10-Q
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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, 2022

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 May 12, 2022, the registrant had 32,821,544 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 (“NDA”) approval process for tebipenem HBr and the potential for a partnership of the tebipenem HBr franchise;
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 (“COVID-19”) on our business and operations, including manufacturing, research and development costs, clinical trials, regulatory processes and employee expenses;
the future development and commercialization of our product candidates, if approved;
the pricing, coverage and reimbursement of our product candidates, if approved;
the implementation of our business model and strategic plans for our business and product candidates;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;
our ability to enter into strategic arrangements and/or collaborations and the potential benefits of such arrangements;
the expected cost-savings from our announced strategic restructuring;
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:

Pursuant to our recently announced restructuring, we have suspended all commercialization efforts with respect to tebipenem HBr and have shifted our focus and resources to advancing the clinical development of our other programs, SPR720 and SPR206, while continuing our dialogue with the FDA to seek a pathway forward for the potential approval of tebipenem HBr. If we fail to execute successfully on this re-prioritized strategic focus, our business and prospects may be adversely affected.
Based on our recent feedback from the FDA, the timing and terms of any potential approval of tebipenem HBr remain uncertain, which may impact our ability to realize the value of tebipenem HBr.
If the evidence submitted with our NDA for our product candidates fail to demonstrate safety and efficacy to the satisfaction of the United States Food and Drug Administration (“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.
Our analyses based on 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 any of our product candidates may be identified during development or after approval that could delay, prevent or cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences following marketing approval.
Even if a product candidate does obtain regulatory approval, it may never achieve the market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community that is necessary for commercial success and the market opportunity may be smaller than we estimate.
If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing any of our product candidates if such product 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.
Our Revenue Interest Financing Agreement (“Revenue Interest Agreement”) with HealthCare Royalty Management, LLC (“HCR”) could limit cash flow available for our operations and expose us to risks that could adversely affect our business, financial condition and results of operations.
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.
The continued COVID-19 pandemic could adversely impact our business, including our preclinical studies and clinical trials.
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 our product candidates, and our ability to generate revenue will be materially impaired.
We are undertaking internal restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition.

 

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, 2022 and December 31, 2021

5

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

7

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

8

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

 

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

28

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

 

Controls and Procedures

37

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

38

Item 1A.

 

Risk Factors

38

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

 

Defaults Upon Senior Securities

75

Item 4.

 

Mine Safety Disclosures

75

Item 5.

 

Other Information

75

Item 6.

 

Exhibits

76

 

 

 

 

Signatures

77

 

 

 

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,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

72,111

 

 

$

112,584

 

Marketable securities

 

 

49,855

 

 

 

33,818

 

Other receivables

 

 

1,620

 

 

 

2,280

 

Tax incentive receivable, current

 

 

371

 

 

 

361

 

Prepaid expenses and other current assets

 

 

8,747

 

 

 

8,829

 

Total current assets

 

 

132,704

 

 

 

157,872

 

Property and equipment, net

 

 

888

 

 

 

1,026

 

Operating lease right of use assets

 

 

6,309

 

 

 

6,530

 

Other assets

 

 

5,929

 

 

 

5,644

 

Total assets

 

$

145,830

 

 

$

171,072

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Liability related to the sale of future royalties, current

 

$

50,902

 

 

$

 

Accounts payable

 

 

4,780

 

 

 

1,101

 

Accrued expenses and other current liabilities

 

 

9,060

 

 

 

14,350

 

Operating lease liabilities

 

 

1,369

 

 

 

1,362

 

Deferred revenue, current

 

 

2,093

 

 

 

1,857

 

Derivative liability, current

 

 

995

 

 

 

-

 

Total current liabilities

 

 

69,199

 

 

 

18,670

 

Liability related to the sale of future royalties, non-current

 

 

 

 

 

48,414

 

Non-current operating lease liabilities

 

 

5,726

 

 

 

5,973

 

Deferred revenue, non-current

 

 

8,304

 

 

 

8,786

 

Derivative liability, non-current

 

 

 

 

 

802

 

Other long-term liabilities

 

 

128

 

 

 

138

 

Total liabilities

 

 

83,357

 

 

 

82,783

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized, 3,218,152 shares issued and outstanding as of March 31, 2022 and 3,218,152 shares issued and outstanding as of December 31, 2021

 

 

3

 

 

 

3

 

Common stock, $0.001 par value; 120,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 32,755,559 shares issued and outstanding as of March 31, 2022 and 32,393,738 shares issued and outstanding as of December 31, 2021

 

 

33

 

 

 

32

 

Additional paid-in capital

 

 

462,735

 

 

 

455,719

 

Accumulated deficit

 

 

(400,292

)

 

 

(367,463

)

Accumulated other comprehensive gain (loss)

 

 

(6

)

 

 

(2

)

Total stockholders' equity

 

 

62,473

 

 

 

88,289

 

Total liabilities and stockholders' equity

 

$

145,830

 

 

$

171,072

 

 

 

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,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

Grant revenue

 

$

1,822

 

 

$

7,300

 

Collaboration revenue

 

 

247

 

 

 

 

Total revenues

 

 

2,069

 

 

 

7,300

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

16,971

 

 

 

18,404

 

General and administrative

 

 

15,305

 

 

 

8,299

 

Total operating expenses

 

 

32,276

 

 

 

26,703

 

Loss from operations

 

 

(30,207

)

 

 

(19,403

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

72

 

 

 

98

 

Other income (expense), net

 

 

(13

)

 

 

(118

)

Interest expense related to the sale of future royalties

 

 

(2,488

)

 

 

 

Change in fair value of derivative liability

 

 

(193

)

 

 

 

Total other income (expense), net

 

 

(2,622

)

 

 

(20

)

Net loss

 

$

(32,829

)

 

$

(19,423

)

 

 

 

 

 

 

 

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

 

$

(1.01

)

 

$

(0.66

)

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted:

 

 

32,606,715

 

 

 

29,414,148

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

 

(32,829

)

 

 

(19,423

)

Other comprehensive gain (loss):

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

(4

)

 

 

4

 

Net unrealized gains (losses) on securities

 

 

(4

)

 

 

4

 

Total comprehensive loss

 

$

(32,833

)

 

$

(19,419

)

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(32,829

)

 

$

(19,423

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

189

 

 

 

159

 

Non-cash lease cost

 

 

221

 

 

 

199

 

Share-based compensation

 

 

3,203

 

 

 

2,009

 

Unrealized foreign currency transaction (gain) loss

 

 

(11

)

 

 

(19

)

Accretion of discount on marketable securities

 

 

23

 

 

 

64

 

Change in fair value of derivative liabilities

 

 

193

 

 

 

 

Non-cash interest expense associated with the sale of future royalties

 

 

2,488

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Other receivables

 

 

660

 

 

 

(3,218

)

Prepaid expenses and other current assets

 

 

31

 

 

 

869

 

Tax incentive receivables

 

 

1

 

 

 

772

 

Other assets

 

 

(285

)

 

 

 

Accounts payable

 

 

3,679

 

 

 

2,689

 

Accrued expenses and other current liabilities

 

 

(5,290

)

 

 

624

 

Deferred revenue, current and non-current

 

 

(246

)

 

 

 

Other long-term liabilities

 

 

(10

)

 

 

(9

)

Operating lease liability

 

 

(240

)

 

 

(195

)

Net cash used in operating activities

 

 

(28,223

)

 

 

(15,479

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of marketable securities

 

 

(26,970

)

 

 

(2,997

)

Proceeds from maturities of marketable securities

 

 

10,906

 

 

 

6,000

 

Net cash provided by (used in) investing activities

 

 

(16,064

)

 

 

3,003

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the issuance of common stock, net of issuance costs

 

 

3,626

 

 

 

4,253

 

Payment of offering and financing costs

 

 

 

 

 

(37

)

Proceeds from stock option exercises

 

 

188

 

 

 

93

 

Net cash provided by financing activities

 

 

3,814

 

 

 

4,309

 

Net increase (decrease) in cash and cash equivalents

 

 

(40,473

)

 

 

(8,167

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

112,584

 

 

 

85,209

 

Cash, cash equivalents and restricted cash at end of period

 

$

72,111

 

 

$

77,042

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

Offering and financing costs in accounts payable and accruals

 

$

 

 

$

93

 

 

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)

(Unaudited)

 

 

Series A, B, C and D

 

 

 

 

 

 

 

 

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, 2021

 

3,218,152

 

 

 

3

 

 

 

32,393,738

 

 

 

32

 

 

 

455,719

 

 

 

(367,463

)

 

 

(2

)

 

 

88,289

 

Issuance of common stock upon the exercise of stock options

 

 

 

 

 

 

 

17,616

 

 

 

 

 

 

188

 

 

 

 

 

 

 

 

 

188

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

344,205

 

 

 

1

 

 

 

3,625

 

 

 

 

 

 

 

 

 

3,626

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

3,203

 

 

 

 

 

 

 

 

 

3,203

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,829

)

 

 

 

 

 

(32,829

)

Balances at March 31, 2022

 

3,218,152

 

 

 

3

 

 

 

32,755,559

 

 

 

33

 

 

 

462,735

 

 

 

(400,292

)

 

 

(6

)

 

 

62,473

 

 

 

 

8


 

 

Series A, B, C and D

 

 

 

 

 

 

 

 

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, 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 options

 

 

 

 

 

 

 

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

 

 

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

 

9


 

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 novel treatments for bacterial infections, including multi-drug resistant (“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 broad-spectrum oral carbapenem-class antibiotic for use to treat certain bacterial infections that cause complicated urinary tract infections (“cUTIs”), including pyelonephritis, caused by certain microorganisms, in adult patients who have limited oral treatment options. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier 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 non-tuberculous mycobacterial pulmonary infections (“NTM”). In addition, the Company is developing an IV-administered product candidate, SPR206, 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 and its variants. 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 or its variants. 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.

 

On May 3, 2022, the Company announced that it would immediately suspend current commercialization activities for tebipenem HBr based on feedback from a recent Late Cycle Meeting (LCM) with the FDA regarding its NDA for tebipenem HBr. Although the review is still ongoing and the FDA has not yet made any final determination regarding approvability, the discussion suggested that the data package may be insufficient to support approval during this review cycle. In connection with this development, the Company announced that it is undertaking a reduction in its workforce by approximately 75% and a restructuring of its operations to reduce operating costs and reallocate resources towards the clinical development programs of SPR720 and SPR206, while continuing engagement with the FDA on the appropriate path forward for tebipenem HBr. Refer to Note 13 Subsequent Events” for further information.

 

The accompanying consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Since inception, the Company has funded its operations with proceeds from sales of preferred units (including bridge units, which converted into preferred units), payments received in connection with its collaboration agreements, funding from government contracts, licensing agreements and through the sale of the Company’s common and preferred stock. The Company has incurred recurring losses since inception, including net losses of $32.8 million and $19.4 million for the three months ended March 31, 2022 and 2021, respectively. In addition, as of March 31, 2022, the Company had an accumulated deficit of $400.3 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 within one year after the date that these consolidated financial statements are issued due to uncertainty in future projections and the timing and outcome of the approval process for tebipenem HBr. The Company will require additional funding to

10


 

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, government grants or other venues. 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 or its variants, 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.

 

Interim Financial Information

 

The consolidated balance sheet at December 31, 2021 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, 2022, and for the three months ended March 31, 2022, 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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, 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, 2022, and results of operations for the three months ended March 31, 2022, and cash flows for the three months ended March 31, 2022 and 2021 have been made. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

 

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, the valuation of share-based awards and the liability related to the sale of future royalties. 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 bacterial infections, including MDR bacterial infections, and rare diseases. All of the Company’s tangible assets are held in the United States.

 

Concentrations of Credit Risk and of Significant Suppliers

 

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

11


 

 

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, 2022, and December 31, 2021, 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.

 

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

 

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, 2022, the Company had no short-term leases with terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.

 

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

 

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

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Other Assets

 

Other assets consist of long-term prepayments and deposits.

 

Impairment of Long-Lived Assets

 

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

 

Fair Value Measurements

 

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

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

 

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

 

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

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

 

Revenue Recognition – Collaboration Revenue

 

Effective June 30, 2021, the Company entered into a licensing agreement that is evaluated under Accounting Standards Codification, Topic 606 (“Topic 606”), Revenue from Contracts with Customers, through which the Company licenses certain of its product candidates’ rights to a third party. Any future out-licensing agreements entered into by the Company and additional third parties shall also be evaluated under Topic 606. Terms of these arrangements include various payment types, typically including one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and/or royalties on net sales of licensed products.

 

Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations under the agreement; (iii) determine the transaction price, including constraint on variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) determine how the revenue will be recognized for each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to a customer.

 

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Once a contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.

 

The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, the Company is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

 

The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. The SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. In certain circumstances, the Company may apply the residual method to determine the SSP of a good or service if the standalone selling price is considered highly variable or uncertain. The Company validates the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.

 

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer.