (used in) investing activities

 

 

3,003

 

 

 

27,776

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock, net of commissions

 

 

4,253

 

 

 

 

Proceeds from the issuance of common stock related to Rights Offering

 

 

 

 

 

9,416

 

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

 

 

 

 

 

20,583

 

Payment of offering and financing costs

 

 

(37

)

 

 

(352

)

Proceeds from stock option exercises

 

 

93

 

 

 

539

 

Net cash provided by financing activities

 

 

4,309

 

 

 

30,186

 

Net increase (decrease) in cash and cash equivalents

 

 

(8,167

)

 

 

34,633

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

85,209

 

 

 

29,730

 

Cash, cash equivalents and restricted cash at end of period

 

$

77,042

 

 

$

64,363

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Offering and financing costs in accounts payable and accruals

 

$

93

 

 

$

109

 

Series C issuance costs in accounts payable

 

$

 

 

$

41

 

 

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

7


 

 

SPERO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

 

 

Series A, B, C and D

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Stockholders'

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances at December 31, 2020

 

3,218,287

 

 

 

3

 

 

 

29,260,247

 

 

 

29

 

 

 

409,722

 

 

 

(277,707

)

 

 

(7

)

 

 

132,040

 

Issuance of common stock upon the exercise of stock option

 

 

 

 

 

 

 

11,514

 

 

 

 

 

 

93

 

 

 

 

 

 

 

 

 

93

 

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

 

 

 

 

 

 

 

257,185

 

 

 

1

 

 

 

4,122

 

 

 

 

 

 

 

 

 

4,123

 

Conversion of convertible preferred stock to common stock

 

(135

)

 

 

 

 

 

135,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

2,009

 

 

 

 

 

 

 

 

 

2,009

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,423

)

 

 

 

 

 

(19,423

)

Balances at March 31, 2021

 

3,218,152

 

 

 

3

 

 

 

29,663,946

 

 

 

30

 

 

 

415,946

 

 

 

(297,130

)

 

 

(3

)

 

 

118,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A, B and C

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated

 

 

Spero Therapeutics, Inc.

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Stockholders'

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances at December 31, 2019

 

2,720

 

 

 

 

 

 

19,190,695

 

 

 

19

 

 

 

273,966

 

 

 

(199,427

)

 

 

16

 

 

 

74,574

 

Issuance of common stock upon the exercise of stock options

 

 

 

 

 

 

 

91,396

 

 

 

 

 

 

539

 

 

 

 

 

 

 

 

 

539

 

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

 

 

 

 

 

 

 

1,046,249

 

 

 

1

 

 

 

8,954

 

 

 

 

 

 

 

 

 

8,955

 

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

 

2,287

 

 

 

 

 

 

 

 

 

 

 

 

20,542

 

 

 

 

 

 

 

 

 

20,542

 

Beneficial conversion feature of Series C preferred stock

 

 

 

 

(549

)

 

 

 

 

 

 

 

 

549

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

549

 

 

 

 

 

 

 

 

 

(549

)

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

1,110

 

 

 

 

 

 

 

 

 

1,110

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

(35

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,258

)

 

 

 

 

 

(23,258

)

Balances at March 31, 2020

 

5,007

 

 

 

 

 

 

20,328,340

 

 

 

20

 

 

 

305,111

 

 

 

(222,685

)

 

 

(19

)

 

 

82,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 


 

8


 

 

SPERO THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Nature of the Business and Basis of Presentation

 

Spero Therapeutics, Inc., together with its consolidated subsidiaries (the “Company” or “Spero”), is a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing treatments in high unmet need areas involving multi-drug resistant, or MDR, bacterial infections and rare diseases. The Company’s most advanced product candidate, tebipenem pivoxil hydrobromide or tebipenem HBr (previously SPR994), is designed to be the first oral carbapenem-class antibiotic for use in adults to treat MDR Gram-negative infections. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients after hospitalization. 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 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. The Company’s product candidates will require additional preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The pandemic caused by COVID-19 has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our business. The Company has experienced impacts to its clinical and development timelines due to the worldwide spread of COVID-19. 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 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. All intercompany accounts and transactions have been eliminated in consolidation.

 

Since inception, the Company has funded its operations with proceeds from sales of preferred units (including bridge units, which converted into preferred units), payments received in connection with 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 $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.

 

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. Based on the Company’s current operating plan and existing cash, cash equivalents and marketable securities, the Company has determined that there is substantial doubt regarding its ability to continue as a going concern. The Company will require additional funding to fund the development of its product candidates through regulatory approval and commercialization, and to support its continued operations. The Company will seek additional funding through public or private financings, debt financing, collaboration agreements or government grants. The COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets, including relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted. There is no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all, and it could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could materially adversely affect its business prospects or its ability to continue operations.

 

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

9


 

 

Interim Financial Information

 

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 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 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.

 

2.

Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the accrual for clinical trial costs and other research and development expenses, and the valuation of share-based awards. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has contemplated the impact of COVID-19 within its financial statements and is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. There may be changes to those estimates in future periods. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

 

Segment Information

 

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on identifying, developing and commercializing novel treatments for MDR bacterial infections. All of the Company’s tangible assets are held in the United States.

 

Concentrations of Credit Risk and of Significant Suppliers

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains most of its cash and cash equivalents at one accredited financial institution. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

 

The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs. As of 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

 

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks and money market instruments.

 

10


 

 

Marketable Securities

 

Marketable securities consist of investments in corporate obligations with original maturities greater than 90 days. The Company considers its portfolio of investments to be available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. Investments with maturities beyond one year are generally classified as short term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value are included as a component of other income (expense), net based on the specific identification method. Any credit impairments are recorded through an allowance account.

 

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense are recognized using the straight-line method over the estimated useful life of each asset as follows:

 

 

 

Estimated Useful Life

Laboratory equipment

 

5 years

Computer software and equipment

 

3 years

Office furniture and equipment

 

7 years

Manufacturing equipment

 

5 years

Leasehold improvements

 

Shorter of life of lease or 5 years

 

Costs for capital assets not yet placed into service are capitalized as construction in progress and are depreciated in accordance with the above guidelines once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred. The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment.

 

Leases

 

Effective January 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”), using the modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company has elected not to recognize on the balance sheet 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. The Company monitors its plans to renew its material leases on a quarterly basis.

 

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate (“IBR”), which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, and in a similar economic environment. Since the Company does not have any debt and has not been rated by any major credit rating agency, the Company’s IBR was estimated by developing a synthetic credit rating for the Company.

 

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

 

Other Assets

 

Other assets consist of long-term prepayments and deposits.

 

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Impairment of Long-Lived Assets

 

Long-lived assets consist of property and equipment and operating lease right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

 

Fair Value Measurements

 

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

 

The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.

 

Collaboration Agreements

 

For collaboration agreements with a third party, to determine the appropriate statement of operations classification of the recognized funding, the Company first assesses whether the collaboration arrangement is within the scope of the accounting guidance for collaboration arrangements. If it is, the Company evaluates the collaborative arrangement for proper classification in the statement of operations based on the nature of the underlying activity and the Company assesses the payments to and from the collaborative partner. If the payments to and from the collaborative partner are not within the scope of other authoritative accounting guidance, the Company bases the statement of operations classification for the payments received on a reasonable, rational analogy to authoritative accounting guidance, applied in a consistent manner. Conversely, if the collaboration arrangement is not within the scope of accounting guidance for collaboration arrangements, the Company assesses whether the collaboration arrangement represents a vendor/customer relationship. If the collaborative arrangement does not represent a vendor/customer relationship, the Company then classifies the funding payments received in the statement of operations and comprehensive loss as a reduction of the related expense that is incurred.

 

In June 2019, the Company entered into a collaboration agreement with the Bill and Melinda Gates Medical Research Institute (the “Gates MRI”) and concluded that the agreement is within the scope of the accounting guidance for collaboration arrangements (see Note 10). 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 recognizes the funding received under the agreement as a reduction to the research and development expenses incurred, as the related expenses are incurred.

 

Government Tax Incentives

 

For available government tax incentives that the Company may earn without regard to the existence of taxable income and that require the Company to forego tax deductions or the use of future tax credits and net operating loss carryforwards, the Company classifies the funding recognized as a reduction of the related qualifying research and development expenses incurred.

 

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Since the fourth quarter of 2016, the Company’s operating subsidiary in Australia has met the eligibility requirements to receive a tax incentive for qualifying research and development activities (see Note 11). The Company recognizes these incentives as a reduction of research and development expenses in the consolidated statements of operations and comprehensive loss in the same period that the related qualifying expenses are incurred. Reductions of research and development expense recognized upon incurring qualifying expenses in advance of receipt of tax incentive payments are recorded in the consolidated balance sheet as tax incentive receivables.

Research and Development Costs

 

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including personnel salaries, share-based compensation and benefits, allocated facilities costs, depreciation, manufacturing expenses, costs related to the Company’s government contract and grant arrangements, and external costs of outside vendors engaged to conduct preclinical development activities, clinical trials as well as the cost of licensing technology. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

 

Clinical Trial and other Research Contract Costs and Accruals

 

The Company has entered into various research and development contracts with clinical research organizations and other companies both inside and outside of the United States. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. There may be instances in which payments made to these vendors exceed the level of service provided and will result in a prepayment of the expense. The Company records accruals for estimated ongoing research and clinical trial costs based on the services received and efforts expended pursuant to multiple contracts with these vendors. When evaluating the adequacy of the accrued liabilities, the Company analyzes the progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

 

Patent Costs

 

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

 

Share-Based Compensation

 

The Company measures all share-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. The Company records the expense for awards with service-based conditions using the straight-line method over the requisite service period, net of any actual forfeitures. The Company has also granted certain awards subject to performance-based vesting eligibility and a subsequent partial time-based vesting schedule. The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipientR