10-Q

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 September 30, 2018

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)

Registrant’s telephone number, including area code: (857) 242-1600

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	☒	Small 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 November 5, 2018, the registrant had 18,187,488 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;

• 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 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, our product candidates and our Potentiator Platform;

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

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

• our estimates regarding expenses, capital requirements, liquidity and needs for additional financing and our anticipated future cash position, including the availability of funding under our governmental awards;

• 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.

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Spero Therapeutics, Inc.

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	1
	Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2018 and 2017	2
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	3
	Notes to Unaudited Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
	PART II – OTHER INFORMATION
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 6.	Exhibits	68
Signatures		69

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SPERO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	September 30,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	40,480		$	87,288
Marketable securities		90,745			—
Other receivables		332			1,011
Tax incentive receivable, current		944			1,932
Prepaid expenses and other current assets		1,222			1,828
Total current assets		133,723			92,059
Property and equipment, net		2,191			1,164
Deposits		206			206
Restricted cash		—			50
Total assets	$	136,120		$	93,479
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,364		$	3,470
Accrued expenses and other current liabilities		8,564			4,321
Derivative liabilities		223			223
Deferred rent		127			143
Total current liabilities		10,278			8,157
Deferred rent, net of current portion		290			365
Total liabilities		10,568			8,522
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, 2,220 shares issued and outstanding as of September 30, 2018 and zero shares issued and outstanding as of December 31, 2017		—			—
Common stock, $0.001 par value; 60,000,000 shares authorized as of September 30, 2018 and December 31, 3017; 18,182,494 shares issued and outstanding as of September 30, 2018 and 14,369,182 shares issued and outstanding as of December 31, 2017		18			14
Additional paid-in capital		253,105			181,428
Accumulated deficit		(127,903	)		(96,840	)
Accumulated other comprehensive loss		(23	)		—
Total Spero Therapeutics, Inc. stockholders' equity		125,197			84,602
Non-controlling interests		355			355
Total stockholders' equity		125,552			84,957
Total liabilities and stockholders' equity	$	136,120		$	93,479

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

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SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Grant revenue	$	658		$	597		$	2,274		$	986
Operating expenses:
Research and development		8,459			6,910			24,758			20,366
General and administrative		3,134			3,653			9,238			8,350
Total operating expenses		11,593			10,563			33,996			28,716
Loss from operations		(10,935	)		(9,966	)		(31,722	)		(27,730	)
Other income (expense):
Change in fair value of derivative liabilities		—			(2	)		—			1,547
Interest income and other income (expense), net		472			124			659			165
Total other income (expense), net		472			122			659			1,712
Net loss		(10,463	)		(9,844	)		(31,063	)		(26,018	)
Less: Net loss attributable to non-controlling interest		—			(8	)		—			(1,137	)
Net loss attributable to Spero Therapeutics, Inc.		(10,463	)		(9,836	)		(31,063	)		(24,881	)
Cumulative dividends on redeemable convertible preferred shares		—			(2,052	)		—			(5,313	)
Accretion of redeemable bridge units and redeemable convertible preferred shares to redemption value		—			(188	)		—			(1,133	)
Net loss attributable to common stockholders of Spero Therapeutics, Inc.	$	(10,463	)	$	(12,076	)	$	(31,063	)	$	(31,327	)
Net loss per share attributable to common stockholders per share, basic and diluted	$	(0.60	)	$	(36.02	)	$	(2.01	)	$	(93.96	)
Weighted average common shares outstanding, basic and diluted:		17,471,462			335,285			15,417,087			333,402
Comprehensive loss:
Net loss		(10,463	)		(9,844	)		(31,063	)		(26,018	)
Other comprehensive gain (loss):
Unrealized gain (loss) on marketable securities		(8	)		—			(23	)		—
Total other comprehensive gain (loss)		(8	)		—			(23	)		—
Total comprehensive loss	$	(10,471	)	$	(9,844	)	$	(31,086	)	$	(26,018	)

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

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SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(31,063	)	$	(26,018	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		270			264
Loss on disposal of fixed assets		248			—
Change in fair value of derivative liabilities		—			(1,547	)
Share-based compensation		1,980			1,054
Unrealized foreign currency transaction (gain) loss		237			(93	)
Accretion of discount on marketable securities		(346	)		—
Changes in operating assets and liabilities:
Other receivables		679			(233	)
Prepaid expenses and other current assets		706			204
Tax incentive receivables		980			(806	)
Accounts payable		(2,088	)		(112	)
Accrued expenses and other current liabilities		2,372			1,011
Deferred rent		(91	)		(95	)
Net cash used in operating activities		(26,116	)		(26,371	)
Cash flows from investing activities:
Purchases of marketable securities		(104,421	)		—
Proceeds from maturities of marketable securities		14,000			—
Purchases of property and equipment		(22	)		—
Net cash used in investing activities		(90,443	)		—
Cash flows from financing activities:
Proceeds from 2018 equity offering		70,500			—
Payment of offering costs related to 2018 equity offering		(996	)		—
Proceeds from stock option exercises		197			—
Proceeds from issuance of Class C preferred units, net of issuance costs		—			43,111
Payment of offering costs related to 2017 initial public offering		—			(507	)
Cash payment for Potentiator non-controlling interests		—			(1,175	)
Net cash provided by (used in) financing activities		69,701			41,429
Net (decrease) increase in cash and cash equivalents		(46,858	)		15,058
Cash, cash equivalents and restricted cash at beginning of period		87,338			10,365
Cash, cash equivalents and restricted cash at end of period	$	40,480		$	25,423
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment in accrued expenses	$	1,628		$	28
Deferred offering costs included in accounts payable and accrued expenses	$	—		$	1,588
Conversion of bridge units into preferred units	$	—		$	8,500
Settlement of derivative liabilities upon issuance of preferred units	$	—		$	944
Cumulative dividends on redeemable convertible preferred units	$	—		$	5,313
Accretion of redeemable convertible preferred units to redemption value	$	—		$	557
Accretion of bridge units to redemption value	$	—		$	576
Elimination of non-controlling interest balance upon repurchase of the non-controlling interest	$	—		$	5,306

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

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business and Basis of Presentation

Spero Therapeutics, Inc., together with its consolidated subsidiaries (the “Company”), is a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for multi-drug resistant (“MDR”) bacterial infections. The Company’s most advanced product candidate, SPR994, is designed to be the first broad-spectrum 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 also has a platform technology known as its Potentiator Platform that it believes will enable it to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. The Company’s lead product candidates generated from its Potentiator Platform are two intravenous, or IV,-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, the Company is developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. The Company believes that its novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

The Company was formed as Spero Therapeutics, LLC in December 2013 under the laws of the State of Delaware. On June 30, 2017, through a series of transactions, Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc. (formerly known as Spero OpCo, Inc.), a Delaware corporation. As part of the transactions, holders of preferred units and common units of Spero Therapeutics, LLC exchanged their units for shares of Spero Therapeutics, Inc. on a one-for-one basis. These transactions are collectively referred to as the Reorganization. Upon completion of the Reorganization, the historical consolidated financial statements of Spero Therapeutics, LLC became the historical consolidated financial statements of Spero Therapeutics, Inc. because the Reorganization was accounted for as a reorganization of entities under common control.

The Company is subject to risks and uncertainties common to early-stage 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 and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including 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.

On October 20, 2017, the Company effected a one-for-6.0774 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s then outstanding Preferred Stock. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios. In addition, all common units and incentive units as well as the conversion ratios of preferred units of Spero Therapeutics, LLC have been presented as if the reverse stock split of the common stock of Spero Therapeutics, Inc. had been applied to such units and ratios of Spero Therapeutics, LLC.

On November 6, 2017, the Company completed an initial public offering (“IPO”) of its common stock, and issued and sold 5,500,000 shares of common stock at a public offering price of $14.00 per share, resulting in net proceeds of $71.6 million after deducting underwriting discounts and commissions but before deducting offering costs. On November 14, 2017, Spero Therapeutics, Inc., issued and sold an additional 471,498 shares of its common stock at the IPO price of $14.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $6.1 million after deducting underwriting discounts and commissions. Aggregate net proceeds from the IPO totaled $74.2 million after deducting underwriting discounts, commissions and offering costs.

On July 17, 2018, the Company completed an underwritten public offering of its common and preferred stock, which resulted in the sale of 3,780,000 shares of common stock at a price of $12.50 per share, and 2,220 shares of Series A Convertible Preferred Stock at a price of $12,500 per share. Each share of Series A Convertible Preferred Stock sold in the offering is convertible into 1,000 shares of the Company’s common stock. The Company received net proceeds from the offering of approximately $70.5 million after deducting underwriting discounts and commissions but before deducting $1.0 million of offering expenses payable by the Company.

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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 the consolidated financial statements are issued. 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 and funding from government contracts, and most recently, with proceeds from the IPO completed in November 2017 and the underwritten public offering of common and Series A Convertible Preferred Stock completed in July 2018. The Company has incurred recurring losses since inception, including net losses attributable to Spero Therapeutics, Inc. of $31.1 million for the nine months ended September 30, 2018, and $38.7 million and $25.5 million for the years ended December 31, 2017 and 2016, respectively. In addition, as of September 30, 2018, the Company had an accumulated deficit of $127.9 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the quarterly consolidated financial statements, or November 8, 2018, the Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses, capital expenditure requirements through at least 12 months from the issuance date of these quarterly consolidated financial statements. However, the future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its future operations. The Company will seek additional funding through public or private financings, debt financing, collaboration agreements or government grants. The inability to obtain funding, as and when needed, would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain funding, the Company 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 adversely affect its business prospects, or the Company may be unable to continue operations. Although management intends to pursue plans to obtain additional funding to finance its operations, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

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.

Interim Financial Information

The consolidated balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, 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, 2017, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, on file with SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2018, and results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017 have been made. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.

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 research and development expenses, the valuation of common shares prior to the Company’s completion of its IPO, the valuation of share-based awards and the valuation of derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. 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.

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.

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Marketable Securities

Marketable securities consist of investments with original maturities greater than 90 days. The Company considers its investment 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 judged to be other than temporary are included as a component of other income (expense), net based on the specific identification method. When determining whether a decline in value is other than temporary, the Company considers various factors, including whether the Company has the intent to sell the security, and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis.

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 and derivative liabilities 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.

Derivative Liabilities

In connection with certain equity financings, licensing transactions and research collaborations, the Company has identified certain embedded and freestanding derivatives, which are recorded as liabilities on the Company’s consolidated balance sheet and are remeasured to fair value at each reporting date until the derivative is settled. Changes in the fair value of the derivative liabilities are recognized as other income (expense) in the consolidated statement of operations and comprehensive loss.

Net Income (Loss) per Share Attributable to Spero Therapeutics, Inc.

The Company follows the two-class method when computing net income (loss) per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Net income (loss) per share attributable to common stockholders is calculated based on net income (loss) attributable to Spero Therapeutics, Inc. and excludes net income (loss) attributable to non-controlling interests.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The Company’s preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the

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Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders of Spero Therapeutics, Inc., diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same as basic net loss per share attributable to common stockholders of Spero Therapeutics, Inc., since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders of Spero Therapeutics, Inc. for the three and nine months ended September 30, 2018 and 2017.

Recently Issued and Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard outlines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 such that the standard is effective for public entities for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”), which further clarifies the implementation guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments in this update reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments in this update also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in ASU 2014-09 is retrospectively applied. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective dates and transition requirements as ASU 2014-09. The Company adopted this standard using the modified retrospective approach, however the Company determined that government grant revenue is outside the scope of ASC 606. Therefore, the adoption of ASC 606 did not impact the Company’s financial position, results of operations or cash flows as its only existing revenue source as of September 30, 2018 is government grants.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years, and early adoption is permitted. The FASB subsequently issued amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019: (i) ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02; and (ii) ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component. The Company is in the process of reviewing its existing lease contracts and evaluating the impact that these adoption of these new leasing standards may have on its consolidated statements of operations. The Company expects that the adoption of the new leasing standards will result in the recognition of material ROU assets and liabilities in its consolidated balance sheets. The Company does not expect the adoption of the new leasing standards will have a material impact to its consolidated statement of operations. The Company will adopt the new leasing standards using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including

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interim periods within those fiscal years. The Company’s adoption of ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. The adoption of ASU 2016-18 did not have a material impact on the Company’s consolidated financial statements. The inclusion of restricted cash increased the beginning and ending balances of the unaudited condensed consolidated statement of cash flows by $50,000 for the nine months ended September 30, 2017.

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2017-01 did not materially impact the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2017-09 did not materially impact the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable non-controlling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The amendments in the new guidance are effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, including in interim periods, but no earlier than an entity’s adoption of ASC 606. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

3. Fair Value Measurements and Marketable Securities

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The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements at September 30, 2018 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	29,896	$	—	$	29,896
U.S. government securities		—		5,994		—		5,994
Total cash equivalents		—		35,890		—		35,890
Marketable securities:
U.S. government securities		—		38,761		—		38,761
U.S. corporate bonds		—		35,594		—		35,594
U.S. commercial paper		—		16,390		—		16,390
Total marketable securities		—		90,745		—		90,745
Total cash equivalents and marketable securities	$	—	$	126,635	$	—	$	126,635
Derivative liabilities:
Anti-dilution rights	$	—	$	—	$	223	$	223
Total derivative liabilities	$	—	$	—	$	223	$	223

	Fair Value Measurements at December 31, 2017 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	83,121	$	—	$	83,121
	$	—	$	83,121	$	—	$	83,121
Derivative liabilities:
Anti-dilution rights	$	—	$	—	$	223	$	223
	$	—	$	—	$	223	$	223

During the three and nine months ended September 30, 2018 and 2017, there were no transfers between Level 1, Level 2 and Level 3 categories.

Marketable Securities

The Company’s marketable securities are classified as Level 2 assets under the fair value hierarchy as these assets were primarily determined from independent pricing sources, which generally derive security prices from recently reported trades for identical or similar securities. 

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of September 30, 2018 (in thousands):

	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Assets:
U.S. government securities	$	38,771	$	1	$	(11	)	$	38,761
U.S. corporate bonds		35,607		1		(14	)		35,594
U.S. commercial paper		16,390		—		—			16,390
	$	90,768	$	2	$	(25	)	$	90,745

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As of September 30, 2018, all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the consolidated balance sheet date. The Company did not own any marketable securities as of December 31, 2017.

Anti-Dilution Rights

In connection with the issuance of non-controlling interests in certain of the Company’s subsidiaries (see Note 8), specifically Spero Potentiator, Inc., Spero Europe, Ltd. and Spero Gyrase, Inc., the Company granted anti-dilution rights to the minority investors. The Company classifies the anti-dilution rights as a derivative liability on its consolidated balance sheet because they are freestanding instruments that represent a conditional obligation to issue a variable number of shares. The Company remeasures the derivative liability associated with the anti-dilution rights to fair value at each reporting date, and recognizes changes in the fair value of the derivative liability as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. The fair value of these derivative liabilities was determined using a discounted cash flow model. As of September 30, 2018 and December 31, 2017, the Company’s fair value of the anti-dilution rights relates only to the anti-dilution rights held by the minority investor in Spero Gyrase, Inc., as detailed below.

Spero Gyrase, Inc.

In March 2016, in connection with the issuance of a non-controlling interest in its subsidiary, Spero Gyrase, Inc. (“Spero Gyrase”), to Biota Pharmaceuticals, Inc. (now Aviragen Therapeutics, Inc.) (“Aviragen”), the Company granted to Aviragen certain anti-dilution rights (see Note 8). The fair value of the derivative liability related to the anti-dilution rights upon issuance in March 2016 was $1.6 million.

The most significant assumption impacting the fair value of the anti-dilution rights was the probability that the Company would fund the maximum amount of investment providing anti-dilution protection. Upon issuance of the rights and through December 31, 2016, the probability of such funding was determined to be 100%. During 2017, the probability of such funding was reduced to 0% due to the Company’s decision to no longer pursue development of the acquired technology. The fair value of the derivative liability decreased accordingly by $1.4 million to $0.2 million by June 30, 2017. As of September 30, 2018 and December 31, 2017, the value of the derivative liability of $0.2 million represents amounts funded to the entity that could be settled by the issuance of equity.

4. Accrued Expenses and Other Current Liabilities

	September 30, 2018		December 31, 2017
Accrued external research and development expenses	$	4,146	$	1,770
Accrued payroll and related expenses		1,622		1,369
Accrued professional fees		727		878
Accrued manufacturing equipment		1,559		—
Accrued other		510		304
	$	8,564	$	4,321

5.Convertible Preferred Shares

Series A Convertible Preferred Shares

The Company’s amended and restated certificate of incorporation authorizes its Board of Directors to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share. As part of the Company’s July 2018 underwritten public offering, 2,220 shares were designated as Series A Convertible Preferred Stock and issued at a price of $12,500 per share.

Each share of Series A Convertible Preferred Stock is convertible into 1,000 shares of the Company’s common stock at any time at the option of the holder, provided that the holder will be prohibited from converting the Series A Convertible Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Convertible Preferred Stock will receive a payment equal to $0.001 per share of Series A Convertible Preferred Stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any proceeds are distributed to the holders of common stock or any of our securities that by their terms are junior to the Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock has no voting rights, except as required by law and except that the consent of the outstanding Series A Convertible Preferred Stock holders will be required to amend the terms of the Series A

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Convertible Preferred Stock. The Series A Convertible Preferred Stock does not have any mandatory redemption rights or other redemption rights that would be outside of the Company’s control. As such, the Company has classified the Series A Convertible Preferred Stock within permanent equity in its consolidated balance sheet.

Redeemable Convertible Preferred Shares

Prior to the Reorganization, the operating agreement of Spero Therapeutics, LLC, as amended and restated, provided for the issuance of Junior preferred units, Class A preferred units, Class B preferred units and bridge units, but did not specify an authorized number of each for issuance. Subsequent to the Company’s Reorganization on June 30, 2017 (see Note 1), the Company’s amended and restated certificate of incorporation authorized the issuance of 43,297,267 shares of preferred stock, par value $0.001 per share, and holders of outstanding preferred units of Spero Therapeutics, LLC exchanged their units for preferred stock of Spero Therapeutics, Inc. on a one-for-one basis. The rights and preferences of each class of stock were the same both before and after the Reorganization. On October 20, 2017, the Company effected a one-for-6.0774 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion rations for each series or the Company’s Preferred Stock. Upon the closing of the Company’s IPO in November 2017, all of the then outstanding convertible preferred shares automatically converted into shares of common stock.

In March 2017, the Company issued and sold 24,326,470 Class C preferred units at a price of $1.7749 per unit for proceeds of $43.0 million, net of issuance costs of $0.2 million. The sale of Class C preferred units met the definition of a qualified financing under the 2016 bridge unit agreements.

The Company issued 5,321,112 Class C preferred units upon the conversion of the 2016 bridge units in the amount of $8.5 million, at a conversion price of $1.60 per unit, which represented a discount of 10% to the price per unit paid by other investors in the Class C preferred unit financing. The conversion was accounted for as an extinguishment for accounting purposes. Accordingly, the Company recorded the Class C preferred units issued upon conversion of the 2016 bridge units at their aggregate fair value of $9.4 million and recorded a corresponding adjustment to extinguish the then-current carrying value of the 2016 bridge units of $8.5 million and the then-current fair value of the derivative liability related to the contingent prepayment option associated with the 2016 bridge units of $0.9 million. There was no gain or loss recognized upon the extinguishment.

In July 2017 the Company sold to its Chief Financial Officer 61,880 shares of the Company’s Series C preferred stock at a price of $1.7749 per share, for proceeds of $0.1 million.

6. Common Stock

On July 17, 2018, the Company completed an underwritten public offering of its common and preferred stock, which resulted in the sale of 3,780,000 shares of common stock at a price of $12.50 per share, and 2,220 shares of Series A Convertible Preferred Stock at a price of $12,500 per share. The Company received net proceeds from the offering of approximately $70.5 million after deducting underwriting discounts and commissions but before deducting $1.0 million of offering expenses payable by the Company.

7. Share-Based Compensation

On June 28, 2017, the Company’s stockholders approved the 2017 Stock Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock grants and stock-based awards. The 2017 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. The number of shares initially reserved for issuance under the 2017 Plan was 1,785,416 shares of common stock. The shares of common stock underlying any awards that are forfeited, cancelled, repurchased or are otherwise terminated by the Company under the 2017 Plan will be added back to the shares of common stock available for issuance under the 2017 Plan.

On October 18, 2017, the Company’s stockholders approved an amendment to the 2017 Plan, which became effective upon the completion of the Company’s IPO, to increase the total number of shares reserved for issuance under the 2017 Plan from 1,785,416 to 2,696,401. Additionally, the number of shares of common stock that may be issued under the 2017 Plan will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the lowest of (i) 607,324 shares of common stock, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors or compensation committee. There were 322,730 options granted during the nine months ended September 30, 2018. As of September 30, 2018, there were 2,186,378 options outstanding under the 2017 Plan and 476,711 shares remaining available to be issued under the 2017 Plan.

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The Company recorded share-based compensation expense in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Research and development expenses	$	252	$	202	$	789	$	249
General and administrative expenses		453		729		1,191		805
Total	$	705	$	931	$	1,980	$	1,054

8. Non-Controlling Interests

Spero Potentiator

In February 2015, the Company’s wholly owned subsidiary, Spero Potentiator, issued 996 shares of its common stock with an aggregate fair value of $1.1 million to Northern Antibiotics Oy Ltd. (“Northern”) in exchange for an exclusive license to develop and commercialize certain licensed compounds and licensed products.  

In connection with the acquisition of the license, Northern obtained anti-dilution rights to maintain its 49.9% ownership percentage in Spero Potentiator at no additional cost to Northern in the event that Spero Potentiator completed subsequent equity financings, subject to a maximum amount of such financings. The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet. The fair value of the derivative liability associated with the anti-dilution rights upon issuance in February 2015 of $2.4 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

In November 2015, Northern was issued an additional 2,736 common shares of Spero Potentiator for no additional cost as a result of the anti-dilution rights. The Company valued these shares at $1.5 million and recorded the amount as an increase in the non-controlling interest and a reduction in the carrying value of the derivative liability. In January and August 2016, Northern was issued an additional 2,160 common shares of Spero Potentiator for no additional cost. The Company valued these shares at $1.0 million and recorded the amount as an increase in the non-controlling interest and a reduction of the derivative liability. At that time, the anti-dilution rights issued to Northern were fully settled as Northern had received the maximum number of shares it was entitled to under the anti-dilution rights.

In June 2017, the Company repurchased all of the shares of Spero Potentiator held by Northern in exchange for a cash payment of $1.0 million and contingent consideration of $0.1 million. As a condition of the repurchase of the shares from Northern, the Company amended the license agreement with Northern such that the Company will be obligated to make milestone payments of up to $7.0 million upon the achievement of specified clinical, commercial and other milestones, including a payment of $2.5 million upon the closing of an IPO, which occurred and was paid in November 2017. As a result of this transaction, during the six months ended June 30, 2017, the Company reclassified the balance of the non-controlling interest of $6.4 million as of the date of the transaction to accumulated deficit as an increase to that account. Additionally, the cash payment of $1.0 million was recorded as an increase to accumulated deficit. The Company will record the contingent payments as research and development expense when it becomes probable that the payments will be due. For periods subsequent to the acquisition, the Company no longer reports a non-controlling interest related to Spero Potentiator.

Spero Europe

In January 2016, the Company entered into an agreement with Promiliad Biopharma Inc. (“Promiliad”), whereby Promiliad granted to Spero Europe certain know-how and a sublicense to research, develop, manufacture and sell certain compounds. In exchange for the know-how and sublicense, Spero Europe provided Promiliad with a 5% equity ownership interest in Spero Europe, with a fair value of $0.1 million. In addition, Spero Europe agreed to make payments to Promiliad upon the achievement of future regulatory and commercial milestones of $4.1 million and to pay to Promiliad royalties of a mid single-digit percentage on net sales of licensed products under the agreement. Spero had the right to terminate the agreement with thirty days’ notice. The Company recognized research and development expense of $0.1 million upon the acquisition of the license and recorded a non-controlling interest in Spero Europe in a corresponding amount.

In connection with the acquisition of the license, Promiliad obtained anti-dilution rights to maintain their 5% equity ownership in Spero Europe at no additional cost to Promiliad in the event that Spero Europe completed subsequent funding events, subject to a maximum amount of such funding of $5.0 million.

The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet. The fair value of the derivative liability associated with the anti-dilution rights upon issuance in January 2016 of $0.2 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

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In May 2017, the Company repurchased all of the shares of Spero Europe from Promiliad in exchange for the return of the license. As a result of the transaction, the Company reclassified the balance of the non-controlling interest in Spero Europe of less than $0.1 million as of the date of the transaction to accumulated deficit as an increase to that account. For periods subsequent to the repurchase, the Company no longer reports a non-controlling interest related to Spero Europe.

Spero Gyrase

In March 2016, the Company entered into an agreement with Aviragen and its affiliates in order to acquire certain intellectual property and know-how related to certain compounds. In connection with the transaction, the Company established Spero Gyrase, a Delaware corporation, and issued to Aviragen 200 common shares of Spero Gyrase with a fair value of $1.1 million, which represented a 20% equity ownership interest in Spero Gyrase. In addition, Spero Gyrase agreed to make future milestone and royalty payments in exchange for the intellectual property. The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business. The Company recorded the acquired technology as research and development expense in the consolidated statement of operations and comprehensive loss in the amount of $1.1 million, because the acquired technology had not reached commercial feasibility and had no alternative future use, and recorded a non-controlling interest in Spero Gyrase in a corresponding amount.

In connection with the agreement, Aviragen obtained anti-dilution rights to maintain their 20% equity ownership of Spero Gyrase at no additional cost to Aviragen in the event that Spero Gyrase completed subsequent funding events, subject to a maximum amount of such funding of $8.0 million.

The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet (see Note 3). The fair value of the derivative liability associated with the anti-dilution rights upon issuance in March 2016 of $1.6 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

Spero Cantab

In June 2016, the Company entered into a stock purchase agreement and related agreements (the “Cantab Agreements”) with Pro Bono Bio PLC, a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited (“PBB”), Cantab Anti-Infectives Ltd. (“CAI”) and New Pharma License Holdings Limited (“NPLH”) in order to acquire NPLH and its intellectual property rights and assets relating to the Company’s Potentiator Platform.

Under the Cantab Agreements, CAI agreed to submit a request to NIAID to novate the CAI-held NIAID contract to the Company. The NIAID contract provides for development funding of up to $6.3 million over a base and three option periods. To date, funding for the base period and the first two option periods totaling $5.7 million had been committed to CAI. Novation of the NIAID contract to the Company was finalized in December 2017. The Company shall pay PBB a percentage of funds received from NIAID up to a maximum of $1.3 million.

Consideration under Cantab Agreements consisted of: (i) 125 shares of Spero Cantab, the Company’s subsidiary, which represented a 12.5% ownership interest in Spero Cantab, and anti-dilution rights (as described below) issued to PBB, with a combined fair value of $1.6 million, (ii) upfront consideration of $0.3 million (to be credited against future payments payable to CAI), (iii) contingent milestone payments due upon the achievement of certain clinical, regulatory and commercial milestones (see Note 11), (iv) royalty payments of low single-digit percentages based on net sales of products from the licensed technology, and (v) a specified portion of funding payments made by NIAID.

The Company accounted for the acquisition of NPLH as an asset acquisition because NPLH did not meet the definition of a business. The Company recognized research and development expense of $1.6 million upon the acquisition of NPLH because the acquired technology had not reached commercial feasibility and had no alternative future use. Upon the issuance of the shares and anti-dilution rights, the Company recorded a non-controlling interest in Spero Cantab of $1.6 million. The $0.3 million payment was recognized as research and development expenses as the services were performed by CAI. The Company records the contingent payments outlined in (iii), (iv) and (v) as research and development expense when it becomes probable that the payments will be due. Novation of the NIAID contract to Spero was finalized in December 2017. Prior to the contract novation, CAI performed research and development services at the Company’s direction and applied for reimbursement from NIAID. The Company paid CAI for such research and development services at an agreed-upon rate which took into consideration costs incurred by CAI, amounts reimbursed to CAI by NIAID and the portion of the NIAID reimbursement the Company paid to CAI.

In connection with the Cantab Agreements, PBB obtained anti-dilution rights to maintain a certain equity ownership, ranging from 5% to 12.5%, of Spero Cantab at no additional cost to PBB in the event that Spero Cantab completed subsequent funding events, subject to maximum amount of such funding of $8.0 million. These anti-dilution rights represent a conditional obligation to issue a variable number of shares but are not freestanding and, therefore, do not require bifurcation for accounting purposes from the 125 shares issued.

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In July 2017, the Company repurchased all of the outstanding shares of Spero Cantab owned by PBB in exchange for a cash payment of $0.2 million and an amendment to the licensing agreement to increase the first two contingent milestone payments by a total of $0.1 million. For periods subsequent to the repurchase, the Company no longer reports a non-controlling interest related to Spero Cantab.

As of September 30, 2018 and December 31, 2017, the Company’s only remaining non-controlling interest relates to Spero Gyrase, Inc., which totaled $0.4 million.

9. Commitments and Contingencies

License Agreements

The Company has entered into license agreements with various parties under which it is obligated to make contingent and non-contingent payments (see Note 11).

Operating Leases

In August 2015, the Company entered into an operating lease agreement with U.S. REIF Central Plaza Massachusetts, LLC (the “Landlord”) with respect to its corporate headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts (the “Original Lease”).The term of the Original Lease commenced in January 2016 and was scheduled to expire in December 2020. The Original Lease required annual payments of $0.4 million over the initial five-year term. The Original Lease provided for a renewal option to extend its term for an additional five years. Under the terms of the Original Lease, the Company provided a security deposit of $0.2 million to the Landlord, which is included in long-term assets in the accompanying consolidated balance sheets. The Original Lease provided for annual rent escalations as well as tenant incentives in the amount of $0.7 million, of which $0.3 million would be reimbursed to the Landlord over the initial term of the Original Lease.

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

On January 17, 2018, the Company entered into an amendment (the “Amendment”) to the Original Lease. The Amendment makes certain changes to the Original Lease, including (i) the addition of approximately 7,800 square feet of office space in the same building (the “Expansion Premises”) and (ii) an extension of the expiration date of the Original Lease to seven years following the delivery date of the Expansion Premises (the “Lease Term”), which is estimated to be December 1, 2018.

Under the Amendment, the Company has two consecutive options to extend the Lease Term for an additional period of five years (the “Option Terms”), subject to certain conditions, upon notice to the Landlord. The Amendment provides for annual base rent for the Expansion Premises of approximately $0.5 million in the first year of the Lease Term, which increases on an annual basis to approximately $0.6 million in the final year of the Lease Term, and annual base rent during the Option Terms to be calculated based on the Landlord’s good faith determination of 100% of the fair market rate for such Option Terms. The Company is also obligated to pay the Landlord certain costs, taxes and operating expenses, subject to certain exclusions.The Amendment also includes a provision from the landlord of $0.4 million for leasehold improvements on the Expansion Premises.

Rent escalations and tenant incentives for operating leases are included in deferred rent in the consolidated balance sheet, and rent expense is recognized on a straight-line basis over the terms of occupancy.

The following table summarizes the future minimum payments due under the operating leases as of September 30, 2018 (in thousands):

Years Ending December 31,
2018 (remainder)	$	248
2019		1,323
2020		1,016
2021		957
2022		1,076
Thereafter		2,200
	$	6,820

Rent expense during the three months ended September 30, 2018 and 2017 was $0.2 million. Rent expense during the nine months ended September 30, 2018 and 2017 was $0.6 million.

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Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2018 or December 31, 2017.

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

10. Government Contracts

BARDA

In July 2018, the Company was awarded a contract from Biomedical Advanced Research and Development Authority (“BARDA”) of up to $44.2 million to develop SPR994 for the treatment of complicated urinary tract infections (“cUTIs”) caused by antibiotic resistant Gram-negative bacteria and for assessment against biodefense pathogens. The award commits initial funding of $15.7 million over a three-year base period from July 1, 2018 to June 30, 2021 for cUTI development activities. The balance of the award is subject to BARDA exercising two options. The exercise of the first option would entail funding of $13.6 million and is exercisable by BARDA subject to the Company achieving specified milestones related to, among other things, clinical progress and data. The exercise of the second option would entail funding of $14.9 million and is exercisable by BARDA subject to, among other things, satisfactory progress and results from the biodefense studies described below. The Company recognized $0.2 million of revenue under this award during the three and nine months ended September 30, 2018.

As part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency (“DTRA”), a series of studies to assess the efficacy of SPR994 in the treatment of infections caused by biodefense threats such as anthrax, plague and melioidosis will be conducted by the U.S. Army Medical Research Institute of Infectious Diseases (“USAMRIID”) under the direction of Spero. Because the FDA requires data from a human pneumonic disease as supportive of use of an antibiotic to treat a biothreat infection, the scope of the BARDA award includes the assessment of SPR994 levels in the lung of healthy volunteers as well as a proof of concept clinical trial in pneumonia patients, an indication for which tebipenem, SPR994's active pharmaceutical ingredient, is currently approved in Japan for pediatric use.

U.S. Department of Defense

In September 2016, the Company was awarded a cooperative agreement with the DoD to further develop anti-infective agents to combat Gram-negative bacteria. The agreement is structured as a single, two-year $1.5 million award. The Company is eligible for the full funding from the DoD, and there are no options to be exercised at a later date. The DoD funding supports next-generation potentiator discovery and screening of SPR741 partners. The Company recognizes revenue under this agreement as qualifying expenses are incurred. The Company recognized less than $0.1 million and $0.2 million of revenue under this agreement during the three and nine months ended September 30, 2018, respectively, and $0.1 million and $0.4 million during the three and nine months ended September 30, 2017, respectively.

NIAID

In February 2017, the Company was awarded a grant from NIAID under its Small Business Innovation Research program, to conduct additional preclinical studies of SPR720, the Company’s novel oral bacterial gyrase inhibitor, for the treatment of non-tuberculous mycobacterial infections. The award is structured as a 12-month $0.6 million base period and a $0.4 million option period. Through December 31, 2017, only the base period funds had been committed.In February 2018, NIAID exercised the $0.4 million 12-month option period. The Company recognized less than $0.1 million and $0.3 million of revenue under this agreement during the

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three and nine months ended September 30, 2018. The Company recognized $0.1 million of revenue in the three and nine months ended September 30, 2017 under this agreement.

In June 2016, the Company entered into agreements with Pro Bono Bio PLC (“PBB”), a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited and Cantab Anti-Infectives Limited (“CAI”), in order to acquire certain intellectual property and government funding arrangements relating to SPR206 (see Note 11). Under these agreements, CAI agreed to submit a request to NIAID to assign the CAI-held NIAID contract to Spero, which was finalized in December 2017. The NIAID contract provides for total development funding of up to $6.3 million, including a base period and three option periods. To date, funding for the base period and the first two option periods totaling $5.7 million have been committed. Spero shall pay PBB a percentage of funds received from NIAID up to a maximum of $1.3 million, of which $0.3 million was paid upfront to PBB as part of this agreement. The Company recognized $0.4 million and $1.1 million of revenue under this agreement during the three and nine months ended September 30, 2018. During the three and nine months ended September 30, 2018, the Company recorded approximately $0.1 million and $0.4 million, respectively, in expense associated with amounts payable to PBB under this agreement, which has been included within research and development expenses within the consolidated statement of operations and comprehensive loss. 

CARB-X

In April 2017, the Company was awarded a grant from CARB-X, a public-private partnership funded by BARDA within the U.S. Department of Health and Human Services to be used to screen, identify and complete Phase 1 trials with at least one partner compound for SPR741, one of the Company’s Potentiator Platform product candidates. The award committed to funding of $1.5 million over a 12-month period. On March 12, 2018, CARB-X committed an additional $0.4 million related to the first option for a period from December 1, 2017 to March 31, 2018. There will be no additional options exercised under the CARB-X award. The Company recognized zero and $0.5 million of revenue during the three and nine months ended September 30, 2018, respectively, under this agreement. The Company recognized $0.4 million and $0.5 million of revenue during the three and nine months ended September 30, 2017, respectively, under this agreement.

11. Collaboration and License Agreements

The Company has certain obligations under license agreements with third parties that include annual maintenance fees and payments that are contingent upon achieving various development, regulatory and commercial milestones. Pursuant to these license agreements, the Company is required to make milestone payments if certain development, regulatory and commercial milestones are achieved, and may have certain additional research funding obligations. Also, pursuant to the terms of each of these license agreements, when and if commercial sales of a product commence, the Company will pay royalties to its licensors on net sales of the respective products.

Aviragen Agreement

Under the Company’s agreement with Aviragen (see Note 8) for certain intellectual property and know-how relating to developing a gyrase inhibitor to develop therapies for Gram-negative infections, the Company is obligated to make milestone payments of up to an aggregate of $12.0million upon the achievement of specified clinical, regulatory and commercial milestones and to pay royalties of low single-digit percentages based on net sales of products the Company acquired under the agreement.

Cantab License Agreement

Under the Cantab Agreements (see Note 8), the Company is obligated to make milestone payments of up to $5.8 million upon the achievement of specified clinical and regulatory milestones and a payment of £5.0 million ($6.5 million and $6.7 million as of September 30, 2018 and December 31, 2017, respectively) upon the achievement of a specified commercial milestone. In addition, the Company has agreed to pay to PBB royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.

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

Vertex License Agreement

In May 2016, the Company entered into an agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) whereby Vertex granted the Company certain know-how and a sublicense to research, develop, manufacture and sell products for a proprietary compound, as well as a transfer of materials. In exchange for the know-how, sublicense and materials, Spero paid Vertex an upfront, one-time, nonrefundable, non-creditable fee of $0.5 million, which was recognized as research and development expense. As part of the agreement, the Company is obligated to make future milestone payments of up to $81.1 million upon the achievement of specified

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clinical, regulatory and commercial milestones and to pay Vertex tiered royalties, on a product-by-product and country-by-country basis, of a mid single-digit to low double-digit percentage based on net sales of products licensed under the agreement.

The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment obligations continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the date of expiration in such country of the last to expire applicable patent. Further, Vertex has the right to terminate the agreement if provided with notification from the Company of intent to cease all development or if no material development or commercialization efforts occur for one year.

Meiji License Agreement

In June 2017, the Company entered into agreements with Meiji Seika Pharma Co. Ltd. (“Meiji”), a Japanese corporation, whereby Meiji granted to the Company certain know-how and a license to research, develop, manufacture and sell products for a proprietary compound in the licensed territory. In exchange for the know-how and license, the Company paid Meiji an upfront, one-time, nonrefundable, non-creditable fee of $0.6 million, which was recognized as research and development expense. As part of the agreement, the Company is obligated to make milestone payments of up to $3.0 million upon the achievement of specified clinical and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement and to pay Meiji a low double-digit percentage of any sublicense fees received by the Company up to $7.5 million. In October 2017, the Company paid a $1.0 million milestone payment to Meiji upon the enrollment of the first patient in the Company’s Phase 1 clinical trial of SPR994. The payment was recorded as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2017. Additionally, the Company will pay Meiji approximately $1.6 million during the fourth quarter of 2018 related to fixed assets which will be used in manufacturing related activities at Meiji. This equipment has been capitalized as property and equipment in the consolidated balance sheet as of September 30, 2018.

The agreement continues in effect until the expiration of all payment obligations thereunder (including royalty payments and licensee revenue) on a product-by-product and country-by-country basis, unless earlier terminated by the parties. Pursuant to the terms of the agreement, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured within a specified period after receipt of notice) or insolvency, the Company also has unilateral termination rights (i) in the event that the Company abandons the development and commercialization of SPR994 for efficacy, safety, legal or business factors, and (ii) under certain circumstances arising out of the head license with a global pharmaceutical company.

Northern License Agreement

In June 2017, in connection with the repurchase of all of the outstanding shares of Spero Potentiator (see Note 8), the Company amended its license agreement with Northern such that the Company agreed to pay Northern up to $7.0 million upon the achievement of specified clinical, regulatory and other milestones, including a total payment of $2.5 million upon the closing of an initial public offering. In addition, under an exchange agreement the Company entered into with Northern, the Company is obligated to make a payment to Northern of $0.1 million upon the closing of an initial public offering. The agreement has a perpetual term and no express termination rights. Upon the closing of the Company’s IPO in November 2017, the Company paid $2.6 million to Northern in connection with both the license and exchange agreements. This payment was recorded as research and development expense in the Company’s statement of operations and comprehensive loss for the year ended December 31, 2017.

12. Australia Research and Development Tax Incentive

The Australian government has established a research and development tax incentive to encourage industry investment in research and development, which is available to companies incorporated under Australian law that have core research and development activities. In September 2016, the Company established Spero Potentiator Australia Pty Limited to carry out certain research and development activities. As this subsidiary meets the eligibility requirements of the Australian tax law, it is eligible to receive a 43.5% tax incentive for qualified research and development activities. The Company recorded $0.3 million and$0.7 million as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss during both the three and nine months ended September 30, 2018, respectively, associated with this tax incentive, representing 43.5% of the Company’s qualified research and development spending in Australia. The Company recorded $0.1 million and $0.8 million as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss associated with this tax incentive during the three and nine months ended September 30, 2017, respectively. The tax incentive refund is denominated in Australian dollars and, therefore, the associated tax incentive receivable is re-measured to U.S. dollars as of each reporting date. The Company’s tax incentive receivables from the Australian government totaled $0.7 million as of September 30, 2018 and $1.9 million as of December 31, 2017.      

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13. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. was calculated as follows (in thousands, except share and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Numerator:
Net loss	$	(10,463	)	$	(9,844	)	$	(31,063	)	$	(26,018	)
Less: Net loss attributable to non-controlling interests		—			(8	)		—			(1,137	)
Plus: Cumulative dividends on redeemable convertible preferred shares		—			(2,052	)		—			(5,313	)
Plus: Accretion of bridge units and redeemable convertible preferred shares to redemption value		—			(188	)		—			(1,133	)
Net loss attributable to common stockholders of Spero Therapeutics, Inc.	$	(10,463	)	$	(12,076	)	$	(31,063	)	$	(31,327	)
Denominator:
Weighted average common shares outstanding, basic and diluted		17,471,462			335,285			15,417,087			333,402
Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted	$	(0.60	)	$	(36.02	)	$	(2.01	)	$	(93.96	)

The Company excluded potentially dilutive securities from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Options to purchase common stock		2,186,378		1,541,474		2,186,378		1,541,474
Series A Convertible Preferred Stock (as converted to common shares)		2,220,000		—		2,220,000		—
Redeemable convertible preferred shares (as converted to common shares)		—		8,062,403		—		8,062,403
		4,406,378		9,603,877		4,406,378		9,603,877

14.Subsequent Events

The Company has evaluated, for potential recognition and disclosure, events that occurred prior to the date at which the condensed consolidated financial statements were available to be issued. There were no material subsequent events.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial information and the notes thereto included appearing elsewhere in this Quarterly Report on Form 10-Q, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for multi-drug resistant, or MDR, bacterial infections. Our most advanced product candidate, SPR994, is designed to be the first broad-spectrum 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. We also have a platform technology known as our Potentiator Platform that we believe will enable us to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. Our lead product candidates generated from our Potentiator Platform are two intravenous, or IV,-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, we are developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. We believe that our novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings. Since our inception in 2013, we have focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, acquiring and developing product and technology rights, building our intellectual property portfolio and conducting research and development activities for our product candidates. We do not have any products approved for sale and have not generated any revenue from product sales.

On November 6, 2017, we completed an initial public offering, or IPO, of our common stock, and issued and sold 5,500,000 shares of common stock at a public offering price of $14.00 per share, resulting in net proceeds of $71.6 million after deducting underwriting discounts and commissions but before deducting offering costs. On November 14, 2017, we issued and sold an additional 471,498 shares of our common stock at the IPO price of $14.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $6.1 million after deducting underwriting discounts. Aggregate net proceeds from the IPO totaled $74.2 million after deducting underwriting discounts, commissions and offering costs.

On July 17, 2018, we completed an underwritten public offering of 3,780,000 shares of our common stock at a price of $12.50 per share, and 2,220 shares of our Series A Convertible Preferred Stock at a price of $12,500 per share. We received net proceeds from the offering of approximately $70.5 million after deducting underwriting discounts and commissions but before deducting $1.0 million of offering expenses payable by us.

Each share of Series A Convertible Preferred Stock is convertible into 1,000 shares of our common stock at any time at the option of the holder, provided that the holder will be prohibited from converting the Series A Convertible Preferred Stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of our common stock then issued and outstanding. In the event of our liquidation, dissolution, or winding up, holders of our Series A Convertible Preferred Stock will receive a payment equal to $0.001 per share of Series A Convertible Preferred Stock before any proceeds are distributed to the holders of our common stock. The Series A Convertible Preferred Stock has no voting rights, except as required by law and except that the consent of the Series A Convertible Preferred Stock holders will be required to amend the terms of the Series A Convertible Preferred Stock.

Prior to the IPO and our July 2018 equity offering, we funded our operations with proceeds from the sale of preferred units and bridge units and payments received under a concluded collaboration agreement and funding from government contracts. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. As of September 30, 2018, we had an accumulated deficit of $127.9 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

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As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government funding arrangements, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of September 30, 2018, we had cash, cash equivalents and marketable securities of $131.2 million. We believe that our existing cash, cash equivalents and marketable securities, together with the initial funding committed under our BARDA award in July 2018, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2020, including through top-line data readout of our planned pivotal Phase 3 clinical trial of SPR994. As described elsewhere, a portion of the funding from our BARDA award supporting the development of SPR994 is scheduled to occur in periods after 2020, provided we achieve specified milestones under the award agreement and BARDA exercises all of its options under the agreement.

Recent Developments

SPR994 Phase 1 Final Results and Dose Selection Data Supporting Planned Pivotal Phase 3 Clinical Trial

In September 2018, we announced positive results from the final analysis of our Phase 1 clinical trial of SPR994 in healthy volunteers. The final data expand on the interim data announced in July 2018, and the Company anticipates the data will support the advancement of SPR994 at a dose of 600 mg administered three times per day, or TID, into a pivotal Phase 3 clinical trial, which we expect to initiate around year-end 2018, subject to our discussions with the FDA. Dose escalation within the multiple ascending dose, or MAD, portion of the trial demonstrated that 600 mg of SPR994 provides greater drug exposure than was observed in the first dosing cohort of 300 mg while maintaining a favorable safety, tolerability and pharmacokinetic profile.

The Phase 1 single ascending dose, or SAD, and MAD clinical trial assessed the safety, tolerability and pharmacokinetics of orally administered SPR994. The Phase 1 clinical trial enrolled 124 healthy adult volunteers into 14 SAD cohorts with SPR994 given orally as single doses ranging from 100 mg to 900 mg daily and 2 MAD cohorts with SPR994 given orally at doses of 300 mg and 600 mg every 8 hours for 14 days. Repeated dose administration of both 300mg and 600mg of SPR994 was well tolerated, with a safety profile consistent with the carbapenem class of antibiotics. Final results demonstrated a linear and proportional increase in plasma exposure over the dose range tested, with no accumulation over 14 days of repeated dosing. Furthermore, the administration of SPR994 in the fed or fasting state did not substantially alter the plasma drug exposure, indicating that SPR994 can likely be administered without regard to meals. Consistent with the predominantly renal elimination of SPR994, peak urine concentrations were approximately 50 to 100-fold higher than maximum concentrations in plasma, supporting SPR994’s potential utility as treatment for patients with complicated urinary tract infections, or cUTI. Following completion of the Phase 1 trial, we have scheduled a pre-Phase 3 meeting with the U.S. Food and Drug Administration, or FDA, in the fourth quarter of 2018. Subject to our discussions with the FDA, we expect to submit an investigational new drug application, or IND, and initiate a pivotal Phase 3 clinical trial of SPR994 around year-end 2018. The Phase 3 clinical trial will assess the activity of SPR994 in cUTI.

SPR720 preclinical data supports advancement into Phase 1 clinical trials

In early November 2018 we announced positive results from preclinical IND-enabling studies of SPR720, our oral antimicrobial agent being developed for the treatment of pulmonary non-tuberculous mycobacterial, or NTM, infections. SPR720 was assessed in a series of non-clinical studies, including IND-enabling 28- and 31-day GLP toxicology studies in non-human primates and rats, respectively, and safety pharmacology studies. Results from in vitro minimum inhibitory concentration, or MIC, studies demonstrated potent activity for SPR720 against prevalent NTM pathogens, including Mycobacterium avium complex and Mycobacterium abscessus. Furthermore, in vivo studies in murine models of pneumonia demonstrated favorable efficacy relative to standard-of-care comparator agents. The data suggest that SPR720 has an acceptable safety profile, encouraging target pathogen efficacy, and a wide therapeutic margin. These results, in conjunction with recent regulatory interactions, support the further development of SPR720. Following regulatory acceptance of our clinical trial authorization application in the United Kingdom, we plan to initiate a First-in-Human Phase 1 clinical trial of SPR720 in early 2019.

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Potentiator Platform Developments

In May 2018, we announced data from our completed Phase 1b drug-drug interaction clinical trial of SPR741. The Phase 1b trial was designed to assess the impact, if any, on the pharmacokinetics or tolerability of either SPR741 or beta-lactam drugs when the two are dosed together. The single-dose data indicated that the administration of three different beta-lactam antibiotics (ceftazidime, piperacillin/tazobactam, and aztreonam) had no impact on the pharmacokinetics or tolerability of SPR741. Such results, together with previously-reported date on the in vitro activity of SPR741 in combination with beta-lactam drugs, provide support for the further development of SPR741 as a combination agent for the treatment of MDR Gram-negative infections.

In May 2018, we announced results from IND-enabling studies of SPR206. SPR206 was assessed in a suite of preclinical, IND-enabling studies, including 14-day, two species, good laboratory practice, or GLP, toxicology experiments, and in vitro and in vivo GLP safety pharmacology, and absorption, distribution, metabolism and excretion studies. The data, combined with earlier microbiological and in vivo efficacy testing of SPR206, support SPR206’s advancement as a clinical candidate for the treatment of MDR and extensively drug-resistant, or XDR, Gram-negative bacterial strains, including carbapenem-resistant Pseudomonas aeruginosa, Acinetobacter baumannii and Enterobacteriaceae. We believe the composite data suggest that SPR206 has the potential for wide therapeutic margins in the setting of serious Gram-negative infections in the hospital. Moreover, data from these studies suggest a potency and safety profile for SPR206 that may be superior to SPR741, and we believe SPR206 may have a potentially faster path to pivotal clinical trials when compared with SPR741, because SPR206 is being developed as a single agent. In October 2018, we announced that SPR206 has been granted Qualified Infectious Disease Product, or QIDP designation by the FDA for the treatment of cUTIs and hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia. The QIDP designation was created by the Generating Antibiotic Incentives Now, or GAIN, Act and creates incentives for the development of certain antibiotics that treat serious or life-threatening infections. The primary incentives are an additional five-year extension of Hatch-Waxman Act exclusivity, the opportunity for a priority review of the marketing application and the opportunity to request Fast Track designation for SPR206.

As previously disclosed, we expect to select either SPR741 or SPR206 to bring forward as our lead Potentiator Platform product candidate, based on our evaluation of available clinical data for each candidate and other factors, and we expect to seek partnering opportunities or other non-dilutive funding for further clinical development of the Potentiator Platform candidate we elect to deprioritize. In light of the positive data from our preclinical toxicology studies of SPR206, subject to regulatory approval, we plan to initiate a Phase 1 clinical trial of SPR206 around year-end 2018. We expect that data from this Phase 1 clinical trial of SPR206, together with the data from our completed Phase 1b clinical trial of SPR741, will enable us to select a lead Potentiator Platform product candidate to advance into late-stage development. Our current view is that a prioritization decision can best be made after each of our Potentiator Platform candidates has achieved a similar clinical development stage. Until such time, we expect to continue to assess clinical development strategies, partnering opportunities and non-dilutive funding for both of our Potentiator Platform product candidates. 

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Non-Dilutive Government Funding for SPR994

In July 2018, we were awarded initial funding of $15.7 million from the Biomedical Advanced Research and Development Authority, or BARDA, with the potential for up to an additional $28.5 million over 5 years, if BARDA exercises all of its options under the award. This funding will support the further clinical development of SPR994. As part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency, or DTRA, a series of studies to assess the efficacy of SPR994 in the treatment of infections caused by biodefense threats such as anthrax, plague and melioidosis will be conducted by the U.S. Army Medical Research Institute of Infectious Diseases, or USAMRIID, under the direction of Spero. Because the FDA requires data from a human pneumonic disease as supportive of use of an antibiotic to treat a biothreat infection, the scope of the BARDA award includes the assessment of SPR994 levels in the lung of healthy volunteers as well as a proof of concept clinical trial in community-acquired bacterial pneumonia patients. Tebipenem, SPR994's active pharmaceutical ingredient, is currently approved in Japan for common bacterial respiratory tract infections in the pediatric population.

In addition, as part of the collaboration described above, DTRA will provide support of up to $10.0 million to cover the cost of certain nonclinical biodefense studies contemplated by the collaboration, if specified milestones are achieved. While such funding would be for the purpose of developing SPR994 in these areas, we will not receive any funds directly from DTRA for these nonclinical studies.

Components of Our Results of Operations

Grant Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

To date, all of our revenue has been derived from government awards. We expect that our revenue for the next several years will be derived primarily from payments under our government awards that we that we have entered or may look to enter into in the future.

BARDA

In July 2018, we were awarded a contract from BARDA of up to $44.2 million to develop SPR994 for the treatment of cUTIs caused by antibiotic resistant Gram-negative bacteria and for assessment against biodefense pathogens. The award commits initial funding of $15.7 million over a three-year base period from July 1, 2018 to June 30, 2021 for cUTI development activities. The balance of the award is subject to BARDA exercising two options. The exercise of the first option would entail funding of $13.6 million and is exercisable by BARDA subject to our achieving specified milestones related to, among other things, clinical progress and data. The exercise of the second option would entail funding of $14.9 million and is exercisable by BARDA subject to, among other things, satisfactory progress and results from certain biodefense studies. We receive funding under the BARDA award as we incur qualifying expenses.

U.S. Department of Defense

In September 2016, we were awarded a cooperative agreement with the U.S. Department of Defense to further develop anti-infective agents to combat Gram-negative bacteria. The agreement is structured as a single, two-year $1.5 million award. We are eligible for the full funding from DoD and there are no options to be exercised at a later date. The DoD funding supports next-generation potentiator discovery and screening of SPR741 partner antibiotics. We receive funding under the DoD award as we incur qualifying expenses.

NIAID

In February 2017, we received an award from the U.S. National Institute of Allergy and Infectious Diseases under its Small Business Innovation Research, or SBIR program, to conduct additional preclinical studies of SPR720. The award is structured as a 12-month $0.6 million base period, which has already been committed, and a $0.4 million option period. In February 2018 NIAID exercised the $0.4 million 12-month option period. We receive funding under the NIAID award as we incur qualifying expenses.

In June 2016, we entered into agreements with Pro Bono Bio PLC, a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited and Cantab Anti-Infectives Limited, in order to acquire certain

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intellectual property and government funding arrangements relating to SPR206. Under these agreements, CAI agreed to submit a request to NIAID to assign the CAI-held NIAID contract to us. The NIAID contract provides for total development funding of up to $6.3 million over a base period and three option periods. To date, funding for the base period and the first two option periods totaling $5.7 million have been committed. Novation of the NIAID contract was finalized in December 2017. We will pay PBB a percentage of funds received from NIAID up to a maximum of $1.3 million, of which $0.3 million was paid upfront to PBB as part of this agreement. During the three and nine months ended September 30, 2018, we recorded approximately $0.1 million and $0.4 million, respectively, in expense related to amounts payable to PBB under this agreement.  

CARB-X

In April 2017, we received an award from the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator, a public-private partnership funded by the Biomedical Advanced Research and Development Authority within the U.S. Department of Health and Human Services, to be used to screen, identify and complete Phase 1 clinical trials with at least one partner compound for SPR741, one of our lead potentiator product candidates. The award committed funding of $1.5 million over a 12-month period. In March 2018, CARB-X committed an additional $0.4 million related to the first option for a period from December 1, 2017 to March 31, 2018. There will be no additional options exercised under the CARB-X award.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

• employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions;

• expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with contract research organizations, or CROs;

• the cost of consultants and contract manufacturing organizations, or CMOs, that manufacture drug products for use in our preclinical studies and clinical trials;

• facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies; and

• payments made under third-party licensing agreements.

Prior to novation of the NIAID contract to us, under our agreements with PBB and certain of its affiliates, CAI continued to perform research and development at our direction. We paid CAI for such research and development services at an agreed-upon rate that took into consideration costs incurred by CAI, net of amounts reimbursed to CAI by NIAID. Thus, prior to novation of the NIAID contract to us, the amount we record as research and development expenses is net of the NIAID reimbursement amount that CAI received. We also paid CAI a portion of the NIAID reimbursement received at rates specified in the agreement, which we also recorded as research and development expense.

Since the fourth quarter of 2016, we have recorded research and development expenses conducted by our Australian subsidiary net of a 43.5% research and development tax incentive we expect to receive for qualified expenses from the Australian government.

We expense research and development costs as incurred. Nonrefundable advance payments we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development activities. License fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program. License fees and other costs incurred prior to designating a product candidate are included in early stage research programs. We do not allocate employee costs, costs associated with our preclinical programs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. The table below summarizes our research and development expenses incurred by development program:

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	Three Months Ended September 30,							Nine Months Ended September 30,
	2018		2017		$ Change			2018		2017		$ Change
Direct research and development expenses by program:
SPR994	$	3,206	$	1,809	$	1,397		$	7,340	$	5,554	$	1,786
Potentiator Platform (SPR206 and SPR741)		1,364		2,811		(1,447	)		7,096		6,306		790
SPR720		872		413		459			1,553		1,379		174
Preclinical programs		29		66		(37	)		38		1,207		(1,169	)
Unallocated expenses:						—							—
Personnel related (including share-based compensation)		1,957		1,322		635			5,912		4,136		1,776
Facility related and other		1,031		489		542			2,819		1,784		1,035
Total research and development expenses	$	8,459	$	6,910	$	1,549		$	24,758	$	20,366	$	4,392

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future as we initiate additional clinical trials and other studies of SPR994, SPR206 and our other product candidates, continue to discover and develop additional product candidates, hire additional clinical and scientific personnel and acquire or in-license other product candidates and technologies.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:

• successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

• receipt of marketing approvals from applicable regulatory authorities;

• establishment of arrangements with third-party manufacturers to obtain manufacturing supply;

• obtainment and maintenance of patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with Meiji with respect to SPR994;

• protection of our rights in our intellectual property portfolio;

• launch of commercial sales of SPR994 and our other product candidates, if approved, whether alone or in collaboration with others;

• acceptance of SPR994 and our other product candidates, if approved, by patients, the medical community and third-party payors;

• competition with other therapies; and

• a continued acceptable safety profile of SPR994 and our other product candidates, if approved.

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research, development, and commercialization of our product candidates. We also anticipate that we will incur

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increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Change in Fair Value of Derivative Liabilities

Contingent Prepayment Options. Bridge units issued to our investors in 2016 were automatically convertible into equity units sold in a subsequent round of qualified financing at a discounted rate. We refer to these automatic conversion features as contingent prepayment options. We classified the contingent prepayment options as a derivative liability on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the derivative liability associated with the contingent prepayment options as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The contingent prepayment options were settled in the first quarter of 2017 upon the issuance of Class C preferred units.

Anti-Dilution Rights. In connection with the issuance of non-controlling interests in certain of our subsidiaries, specifically Spero Potentiator, Inc., Spero Europe, Ltd. and Spero Gyrase, Inc., we granted the minority investors the right to maintain ownership interests at no additional cost, subject to a maximum ownership percentage, which rights we refer to collectively as anti-dilution rights. We classified the anti-dilution rights as derivative liabilities on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the derivative liabilities associated with the anti-dilution rights as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. As of December 31, 2016, anti-dilution rights related to Spero Potentiator, Inc. were fully settled as the maximum number of shares to be issued to the minority investor had been reached in August 2016. In May 2017, we repurchased 100% of the minority investor’s outstanding shares in Spero Europe, Ltd. and settled the anti-dilution rights associated with the shares.

As of September 30, 2018 and December 31, 2017, the derivative liability of $0.2 million recorded on our consolidated balance sheet relates only to the anti-dilution rights held by the minority investor in Spero Gyrase, Inc.

Interest Income and Other Income (Expense), Net

Interest income consists of interest earned on our cash equivalents, which are primarily invested in money market accounts, as well as interest earned on our investments in marketable securities that we held during the nine months ended September 30, 2018. Other income (expense), net, consists of insignificant amounts of miscellaneous income, as well as realized and unrealized gains and losses from foreign currency-denominated cash balances, vendor payables and receivables from the Australian research and development tax incentive.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2017, we had federal and state net operating loss carryforwards of $76.4 million and $76.0 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2033. In addition, as of December 31, 2017, we had foreign net operating loss carryforwards of $4.3 million, which may be available to offset future income tax liabilities and do not expire. As of December 31, 2017, we also had federal and state research and development tax credit carryforwards of $1.7 million and $0.4 million, respectively, which begin to expire in 2033 and 2028, respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Prior to the Reorganization, our former parent company, Spero Therapeutics, LLC, was treated as a partnership for federal income tax purposes and, therefore, its owners, and not itself, were subject to U.S. federal or state income taxation on the income of Spero Therapeutics, LLC. Prior to the Reorganization, all of Spero Therapeutics, LLC’s directly held subsidiaries (including Spero Therapeutics, Inc.) were treated as corporations for U.S. federal income tax purposes and were subject to taxation in the United States or in other countries. Upon the Reorganization, Spero Therapeutics, Inc., whose consolidated financial statements are presented in this Quarterly Report on Form 10-Q, became the parent company for Spero Therapeutics, LLC’s former subsidiaries and these entities continue to be subject to taxation in the United States or in other countries.

Net Income (Loss) Attributable to Non-Controlling Interests

Net income (loss) attributable to non-controlling interests in our consolidated statement of operations and comprehensive loss is a result of minority investments in our subsidiaries, Spero Europe, Ltd., Spero Potentiator, Inc., Spero Cantab, Inc. and Spero Gyrase, Inc., and consists of the portion of the net income or loss of these subsidiaries that is not allocated to us. Changes in the amount of net

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income (loss) attributable to non-controlling interests are directly impacted by changes in the net income or loss of our consolidated subsidiaries and by the ownership percentage of the minority investors.

In May 2017, we repurchased 100% of the issued and outstanding shares of Spero Europe, Ltd. held by the minority investor. In June 2017, we repurchased 100% of the issued and outstanding shares of Spero Potentiator, Inc. held by the minority investor. In July 2017, we repurchased 100% of the issued and outstanding shares of Spero Cantab, Inc. held by the minority investor. As a result of these repurchases of the non-controlling interests, for periods subsequent to each repurchase, we no longer attribute net income (loss) to the non-controlling interest. As of September 30, 2018, the remaining non-controlling interest relates only to Spero Gyrase, Inc.

Results of Operations

Comparison of the Three Months Ended September 30, 2018 and 2017

The following table summarizes our results of operations for the three months ended September 30, 2018 and 2017:

	Three Months Ended September 30,
	2018			2017			$ Change
Grant revenue	$	658		$	597		$	61
Operating expenses:
Research and development		8,459			6,910			1,549
General and administrative		3,134			3,653			(519	)
Total operating expenses		11,593			10,563			1,030
Loss from operations		(10,935	)		(9,966	)		(969	)
Other income (expense):
Change in fair value of derivative liabilities		—			(2	)		2
Interest income and other income (expense), net		472			124			348
Total other income (expense), net		472			122			350
Net loss		(10,463	)		(9,844	)		(619	)
Less: Net loss attributable to non-controlling interest		—			(8	)		8
Net loss attributable to Spero Therapeutics, Inc.	$	(10,463	)	$	(9,836	)	$	(627	)

Grant Revenue

Grant revenue recognized during the three months ended September 30, 2018 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards, including $0.4 million under our award with NIAID related to our SPR206 program, and $0.2 million under our award with BARDA related to our SPR994 program. Revenue recognized during the three months ended September 30, 2017 was primarily due to the reimbursement of qualifying expenses incurred in connection with our CARB-X award related to our SPR741 program of $0.4 million. We also recognized $0.1 million each under our awards from DoD and NIAID related to our SPR741 program and SPR720 program, respectively. 

Research and Development Expenses

	Three Months Ended September 30,
	2018		2017		$ Change
Direct research and development expenses by program:
SPR994	$	3,206	$	1,809	$	1,397
Potentiator Platform (SPR206 and SPR741)		1,364		2,811		(1,447	)
SPR720		872		413		459
Preclinical programs		29		66		(37	)
Unallocated expenses:
Personnel related (including share-based compensation)		1,957		1,322		635
Facility related and other		1,031		489		542
Total research and development expenses	$	8,459	$	6,910	$	1,549

Direct costs related to our SPR994 program increased during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 primarily due to an increase in formulation development, manufacturing process and

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manufacturing of Phase 3 clinical trial material, as well as an increase in clinical trial expenses related to closing our Phase 1 clinical trial and costs incurred to prepare for our planned pivotal Phase 3 clinical trial, which we expect to initiate around year-end 2018. These increases were partially offset by a decrease in preclinical costs due to costs incurred during the three months ended September 30, 2017 in preparation for the Phase 1 clinical trial which commenced in October 2017. Research and development expenses for our SPR994 program conducted by our Australian subsidiary were recorded net of a 43.5% research and development tax incentive for qualified expenses from the Australian government of $0.3 million during the three months ended September 30, 2018.

Direct costs related to our Potentiator Platform includes costs related to our SPR206 and SPR741 programs. We designated SPR206 as a product candidate in July 2017, prior to which time it was included within our preclinical program efforts. Direct costs related to our SPR206 program increased by $1.0 million during the three months ended September 30, 2018, primarily due to manufacturing efforts to support our planned Phase 1 clinical trial. We expect direct costs related to our SPR206 program to continue to increase as we prepare to initiate a Phase 1 clinical trial for SPR206 around year-end 2018. Direct costs related to our SPR741 program decreased by $2.4 million during the three months ended September 30, 2018 primarily due to higher costs during the three months ended September 30, 2017 in connection with preparing for our Phase 1b drug-drug interaction clinical trial of SPR741 in the United Kingdom, which was initiated in November 2017 and completed during the first half of 2018. Research and development expenses for our SPR741 program conducted by our Australian subsidiary were recorded net of a 43.5% research and development tax incentive for qualified expenses from the Australian government of $0.1 million during the three months ended September 30, 2017. Because our Phase 1b clinical trial of SPR741 is complete, we anticipate that our direct costs related to our SPR741 program will continue at a reduced level pending our prioritization of our Potentiator Platform product candidates.

Direct costs related to our SPR720 program increased during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017, primarily due to costs incurred during the three months ended September 30, 2018 related to formulation development and manufacturing process of clinical trial material, as well as clinical trial costs as we prepare to initiate a Phase 1 clinical trial of SPR720. We expect direct costs related to our SPR720 program to continue to increase as we prepare to initiate a Phase 1 clinical trial for SPR720 in early 2019.

Direct costs related to our preclinical programs decreased slightly during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 due primarily to lower spending on preclinical programs as we focused development efforts on our more advanced product candidates.

The increase in personnel-related costs included in unallocated expenses was due to an increase in headcount in our research and development function. Personnel-related costs for the three months ended September 30, 2018 and 2017 included share-based compensation expense of $0.3 million and $0.2 million, respectively. The increase in facility-related and other costs was due to higher costs of supporting a larger group of research and development personnel and their research efforts, as well as expense related to the write-off of certain leasehold improvements and laboratory equipment as a result of the closure of our Watertown, MA laboratory facility during the three months ended September 30, 2018.

General and Administrative Expenses

	Three Months Ended September 30,
	2018		2017		$ Change
Personnel related (including share-based compensation)	$	1,573	$	1,512	$	61
Professional and consultant fees		1,235		1,850		(615	)
Facility related and other		326		291		35
Total general and administrative expenses	$	3,134	$	3,653	$	(519	)

Personnel-related increased slightly due to higher salary and benefit costs resulting from an increase in headcount in our general and administrative function, offset by lower share-based compensation expense. The decrease in share-based compensation expense is due to higher expense recorded during the three months ended September 30, 2017, related to the Reorganization. Personnel-related costs for the three months ended September 30, 2018 and 2017 included share-based compensation expense of $0.5 million and $0.7 million, respectively.

The decrease in professional and consultant fees is primarily related to higher expenses incurred during the three months ended September 30, 2017 in connection with the Reorganization as well as our preparations to operate as a public company.

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Other Income (Expense), Net

Other income, net was $0.5 million for the three months ended September 30, 2018, compared to $0.1 million for the three months ended September 30, 2017. Other income, net for the three months ended September 30, 2018 primarily consisted of $0.6 million of interest income related to interest earned on our invested cash balances, partially offset by $0.1 million of other expenses. Other income, net consisted almost entirely of interest income for the three months ended September 30, 2017 related to interest earned on invested cash balances.  

Comparison of the Nine Months Ended September 30, 2018 and 2017

The following table summarizes our results of operations for the nine months ended September 30, 2018 and 2017:

	Nine Months Ended September 30,
	2018			2017			$ Change
Grant revenue	$	2,274		$	986		$	1,288
Operating expenses:
Research and development		24,758			20,366			4,392
General and administrative		9,238			8,350			888
Total operating expenses		33,996			28,716			5,280
Loss from operations		(31,722	)		(27,730	)		(3,992	)
Other income (expense):
Change in fair value of derivative liabilities		—			1,547			(1,547	)
Interest income and other income (expense), net		659			165			494
Total other income (expense), net		659			1,712			(1,053	)
Net loss		(31,063	)		(26,018	)		(5,045	)
Less: Net loss attributable to non-controlling interest		—			(1,137	)		1,137
Net loss attributable to Spero Therapeutics, Inc.	$	(31,063	)	$	(24,881	)	$	(6,182	)

Grant Revenue

Grant revenue recognized during the nine months ended September 30, 2018 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards, including $1.1 million under our award from NIAID related to our SPR206 program, $0.5 million under our CARB-X award related to our SPR741 program, $0.3 million under our award with NIAID related to our SPR720 program, $0.2 million under our award from BARDA related to our SPR994 program, and $0.2 million under our award from the DoD related to our SPR741 program. Revenue recognized during the nine months ended September 30, 2017 was primarily due to the reimbursement of qualifying expenses incurred in connection with the SPR741 program under our research and development awards from CARB-X of $0.5 million and from the DoD of $0.4 million. We also recognized revenue of $0.1 million under our award from NIAID related to our SPR720 program. 

Research and Development Expenses

	Nine Months Ended September 30,
	2018		2017		$ Change
Direct research and development expenses by program:
SPR994	$	7,340	$	5,554	$	1,786
Potentiator Platform (SPR206 and SPR741)		7,096		6,306		790
SPR720		1,553		1,379		174
Preclinical programs		38		1,207		(1,169	)
Unallocated expenses:
Personnel related (including share-based compensation)		5,912		4,136		1,776
Facility related and other		2,819		1,784		1,035
Total research and development expenses	$	24,758	$	20,366	$	4,392

Direct costs related to our SPR994 program increased during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to expenses related to our Phase 1 clinical trial, which commenced in October 2017,

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as well as higher expenses related to formulation development, manufacturing process and manufacturing of clinical trial material as we prepare for our planned pivotal Phase 3 clinical trial, which we expect to initiate around year-end 2018. These increases were partially offset by a decrease in preclinical costs related to this program due to costs incurred during the nine months ended September 30, 2017 related to our Phase 1 clinical trial, as well as a $0.6 million license fee paid to Meiji during the nine months ended September 30, 2017. Additionally, research and development expenses for our SPR994 program conducted by our Australian subsidiary were recorded net of a 43.5% research and development tax incentive for qualified expenses from the Australian government of $0.7 million during the nine months ended September 30, 2018.

Direct costs related to our Potentiator Platform includes costs related to our SPR206 and SPR741 programs. We designated SPR206 as a product candidate in July 2017. Direct costs related to our SPR206 program increased by $5.8 million during the nine months ended September 30, 2018, primarily due to preclinical costs related to toxicology studies and manufacturing efforts to support our planned Phase 1 study. We expect direct costs related to our SPR206 program to continue to increase as we prepare to initiate a Phase 1 clinical trial for SPR206 around year-end 2018. Direct costs related to our SPR741 program decreased by $5.1 million during the nine months ended September 30, 2018, primarily due costs incurred during the nine months ended September 30, 2017, to prepare for the Phase 1b drug-drug interaction clinical trial of SPR741 in the United Kingdom, which was initiated in November 2017 and completed during the first half of 2018. Research and development expenses for our SPR741 program conducted by our Australian subsidiary were recorded net of a 43.5% research and development tax incentive for qualified expenses from the Australian government of $0.8 million in the nine months ended September 30, 2017. Because our Phase 1b clinical trial of SPR741 is complete, we anticipate that our direct costs related to our SPR741 program will continue at a reduced level pending our prioritization of our Potentiator product candidates.

Direct costs related to our SPR720 program increased slightly during the nine months ended September 30, 2018 primarily due to higher clinical costs as we prepare to initiate a Phase 1 clinical trial of SPR720 in early 2019, as well as formulation development and manufacturing process expenses during the nine months ended September 30, 2018.

Direct costs related to our preclinical programs decreased by $1.2 million during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 due primarily to lower spending on preclinical programs as we focused development efforts on our more advanced product candidates.

The increase in personnel-related costs of $1.8 million included in unallocated expenses was due to an increase in headcount in our research and development function. Personnel-related costs for the nine months ended September 30, 2018 and 2017 included share-based compensation expense of $0.8 million and $0.2 million, respectively. The increase in facility-related and other costs was primarily due to the increased costs of supporting a larger group of research and development personnel and their research efforts, as well as expense incurred during the three months ended September 30, 2018, related to the write-off of certain leasehold improvements and laboratory equipment as a result of the closure of our Watertown, MA laboratory facility.

General and Administrative Expenses

	Nine Months Ended September 30,
	2018		2017		$ Change
Personnel related (including share-based compensation)	$	4,723	$	3,108	$	1,615
Professional and consultant fees		3,688		4,546		(858	)
Facility related and other		827		696		131
Total general and administrative expenses	$	9,238	$	8,350	$	888

The increase in personnel-related costs of $1.6 million was primarily a result of an increase in headcount in our general and administrative function. Personnel-related costs for the nine months ended September 30, 2018 and 2017 included share-based compensation expense of $1.2 million and $0.8 million, respectively.

The decrease in professional and consultant fees of $0.9 million was primarily related to increased expenses during the nine months ended September 30, 2017 related to the Reorganization as well as our preparations to operate as a public company. 

Other Income (Expense), Net

Other income, net was $0.7 million for the nine months ended September 30, 2018, compared to $1.7 million for the nine months ended September 30, 2017. Other income, net for the nine months ended September 30, 2018  primarily consisted of $1.2 million of interest income related to interest earned on our invested cash balances, partially offset by $0.5 million of other expenses. Other income, net for the nine months ended September 30, 2017, primarily consisted of a decrease of $1.6 million in the fair value of

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the derivative liability for anti-dilution rights granted to minority investors in Spero Gyrase Inc. and Spero Europe Ltd. resulting from our discontinuation of the underlying development programs of these subsidiaries. We also had interest income of $0.2 million in the nine months ended September 30, 2017 as a result of interest earned on invested cash balances.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from funding arrangements with the DoD, NIAID, CARB-X and BARDA. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. To date, we have funded our operations with proceeds from the sales of preferred units and bridge units, payments received under a concluded collaboration agreement and funding from government contracts and, most recently, in November 2017 with proceeds from the IPO of our common stock, and in July 2018 with an underwritten public offering of our common and preferred stock. As of September 30, 2018, we had cash, cash equivalents and marketable securities of $131.2 million.

Cash Flows

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2018 and 2017:

	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Cash used in operating activities	$	(26,116	)	$	(26,371	)
Cash used in investing activities		(90,443	)		—
Cash provided by financing activities		69,701			41,429
Net increase (decrease) in cash and cash equivalents	$	(46,858	)	$	15,058

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2018 was $26.1 million, primarily resulting from our net loss of $31.1 million, adjusted for net non-cash items of $2.4 million (primarily stock-based compensation). Net cash provided by changes in our operating assets and liabilities was $2.6 million and consisted primarily of a decrease of $1.7 million in receivables related to the Australian research and development tax initiative and our receivables under our government awards, as well as a $0.7 million decrease in prepaid expenses and other current assets, partially offset by an increase of $0.3 million in accounts payable and accrued expenses.

During the nine months ended September 30, 2017, operating activities used $26.4 million of cash, primarily resulting from our net loss of $26.0 million and net non-cash income of $0.3 million. Net cash used by changes in our operating assets and liabilities was less than $0.1 million and consisted primarily of a $1.0 million increase in receivables related to the Australian research and development tax incentive and to our government contracts, partially offset by an increase in accounts payable and accrued expenses and other current liabilities of $0.9 million.

Changes in accounts payable, accrued expenses and other current liabilities, and prepaid expenses and other current assets in all periods were generally due to growth in our business, the advancement of our development programs and the timing of vendor invoicing and payments.

Investing Activities

Cash used in investing activities during the nine months ended September 30, 2018 was $90.4 million primarily related to the net purchase of marketable securities. We did not use any cash for investing activities during the nine months ended September 30, 2017.

Financing Activities

Cash used in financing activities during the nine months ended September 30, 2018, of $69.7 million consisted of $69.5 million  of net proceeds from our July 2018 equity offering, as well as $0.2 million of proceeds from the exercise of employee stock options. Cash provided by financing activities during the nine months ended September 30, 2017 of $41.4 million consisted primarily of net proceeds of $43.1 million from the sale of our Class C preferred units, partially offset by $1.2 million of cash used to purchase outstanding shares of Spero Potentiator, Inc. and Spero Cantab, Inc. from the minority interest holders and $0.5 million payments of initial public offering costs.

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Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:

• the timing and costs of our planned clinical trials;

• the initiation, progress, timing, costs and results of preclinical studies and clinical trials of our other product candidates and potential new product candidates;

• the amount of funding that we receive under government contracts that we have applied for;

• the number and characteristics of product candidates that we pursue;

• the outcome, timing and costs of seeking regulatory approvals;

• the costs of commercialization activities for SPR994 and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

• the receipt of marketing approval and revenue received from any potential commercial sales of SPR994;

• the terms and timing of any future collaborations, licensing or other arrangements that we may establish;

• the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

• the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property related claims;

• the costs of operating as a public company; and

• the extent to which we in-license or acquire other products and technologies.

Based on our current plans, we believe that our existing cash, cash equivalents and marketable securities, together with the initial funding committed under our BARDA award in July 2018, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2020, including through the top-line data readout of our planned pivotal Phase 3 clinical trial of SPR994. However, we do not expect that these funds will be sufficient to fund the development of all of our product candidates through regulatory approval and commercialization. As described elsewhere, a portion of the funding from our BARDA award supporting the development of SPR994 is scheduled to occur in periods after 2020, provided we achieve specified milestones under the award agreement and BARDA exercises all of its options under the agreement.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, government funding, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

During the three months ended September 30, 2018, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those described under the heading “Management’s Discussion and

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Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2017.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations‒Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017, the following accounting policies involve the most judgement and complexity:

• revenue recognition for funding received from government contracts, tax incentives and collaborations;

• accrued research and development expenses;

• share-based compensation; and

• valuation of derivative liabilities.

Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no material changes to our critical accounting policies since December 31, 2017.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of September 30, 2018, we had cash, cash equivalents and marketable securities of $131.2 million, consisting of cash, corporate bonds, commercial paper, money market accounts and U.S. government debt securities. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. If market interest rates were to increase immediately and uniformly by 50 basis points, from levels as of September 30, 2018, the net fair value of our interest sensitive marketable securities would hypothetically decline by approximately $0.1 million.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1A. Risk Factors.

Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report, including the section of this Quarterly Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, and in other documents that we file with the SEC, in evaluating our company and our business. Investing in our securities involves a high degree of risk. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected and the trading price of our securities could decline. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report on Form 10-Q.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred net losses in each year since our inception and anticipate that we will continue to incur significant losses for the foreseeable future, and if we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.

We are a clinical-stage biopharmaceutical company with a limited operating history. We have not generated any revenue from the sale of products and have incurred losses in each year since our inception in 2013. Our net loss was $31.1 million for the nine months ended September 30, 2018, and $39.9 million and $32.6 million for the years ended December 31, 2017 and 2016, respectively. All of our product candidates are in development, none have been approved for sale and we may never have a product candidate approved for commercialization. We have financed our operations primarily through sales of our equity securities, collaborations and government funding for research and development. We have devoted substantially all of our financial resources and efforts to research and development, including preclinical and clinical development.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue to advance our product candidates through preclinical and clinical development and seek marketing approval for such candidates if clinical trials are successful. Our expenses will also increase substantially if and as we:

• conduct additional clinical trials and studies of our product candidates;

• continue to discover and develop additional product candidates;

• establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;

• establish manufacturing and supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain marketing approval;

• maintain, expand and protect our intellectual property portfolio;

• hire additional clinical, scientific and commercial personnel;

• add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company; and

• acquire or in-license other product candidates and technologies.

If our product candidates fail to demonstrate safety and efficacy in clinical trials, do not gain regulatory approval, or do not achieve market acceptance following regulatory approval and commercialization, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.

Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to predict the extent of any future losses or when, if ever, we will become profitable. Our expenses could increase if we are required by the FDA, or any comparable foreign regulatory authority to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates.

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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.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete. We expect that our expenses will increase substantially as we commence and advance our planned clinical trials and other studies of SPR994, SPR720 and SPR206, seek marketing approval for SPR994 if clinical trials are successful, and evaluate the advancement of our other product candidates. If we obtain marketing approval for SPR994 or any other product candidate, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Some of these expenses may be incurred in advance of marketing approval, and could be substantial. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations, licensing arrangements, government funding or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy.

We believe that our existing cash, cash equivalents and marketable securities as of September 30, 2018, together with the initial funding committed under our BARDA award in July 2018, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2020, including through the top-line data readout of our planned pivotal Phase 3 clinical trial of SPR994. Our cash forecasts are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

• the timing and costs of our ongoing and planned clinical trials of SPR994;

• the timing and costs of potential clinical trials for other product candidates;

• the initiation, progress, timing, costs and results of preclinical studies and clinical trials of our other product candidates and potential product candidates;

• the amount of funding that we receive under our government awards;

• the number and characteristics of product candidates that we pursue;

• the outcome, timing and costs of seeking regulatory approvals;

• the costs of commercialization activities for SPR994 and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

• the receipt of marketing approval and revenue received from any potential commercial sales of SPR994;

• the terms and timing of any future collaborations, licensing or other arrangements that we may establish;

• the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

• the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property related claims;

• the costs of operating as a public company; and

• the extent to which we in-license or acquire other products and technologies.

As of July 2018, our non-dilutive sources of funding consisted of awards from CARB-X and the DoD that provide partial funding for the development of our Potentiator Platform product candidates, including SPR741, an award from NIAID under its Small Business Innovation Research program or SBIR, for our SPR720 program, an award from NIAID for SPR206, and most recently, an award from BARDA for SPR994.

Our DoD cooperative agreement is structured as a single, two-year $1.5 million award. We are eligible for the full funding from the DoD and there are no options to be exercised at a later date. The NIAID SBIR award is structured as a base period followed by a single option. For the base period of March 1, 2017 through February 28, 2018, NIAID committed funding of approximately $0.6 million for the SPR720 program. In February 2018 NIAID exercised the approximately $0.4 million option, which will have a period of performance from March 1, 2018 through February 28, 2019. The NIAID contract for SPR206 provides for total development funding of up to $6.3 million over a base period and three option periods. To date, funding for the base period and the first two option periods totaling $5.7 million have been committed. The CARB-X award is structured as a base period followed by two sequential options. In March 2017, CARB-X committed funds of $1.5 million to support SPR741 development efforts for the period

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from April 1, 2017 to March 31, 2018. On March 12, 2018, CARB-X committed an additional $0.4 million related to the first option for a period from December 1, 2017 to March 31, 2018. There will be no additional options exercised under the CARB-X award. The NIAID and CARB-X awards are subject to termination for convenience at any time by NIAID and CARB-X. Neither organization is obligated to provide funding to Spero beyond the base period amounts from Congressionally approved annual appropriations.

The BARDA award commits funding of $15.7 million over a three-year base period from July 1, 2018 to June 30, 2021. The balance of the award is subject to BARDA exercising two options. As part of our SPR994 collaboration with BARDA described above, there will be studies assessing the efficacy of SPR994 in treatment of infections caused by biodefense threats such as anthrax, plague, and melioidosis, including a possible clinical trial in pneumonia patients. The nonclinical biodefense studies will be conducted by USAMRIID under the direction of the Company. The Defense Threat Reduction Agency, or DTRA, will provide up to $10.0 million in addition to the total potential $44.2 million from BARDA, to cover the cost of the nonclinical biodefense aspects of the collaboration program. While such funding would be for the purpose of developing SPR994 in these areas, we will not receive any funds from DTRA.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Unless and until we can generate a substantial amount of revenue from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings or collaborations, licensing arrangements and government funding arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our then existing stockholders may be materially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely affect our ability to conduct our business. In addition, securing additional financing would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2017, we had U.S. federal, state and foreign net operating loss carryforwards, or NOLs, of $76.4 million, $76.0 million and $4.3 million, respectively. Our NOLs begin to expire in 2033. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured. These NOLs could expire unused and be unavailable to offset our future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership by 5% stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change income may be limited. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our NOLs is subject to an annual limitation under Section 382. In addition, we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical NOLs is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

Under recently enacted U.S. federal tax legislation, although the treatment of net operating loss carryforwards arising in tax years beginning on or before December 31, 2017 has generally not changed, net operating loss carryforwards arising in tax years beginning after December 31, 2017 may be used to offset only 80% of taxable income. In addition, net operating losses arising in tax years beginning after December 31, 2017 may be carried forward indefinitely, as opposed to the 20-year carryforward under prior law.

We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.

We were established in 2013 and began operations in 2014. Our operations to date have been limited to financing and staffing our company, developing our technology and developing SPR994 and our other product candidates. We have not yet demonstrated an ability to successfully complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product

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commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

We will need to transition from a development-focused company to a company with commercial activities, and we may experience difficulties in managing this transition, which could disrupt our operations.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, stockholders should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

Risks Related to Product Development and Commercialization

We are heavily dependent on the success of SPR994, which is still under development, and our ability to develop, obtain marketing approval for and successfully commercialize SPR994. If we are unable to develop, obtain marketing approval for and successfully commercialize SPR994, or if we experience significant delays in doing so, our business could be materially harmed.

We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of SPR994 as a product candidate for the treatment of MDR bacterial infections. Our near-term prospects are substantially dependent on our ability to develop, obtain marketing approval for and successfully commercialize SPR994. The success of SPR994 will depend on several factors, including the following:

• successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

• receipt of marketing approvals from applicable regulatory authorities;

• establishment of arrangements with third-party manufacturers to obtain manufacturing supply;

• obtainment and maintenance of patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with Meiji with respect to SPR994;

• protection of our rights in our intellectual property portfolio;

• launch of commercial sales of SPR994, if approved, whether alone or in collaboration with others;

• acceptance of SPR994, if approved, by patients, the medical community and third-party payors;

• competition with other therapies; and

• a continued acceptable safety profile of SPR994 following approval.

Successful development of SPR994 for any additional indications would be subject to these same risks.

Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for, or successfully commercialize SPR994, or if we experience delays as a result of any of these factors or otherwise, our business could be materially harmed.

We have no experience as a company in obtaining regulatory approval for a drug.

As a company, we have never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to accept any or all of our planned new drug applications, or NDAs, for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval for any current or future product candidates. If the FDA does not approve any of our planned NDAs, it may require that we conduct additional costly clinical, nonclinical or manufacturing validation studies before it will reconsider our applications. Depending on the extent of these or any other FDA-required studies, approval of any NDA or other application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any failure or delay in obtaining regulatory approvals would prevent us from commercializing SPR994 or any of our other product candidates for which we may seek regulatory approval, generating revenues and achieving and sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDA or other application that we submit. If any of these outcomes occur, we may be forced to abandon the development of our product candidates, which would materially adversely affect our business and could potentially cause us to cease operations. We face similar risks for our applications in foreign jurisdictions.

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If clinical trials of SPR994 or any other product candidate that we may advance to clinical trials 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 SPR994 or any other product candidate.

We may not commercialize, market, promote, or sell any product candidate in the United States without obtaining marketing approval from the FDA or in other countries without obtaining approvals from comparable foreign regulatory authorities, such as the European Medicines Agency, or EMA, and we may never receive such approvals. We must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted an NDA to the FDA or similar applications to comparable foreign regulatory authorities for any of our product candidates.

The clinical development of SPR994 and any of our other product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy in a trial or across a broad population of patients, the occurrence of severe adverse events, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any comparable foreign regulatory authority that a drug product is not approvable. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after promising results in earlier nonclinical studies or clinical trials. The results of preclinical and other nonclinical studies and/or early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Notwithstanding any promising results in early nonclinical studies or clinical trials, we cannot be certain that we will not face similar setbacks. For example, although SPR994 is a new formulation of the active pharmaceutical ingredient tebipenem that exhibited a favorable safety and efficacy profile during clinical trials conducted by Meiji and a global pharmaceutical company, which we refer to as Global Pharma, in Japan, we may nonetheless fail to achieve success in our clinical trials. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of our clinical trials warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants, among others. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one of the factors listed or otherwise. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials, we may fail to detect toxicity of or intolerability of our product candidates or may determine that our product candidates are toxic or not well tolerated when that is not in fact the case. In the case of our clinical trials, results may differ on the basis of the type of bacteria with which patients are infected. We cannot make assurances that any clinical trials that we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

We may encounter unforeseen events prior to, during, or as a result of, clinical trials that could delay or prevent us from obtaining regulatory approval for SPR994 or any of our other product candidates, including:

• the FDA or other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials;

• we may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

• clinical trials of our product candidates may produce unfavorable or inconclusive results;

• we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

• the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate participants may drop out of these clinical trials at a higher rate than we anticipate or we may fail to recruit suitable patients to participate in a trial;

• our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

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• the FDA or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

• we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;

• regulators or institutional review boards may require that we or our investigators suspend or terminate clinical trials of our product candidates for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;

• the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies;

• the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

• the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards, or IRBs, of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, if any, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, or changes in governmental regulations or administrative actions.

If we are required to conduct additional clinical trials or other testing of SPR994 or any other product candidate beyond the trials and testing that we contemplate, if we are unable to successfully complete clinical trials or other testing of our product candidates, if the results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with SPR994 or any other product candidate, we may:

• incur additional unplanned costs;

• be delayed in obtaining marketing approval for our product candidates;

• not obtain marketing approval at all;

• obtain approval for indications or patient populations that are not as broad as intended or desired;

• obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

• be subject to additional post-marketing testing or other requirements; or

• be required to remove the product from the market after obtaining marketing approval.

Our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business. Our product candidate development costs will also increase if we experience delays in testing or marketing approvals and we may be required to obtain additional funds to complete clinical trials. We cannot make assurances that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays of clinical trials may ultimately lead to the denial of regulatory approval of SPR994 or any other product candidate.

If we experience delays or difficulties in the enrollment of patients in clinical trials, clinical development activities could be delayed or otherwise adversely affected.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may not be able to initiate, continue or complete clinical trials of SPR994 or any other product candidate that we develop if we are unable to locate and enroll a sufficient number of eligible

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patients to participate in clinical trials as required by the FDA or comparable foreign regulatory authorities, such as the EMA. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:

• the size and nature of the patient population;

• the severity of the disease under investigation;

• the proximity of patients to clinical sites;

• the eligibility criteria for participation in the clinical trial;

• the design of the clinical trial;

• our ability to recruit clinical trial investigators with appropriate experience;

• competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications that we are investigating;

• our ability to obtain and maintain patient consents; and

• the risk that patients enrolled in clinical trials will drop out of the trials before completion.

The inclusion and exclusion criteria for our contemplated Phase 3 clinical trial of SPR994 may adversely affect our enrollment rates for patients in these trials. In addition, many of our competitors also have ongoing clinical trials for product candidates that would treat the same indications as we contemplate for SPR994 or our other product candidates, and patients who would otherwise be eligible for any clinical trials we may conduct for such product candidates may instead enroll in clinical trials of our competitors’ product candidates.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, slow down or halt our product candidate development and approval process and jeopardize our ability to seek and obtain the marketing approval required to commence product sales and generate revenue, which would cause the value of our company to decline and limit our ability to obtain additional financing if needed.

Future legislation, and/or regulations and policies adopted by the FDA, the EMA or similar regulatory authorities may increase the time and cost required for us to conduct and complete clinical trials of SPR994 and our other product candidates and potential product candidates.

The FDA has established regulations to govern the drug development and approval process, as have foreign regulatory authorities. The policies of the FDA and other regulatory authorities may change and additional laws may be enacted or government regulations may be promulgated that could prevent, limit, delay but also accelerate regulatory review of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and spur innovation, but all of its provisions have not yet been implemented. Among other things, the Cures Act provides a new “limited population” pathway for certain antibacterial and antifungal drugs, or LPAD, but the FDA has not yet issued guidance regarding the LPAD. Additionally, in August 2017, FDA issued final guidance setting forth its current thinking with respect to development programs and clinical trial designs for antibacterial drugs to treat serious bacterial diseases in patients with an unmet medical need. We cannot predict what if any effect the Cures Act or any existing or future guidance from FDA will have on the development of our product candidates.

Our clinical program for SPR994 is subject to a number of specific risks that may affect the outcome of the trial, including the use of a new formulation of the active pharmaceutical ingredient, tebipenem.

Our planned pivotal Phase 3 clinical trial of SPR994 is subject to a number of specific risks arising from our clinical program and the design of the trial. We have not conducted a clinical trial of SPR994 in patients with cUTI, who will be the subjects of the clinical trial, and we have no direct clinical evidence that SPR994 is effective in treating cUTIs in humans. Although we believe that SPR994 has the potential to treat cUTI in humans based on the results of our nonclinical in vitro and in vivo animal model studies, together with Meiji’s and Global Pharma’s Phase 2 clinical trial results, these results are not necessarily predictive of the results of our planned clinical trials and we cannot guarantee that SPR994 will demonstrate the expected efficacy in our planned pivotal Phase 3 clinical trial patients. We also cannot guarantee that the projections made from the pharmacokinetic and pharmacodynamic models that we developed from our nonclinical and clinical SPR994 studies will be validated in our planned pivotal Phase 3 clinical trial.

In addition, we may face competition in enrolling suitable patients as a result of other companies conducting clinical trials for antibiotic product candidates that are intended to treat similar infections, resulting in slower than anticipated enrollment in our trials.

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Enrollment delays in the trial may result in increased development costs for SPR994, or slow down or halt our product development for SPR994.

To support our accelerated clinical development strategy for SPR994, 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 SPR994 with the FDA could be materially delayed and we may incur material additional costs.

There are significant differences in the trial design for the two exploratory Phase 2 clinical trials conducted by Meiji and Global Pharma in Japan compared to the clinical trial design described by the FDA in its guidance for clinical trials in patients with cUTI, including:

• The studies were not randomized and were open-label and had no comparator arm. Treatment assignments were made by the investigators.

• The inclusion criteria specified complicated UTI as an entry criterion, but other than retained residual volume (100 ml) there were no other criteria defining “complicated” UTI.

• While L-084 04 excluded patients who received prior antibiotics and who had no clinical response, there were no parameters or limits for inclusion (e.g., less than 24 hours of a potentially effective antibiotic or number of doses). ME1211 did not specifically mention prior antibiotic use.

• While urine cultures were obtained at baseline, these were not quantitative, and there was no minimum requirement for bacterial load for entry.

• While microbiological outcome was assessed, the definitions did not include a minimum reduction in bacterial counts (i.e., a reduction to less than 10⁴ cfu/ml).

• Clinical outcomes were global assessments by the investigators and did not specifically mention the resolution of baseline signs and symptoms.

• The primary endpoint was not a composite of both clinical and microbiological outcomes.

If our planned pivotal Phase 3 clinical trial of SPR994 does not yield data that confirm the clinical and microbiological efficacy of SPR994 as suggested by the results from the Phase 2 clinical trials conducted by Meiji and Global Pharma, then our clinical pathway for SPR994 could be delayed and our business could be materially harmed.

Preliminary or interim data from our clinical studies that we announce or publish from time to time, including preliminary data from our Phase 1 clinical trial of SPR994 and our dose-selection findings, 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.

Preliminary or interim data from our clinical studies are not necessarily predictive of final data. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change, as more patient data become available and we issue our final clinical study report. Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could affect our planned clinical path for SPR994, including potentially increasing cost and/or causing delay in such development.

Serious adverse events or undesirable side effects or other unexpected properties of SPR994 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.

Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, an institutional review board, or regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label, the imposition of distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If SPR994 or any of our other product candidates is associated with serious or unexpected adverse events or undesirable side effects, the FDA, the IRBs at the institutions in which our studies are conducted, or a DSMB, could suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

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While the active pharmaceutical ingredient in SPR994, tebipenem, is approved in Japan, our formulation of tebipenem, SPR994, has not yet been tested in patients. There may be unforeseen serious adverse events or side effects that differ from those seen in the Japanese studies. To date, patients treated with the active ingredient in SPR994 have experienced drug-related side effects including diarrhea, temporary increases in hepatic enzymes, allergic reactions, rash, and convulsions. To date, SPR994 has generally been well tolerated in clinical trials conducted in healthy subjects and there have been no reports of serious adverse events related to SPR994, but additional adverse events may emerge in any subsequent clinical trials.

If unexpected adverse events occur in any of our planned clinical trials, we may need to abandon development of our product candidates, or limit development to lower doses or to certain uses or subpopulations in which the undesirable side effects or other unfavorable characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing are later found to cause undesirable or unexpected side effects that prevented further development of the compound.

Undesirable side effects or other unexpected adverse events or properties of SPR994 or any of our other product candidates could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or could deny approval of, SPR994 or our other product candidates. If such an event occurs after such product candidates are approved, a number of potentially significant negative consequences may result, including:

• regulatory authorities may withdraw the approval of such product;

• we may be required to recall a product or change the way such product is administered to patients;

• regulatory authorities may require additional warnings on the label or impose distribution or use restrictions;

• regulatory authorities may require one or more post-market studies;

• regulatory authorities may require the addition of a “black box” warning;

• we may be required to implement a REMS including the creation of a medication guide outlining the risks of such side effects for distribution to patients;

• we could be sued and held liable for harm caused to patients;

• our product may become less competitive; and

• our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate, if approved, or could substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenue from the sale of our products and harm our business and results of operations.

A Phase 2 clinical trial of SPR741 would be subject to a number of specific risks that may affect the outcome of the trials, including the need to co-administer SPR741 with a companion antibiotic and identifying available development funding.

A Phase 2 clinical trial of SPR741 would be subject to a number of specific risks arising from our clinical program and the design of the trial. We have not conducted a clinical trial of SPR741 in patients with cUTI, who would be the subjects of any such clinical trial, and we have no direct clinical evidence that SPR741 as a potentiator in combination with a partner antibiotic has the potential to treat cUTI in humans. Although we believe that SPR741 as a potentiator in combination with a partner antibiotic has the potential to treat cUTI in humans based upon our nonclinical in vitro and in vivo animal model study results, these results are not necessarily predictive of the results in humans. We cannot guarantee that SPR741 as a potentiator in combination with a partner antibiotic will demonstrate the efficacy we expect to observe in patients in a Phase 2 clinical trial of SPR741. We also cannot guarantee that the projections made from the pharmacokinetic and pharmacodynamic models that we developed from our nonclinical and clinical SPR741 studies would be validated in a Phase 2 clinical trial.

In addition, we may face competition in enrolling suitable patients in any such trial as a result of other companies conducting clinical trials for antibiotic product candidates that are intended to treat similar infections, resulting in slower than anticipated enrollment in our trials. Enrollment delays in any such trial may result in increased development costs for SPR741, or slow down or halt our product development and approval process for SPR741.

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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.

Even if we obtain FDA or other regulatory approvals and are able to launch SPR994 or any other product candidate commercially, the product candidate may not achieve market acceptance among physicians, patients, hospitals (including pharmacy directors) and third-party payors and, ultimately, may not be commercially successful. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of coverage and reimbursement for existing therapies. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:

• the efficacy and safety of the product candidate as demonstrated in clinical trials;

• relative convenience and ease of administration;

• the clinical indications for which the product candidate is approved;

• the potential and perceived advantages and disadvantages of the product candidates, including cost and clinical benefit relative to alternative treatments;

• the willingness of physicians to prescribe the product;

• the willingness of hospital pharmacy directors to purchase the product for their formularies;

• acceptance by physicians, patients, operators of hospitals and treatment facilities and parties responsible for coverage and reimbursement of the product;

• the availability of coverage and adequate reimbursement by third-party payors and government authorities;

• the effectiveness of our sales and marketing efforts;

• the strength of marketing and distribution support;

• limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling or an approved risk evaluation and mitigation strategy;

• whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;

• the approval of other new products for the same indications;

• the timing of market introduction of the approved product as well as competitive products;

• adverse publicity about the product or favorable publicity about competitive products;

• the emergence of bacterial resistance to the product; and

• the rate at which resistance to other drugs in the target infections grows.

Any failure by SPR994 or any other product candidate that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our business prospects.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that we identify as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.

Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product candidate.

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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 SPR994 or any other product candidate if such product candidate is approved.

We do not have a sales, marketing or distribution infrastructure and we have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource those functions to third parties. We intend to build a commercial organization in the United States and recruit experienced sales, marketing and distribution professionals. The development of sales, marketing and distribution capabilities will require substantial resources, will be time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire a sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that we intend to target. If we are unable to establish a sales force and marketing and distribution capabilities, our operating results may be adversely affected.

Factors that may inhibit our efforts to commercialize our products on our own include:

• our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

• the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;

• the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

• unforeseen costs and expenses associated with creating an independent sales and marketing organization.

We intend to use collaborators to assist with the commercialization of SPR994 and any other product candidate outside the United States. As a result of entering into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us would likely be lower than if we were to directly market and sell products in those markets.

Furthermore, we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we likely would have little control over such third parties, and any of them might fail to devote the necessary resources and attention to sell and market our products effectively.

If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

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

The development and commercialization of new drug products is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to SPR994 and our other product candidates that we may seek to develop and commercialize in the future. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of resistant infections. Potential competitors also include academic institutions, government agencies and other public and private research organizations. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than SPR994 or any other product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.

There are a variety of available oral therapies marketed for the treatment urinary tract infections that we would expect would compete with SPR994, such as Levaquin, Cipro and Bactrim. Many of the available therapies are well established and widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products, for example in the fluoroquinolone class. However, the susceptibility of urinary tract pathogens to the existing treatment alternatives is waning. If SPR994 is approved, the pricing may be at a significant premium over other competitive products. This may make it difficult for SPR994 to compete with these products.

There are also a number of oral product candidates in clinical development by third parties that are intended to treat UTIs. Some mid- to late-stage product candidates include ceftibuten/clavulanate (“C-Scape”) from Achaogen, Inc., sulopenem from Iterum Therapeutics Limited, and omadacycline from Paratek Pharmaceuticals, Inc. If our competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their product candidates more rapidly than us, it could result in our competitors establishing a strong market position before we are able to enter the market.

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There are several IV-administered products marketed for the treatment of infections resistant to first-line therapy for Gram-negative infections, including ceftazidime-avibactam (“Avycaz”) from Allergan plc and Pfizer Inc., ceftolozane-tazobactam (“Zerbaxa”) from Merck & Co., plazomicin (“Zemdri”) from Achaogen, Inc, eravacycline (“Xerava”) from Tetraphase Pharmaceuticals, Inc., and meropenem-vaborbactam (“Vabomere”) from Melinta Therapeutics, Inc. There are also a number of IV-administered product candidates in late-stage clinical development that are intended to treat resistant Gram-negative infections, including cefiderocol from Shionogi & Co. Ltd., and imipenem-relebactam from Merck & Co.    

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

In July 2012, the Food and Drug Administration Safety and Innovation Act was passed, which included the Generating Antibiotics Incentives Now Act, or the GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease products. In December 2016, the Cures Act was passed, providing additional support for the development of new infectious disease products. These incentives may result in more competition in the market for new antibiotics, and may cause pharmaceutical and biotechnology companies with more resources than we have to shift their efforts towards the development of product candidates that could be competitive with SPR994 and our other product candidates.

Even if we are able to commercialize SPR994 or any other product candidate, the product may become subject to unfavorable pricing regulations, or third-party payor coverage and reimbursement policies that could harm our business.

Marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which may negatively affect the revenues that we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

We currently expect that some of our product candidates, if approved, will be administered in a hospital inpatient setting. In the United States, governmental and other third-party payors generally reimburse hospitals a single bundled payment established on a prospective basis intended to cover all items and services provided to the patient during a single hospitalization. Hospitals bill third-party payors for all or a portion of the fees associated with the patient’s hospitalization and bill patients for any deductibles or co-payments. Because there is typically no separate reimbursement for drugs administered in a hospital inpatient setting, some of our target customers may be unwilling to adopt our product candidates in light of the additional associated cost. If we are forced to lower the price we charge for our product candidates, if approved, our gross margins may decrease, which would adversely affect our ability to invest in and grow our business.

To the extent SPR994 or any other product candidate we develop is used in an outpatient setting, the commercial success of our product candidates will depend substantially, both domestically and abroad, on the extent to which coverage and reimbursement for these products and related treatments are available from government health programs and third-party payors. If coverage is not available, or reimbursement is limited, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investments. Government authorities and third-party payors, such as health insurers and managed care organizations, publish formularies that identify the medications they will cover and the related payment levels. The healthcare industry is focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably.

Increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for SPR994 or any other product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for outpatient drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any approved products used on an outpatient basis that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

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We cannot predict whether bacteria may develop resistance to SPR994 or our other product candidates, which could affect their revenue potential.

We are developing SPR994 and certain of our other product candidates to treat drug-resistant bacterial infections. The bacteria responsible for these infections evolve quickly and readily transfer their resistance mechanisms within and between species. We cannot predict whether or when bacterial resistance to SPR994 or any of such other product candidates may develop.

As a carbapenem, SPR994 is not active against organisms expressing a resistance mechanism mediated by enzymes known as carbapenemases. Although occurrence of this resistance mechanism is currently rare, we cannot predict whether carbapenemase-mediated resistance will become widespread in regions where we intend to market SPR994 if it is approved. The growth of drug resistant infections in community settings or in countries with poor public health infrastructures, or the potential use of SPR994 or any of our other product candidates outside of controlled hospital settings, could contribute to the rise of resistance. If resistance to SPR994 or any of our other product candidates becomes prevalent, our ability to generate revenue from SPR994 or such product candidates could suffer.

If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although a substantial amount of our efforts will focus on planned clinical trials and potential approval of our lead product candidate, SPR994, our Potentiator Platform product candidates, SPR741 and SPR206, and SPR720, a key element of our strategy is to discover, develop and commercialize a portfolio of therapeutics to treat drug resistant bacterial infections. We are seeking to do so through our internal research programs and are exploring, and intend to explore in the future, strategic partnerships for the development of new product candidates. Other than SPR994 and SPR741, all of our potential product candidates remain in the discovery and preclinical stages.

Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

• the research methodology used may not be successful in identifying potential product candidates;

• we may be unable to successfully modify candidate compounds to be active in Gram-negative bacteria or defeat bacterial resistance mechanisms or identify viable product candidates in our screening campaigns;

• competitors may develop alternatives that render our product candidates obsolete;

• product candidates that we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

• a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

• a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;

• a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors; and

• the development of bacterial resistance to potential product candidates may render them ineffective against target infections.

If we are unsuccessful in identifying and developing additional product candidates, our potential for growth may be impaired.

Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates despite obtaining appropriate informed consents from our clinical trial participants. We will face an even greater risk if we obtain marketing approval for and commercially sell SPR994 or any other product candidate. For example, we may be sued if any product that we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

• reduced resources for our management to pursue our business strategy;

• decreased demand for our product candidates or products that we may develop;

• injury to our reputation and significant negative media attention;

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• withdrawal of clinical trial participants;

• initiation of investigations by regulators;

• product recalls, withdrawals or labeling, marketing or promotional restrictions;

• significant costs to defend resulting litigation;

• substantial monetary awards to trial participants or patients;

• loss of revenue; and

• the inability to commercialize any products that we may develop.

Although we maintain general liability insurance and clinical trial liability insurance, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if and when we receive marketing approval for and begin selling SPR994 or any other product candidate. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, which could adversely affect our business, financial condition, results of operations and prospects.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

We maintain workers’ compensation insurance to cover us for costs and expenses that we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. Moreover, we do not currently maintain insurance for environmental liability or toxic tort claims that may be asserted against us.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

Our internal computer systems, or those of our contract research organizations or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs, and could subject us to liability.

We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As the use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects.

Despite the implementation of security measures, our internal computer systems and those of our contract research organizations and other contractors and consultants are vulnerable to damage or disruption from hacking, computer viruses, software bugs, unauthorized access, natural disasters, terrorism, war, and telecommunication, equipment and electrical failures. While we have not, to our knowledge, experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our product candidates could result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure or theft of confidential or proprietary information, we could incur liability, the further development of our product candidates could be delayed or our competitive position could be compromised.

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Any such disruption or security breach, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the United States and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. Federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly moving nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful.

In addition, the European Parliament and the Council of the European Union adopted a comprehensive general data privacy regulation (“GDPR”) in 2016 to replace the current European Union Data Protection Directive and related country-specific legislation. The GDPR took effect in May 2018 and governs the collection and use of personal data in the European Union. The GDPR, which is wide-ranging in scope, will impose several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States, enhances enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater.

Risks Related to Our Dependence on Third Parties

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.

Although we expect to commercialize SPR994 ourselves in the United States, we intend to commercialize it outside the United States through collaboration arrangements. If we develop SPR741 to be co-administered in combination with branded and not generic antibiotic compounds, then we will be required to obtain and maintain rights from third-party collaborators for the development and commercialization of SPR741 co-administered with such other branded antibiotic compounds. In addition, we may seek third-party collaborators for development and commercialization of certain of our product candidates. Our likely collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangements.

We may derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative arrangement into which we enter. Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the future success of a product candidate that we license to a third party.

We face significant competition in seeking and obtaining appropriate collaborators. Collaborations involving our product candidates may pose a number of risks, including the following:

• collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

• collaborators may not perform their obligations as expected;

• collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

• collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

• product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

• a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

• disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product

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candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

• collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

• collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

• collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.

We may have to alter our development and commercialization plans if we are not able to establish collaborations.

We will require additional funds to complete the development and potential commercialization of SPR994 and our other product candidates. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For SPR741, if we develop such product candidate to be co-administered in combination with branded and not generic antibiotic compounds, we will be required to obtain and maintain rights from third-party collaborators for such development and commercialization of SPR741 co-administered with such collaborator’s branded antibiotic compound. Moreover, we intend to utilize a variety of types of collaboration arrangements for the potential commercialization of our product candidates outside the United States.

We face significant competition in seeking and obtaining appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include:

• the design or results of clinical trials;

• the likelihood of approval by the FDA or comparable foreign regulatory authorities;

• the potential market for the subject product candidate;

• the costs and complexities of manufacturing and delivering such product candidate to patients;

• the potential for competing products;

• our patent position protecting the product candidate, including any uncertainty with respect to our ownership of our technology or our licensor’s ownership of technology we license from them, which can exist if there is a challenge to such ownership without regard to the merits of the challenge;

• the need to seek licenses or sub-licenses to third-party intellectual property; and

• industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market and our business may be materially and adversely affected.

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We rely on third parties to conduct all of our preclinical studies and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our product candidates. If they do not perform satisfactorily, our business may be materially harmed.

We do not independently conduct nonclinical studies that comply with GLP requirements. We also do not have the ability to independently conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions, and clinical investigators, to conduct our clinical trials of SPR994 or our other product candidates and expect to rely on these third parties to conduct clinical trials of our other product candidates and potential product candidates. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities and increase our costs.

Our reliance on these third parties for clinical development activities limits our control over these activities but we remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards. For example, notwithstanding the obligations of a contract research organization for a trial of one of our product candidates, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial and applicable regulatory requirements. While we will have agreements governing their activities, we control only certain aspects of their activities and have limited influence over their actual performance. The third parties with whom we contract for execution of our GLP studies and our clinical trials play a significant role in the conduct of these studies and trials and the subsequent collection and analysis of data. Although we rely on these third parties to conduct our GLP-compliant nonclinical studies and clinical trials, we remain responsible for ensuring that each of our nonclinical studies and clinical trials are conducted in accordance with applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. The FDA and regulatory authorities in other jurisdictions also require us to comply with standards, commonly referred to as good clinical practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to assure that data and reported results are accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and institutional review boards. If we or our third-party contractors fail to comply with applicable GCP standards, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our product candidates, which would delay the regulatory approval process. We cannot make assurances that, upon inspection, the FDA will determine that any of our clinical trials comply with GCP. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercial prospects for SPR994 or our other product candidates could be harmed, our costs could increase and our ability to generate revenue could be delayed, impaired or foreclosed.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of any resulting products, producing additional losses and depriving us of potential product revenue.

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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.

We do not currently have nor do we plan to build the internal infrastructure or capability to manufacture SPR994 or our other product candidates for use in the conduct of our preclinical research, our clinical trials or for commercial supply. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture supplies of SPR994 and our other product candidates, and we expect to rely on third-party contract manufacturers to manufacture commercial quantities of any product candidate that we commercialize following approval for marketing by applicable regulatory authorities, if any. Reliance on third-party manufacturers entails risks, including:

• manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between us;

• the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;

• the possible breach of the manufacturing agreement by the third party;

• the failure of the third-party manufacturer to comply with applicable regulatory requirements; and

• the possible misappropriation of our proprietary information, including our trade secrets and know-how.

We currently rely on a small number of third-party contract manufacturers for all of our required raw materials, drug substance and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates. If any of our existing manufacturers should become unavailable to us for any reason, we may incur delays in identifying or qualifying replacements.

If any of our product candidates are approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. This process is difficult and time consuming and we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our commercialization.

Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States. Facilities used by our third-party manufacturers must be approved by the FDA after we submit an NDA and before potential approval of the product candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of our product candidates. The inability or failure of our manufacturers to successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, may require us to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate. In addition, our manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being 36 imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and have a material adverse effect on our business, financial condition and results of operations.

Our current and anticipated future dependence upon others for the manufacture of SPR994 and our other product candidates and potential product candidates may adversely affect our future profit margins and our ability to commercialize any products for which we receive marketing approval on a timely and competitive basis.

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If we fail to comply with our obligations in the agreements under which we in-license or acquire development or commercialization rights to products, technology or data from third parties, including those for SPR994, we could lose such rights that are important to our business.

We are a party to agreements with Meiji for SPR994, Northern for SPR741, Vertex Pharmaceuticals for SPR720 and PBB Distributions Limited for SPR206, and we may enter into additional agreements, including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance and other obligations on us.

For example, we have an exclusive know-how license with Meiji, or the Meiji License, that gives Spero rights outside of specified countries in Asia to develop, manufacture, and commercialize SPR994 as well as the right to use, cross-reference, file or incorporate by reference any information and relevant Meiji regulatory documentation to support any regulatory filings outside of Asia. In addition, Spero has the right to develop, manufacture and have manufactured SPR994 in Asia solely for the purpose of furthering development, manufacturing and commercialization of SPR994 outside of Asia. In exchange for those rights, Spero is obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize SPR994 and to implement a specified development plan, meeting specified development milestones and providing an update on progress on an annual basis. The Meiji License requires us to pay milestone payments of up to $3.0 million upon the achievement of specified clinical and regulatory milestones and royalties of a low single-digit percentage on net sales on a country-by-country basis.

If we fail to comply with our obligations to Meiji or any of our other partners, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, which could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

Risks Related to Our U.S. Government Contracts and to Certain Grant Agreements

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.

We have received significant non-dilutive financing from various government agencies for the further development of our product candidates. Such funding sources may pose risks to us not encountered in other commercial contracts, including significant regulatory compliance risks. Contracts funded by the U.S. government and its agencies include provisions that reflect the government’s substantial public policy and compliance requirements, and substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

• terminate agreements, in whole or in part, for any reason or no reason;

• reduce or modify the government’s obligations under such agreements without the consent of the contractor;

• claim rights, including intellectual property rights, in products and data developed under such agreements;

• audit contract-related costs and fees, including allocated indirect costs;

• suspend the contractor from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

• impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

• suspend or debar the contractor or grantee from doing future business with the government;

• control and potentially prohibit the export of products; and

• pursue criminal or civil remedies under the False Claims Act, or the FCA, the False Statements Act and similar remedy provisions specific to government agreements.

We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts.

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In addition, government contracts and grants, and subcontracts and subawards awarded in the performance of those contracts and grants, normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

• specialized accounting systems unique to government awards;

• mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

• public disclosures of certain award information, which may enable competitors to gain insights into our research program; and

• mandatory socioeconomic compliance requirements, including labor standards, anti-human-trafficking, non-discrimination and affirmative action programs, energy efficiency and environmental compliance requirements.

If we fail to maintain compliance with these requirements, we may be subject to potential contract or FCA liability and to termination of our contracts.

U.S. government agencies have special contracting requirements that give them the ability to unilaterally control our contracts.

U.S. government contracts typically contain unfavorable termination provisions and are subject to audit and modification by the government at its sole discretion, which will subject us to additional risks. These risks include the ability of the U.S. government to unilaterally:

• audit and object to our government contract-related costs and fees, and require us to reimburse all such costs and fees;

• suspend or prevent us for a set period of time from receiving new contracts or extending our existing contracts based on violations or suspected violations of laws or regulations;

• cancel, terminate or suspend our contracts based on violations or suspected violations of laws or regulations;

• terminate our contracts if in the government’s interest, including if funds become unavailable to the applicable governmental agency;

• reduce the scope and value of our contract; and

• change certain terms and conditions in our contract.

The U.S. government will be able to terminate any of its contracts with us, either for convenience or if we default by failing to perform in accordance with or to achieve the milestones set forth in the contract schedules and terms. Termination-for-convenience provisions generally enable us to recover only our costs incurred or committed and settlement expenses on the work completed prior to termination. Except for the amount of services received by the government, termination-for-default provisions do not permit these recoveries and would make us liable for excess costs incurred by the U.S. government in procuring undelivered items from another source.

Our business is subject to audit by the U.S. government and other potential sources for grant funding, including under our contracts with BARDA, NIAID, DoD, and CARB-X, and a negative outcome in an audit could adversely affect our business

U.S. government agencies such as the Department of Health and Human Services, or the DHHS, and the Defense Contract Audit Agency, or the DCAA, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards.

The DHHS and the DCAA also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be paid, while such costs already paid must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including:

• termination of contracts;

• forfeiture of profits;

• suspension of payments;

• fines; and

• suspension or prohibition from conducting business with the U.S. government.

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In addition, we could suffer serious reputational harm if allegations of impropriety were made against us, which could cause our stock price to decrease.

Laws and regulations affecting government contracts make it more expensive and difficult for us to successfully conduct our business.

We must comply with numerous laws and regulations relating to the formation, administration and performance of government contracts, which can make it more difficult for us to retain our rights under our government contracts. These laws and regulations affect how we conduct business with government agencies. Among the most significant government contracting regulations that affect our business are:

• the Federal Acquisition Regulations, or the FAR, and agency-specific regulations supplemental to the FAR, which comprehensively regulate the procurement, formation, administration and performance of government contracts;

• business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and include other requirements such as the Anti-Kickback Statute and the Foreign Corrupt Practices Act;

• export and import control laws and regulations; and

• laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

These requirements change frequently, such as through appropriations bills or executive orders. Any changes in applicable laws and regulations could restrict our ability to maintain our existing BARDA and other government contracts and obtain new contracts, which could limit our ability to conduct our business and materially adversely affect our results of operations.

Provisions in our U.S. government contracts, including our contracts with BARDA, may affect our intellectual property rights.

Certain of our activities have been funded, and may in the future be funded, by the U.S. government, including through our contracts with BARDA. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents, including the right to a nonexclusive license authorizing the government to use the invention and rights that may permit the government to disclose our confidential information to third parties and to exercise “march-in” rights. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, U.S. government-funded inventions must be reported to the government, U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions may be subject to certain requirements to manufacture products in the United States.

Risks Related to Our Intellectual Property

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.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary chemistry technology and product candidates. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage that we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel technologies and product candidates that are important to our business. The patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds and technologies commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Furthermore, recent changes in patent laws in the United States, including the America Invents Act of 2011, may affect the scope, strength and enforceability of our patent rights or the nature of proceedings which may be brought by us related to our patent rights.

Our pending and future patent applications may not result in patents being issued which protect our technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.

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Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

The laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, even assuming the other requirements for patentability are met, currently, in the United States, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result of the America Invents Act of 2011, the United States transitioned to a first-inventor-to-file system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent. However, as a result of the lag in the publication of patent applications following filing in the United States, we are still not be able to be certain upon filing that we are the first to file for patent protection for any invention. Moreover, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are

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concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

If we are sued for infringing intellectual property rights of third parties, or otherwise become involved in disputes regarding our intellectual property rights, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates and use our proprietary chemistry technology without infringing the intellectual property and other proprietary rights of third parties. Numerous third-party U.S. and non-U.S. issued patents and pending applications exist in the area of antibacterial treatment, including compounds, formulations, treatment methods and synthetic processes that may be applied towards the synthesis of antibiotics. If any of their patents or patent applications cover our product candidates or technologies, we may not be free to manufacture or market our product candidates as planned.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our technology or product candidates, including interference proceedings before the U.S. Patent and Trademark Office. Intellectual property disputes arise in a number of areas including with respect to patents, use of other proprietary rights and the contractual terms of license arrangements. Third parties may assert claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. With respect to our Meiji License of certain know-how used in SPR994, we are neither a party to, nor an express third-party beneficiary of, the letter agreement between Meiji and Global Pharma consenting to Meiji’s arrangement with us. As such, if any dispute among the parties were to occur, our direct enforcement rights with respect to the letter agreement may be limited or uncertain. A termination or early expiration of the head license between Meiji and Global Pharma (which currently by its terms is set to expire in January 2022) or any restriction on our ability to use the Global Pharma know-how could have a negative impact on our development of SPR994 and adversely affect our business.

If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative effect on our business.

We may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property or other proprietary information. Litigation may be necessary to defend against these claims.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. To the extent that we fail to obtain such assignments or such assignments are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, in seeking to develop and maintain a competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access

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to them, such as our consultants, independent contractors, advisors, corporate collaborators, outside scientific collaborators, contract manufacturers, suppliers and other third parties. We, as well as our licensors, also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.

We have not yet registered our trademarks. Failure to secure those registrations could adversely affect our business.

We have not yet registered our trademarks in the United States or other countries. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would, which could adversely affect our business. We have also not yet registered trademarks for any of our product candidates in any jurisdiction. When we file trademark applications for our product candidates those applications may not be allowed for registration, and registered trademarks may not be obtained, maintained or enforced. During trademark registration proceedings in the United States and foreign jurisdictions, we may receive rejections. We are given an opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition, in the United States Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.

In addition, any proprietary name we propose to use with SPR994 or any other product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

Risks Related to Regulatory Approval and Other Legal Compliance Matters

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize SPR994 or our other product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable foreign regulatory authorities, with regulations differing from country to country. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We currently do not have any products approved for sale in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party contract research organizations to assist us in this process.

The time required to obtain approval, if any, by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States until we or they receive regulatory approval of an NDA from the FDA.

In order to obtain approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe that the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional nonclinical studies or clinical trials for our product candidates either prior to or post-approval, and it may otherwise object to elements of our clinical development program.

We have not submitted an NDA for any of our product candidates. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product candidate. Obtaining approval of

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an NDA is a lengthy, expensive and uncertain process. The FDA has substantial discretion in the review and approval process and may refuse to accept for filing any application or may decide that our data are insufficient for approval and require additional nonclinical, clinical or other studies. Foreign regulatory authorities have differing requirements for approval of drugs with which we must comply prior to marketing. Obtaining marketing approval for marketing of a product candidate in one country does not ensure that we will be able to obtain marketing approval in other countries, but the failure to obtain marketing approval in one jurisdiction could negatively affect our ability to obtain marketing approval in other jurisdictions. The FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional nonclinical or clinical testing or abandon a program for many reasons, including:

• the FDA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our clinical trials;

• negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

• serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

• our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that our product candidates are safe and effective for the proposed indication;

• the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical studies or clinical trials;

• our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety or other perceived risks;

• the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;

• the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling and/or the specifications for our product candidates; or

• the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of drugs in development, only a small percentage complete the FDA or foreign regulatory approval processes and are successfully commercialized. The lengthy review process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval, which would significantly harm our business, financial condition, results of operations and prospects.

Even if we eventually receive approval of an NDA or foreign marketing application for our product candidates, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, often referred to as Phase 4 clinical trials, and the FDA may require the implementation of a Risk Evaluation and Mitigation Strategy, or REMS, which may be required to ensure safe use of the drug after approval. The FDA or the applicable foreign regulatory agency also may approve a product candidate for a more limited indication or patient population than we originally requested, and the FDA or applicable foreign regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

We may seek fast track designation for SPR994 or one or more of our other product candidates, but we might not receive such designation, and in any case, such designation may not actually lead to a faster development or regulatory review or approval process.

If a drug is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet medical need for this condition, a drug sponsor may apply for fast track designation by the FDA for the particular indication under study. If fast track designation is obtained, the FDA may initiate review of sections of an NDA before the application is complete. This “rolling review” is available if the applicant provides and the FDA approves a schedule for the remaining information. If we seek fast track designation for a product candidate, we may not receive it from the FDA. However, even if we receive fast track designation, fast track designation does not ensure that we will receive marketing approval or that approval will be granted within any particular timeframe. We may not experience a faster development or regulatory review or approval process with fast track designation compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

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We may seek orphan drug designation for certain of our product candidates. We may not be able to obtain or maintain orphan drug designations for any of our product candidates, and we may be unable to take advantage of the benefits associated with orphan drug designation, including the potential for market exclusivity.

Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan product if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. There can be no assurance that the FDA will grant orphan designation for any indication for which we apply.

In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product candidate that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, it is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.

Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA or comparable foreign regulatory authority can subsequently approve the same drug for the same condition if such regulatory authority concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

If we are unable to obtain marketing approval in international jurisdictions, we will not be able to market our product candidates abroad.

In order to market and sell SPR994 or our other product candidates in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. The approval procedure varies among countries and can involve additional testing. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis or at all.

If we receive regulatory approval for any product candidate, we will be subject to ongoing obligations and continuing regulatory review, which may result in significant additional expense. Our product candidates, if approved, could be subject to restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if approved.

Any product candidate for which we obtain marketing approval will also be subject to ongoing regulatory requirements for labeling, packaging, storage, distribution, advertising, promotion, record keeping and submission of safety and other post-market information. For example, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs. As such, we and our contract manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA and to comply with requirements concerning advertising and promotion for our products.

In addition, even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed, may be subject to significant conditions of approval or may impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory requirements. The FDA also imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not

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restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label marketing.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us. In addition, if any product fails to comply with applicable regulatory requirements, a regulatory agency may:

• issue fines, warning letters, untitled letters or impose holds on clinical trials if any are still on-going;

• mandate modifications to promotional materials or require provision of corrective information to healthcare practitioners;

• impose restrictions on the product or its manufacturers or manufacturing processes;

• impose restrictions on the labeling or marketing of the product;

• impose restrictions on product distribution or use;

• require post-marketing clinical trials;

• require withdrawal of the product from the market;

• refuse to approve pending applications or supplements to approved applications that we submit;

• require recall of the product;

• require entry into a consent decree, which can include imposition of various fines (including restitution or disgorgement of profits or revenue), reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

• suspend or withdraw marketing approvals;

• refuse to permit the import or export of the product;

• seize or detain supplies of the product; or

• issue injunctions or impose civil or criminal penalties.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we may obtain marketing approval. Our future arrangements with third-party payors and customers will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval and reimbursement. These laws and regulations include, for example, the false claims and anti-kickback statutes and regulations. At such time as we market, sell and distribute any products for which we obtain marketing approval and reimbursement, it is possible that our business activities could be subject to challenge under one or more of these laws and regulations. Restrictions under applicable federal and state healthcare laws and regulations include the following:

• the federal healthcare Anti-Kickback Statute, among other things, prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federally funded healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate the statute in order to have committed a violation. In addition, the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

• the federal False Claims Act imposes criminal and civil penalties, which can be enforced by private citizens through civil whistleblower and qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

• the federal ban on physician self referrals, which prohibits, subject to certain exceptions, physician referrals of Medicare or Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member of the physician has any financial relationship with the entity;

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• the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or for making any false statements relating to healthcare matters; as in the case of the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate the statute in order to have committed a violation;

• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes obligations on certain covered entities as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;

• the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

• the federal transparency or “sunshine” requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, the ACA, requires manufacturers of drugs, devices, biologics and medical supplies to report to the U.S. Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and

• analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to implement compliance programs and to track and report gifts, compensation and other remuneration provided to physicians, in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and pricing information. State laws also govern the privacy and security of health information in some circumstances, and many such state laws differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

We will be required to spend substantial time and money to ensure that our business arrangements with third parties, and our business generally, comply with applicable healthcare laws and regulations. Even then, governmental authorities may conclude that our business practices, including arrangements we may have with physicians and other healthcare providers, some of whom may receive stock options as compensation for services provided, do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If governmental authorities find that our operations violate any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, imprisonment, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could affect our operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud and abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.

Recently enacted and future policies and legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the reimbursement made for any product candidate for which we receive marketing approval.

The pricing and reimbursement environment may become more challenging due to, among other reasons, policies advanced by the new presidential administration, federal agencies, new healthcare legislation passed by the U.S. Congress or fiscal challenges faced by all levels of government health administration authorities. Among policy makers and payors in the United States and foreign countries, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of any products for which we obtain marketing approval, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. Resulting legislative, administrative, or policy changes from payors may reduce payments for any products for which we obtain marketing approval and could affect future revenues.

The ACA became law in the United States in March 2010 with the goals of broadening access to health insurance, reducing or constraining the growth of healthcare spending, enhancing remedies against fraud and abuse, adding new transparency requirements for the health care and health insurance industries and imposing additional health policy reforms. Provisions of ACA may negatively affect our future revenues. For example, the ACA requires, among other things, that annual fees be paid by manufacturers for certain branded prescription drugs, that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D, and that manufacturers provide increased rebates under the Medicaid Drug Rebate Program for outpatient drugs dispensed to

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Medicaid recipients. The ACA also addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for line extensions and expands oversight and support for the federal government’s comparative effectiveness research of services and products.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementation of certain aspects of the ACA. Both Congress and President Trump have expressed their intention to repeal or repeal and replace the ACA, and as a result certain sections of the ACA have not been fully implemented or effectively repealed. The uncertainty around the future of the ACA, and in particular the impact to reimbursement levels, may lead to uncertainty or delay in the purchasing decisions of our customers, which may in turn negatively impact our product sales. If there are not adequate reimbursement levels, our business and results of operations could be adversely affected.  

Beginning on April 1, 2013, Medicare payments for all items and services under Part A and B, including drugs and biologicals, and most payments to plans under Medicare Part D were reduced by 2%, or automatic spending reductions, required by the Budget Control Act of 2011, or BCA, as amended by the American Taxpayer Relief Act of 2012. The BCA requires sequestration for most federal programs, excluding Medicaid, Social Security, and certain other programs. The BCA caps the cuts to Medicare payments for items and services and payments to Part D plans at 2%. Subsequent legislation extended the 2% reduction, on average, to 2025. As long as these cuts remain in effect, they could adversely affect payment for our product candidates. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. There have been several U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the effect of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

If we successfully commercialize one of our product candidates, failure to comply with our reporting and payment obligations under U.S. governmental pricing programs could have a material adverse effect on our business, financial condition and results of operations.

If we participate in the Medicaid Drug Rebate Program if and when we successfully commercialize a product candidate, we will be required to report certain pricing information for our product to the Centers for Medicare & Medicaid Services, the federal agency that administers the Medicaid and Medicare programs. We may also be required to report pricing information to the U.S. Department of Veterans Affairs. If we become subject to these reporting requirements, we will be liable for errors associated with our submission of pricing data, for failure to report pricing data in a timely manner, and for overcharging government payers, which can result in civil monetary penalties under the Medicaid statute, the federal civil False Claims Act, and other laws and regulations.

Our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; manufacturing standards; federal and state healthcare fraud and abuse laws and regulations; or laws that require the true, complete and accurate reporting of financial information or data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by our employees and other third parties, and

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the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished potential profits and future earnings, and curtailment of our operations, any of which could adversely affect our business, financial condition, results of operations or prospects.

The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act,” or TCJA, which significantly reforms the Internal Revenue Code of 1986, as amended, or the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. As a result of the TCJA, our net deferred tax assets and liabilities existing as of December 31, 2017 were revalued at the newly enacted U.S. corporate rate. The impact of this tax reform is uncertain and could be adverse. We urge our investors to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our securities.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Ankit Mahadevia, M.D., our President and Chief Executive Officer, as well as the other principal members of our management, scientific and clinical team. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time.

If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to develop and commercialize product candidates will be limited.

We expect to grow our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product candidate development, regulatory affairs and sales, marketing and distribution. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities to devote time to managing these growth activities. To manage these growth activities, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. Our inability to effectively manage the expansion of our operations may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our potential ability to generate revenue could be reduced and we may not be able to implement our business strategy.

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If foreign approvals are obtained, we will be subject to additional risks in conducting business in international markets.

Even if we are able to obtain approval for commercialization of a product candidate in a foreign country, we will be subject to additional risks related to international business operations, including:

• potentially reduced protection for intellectual property rights;

• the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

• unexpected changes in tariffs, trade barriers and regulatory requirements;

• economic weakness, including inflation, or political instability in particular foreign economies and markets;

• workforce uncertainty in countries where labor unrest is more common than in the United States;

• production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad;

• business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and

• failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act.

These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire other businesses, products or technologies. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms, or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and nondisruptive manner. Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.

Risks Related to Our Common Stock

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for our stockholders.

Our stock price may be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our stockholders may not be able to sell their shares at or above the price they paid for their shares. The market price for our common stock may be influenced by many factors, including:

• the success of existing or new competitive products or technologies;

• the timing of clinical trials of SPR994 and any other product candidate;

• results of clinical trials of SPR994 and any other product candidate;

• failure or discontinuation of any of our development programs;

• results of clinical trials of product candidates of our competitors;

• regulatory or legal developments in the United States and other countries;

• developments or disputes concerning patent applications, issued patents or other proprietary rights;

• the recruitment or departure of key personnel;

• the level of expenses related to any of our product candidates or clinical development programs;

• the results of our efforts to develop, in-license or acquire additional product candidates or products;

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• actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

• announcement or expectation of additional financing efforts;

• sales of our common stock by us, our insiders or other stockholders;

• variations in our financial results or those of companies that are perceived to be similar to us;

• changes in estimates or recommendations by securities analysts, if any, that cover our stock;

• changes in the structure of healthcare payment systems;

• market conditions in the pharmaceutical and biotechnology sectors;

• general economic, industry and market conditions; and

• the other factors described in this “Risk Factors” section.

In addition, the stock market has experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common stock relies in part on the research and reports that securities or industry analysts publish about us or our business. If few analysts commence coverage of us, the trading price of our stock would likely decrease. If one or more of the analysts covering our business downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

We have broad discretion in the use of our cash reserves and may not use them effectively.

Our management will have broad discretion in the application of our cash reserves, including the proceeds from our IPO and our July 2018 equity offering, and could spend these funds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest our cash reserves in a manner that does not produce income or that loses value.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and we will therefore be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Select Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.

We are currently evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

A significant portion of our total outstanding shares may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. All lock-up agreements entered into in connection with our initial public offering expired on April 30, 2018. Our outstanding shares of common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act of 1933, as amended (the “Securities Act”), or to the extent that such shares have already been registered under the Securities Act and are held by non-affiliates of ours. Moreover, holders of a substantial number of shares of our common stock have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also have registered all shares of common stock that we may issue under our equity compensation plans or that are issuable upon exercise of outstanding options. These shares can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly, stockholders must rely on capital appreciation, if any, for any return on their investment.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the operation, development and growth of our business. To the extent that we enter into any future debt agreements, the terms of such agreements may also preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.

Our executive officers, directors and principal stockholders maintain the ability to control all matters submitted to stockholders for approval.

As of September 30, 2018, our executive officers and directors, combined with our stockholders who as of such date owned more than 5% of our outstanding common stock, in the aggregate, beneficially own shares representing approximately 61% of our

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capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

• delay, defer or prevent a change in control;

• entrench our management and/or our board of directors; or

• impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and amended and restated by-laws may discourage, delay or prevent a merger, acquisition or other change in control of us that our stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

• establish a classified board of directors such that all members of the board are not elected at one time;

• allow the authorized number of our directors to be changed only by resolution of our board of directors;

• limit the manner in which stockholders can remove directors from our board of directors;

• establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on at stockholder meetings;

• require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

• limit who may call a special meeting of stockholders;

• authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

• require the approval of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or by-laws.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On November 6, 2017, we completed the initial public offering, or IPO, of our common stock. The offer and sale of all of the shares of our common stock in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-220858), which was declared effective by the SEC on November 1, 2017.

As of September 30, 2018, we had used approximately $33.0 million from the net proceeds from our IPO.

Item 6.Exhibits

Exhibit Number	Exhibit Description	Filed with this Report	Incorporated by Reference herein from Form or Schedule	Filing Date	SEC File / Registration Number
3.1	Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock		Form 8-K (Exhibit 3.1)	7/17/2018	001-38266
10.1#	Contract Award issued by the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services, dated July 12, 2018	X
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF	XBRL Taxonomy Extension Definition	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	XBRL Taxonomy Presentation Linkbase Document	X

#Confidential treatment requested for portions of this exhibit. Confidential materials omitted and filed separately with the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SPERO THERAPEUTICS, INC.
Date: November 8, 2018	By:	/s/ Ankit Mahadevia, M.D.
		Ankit Mahadevia, M.D.
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: November 8, 2018	By:	/s/ Joel Sendek
		Joel Sendek
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

69

EX-10.1

CONFIDENTIAL TREATMENT REQUESTED

Exhibit 10.1

 

AWARD/CONTRACT

1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 700)

RATING

PAGE OF PAGES

1

2

2.  CONTRACT (Proc. Inst. Ident.) No. HHS010020180015C

3.  EFFECTIVE DATE 07/12/2018

4. REQUISITION/PURCHASE REQUEST/PROJECT NO. OS220801

5. ISSUED BYCODE

ASPR-BARDA

6 ADMINISTERED BY (if other than Item 5)CODE

ASPR-BARDA02

ASPR-BARDA 200 Independence Ave., S.W. Room 640-G Washington DC 20201

US DEPT OF HEALTH & HUMAN SERVICES ASST SEC OF PREPAREDNESS & RESPONSE ACQ MANAGEMENT, CONTRACTS, & GRANTS O’NEILL HOUSE OFFICE BUILDING Washington DC 20515

7. NAME AND ADDRESS OF CONTRACTOR (No., Street, City, Country, State and Zip Code) SPERO THERAPEUTICS INC 1526344 Attn:  [***] SPERO THERAPEUTICS, INC.675 M 675 MASSACHUSETTS AVE 14TH FLR CAMBRIDGE MA 021393309

8. DELIVERY ☐ FOB ORIGIN☒ OTHER (See below)

9. DISCOUNT FOR PROMPT PAYMENT

10. SUBMIT INVOICES (4 copies unless otherwise specified) TO THE ADDRESS SHOWN IN

ITEM

CODE 152344

FACILITY CODE

11. SHIP TO/MARK FORCODE

HHS/OS/ASPR

12. PAYMENT WILL BE MADE BYCODE

PSC

HHS/OS/ASPR 200 C St SW WASHINGTON DC 20201

PSC

13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION ☐10 U.S.C. 2304 (C) (                         )      ☐ 41 U.S.C. 253 (C) (                      )

14. ACCOUNTING AND APPROPRIATION DATA 2018.1992018.25106

15A. ITEM NO

15B. SUPPLIES/SERVICES

15C. QUANTITY

15D. UNIT

15E. UNIT PRICE

15F. AMOUNT

Continued

15G. TOTAL AMOUNT OF CONTRACT

$15,658,035.00

16.  TABLE OF CONTENTS

(X)

SEC.

DESCRIPTION

PAGES(S)

(X)

SEC.

DESCRIPTION

PAGES(S)

PART I – THE SCHEDULE

PART II – CONTRACT CLAUSES

A

SOLICITATION/CONTRACT FORM

I

CONTRACT CLAUSES

B

SUPPLIES OR SERVICES AND PRICES/COSTS

PART III – LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.

C

DESCRIPTION/SPECS/WORK STATEMENT

J

LIST OF ATTACHMENTS

D

PACKAGING AND MARKING

PART IV – REPRESENTATIONS AND INSTRUCTIONS

E

INSPECTION AND ACCEPTANCE

K

REPRESENTATIONS, CERTIFICATIONS AND

F

DELIVERIES OR PERFORMANCE

OTHER STATEMENTS OF OFFERORS

G

CONTRACT ADMINISTRATION DATA

L

INSTRS., CONDS., AND NOTICES TO OFFERORS

H

SPECIAL CONTRACT REQUIREMENTS

M

EVALUATION FACTORS FOR AWARD

CONTRACTING OFFICER WILL COMPLETE ITEM 17 (SEALED-BID OR NEGOTIATED PROCUREMENT) OR 18 (SEALED-BID PROCUREMENT) AS APPLICABLE

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

17. ☐CONTRACTORS NEGOTIATED AGREEMENT (Contractor is required to sign this document and return ______ copies to issuing office.) Contractor agrees to furnish and deliver all items or perform all the services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein.  The rights and obligations of the parties to this contract shall be subject to and governed by the following documents:  (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein.  (Attachments are listed herein.)		18. ☒SEALED-BID AWARD (Contractor is not required to sign this document.)  Your bid on Solicitation Number  ________________________________________________________, including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to the items ilisted above and on any continuation sheets.  This award consummates the contract which consists of the following documents:  (a) the Government’s solicitation and your bid, and (b) this award/contract. No further contractual document is necessary.  (Block 18 should be checked only when awarding a sealed-bid contract.)
19A. NAME AND TITLE OF SIGNER (Type or print) Ankit Mahadevia, M.D. President & Chief Operating Officer, Spero Therapeutics, Inc.		20A. NAME OF CONTRACTING OFFICER [***]
19B. NAME OF CONTRACTOR	19C. DATE SIGNED	20B. UNITED STATES OF AMERICA	20C. DATE SIGNED 12 July 2018
AUTHORIZED FOR LOCAL REPRODUCTIONSTANDARD FORM 26 (Rev. 5/2011) Previous edition is NOT usablePrescribed by GSA-FAR (48 CFR) 53.214(a)

CONTINUATION SHEET		REFERENCE NO. OF DOCUMENT BEING CONTINUED HHS0100201800015C				PAGE		Of
						2		2
NAME OF OFFEROR OR CONTRACTOR SPERO THERAPEUTICS INC 1526344
ITEM NO (A)	SUPPLIES/SERVICES (B)		QUANTITY (C)	UNIT (D)	UNIT PRICE (E)		AMOUNT (F)
1	Tax ID Number:  46-4590683 DUNS Number:  080161535 Delivery:  05/27/2018 Appr. Yr.:  2018 CAN:  1992018 Object Class:  25106 FOB:  Destination Period of Performance:  07/12/2018 to 06/30/2021 ASPR-18-02731 -- Spero Therapeutics - Base Year funding to advance the development of SPR994 for the treatment of Drug Restraint Gram-negative Bacterial Infections Obligated Amount:$15,658,035.00						15,658,035.00
AUTHORIZED FOR LOCAL REPRO							OPTIONAL FORM 336 (4-86) Sponsored by GSA FAR (48 CFR) 53.110

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CONTRACT TABLE OF CONTENTS

PART I – THE SCHEDULE1

SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS1

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT9

SECTION D – PACKAGING, MARKING, AND SHIPPING11

SECTION E – INSPECTION AND ACCEPTANCE12

SECTION F – DELIVERIES OR PERFORMANCE14

SECTION G - CONTRACT ADMINISTRATION DATA32

SECTION H - SPECIAL CONTRACT REQUIREMENTS41

PART II - CONTRACT CLAUSES64

SECTION I - CONTRACT CLAUSES64

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS72

SECTION J - LIST OF ATTACHMENTS72

PART IV - REPRESENTATIONS AND INSTRUCTIONS73

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS73

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

PART I – THE SCHEDULE

SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS

ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES

Spero Therapeutics intends to advance the development of SPR994 an extended release oral tablet formulation for use in adults to treat complicated urinary tract infections (cUTIs), including those caused by drug resistant bacteria. Key activities under this contract include further in vitro and in vivo characterization, antibiotic susceptibility test development, surveillance and PK studies, active pharmaceutical ingredient (API) and drug product (DP) registration and validation batch production as well as production of clinical trial material. To support the biodefense use of SPR994, Spero will conduct a [***] study and [***] study.

The Research and Development (R&D) effort will progress in specific phases that cover a base period of performance Contract Line Item (CLIN) 0001 followed by two option period segments (CLINs 0002 and 0003) as specified in this contract. The base period (CLIN0001) will pursue the preclinical efficacy studies and other activities required under the New Drug Application submission as well as manufacturing activities to supply the clinical program. T h e two option period segments (CLINs 0002 and 0003) will pursue the further characterization of the in vitro profile of SPR994 against target pathogens of interest and conduct clinical studies to support use of SPR994 in a pneumonic indication. Work performed during the period of performance constitutes an independent, non-severable discrete work segment that cannot be subdivided for separate performance and is necessary to support the R&D tasks related to the assay. The non-severable, discrete work segment constitutes an entire job (discrete requirement) which shall contain multiple R&D activities that when reviewed in total shall satisfy a defined end-product. The non-severable work segment will be fully funded from an appropriation source that is current at the time the work under such segment will be authorized to begin.

The Government has determined a Bona Fide Need for the non-severable discrete work segment which will conclude upon the completion of a defined task(s) that provides independent merit and value to the Government. The Contractor’s success in completing the required tasks under each work segment shall be demonstrated through the submission and approval of the Deliverables and Milestones specified under Article F of this contract. Those deliverables will support the GO/NO GO Contract Milestones and Decision Gates specified therein.

The base and option period segments are event driven work segments rather than time driven CLINs. The funds for each independent, non-severable discrete work segment (requirement), regardless of duration, shall only be used for the scope of work covered in each discrete work segment (i.e., the base period work segment and each option work segment). The periods of performance listed under each of the CLINs under Article B.2 and Article B.3 below are estimated time periods. Those individual time periods may be

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

extended to complete the tasks required under each work segment. It is possible that more than one option segment (requirement), may be exercised at one time and that individual CLINs may overlap and/or proceed concurrently.

ARTICLE B.2. ESTIMATED COST

1. CLIN 0001 (the base period segment) is a cost sharing CLIN. Money shall be provided for the total cost of performance from the Department of Health and Human Services and the Contractor.

2. The Government shall provide money for the base period segment (CLIN 0001) in an amount not to exceed $15,658,035. The Government will not be responsible for any Contractor incurred costs that exceed this amount unless a modification to the contract is signed by the Contracting Officer which expressly increases this amount.

The contractor shall maintain records of all contract costs (including costs claimed by the Contractor as being its share) and such records shall be subject to the Audit and Records-Negotiation and Final Decisions on Audit Findings clauses of the General Clauses.

3. Direct costs contributed by the contractor in the amount of $[***] shall not be charged to the Government under any other contract, grant, or cooperative agreement (including allocation to other grants, contracts, or cooperative agreements as part of an independent research and development program). The contractor shall report the organization’s share of the direct costs expended by category, on the Financial Report, as referenced in the CONTRACT FINANCIAL REPORT Article in SECTION G of this contract.

4. It is estimated that the amount currently allotted will cover performance of the contract through 30 June 2021 (see chart below).

CLIN	Period of Performance	Supplies/Services	USG NTE Cost	Spero Cost Share	Total Cost
0001	12 July 2018 - 30 June 2021	[***]	$15,658,035 ([***]%)	$[***] ([***]%) (Indirects)	$[***]

ARTICLE B.3. OPTION PRICES

Pursuant to FAR 52.217-9, Option to Extend the Term of the Contract (Mar 2000), set forth in full in ARTICLE I.2 of this Contract, the Government may, by unilateral contract modification, require the Contractor to perform discrete portions of additional work as

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

specified in the Statement of Work. If the Government decides to exercise an option(s), the Government will provide the Contractor a preliminary written notice of its intent to exercise the option at least 30 days before the contract expires.

Unless the Government exercises one or more optional CLINs, the contract consists only of the base work specified in the Statement of Work as defined in SECTIONS C and F, with estimated costs set forth in ARTICLE B.2 of the contract.

CLINs 0002 and 0003 are cost-sharing CLINs.

The Government not to exceed cost and contractor cost share specified below will be applicable in the event that the Government exercises Option 1 and/or Option 2.

CLIN	Opt.	Period of Performance	Supplies/Services	USG NTE Cost	Spero Cost Share	Total Cost
0002	1	15 November 2019 - 30 September 2021	[***]	$13,608,722 ([***]%)	$[***] ([***]%) (Indirects)	$[***]
0003	2	15 August 2020 - 31 March 2023	[***]	$14,946,495 ([***]%)	$[***] ([***]%) (Indirects)	$[***]

ARTICLE B.4. LIMITATIONS APPLICABLE TO DIRECT COSTS

a. Items Unallowable Unless Otherwise Provided

Notwithstanding the clauses and unless authorized in writing by the Contracting Officer (CO), the cost of the following items or activities shall be unallowable as direct costs:

1) Acquisition, by purchase or lease, of any interest in real property;

2) Special rearrangement or alteration of facilities;

3) Accountable Government Property (see the HHS Contracting Guide for Control for Government Property incorporated by ARTICLE G.10. of this contract);

Note: this includes the lease or purchase of any item of general purpose office furniture or office equipment regardless of dollar value.

4) Purchase or lease of scientific instruments or equipment over $3,500;

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

5) Unapproved travel in excess of the dollar amounts specified under subparagraph b.1 below;

6) Travel to attend general scientific meetings/conferences;

7) Printing Costs (as defined in the Government Printing and Binding Regulations);

8) Overtime (premium) compensation;

9) Entering into certain types of subcontract of arrangements (See Article B.4(c) for specific obligations). Note that most consulting agreements require CO’s written consent;

10) Foreign Travel (see Subparagraph b.3);

11) Patient care costs;

12) Light Refreshment and Meal Expenditures - Requests to use contract funds to provide light refreshments and/or meals to either federal or nonfederal employees must be submitted to the Contracting Officer’s Representative (COR), with a copy to the CO, at least six (6) weeks in advance of the event and are subject to “HHS Policy on Promoting Efficient Spending: Use of Appropriate Funding for Conferences and Meetings, Food and Promotional Items and Printing and Publications.” The request shall contain the following information: (a) name, date, and location of the event at which the light refreshments and/or meals will be provide; (b) a brief description of the purpose of the event; (c) a cost breakdown of the estimated light refreshments and/or meals costs; (d) the number of nonfederal and federal attendees receiving light refreshments and/or meals; and (e) if the event will be held at a government facility.

b.Travel Costs

1. Total expenditures for travel (transportation, lodging, subsistence, and incidental expenses) incurred in direct performance of this contract during the base period (CLIN 0001) shall not exceed $[***] without the prior written approval of the CO. The contractor shall notify the CO in writing when travel expenditures have exceeded [***]% ($[***]) of the base period travel expenses. Costs must be consistent with Federal Acquisition Regulations (FAR) 52.247-63 – Preference for U.S. Air Flag carriers.

2. Subject to the annual dollar limitation specified under B.4.b.1. above, the contactor shall invoice and be reimbursed for all travel costs in accordance with Federal Acquisition Regulation (FAR) 31.2 – Contracts with Commercial Organizations, Subsection 31.205¬46, Travel Costs.

3. If foreign travel is necessary, a Contracting Officer Authorization (COA) will be required. Expenditures for foreign travel (transportation, lodging, subsistence, and

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

incidental expenses) incurred in direct performance of this contract shall not exceed the amount specified in each approved COA, without the prior written approval of the CO.

Requests for foreign travel must be submitted at least four weeks in advance and shall contain the following:

(a) meeting(s) and place(s) to be visited, with costs and dates;

(b) name(s) and title(s) of contractor personnel to travel and their functions in the contract project;

(c) contract purposes to be served by the travel;

(d) how travel of contractor personnel will benefit and contribute to accomplishing the contract project, or will otherwise justify the expenditure of ASPR contract funds;

(e) how such advantages justify the costs for travel and absence from the project of more than one person if such are suggested; and

(f) what additional functions may be performed by the travelers to accomplish other purposes of the contract and thus further benefit the project.

ARTICLE B.5. ADVANCE UNDERSTANDINGS

a.Man-in-Plant

With seven (7) days advance notice to the contractor in writing from the CO, the Government may place a man-in-plant in the contractor’s facility, who shall be subject to the contractor’s policies and procedures regarding security and facility access at all times while in the contractor’s facility. The Government’s representative shall be provided reasonable access, during normal business hours, of the production areas being utilized in performance on the Contract. As determined by federal law, no Government representative shall publish, divulge, disclose, or make known in any manner, or to any extent not authorized by law, any information coming to him in the course of employment or official duties, while stationed in a contractor plant.

b.Security

No Security Plan is required at this point for this effort. It is anticipated that a security waiver will be approved.

c.Subcontracts

Prior written consent from the CO in the form of Contracting Officer Authorization (COA) is required for any subcontract that:

• Is of the cost-reimbursement type; or

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

• Is Fixed-Price and exceeds $150,000 or 5% of the total estimated cost of the Contract, whichever value is greater.

The CO shall request appropriate supporting documentation in order to review and determine authorization, pursuant with FAR Clause 52.244-2, Subcontracts. After receiving written consent of the subcontract by the CO, the contractor shall provide a copy of the signed, executed subcontract and consulting agreement to the CO.

Note: Consulting services are treated as subcontracts and subject to the ‘consent to subcontract’ provisions set forth in this Article.

d.Confidential Treatment of Sensitive Information

As a supplement to Section H.20 of the contract, the contractor shall guarantee strict confidentiality of any information/data of a sensitive nature that is provided to the contractor by the Government during the performance of the contract. The Government has determined that the information/data that the contractor will be provided during the performance of the contract is of a sensitive nature.

Disclosure of information/data that is sensitive in nature, in whole or in part, by the Contractor can only be made after the contractor receives prior written approval from the CO.

Whenever the contractor is uncertain with regard to the proper handling of information/data under the contract, the contractor shall obtain a written determination from the CO (see also HHSAR clause 352.224-71).

Notwithstanding the foregoing, such information/data shall not be deemed of a sensitive nature with respect to the contractor for purposes of this contract if such information/data: (a) was already known to the contractor at or prior to the time of its disclosure to the Contractor; (b) was generally available or known, or was otherwise part of the public domain, at the time of its disclosure to the contractor; (c) became generally available or known, or otherwise became part of the public domain, after its disclosure to, or, with respect to the information/data by, the contractor through no fault of the contractor; (d) was disclosed to the contractor, other than under an obligation of confidentiality or non-use, by a third party who had no obligation to the Government that controls such information/data not to disclose such information/data to others; or (e) was independently discovered or developed by the contractor, as evidenced by its written records, without the use of information/data belonging to the Government.

The contractor may disclose information/data of a sensitive nature provided by the Government to the extent that such disclosure is: (a) made in response to a valid order of a court of competent jurisdiction or other supra-national, federal, national, regional, state, provincial or local governmental or regulatory body of

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

competent jurisdiction; provided, however, that the contractor shall first have given notice to the Government and give the Government a reasonable opportunity to quash such order and to obtain a protective order requiring that the information/data of a sensitive nature that is the subject of such order be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued; and provided further that if a disclosure order is not quashed or a protective order is not obtained, the information/data disclosed in response to such court or governmental order shall be limited to that information which is legally required to be disclosed in response to such court or governmental order; (b) otherwise required by law, in the opinion of legal counsel to the Contractor as expressed in an opinion letter in form and substance reasonably satisfactory to the Government, which shall be provided to the Government at least two (2) business days prior to the contractor’s disclosure of the information/data; or (c) made by the contractor to the regulatory authorities as required in connection with any filing, application or request for regulatory approval; provided, however, that reasonable measures shall be taken to assure confidential treatment of such information/data.

e.Sharing of contract deliverables within United States Government (USG)

In an effort to build a robust medical countermeasure pipeline through increased collaboration, BARDA may share technical deliverables set forth in Article F.2 with Government entities responsible for Medical Countermeasure Development. In accordance with recommendations from the Public Health Emergency Medical Countermeasure Enterprise Review, agreements established in the Integrated Portfolio’s Portfolio Advisory Committee (PAC) Charter, Technology Transfer Agreements (TTA) between BARDA and the Defense Threat Reduction Agency, Centers for Disease Control and Prevention (CDC), Food and Drug Administration (FDA) and the National Institute of Allergies and Infectious Diseases (NIAID), BARDA may share technical deliverables set forth in Article F.2 with colleagues within the Integrated Portfolio. This provision applies to all deliverables and data developed during performance including deliverables and data paid for by the Contractor under the cost sharing arrangement all exercised CLINs herein. This advance understanding does not authorize BARDA to share financial information outside HHS. The Contractor is advised to review the terms of FAR Clause 52.227-14 regarding the Government’s rights to deliverables submitted during performance as well as the Government’s rights to data contained within those deliverables.

f.Overtime Compensation

No overtime (premium) compensation is authorized under the subject contract.

g.Intellectual Property

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

BARDA agrees that all data furnished under the Contract marked with the “limited rights” legend contained in FAR 52.227-14 Alternate II shall be treated in accordance with all “limited rights” restrictions and protections described in FAR 52.227-14 Alternate II.

BARDA shall not disclose or use any data marked with the “limited rights” legend for any purpose except as specifically authorized by the “limited rights” provision in FAR 52.227-14 Alternate II, or by any express license agreement between the Government, Spero and if necessary a third party. BARDA further agrees to take all steps necessary to ensure that no other party obtains any rights in or access to Spero’s intellectual property that is marked with the “limited rights” legend.

h.Invoice Submission during end of Fiscal Year

The government will not accept invoices for processing from September 6^th through October 5^th because of end of year fiscal requirements. Any invoices received from September 6^th through October 5^th will be canceled and returned to the Contractor for resubmission beginning on October 6^th.

i. Sharing of Draft and Final Study Protocols, Top Line Data, and Final Study Reports for Studies

The Contractor shall provide the COR/CO with electronic copies of the draft and final study protocols, top line data, and final study reports for the following studies. These documents shall be delivered within 5 business days of their finalization or, if already finalized at time of contract award, within 10 business days of contract award.

• [***]

• [***]

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

ARTICLE C.1.  STATEMENT OF WORK

Independently and not as an agent of the Government, the contractor shall furnish all the necessary services, qualified personnel, material, equipment, and facilities not otherwise provided by the Government as needed to perform the Statement of Work attached to this contract as Attachment 1 (SECTION J-List of Attachments).

ARTICLE C.2.  REPORTING REQUIREMENTS

Refer to ARTICLE F.2. for specific instructions regarding Reporting Requirements.

ARTICLE C.3.  PROJECT MEETING CONFERENCE CALLS

A teleconference call between the COR and the Contractor’s Program Manager shall occur bi-weekly (every two weeks), or at the discretion of the Government. During this call, the Program Manager will discuss the activities during the reporting period, any problems that have arisen, and the activities planned for the ensuing reporting period. The Contractor’s Program Manager may choose to include other key personnel on the conference call to give detailed updates on specific projects or this may be requested by the COR.

Contractor will be responsible for preparing an agenda for the conference call and providing it to the Government no later than 2 business days prior to the scheduled conference call.

ARTICLE C.4.  PROJECT MEETINGS

The Contractor shall participate in Project Meetings to coordinate the performance of the contract, as requested by the COR. These meetings may include face-to-face meetings with BARDA and AMCG in Washington, D.C. and at work sites of the contractor. Such meetings may include, but are not limited to, meetings of the contractor (and subcontractors invited by the contractor) to discuss study designs, site visits to the contractor’s and subcontractor’s facilities, and meetings with the contractor and HHS officials to discuss the technical, regulatory, and ethical aspects of the program. The contractor must provide data, reports, and presentations to groups of outside experts (subject to appropriate protections for contractor confidential or proprietary data) and USG personnel as required by the Contracting Officer’s Technical Representative in order to facilitate review of contract activities.

a.Kickoff Meeting

The contractor shall complete a Kickoff meeting within 30 days after contract award. The contractor shall provide an itinerary/agenda no later than 5 business days before meeting.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

b.Quarterly and Ad-Hoc Meetings

At the discretion of the CO/COR, the contractor shall participate in Project Meetings to coordinate the performance of the contract, as requested by the COR. These meetings may include teleconferences or face-to-face meetings with BARDA/AMCG in Washington, D.C. or at work sites of the contractor and its subcontractors. Such meetings may include, but are not limited to, meetings of the contractor (and subcontractors invited by the Contractor) to discuss study designs, site visits to the contractor’s and subcontractor’s facilities, and meetings with the contractor and HHS officials to discuss the technical, regulatory, and ethical aspects of the program. The contractor must provide data, reports, and presentations to groups of outside experts (subject to appropriate protections for contractor’s confidential or proprietary data) and Government personnel as required by the COR, giving reasonable prior notice of such requirement to Contractor, in order to facilitate review of contract activities.

The contractor shall provide itinerary/agenda at least 5 business days in advance of face-to-face meeting.

c.Face-to-Face Project Review Meetings

The contractor shall, at a time to be determined later, present a comprehensive review of contract progress to date in a face-to-face meeting in Washington, DC. The contractor will be responsible for updating BARDA program on technical progress under the Statement of Work. Presentation must be delivered seven (7) business days prior to the scheduled meeting.

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

SECTION D – PACKAGING, MARKING, AND SHIPPING

All deliverables required under this contract shall be packaged, marked and shipped in accordance with Section F. At a minimum, all deliverables shall be marked with the contract number and Contractor name. The Contractor shall make reasonable efforts to ensure that all required materials shall be delivered in immediate usable and acceptable condition

Unless otherwise specified by the CO, delivery of reports to be furnished to the USG under this contract (including invoices) shall be delivered to AMCG and BARDA electronically along with a concurrent email notification to the CO, Contract Specialist, and COR (as defined in SECTION F.3. ELECTRONIC SUBMISSION) summarizing the electronic delivery.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

SECTION E – INSPECTION AND ACCEPTANCE

ARTICLE E.1. FAR 52.252-2, CLAUSES INCORPORATED BY REFERENCE (FEBRUARY 1998)

This contract incorporates the following clauses by reference, with the same force and effect as if they were given in full text. Upon request, the CO will make their full text available. Also, the full text of a clause may be accessed electronically at these addresses: https://www.acquisition.gov/FAR/.  HHSAR Clauses at: http://www.hhs.gov/policies/hhsar/subpart352.html.

FAR ClauseTitle and Date

52.246-9Inspection of Research and Development (Short Form) (Apr 1984)

ARTICLE E.2.  DESIGNATION OF GOVERNMENT PERSONNEL

For the purpose of this SECTION E, the designated COR is the authorized representative of the CO. The COR will assist in resolving technical issues that arise during performance. The COR however, is not authorized to change any contract terms or authorize any changes in the Statement of Work or modify or extend the period of performance, or authorize reimbursement of any costs incurred during performance.

ARTICLE E.3.  INSPECTION, ACCEPTANCE AND CONTRACT MONITORING

Inspection and acceptance of the materials services and documentation called for herein shall be accomplished by the CO or a duly authorized representative.

Inspection and acceptance will be performed at:

DHHS/OS/ASPR/AMCG

Room 11J14 – O’Neill House Office Building

Washington, DC 20515

a.Site Visits and Inspections

At the discretion of the USG and independent of activities conducted by the contractor, with 48 hours’ notice to the contractor, the USG reserves the right to conduct reasonable site visits of facilities utilized by contractor in performance under the contract and inspections on an as needed basis, including collection of product samples and intermediates held at the location of the contractor, or subcontractor, provided any site visit or inspection shall not cause disruption to ongoing manufacturing and/or business operations of the contractor.  All product samples and intermediates collected by the Government shall subsequently be destroyed or returned to Contractor at the Contractor’s discretion.  All costs reasonably incurred by the Contractor and subcontractor for such visit and/or

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

inspection shall be allowable costs subject to the Allowable cost requirements in FAR Subpart 31.2.  The Contractor shall coordinate these visits and shall have the opportunity to accompany the USG on any such visits.  Under time-sensitive or critical situations, the USG reserves the right to suspend the 48 hour notice to the Contractor.  The areas included under the site visit: security, regulatory and quality systems, manufacturing processes and cGMP/GLP/GCP compliance as related to activities funded under this contract.

If the USG, Contractor, or other party identifies any issues during an audit, the Contractor shall capture the issues, identify potential solutions, and provide a report to the USG for review and acceptance:

• If issues are identified during the audit, the Contractor shall submit a report to the CO and COR within ten (10) business days detailing the finding and corrective action(s) of the audit.

• COR and CO will review the report and provide a response to the Contractor within ten (10) business days.

• Once corrective action is completed, the Contractor will provide a final report to the CO and COR.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

SECTION F – DELIVERIES OR PERFORMANCE

ARTICLE F.1.  ESTIMATED PERIOD OF PERFORMANCE

The estimated period of performance for this contract shall be consistent with the dates set forth in the base period CLIN 0001 and set forth in ARTICLE B.2.  If the Government exercises its Option(s) pursuant to the Option Clause in ARTICLE I.3 of the contract, the period of performance shall be increased as shown in the table in Article B.3.

ARTICLE F.2.  DELIVERABLES

Successful performance of the final contract shall be deemed to occur upon completion of performance of the work set forth in the Statement of Work dated 28 March 2018, set forth in SECTION J - List of Attachments of this contract and upon delivery and acceptance, as required by the Statement of Work, by the CO, of each of the deliverables described in SECTION C, SECTION F, and SECTION J.

All deliverables and reporting documents listed within this section shall be delivered electronically (as defined in SECTION F.3.  ELECTRONIC SUBMISSION) to the CO, CS, and the COR unless otherwise specified by the CO.

a.Summary of Contract Deliverables

Unless otherwise specified by the CO, the deliverables identified in this SECTION F shall also be delivered electronically to the designated eRoom along with a concurrent email notification sent to the CO, CS, COR, and Alternate COR stating delivery has been made.

All paper/hardcopy documents/reports submitted under this contract shall be printed or copied, double-sided, on at least 30 percent post-consumer fiber paper, whenever practicable, in accordance with FAR 4.302(b).  Hard copies of deliverables and reports furnished to the USG under the resultant Contract (including invoices) shall be addressed as follows:

HHS/ASPR/AMCG:

ATTN: [***] (Contracting Officer)

HHS/OS/ASPR/AMCG

O’Neill House Office Building

200 C St SW

Washington, DC 20515

Email: [***]

HHS/ASPR/BARDA:

ATTN: [***] (Contracting Officer Representative)

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

HHS/OS/ASPR/BARDA

O’Neill House Office Building

200 C St SW

Washington, DC 20515

Email: [***]

1. Summary of Contract Deliverables-Unless otherwise stated, each deliverable in the table below shall be provided as one (1) electronic copy to the COR, CS, and CO as set forth in SECTION D.

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
01	Kickoff Meeting	The Contractor shall complete a Kickoff meeting after contract award	•Within a month of contract award. •Contractor shall provide itinerary and agenda at least 5 business days in advance of site visit. •COR approves and distributes itinerary and agenda within 3 business days. •Contractor provides meeting minutes to COR within 5 business days after the meeting. •COR reviews, comments, and approves minutes within 10 business days.
02	Quarterly Meetings	The Contractor shall hold recurring teleconference or face- to-face Program Review Meetings approximately every third month either in Washington D.C. or at work sites of the Contractor or subcontractors.  The meetings will be used to discuss contract progress in relation to the Program Management deliverables described below as well as study designs, technical, regulatory, and ethical aspects of the program.	•Contractor shall provide itinerary and agenda at least 5 business days in advance of site visit •COR approves and distributes itinerary and agenda within 3 business days. •Contractor provides meeting minutes to COR within 5 business days after the meeting. •COR reviews, comments, and approves minutes within 10 business days.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
03	Biweekly Teleconference Meetings	The Contractor shall participate in teleconferences every two weeks with BARDA to discuss the performance of the contract.	•Contractor provides agenda to COR no later than 2 business days in advance of meeting. •COR approves and distributes agenda prior to meeting. •Contractor provides meeting minutes to COR within 5 business days following the meeting. •COR reviews, comments, and approves minutes within 10 business days following the meeting.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
04 (Monthly) 05 (Annual)	Monthly & Annual Technical Progress Reports	The Monthly and Annual Technical Progress report shall address each of the below items and be cross-referenced to the Work Breakdown Structure (WBS), Statement of Work (SOW), Integrated Master Schedule (IMS) and Contract Performance Report (CPR). 1.An Executive Summary highlighting the progress, issues and relevant manufacturing, non-clinical, clinical and regulatory activities.  The Executive Summary should highlight only critical issues for that reporting period and resolution approach; limited to 2-3 pages. 2.Progress in meeting contract milestones – broken out by subtasks within each milestone, overall project assessment, problems encountered and recommended solutions.  The reports shall detail the planned and actual progress during the period covered, explaining occurrences of any differences between the two and the corrective steps. 3.The reports shall also include a three-month rolling forecast of the key planned activities, referencing the WBS/IMS. 4.A tracking log of progress on regulatory submissions with the FDA number, description of submission, date of submission, status of submission and next steps. 5.Estimated and Actual Expenses. 6.This report shall also contain a narrative or table detailing whether there is a significant discrepancy (>10%) at this time between the % of work completed and the cumulative costs incurred to date.  Monthly and actual expenses should be broken down to the appropriate WBS level.  This section of the report should also contain estimates for the Subcontractors’ expenses from the previous month if the Subcontractor did not submit a bill in the previous costs in the previous month, then a statement to this effect should be included in this report for those respective subcontractors.	•Monthly Reports shall be submitted on the 20th day of the month after the end of each month with an Annual Report submitted on the 30th calendar day of the final month of each contract year for the previous twelve calendar months.  Monthly progress reports are not required for the periods when the Annual Report(s) and Final Report are due.  The COR and CO will review the monthly reports with the Contractor and provide feedback.

17

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
06	Risk Management Plan	The Contractor shall provide a Risk Management Plan that outlines the impacts of each risk in relation to the cost, schedule, and performance objectives.  The plan shall include risk mitigation strategies.  Each risk mitigation strategy will capture how the corrective action will reduce impacts on cost, schedule, and performance.	•Due within 90 days of contract award. •Contractor provides updated Risk Management Plan in Monthly Progress Report. •The COR shall provide the contractor with a written list of concerns in response plan submitted. •Contractor must address in writing, all concerns raised by the COR within 20 business days of contractor’s receipt of the COR’s concerns.
07	Incident Report	Contractor shall communicate and document all critical programmatic concerns, risks, or potential risks with the COR or CO.	•Due within 48 hours of activity or incident or within 24 hours for a security activity or incident. •Email or telephone with written follow-up to COR and CO. •Additional updates due to COR and CO within 48 hours of additional developments. •Contractor shall submit within 5 business days a Corrective Action Plan (if deemed necessary by either party) to address any potential issues. •If corrective action is deemed necessary, Contractor must address in writing, its consideration of concerns raised by CO/COR within 5 business days of receiving such concerns in writing

18

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
08	Draft and Final Reports for Clinical and Non-Clinical Studies	Contractor shall provide Draft and Final Clinical/Non-Clinical Study Reports to the COR and CO for review and comment.	•Draft report due within 45 calendar days after completion of analysis and at least 15 business days prior to submission to FDA. •Subcontractor prepared reports received by the Contractor shall be submitted to the COR comment no later than 5 business days after receipt by Contractor. •The Government will provide written comments to the Draft Final Report for Clinical and Non-Clinical Studies within 15 business days after the submission. •Final report due 30 calendar days after receiving comments on the Draft Final Report for Clinical and Non-Clinical Studies.  If corrective action is recommended, Contractor must address, in writing, all concerns raised by the CO and COR in writing. •Contractor shall consider revising reports to address CO/COR’s recommendations prior to FDA submission. •Final FDA submissions shall be provided to CO/COR concurrently or no later than 1 business day after submission to the FDA.
09	Standard Operating Procedures	The Contractor shall make internal and, to the extent possible, subcontractor Standard Operating Procedures (SOPs) specific to SPR 994 (oral carbapenem) available for review electronically.	Upon request from the COR/CO.
10	Manufacturing Campaign Reports	Contractor shall provide Manufacturing Campaign Reports specific to SPR 994 (oral carbapenem) to the COR and CO for review and comment prior to submission to FDA. The COR and CO reserve the right to request within the period of performance a non-proprietary Manufacturing Campaign Report specific SPR 994 (oral carbapenem) for distribution within the USG.	•Contractor shall submit Manufacturing Campaign Reports at least 15 business days prior to FDA submission. •If corrective action is recommended, Contractor must address, in writing, all concerns raised by CO/COR in writing. •Contractor shall consider revising reports to address CO/COR’s concerns and/or recommendations prior to FDA submission. •Final FDA submission shall be submitted to CO/COR’s concurrently or no later than 1 business day after submission to the FDA.
11	FDA Correspondence	The Contractor shall memorialize any correspondence between Contractor and FDA specific to SPR 994 (oral carbapenem) and submit to the CO and COR.  All documents shall be duly marked as either “Draft” or “Final”.	•Contractor shall provide written summary of any FDA correspondence within 5 business days of correspondence.

19

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
12	FDA Meetings	The Contractor shall forward the SPR 994 (oral carbapenem) dates and times of any meeting with the FDA to the CO and COR and make arrangements for appropriate BARDA staff to attend the FDA meetings.  BARDA staff shall include up to a maximum of four people (COR, CO and up to 2 subject matter experts).	•Contractor shall notify CO/COR of upcoming FDA meeting within 24 hours of scheduling Type A, B or C meetings OR within 24 hours of meeting occurrence for ad hoc meetings. •The Contractor shall forward initial Contractor and FDA-issued draft minutes and final minutes of any meeting with the FDA to BARDA within 5 business days of receipt.  All documents shall be duly marked as either “Draft” or “Final”.
13	FDA Submissions	The Contractor shall provide the COR the opportunity to review and comment upon all draft submissions specific to the SPR 994 (oral carbapenem) before submission to the FDA.  Contractor shall provide the COR with an electronic copy of the final FDA submission.  All documents shall be duly marked as either “Draft” or “Final”.	•Contractor shall submit draft FDA submissions to the COR and CO at least 15 business days prior to FDA submission. •CO/COR will provide feedback to Contractor within 10 business days of receipt. •If corrective action is recommended, the Contractor must address, in writing, its consideration of all concerns raised by the CO/COR. •The Contractor shall consider revising their documents to address CO/COR’s concerns and/or recommendations prior to FDA submission. •Final FDA submissions shall be submitted to CO/COR concurrently or no later than 1 calendar day of its submission to CDER.

20

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
14	FDA Audits	In the event of an FDA inspection which occurs as a result of this contract and for the product, or for any other FDA inspection that has the reasonable potential to impact the performance of this contract, the Contractor shall provide the USG with an exact copy (non-redacted) of the FDA Form 483 and the Establishment Inspection Report (EIR).  The Contractor shall provide the COR and CO with copies of the plan for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines as identified in the audit report, status updates during the plans execution and a copy of all final responses to the FDA.  The Contractor shall also provide redacted copies of any FDA audit reports received from subcontractors that occur as a result of this contract or for this product.  The Contractor shall provide the opportunity for COR/CO representative(s) to be present during the final debrief by the regulatory inspector of Contractor facilities.	•Contractor shall notify CO and COR within 10 business days of a scheduled FDA audit or within 48 hours of an ad hoc site visit/audit if the FDA does not provide advanced notice. •Contractor shall provide copies of any FDA audit report received from subcontractors that occur as a result of this contract or for this product within 5 business days of receiving correspondence from the FDA or third party. •Within 15 business days of audit report of Contractor facilities, Contractor shall provide CO and COR with a plan for addressing areas of nonconformance, if any are identified.
15	QA Audit Reports	The Government reserves the right to participate in QA audits subject to reasonable advance notice provided to the Contractor.  Upon completion of the audit/site visit the Contractor shall provide a report capturing the findings, results and next steps in proceeding with the subcontractor.  If action is requested of the subcontractor, detailed concerns for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines, as identified in the audit report, must be provided to the CO and COR.  The Contractor shall provide responses from the subcontractors to address these concerns and plans for corrective action execution.	•Contractor shall notify CO and COR 10 days in advance of upcoming, ongoing, or recent audits/site visits of subcontractors as part of weekly communications. •Contractor shall notify the COR and CO within 5 business days of report completion.

21

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
16	BARDA Audit	Contractor shall accommodate periodic or ad hoc site visits by BARDA subject to reasonable advance notice provided to the Contractor.  If BARDA, the Contractor, or other parties identifies any issues during an audit, the Contractor shall capture the issues, identify potential solutions, and provide a report to the CO and COR.	•If issues are identified during the audit, Contractor shall submit a report to the CO and COR detailing the finding and corrective action(s) within 10 business days of the audit. •COR and CO will review the report and provide a response to the Contractor with 10 business days. •Once corrective action is completed, the Contractor will provide a final report to BARDA.
17	Technical Documents	Upon request, Contractor shall provide CO and COR with deliverables from the following contract funded activities: Process Development Reports, Assay Qualification Plan/Report, Assay Validation Plan/Report, Assay Technology Transfer Report, Batch Records, SOPs, Master Production Records, Certificate of Analysis, Clinical Studies Data or Reports.  The CO and COR reserve the right to request within the period of performance a non-proprietary technical document for distribution within the Government.	•Contractor shall provide technical document within 10 business days of CO or COR request.  Contractor can request additional time on an as needed basis. •If corrective action is recommended, the Contractor must address, in writing, concerns raised by the CO and COR in writing.
18	Animal Model or Other Technology Transfer Package	Contractor shall provide Animal Model or Other Technology Transfer Package relevant data.	•Contractor shall provide data within 10 business days of COR or CO request.

22

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
19	Raw Data or Data Analysis	Contractor shall provide raw data or data analysis to the CO and COR upon request.	•Contractor shall provide data or data analysis to CO and COR within 20 business days of request.
20	Product Transition Strategy	Contractor shall provide a 2-4 page summary document containing a Product Transition Strategy to support transition of the product(s) prior to end of the base period of performance.  The Product Transition Strategy should provide a strategic plan for further development and/or stockpiling of the product.  The transition strategy shall provide options and/or a specific approach for the transition of MCM product for further development, procurement, approval and/or stockpile.	•Contractor shall provide a Product Transition Strategy to support transition of the product(s) 90 days prior to the end of the base period of performance as addendum to the Final Technical Progress Report.
21	Publications	Any manuscript or scientific meeting abstract containing data generated under this contract must be submitted to the CO and COR for review prior to submission.	•Contractor must submit all manuscript or scientific meeting abstract to PO and CO within 30 business days for manuscripts and 15 business days for abstracts. •Contractor must address in writing all concerns raised by the CO/COR in writing. •Final submissions shall be submitted to the CO/COR concurrently or no later than one (1) calendar day of its submission.

23

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
22	Press Releases	Contractor agrees to accurately and factually represent the work conducted under this contract in all press releases.	•With the exception of ad-hoc press releases required by applicable law or regulations, Contractor shall ensure that the CO has received and approved an advanced copy of any press release to this contract not less than 2 business days prior to the issuance of the press release. •If corrective action is required, the Contractor agrees to accurately and factually represent the work conducted under this contract in all press releases. •Any final press releases shall be submitted to the CO/COR no later than 1 (one) calendar day prior to its release.
23	Draft and Final Technical Progress Report	A Draft Final Technical Progress Report containing a summation of the work performed and the results obtained for the entire contract period of performance.  The draft report shall be duly marked as ‘Draft’. The Final Technical Progress Report incorporating feedback received from BARDA and containing a summation of the work performed and the results obtained for the entire contract period of performance.  The final report shall document the results of the entire contract.  This report shall be in sufficient detail to fully describe the progress achieved under all milestones.  The final report shall be duly marked as ‘Final’.	•Contractor shall provide a draft Technical Progress Report 75 calendar days before the end of the period of performance and the Final Technical Progress Report on or before the completion date of the period of performance. •Subcontractor prepared reports received by the contractor shall be submitted to the COR and CO for review and comment no later than 5 business days after receipt by the contractor. •The COR will provide feedback on draft report within 15 calendar days of receipt, which the Contractor shall consider incorporating into the Final Report. •The contractor shall submit, with the Final Technical Progress Report, a summary (not to exceed 200 words) of salient results achieved during the performance of the contract.
24	Draft and Final Study Protocols	Contractor shall provide all Draft and Final Study Protocols to COR for evaluation.	•The Contractor will submit all proposed protocols to the CO and COR at least 10 business days prior to study start.

24

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
25	Clinical Study Status Update	Contractor shall provide PO with a status update of clinical studies that are actively enrolling patients to include by study site: cumulative enrollment; new enrollments; screen failures; patients dropped from study; AE and SAEs; activation or inactivation of study sites; investigator appointments or changes; and status of IRB/IEC review/approval/renewal.  Contractor will provide proposed format for BARDA PO review and approval.	•Update will be submitted by e-mail or other electronic format to be provided by CO and CO by the end of the 20th business day of each new month. •Updates, to the extent they are available, will be presented during biweekly teleconferences. •If no changes have occurred since the prior update only a simple statement that there is no new data required.

NOTE: Pursuant to federal law, no Government personnel shall publish, divulge, disclose, or otherwise make known to any non-government entity any Contractor data marked with the limited rights proprietary legend specified under FAR 52.227-14 Alt II (g)(3) , unless permitted to do so by law or regulation.

2.Detailed Description of Select Contract Deliverables

A.Monthly and Annual Progress Reports

In addition to those reports required by the other terms of this contract, the Contractor shall prepare and submit the following reports in the manner stated below and in accordance with this Article F of this contract, and in the Statement of Work, attached to this contract (see SECTION J-List of Attachments).

i.Monthly Progress Report

This report shall include a description of the activities during the reporting period, and the activities planned for the ensuing reporting period.  The first reporting period consists of the first full month of performance plus any fractional part of the initial month.  Thereafter, the reporting period shall consist of each calendar month.

The Contractor shall submit a Monthly Progress Report according to the dates set forth in the summary table (“Summary of Contract Deliverables”) under this article.  The progress report shall conform to the requirements set forth in the DELIVERIES Article in SECTION F of this contract.  

The format should include:

25

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

• A cover page that includes the contract number and title; the type of report and period that it covers; the Contractor’s name, address, telephone number, fax number, and e-mail address; and the date of submission;

• SECTION I – EXECUTIVE SUMMARY

• SECTION II - PROGRESS

• SECTION II Part A: OVERALL PROGRESS - A description of overall progress.

• SECTION II Part B: MANAGEMENT AND ADMINISTRATIVE UPDATE - A description of all meetings, conference calls, etc.  that have taken place during the reporting period.  Include progress on administration and management issues (e.g., evaluating, and managing subcontractor performance, and personnel changes).

• SECTION II Part C: TECHNICAL PROGRESS - For each activity related to Gantt chart, document the results of work completed and cost incurred during the period covered in relation to proposed progress, effort and budget.  The report shall be in sufficient detail to explain comprehensively the results achieved.  The description shall include pertinent data and/or graphs in sufficient detail to explain any significant results achieved and preliminary conclusions resulting from analysis and scientific evaluation of data accumulated to date under the contract.  The report shall include a description of problems encountered and proposed corrective action; differences between planned and actual progress, why the differences have occurred and what corrective actions are planned; preliminary conclusions resulting from analysis and scientific evaluation of data accumulated to date under the project.

• SECTION II Part D: PROPOSED WORK - A summary of work proposed related to Gantt chart for the next reporting period and preprints/reprints of papers and abstracts.

• SECTION III: Estimated and Actual Expenses.

a. This section of the report shall contain a narrative or table detailing whether there is a significant discrepancy (>10%) at this time between the % of work completed and the cumulative costs incurred to date.  Monthly and actual expenses should be broken down to the appropriate WBS level.

b. This section of the report should also contain estimates for the Subcontractors’ expenses from the previous month if the Subcontractor did not submit a bill in the previous month.  If the subcontractor(s) was not working or did not incur any costs in the previous month, then a statement to this effect should be included in this report for those respective subcontractors.

A Monthly Progress Report will not be required in the same month that the Annual Progress Report is submitted.

26

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

ii.Annual Progress Report

This report shall include a summation of the results of the entire contract work for the period covered.  Monthly Progress Reports shall not be submitted in the same month when an Annual Progress Report is due.  Furthermore, an Annual Progress Report will not be required for the period when the Final Report is due.  The first Annual Progress Report shall be submitted in accordance with the date set forth in the table (“Summary of Contract Deliverables”) under ARTICLE F.2. of this contract.  The progress report shall conform to the requirements set forth in the DELIVERIES Article in SECTION F of this contract.

Each Annual Progress Report shall include:

• A Cover page that includes the contract number and title; the type of report and period that it covers; the Contractor’s name, address, telephone number, fax number, and email address; and the date of submission;

• SECTION I: EXECUTIVE SUMMARY - A brief overview of the work completed, and the major accomplishments achieved during the reporting period.

• SECTION II: PROGRESS

• SECTION II Part A: OVERALL PROGRESS - A description of overall progress.

• SECTION II Part B: MANAGEMENT AND ADMINISTRATIVE UPDATE - A high level summary of critical meetings, etc. that have taken place during the reporting period.  Include progress on administration and management to critical factors of the project (e.g. regulatory compliance audits and key personnel changes).

• SECTION II Part C: TECHNICAL PROGRESS - A detailed description of the work performed structured to follow the activities and decision gates outlined at the Integrated Baseline Review and as described in the Integrated Master Plan.  The Report should include a description of any problems (technical or financial) that occurred or were identified during the reporting period, and how these problems were resolved.

• SECTION II Part D: PROPOSED WORK - A summary of work proposed for the next year period to include an updated Gantt Chart.

• SECTION III: Estimated and Actual Expenses.

a. This section of the report shall contain a narrative or table detailing whether there were discrepancies between estimated and actual contract-funded expenses over the past year.  Actual expenses should be broken down to the appropriate WBS level.  

27

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

This section of the report should also contain estimates for outstanding costs for the previous year which may have been incurred, but not yet billed.

Contractor also should include the following in the Annual Progress Report:

1. Copies of manuscripts (published and unpublished), abstracts, and any protocols or methods developed specifically under the contract during the reporting period; and

2. A summary of any Subject Inventions per the requirements under FAR Clause 52.227-11.

iii. Draft Final Report and Final Report

These reports are to include a summation of the work performed and results obtained for the entire contract period of performance.  This report shall be in sufficient detail to describe comprehensively the results achieved.  The Draft Final Report and Final Report shall be submitted in accordance with the DELIVERIES Article in SECTION F of the contract.  An Annual Progress Report will not be required for the period when the Final Report is due.  The Draft Final Report and the Final Report shall be submitted in accordance with the dates set forth in the table (“Summary of Contract Deliverables”) under ARTICLE F.2. of this contract.  The report shall conform to the following format:

1. Cover page to include the contract number, contract title, performance period covered, Contractor’s name and address, telephone number, fax number, email address and submission date.

2. SECTION I: EXECUTIVE SUMMARY - Summarize the purpose and scope of the contract effort including a summary of the major accomplishments relative to the specific activities set forth in the Statement of Work.

3. SECTION II: RESULTS - A detailed description of the work performed related to WBS and Gantt chart, the results obtained, and the impact of the results on the scientific and/or public health community including a listing of all manuscripts (published and in preparation) and abstracts presented during the entire period of performance and a summary of all inventions.

Draft Final Report: The Contractor is required to submit the Draft Final Report to the Contracting Officer’s Representative and Contracting Officer.  The Contracting Officer’s Representative and Contracting Officer will review the Draft Final Report and provide the Contractor with

28

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

comments in accordance with the dates set forth in ARTICLE F.2. of this contract.

Final Report: The Contractor will deliver the final version of the Final Report on or before the completion date of the contract.  The final version shall include or address the COR’s and CO’s written comments on the draft report.  Final Report shall be submitted on or before the completion date of the contract.

iv.Summary of Salient Results

The Contractor shall submit, with the Final Report, a summary of salient results achieved during the performance of the contract.

v.Audit Reports

Within thirty (30) calendar days of an audit related to conformance to FDA regulations and guidance, including adherence to GLP, GMP, GCP guidelines, the Contractor shall provide copies of the audit report (so long as received from the FDA) and a plan for addressing areas of nonconformance to FDA regulations and guidelines for GLP, GMP, or GCP guidelines as identified in the final audit report and as related to activities funded under this contract.

vi.Supplemental Technical Reports

The Government reserves the right to request within the Period of Performance a non-proprietary technical document for distribution within the USG. Contractor shall provide technical document within 10 business days of CO or COR request.  Contractor can request additional time on an as needed basis. If edits are recommended, the Contractor must address, in writing, concerns raised by the CO/COR in writing.

B.Deliverables Arising from FDA Correspondence

i.FDA Meetings

The Contractor shall forward the dates and times of any meeting with the FDA to BARDA and make arrangements for appropriate BARDA staff to attend the FDA meetings.  BARDA staff shall include up to a maximum of four people (COR, CO and up to 2 subject matter experts).

• Contractor shall notify BARDA of upcoming FDA meeting within 24 hours of scheduling Type A, B or C meetings OR within 24 hours of meeting occurrence for ad hoc meetings.

• The Contractor shall forward initial Contractor and FDA-issued draft minutes and final minutes of any meeting with the FDA to BARDA

29

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

within 5 business days of receipt.  All documents shall be duly marked as either “Draft” or “Final.”

ii.FDA Submissions

The Contractor shall provide the COR the opportunity to review and comment upon all draft submissions before submission to the FDA.  Contractor shall provide COR with an electronic copy of the final FDA submission.  All documents shall be duly marked as either “Draft” or “Final.”

• The COR will provide feedback to Contractor within 10 business days of receipt.

• If corrective action is recommended, the Contractor must take into consideration concerns raised by COR/CO.  The COR/CO may request a response in writing for a specific concern prior to FDA submission.

• Final FDA submissions shall be submitted to the COR concurrently or no later than 1 calendar day of their submission to FDA.

iii.FDA Audits

In the event of an FDA inspection which occurs as a result of this contract and for the product, or for any other FDA inspection that has the reasonable potential to impact the performance of this contract, the Contractor shall provide the USG with an exact copy (non-redacted) of the FDA Form 483 and the Establishment Inspection Report (EIR) within five (5) business days after the Contractors receipt of those documents.  The Contractor shall provide the COR and CO with copies of the plan for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines as identified in the audit report, status updates during the plans execution and a copy of all final responses to the FDA.  The Contractor shall also provide redacted copies of any FDA audits received from subcontractors that occur as a result of this contract or for this product.  The Contractor shall make arrangements for BARDA representative(s) to be present during the final debrief by the regulatory inspector.

• The Contractor shall notify CO and COR within 10 business days of a scheduled FDA audit or within 24 hours of an ad hoc site visit/audit if the FDA does not provide advanced notice.

• The Contractor shall provide copies of any FDA audit report received from subcontractors that occur as a result of this contract or for this product within 5 business days of receiving correspondence from the FDA, Subcontractor, or third party.

30

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

• Within 15 business days of audit report, the Contractor shall provide the CO with a plan for addressing areas of nonconformance, if any are identified.

iv.Other FDA Correspondence

The Contractor shall submit any formal correspondence between Contractor and FDA to COR and CO.  All documents shall be duly marked as either “Draft” or “Final.” Contractor shall provide copies of any formal FDA correspondence within 5 business days of correspondence.

ARTICLE F.3.  ELECTRONIC SUBMISSION

For electronic delivery, the Contractor shall upload documents to the appropriate folder on https://eroom.bardatools.hhs.gov/eRoom (“eRoom”) which is the designated USG file sharing system.  The USG shall provide two contractor representatives authorized log in access to the file share program.  Each representative must complete a mandatory training provided by the USG prior to gaining user access.  A notification email should be sent to the CO and COR upon electronic delivery of any documents.

ARTICLE F.4.  SUBJECT INVENTION REPORTING REQUIREMENT

All reports and documentation required by FAR Clause 52.227-11, Patent Rights-Ownership by the Contractor, including, but not limited to, the invention disclosure report, the confirmatory license, and the government support certification, one copy of an annual utilization report, and a copy of the final invention statement, shall be submitted to the Contracting Officer.  A final invention statement (see FAR 27.303 (b)(2)(ii)) shall be submitted to the Contracting Officer on the expiration date of the contract.

Reports and documentation submitted to the Contracting Officer shall be sent to the address set forth in SECTION G – CONTRACT ADMINISTRATION DATA.

If no invention is disclosed or no activity has occurred on a previously disclosed invention during the applicable reporting period, a negative report shall be submitted to the Contracting Officer at the address listed above.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

SECTION G - CONTRACT ADMINISTRATION DATA

ARTICLE G.1.  CONTRACTING OFFICER

The following Contracting Officers (CO) will represent the USG for the purpose of this contract:

[***]

HHS/OS/ASPR/AMCG

O’Neill House Office Building

200 C St SW

Washington, DC 20515

Email: [***]

1) The Contracting Officer is the only individual who can legally commit the Government to the expenditure of public funds.  No person other than the Contracting Officer can make any changes to the terms, conditions, general provisions, or other stipulations of this contract.

2) The Contracting Officer is the only person with the authority to act as agent of the Government under this contract.  Only the Contracting Officer has authority to (1) direct or negotiate any changes in the statement of work; (2) modify or extend the period of performance; (3) change the delivery schedule; (4) authorize reimburse to the Contractor of any costs incurred during the performance of this contract; (5) otherwise change any terms and conditions of this contract.

3) No information other than that which may be contained in an authorized modification to this contract, duly issued by the Contracting Officer, which may be received from any person employed by the US Government, other otherwise, shall be considered grounds for deviation from any stipulation of this contract.

4) The Government may unilaterally change its CO designation, after which it will notify the Contractor in writing of such change.

ARTICLE G.2.  CONTRACTING OFFICER’S REPRESENTATIVE (COR)

The following Contracting Officer’s Representative (COR) will represent the Government for the purpose of this contract:

[***]

HHS/OS/ASPR/BARDA

O’Neill House Office Building

200 C St SW

Washington, DC 20515

Email: [***]

The COR is responsible for:

32

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

1) Monitoring the Contractor’s technical progress, including the surveillance and assessment of performance and recommending to the Contracting Officer changes in requirements;

2) Assisting the Contracting Officer in interpreting the statement of work and any other technical performance requirements;

3) Performing technical evaluation as required;

4) Performing technical inspections and acceptances required by this contract; and

5) Assisting in the resolution of technical problems encountered during performance.  The Government may unilaterally change its COR designation, after which it will notify Contractor in writing of such change.

ARTICLE G.3.  KEY PERSONNEL

Pursuant to the Key Personnel clause incorporated in Section I of this contract, the following individuals are considered to be essential to the work being performed hereunder:

	NAME	ORGANIZATION	TITLE
1	[***]	Spero	[***]
2	[***]	Spero	[***]
3	[***]	Spero	[***]
4	[***]	Spero	[***]
5	[***]	Spero	[***]

The key personnel specified in this contract are considered to be essential to work performance.  At least thirty (30) business days prior to diverting any of the specified individuals to other programs or contracts, including, where practicable, an instance when an individual must be replaced as a result of leaving the employ of the Contractor, the Contractor shall notify the Contracting Officer and shall submit a comprehensive justification (including a Curriculum Vitae for the recommendation replacement) for the diversion or replacement request (including proposed substitutions for key personnel) to permit evaluation by the Government of the impact on performance under this contract.  The Contractor shall not divert or otherwise replace any key personnel without the written consent of the Contracting Officer.

33

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

ARTICLE G.4.  CONTRACT FINANCIAL REPORT

a. Financial reports on the attached Financial Report of Individual Project/Contract shall be submitted by the Contractor to the CO with a copy to the COR in accordance with the instructions for completing this form, which accompany the form, in an original and one electronic copy, not later than the 30th business day after the close of the reporting period.  The line entries for subdivisions of work and elements of cost (expenditure categories), which shall be reported within the total contract, are discussed in paragraph e., below.  Subsequent changes and/or additions in the line entries shall be made in writing.

b. Unless otherwise stated in the instructions for completing this form, all columns A through J, shall be completed for each report submitted.

c. The first financial report shall cover the period consisting of the first full three calendar months following the date of the contract, in addition to any fractional part of the initial month.  Thereafter, reports will be on a quarterly basis.

d. The Contracting Officer may require the Contractor to submit detailed support for costs contained in one or more interim financial reports.  This clause does not supersede the record retention requirements in FAR Part 4.7.

e. The listing of expenditure categories to be reported is incorporated as a part of this contract and can be found under SECTION J Attachment 3 entitled, “Financial Report of Individual Project/Contract”.

f. The USG may unilaterally revise the “Financial Report of Individual Project/Contract” to reflect the allotment of additional funds.

ARTICLE G.5.  INVOICE/FINANCING REQUEST AND CONTRACT FINANCIAL REPORTING

Documents shall be delivered electronically to the Contracting Officer (CO), the Contracting Specialist (CS), the Contracting Officer’s Representative (COR) and PSC.  Unless otherwise specified by the Contracting Officer all deliverables and reports furnished to the Government under the resultant contract (including invoices) shall be addressed as follows:

[***] HHS/OS/ASPR/AMCG O’Neill House Office Building 200 C St SW Washington, DC 20515 Email: [***] [***] HHS/OS/ASPR/BARDA O’Neill House Office Building 200 C St SW Washington, DC 20515 Email: [***] psc_invoices@psc.hhs.gov   And   Designated e-room.  

34

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

a. Contractor invoices/financial reports shall conform to the form, format, and content requirements of the instructions for Invoice/Financing requests and Contract Financial Reporting.

b. Monthly invoices must include the cumulative total expenses to date, adjusted (as applicable) to show any amounts suspended by the USG.

c. The Contractor agrees to immediately notify the CO in writing if there is an anticipated overrun (any amount) or unexpended balance (greater than 10 percent) of the estimated costs for the base period.  (See estimated costs under Articles B.2) and the reasons for the variance.  These requirements are in addition to the specified requirements of FAR Clause 52.232-20, Limitation of Cost that is incorporated by reference under Article I.1 which states;

d. The Contractor shall submit an electronic copy of the payment request to the approving official instead of a paper copy.  The payment request shall be transmitted as an attachment via e-mail to the address listed above in one of the following formats: MSWord, MS Excel, or Adobe Portable Document Format (PDF).  Only one payment request shall be submitted per e-mail and the subject line of the e-mail shall include the Contractor’s name, contract number, and unique invoice number.

e. An electronic copy of the payment request shall be uploaded into the designated eRoom (as defined in SECTION F.3 ELECTRONIC SUBMISSION) and an e-mail notification of the upload will be provided to the CO and COR.

f. All invoice submissions shall be in accordance with FAR Clause 52.232-25, Prompt Payment (Oct 2008).

g. Invoices - Cost and Personnel Reporting, and Variances from the Negotiated Budget.

Limitation of Cost (Apr 1984)

(a) The parties estimate that performance of this contract, exclusive of any fee, will not cost the Government more than (1) the estimated cost specified in the Schedule or, (2) if this is a cost-sharing contract, the Government’s share of the estimated cost specified in the Schedule.  The Contractor agrees to use its best efforts to perform the work specified in the Schedule and all obligations under this contract within the estimated cost, which, if this is a cost-sharing contract, includes both the Government’s and the Contractor’s share of the cost.

(b) The Contractor shall notify the Contracting Officer in writing whenever it has reason to believe that—

(1) The costs the Contractor expects to incur under this contract in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of the estimated cost specified in the Schedule; or

35

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

(2) The total cost for the performance of this contract, exclusive of any fee, will be either greater or substantially less than had been previously estimated.

(c) As part of the notification, the Contractor shall provide the Contracting Officer a revised estimate of the total cost of performing this contract.

(d) Except as required by other provisions of this contract, specifically citing and stated to be an exception to this clause—

(1) The Government is not obligated to reimburse the Contractor for costs incurred in excess of (i) the estimated cost specified in the Schedule or, (ii) if this is a cost-sharing contract, the estimated cost to the Government specified in the Schedule; and

(2) The Contractor is not obligated to continue performance under this contract (including actions under the Termination clause of this contract) or otherwise incur costs in excess of the estimated cost specified in the Schedule, until the Contracting Officer (i) notifies the Contractor in writing that the estimated cost has been increased and (ii) provides a revised estimated total cost of performing this contract.  If this is a cost-sharing contract, the increase shall be allocated in accordance with the formula specified in the Schedule.

(e) No notice, communication, or representation in any form other than that specified in paragraph (d)(2) of this clause, or from any person other than the Contracting Officer, shall affect this contract’s estimated cost to the Government. In the absence of the specified notice, the Government is not obligated to reimburse the Contractor for any costs in excess of the estimated cost or, if this is a cost-sharing contract, for any costs in excess of the estimated cost to the Government specified in the Schedule, whether those excess costs were incurred during the course of the contract or as a result of termination.

(f) If the estimated cost specified in the Schedule is increased, any costs the Contractor incurs before the increase that are in excess of the previously estimated cost shall be allowable to the same extent as if incurred afterward, unless the Contracting Officer issues a termination or other notice directing that the increase is solely to cover termination or other specified expenses.

(g) Change orders shall not be considered an authorization to exceed the estimated cost to the Government specified in the Schedule, unless they contain a statement increasing the estimated cost.

(h) If this contract is terminated or the estimated cost is not increased, the Government and the Contractor shall negotiate an equitable distribution of all property produced or purchased under the contract, based upon the share of costs incurred by each.

36

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

The Contractor agrees to provide a detailed breakdown on invoices of the following cost categories:

a. Direct Labor - List individuals by name, title/position, hourly/annual rate, level of effort (actual hours or % of effort), and amount claimed.

b. Fringe Benefits - Cite rate and amount

c. Overhead - Cite rate and amount

d. Materials & Supplies - Include detailed breakdown when total amount is over $3,500.

e. Travel - Identify travelers, dates, destination, purpose of trip, and total breaking out amounts for transportation (plane, car etc), lodging, M&IE. Cite COA, if appropriate.  List separately, domestic travel, general scientific meeting travel, and foreign travel.

f. Consultant Fees - Identify individuals, amounts and activities.  Cite appropriate COA

g. Subcontracts - Attach subcontractor invoice(s).  Cite appropriate COA

h. Equipment - Cite authorization and amount.  Cite appropriate COA

i. Other Direct Costs - Include detailed breakdown when total amount is over $3,500.

j. G&A - Cite rate and amount.

k. Total Cost (and applicable cost-shared ratio)

l. Fee (if applicable)

m. Total Cost Plus Fixed Fee

Monthly invoices must include the cumulative total expenses to date, adjusted (as applicable) to show any amounts suspended by the USG.  Nothing in this section discharges the Contractor’s responsibility to comply with any applicable FAR Parts 30 or 31 clauses’ relating to cost reimbursement subcontracts.  In order to verify allowability, further breakdown of costs may be requested at the USG’s discretion.  The Contractor shall subcontract with Firm Fixed Price Contracts to the maximum extent practicable.

Additional instructions and an invoice template are provided in Attachment 2, Invoice/Financing Request Instructions and Contract Financial Reporting Instructions for Cost-Reimbursement Type Contracts.  All invoices must be signed by a representative of the Contractor authorized to certify listed charges are accurate and comply with government regulations.  Invoices should be

37

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

submitted electronically (in accordance with ARTICLE F.3., (ELECTRONIC SUBMISSION) Only with signature.

If applicable, the Contractor shall convert any foreign currency amount(s) in the monthly invoice to U.S. dollars each month, on the 1st of the month, using the foreign exchange rate index published on www.federalreserve.gov.  Payment of invoices is subject to the U.S. dollar limits within the Total Estimated Cost of each active CLIN(s) in Section B under the contract.

ARTICLE G.6.  REIMBURSEMENT OF COST

1) The Government shall reimburse the Contractor the cost determined by the Contracting Officer to be allowable (hereinafter referred to as allowable cost) in accordance with FAR Clause 52.216-7, Allowable Cost and Payment incorporated by reference in Section I, Contract Clauses, of this contract, and FAR Subpart 31.2. Examples of allowable costs include, but are not limited to, the following:

a) All direct materials and supplies that are used in performing the work provided for under the contract, including those purchased for subcontracts and purchase orders.

b) All direct labor, including supervisory, that is properly chargeable directly to the contract, plus fringe benefits.

c) All other items of cost budgeted for and accepted in the negotiation of this basic contract or modifications thereto.

d) Approved Travel costs (See Article B.4.b. above) including per diem or actual subsistence for personnel while in an actual travel status in direct performance of the work and services required under this contract subject to the following:

(i) Air travel shall be by the most direct route using “air coach” or “air tourist” (less than first class) unless it is clearly unreasonable or impractical (e.g., not available for reasons other than avoidable delay in making reservations, would require circuitous routing or entail additional expense offsetting the savings on fare, or would not make necessary connections).

(ii) Rail travel shall be by the most direct route, first class with lower berth or nearest equivalent.

(iii) Costs incurred for lodging, meals, and incidental expenses shall be considered reasonable and allowable to the extent that they do not exceed on a daily basis the per diem rates set forth in the Federal Travel Regulation (FTR).

(iv) Travel via privately owned automobile shall be reimbursed at not more than the current General Services Administration (GSA) FTR established mileage rate.

38

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

ARTICLE G.7.  INDIRECT COST RATE

The following contractor established provisional billing rates are incorporated into the contract, and will be utilized for billing purposes during the base period pending the establishment of final indirect cost rates for each fiscal year or until revised by the Contracting Officer in accordance with the provisions of FAR 42.705-1. FAR clause 52.216-7 will be utilized for billing purposes during the base period as a provisional indirect rate:

Spero Therapeutics
Rate Type	Rate	Allocation Base
Fringe Benefits	[***]%	Direct Labor Costs
Overhead	[***]%	Direct Labor & Fringe Costs
G&A	[***]%	Direct Labor, Fringe, Overhead, and Other Direct Costs

Use of the above provisional rates does not change any cost ceilings, contract obligations, or specific allowance or disallowance provided for in the contract.

Final rate proposals must be sent to the Contracting Officer, within 6 months subsequent to the fiscal year end.  (See also FAR Clause 52.216-7 incorporated herein).  Employees of any affiliate organization subsidiary of the Contractor shall be charged as per the labor rate schedule specified in Contractor’s business proposal.

ARTICLE G.8.  POST AWARD EVALUATION OF CONTRACTOR PERFORMANCE

1.Contractor Performance Evaluations

Interim and final evaluations of Contractor performance will be prepared on this contract in accordance with FAR Subpart 42.15. The final performance evaluation will be prepared at the time of completion of work.  In addition to the final evaluation, an interim evaluation shall be submitted annually.

Interim and final evaluations will be provided to the Contractor as soon as practicable after completion of the evaluation.  The Contractor will be permitted thirty days to review the document and to submit additional information or a rebutting statement.  If agreement cannot be reached between the parties, the matter will be referred to an individual one level above the Contracting Officer whose decision will be final.

Copies of the evaluations, Contractor responses, and review comments, if any, will be retained as part of the contract file, and may be used to support future award decisions.

2.Electronic Access to Contractor Performance Evaluations

39

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Contractors that have Internet capability may access evaluations through a secure Web site for review and comment by completing the registration form that can be obtained at the following address:

http://www.cpars.gov

The registration process requires the Contractor to identify an individual that will serve as a primary contact and who will be authorized access to the evaluation for review and comment.  In addition, the Contractor will be required to identify an alternate contact that will be responsible for notifying the cognizant contracting official in the event the primary contact is unavailable to process the evaluation within the required 30-day time frame.

ARTICLE G.9.  CONTRACT COMMUNICATIONS/CORRESPONDENCE (JULY 1999)

The Contractor shall identify all correspondence, reports, and other data pertinent to this contract by imprinting the contract number from Page 1 of the contract.

ARTICLE G.10.  GOVERNMENT PROPERTY

1. In addition to the requirements of the clause, GOVERNMENT PROPERTY, incorporated in SECTION I of this contract, the Contractor shall comply with the provisions of HHS Publication, “HHS Contracting Guide for Control of Government Property,” which is incorporated into this contract by reference.  This document can be accessed at:

http://www.hhs.gov/hhsmanuals/ (HHS Logistics Management Manual)

Among other issues, this publication provides a summary of the Contractor’s responsibilities regarding purchasing authorizations and inventory and reporting requirements under the contract.

2. Notwithstanding the provisions outlined in the HHS Publication, “HHS Contracting Guide for Control of Government Property,” which is incorporated in this contract in paragraph 1. above, the Contractor shall use the form entitled, “Report of Government Owned, Contractor Held Property” for submitting summary reports required under this contract, as directed by the Contracting Officer or his/her designee.  This form is attached to this contract (see SECTION J- List of Attachments).

3. Title will vest in the Government for equipment purchased as a direct cost.

40

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

SECTION H - SPECIAL CONTRACT REQUIREMENTS

The Contractor, depending upon the nature of the work, is responsible for following the provisions below in conducting its own work under this contract.  The Contractor also is responsible for incorporating these provisions into any subcontract awarded, if applicable to the specific nature of the work in the subcontract.  Accordingly, those provisions shall be flowed-down as applicable.

ARTICLE H.1  CLINICAL AND NON-CLINICAL TERMS OF AWARD

BARDA has a responsibility to obtain documentation concerning mechanisms and procedures that are in place to protect the safety of participants and animals in BARDA funded clinical trials and non-clinical studies.  Therefore, the Contractor shall develop a protocol for each clinical trial and non-clinical study funded under this contract and submit all such protocols and protocol amendments to the COR evaluation and comment.  Approval by the COR is required before work under a protocol may begin.  The COR comments will be forwarded to the Contractor within ten (10) business days.  The Contractor must address, in writing, all concerns (e.g. study design, safety, regulatory, ethical, and conflict of interest) noted by the COR.

If the draft protocols are to be submitted to the FDA, BARDA review shall occur before submission, pursuant to the terms set forth by ARTICLE F.2 of this contract.  The Contractor shall consider revising their protocols to address BARDA’s concerns and recommendations prior to FDA submission.  The Contractor must provide BARDA with a copy of FDA submissions, within the time frame set forth by ARTICLE F.2 of this contract.

Execution of clinical and non-clinical studies requires written authorization from the Government.  The USG will provide written authorization to the Contractor upon either 1) receiving documentation in which all COR comments have been satisfactorily addressed; or 2) receiving documentation that the FDA has reviewed and commented on the protocol.

The Government shall have unlimited rights to all protocols, data resulting from execution of these protocols, and final reports funded by BARDA under this contract, as set forth in the FAR clauses referenced in PART II of this contract.  The Government reserves the right to request that the Contractor provide any contract deliverable in a non-proprietary form (e.g. redacted and /or abridged as necessary as reasonably determined by the Contractor) to ensure the Government has the ability to review and distribute the deliverables as the Government deems necessary.

Important information regarding performing human subject research is available at http://www3.niaid.nih.gov/healthscience/clinicalstudies/.

Any updates to technical reports are to be addressed in the Monthly and Annual Progress Reports.  The Contractor shall advise the Contracting Officer’s Representative or

41

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

designee in writing and via electronic communication in a timely manner of any issues potentially affecting contract performance.

1.Non-Clinical Terms of Award

These Non-Clinical Terms of Award detail an agreement between the Biomedical Advanced Research and Development Authority (BARDA) and the Contractor; they apply to all grants and contracts that involve non-clinical research.

a.Safety and Monitoring Issues

i. PHS Policy on Humane Care and use of Laboratory Animals

Before award and then with the annual progress report, the Contractor must submit to BARDA a copy of the current Institutional Animal Care and Use Committees (IACUC) documentation of continuing review and approval and the Office of Laboratory Animal Welfare (OLAW) federal wide assurance number for the institution or site.

If other institutions are involved in the research (e.g., a multicenter trial or study), each institution’s IACUC must review and approve the protocol.  They must also provide BARDA initial and annual documentation of continuing review and approval and federal wide assurance number.

The Contractor must ensure that the application, as well as all protocols, is reviewed by the performing institution’s IACUC.

To help ensure the safety of animals used in BARDA-funded studies, the Contractor must provide BARDA copies of documents related to all major changes in the status of ongoing protocols, including the following:

• All amendments or changes to the protocol, identified by protocol version number, date, or both and date it is valid.

• All material changes in IACUC policies and procedures, identified by version number, date, and all required signatories (if applicable).

• Termination or temporary suspension of the study(ies) for regulatory issues.

• Termination or temporary suspension of the protocol.

• Any change that is made in the specific IACUC approval for the indicated study(ies).

42

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

• Any other problems or issues that could affect the scientific integrity of the study(ies), i.e., fraud, misrepresentation, misappropriation of funds, etc.

The Contractor must notify the CO and COR of any of the above changes within five (5) working days from the time the Contractor becomes aware of such changes by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IACUC and a copy of any responses from the IACUC.

If a non-clinical protocol has been reviewed by an institutional biosafety committee (IBC) or the NIH Recombinant DNA Advisory Committee (RAC), the Contractor must provide information about the initial and ongoing review and approval, if any.  See the NIH Guidelines for Research Involving Recombinant DNA Molecules.

ii. Non-Clinical Data and Safety Monitoring Requirements

BARDA strongly recommends continued safety monitoring for all non-clinical studies of investigational drugs, devices, or biologics.  FDA expects non-clinical studies to include safety in addition to efficacy.  The Contractor should consider evaluation of clinical relevant safety markers in the pivotal and non-pivotal, non-clinical studies.  In preparation for clinical trials of licensed or not yet licensed products, it is imperative that BARDA- sponsored studies of any type measure the risk and safety parameters that are elicited and provide a safety profile from the studies for future human risk assessment.

BARDA will work with the Contractor on decisions regarding the type and extent of safety data accrual to be employed before the start of efficacy or safety studies.

The Contractor shall inform CO and COR of any upcoming site visits and/or audits of CRO facilities funded under this effort.  BARDA reserves the right to accompany the Contractor on site visits and/or audits of CRO’s as BARDA deems necessary, provided reasonable prior notice is given to the Contractor.

b.BARDA Review Process before Non-Clinical study Execution Begins

BARDA is under the same policy-driven assurances as NIH in that it has a responsibility to ensure that mechanisms and procedures are in place to protect the safety and welfare of animals used in BARDA-funded non-clinical trials.  Therefore, before study execution, the Contractor must provide the following (as applicable) for review and comment by Government:

43

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

• IACUC approved (signed) non-clinical research protocol identified by version number, date, or both, including details of study design, euthanasia criteria, proposed interventions, and exclusion criteria.

• For non-pivotal mouse studies, the Contractor will provide an annual animal care and use protocol.

• Documentation of IACUC approval, including OLAW federal wide number, IACUC registration number, and IACUC name.

• Contractor should reduce the number of animals required for a study using power of statistics.

• Plans for the management of side effects, rules for interventions and euthanasia criteria.

• Procedures for assessing and collecting safety data were appropriate.

• If a study is contracted through Contract Research Organizations (CROs), work orders and service agreements the Contractor shall assure an integrated safety documentation plan is in place for the study site, pharmacy service records on the dosing material to be used and excipients, and laboratory services (including histopathology).

• Documentation that the Contractor and all required staff responsible for the conduct of the research have received training in the protection and handling of animals, or that the CRO has the required documentation.

• Purchasing of animals and/or other supplies for non-clinical studies funded in part or in whole by BARDA requires written approval by the Contracting Officer in accordance with the contract.  The Contractor must have the ability to return/re-sell animals, at purchase price, to distributor or a third part, in the event that the Contracting Officer Authorization is not granted.

• Provide justification for whether studies require good laboratory practice (GLP) conditions.

• Provide justification for whether studies will be classified as non-pivotal or pivotal studies.

Documentation of each of the above items shall be submitted to the CO and COR for evaluation and comment in conjunction with the protocol.  Execution of non-clinical studies requires written authorization from the Contracting Officer in accordance with this section of the contract.

44

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

c.References

Public Health Service Policy on Humane Care and Use of Laboratory Animals: http://grants.nih.gov/grants/olaw/InvestigatorsNeed2Know.pdf

USDA Animal Welfare Act:

http://awic.nal.usda.gov/nal_display/index.php?info_center=3&tax_level=3&tax_subject=182&topic_id=1118&level3_id=6735&level4_id=0&level5_id=0&placement_default=0

2. Clinical Terms of Award

These Clinical Terms of Award detail an agreement between the Government and the Contractor; they apply to all grants and contracts that involve clinical research.

Draft protocols for each clinical study will be submitted to the CO and the COR for evaluation and comment.  CO/COR comments will be addressed and/or incorporated into the draft protocol prior to submission to the FDA for comment, if required.

BARDA shall have unlimited rights to all protocols, data generated from the execution of these protocols, and final reports, funded by BARDA under this contract, as defined in Rights in Data Clause in FAR 52.227-14.  BARDA reserves the right to request that the Contractor provide any contract deliverable funded under this contract without any restrictive legends to ensure BARDA has the ability to review and distribute the deliverables, as BARDA deems necessary.

a.Safety and Monitoring Issues

i. Institutional Review Board or Independent Ethics Committee Approval

Before initiating enrollment of subjects then with the annual progress report, the Contractor must submit to the CO and COR a copy of the current IRB-or IEC-approved informed consent document, documentation of continuing review and approval and the OHRP federal wide assurance number for the institution or site.

If other institutions are involved in the research (e.g., a multicenter clinical trial or study), each institution’s IRB or IEC must review and approve the protocol.  They must also provide the CO and the COR initial and annual documentation of continuing review and approval, including the current approved informed consent document and federal wide assurance number.

The Contractor must ensure that the application as well as all protocols are reviewed by their IRB or IEC or that of the CRO to which the contractor assigns the responsibility.

45

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

To help ensure the safety of participants enrolled in BARDA-funded studies, the Contractor must provide the CO and the COR copies of documents related to all major changes in the status of ongoing protocols, including the following:

• All amendments or changes to the protocol, identified by protocol version number, date, or both and dates it is valid.

• All changes in informed consent documents, identified by version number, dates, or both and dates it is valid.

• Termination or temporary suspension of patient accrual.

• Termination or temporary suspension of the protocol.

• Any change in IRB approval.

• Any other problems or issues that could affect the participants in the studies.

The Contractor must notify BARDA through the COR and CO of any of the above changes within five (5) working days by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IRB and a copy of any responses from the IRB or IEC.

If a clinical protocol has been reviewed by an institutional biosafety committee (IBC) or the NIH Recombinant DNA Advisory Committee (RAC), the Contractor must provide information about the initial and ongoing review and approval, if any.  See the NIH Guidelines for Research Involving Recombinant DNA Molecules.

ii. Data and Safety Monitoring Requirements

BARDA strongly recommends independent safety monitoring for clinical trials of investigational drugs, devices, or biologics; clinical trial of licensed products; and clinical research of any type involving more than minimal risk to volunteers.

Independent monitoring can take a variety of forms.  Phase III clinical trials must be reviewed by an independent data and safety monitoring board (DSMB); other trials may require DSMB oversight as well.  The Contractor shall inform the CO and COR of any upcoming site visits and/or audits of CRO facilities funded under this effort.  The CO and COR reserves the right to accompany the Contractor on site visits and/or audits of CROs as the Government deems necessary.

A risk is minimal where the probability and magnitude of harm or discomfort anticipated in the proposed research and not greater than those ordinarily encountered in daily life or during the performance of routine physical or psychological examinations or tests.  For examples, the risk of drawing a small

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

amount of blood from a healthy individual for research purposes is no greater than the risk of doing so as part of a routine physical examination (45 CFR 46.1021).

Final decisions regarding the type of monitoring to be used must be made jointly by BARDA and the Contractor before enrollment starts.  Discussions with the responsible BARDA Project Officer regarding appropriate safety monitoring and approval of the final monitoring plan by BARDA must occur before patient enrollment begins and may include discussions about the appointment of one of the following:

▪ Independent Safety Monitor – a physician or other appropriate expert who is independent of the study and available in real time to review and recommend appropriate action regarding adverse events and other safety issues.

▪ Independent Monitoring Committee (IMC) or Safety Monitoring Committee (SMC) – a small group of independent investigators and biostatisticians who review data from a particular study.

▪ Data and Safety Monitoring Board – an independent committee charged with reviewing safety and trial progress and providing advice with respect to study continuation, modification, and termination.  The Contractor may be required to use an established BARDA DSMB or to organize an independent DSMB.  All phase III clinical trials must be reviewed by a DSMB; other trials may require DSMB oversight as well.  Please refer to: NIAID Principles for Use of a Data and Safety Monitoring Board (DSMB) For Oversight of Clinical Trials Policy

When a monitor or monitoring board is organized, a description of it, its charter or operating procedures (including a proposed meeting schedule and plan for review of adverse events), and roster and curriculum vitae from all members must be submitted to and approved by BARDA before enrollment starts.  The Contractor will also ensure that the monitors and board members report any conflicts of interest and the Contractor will maintain a record of this.  The Contractor will share conflict of interest reports with BARDA.

Additionally, the Contractor must submit written summaries of all reviews conducted by the monitoring group to the CO and COR within thirty (30) days of reviews or meetings.

iii. BARDA Protocol Review Process Before Patient Enrollment Begins  BARDA has a responsibility to ensure that mechanisms and procedures are in place to protect the safety of participants in BARDA-supported clinical trials.  Therefore, before patient accrual or participant enrollment, the Contractor must ensure the following (as applicable) are in place at each participating institution, prior to patient accrual or enrollment:

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pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

• IRB- or IEC-approved clinical research protocol identified by version number, date, or both, including details of study design, proposed interventions, patient eligibility, and exclusion criteria.

• Documentation of IRB or IEC approval, including OHRP federal wide number, IRB or IEC registration number, and IRB and IEC name.

• IRB- or IEC- approved informed consent document, identified by version number, date, or both and dates it is valid.

• Plans for the management of side effects.

• Procedures for assessing and reporting adverse events.

• Plans for data and safety monitoring (see above) and monitoring of the clinical study site, pharmacy, and laboratory.

• Documentation that the Contractor and all study staff responsible for the design or conduct of the research have received training in the protection of human subjects.

Documentation to demonstrate that each of the above items are in place shall be submitted to the CO and COR for evaluation and comment in conjunction with the protocol.  Execution of clinical studies requires written authorization from the CO and COR in accordance with this section of this contract.

iv. Investigational New drug or Investigational Device Exemption Requirements  Consistent with federal regulations, clinical research projects involving the use of investigational therapeutics, vaccines, or other medical interventions (including licensed products and devices for a purpose other than that for which they were licensed) in humans under a research protocol must be performed under a Food and Drug Administration (FDA) investigational new drug (IND) or investigational device exemption (IDE).

Exceptions must be granted in writing by FDA.  If the proposed clinical trial will be performed under an IND or IDE, the Contractor must provide the CO and COR with the name and institution of the IND or IDE sponsor, the date the IND or IDE was filed with FDA, the FDA IND or IDE number, any written comments from FDA, and the written responses to those comments.

Unless FDA notifies Contractor otherwise, The Contractor must wait thirty (30) calendar days from FDA receipt of an initial IND or IDE application before initiating a clinical trial.

The Contractor must notify the CO and COR if the FDA places the study on clinical hold and provide the CO and COR any written comments from FDA, written responses to the comments, and documentation in writing that the hold has been lifted.  The Contractor must not use grant or contract funds during a clinical hold to fund clinical studies that are on hold.  The Contractor must not enter into any new financial obligations related to clinical activities for the clinical trial on clinical hold.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

v. Required Time-Sensitive Notification

Under an IND or IDE, the sponsor must provide FDA safety reports of serious adverse events. Under these Clinical Terms of Award, the Contractor must submit copies to the responsible COR as follows:

i. Expedited safety report of unexpected or life-threatening experience or death:

A copy of any report of unexpected or life-threatening experience or death associated with the use of an IND drug, which must be reported to FDA by telephone or fax as soon as possible but no later than seven (7) days after the IND sponsor’s receipt of the information, must be submitted to the COR within 24 hours of FDA notification.

ii. Expedited safety reports of serious and unexpected adverse experiences:

A copy of any report of unexpected and serious adverse experience associated with use of an IND drug or any finding from tests in laboratory animals that suggests a significant risk for human subjects, which must be reported in writing to FDA as soon as possible but no later than 15 days after the IND sponsor’s receipt of the information, must be submitted to the COR within 24 hours of FDA notification.  For medical devices, adverse events should be reported under the MedWatch (MDR) program with reporting timelines of 5 days for serious adverse events or 30 days for reportable events.

iii. IDE reports of unanticipated adverse device effect:

A copy of any reports of unanticipated adverse device effect submitted to FDA must be submitted to the COR within 24 hours of FDA notification.

iv. Expedited safety reports:

Sent to the COR concurrently with the report to FDA.

v. Other adverse events documented during the course of the trial should be included in the annual IND or IDE report and reported to the CO and COR annually.

In case of problems or issues, the COR will contact the Contractor within ten (10) business days by email or fax, followed within thirty (30) calendar days by an official letter to the Contractor’s Project Manager, with a copy to the institutions’ office of sponsored programs, listing issues and appropriate actions to be discussed.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

vi. Safety reporting for research not performed under an IND or IDE.

Final decisions regarding ongoing safety reporting requirements for research not performed under an IND or IDE must be made jointly by the COR and the Contractor.

ARTICLE H.2.  PROTECTION OF HUMAN SUBJECTS, HHSAR 352.270-4(b) (December 2015)

a. The Contractor agrees that the rights and welfare of human subjects involved in research under this contract shall be protected in accordance with 45 CFR Part 46 and with the Contractor’s current federal wide Assurance of Compliance on file with the Office for Human Research Protections (OHRP), Department of Health and Human Services.  The Contractor further agrees to provide certification at least annually that the Institutional Review Board has reviewed and approved the procedures, which involve human subjects in accordance with 45 CFR Part 46 and the Assurance of Compliance.

b. The Contractor shall bear full responsibility for the performance of all work and services involving the use of human subjects under this contract and shall ensure that work is conducted in a proper manner and as safely as is feasible.  The parties hereto agree that the Contractor retains the right to control and direct the performance of all work under this contract.  The Contractor shall not deem anything in this contract to constitute the Contractor or any subcontractor, agent or employee of the Contractor, or any other person, organization, institution, or group of any kind whatsoever, as the agent or employee of the USG.  The Contractor agrees that it has entered into this contract and will discharge its obligations, duties, and undertakings and the work pursuant thereto, whether requiring professional judgment or otherwise, as an independent contractor without imputing liability on the part of the Government for the acts of the Contractor or its employees.

c. If at any time during the performance of this contract, the CO determines, in consultation with OHRP that the Contractor is not in compliance with any of the requirements and/or standards stated in paragraphs (a) and (b) above, the CO may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance.  The CO may communicate the notice of suspension by telephone with confirmation in writing.  If the Contractor fails to complete corrective action within the period of time designated in the CO’s written notice of suspension, the CO may, after consultation with OHRP, terminate this contract in whole or in part, and the Contractor’s name may be removed from the list of those contractors with approved Human Subject Assurances.

ARTICLE H.3.  HUMAN MATERIALS (ASSURANCE OF OHRP COMPLIANCE)

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

The acquisition and supply of all human specimen material (including fetal material) used under this contract shall be obtained by the Contractor in full compliance with applicable Federal, State and Local laws and the provisions of the Uniform Anatomical Gift Act in the United States, and no undue inducements, monetary or otherwise, will be offered to any person to influence their donation of human material.

The Contractor shall provide written documentation that all human materials obtained as a result of research involving human subjects conducted under this contract, by collaborating sites, or by subcontractors identified under this contract, were obtained with prior approval by the Office for Human Research Protections (OHRP) of an Assurance to comply with the requirements of 45 CFR 46 to protect human research subjects.  This restriction applies to all collaborating sites without OHRP- approved Assurances, whether domestic or foreign, and compliance must be ensured by the Contractor.

Provision by the Contractor to the Contracting Officer of a properly completed “Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption”, Form OMB No. 0990-0263(formerly Optional Form 310), certifying IRB review and approval of the protocol from which the human materials were obtained constitutes the written documentation required.  The human subject certification can be met by submission of a self-designated form provided that it contains the information required by the “Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption”, Form OMB No. 0990-0263 (formerly Optional Form 310).

ARTICLE H.4.  RESEARCH INVOLVING HUMAN FETAL TISSUE

All research involving human fetal tissue shall be conducted in accordance with the Public Health Service Act, 42 U.S.C. 289g-1 and 289g-2.  Implementing regulations and guidance for conducting research on human fetal tissue may be found at 45 CFR 46, Subpart B and http://grants1.nih.gov/grants/guide/notice-files/not93-235.html and any subsequent revisions to this NIH Guide to Grants and Contracts (“Guide”) Notice.

The Contractor shall make available, for audit by the Secretary, HHS, the physician statements and informed consents required by 42 USC 289g-1(b) and (c), or ensure HHS access to those records, if maintained by an entity other than the Contractor.

ARTICLE H.5.  CARE OF LIVE VERTEBRATE ANIMALS, HHSAR 352.270-5 (October 2009)

a. Before undertaking performance of any contract involving animal-related activities where the species is regulated by USDA, the Contractor shall register with the Secretary of Agriculture of the United States in accordance with 7 U.S.C.  2136 and 9 CFR sections 2.25 through 2.28.  The Contractor shall furnish evidence of the registration to the Contracting Officer.

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pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

b. The Contractor shall acquire vertebrate animals used in research from a dealer licensed by the Secretary of Agriculture under 7 U.S.C. 2133 and 9 CFR Sections 2.1-2.11, or from a source that is exempt from licensing under those sections.

c. The Contractor agrees that the care, use and intended use of any live vertebrate animals in the performance of this contract shall conform with the Public Health Service (PHS) Policy on Humane Care of Use of Laboratory Animals (PHS Policy), the current Animal Welfare Assurance (Assurance), the Guide for the Care and Use of Laboratory Animals (National Academy Press, Washington, DC) and the pertinent laws and regulations of the United States Department of Agriculture (see 7 U.S.C. 2131 et seq. and 9 CFR Subchapter A, Parts 1-4).  In case of conflict between standards, the more stringent standard shall govern.

d. If at any time during performance of this contract, the Contracting Officer determines, in consultation with the Office of Laboratory Animal Welfare (OLAW), National Institutes of Health (NIH), that the Contractor is not in compliance with any of the requirements and standards stated in paragraphs (a) through (c) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance.  Notice of the suspension may be communicated by telephone and confirmed in writing.  If the Contractor fails to complete corrective action within the period of time designated in the CO’s written notice of suspension, the CO may, in consultation with OLAW, NIH, terminate this contract in whole or in part, and the Contractor’s name may be removed from the list of those contractors with approved Assurances.

Note: The Contractor may request registration of its facility and a current listing of licensed dealers from the Regional Office of the Animal and Plant Health Inspection Service (APHIS), USDA, for the region in which its research facility is located.  The location of the appropriate APHIS Regional Office, as well as information concerning this program may be obtained by contacting the Animal Care Staff, USDA/APHIS, 4700 River Road, Riverdale, Maryland 20737 (E-mail: ace@aphis.usda.gov; Web site: (http://www.aphis.usda.gov/animal_welfare).

ARTICLE H.6.  ANIMAL WELFARE

All research involving live, vertebrate animals shall be conducted in accordance with the Public Health Service Policy on Humane Care and Use of Laboratory Animals.  This policy may be accessed at: http://grants1.nih.gov/grants/olaw/references/phspol.htm

ARTICLE H.7.  INFORMATION ON COMPLIANCE WITH ANIMAL CARE REQUIREMENTS

Registration with the U.S. Dept. of Agriculture (USDA) is required to use regulated species of animals for biomedical purposes.  USDA is responsible for the enforcement of

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pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

the Animal Welfare Act (7 U.S.C. 2131 et. seq.), http://www.nal.usda.gov/awic/legislat/awa.htm

The Public Health Service (PHS) Policy is administered by the Office of Laboratory Animal Welfare (OLAW) http://grants2.nih.gov/grants/olaw/olaw.htm.  An essential requirement of the PHS Policy http://grants2.nih.gov/grants/olaw/references/phspol.htm is that every institution using live vertebrate animals must obtain an approved assurance from OLAW before they can receive funding from any component of the U.S. Public Health Service.

The PHS Policy requires that Assured institutions base their programs of animal care and use on the Guide for the Care and Use of Laboratory Animals http://www.nap.edu/readingroom/books/labrats/ and that they comply with the regulations (9 CFR, Subchapter A)http://www.nal.usda.gov/awic/legislat/usdaleg1.htm issued by the U.S. Department of Agriculture (USDA) under the Animal Welfare Act. The Guide may differ from USDA regulations in some respects.  Compliance with the USDA regulations is an absolute requirement of this Policy.

The Association for Assessment and Accreditation of Laboratory Animal Care International (AAALAC) http://www.aaalac.org is a professional organization that inspects and evaluates programs of animal care for institutions at their request.  Those that meet the high standards are given the accredited status.  As of the 2002 revision of the PHS Policy, the only accrediting body recognized by PHS is the AAALAC.  While AAALAC Accreditation is not required to conduct biomedical research, it is highly desirable.  AAALAC uses the Guide as their primary evaluation tool.  They also use the Guide for the Care and Use of Agricultural Animals in Agricultural Research and Teaching.  It is published by the Federated of Animal Science Societies http://www.fass.org.

ARTICLE H.8.  REQUIREMENTS FOR ADEQUATE ASSURANCE OF PROTECTION OF VERTEBRATE ANIMAL SUBJECTS

The PHS Policy on Humane Care and Use of Laboratory Animals requires that applicant organizations proposing to use vertebrate animals file a written Animal Welfare Assurance with the Office for Laboratory Animal Welfare (OLAW), establishing appropriate policies and procedures to ensure the humane care and use of live vertebrate animals involved in research activities supported by the PHS.  The PHS Policy stipulates that an applicant organization, whether domestic or foreign, bears responsibility for the humane care and use of animals in PHS-supported research activities.  Also, the PHS policy defines “animal” as “any live, vertebrate animal used, or intended for use, in research, research training, experimentation, biological testing or for related purposes.” This Policy implements and supplements the U.S. Government Principles for the Utilization and Care of Vertebrate Animals Used in Testing, Research, and Training, and requires that institutions use the Guide for the Care and Use of Laboratory Animals as a basis for developing and implementing an institutional animal care and use program.  This Policy does not affect applicable State or local laws or regulations that impose more

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

stringent standards for the care and use of laboratory animals.  All institutions are required to comply, as applicable, with the Animal Welfare Act as amended (7 USC 2131 et. seq.) and other Federal statutes and regulations relating to animals.  These documents are available from the Office of Laboratory Animal Welfare, National Institutes of Health, Bethesda, MD 20892, (301) 496-7163. See http://grants.nih.gov/grants/OLAW/olaw.htm

No PHS supported work for research involving vertebrate animals will be conducted by an organization, unless that organization is operating in accordance with an approved Animal Welfare Assurance and provides verification that the Institutional Animal Care and Use Committee (IACUC) has reviewed and approved the proposed activity in accordance with the PHS policy.  Applications may be referred by the PHS back to the institution for further review in the case of apparent or potential violations of the PHS Policy.  No award to an individual will be made unless that individual is affiliated with an assured organization that accepts responsibility for compliance with the PHS Policy.  Foreign applicant organizations applying for PHS awards for activities involving vertebrate animals are required to comply with PHS Policy or provide evidence that acceptable standards for the humane care and use of animals will be met.  Foreign applicant organizations are not required to submit IACUC approval, but should provide information that is satisfactory to the USG to provide assurances for the humane care of such animals.

ARTICLE H.9.  APPROVAL OF REQUIRED ASSURANCE BY OLAW

Under governing regulations, federal funds which are administered by the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority (BARDA) shall not be expended by the Contractor for research involving live vertebrate animals, nor shall live vertebrate animals be involved in research activities by the Contractor under this award unless a satisfactory assurance of compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28 is submitted within 30 days of the date of this award and approved by the Office of Laboratory Animal Welfare (OLAW).  Each performance site (if any) must also assure compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28 with the following restriction: Only activities which do not directly involve live vertebrate animals (i.e. are clearly severable and independent from those activities that do involve live vertebrate animals) may be conducted by the Contractor or individual performance sites pending OLAW approval of their respective assurance of compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28.  Additional information regarding OLAW may be obtained via the Internet at http://grants2.nih.gov/grants/olaw/references/phspol.htm

ARTICLE H.10.  REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE

Anyone who becomes aware of the existence or apparent existence of fraud, waste and abuse in BARDA funded programs should report such matters to the HHS Inspector General’s Office in writing or on the Inspector General’s Hotline.  The toll free number is

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

1-800-HHS-TIPS (1-800-447-8477).  All telephone calls will be handled confidentially.  The e-mail address is Htips@os.dhhs.gov and the mailing address is:

Office of Inspector General

Department of Health and Human Services

TIPS HOTLINE

P.O. Box 23489

Washington, D.C. 20026

ARTICLE H.11.  PROHIBITION ON CONTRACTOR INVOLVEMENT WITH TERRORIST ACTIVITIES

The Contractor acknowledges that U.S. Executive Orders and Laws, including but not limited to EO13224 and P.L. 107-56, prohibit transactions with, and the provision of resources and support to, individuals and organizations associated with terrorism.  It is the legal responsibility of the Contractor to ensure compliance with these Executive Orders and Laws.  This clause must be included in all subcontracts issued under this contract.

ARTICLE H.12.  IDENTIFICATION AND DISPOSITION OF DATA

The Contractor will be required to provide certain data generated under this contract to the Department of Health and Human Services (DHHS).  DHHS reserves the right to review any other data determined by DHHS to be relevant to this contract.  The Contractor shall keep copies of all data required by the Food and Drug Administration (FDA) relevant to this contract for the time specified by the FDA.

ARTICLE H.13.  EXPORT CONTROL NOTIFICATION

Contractors are responsible for ensuring compliance with all export control laws and regulations that may be applicable to the export of and foreign access to their proposed technologies.  Contractors may consult with the Department of State with any questions regarding the International Traffic in Arms Regulation (ITAR) (22 CRF Parts 120-130) and /or the Department of Commerce regarding the Export Administration Regulations (15 CRF Parts 730-774).

ARTICLE H.14.  CONFLICT OF INTEREST

The Contractor represents and warrants that, to the best of the Contractor’s knowledge and belief, there are no relevant facts or circumstances which could give rise to an organizational conflict of interest, as defined in FAR 2.101 and Subpart 9.5, and that the Contractor has disclosed all such relevant information.  Prior to commencement of any work, the Contractor agrees to notify the CO promptly that, to the best of its knowledge and belief, no actual or potential conflict of interest exists or to identify to the Contracting Officer any actual or potential conflict of interest the firm may have.  In emergency situations, however, work may begin but notification shall be made within five (5)

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

working days.  The Contractor agrees that if an actual or potential organizational conflict of interest is identified during performance, the Contractor shall promptly make a full disclosure in writing to the CO.  This disclosure shall include a description of actions which the Contractor has taken or proposes to take, after consultation with the CO, to avoid, mitigate, or neutralize the actual or potential conflict of interest.  The Contractor shall continue performance until notified by the CO of any contrary action to be taken.  Remedies include termination of this contract for convenience, in whole or in part, if the CO deems such termination necessary to avoid an organizational conflict of interest.  If the Contractor was aware of a potential organizational conflict of interest prior to award or discovered an actual or potential conflict after award and did not disclose it or misrepresented relevant information to the CO, the USG may terminate the contract for default, debar the Contractor from USG contracting, or pursue such other remedies as may be permitted by law or this contract.

ARTICLE H.15.  INSTITUTIONAL RESPONSIBILITY REGARDING INVESTIGATOR FINANCIAL CONFLICTS OF INTEREST

The Contractor shall comply with the requirements of 45 CFR Part 94, Responsible Prospective Contractors, which promotes objectivity in research by establishing standards to ensure that Investigators (defined as the project director or principal Investigator and any other person, regardless of title or position, who is responsible for the design, conduct, or reporting of research funded under BARDA contracts, or proposed for such funding, which may include, for example, collaborators or consultants) will not be biased by any Investigator financial conflicts of interest.

If the failure of an Investigator to comply with an Institution’s financial conflicts of interest policy or a financial conflict of interest management plan appears to have biased the design, conduct, or reporting of the BARDA-funded research, the Contractor must promptly notify the CO of the corrective action taken or to be taken.  The CO will consider the situation and, as necessary, take appropriate action or refer the matter to the Contractor for further action, which may include directions to the Contractor on how to maintain appropriate objectivity in the BARDA-funded research project.

The CO and/or HHS may inquire at any time before, during, or after award into any Investigator disclosure of financial interests, and the Contractor’s review of, and response to, such disclosure, regardless of whether the disclosure resulted in the Contractor’s determination of a financial conflict of interests.  The CO may require submission of the records or review them on site. On the basis of this review of records or other information that may be available, the CO may decide that a particular financial conflict of interest will bias the objectivity of the BARDA-funded research to such an extent that further corrective action is needed or that the Institution has not managed the financial conflict of interest in accordance with 45 CFR Part 94.  The issuance of a Stop Work Order by the CO may be necessary until the matter is resolved.

If the CO determines that BARDA-funded clinical research, whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment, has been designed,

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pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

conducted, or reported by an Investigator with a financial conflict of interest that was not disclosed managed or reported the Contractor shall require the Investigator involved to disclose the financial conflict of interest in each public presentation of the results of the research and to request an addendum to previously published presentations.

ARTICLE H.16.  NEEDLE DISTRIBUTION

The Contractor shall not use contract funds to carry out any program of distributing sterile needles or syringes for the hypodermic injection of any illegal drug.

ARTICLE H.17.  RESTRICTION ON ABORTIONS

The Contractor shall not use contract funds for any abortion.

ARTICLE H.18.  CONTINUED BAN ON FUNDING OF HUMAN EMBRYO RESEARCH

The Contractor shall not use contract funds for (1) the creation of a human embryo or embryos for research purposes; or (2) research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero under 45 CFR 46.204(b) and Section 498(b) of the Public Health Service Act (42 U.S.C. 289g(b)). The term “human embryo or embryos” includes any organism, not protected as a human subject under 45 CFR 46 as of the date of the enactment of this Act, that is derived by fertilization, parthenogenesis, cloning, or any other means from one or more human gametes or human diploid cells.

Additionally, in accordance with a March 4, 1997 Presidential Memorandum, Federal funds may not be used for cloning of human beings.

ARTICLE H.19.  DISSEMINATION OF FALSE OR DELIBERATELY MISLEADING INFORMATION

The Contractor shall not use contract funds to disseminate information that is deliberately false or misleading.

ARTICLE H.20.  CONFIDENTIALITY OF INFORMATION

a. Confidential information, as used in this article, means information or data of a personal nature about an individual, or proprietary information or data submitted by or pertaining to an institution or organization.

b. The CO and the Contractor may, by mutual consent, identify elsewhere in this contract specific information and/or categories of information which the USG will furnish to the Contractor or that the Contractor is expected to generate which is confidential and providing further that the Government is not entitled to unlimited rights to that information pursuant to FAR 52.227-14. Similarly, the Contracting Officer and the Contractor may, by mutual consent, identify such confidential

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pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

information from time to time during the performance of the contract. Failure to agree will be settled pursuant to the “Disputes” clause.

c. If it is established elsewhere in this contract that information to be utilized under this contract, or a portion thereof, is subject to the Privacy Act, the Contractor will follow the rules and procedures of disclosure set forth in the Privacy Act of 1974, 5 U.S.C. 552a, and implementing regulations and policies, with respect to systems of records determined to be subject to the Privacy Act.

d. Confidential information, as defined in paragraph (a) of this article, shall not be disclosed without the prior written consent of the individual, institution, or organization.

e. Whenever the Contractor is uncertain with regard to the proper handling of material under the contract, or if the material in question is subject to the Privacy Act or is confidential information subject to the provisions of this article, the Contractor should obtain a written determination from the Contracting Officer prior to any release, disclosure, dissemination, or publication.

f. The provisions of paragraph (d) of this article shall not apply to conflicting or overlapping provisions in other Federal, State or local laws.

ARTICLE H.21.  ACCESS TO DOCUMENTATION/DATA

The USG shall have physical and electronic access to all documentation and data generated under this contract, including: all data documenting Contractor performance; all data generated; all communications and correspondence with regulatory agencies and bodies to include all audit observations, inspection reports, milestone completion documents, and all Offeror commitments and responses. Contractor shall provide the USG with an electronic copy of all correspondence and submissions to the FDA within 5 business days of receipt. The USG shall acquire unlimited rights to all data funded or furnished under this contract in accordance with FAR Subpart 27.4 and FAR Clause 52.227-14.

ARTICLE H.22.  EPA ENERGY STAR REQUIREMENTS

In compliance with Executive Order 12845 (requiring Agencies to purchase energy efficient computer equipment), all microcomputers, including personal computers, monitors, and printers that are purchased using USG funds in performance of a contract shall be equipped with or meet the energy efficient low-power standby feature as defined by the EPA Energy Star program unless the equipment always meets EPA Energy Star efficiency levels. The microcomputer, as configured with all components, must be Energy Star compliant.

This low-power feature must already be activated when the computer equipment is delivered to the agency and be of equivalent functionality of similar power managed

58

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

models. If the equipment will be used on a local area network, the vendor must provide equipment that is fully compatible with the network environment. In addition, the equipment will run commercial off-the-shelf software both before and after recovery from its energy conservation mode.

ARTICLE H.23.  ACKNOWLEDGMENT OF FEDERAL FUNDING

Section 507 of P.L. 104-208 mandates that Contractors funded with Federal dollars, in whole or in part, acknowledge Federal funding when issuing statements, press releases, requests for proposals, bid solicitations and other documents. This requirement is in addition to the continuing requirement to provide an acknowledgment of support and disclaimer on any publication reporting the results of a contract funded activity.

Publication and Publicity

No information related to data obtained under this contract shall be released or publicized without providing the CO and COR with at least thirty (30) days advanced notice and an opportunity to review the proposed release or publication.

Contract support shall be acknowledged in all such publications substantially as follows:

“This project has been funded in whole or in part with Federal funds from the Department of Health and Human Services; Office of the Assistant Secretary for Preparedness and Response; Biomedical Advanced Research and Development Authority, under Contract No. HHSO100201800015C.”

A. Press Releases

Misrepresenting contract results or releasing information that is injurious to the integrity of BARDA may be construed as improper conduct. Press releases shall be considered to include the public release of information to any medium, excluding peer-reviewed scientific publications. With the exception of ad-hoc press releases required by applicable law or regulations, the Contractor shall ensure that the COR has received an advance copy of any press release related to the contract not less than two (2) business days prior to the issuance of the press release.

The Contractor shall acknowledge the support of the Department of Health and Human Service, Office of the Assistant Secretary for Preparedness and Response, Biomedical Advanced Research and Development Authority, whenever publicizing the work under this contract in any media by including an acknowledgment substantially as follows:

“This project has been funded in whole or in part with Federal funds from the Department of Health and Human Services; Office of the Assistant Secretary for Preparedness and Response; Biomedical Advanced Research and Development Authority, under Contract No. HHSO100201800015C.”

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

ARTICLE H.24.  PROHIBITION ON THE USE OF APPROPRIATED FUNDS FOR LOBBYING ACTIVITIES AND HHSAR 352.203-70 ANTI-LOBBYING (December 2015)

The Contractor is hereby notified of the restrictions on the use of Department of Health and Human Service’s funding for lobbying of Federal, State and Local legislative bodies.

Section 1352 of Title 10, United States Code (Public Law 101-121, effective 12/23/89), among other things, prohibits a recipient (and their subcontractors) of a Federal contract, grant, loan, or cooperative agreement from using appropriated funds (other than profits from a federal contract) to pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any of the following covered Federal actions; the awarding of any Federal contract; the making of any Federal grant; the making of any Federal loan; the entering into of any cooperative agreement; or the modification of any Federal contract, grant, loan, or cooperative agreement. For additional information of prohibitions against lobbying activities, see FAR Subpart 3.8 and FAR Clause 52.203-12.

In addition, as set forth in HHSAR 352.203-70 “Anti-Lobbying”, the current Department of Health and Human Services Appropriations Act provides that no part of any appropriation contained in this Act shall be used, other than for normal and recognized executive- legislative relationships, for publicity or propaganda purposes, for the preparation, distribution, or use of any kit, pamphlet, booklet, publication, radio, television, or video presentation designed to support, or defeat legislation pending before the Congress, or any State or Local legislature except in presentation to the Congress, or any State or Local legislative body itself.

The current Department of Health and Human Services Appropriations Act also provides that no part of any appropriation contained in this Act shall be used to pay the salary or expenses of any contract or grant recipient, or agent acting for such recipient, related to any activity designed to influence legislation or appropriations pending before the Congress, or any State or Local legislature.

ARTICLE H.25.  PRIVACY ACT APPLICABILITY

Notification is hereby given that the Contractor and its employees are subject to criminal penalties for violation of the Privacy Act to the same extent as employees of the USG.  The Contractor shall assure that each of its employees knows the prescribed rules of conduct and that each is aware that he or she can be subjected to criminal penalty for violation of the Act.  A copy of 45 CFR Part 5b, Privacy Act Regulations, may be obtained at http://www.gpoaccess.gov/cfr/index.html

The Project Officer is hereby designated as the official who is responsible for monitoring contractor compliance with the Privacy Act.

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

The Contractor shall follow the Privacy Act guidance as contained in the Privacy Act System of Records number 09-25-0200. This document may be obtained at the following link: http://oma.od.nih.gov/ms/privacy/pa-files/0200.htm

ARTICLE H.26.  LABORATORY LICENSE REQUIREMENTS

The Contractor shall comply with all applicable requirements of Section 353 of the Public Health Service Act (Clinical Laboratory Improvement Act as amended) (42 U.S.C. 263a and 42 CFR Part 493). This requirement shall also be included in any subcontract for services under the contract.

ARTICLE H.27.  QUALITY ASSURANCE (QA) AUDIT REPORTS

BARDA reserves the right to participate in QA audits as related to activities funded under this contract. Upon completion of the audit/site visit the Contractor shall provide a report capturing the findings, results and next steps in proceeding with the subcontractor. If action is requested of the subcontractor, detailed concerns for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines, as identified in the audit report, must be provided to the CO and COR. The Contractor shall provide responses from the subcontractors to address these concerns and plans for corrective action execution.

• Contractor shall notify CO and COR of upcoming, ongoing, or recent audits/site visits of subcontractors as part of weekly communications.

• Contractor shall notify the COR and CO within five (5) business days of report completion.

ARTICLE H.28.  BARDA AUDITS

Contractor shall accommodate periodic or reasonable ad hoc site visits during normal business hours by the USG with forty-eight (48) hours advance notice. If the USG, the Contractor, or other parties identifies any issues during an audit, the Contractor shall capture the issues, identify potential solutions, and provide a report to the USG.

• If issues are identified during the audit, Contractor shall submit a report to the CO and COR detailing the finding and corrective action(s) within 10 business days of the audit.

• COR and CO will review the report and provide a response to the Contractor with ten (10) business days.

• Once corrective action is completed, the Contractor will provide a final report to the CO and COR.

ARTICLE H.29.  RESTRICTION ON EMPLOYMENT OF UNAUTHORIZED ALIEN WORKERS

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

The Contractor shall not use contract funds to employ workers described in section 274A (h)(3) of the Immigration and National Act, which reads as follows:

“(3) Definition of unauthorized alien – As used in this section, the term ‘unauthorized alien’ with respect to the employment of an alien at a particular time, that the alien is not at that time either an alien lawfully admitted for permanent residence, or (B) authorized to be so employed by this Act or by the Attorney General.”

ARTICLE H.30.  NOTIFICATION OF CRITICAL PROGRAMMATIC CONCERNS, RISKS, OR POTENTIAL RISKS

If any action occurs that creates a cause for critical programmatic concern, risk, or potential risk to BARDA or the Contractor an Incident Report shall be delivered to the CO and COR.

• Within 48 hours of activity or incident or within 24 hours for a security related activity or incident, Contractor must notify the CO and COR.

• Additional updates due to the COR and CO within 48 hours of additional developments.

• Contractor shall submit within 5 business days a Corrective Action Plan (if deemed necessary by either party) to address any potential issues.

If corrective action is deemed necessary, Contractor must address in writing, its consideration of concerns raised by the CO and COR within 5 business days.

ARTICLE H.31. PROTECTION OF PERSONNEL WHO WORK WITH NONHUMAN PRIMATES

All Contractor personnel who work with nonhuman primates or enter rooms or areas containing nonhuman primates shall comply with the procedures set forth in NIH Policy Manual 3044-2, entitled, “Protection of NIH Personnel Who Work with Nonhuman Primates,” located at the following URL: http://www1.od.nih.gov/oma/manualchapters/intramural/3044-2/

ARTICLE H.32.  DISSEMINATION OF INFORMATION (May 2004)

Other than scientific and technical articles for which the contractor can assert a copyright under FAR Clause 52.227-14 (c) no information related to data obtained under this contract shall be released or publicized without the prior written consent of the CO.  In the event that the contractor seeks to publicize data through a scientific or technical article, the contractor shall provide the CO and COR with a minimum of thirty (30) business days to review the article prior to publication.

Listings of HHS select agents and toxins, biologic agents and toxins, and overlap agents or toxins as well as information about the registration process, can be obtained on the Select Agent Program Web site at http://selectagents.gov

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

ARTICLE H.33.  MANUFACTURING STANDARDS

The Good Manufacturing Practice Regulations (GMP)(21 CFR Parts 820) will be the standard to be applied for manufacturing, processing, packaging, storage and delivery of this product.

If at any time during the life of the contract, the Contractor fails to comply with GMP in the manufacturing, processing, packaging, storage, stability and other testing of the manufactured drug substance or product and delivery of this product and such failure results in a material adverse effect on the safety, purity or potency of the product (a material failure) as identified by the FDA, the Contractor shall have thirty (30) calendar days from the time such material failure is identified to cure such material failure.  If, within the thirty (30) calendar day period, the Contractor fails to take such an action to the satisfaction of the USG Project Officer, or fails to provide a remediation plan that is acceptable to the COR, then the contract may be terminated.

ARTICLE H.34  PUBLIC ACCESS TO ARCHIVED PUBLICATIONS RESULTING FROM ASPR FUNDED RESEARCH

All ASPR-funded investigators shall submit to the NIH National Library of Medicine’s (NLM) PubMed Central (PMC) an electronic version of the author’s final manuscript, upon acceptance for publication, of any peer-reviewed scientific publications resulting from research supported in whole or in part with Federal funds from the Department of Health and Human Services; Office of the Assistant Secretary for Preparedness and Response. ASPR defines the author’s final manuscript as the final version accepted for journal publication, and includes all modifications from the publishing peer review process. The PMC archive will preserve permanently these manuscripts for use by the public, health care providers, educators, scientists, and ASPR. The Policy directs electronic submissions to the NIH/NLM/PMC: http://www.pubmedcentral.nih.gov.

Additional information is available at

http://www.phe.gov/Preparedness/planning/science/Pages/AccessPlan.aspx

ARTICLE H.35.  IN-PROCESS REVIEW

In Process Reviews (IPR) will be conducted at the discretion of the USG to discuss the progression of the milestones. The USG reserves the right to revise the milestones and budget pending the development of the project. Deliverables such as an overall project summary report and/or slides will be required when the IPRs are conducted. The Contractor’s success in completing the required tasks under each work segment must be demonstrated through the Deliverables and Milestones specified under SECTION F. Those deliverables will constitute the basis for the USG’s decision, at its sole discretion, to proceed with the work segment, or institute changes to the work segment, or terminate the work segment.

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

IPRs may be scheduled at the discretion of the USG to discuss progression of the contract. The Contractor shall provide a presentation following a prescribed template which will be provided by the USG at least 30 business days prior to the IPR. Subsequently, the contractor will be requested to provide a revised/final presentation to the Contracting Officer at least 10 business days prior to the IPR.

64

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

PART II - CONTRACT CLAUSES

SECTION I - CONTRACT CLAUSES

ARTICLE I.1.  FAR 52.252-2, CLAUSES INCORPORATED BY REFERENCE (FEBRUARY 1998)

This contract incorporates the following clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at: http://www.acquisition.gov/far. HHSAR clauses at http://www.hhs.gov/policies/hhsar/subpart352.html

General Clauses for Cost-Reimbursement Research and Development Contract

a. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

FAR CLAUSE NO.	DATE	TITLE
52.202-1	Nov 2013	Definitions
52.203-3	Apr 1984	Gratuities
52.203-5	May 2014	Covenant Against Contingent Fees
52.203-6	Sep 2006	Restrictions on Subcontractor Sales to the Government
52.203-7	May 2014	Anti-Kickback Procedures
52.203-8	May 2014	Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity
52.203-10	May 2014	Price or Fee Adjustment for Illegal or Improper Activity
52.203-12	Oct 2010	Limitation on Payments to Influence Certain Federal Transactions (Over $150,000)
52.203-13	Oct 2015	Contractor Code of Business Ethics and Conduct
52.203-14	Oct 2015	Display of Hotline Poster(s)
52.203-17	Apr 2014	Contractor Employee Whistleblower Rights and Requirements to Inform Employees of Whistleblower Rights
52.204-4	May 2011	Printed or Copied Double-Sided on Recycled Paper
52.204-7	Oct 2016	System for Award Management
52.204-10	Oct 2016	Reporting Executive Compensation and First-Tier Subcontract Awards
52.204-13	Oct 2016	System for Award Management Maintenance

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

FAR CLAUSE NO.	DATE	TITLE
52.209-6	Oct 2015	Protecting the Government’s Interests When Subcontracting With Contractors Debarred, Suspended, or Proposed for Debarment
52.209-9	Jul 2013	Updates of Publicly Available Information Regarding Responsibility Matters
52.209-10	Nov 2015	Prohibition on Contracting With Inverted Domestic Corporations
52.210-1	Apr 2011	Market Research
52.215-2	Oct 2010	Audit and Records – Negotiation
52.215-8	Oct 1997	Order of Precedence - Uniform Contract Format
52.215-10	Aug 2011	Price Reduction for Defective Cost or Pricing Data
52.215-12	Oct 2010	Subcontractor Cost or Pricing Data
52.215-14	Oct 2010	Integrity of Unit Prices (Over the Simplified Acquisition Threshold)
52.215-15	Oct 2010	Pension Adjustments and Asset Reversions
52.215-17	Oct 1997	Waiver of Facilities Capital Cost of Money
52.215-18	Jul 2005	Reversion or Adjustment of Plans for Post-Retirement Benefits (PRB) other than Pensions
52.215-19	Oct 1997	Notification of Ownership Changes
52.215-21	Oct 2010	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Modifications
52.215-23	Oct 2009	Limitations on Pass-Through Charges (Over the Simplified Acquisition threshold)
52.216-7	Jun 2013	Allowable Cost and Payment
52.216-12	Apr 1984	Cost Sharing Contract – No Fee
52.219-8	Nov 2016	Utilization of Small Business Concerns
52.222-2	Jul 1990	Payment for Overtime Premiums
52.222-3	Jun 2003	Convict Labor
52.222-21	Apr 2015	Prohibition of Segregated Facilities
52.222-26	Sept 2016	Equal Opportunity
52.222-35	Oct 2015	Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

FAR CLAUSE NO.	DATE	TITLE
52.222-36	Jul 2014	Affirmative Action for Workers with Disabilities
52.222-37	Feb 2016	Employment Reports on Veterans
52.222-40	Dec 2010	Notification of Employee Rights Under the National Labor Relations Act
52.222-50	Mar 2015	Combating Trafficking in Persons Alternate I
52.222-54	Oct 2015	Employment Eligibility Verification
52.223-6	May 2001	Drug-Free Workplace
52.223-18	Aug 2011	Encouraging Contractor Policy to Ban Text Messaging While Driving
52.224-1	April 1984	Privacy Act Notification
52.224-2	April 1984	Privacy Act
52.225-13	Jun 2008	Restrictions on Certain Foreign Purchases
52.227-1	Dec 2007	Authorization and Consent, Alternate I (Apr 1984)
52.227-2	Dec 2007	Notice and Assistance Regarding Patent and Copyright Infringement
52.227-3	Apr 1984	Patent Indemnity
52.227-11	May 2014	Patent Rights - Ownership by the Contractor (Note: In accordance with FAR 27.303(b)(2), paragraph (e) is modified to include the requirements in FAR 27.303(b)(2)(i) through (iv). The frequency of reporting in (i) is annual.
52.227-14	May 2014	Rights in Data-General

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Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

FAR CLAUSE NO.	DATE	TITLE
52.227-14- Alternate II	Dec 2007	Rights in Data – General, Alternate II. Completed portion as follows: Limited Rights Notice (Dec 2007) (a)These data are submitted with limited rights under Government Contract No HHSO100201800015C. These data may be reproduced and used by the Government with the express limitation that they will not, without written permission of the Contractor, be used for purposes of manufacture nor disclosed outside the Government; except that the Government may disclose these data outside the Government for the following purposes, provided that the Government makes such disclosure subject to prohibition against further use and disclosure: (i)Use (except for manufacture) by support service contractors. (ii)Evaluation by nongovernment evaluators. (b)This Notice shall be marked on any reproduction of these data, in whole or in part.
52.227-16	Jun 1987	Additional Data Requirements
52.230-2	Oct 2015	Cost Accounting Standards
52.230-6	June 2010	Administration of Cost Accounting Standards
52.232-9	Apr 1984	Limitation on Withholding of Payments
52.232-17	May 2014	Interest
52.232-20	Apr 1984	Limitation of Cost
52.232-23	May 2014	Assignment of Claims
52.232-25	Jan 2017	Prompt Payment, Alternate I (Feb 2002)
52.232-33	July 2013	Payment by Electronic Funds Transfer—System for Award Management
52.232-39	Jun 2013	Unenforceability of Unauthorized Obligations
52.232-40	Dec 2013	Providing Accelerated Payments to Small Business
52.233-1	May 2014	Disputes
52.233-2	Sept 2006	Service of Protest
52.233-3	Aug 1996	Protest After Award, Alternate I (Jun 1985)
52.233-4	Oct 2004	Applicable Law for Breach of Contract Claim
52.242-1	Apr 1984	Notice of Intent to Disallow Costs
52.242-3	May 2014	Penalties for Unallowable Costs
52.242-4	Jan 1997	Certification of Final Indirect Costs
52.242-13	Jul 1995	Bankruptcy
52.242-15	Aug 1989	Stop Work Order. Alt I (Aug 1984)
52.243-2	Aug 1987	Changes - Cost Reimbursement, Alternate V (Apr 1984)
52.244-2	Oct 2010	Subcontracts, Alternate I (June 2007)
52.244-5	Dec 1996	Competition in Subcontracting
52.244-6	Jan 2017	Subcontracts for Commercial Items

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

FAR CLAUSE NO.	DATE	TITLE
52.245-1	Jan 2017	Government Property
52.245-9	Apr 2012	Use and Charges
52.246-9	Apr 1984	Inspection of Research and Development (Short Form)
52.246-23	Feb 1997	Limitation of Liability
52.247-63	Jun 2003	Preference for U.S.-Flag Air Carriers
52.249-6	May 2004	Termination (Cost-Reimbursement)
52.249-14	Apr 1984	Excusable Delays
52.251-1	Apr 2012	Government Supply Sources
52.253-1	Jan 1991	Computer Generated Forms

b. DEPARTMENT OF HEALTH AND HUMAN SERVICES ACQUISITION REGULATION (HHSAR) (48 CFR CHAPTER 3) CLAUSES:

HHSAR CLAUSE NO.	DATE	TITLE
352.211-3	Dec 2015	Paperwork Reduction Act
352.203-70	Dec 2015	Anti-Lobbying
352.222-70	Dec 2015	Contractor Cooperation in Equal Employment Opportunity Investigations
352.223-70	Dec 2015	Safety and Health
352.224-70	Dec 2015	Privacy Act
352.227-70	Dec 2015	Publications and Publicity
352.231-70	Dec 2015	Salary Rate Limitation
352.233-71	Dec 2015	Litigation and Claims
352.237-75	Dec 2015	Key Personnel
352.270-4a	Dec 2015	Protection of Human Subjects
352.270-6	Dec 2015	Restriction on use of Human Subjects

ARTICLE I.2. ADDITIONAL FAR CONTRACT CLAUSES INCLUDED IN FULL TEXT

This contract incorporates the following clauses in full text.  
FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

FAR Clause 52.217-8, Option to Extend Services (Nov 1999)

The Government may require continued performance of any services within the limits and at the rates specified in the contract. These rates may be adjusted only as a result of revisions to prevailing labor rates provided by the Secretary of Labor. The option provision may be exercised more than once, but the total extension of performance hereunder shall not exceed 6 months. The Contracting Officer may exercise the option by

69

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

written notice to the Contractor within 30 days of the end of the current performance period.

FAR Clause 52.217-9, Option to Extend the Term of the Contract (Mar 2000)

(a)The Government may extend the term of this contract by written notice to the Contractor within 30 days after the Government has completed its analysis of the deliverables associated with the applicable milestone. The Government will provide the Contractor a preliminary written notice of its intent to extend at least 30 days before the contract expires. The preliminary notice does not commit the Government to an extension.

(b)If the Government exercises this option, the extended contract shall be considered to include this option clause.

(c)The total duration of this contract, including the exercise of any options under this clause, shall not exceed 5 years.

FAR 52.219-1 Small Business Program Representations (Oct 2014)

(1) The North American Industry Classification System (NAICS) code for this acquisition is 541711.

(2) The small business size standard is 500 employees.

(3) The small business size standard for a concern which submits an offer in its own name, other than on a construction or service contract, but which proposes to furnish a product which it did not itself manufacture, is 500 employees.

FAR Clause 52.219-28, Post-Award Small Business Program Representation (July 2013)

a. Definitions.  As used in this clause--

Long-term contract means a contract of more than five years in duration, including options. However, the term does not include contracts that exceed five years in duration because the period of performance has been extended for a cumulative period not to exceed six months under the clause at 52.217-8, Option to Extend services, or other appropriate authority.

Small business concern means a concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on Government contracts, and qualified as a small business under the criteria in 13 CFR part 121 and the size standard in paragraph (c) of this clause. Such a concern is “not dominant in its field of operation” when it does not exercise a controlling or major influence on a national basis in a kind of business activity in which a number of business concerns are primarily engaged. In determining whether dominance exists, consideration shall be

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

given to all appropriate factors, including volume of business, number of employees, financial resources, competitive status or position, ownership or control of materials, processes, patents, license agreements, facilities, sales territory, and nature of business activity.

b. If the Contractor represented that it was a small business concern prior to award of this contract, the Contractor shall re-represent its size status according to paragraph (e) of this clause or, if applicable, paragraph (g) of this clause, upon the occurrence of any of the following:

(1)Within 30 days after execution of a novation agreement or within 30 days after modification of the contract to include this clause, if the novation agreement was executed prior to inclusion of this clause in the contract.

(2)Within 30 days after a merger or acquisition that does not require a novation or within 30 days after modification of the contract to include this clause, if the merger or acquisition occurred prior to inclusion of this clause in the contract.

(3)For long-term contracts--

(i)Within 60 to 120 days prior to the end of the fifth year of the contract; and

(ii)Within 60 to 120 days prior to the date specified in the contract for exercising any option thereafter.

c. The Contractor shall represent its size status in accordance with the size standard in effect at the time of this re-representation that corresponds to the North American Industry Classification System (NAICS) code assigned to this contract. The small business size standard corresponding to this NAICS code can be found at http://www.sba.gov/content/table-small-business-size-standards.

d. The small business size standard for a Contractor providing a product which it does not manufacture itself, for a contract other than a construction or service contract, is 500 employees.

e. Except as provided in paragraph (g) of this clause, the Contractor shall make the representation required by paragraph (b) of this clause by validating or updating all its representations in the Representations and Certifications section of the System for Award Management (SAM) and its other data in SAM, as necessary, to ensure that they reflect the Contractor’s current status. The Contractor shall notify the contracting office in writing within the timeframes specified in paragraph (b) of this clause that the data have been validated or updated, and provide the date of the validation or update.

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Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

f. If the Contractor represented that it was other than a small business concern prior to award of this contract, the Contractor may, but is not required to, take the actions required by paragraphs (e) or (g) of this clause.

g. If the Contractor does not have representations and certifications in SAM, or does not have a representation in SAM for the NAICS code applicable to this contract, the Contractor is required to complete the following representation and submit it to the contracting office, along with the contract number and the date on which the representation was completed:

The Contractor represents that it [ X] is, [ ] is not a small business concern under NAICS Code 334516 assigned to contract number HHSO100201800015C.

72

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS

SECTION J - LIST OF ATTACHMENTS

The following documents are attached and incorporated in this contract:

1. Statement of Work, dated 22 March 2018 ( 6 pages)

2. Milestones/Deliverables Chart, dated 22 March 2018 (2 pages)

3. Gantt Chart, dated 22 March 2018 (1 page)

4. Invoice/Financial Request Instructions and Contract Financial Reporting Instructions for BARDA Cost-Reimbursement Type Contracts (5 pages)

5. Report of Government Owned, Contractor Held Property (1 page)

Located at: https://oamp.od.nih.gov/sites/default/files/DGS/contracting-forms/Govt-Owned-Prop.pdf

6. Disclosure of Lobbying Activities (2 pages)

7. Financial Report of Individual Project/Contract (1 Page)

8. Instructions For Completing “Financial Report of Individual Project Contract” (3 pages)

73

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

PART IV - REPRESENTATIONS AND INSTRUCTIONS

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS

The following documents are incorporated by reference in this contract:

1) Animal Research Assurance Identification Numbers: To be provided prior to study execution.

2) Human Subjects Assurance Identification Numbers: To be provided prior to study execution.

End of Contract No: HHSO100201800015

74

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Attachment 1

Statement of Work

BARDA Broad Agency Announcement (BAA)

(Solicitation # BAA-16-100-SOL-00001)

Advanced Research and Development of Chemical, Biological, Radiological, and Nuclear

Medical Countermeasures

(SPR994)

Topic Area of Interest No. (#3),

Contractual Statement of Work

PREAMBLE

Independently and not as an agency of the Government, the Contractor shall be required to furnish all the necessary services, qualified personnel, material, equipment, and facilities, not otherwise provided by the Government, as needed to perform the Statement of Work submitted in response to the BARDA Broad Agency Announcement (BAA) BARDA CBRN BAA-16-100-SOL-00001.

The Government reserves the right to modify the milestones, progress, schedule, budget, or deliverables to add or delete deliverables, process, or schedules if the need arises. Because of the nature of this research and development (R&D) contract and the complexities inherent in this and prior programs, at designated milestones the Government will evaluate whether work should be redirected, removed, or whether schedule or budget adjustments should be made. The Government reserves the right to change the product, process, schedule, or events to add or delete part or all of these elements as the need arises.

Overall Objectives and Scope

The overall objective of this contract is to advance the development of SPR994 as an oral therapy for use in adults to treat complicated urinary tract infections (cUTIs), including those caused by drug resistant bacteria. The scope of work for this contract includes administrative, biological, pre-clinical, clinical, and manufacturing development activities. The SPR994 Research and Development (R&D) effort will progress in specific stages that cover the base performance segment and two option segments that are broken down as discrete work segments as follows:

• CLIN 1 (Base Period)

• CLIN 2 (Option 1)

• CLIN 3 (Option 2)

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Outside the scope of the BARDA contract, Spero will collaborate with DTRA and BARDA to conduct [***].

1.0CLIN1 (Base period)

[***]

1.1 PROGRAM MANAGEMENT (WBS 1.1)

The Contractor shall provide for the following as outlined below and in the contract deliverables list:

1.1.1 The overall management, integration and coordination of all contract activities, including a technical and administrative infrastructure to ensure the efficient planning, initiation, implementation, and direction of all contract activities;

1.1.2 A Principal Investigator (PI) responsible for project management, communication, tracking, monitoring and reporting on status and progress, and modification to the project requirements and timelines, including projects undertaken by subcontractors; The contract deliverables list (reference), identifies all contract deliverables and reporting requirements for this contract.

1.1.3 Project Manager(s) with responsibility for monitoring and tracking day-to-day progress and timelines, coordinating communication and project activities; costs incurred; and program management.

1.1.4 A BARDA Liaison with responsibility for effective communication with the Project Officer and Contracting Officer.  May be the PI or Project Manager.

1.1.5 Administrative and legal staff to provide development of compliant subcontracts, consulting, and other legal agreements, and ensure timely acquisition of all proprietary rights, including IP rights, and reporting all inventions made in the performance of the project.

1.1.6 Administrative staff with responsibility for financial management and reporting on all activities conducted by the Contractor and any subcontractors.

1.1.7 Contract Review Meetings.

1.1.7.1 The Contractor shall participate in regular meetings to coordinate and oversee the contract effort as directed by the Contracting and Project Officers.  Such meetings may include, but are not limited to, meeting of the Contractors and subcontractors to discuss clinical manufacturing progress, product development, product assay development, scale up manufacturing development, clinical sample assays development, preclinical/clinical study designs and regulatory issues; meetings with individual contractors and other HHS officials to discuss the technical, regulatory, and ethical aspects of the program; and meeting with technical consultants to discuss technical data provided by the Contractor.

1.1.7.2 The Contractor shall participate in teleconferences every two weeks between the Contractor and subcontractors and BARDA to review technical progress.  Teleconferences or additional face-to-face meetings shall be more frequent at the request of BARDA.

1.1.8 Integrated Master Schedule

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

1.1.8.1 Within 30 calendar days of the effective date of the contract, the Contractor shall submit a first draft of an updated Integrated Master Schedule in a format agreed upon by BARDA to the Project Officer and the Contracting Officer for review and comment.  The Integrated Master Schedule shall be incorporated into the contract, and will be used to monitor performance of the contract.  Contractor shall include the key milestones and Go/No Go decision gates.  The IMS for the period of performance will be accepted by BARDA at the PMBR

1.1.9 Integrated Master Plan

1.1.10 Work Breakdown Structure:  The Contractor shall utilize a WBS template agreed upon by BARDA for reporting on the contact.  The Contractor shall expand and delineate the Contract Work Breakdown Structure (CWBS) to a level agreed upon by BARDA as part of their Integrated Master Plan for contract reporting.  The CWBS shall be discernable and consistent.  BARDA may require Contractor to furnish WBS data at the work package level or at a lower level if there is significant complexity and risk associated with the task.

1.1.11 GO/ NO-GO Decision Gates:  The Integrated Master Plan outlines key milestones with “Go/No Go” decision criteria (entrance and exit criteria for each phase of the project).  The project plan should include, but not be limited to, milestones in manufacturing, non-clinical and clinical studies, and regulatory submissions.

1.1.12 Earned Value Management System Plan:  N/A.  The Government has waived the requirement for an EVM plan on this contract.

1.1.13 Decision Gate Reporting:  On completion of a stage of the product development, as defined in the agreed upon Integrated Master Schedule and Integrated Master Plan, the Contractor shall prepare and submit to the Project Officer and the Contracting Officer a Decision Gate Report that contains (i) sufficient detail, documentation and analysis to support successful completion of the stage according to the predetermined qualitative and quantitative criteria that were established for Go/No Go decision making; and (ii) a description of the next stage of product development to be initiated and a request for approval to proceed to the next stage of product development.

1.1.14 Risk Management Plan:  The Contractor shall develop a risk management plan within 90 days of contract award highlighting potential problems and/or issues that may arise during the life of the contract, their impact on cost, schedule and performance, and appropriate remediation plans.  This plan should reference relevant WBS elements where appropriate.  Updates to this plan shall be included every three months (quarterly) in the monthly Project Status Report.

1.1.15 Performance Measurement Baseline Review (PMBR):  N/A.  The Government has waived the requirement for an EVM monitoring on this contract.

1.1.16 Deviation Request:  During the course of contract performance, in response to a need to change IMS activities as baselined at the PMBR, the Contractor shall submit a Deviation Report.  This report shall request a change in the agreed-upon IMS and timelines.  This report shall include:  (i) discussion of the justification/rationale for the proposed change; (ii) options for addressing the needed changes from the agreed upon timelines, including a cost-benefit analysis of each option; and (iii) recommendations for the preferred option that includes a full analysis and discussion of the effect of the change on the entire product development program, timelines, and budget.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

1.1.17 Monthly and Annual Reports:  The Contractor shall deliver Project Status Reports on a monthly basis.  The reports shall address the items below cross referenced to the WBS, SOW, IMS, and EVM:

• Executive summary highlighting the progress, issues, and relevant activities in manufacturing, non-clinical, clinical, and regulatory;

• Progress in meeting contract milestones, detailing the planned progress and actual progress during the reporting period, explaining any differences between the two and corrective steps;

• Updated IMS;

• Updated Risk Management Plan (Every 3 months);

• Three month rolling forecast of planned activities;

• Progress of regulatory submissions;

• Estimated and actual expenses;

1.1.18 Data Management:  The Contractor shall develop and implement data management and quality control systems/procedures, including transmission, storage, confidentiality, and retrieval of all contract data; Provide for the statistical design and analysis of data resulting from the research; Provide raw data or specific analyses of data generated with contract funding to the Project Officer, upon request.

1.2 NON-CLINICAL DEVELOPMENT (WBS 1.2)

N/A

1.3 NON-CLINICAL EFFICACY (WBS 1.3)

[***]

1.4 CLINICAL STUDIES (WBS 1.4)

[***]

1.5 REGULATORY (WBS 1.5)

N/A

1.6 CMC (WBS 1.6)

[***]

2.0CLIN 2 (OPTION 1)

[***]

2.1PROGRAM MANAGEMENT (WBS 1.1)

Program management scope in CLIN 1 is consistent with the program management scope in each option year.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

2.2NON-CLINICAL DEVELOPMENT (WBS 1.2)

N/A

2.3NON-CLINICAL EFFICACY (WBS 1.3)

[***]

2.4CLINICAL STUDIES (WBS 1.4)

[***]

2.5REGULATORY (WBS 1.5)

N/A

2.6CMC (WBS 1.6)

[***]

3.0CLIN 3 (OPTION 2)

[***]

3.1PROGRAM MANAGEMENT (WBS 1.1)

Program management scope in CLIN 1 is consistent with the program management scope in each option year.

3.2NON-CLINICAL DEVELOPMENT (WBS 1.2)

N/A

3.3NON-CLINICAL EFFICACY (WBS 1.3)

N/A

3.4CLINICAL STUDIES (WBS 1.4)

[***]

3.5REGULATORY (WBS 1.5)

N/A

3.6CMC (WBS 1.6)

N/A

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Attachment 2

Milestone Number	GO/NO GO Project Milestone	Go Criteria	No-Go Criteria	Deliverable	SOW #	CLIN
[***]	[***]	[***]	[***]	[***]	[***]	[***]

[***]

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Attachment 4 - Invoice Reporting

INVOICE/FINANCING REQUEST AND CONTRACT FINANCIAL REPORTING

INSTRUCTIONS FOR COST-REIMBURSEMENT TYPE CONTRACTS

Format:  Payment requests shall be submitted on the Contractor’s self-generated form in the manner and format prescribed herein and as illustrated in the Sample Invoice/Financing Request.  Standard Form 1034, Public Voucher for Purchases and Services Other Than Personal, may be used in lieu of the Contractor’s self-generated form provided it contains all of the information shown on the Sample Invoice/Financing Request.  DO NOT include a cover letter with the payment request.

Number of Copies:  Payment requests shall be submitted in the quantity specified in the Invoice Submission Instructions in Section B of the Contract.

Frequency:  Payment requests should not be submitted more frequently than once every two weeks in accordance with the Allowable Cost and Payment Clause incorporated into this contract unless otherwise instructed by the Contract Officer.  Small business concerns may submit invoices/financing requests more frequently than every two weeks when authorized by the Contracting Officer.

Cost Incurrence Period:  Costs incurred must be within the contract performance period or covered by previously established pre contract cost provisions.

Billing of Costs Incurred:  If billed costs include (1) costs of a prior billing period, but not previously billed, or (2) costs incurred during the contract period and claimed after the contract period has expired, the Contractor shall cite the amount(s) and month(s) in which it incurred such costs.

Contractor’s Fiscal Year:  Payment requests shall be prepared in such a manner that the Government can identify costs claimed with the Contractor’s fiscal year.

Currency:  All contracts are expressed in United States dollars.  When the Government pays in a currency other than United States dollars, billings shall be expressed, and payment by the Government shall be made, in that other currency at amounts coincident with actual costs incurred.  Currency fluctuations may not be a basis of gain or loss to the Contractor.  Notwithstanding the above, the total of all invoices paid under this contract may not exceed the United States dollars authorized.

Costs Requiring Prior Approval:  Costs requiring the Contracting Officer’s approval, which are not set forth in an Advance Understanding in the contract, shall be identified and reference the Contracting Officer’s Authorization (COA) Number.  In addition, the Contractor shall show any cost set forth in an Advance Understanding as a separate line item on the payment request.

Invoice/Financing Request Identification:  Each payment request shall be identified as either:

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

(a) Interim Invoice/Contract Financing Request:  These are interim payment requests submitted during the contract performance period.

(b) Completion Invoice:  The completion invoice shall be submitted promptly upon completion of the work, but no later than one year from the contract completion date, or within 120 days after settlement of the final indirect cost rates covering the year in which the contract is physically complete (whichever date is later).  The Contractor shall submit the completion invoice when all costs have been assigned to the contract and it completes all performance provisions.

(c) Final Invoice:  A final invoice may be required after the amounts owed have been settled between the Government and the Contractor (e.g., resolution of all suspensions and audit exceptions).

Preparation and Itemization of the Invoice/Financing Request:  The Contractor shall furnish the information set forth in the instructions below.  The instructions are keyed to the entries on the Sample Invoice/Financing Request.

(a) Designated Billing Office Name and Address:  Enter the designated billing office name and address, as identified in the Invoice Submission Instructions in Section B and F of the Contract Schedule.

(b) Contractor’s Name, Address, Point of Contact, VIN, and DUNS or DUNS+4 Number:  Show the Contractor’s name and address exactly as they appear in the contract, along with the name, title, phone number, and e-mail address of the person to notify in the event of an improper invoice or, in the case of payment by method other than Electronic Funds Transfer, to whom payment is to be sent.  Provide the Contractor’s Vendor Identification Number (VIN), and Data Universal Numbering System (DUNS) number or DUNS+4.  The DUNS number must identify the Contractor’s name and address exactly as stated on the face page of the contract.  When an approved assignment has been made by the Contractor, or a different payee has been designated, provide the same information for the payee as is required for the Contractor (i.e., name, address, point of contact, VIN, and DUNS).

(c) Invoice/Financing Request Number:  Insert the appropriate serial number of the payment request.

(d) Date Invoice/Financing Request Prepared:  Insert the date the payment request is prepared.

(e) Contract Number and Order Number (if applicable):  Insert the contract number and order number (if applicable).

(f) Effective Date:  Insert the effective date of the contract or if billing under an order, the effective date of the order.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

(g) Total Estimated Cost of Contract/Order:  Insert the total estimated cost of the contract, exclusive of fixed-fee.  If billing under an order, insert the total estimated cost of the order, exclusive of fixed-fee.

(h) Total Fixed-Fee:  Insert the total fixed-fee (where applicable).

(i) Two-Way/Three-Way Match:  Identify payment to be made using a three-way match.

(j) Office of Acquisitions:  Insert the name of the Office of Acquisitions, as identified in Section G of the Contract Schedule.

(k) Central Point of Distribution:  Insert the Central Point of Distribution, as identified in the Invoice Submission Instructions in Section G of the Contract Schedule.

(l) Billing Period:  Insert the beginning and ending dates (month, day, and year) of the period in which costs were incurred and for which reimbursement is claimed.

(m) Amount Billed - Current Period:  Insert the amount claimed for the current billing period by major cost element, including any adjustments and fixed-fee.  If the Contract Schedule contains separately priced line items, identify the contract line item(s) on the payment request and include a separate breakdown (by major cost element) for each line item.

(n) Amount Billed - Cumulative:  Insert the cumulative amounts claimed by major cost element, including any adjustments and fixed-fee.  If the Contract Schedule contains separately priced line items, identify the contract line item(s) on the payment request and include a separate breakdown (by major cost element) for each line item.

(o) Direct Costs:  Insert the major cost elements.  For each element, consider the application of the paragraph entitled “Costs Requiring Prior Approval” on page 1 of these instructions.

(1)

(2) Direct Labor:  Include salaries and wages paid (or accrued) for direct performance of the contract.

For Level of Effort contracts only, the Contractor shall provide the following information on a separate sheet of paper attached to the payment request:

- hours or percentage of effort and cost by labor category (as specified in the Level of Effort Article in Section F of the contract) for the current billing period, and

- hours or percentage of effort and cost by labor category from contract inception through the current billing period.  (NOTE:  The Contracting Officer may require the Contractor to provide additional breakdown for direct labor, such as position title, employee name, and salary or hourly rate.)

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

(3) Fringe Benefits:  List any fringe benefits applicable to direct labor and billed as a direct cost.  Do not include in this category fringe benefits that are included in indirect costs.

(4) Accountable Personal Property:  Include permanent research equipment and general purpose equipment having a unit acquisition cost of $1,000 or more, with a life expectancy of more than two years, and sensitive property regardless of cost (see the HHS Contractor’s Guide for Control of Government Property).  Show permanent research equipment separate from general purpose equipment.

On a separate sheet of paper attached to the payment request, list each item for which reimbursement is requested.  An asterisk (*) shall precede the item if the equipment is below the $1,000 approval level.  Include reference to the following (as applicable):

- item number for the specific piece of equipment listed in the Property Schedule, and

- COA number, if the equipment is not covered by the Property Schedule.

The Contracting Officer may require the Contractor to provide further itemization of property having specific limitations set forth in the contract.

(5) Materials and Supplies:  Include equipment with unit costs of less than $1,000 or an expected service life of two years or less, and consumable material and supplies regardless of amount.

(6) Premium Pay:  List remuneration in excess of the basic hourly rate.

(7) Consultant Fee:  List fees paid to consultants.  Identify consultant by name or category as set forth in the contract or COA, as well as the effort (i.e., number of hours, days, etc.) and rate billed.

(8) Travel:  Include domestic and foreign travel.  Foreign travel is travel outside of Canada, the United States and its territories and possessions.  However, for an organization located outside Canada, the United States and its territories and possessions, foreign travel means travel outside that country.  Foreign travel must be billed separately from domestic travel.

(9) Subcontract Costs:  List subcontractor(s) by name and amount billed.  Cite applicable COA or notification.

(10) Other:  List all other direct costs in total unless exceeding $1,000 in amount.  If over $1,000, list cost elements and dollar amounts separately.  If the contract contains restrictions on any cost element, that cost element must be listed separately.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

(p) Cost of Money (COM):  Cite the COM factor and base in effect during the time the cost was incurred and for which reimbursement is claimed.

(q) Indirect Costs:  Identify the indirect cost base (IDC), indirect cost rate, and amount billed for each indirect cost category.

(r) Fixed-Fee:  Cite the formula or method of computation for fixed-fee, if applicable.  The fixed-fee must be claimed as provided for by the contract.

(s) Total Amounts Claimed:  Insert the total amounts claimed for the current and cumulative periods.

(t) Adjustments:  Include amounts conceded by the Contractor, outstanding suspensions, and/or disapprovals subject to appeal.

(u) Grand Totals

(v) Certification of Salary Rate Limitation:  If required by the contract (see Invoice Submission Instructions in Section G of the Contract Schedule), the Contractor shall include the following certification at the bottom of the payment request:

“I hereby certify that the salaries billed in this payment request are in compliance with the Salary Rate Limitation Provisions in Section H of the contract.”

(w) Signature

The Contracting Officer may require the Contractor to submit detailed support for costs claimed on one or more interim payment requests.

Financial Reporting Instructions:

These instructions are keyed to the Columns on the sample invoice/financing request.

Column A - Expenditure Category:  Enter the expenditure categories required by the contract.

Column B - Cumulative Percentage of Effort/Hrs. - Negotiated:  Enter the percentage of effort or number of hours agreed to for each employee or labor category listed in Column A.

Column C - Cumulative Percentage of Effort/Hrs. - Actual:  Enter the percentage of effort or number of hours worked by each employee or labor category listed in Column A.

Column D - Amount Billed - Current:  Enter amounts billed during the current period.

Column E - Amount Billed - Cumulative:  Enter the cumulative amounts to date.

Column F - Cost at Completion:  Enter data only when the Contractor estimates that a particular expenditure category will vary from the amount negotiated.  Realistic estimates are essential.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Column G - Contract Amount:  Enter the costs agreed to for all expenditure categories listed in Column A.

Column H - Variance (Over or Under):  Show the difference between the estimated costs at completion (Column F) and negotiated costs (Column G) when entries have been made in Column F.  This column need not be filled in when Column F is blank.  When a line item varies by plus or minus 10 percent, i.e., the percentage arrived at by dividing Column F by Column G, an explanation of the variance should be submitted.  In the case of an overrun (net negative variance), this submission shall not be deemed as notice under the Limitation of Cost (Funds) Clause of the contract.

Modifications:  Any modification in the amount negotiated for an item since the preceding report should be listed in the appropriate cost category.

Expenditures Not Negotiated:  An expenditure for an item for which no amount was negotiated (e.g., at the discretion of the Contractor in performance of its contract) should be listed in the appropriate cost category and all columns filled in, except for G.  Column H will of course show a 100 percent variance and will be explained along with those identified under H above.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

INSTRUCTIONS FOR COMPLETION OF SF-LLL, DISCLOSURE OF LOBBYING ACTIVITIES

This disclosure form shall be completed by the reporting entity, whether subawardee or prime Federal recipient, at the initiation or receipt of a covered Federal action, or a material change to a previous filing, pursuant to title 31 U.S.C. section 1352.  The filing of a form is required for each payment or agreement to make payment to any lobbying entity for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with a covered Federal action.  Complete all items that apply for both the initial filing and material change report.  Refer to the implementing guidance published by the Office of Management and Budget for additional information.

1. Identify the type of covered Federal action for which lobbying activity is and/or has been secured to influence the outcome of a covered Federal action.

2. Identify the status of the covered Federal action.

3. Identify the appropriate classification of this report.  If this is a followup report caused by a material change to the information previously reported, enter the year and quarter in which the change occurred.  Enter the date of the last previously submitted report by this reporting entity for this covered Federal action.

4. Enter the full name, address, city, State and zip code of the reporting entity.  Include Congressional District, if known.  Check the appropriate classification of the reporting entity that designates if it is, or expects to be, a prime or sub award recipient.  Identify the tier of the sub awardee, e.g., the first sub awardee of the prime is the 1st tier.  Sub awards include but are not limited to subcontracts, sub grants and contract awards under grants.

5. If the organization filing the report in item 4 checks “Sub-awardee,” then enter the full name, address, city, State and zip code of the prime Federal recipient.  Include Congressional District, if known.

6. Enter the name of the Federal agency making the award or loan commitment.  Include at least one organizational level below agency name, if known.  For example, Department of Transportation, United States Coast Guard.

7. Enter the Federal program name or description for the covered Federal action (item 1).  If known, enter the full Catalog of Federal Domestic Assistance (CFDA) number for grants, cooperative agreements, loans, and loan commitments.

8. Enter the most appropriate Federal identifying number available for the Federal action identified in item 1 (e.g., Request for Proposal (RFP) number; Invitation for Bid (IFB) number; grant announcement number; the contract, grant, or loan award

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CONFIDENTIAL TREATMENT REQUESTED

number; the application/proposal control number assigned by the Federal agency).  Include prefixes, e.g., “RFP-DE-90-001.”

9. For a covered Federal action where there has been an award or loan commitment by the Federal agency, enter the Federal amount of the award/loan commitment for the prime entity identified in item 4 or 5.

10. (a) Enter the full name, address, city, State and zip code of the lobbying registrant under the Lobbying Disclosure Act of 1995 engaged by the reporting entity identified in item 4 to influence the covered Federal action.

(b) Enter the full names of the individual(s) performing services, and include full address if different from 10 (a). Enter Last Name, First Name, and Middle Initial (MI).

11. The certifying official shall sign and date the form, print his/her name, title, and telephone number.

According to the Paperwork Reduction Act, as amended, no persons are required to respond to a collection of information unless it displays a valid OMB Control Number.  The valid OMB control number for this information collection is OMB No. 0348-0046.  Public reporting burden for this collection of information is estimated to average 10 minutes per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.  Send comments regarding the burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Office of Management and Budget, Paperwork Reduction Project (0348-0046), Washington, DC 20503.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Attachment 8

INSTRUCTIONS FOR COMPLETING

“FINANCIAL REPORT OF INDIVIDUAL PROJECT/CONTRACT”

GENERAL INFORMATION

Purpose.  This Quarterly Financial Report is designed to: (1) provide a management tool for use by be BARDA in monitoring the application of financial and personnel resources to the BARDA contracts; (2) provide contractors with financial and personnel management data which is usable in their management processes; (3) promptly indicate potential areas of contract underruns or overruns by making possible comparisons of actual performance and projections with prior estimates on individual elements of cost and personnel; and (4) obtain contractor’s analyses of cause and effect of significant variations between actual and prior estimates of financial and personnel performance.

REPORTING REQUIREMENTS

Scope.  The specific cost and personnel elements to be reported shall be established by mutual agreement prior to award.  The Government may require the contractor to provide detailed documentation to support any element(s) on one or more financial reports.

Number of Copies and Mailing Address.  An original and two (2) copies of the report(s) shall be sent to the contracting officer at the address shown on the face page of the contract, no later than 30 working days after the end of the period reported.  However, the contract may provide for one of the copies to be sent directly to the Contracting Officer’s Technical Representative.

REPORTING STATISTICS

A modification which extends the period of performance of an existing contract will not require reporting on a separate quarterly report, except where it is determined by the contracting officer that separate reporting is necessary.  Furthermore, when incrementally funded contracts are involved, each separate allotment is not considered a separate contract entity (only a funding action).  Therefore, the statistics under incrementally funded contracts should be reported cumulatively from the inception of the contract through completion.

Definitions and Instructions for Completing the Quarterly Report.  For the purpose of establishing expenditure categories in Column A, the following definitions and instructions will be utilized.  Each contract will specify the categories to be reported.

(1) Key Personnel.  Include key personnel regardless of annual salary rates.  All such individuals should be listed by names and job titles on a separate line including those whose salary is not directly charged to the contract but whose effort is directly associated with the contract.  The listing must be kept up to date.

(2) Personnel--Other.  List as one amount unless otherwise required by the contract.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

(3) Fringe Benefits.  Include allowances and services provided by the contractor to employees as compensation in addition to regular salaries and wages.  If a fringe benefit rate(s) has been established, identify the base, rate, and amount billed for each category.  If a rate has not been established, the various fringe benefit costs may be required to be shown separately.  Fringe benefits which are included in the indirect cost rate should not be shown here.

(4) Accountable Personal Property.  Include nonexpendable personal property with an acquisition cost of $1,000 or more and with an expected useful life of two or more years, and sensitive items regardless of cost.  Form HHS 565, “Report of Accountable Property,” must accompany the contractor’s public voucher (SF 1034/SF 1035) or this report if not previously submitted.  See “Contractor’s Guide for Control of Government Property.”

(5) Supplies.  Include the cost of supplies and material and equipment charged directly to the contract, but excludes the cost of nonexpendable equipment as defined in (4) above.

(6) Inpatient Care.  Include costs associated with a subject while occupying a bed in a patient care setting.  It normally includes both routine and ancillary costs.

(7) Outpatient Care.  Include costs associated with a subject while not occupying a bed.  It normally includes ancillary costs only.

(8) Travel.  Include all direct costs of travel, including transportation, subsistence and miscellaneous expenses.  Travel for staff and consultants shall be shown separately.  Identify foreign and domestic travel separately.  If required by the contract, the following information shall be submitted: (i) Name of traveler and purpose of trip; (ii) Place of departure, destination and return, including time and dates; and (iii) Total cost of trip.

(9) Consultant Fee.  Include fees paid to consultant(s).  Identify each consultant with effort expended, billing rate, and amount billed.

(10) Premium Pay.  Include the amount of salaries and wages over and above the basic rate of pay.

(11) Subcontracts.  List each subcontract by name and amount billed.

(12) Other Costs.  Include any expenditure categories for which the Government does not require individual line item reporting.  It may include some of the above categories.

(13) Overhead/Indirect Costs.  Identify the cost base, indirect cost rate, and amount billed for each indirect cost category.

(14) General and Administrative Expense.  Cite the rate and the base.  In the case of nonprofit organizations, this item will usually be included in the indirect cost.

(15) Fee.  Cite the fee earned, if any.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

(16) Total Costs to the Government.

PREPARATION INSTRUCTIONS

These instructions are keyed to the Columns on the Quarterly Report.

Column A--Expenditure Category.  Enter the expenditure categories required by the contract.

Column B--Percentage of Effort/Hours Negotiated.  Enter the percentage of effort or number of hours agreed to during contract negotiations for each labor category listed in Column A.

Column C--Percentage of Effort/Hours-Actual.  Enter the cumulative percentage of effort or number of hours worked by each employee or group of employees listed in Column A.

Column D--Cumulative Incurred Cost at End of Prior Period.  Enter the cumulative incurred costs up to the end of the prior reporting period.  This column will be blank at the time of the submission of the initial report.

Column E--Incurred Cost-Current Period.  Enter the costs which were incurred during the current period.

Column F--Cumulative Incurred Cost to Date.  Enter the combined total of Columns D and E.

Column G--Estimated Cost to Complete.  Make entries only when the contractor estimates that a particular expenditure category will vary from the amount negotiated.  Realistic estimates are essential.

Column H--Estimated Costs at Completion.  Complete only if an entry is made in Column G.

Column I--Negotiated Contract Amount.  Enter in this column the costs agreed to during contract negotiations for all expenditure categories listed in Column A.

Column J--Variance (Over or Under).  Complete only if an entry is made in Column H.  When entries have been made in Column H, this column should show the difference between the estimated costs at completion (Column H) and negotiated costs (Column I).  When a line item varies by plus or minus 10 percent, i.e., the percentage arrived at by dividing Column J by Column I, an explanation of the variance should be submitted.  In the case of an overrun (net negative variance), this submission shall not be deemed as notice under the Limitation of Cost (Funds) Clause of the contract.

Modifications.  List any modification in the amount negotiated for an item since the preceding report in the appropriate cost category.

Expenditures Not Negotiated.  List any expenditure for an item for which no amount was negotiated (e.g., at the discretion of the contractor in performance of its contract) in the appropriate cost category and complete all columns except for I.  Column J will of course show a 100 percent variance and will be explained along with those identified under J above.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the

Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment

pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ankit Mahadevia, M.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Spero Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2018	By:	/s/ Ankit Mahadevia, M.D.
		Ankit Mahadevia, M.D.
		President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joel Sendek, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Spero Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2018	By:	/s/ Joel Sendek
		Joel Sendek
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Spero Therapeutics, Inc. (the “Company”) for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 8, 2018	By:	/s/ Ankit Mahadevia, M.D.
		Ankit Mahadevia, M.D.
		President and Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Spero Therapeutics, Inc. (the “Company”) for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 8, 2018	By:	/s/ Joel Sendek
		Joel Sendek
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 05, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Trading Symbol	SPRO
Entity Registrant Name	Spero Therapeutics, Inc.
Entity Central Index Key	0001701108
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		18,187,488

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 40,480	$ 87,288
Marketable securities	90,745
Other receivables	332	1,011
Tax incentive receivable, current	944	1,932
Prepaid expenses and other current assets	1,222	1,828
Total current assets	133,723	92,059
Property and equipment, net	2,191	1,164
Deposits	206	206
Restricted cash		50
Total assets	136,120	93,479
Current liabilities:
Accounts payable	1,364	3,470
Accrued expenses and other current liabilities	8,564	4,321
Derivative liabilities	223	223
Deferred rent	127	143
Total current liabilities	10,278	8,157
Deferred rent, net of current portion	290	365
Total liabilities	10,568	8,522
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, 2,220 shares issued and outstanding as of September 30, 2018 and zero shares issued and outstanding as of December 31, 2017
Common stock, $0.001 par value; 60,000,000 shares authorized as of September 30, 2018 and December 31, 3017; 18,182,494 shares issued and outstanding as of September 30, 2018 and 14,369,182 shares issued and outstanding as of December 31, 2017	18	14
Additional paid-in capital	253,105	181,428
Accumulated deficit	(127,903)	(96,840)
Accumulated other comprehensive loss	(23)
Total Spero Therapeutics, Inc. stockholders' equity	125,197	84,602
Non-controlling interests	355	355
Total stockholders' equity	125,552	84,957
Total liabilities and stockholders' equity	$ 136,120	$ 93,479

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares/units issued	2,220	0
Preferred stock, shares/units outstanding	2,220	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares/units issued	18,182,494	14,369,182
Common stock, shares/units outstanding	18,182,494	14,369,182

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
Grant revenue	$ 658	$ 597	$ 2,274	$ 986
Operating expenses:
Research and development	8,459	6,910	24,758	20,366
General and administrative	3,134	3,653	9,238	8,350
Total operating expenses	11,593	10,563	33,996	28,716
Loss from operations	(10,935)	(9,966)	(31,722)	(27,730)
Other income (expense):
Change in fair value of derivative liabilities		(2)		1,547
Interest income and other income (expense), net	472	124	659	165
Total other income (expense), net	472	122	659	1,712
Net loss	(10,463)	(9,844)	(31,063)	(26,018)
Less: Net loss attributable to non-controlling interest		(8)		(1,137)
Net loss attributable to Spero Therapeutics, Inc.	(10,463)	(9,836)	(31,063)	(24,881)
Cumulative dividends on redeemable convertible preferred shares		(2,052)		(5,313)
Accretion of redeemable bridge units and redeemable convertible preferred shares to redemption value		(188)		(1,133)
Net loss attributable to common stockholders of Spero Therapeutics, Inc.	$ (10,463)	$ (12,076)	$ (31,063)	$ (31,327)
Net loss per share attributable to common stockholders per share, basic and diluted	$ (0.60)	$ (36.02)	$ (2.01)	$ (93.96)
Weighted average common shares outstanding, basic and diluted:	17,471,462	335,285	15,417,087	333,402
Comprehensive loss:
Net loss	$ (10,463)	$ (9,844)	$ (31,063)	$ (26,018)
Other comprehensive gain (loss):
Unrealized gain (loss) on marketable securities	(8)		(23)
Total other comprehensive gain (loss)	(8)		(23)
Total comprehensive loss	$ (10,471)	$ (9,844)	$ (31,086)	$ (26,018)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss	$ (31,063)	$ (26,018)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	270	264
Loss on disposal of fixed assets	248
Change in fair value of derivative liabilities		(1,547)
Share-based compensation	1,980	1,054
Unrealized foreign currency transaction (gain) loss	237	(93)
Accretion of discount on marketable securities	(346)
Changes in operating assets and liabilities:
Other receivables	679	(233)
Prepaid expenses and other current assets	706	204
Tax incentive receivables	980	(806)
Accounts payable	(2,088)	(112)
Accrued expenses and other current liabilities	2,372	1,011
Deferred rent	(91)	(95)
Net cash used in operating activities	(26,116)	(26,371)
Cash flows from investing activities:
Purchases of marketable securities	(104,421)
Proceeds from maturities of marketable securities	14,000
Purchases of property and equipment	(22)
Net cash used in investing activities	(90,443)
Cash flows from financing activities:
Proceeds from stock option exercises	197
Cash payment for Potentiator non-controlling interests		(1,175)
Net cash provided by (used in) financing activities	69,701	41,429
Net (decrease) increase in cash and cash equivalents	(46,858)	15,058
Cash, cash equivalents and restricted cash at beginning of period	87,338	10,365
Cash, cash equivalents and restricted cash at end of period	40,480	25,423
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment in accrued expenses	1,628	28
Deferred offering costs included in accounts payable and accrued expenses		1,588
Conversion of bridge units into preferred units		8,500
Settlement of derivative liabilities upon issuance of preferred units		944
Cumulative dividends on redeemable convertible preferred units		5,313
Accretion of redeemable convertible preferred units to redemption value		557
Accretion of bridge units to redemption value		576
Elimination of non-controlling interest balance upon repurchase of the non-controlling interest		5,306
2018 Equity Offering [Member]
Cash flows from financing activities:
Proceeds from equity offering	70,500
Payment of offering costs	$ (996)
2017 Initial Public Offering [Member]
Cash flows from financing activities:
Payment of offering costs		(507)
Series C Preferred Stock [Member]
Cash flows from financing activities:
Proceeds from issuance of preferred units, net of issuance costs		$ 43,111

XML

Nature of the Business and Basis of Presentation

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Nature of the Business and Basis of Presentation

1. Nature of the Business and Basis of Presentation

Spero Therapeutics, Inc., together with its consolidated subsidiaries (the “Company”), is a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for multi-drug resistant (“MDR”) bacterial infections. The Company’s most advanced product candidate, SPR994, is designed to be the first broad-spectrum 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 also has a platform technology known as its Potentiator Platform that it believes will enable it to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. The Company’s lead product candidates generated from its Potentiator Platform are two intravenous, or IV,-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, the Company is developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. The Company believes that its novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

The Company was formed as Spero Therapeutics, LLC in December 2013 under the laws of the State of Delaware. On June 30, 2017, through a series of transactions, Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc. (formerly known as Spero OpCo, Inc.), a Delaware corporation. As part of the transactions, holders of preferred units and common units of Spero Therapeutics, LLC exchanged their units for shares of Spero Therapeutics, Inc. on a one-for-one basis. These transactions are collectively referred to as the Reorganization. Upon completion of the Reorganization, the historical consolidated financial statements of Spero Therapeutics, LLC became the historical consolidated financial statements of Spero Therapeutics, Inc. because the Reorganization was accounted for as a reorganization of entities under common control.

The Company is subject to risks and uncertainties common to early-stage 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 and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including 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.

On October 20, 2017, the Company effected a one-for-6.0774 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s then outstanding Preferred Stock. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios. In addition, all common units and incentive units as well as the conversion ratios of preferred units of Spero Therapeutics, LLC have been presented as if the reverse stock split of the common stock of Spero Therapeutics, Inc. had been applied to such units and ratios of Spero Therapeutics, LLC.

On November 6, 2017, the Company completed an initial public offering (“IPO”) of its common stock, and issued and sold 5,500,000 shares of common stock at a public offering price of $14.00 per share, resulting in net proceeds of $71.6 million after deducting underwriting discounts and commissions but before deducting offering costs. On November 14, 2017, Spero Therapeutics, Inc., issued and sold an additional 471,498 shares of its common stock at the IPO price of $14.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $6.1 million after deducting underwriting discounts and commissions. Aggregate net proceeds from the IPO totaled $74.2 million after deducting underwriting discounts, commissions and offering costs.

On July 17, 2018, the Company completed an underwritten public offering of its common and preferred stock, which resulted in the sale of 3,780,000 shares of common stock at a price of $12.50 per share, and 2,220 shares of Series A Convertible Preferred Stock at a price of $12,500 per share. Each share of Series A Convertible Preferred Stock sold in the offering is convertible into 1,000 shares of the Company’s common stock. The Company received net proceeds from the offering of approximately $70.5 million after deducting underwriting discounts and commissions but before deducting $1.0 million of offering expenses payable by the Company.

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 the consolidated financial statements are issued. 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 and funding from government contracts, and most recently, with proceeds from the IPO completed in November 2017 and the underwritten public offering of common and Series A Convertible Preferred Stock completed in July 2018. The Company has incurred recurring losses since inception, including net losses attributable to Spero Therapeutics, Inc. of $31.1 million for the nine months ended September 30, 2018, and $38.7 million and $25.5 million for the years ended December 31, 2017 and 2016, respectively. In addition, as of September 30, 2018, the Company had an accumulated deficit of $127.9 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the quarterly consolidated financial statements, or November 8, 2018, the Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses, capital expenditure requirements through at least 12 months from the issuance date of these quarterly consolidated financial statements. However, the future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its future operations. The Company will seek additional funding through public or private financings, debt financing, collaboration agreements or government grants. The inability to obtain funding, as and when needed, would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain funding, the Company 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 adversely affect its business prospects, or the Company may be unable to continue operations. Although management intends to pursue plans to obtain additional funding to finance its operations, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

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.

Interim Financial Information

The consolidated balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, 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, 2017, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, on file with SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2018, and results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017 have been made. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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 research and development expenses, the valuation of common shares prior to the Company’s completion of its IPO, the valuation of share-based awards and the valuation of derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. 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.

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.

Marketable Securities

Marketable securities consist of investments with original maturities greater than 90 days. The Company considers its investment 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 judged to be other than temporary are included as a component of other income (expense), net based on the specific identification method. When determining whether a decline in value is other than temporary, the Company considers various factors, including whether the Company has the intent to sell the security, and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis.

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 and derivative liabilities 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.

Derivative Liabilities

In connection with certain equity financings, licensing transactions and research collaborations, the Company has identified certain embedded and freestanding derivatives, which are recorded as liabilities on the Company’s consolidated balance sheet and are remeasured to fair value at each reporting date until the derivative is settled. Changes in the fair value of the derivative liabilities are recognized as other income (expense) in the consolidated statement of operations and comprehensive loss.

Net Income (Loss) per Share Attributable to Spero Therapeutics, Inc.

The Company follows the two-class method when computing net income (loss) per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Net income (loss) per share attributable to common stockholders is calculated based on net income (loss) attributable to Spero Therapeutics, Inc. and excludes net income (loss) attributable to non-controlling interests.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The Company’s preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders of Spero Therapeutics, Inc., diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same as basic net loss per share attributable to common stockholders of Spero Therapeutics, Inc., since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders of Spero Therapeutics, Inc. for the three and nine months ended September 30, 2018 and 2017.

Recently Issued and Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard outlines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 such that the standard is effective for public entities for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”), which further clarifies the implementation guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments in this update reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments in this update also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in ASU 2014-09 is retrospectively applied. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective dates and transition requirements as ASU 2014-09. The Company adopted this standard using the modified retrospective approach, however the Company determined that government grant revenue is outside the scope of ASC 606. Therefore, the adoption of ASC 606 did not impact the Company’s financial position, results of operations or cash flows as its only existing revenue source as of September 30, 2018 is government grants.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years, and early adoption is permitted. The FASB subsequently issued amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019: (i) ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02; and (ii) ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component. The Company is in the process of reviewing its existing lease contracts and evaluating the impact that these adoption of these new leasing standards may have on its consolidated statements of operations. The Company expects that the adoption of the new leasing standards will result in the recognition of material ROU assets and liabilities in its consolidated balance sheets. The Company does not expect the adoption of the new leasing standards will have a material impact to its consolidated statement of operations. The Company will adopt the new leasing standards using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company’s adoption of ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. The adoption of ASU 2016-18 did not have a material impact on the Company’s consolidated financial statements. The inclusion of restricted cash increased the beginning and ending balances of the unaudited condensed consolidated statement of cash flows by $50,000 for the nine months ended September 30, 2017.

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2017-01 did not materially impact the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2017-09 did not materially impact the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable non-controlling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The amendments in the new guidance are effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, including in interim periods, but no earlier than an entity’s adoption of ASC 606. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

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Fair Value Measurements and Marketable Securities

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements and Marketable Securities

3. Fair Value Measurements and Marketable Securities

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements at September 30, 2018 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	29,896	$	—	$	29,896
U.S. government securities		—		5,994		—		5,994
Total cash equivalents		—		35,890		—		35,890
Marketable securities:
U.S. government securities		—		38,761		—		38,761
U.S. corporate bonds		—		35,594		—		35,594
U.S. commercial paper		—		16,390		—		16,390
Total marketable securities		—		90,745		—		90,745
Total cash equivalents and marketable securities	$	—	$	126,635	$	—	$	126,635
Derivative liabilities:
Anti-dilution rights	$	—	$	—	$	223	$	223
Total derivative liabilities	$	—	$	—	$	223	$	223

	Fair Value Measurements at December 31, 2017 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	83,121	$	—	$	83,121
	$	—	$	83,121	$	—	$	83,121
Derivative liabilities:
Anti-dilution rights	$	—	$	—	$	223	$	223
	$	—	$	—	$	223	$	223

During the three and nine months ended September 30, 2018 and 2017, there were no transfers between Level 1, Level 2 and Level 3 categories.

Marketable Securities

The Company’s marketable securities are classified as Level 2 assets under the fair value hierarchy as these assets were primarily determined from independent pricing sources, which generally derive security prices from recently reported trades for identical or similar securities. 

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of September 30, 2018 (in thousands):

	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Assets:
U.S. government securities	$	38,771	$	1	$	(11	)	$	38,761
U.S. corporate bonds		35,607		1		(14	)		35,594
U.S. commercial paper		16,390		—		—			16,390
	$	90,768	$	2	$	(25	)	$	90,745

As of September 30, 2018, all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the consolidated balance sheet date. The Company did not own any marketable securities as of December 31, 2017.

Anti-Dilution Rights

In connection with the issuance of non-controlling interests in certain of the Company’s subsidiaries (see Note 8), specifically Spero Potentiator, Inc., Spero Europe, Ltd. and Spero Gyrase, Inc., the Company granted anti-dilution rights to the minority investors. The Company classifies the anti-dilution rights as a derivative liability on its consolidated balance sheet because they are freestanding instruments that represent a conditional obligation to issue a variable number of shares. The Company remeasures the derivative liability associated with the anti-dilution rights to fair value at each reporting date, and recognizes changes in the fair value of the derivative liability as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. The fair value of these derivative liabilities was determined using a discounted cash flow model. As of September 30, 2018 and December 31, 2017, the Company’s fair value of the anti-dilution rights relates only to the anti-dilution rights held by the minority investor in Spero Gyrase, Inc., as detailed below.

Spero Gyrase, Inc.

In March 2016, in connection with the issuance of a non-controlling interest in its subsidiary, Spero Gyrase, Inc. (“Spero Gyrase”), to Biota Pharmaceuticals, Inc. (now Aviragen Therapeutics, Inc.) (“Aviragen”), the Company granted to Aviragen certain anti-dilution rights (see Note 8). The fair value of the derivative liability related to the anti-dilution rights upon issuance in March 2016 was $1.6 million.

The most significant assumption impacting the fair value of the anti-dilution rights was the probability that the Company would fund the maximum amount of investment providing anti-dilution protection. Upon issuance of the rights and through December 31, 2016, the probability of such funding was determined to be 100%. During 2017, the probability of such funding was reduced to 0% due to the Company’s decision to no longer pursue development of the acquired technology. The fair value of the derivative liability decreased accordingly by $1.4 million to $0.2 million by June 30, 2017. As of September 30, 2018 and December 31, 2017, the value of the derivative liability of $0.2 million represents amounts funded to the entity that could be settled by the issuance of equity.

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Accrued Expenses and Other Current Liabilities

9 Months Ended

Sep. 30, 2018

Payables And Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

4. Accrued Expenses and Other Current Liabilities

	September 30, 2018		December 31, 2017
Accrued external research and development expenses	$	4,146	$	1,770
Accrued payroll and related expenses		1,622		1,369
Accrued professional fees		727		878
Accrued manufacturing equipment		1,559		—
Accrued other		510		304
	$	8,564	$	4,321

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Convertible Preferred Shares

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Convertible Preferred Shares

5.Convertible Preferred Shares

Series A Convertible Preferred Shares

The Company’s amended and restated certificate of incorporation authorizes its Board of Directors to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share. As part of the Company’s July 2018 underwritten public offering, 2,220 shares were designated as Series A Convertible Preferred Stock and issued at a price of $12,500 per share.

Each share of Series A Convertible Preferred Stock is convertible into 1,000 shares of the Company’s common stock at any time at the option of the holder, provided that the holder will be prohibited from converting the Series A Convertible Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Convertible Preferred Stock will receive a payment equal to $0.001 per share of Series A Convertible Preferred Stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any proceeds are distributed to the holders of common stock or any of our securities that by their terms are junior to the Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock has no voting rights, except as required by law and except that the consent of the outstanding Series A Convertible Preferred Stock holders will be required to amend the terms of the Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock does not have any mandatory redemption rights or other redemption rights that would be outside of the Company’s control. As such, the Company has classified the Series A Convertible Preferred Stock within permanent equity in its consolidated balance sheet.

Redeemable Convertible Preferred Shares

Prior to the Reorganization, the operating agreement of Spero Therapeutics, LLC, as amended and restated, provided for the issuance of Junior preferred units, Class A preferred units, Class B preferred units and bridge units, but did not specify an authorized number of each for issuance. Subsequent to the Company’s Reorganization on June 30, 2017 (see Note 1), the Company’s amended and restated certificate of incorporation authorized the issuance of 43,297,267 shares of preferred stock, par value $0.001 per share, and holders of outstanding preferred units of Spero Therapeutics, LLC exchanged their units for preferred stock of Spero Therapeutics, Inc. on a one-for-one basis. The rights and preferences of each class of stock were the same both before and after the Reorganization. On October 20, 2017, the Company effected a one-for-6.0774 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion rations for each series or the Company’s Preferred Stock. Upon the closing of the Company’s IPO in November 2017, all of the then outstanding convertible preferred shares automatically converted into shares of common stock.

In March 2017, the Company issued and sold 24,326,470 Class C preferred units at a price of $1.7749 per unit for proceeds of $43.0 million, net of issuance costs of $0.2 million. The sale of Class C preferred units met the definition of a qualified financing under the 2016 bridge unit agreements.

The Company issued 5,321,112 Class C preferred units upon the conversion of the 2016 bridge units in the amount of $8.5 million, at a conversion price of $1.60 per unit, which represented a discount of 10% to the price per unit paid by other investors in the Class C preferred unit financing. The conversion was accounted for as an extinguishment for accounting purposes. Accordingly, the Company recorded the Class C preferred units issued upon conversion of the 2016 bridge units at their aggregate fair value of $9.4 million and recorded a corresponding adjustment to extinguish the then-current carrying value of the 2016 bridge units of $8.5 million and the then-current fair value of the derivative liability related to the contingent prepayment option associated with the 2016 bridge units of $0.9 million. There was no gain or loss recognized upon the extinguishment.

In July 2017 the Company sold to its Chief Financial Officer 61,880 shares of the Company’s Series C preferred stock at a price of $1.7749 per share, for proceeds of $0.1 million.

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Common Stock

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Common Stock

6. Common Stock

On July 17, 2018, the Company completed an underwritten public offering of its common and preferred stock, which resulted in the sale of 3,780,000 shares of common stock at a price of $12.50 per share, and 2,220 shares of Series A Convertible Preferred Stock at a price of $12,500 per share. The Company received net proceeds from the offering of approximately $70.5 million after deducting underwriting discounts and commissions but before deducting $1.0 million of offering expenses payable by the Company.

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Share-Based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-Based Compensation

7. Share-Based Compensation

On June 28, 2017, the Company’s stockholders approved the 2017 Stock Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock grants and stock-based awards. The 2017 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. The number of shares initially reserved for issuance under the 2017 Plan was 1,785,416 shares of common stock. The shares of common stock underlying any awards that are forfeited, cancelled, repurchased or are otherwise terminated by the Company under the 2017 Plan will be added back to the shares of common stock available for issuance under the 2017 Plan.

On October 18, 2017, the Company’s stockholders approved an amendment to the 2017 Plan, which became effective upon the completion of the Company’s IPO, to increase the total number of shares reserved for issuance under the 2017 Plan from 1,785,416 to 2,696,401. Additionally, the number of shares of common stock that may be issued under the 2017 Plan will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the lowest of (i) 607,324 shares of common stock, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors or compensation committee. There were 322,730 options granted during the nine months ended September 30, 2018. As of September 30, 2018, there were 2,186,378 options outstanding under the 2017 Plan and 476,711 shares remaining available to be issued under the 2017 Plan.

The Company recorded share-based compensation expense in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Research and development expenses	$	252	$	202	$	789	$	249
General and administrative expenses		453		729		1,191		805
Total	$	705	$	931	$	1,980	$	1,054

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Non-Controlling Interests

9 Months Ended

Sep. 30, 2018

Noncontrolling Interest [Abstract]

Non-Controlling Interests

8. Non-Controlling Interests

Spero Potentiator

In February 2015, the Company’s wholly owned subsidiary, Spero Potentiator, issued 996 shares of its common stock with an aggregate fair value of $1.1 million to Northern Antibiotics Oy Ltd. (“Northern”) in exchange for an exclusive license to develop and commercialize certain licensed compounds and licensed products.  

In connection with the acquisition of the license, Northern obtained anti-dilution rights to maintain its 49.9% ownership percentage in Spero Potentiator at no additional cost to Northern in the event that Spero Potentiator completed subsequent equity financings, subject to a maximum amount of such financings. The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet. The fair value of the derivative liability associated with the anti-dilution rights upon issuance in February 2015 of $2.4 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

In November 2015, Northern was issued an additional 2,736 common shares of Spero Potentiator for no additional cost as a result of the anti-dilution rights. The Company valued these shares at $1.5 million and recorded the amount as an increase in the non-controlling interest and a reduction in the carrying value of the derivative liability. In January and August 2016, Northern was issued an additional 2,160 common shares of Spero Potentiator for no additional cost. The Company valued these shares at $1.0 million and recorded the amount as an increase in the non-controlling interest and a reduction of the derivative liability. At that time, the anti-dilution rights issued to Northern were fully settled as Northern had received the maximum number of shares it was entitled to under the anti-dilution rights.

In June 2017, the Company repurchased all of the shares of Spero Potentiator held by Northern in exchange for a cash payment of $1.0 million and contingent consideration of $0.1 million. As a condition of the repurchase of the shares from Northern, the Company amended the license agreement with Northern such that the Company will be obligated to make milestone payments of up to $7.0 million upon the achievement of specified clinical, commercial and other milestones, including a payment of $2.5 million upon the closing of an IPO, which occurred and was paid in November 2017. As a result of this transaction, during the six months ended June 30, 2017, the Company reclassified the balance of the non-controlling interest of $6.4 million as of the date of the transaction to accumulated deficit as an increase to that account. Additionally, the cash payment of $1.0 million was recorded as an increase to accumulated deficit. The Company will record the contingent payments as research and development expense when it becomes probable that the payments will be due. For periods subsequent to the acquisition, the Company no longer reports a non-controlling interest related to Spero Potentiator.

Spero Europe

In January 2016, the Company entered into an agreement with Promiliad Biopharma Inc. (“Promiliad”), whereby Promiliad granted to Spero Europe certain know-how and a sublicense to research, develop, manufacture and sell certain compounds. In exchange for the know-how and sublicense, Spero Europe provided Promiliad with a 5% equity ownership interest in Spero Europe, with a fair value of $0.1 million. In addition, Spero Europe agreed to make payments to Promiliad upon the achievement of future regulatory and commercial milestones of $4.1 million and to pay to Promiliad royalties of a mid single-digit percentage on net sales of licensed products under the agreement. Spero had the right to terminate the agreement with thirty days’ notice. The Company recognized research and development expense of $0.1 million upon the acquisition of the license and recorded a non-controlling interest in Spero Europe in a corresponding amount.

In connection with the acquisition of the license, Promiliad obtained anti-dilution rights to maintain their 5% equity ownership in Spero Europe at no additional cost to Promiliad in the event that Spero Europe completed subsequent funding events, subject to a maximum amount of such funding of $5.0 million.

The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet. The fair value of the derivative liability associated with the anti-dilution rights upon issuance in January 2016 of $0.2 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

In May 2017, the Company repurchased all of the shares of Spero Europe from Promiliad in exchange for the return of the license. As a result of the transaction, the Company reclassified the balance of the non-controlling interest in Spero Europe of less than $0.1 million as of the date of the transaction to accumulated deficit as an increase to that account. For periods subsequent to the repurchase, the Company no longer reports a non-controlling interest related to Spero Europe.

Spero Gyrase

In March 2016, the Company entered into an agreement with Aviragen and its affiliates in order to acquire certain intellectual property and know-how related to certain compounds. In connection with the transaction, the Company established Spero Gyrase, a Delaware corporation, and issued to Aviragen 200 common shares of Spero Gyrase with a fair value of $1.1 million, which represented a 20% equity ownership interest in Spero Gyrase. In addition, Spero Gyrase agreed to make future milestone and royalty payments in exchange for the intellectual property. The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business. The Company recorded the acquired technology as research and development expense in the consolidated statement of operations and comprehensive loss in the amount of $1.1 million, because the acquired technology had not reached commercial feasibility and had no alternative future use, and recorded a non-controlling interest in Spero Gyrase in a corresponding amount.

In connection with the agreement, Aviragen obtained anti-dilution rights to maintain their 20% equity ownership of Spero Gyrase at no additional cost to Aviragen in the event that Spero Gyrase completed subsequent funding events, subject to a maximum amount of such funding of $8.0 million.

The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet (see Note 3). The fair value of the derivative liability associated with the anti-dilution rights upon issuance in March 2016 of $1.6 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

Spero Cantab

In June 2016, the Company entered into a stock purchase agreement and related agreements (the “Cantab Agreements”) with Pro Bono Bio PLC, a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited (“PBB”), Cantab Anti-Infectives Ltd. (“CAI”) and New Pharma License Holdings Limited (“NPLH”) in order to acquire NPLH and its intellectual property rights and assets relating to the Company’s Potentiator Platform.

Under the Cantab Agreements, CAI agreed to submit a request to NIAID to novate the CAI-held NIAID contract to the Company. The NIAID contract provides for development funding of up to $6.3 million over a base and three option periods. To date, funding for the base period and the first two option periods totaling $5.7 million had been committed to CAI. Novation of the NIAID contract to the Company was finalized in December 2017. The Company shall pay PBB a percentage of funds received from NIAID up to a maximum of $1.3 million.

Consideration under Cantab Agreements consisted of: (i) 125 shares of Spero Cantab, the Company’s subsidiary, which represented a 12.5% ownership interest in Spero Cantab, and anti-dilution rights (as described below) issued to PBB, with a combined fair value of $1.6 million, (ii) upfront consideration of $0.3 million (to be credited against future payments payable to CAI), (iii) contingent milestone payments due upon the achievement of certain clinical, regulatory and commercial milestones (see Note 11), (iv) royalty payments of low single-digit percentages based on net sales of products from the licensed technology, and (v) a specified portion of funding payments made by NIAID.

The Company accounted for the acquisition of NPLH as an asset acquisition because NPLH did not meet the definition of a business. The Company recognized research and development expense of $1.6 million upon the acquisition of NPLH because the acquired technology had not reached commercial feasibility and had no alternative future use. Upon the issuance of the shares and anti-dilution rights, the Company recorded a non-controlling interest in Spero Cantab of $1.6 million. The $0.3 million payment was recognized as research and development expenses as the services were performed by CAI. The Company records the contingent payments outlined in (iii), (iv) and (v) as research and development expense when it becomes probable that the payments will be due. Novation of the NIAID contract to Spero was finalized in December 2017. Prior to the contract novation, CAI performed research and development services at the Company’s direction and applied for reimbursement from NIAID. The Company paid CAI for such research and development services at an agreed-upon rate which took into consideration costs incurred by CAI, amounts reimbursed to CAI by NIAID and the portion of the NIAID reimbursement the Company paid to CAI.

In connection with the Cantab Agreements, PBB obtained anti-dilution rights to maintain a certain equity ownership, ranging from 5% to 12.5%, of Spero Cantab at no additional cost to PBB in the event that Spero Cantab completed subsequent funding events, subject to maximum amount of such funding of $8.0 million. These anti-dilution rights represent a conditional obligation to issue a variable number of shares but are not freestanding and, therefore, do not require bifurcation for accounting purposes from the 125 shares issued.

In July 2017, the Company repurchased all of the outstanding shares of Spero Cantab owned by PBB in exchange for a cash payment of $0.2 million and an amendment to the licensing agreement to increase the first two contingent milestone payments by a total of $0.1 million. For periods subsequent to the repurchase, the Company no longer reports a non-controlling interest related to Spero Cantab.

As of September 30, 2018 and December 31, 2017, the Company’s only remaining non-controlling interest relates to Spero Gyrase, Inc., which totaled $0.4 million.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

License Agreements

The Company has entered into license agreements with various parties under which it is obligated to make contingent and non-contingent payments (see Note 11).

Operating Leases

In August 2015, the Company entered into an operating lease agreement with U.S. REIF Central Plaza Massachusetts, LLC (the “Landlord”) with respect to its corporate headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts (the “Original Lease”).The term of the Original Lease commenced in January 2016 and was scheduled to expire in December 2020. The Original Lease required annual payments of $0.4 million over the initial five-year term. The Original Lease provided for a renewal option to extend its term for an additional five years. Under the terms of the Original Lease, the Company provided a security deposit of $0.2 million to the Landlord, which is included in long-term assets in the accompanying consolidated balance sheets. The Original Lease provided for annual rent escalations as well as tenant incentives in the amount of $0.7 million, of which $0.3 million would be reimbursed to the Landlord over the initial term of the Original Lease.

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

On January 17, 2018, the Company entered into an amendment (the “Amendment”) to the Original Lease. The Amendment makes certain changes to the Original Lease, including (i) the addition of approximately 7,800 square feet of office space in the same building (the “Expansion Premises”) and (ii) an extension of the expiration date of the Original Lease to seven years following the delivery date of the Expansion Premises (the “Lease Term”), which is estimated to be December 1, 2018.

Under the Amendment, the Company has two consecutive options to extend the Lease Term for an additional period of five years (the “Option Terms”), subject to certain conditions, upon notice to the Landlord. The Amendment provides for annual base rent for the Expansion Premises of approximately $0.5 million in the first year of the Lease Term, which increases on an annual basis to approximately $0.6 million in the final year of the Lease Term, and annual base rent during the Option Terms to be calculated based on the Landlord’s good faith determination of 100% of the fair market rate for such Option Terms. The Company is also obligated to pay the Landlord certain costs, taxes and operating expenses, subject to certain exclusions.The Amendment also includes a provision from the landlord of $0.4 million for leasehold improvements on the Expansion Premises.

Rent escalations and tenant incentives for operating leases are included in deferred rent in the consolidated balance sheet, and rent expense is recognized on a straight-line basis over the terms of occupancy.

The following table summarizes the future minimum payments due under the operating leases as of September 30, 2018 (in thousands):

Years Ending December 31,
2018 (remainder)	$	248
2019		1,323
2020		1,016
2021		957
2022		1,076
Thereafter		2,200
	$	6,820

Rent expense during the three months ended September 30, 2018 and 2017 was $0.2 million. Rent expense during the nine months ended September 30, 2018 and 2017 was $0.6 million.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2018 or December 31, 2017.

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

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Government Contracts

9 Months Ended

Sep. 30, 2018

Contractors [Abstract]

Government Contracts

10. Government Contracts

BARDA

In July 2018, the Company was awarded a contract from Biomedical Advanced Research and Development Authority (“BARDA”) of up to $44.2 million to develop SPR994 for the treatment of complicated urinary tract infections (“cUTIs”) caused by antibiotic resistant Gram-negative bacteria and for assessment against biodefense pathogens. The award commits initial funding of $15.7 million over a three-year base period from July 1, 2018 to June 30, 2021 for cUTI development activities. The balance of the award is subject to BARDA exercising two options. The exercise of the first option would entail funding of $13.6 million and is exercisable by BARDA subject to the Company achieving specified milestones related to, among other things, clinical progress and data. The exercise of the second option would entail funding of $14.9 million and is exercisable by BARDA subject to, among other things, satisfactory progress and results from the biodefense studies described below. The Company recognized $0.2 million of revenue under this award during the three and nine months ended September 30, 2018.

As part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency (“DTRA”), a series of studies to assess the efficacy of SPR994 in the treatment of infections caused by biodefense threats such as anthrax, plague and melioidosis will be conducted by the U.S. Army Medical Research Institute of Infectious Diseases (“USAMRIID”) under the direction of Spero. Because the FDA requires data from a human pneumonic disease as supportive of use of an antibiotic to treat a biothreat infection, the scope of the BARDA award includes the assessment of SPR994 levels in the lung of healthy volunteers as well as a proof of concept clinical trial in pneumonia patients, an indication for which tebipenem, SPR994's active pharmaceutical ingredient, is currently approved in Japan for pediatric use.

U.S. Department of Defense

In September 2016, the Company was awarded a cooperative agreement with the DoD to further develop anti-infective agents to combat Gram-negative bacteria. The agreement is structured as a single, two-year $1.5 million award. The Company is eligible for the full funding from the DoD, and there are no options to be exercised at a later date. The DoD funding supports next-generation potentiator discovery and screening of SPR741 partners. The Company recognizes revenue under this agreement as qualifying expenses are incurred. The Company recognized less than $0.1 million and $0.2 million of revenue under this agreement during the three and nine months ended September 30, 2018, respectively, and $0.1 million and $0.4 million during the three and nine months ended September 30, 2017, respectively.

NIAID

In February 2017, the Company was awarded a grant from NIAID under its Small Business Innovation Research program, to conduct additional preclinical studies of SPR720, the Company’s novel oral bacterial gyrase inhibitor, for the treatment of non-tuberculous mycobacterial infections. The award is structured as a 12-month $0.6 million base period and a $0.4 million option period. Through December 31, 2017, only the base period funds had been committed.In February 2018, NIAID exercised the $0.4 million 12-month option period. The Company recognized less than $0.1 million and $0.3 million of revenue under this agreement during the three and nine months ended September 30, 2018. The Company recognized $0.1 million of revenue in the three and nine months ended September 30, 2017 under this agreement.

In June 2016, the Company entered into agreements with Pro Bono Bio PLC (“PBB”), a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited and Cantab Anti-Infectives Limited (“CAI”), in order to acquire certain intellectual property and government funding arrangements relating to SPR206 (see Note 11). Under these agreements, CAI agreed to submit a request to NIAID to assign the CAI-held NIAID contract to Spero, which was finalized in December 2017. The NIAID contract provides for total development funding of up to $6.3 million, including a base period and three option periods. To date, funding for the base period and the first two option periods totaling $5.7 million have been committed. Spero shall pay PBB a percentage of funds received from NIAID up to a maximum of $1.3 million, of which $0.3 million was paid upfront to PBB as part of this agreement. The Company recognized $0.4 million and $1.1 million of revenue under this agreement during the three and nine months ended September 30, 2018. During the three and nine months ended September 30, 2018, the Company recorded approximately $0.1 million and $0.4 million, respectively, in expense associated with amounts payable to PBB under this agreement, which has been included within research and development expenses within the consolidated statement of operations and comprehensive loss. 

CARB-X

In April 2017, the Company was awarded a grant from CARB-X, a public-private partnership funded by BARDA within the U.S. Department of Health and Human Services to be used to screen, identify and complete Phase 1 trials with at least one partner compound for SPR741, one of the Company’s Potentiator Platform product candidates. The award committed to funding of $1.5 million over a 12-month period. On March 12, 2018, CARB-X committed an additional $0.4 million related to the first option for a period from December 1, 2017 to March 31, 2018. There will be no additional options exercised under the CARB-X award. The Company recognized zero and $0.5 million of revenue during the three and nine months ended September 30, 2018, respectively, under this agreement. The Company recognized $0.4 million and $0.5 million of revenue during the three and nine months ended September 30, 2017, respectively, under this agreement.

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Collaboration and License Agreements

9 Months Ended

Sep. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Collaboration and License Agreements

11. Collaboration and License Agreements

The Company has certain obligations under license agreements with third parties that include annual maintenance fees and payments that are contingent upon achieving various development, regulatory and commercial milestones. Pursuant to these license agreements, the Company is required to make milestone payments if certain development, regulatory and commercial milestones are achieved, and may have certain additional research funding obligations. Also, pursuant to the terms of each of these license agreements, when and if commercial sales of a product commence, the Company will pay royalties to its licensors on net sales of the respective products.

Aviragen Agreement

Under the Company’s agreement with Aviragen (see Note 8) for certain intellectual property and know-how relating to developing a gyrase inhibitor to develop therapies for Gram-negative infections, the Company is obligated to make milestone payments of up to an aggregate of $12.0million upon the achievement of specified clinical, regulatory and commercial milestones and to pay royalties of low single-digit percentages based on net sales of products the Company acquired under the agreement.

Cantab License Agreement

Under the Cantab Agreements (see Note 8), the Company is obligated to make milestone payments of up to $5.8 million upon the achievement of specified clinical and regulatory milestones and a payment of £5.0 million ($6.5 million and $6.7 million as of September 30, 2018 and December 31, 2017, respectively) upon the achievement of a specified commercial milestone. In addition, the Company has agreed to pay to PBB royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.

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

Vertex License Agreement

In May 2016, the Company entered into an agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) whereby Vertex granted the Company certain know-how and a sublicense to research, develop, manufacture and sell products for a proprietary compound, as well as a transfer of materials. In exchange for the know-how, sublicense and materials, Spero paid Vertex an upfront, one-time, nonrefundable, non-creditable fee of $0.5 million, which was recognized as research and development expense. As part of the agreement, the Company is obligated to make future milestone payments of up to $81.1 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay Vertex tiered royalties, on a product-by-product and country-by-country basis, of a mid single-digit to low double-digit percentage based on net sales of products licensed under the agreement.

The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment obligations continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the date of expiration in such country of the last to expire applicable patent. Further, Vertex has the right to terminate the agreement if provided with notification from the Company of intent to cease all development or if no material development or commercialization efforts occur for one year.

Meiji License Agreement

In June 2017, the Company entered into agreements with Meiji Seika Pharma Co. Ltd. (“Meiji”), a Japanese corporation, whereby Meiji granted to the Company certain know-how and a license to research, develop, manufacture and sell products for a proprietary compound in the licensed territory. In exchange for the know-how and license, the Company paid Meiji an upfront, one-time, nonrefundable, non-creditable fee of $0.6 million, which was recognized as research and development expense. As part of the agreement, the Company is obligated to make milestone payments of up to $3.0 million upon the achievement of specified clinical and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement and to pay Meiji a low double-digit percentage of any sublicense fees received by the Company up to $7.5 million. In October 2017, the Company paid a $1.0 million milestone payment to Meiji upon the enrollment of the first patient in the Company’s Phase 1 clinical trial of SPR994. The payment was recorded as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2017. Additionally, the Company will pay Meiji approximately $1.6 million during the fourth quarter of 2018 related to fixed assets which will be used in manufacturing related activities at Meiji. This equipment has been capitalized as property and equipment in the consolidated balance sheet as of September 30, 2018.

The agreement continues in effect until the expiration of all payment obligations thereunder (including royalty payments and licensee revenue) on a product-by-product and country-by-country basis, unless earlier terminated by the parties. Pursuant to the terms of the agreement, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured within a specified period after receipt of notice) or insolvency, the Company also has unilateral termination rights (i) in the event that the Company abandons the development and commercialization of SPR994 for efficacy, safety, legal or business factors, and (ii) under certain circumstances arising out of the head license with a global pharmaceutical company.

Northern License Agreement

In June 2017, in connection with the repurchase of all of the outstanding shares of Spero Potentiator (see Note 8), the Company amended its license agreement with Northern such that the Company agreed to pay Northern up to $7.0 million upon the achievement of specified clinical, regulatory and other milestones, including a total payment of $2.5 million upon the closing of an initial public offering. In addition, under an exchange agreement the Company entered into with Northern, the Company is obligated to make a payment to Northern of $0.1 million upon the closing of an initial public offering. The agreement has a perpetual term and no express termination rights. Upon the closing of the Company’s IPO in November 2017, the Company paid $2.6 million to Northern in connection with both the license and exchange agreements. This payment was recorded as research and development expense in the Company’s statement of operations and comprehensive loss for the year ended December 31, 2017.

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Australia Research and Development Tax Incentive

9 Months Ended

Sep. 30, 2018

Research And Development [Abstract]

Australia Research and Development Tax Incentive

12. Australia Research and Development Tax Incentive

The Australian government has established a research and development tax incentive to encourage industry investment in research and development, which is available to companies incorporated under Australian law that have core research and development activities. In September 2016, the Company established Spero Potentiator Australia Pty Limited to carry out certain research and development activities. As this subsidiary meets the eligibility requirements of the Australian tax law, it is eligible to receive a 43.5% tax incentive for qualified research and development activities. The Company recorded $0.3 million and$0.7 million as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss during both the three and nine months ended September 30, 2018, respectively, associated with this tax incentive, representing 43.5% of the Company’s qualified research and development spending in Australia. The Company recorded $0.1 million and $0.8 million as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss associated with this tax incentive during the three and nine months ended September 30, 2017, respectively. The tax incentive refund is denominated in Australian dollars and, therefore, the associated tax incentive receivable is re-measured to U.S. dollars as of each reporting date. The Company’s tax incentive receivables from the Australian government totaled $0.7 million as of September 30, 2018 and $1.9 million as of December 31, 2017.      

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Net Loss per Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Net Loss per Share

13. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. was calculated as follows (in thousands, except share and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Numerator:
Net loss	$	(10,463	)	$	(9,844	)	$	(31,063	)	$	(26,018	)
Less: Net loss attributable to non-controlling interests		—			(8	)		—			(1,137	)
Plus: Cumulative dividends on redeemable convertible preferred shares		—			(2,052	)		—			(5,313	)
Plus: Accretion of bridge units and redeemable convertible preferred shares to redemption value		—			(188	)		—			(1,133	)
Net loss attributable to common stockholders of Spero Therapeutics, Inc.	$	(10,463	)	$	(12,076	)	$	(31,063	)	$	(31,327	)
Denominator:
Weighted average common shares outstanding, basic and diluted		17,471,462			335,285			15,417,087			333,402
Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted	$	(0.60	)	$	(36.02	)	$	(2.01	)	$	(93.96	)

The Company excluded potentially dilutive securities from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Options to purchase common stock		2,186,378		1,541,474		2,186,378		1,541,474
Series A Convertible Preferred Stock (as converted to common shares)		2,220,000		—		2,220,000		—
Redeemable convertible preferred shares (as converted to common shares)		—		8,062,403		—		8,062,403
		4,406,378		9,603,877		4,406,378		9,603,877

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

14.Subsequent Events

The Company has evaluated, for potential recognition and disclosure, events that occurred prior to the date at which the condensed consolidated financial statements were available to be issued. There were no material subsequent events.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Interim Financial Information

Interim Financial Information

The consolidated balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, 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, 2017, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, on file with SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2018, and results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017 have been made. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.

Use of Estimates

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 research and development expenses, the valuation of common shares prior to the Company’s completion of its IPO, the valuation of share-based awards and the valuation of derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. 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.

Cash Equivalents

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.

Marketable Securities

Marketable Securities

Marketable securities consist of investments with original maturities greater than 90 days. The Company considers its investment 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 judged to be other than temporary are included as a component of other income (expense), net based on the specific identification method. When determining whether a decline in value is other than temporary, the Company considers various factors, including whether the Company has the intent to sell the security, and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis.

Fair Value Measurements

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 and derivative liabilities 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.

Derivative Liabilities

Derivative Liabilities

In connection with certain equity financings, licensing transactions and research collaborations, the Company has identified certain embedded and freestanding derivatives, which are recorded as liabilities on the Company’s consolidated balance sheet and are remeasured to fair value at each reporting date until the derivative is settled. Changes in the fair value of the derivative liabilities are recognized as other income (expense) in the consolidated statement of operations and comprehensive loss.

Net Income (Loss) per Share Attributable to Spero Therapeutics, Inc.

Net Income (Loss) per Share Attributable to Spero Therapeutics, Inc.

The Company follows the two-class method when computing net income (loss) per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Net income (loss) per share attributable to common stockholders is calculated based on net income (loss) attributable to Spero Therapeutics, Inc. and excludes net income (loss) attributable to non-controlling interests.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The Company’s preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders of Spero Therapeutics, Inc., diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same as basic net loss per share attributable to common stockholders of Spero Therapeutics, Inc., since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders of Spero Therapeutics, Inc. for the three and nine months ended September 30, 2018 and 2017.

Recently Issued and Adopted Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard outlines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 such that the standard is effective for public entities for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”), which further clarifies the implementation guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments in this update reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments in this update also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in ASU 2014-09 is retrospectively applied. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective dates and transition requirements as ASU 2014-09. The Company adopted this standard using the modified retrospective approach, however the Company determined that government grant revenue is outside the scope of ASC 606. Therefore, the adoption of ASC 606 did not impact the Company’s financial position, results of operations or cash flows as its only existing revenue source as of September 30, 2018 is government grants.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years, and early adoption is permitted. The FASB subsequently issued amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019: (i) ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02; and (ii) ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component. The Company is in the process of reviewing its existing lease contracts and evaluating the impact that these adoption of these new leasing standards may have on its consolidated statements of operations. The Company expects that the adoption of the new leasing standards will result in the recognition of material ROU assets and liabilities in its consolidated balance sheets. The Company does not expect the adoption of the new leasing standards will have a material impact to its consolidated statement of operations. The Company will adopt the new leasing standards using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company’s adoption of ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. The adoption of ASU 2016-18 did not have a material impact on the Company’s consolidated financial statements. The inclusion of restricted cash increased the beginning and ending balances of the unaudited condensed consolidated statement of cash flows by $50,000 for the nine months ended September 30, 2017.

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2017-01 did not materially impact the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2017-09 did not materially impact the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable non-controlling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The amendments in the new guidance are effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, including in interim periods, but no earlier than an entity’s adoption of ASC 606. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

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Fair Value Measurements and Marketable Securities (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Summary of Financial Assets and Liabilities Measured at Fair Value Recurring Basis

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements at September 30, 2018 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	29,896	$	—	$	29,896
U.S. government securities		—		5,994		—		5,994
Total cash equivalents		—		35,890		—		35,890
Marketable securities:
U.S. government securities		—		38,761		—		38,761
U.S. corporate bonds		—		35,594		—		35,594
U.S. commercial paper		—		16,390		—		16,390
Total marketable securities		—		90,745		—		90,745
Total cash equivalents and marketable securities	$	—	$	126,635	$	—	$	126,635
Derivative liabilities:
Anti-dilution rights	$	—	$	—	$	223	$	223
Total derivative liabilities	$	—	$	—	$	223	$	223

	Fair Value Measurements at December 31, 2017 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	83,121	$	—	$	83,121
	$	—	$	83,121	$	—	$	83,121
Derivative liabilities:
Anti-dilution rights	$	—	$	—	$	223	$	223
	$	—	$	—	$	223	$	223

Summary of Gross Unrealized Gains and Losses of Marketable Securities

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of September 30, 2018 (in thousands):

	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Assets:
U.S. government securities	$	38,771	$	1	$	(11	)	$	38,761
U.S. corporate bonds		35,607		1		(14	)		35,594
U.S. commercial paper		16,390		—		—			16,390
	$	90,768	$	2	$	(25	)	$	90,745

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Accrued Expenses and Other Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2018

Payables And Accruals [Abstract]

Schedule of Accrued Expenses and Other Current Liabilities

	September 30, 2018		December 31, 2017
Accrued external research and development expenses	$	4,146	$	1,770
Accrued payroll and related expenses		1,622		1,369
Accrued professional fees		727		878
Accrued manufacturing equipment		1,559		—
Accrued other		510		304
	$	8,564	$	4,321

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Share-Based Compensation Expense

The Company recorded share-based compensation expense in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Research and development expenses	$	252	$	202	$	789	$	249
General and administrative expenses		453		729		1,191		805
Total	$	705	$	931	$	1,980	$	1,054

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Summary of Future Minimum Payments Due Under Operating Leases

The following table summarizes the future minimum payments due under the operating leases as of September 30, 2018 (in thousands):

Years Ending December 31,
2018 (remainder)	$	248
2019		1,323
2020		1,016
2021		957
2022		1,076
Thereafter		2,200
	$	6,820

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Net Loss per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Summary of Basic and Diluted Net Loss per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. was calculated as follows (in thousands, except share and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Numerator:
Net loss	$	(10,463	)	$	(9,844	)	$	(31,063	)	$	(26,018	)
Less: Net loss attributable to non-controlling interests		—			(8	)		—			(1,137	)
Plus: Cumulative dividends on redeemable convertible preferred shares		—			(2,052	)		—			(5,313	)
Plus: Accretion of bridge units and redeemable convertible preferred shares to redemption value		—			(188	)		—			(1,133	)
Net loss attributable to common stockholders of Spero Therapeutics, Inc.	$	(10,463	)	$	(12,076	)	$	(31,063	)	$	(31,327	)
Denominator:
Weighted average common shares outstanding, basic and diluted		17,471,462			335,285			15,417,087			333,402
Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted	$	(0.60	)	$	(36.02	)	$	(2.01	)	$	(93.96	)

Summary of Shares Excluded From the Computation of Diluted Net Loss Per Share Attributable to Common Stockholders

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Options to purchase common stock		2,186,378		1,541,474		2,186,378		1,541,474
Series A Convertible Preferred Stock (as converted to common shares)		2,220,000		—		2,220,000		—
Redeemable convertible preferred shares (as converted to common shares)		—		8,062,403		—		8,062,403
		4,406,378		9,603,877		4,406,378		9,603,877

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Nature of the Business and Basis of Presentation - Additional Information (Detail) $ / shares in Units, $ in Thousands					1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 17, 2018 USD ($) $ / shares shares	Nov. 14, 2017 USD ($) $ / shares shares	Nov. 06, 2017 USD ($) $ / shares shares	Oct. 20, 2017	Nov. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) shares	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) shares	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Nature Of Business And Basis Of Presentation [Line Items]
Entity incorporation month and year								2013-12
State of incorporation								Delaware
Merger date								Jun. 30, 2017
Business combination exchange ratio								1
Net loss						$ 10,463	$ 9,836	$ 31,063	$ 24,881	$ 38,700	$ 25,500
Accumulated deficit						$ 127,903		$ 127,903		$ 96,840
Underwritten Public Offering [Member]
Nature Of Business And Basis Of Presentation [Line Items]
Net proceeds from issuance of common stock	$ 70,500
Offering expenses payable	$ 1,000
Underwritten Public Offering [Member] | Series A Convertible Preferred Stock [Member]
Nature Of Business And Basis Of Presentation [Line Items]
Issuance of stock, shares | shares	2,220
Share price | $ / shares	$ 12,500
Convertible preferred stock, description	Each share of Series A Convertible Preferred Stock sold in the offering is convertible into 1,000 shares of the Company’s common stock.
Number of shares issuable upon conversion | shares	1,000					1,000		1,000
Common Stock [Member]
Nature Of Business And Basis Of Presentation [Line Items]
Reverse stock split ratio				0.164544
Reverse stock split				One-for-6.0774
Net proceeds from issuance of common stock		$ 6,100	$ 71,600		$ 74,200
Common Stock [Member] | Initial Public Offering [Member]
Nature Of Business And Basis Of Presentation [Line Items]
Issuance of stock, shares | shares		471,498	5,500,000
Share price | $ / shares		$ 14.00	$ 14.00
Common Stock [Member] | Underwritten Public Offering [Member]
Nature Of Business And Basis Of Presentation [Line Items]
Issuance of stock, shares | shares	3,780,000
Share price | $ / shares	$ 12.50

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Summary of Significant Accounting Policies - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Summary Of Significant Accounting Policies [Line Items]
Cash, cash equivalents increased due to inclusion	$ (46,858,000)	$ 15,058,000
Accounting Standards Update 2016-18 [Member]
Summary Of Significant Accounting Policies [Line Items]
Cash, cash equivalents increased due to inclusion		$ 50,000

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Fair Value Measurements and Marketable Securities - Summary of Financial Assets and Liabilities Measured at Fair Value Recurring Basis (Detail) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Cash equivalents:
Total cash equivalents	$ 35,890
Marketable securities:
Total marketable securities	90,745
Total cash equivalents and marketable securities	126,635	$ 83,121
Derivative liabilities:
Derivative liabilities	223	223
Anti- dilution Rights [Member]
Derivative liabilities:
Derivative liabilities	223	223
Money Market Funds [Member]
Cash equivalents:
Total cash equivalents	29,896	83,121
U.S. Government Securities [Member]
Cash equivalents:
Total cash equivalents	5,994
Marketable securities:
Total marketable securities	38,761
U.S. Corporate Bonds [Member]
Marketable securities:
Total marketable securities	35,594
U.S. Commercial Paper [Member]
Marketable securities:
Total marketable securities	16,390
Level 2 [Member]
Cash equivalents:
Total cash equivalents	35,890
Marketable securities:
Total marketable securities	90,745
Total cash equivalents and marketable securities	126,635	83,121
Level 2 [Member] | Money Market Funds [Member]
Cash equivalents:
Total cash equivalents	29,896	83,121
Level 2 [Member] | U.S. Government Securities [Member]
Cash equivalents:
Total cash equivalents	5,994
Marketable securities:
Total marketable securities	38,761
Level 2 [Member] | U.S. Corporate Bonds [Member]
Marketable securities:
Total marketable securities	35,594
Level 2 [Member] | U.S. Commercial Paper [Member]
Marketable securities:
Total marketable securities	16,390
Level 3 [Member]
Derivative liabilities:
Derivative liabilities	223	223
Level 3 [Member] | Anti- dilution Rights [Member]
Derivative liabilities:
Derivative liabilities	$ 223	$ 223

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Fair Value Measurements and Marketable Securities - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value assets level 1 to level 2 transfers	$ 0	$ 0		$ 0	$ 0
Fair value assets level 2 to level 1 transfers	0	0		0	0
Fair value liabilities level 1 to level 2 transfers	0	0		0	0
Fair value liabilities level 2 to level 1 transfers	0	0		0	0
Transfer of financial asset into level 3 of fair value	0	0		0	0
Transfer of financial liabilities into level 3 of fair value	0	$ 0		0	$ 0
Spero Gyrase, Inc. [Member] | Anti- dilution Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liabilities	$ 200,000		$ 200,000	$ 200,000		$ 200,000		$ 1,600,000
Fair value inputs probability of funding						0.00%	100.00%
Decrease in derivative liability			$ 1,400,000

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Fair Value Measurements and Marketable Securities - Summary of Gross Unrealized Gains and Losses of Marketable Securities (Detail) $ in Thousands	Sep. 30, 2018 USD ($)
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 90,768
Gross Unrealized Gains	2
Gross Unrealized Losses	(25)
Fair Value	90,745
U.S. Government Securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	38,771
Gross Unrealized Gains	1
Gross Unrealized Losses	(11)
Fair Value	38,761
U.S. Corporate Bonds [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	35,607
Gross Unrealized Gains	1
Gross Unrealized Losses	(14)
Fair Value	35,594
U.S. Commercial Paper [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	16,390
Fair Value	$ 16,390

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Accrued Expenses and Other Current Liabilities - Schedule of Accrued Expenses and Other Current Liabilities (Detail) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Payables And Accruals [Abstract]
Accrued external research and development expenses	$ 4,146	$ 1,770
Accrued payroll and related expenses	1,622	1,369
Accrued professional fees	727	878
Accrued manufacturing equipment	1,559
Accrued other	510	304
Accrued expenses and other current liabilities	$ 8,564	$ 4,321

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Convertible Preferred Shares - Additional Information (Detail)				1 Months Ended		9 Months Ended		12 Months Ended
	Jul. 17, 2018 USD ($) $ / shares shares	Oct. 20, 2017	Jun. 30, 2017 $ / shares shares	Jul. 31, 2017 USD ($) $ / shares shares	Mar. 31, 2017 USD ($) $ / shares shares	Sep. 30, 2018 $ / shares shares	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($) $ / shares shares	Dec. 31, 2017 $ / shares shares
Class Of Stock [Line Items]
Preferred stock, shares authorized | shares						10,000,000			10,000,000
Preferred stock, par value | $ / shares						$ 0.001			$ 0.001
Share conversion ratio			1
Conversion of bridge units in to preferred units							$ 8,500,000
Common Stock [Member]
Class Of Stock [Line Items]
Reverse stock split ratio		0.164544
Reverse stock split		One-for-6.0774
Redeemable Convertible Preferred Shares [Member]
Class Of Stock [Line Items]
Redeemable convertible shares, authorized | shares			43,297,267
Redeemable convertible shares, par value | $ / shares			$ 0.001
Redeemable Convertible Preferred Shares [Member] | Class C Preferred Units [Member]
Class Of Stock [Line Items]
Redeemable convertible shares, par value | $ / shares					$ 1.7749
Redeemable convertible shares issued and sold | shares					24,326,470			5,321,112
Proceeds from issuance of preferred units, net of issuance costs					$ 43,000,000
Payment of offering costs					$ 200,000
Preferred units discount percentage								10.00%
Conversion of bridge units in to preferred units								$ 8,500,000
Conversion price of redeemable preferred share | $ / shares								$ 1.60
Convertible debt fair value disclosures								$ 9,400,000
Liability fair value adjustment								8,500,000
Redeemable issuer option value								900,000
Gain on extinguishment								$ 0
Redeemable Convertible Preferred Shares [Member] | Class C Preferred Units [Member] | Chief Financial Officer [Member]
Class Of Stock [Line Items]
Redeemable convertible shares, par value | $ / shares				$ 1.7749
Redeemable convertible shares issued and sold | shares				61,880
Proceeds from issuance of preferred units, net of issuance costs				$ 100,000
Underwritten Public Offering [Member]
Class Of Stock [Line Items]
Payment of offering costs	$ 1,000,000
Underwritten Public Offering [Member] | Common Stock [Member]
Class Of Stock [Line Items]
Issuance of stock, shares | shares	3,780,000
Share price | $ / shares	$ 12.50
Underwritten Public Offering [Member] | Series A Convertible Preferred Stock [Member]
Class Of Stock [Line Items]
Issuance of stock, shares | shares	2,220
Share price | $ / shares	$ 12,500
Number of shares issuable upon conversion | shares	1,000					1,000
Percentage of shares owned by share holders						9.99%
Preferred stock, liquidation per share | $ / shares						$ 0.001
Voting rights						no

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Common Stock - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions				1 Months Ended
	Jul. 17, 2018	Nov. 14, 2017	Nov. 06, 2017	Nov. 30, 2017
Underwritten Public Offering [Member]
Class Of Stock [Line Items]
Net proceeds from issuance of common stock	$ 70.5
Offering expenses payable	$ 1.0
Series A Convertible Preferred Stock [Member] | Underwritten Public Offering [Member]
Class Of Stock [Line Items]
Issuance of stock, shares	2,220
Share price	$ 12,500
Common Stock [Member]
Class Of Stock [Line Items]
Net proceeds from issuance of common stock		$ 6.1	$ 71.6	$ 74.2
Common Stock [Member] | Underwritten Public Offering [Member]
Class Of Stock [Line Items]
Issuance of stock, shares	3,780,000
Share price	$ 12.50

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Share-Based Compensation - Additional Information (Detail) - 2017 Plan [Member] - shares		9 Months Ended
	Jun. 28, 2017	Sep. 30, 2018	Oct. 18, 2017	Oct. 17, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance		1,785,416	2,696,401	1,785,416
Number of shares to be incremented		607,324
Percentage of outstanding shares of common stock to be incremented		4.00%
Options granted		322,730
Options outstanding		2,186,378
Common stock available for issuance		476,711
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price per share of stock options as a percentage of fair market value of share of common stock		100.00%
Options vesting period	10 years

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Share-Based Compensation - Summary of Share-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 705	$ 931	$ 1,980	$ 1,054
Research and Development Expenses [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	252	202	789	249
General and Administrative Expenses [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 453	$ 729	$ 1,191	$ 805

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Non-Controlling Interests - Spero Potentiator - Additional Information (Detail) - USD ($)	1 Months Ended
	Jun. 30, 2017	Aug. 31, 2016	Jan. 31, 2016	Nov. 30, 2015	Feb. 28, 2015	Sep. 30, 2018	Dec. 31, 2017
Noncontrolling Interest [Line Items]
Non-controlling interest						$ 355,000	$ 355,000
Spero Potentiator, Inc. [Member]
Noncontrolling Interest [Line Items]
Common stock shares issued		2,160	2,160	2,736
Proceeds from the issuance of common stock, net of issuance costs		$ 0	$ 0	$ 0
Non-controlling interest						$ 0
Spero Potentiator, Inc. [Member] | Anti- dilution Rights [Member]
Noncontrolling Interest [Line Items]
Fair value of derivative liability					$ 2,400,000
Spero Potentiator, Inc. [Member] | Northern Antibiotics Oy Ltd. [Member]
Noncontrolling Interest [Line Items]
Common stock shares issued					996
Common stock issued, aggregate fair value					$ 1,100,000
Increase in non-controlling interest and reduction of derivative liability		$ 1,000,000	$ 1,000,000	$ 1,500,000
Cash payment for repurchase of shares	$ 1,000,000
Contingent consideration	100,000
Milestone payments	7,000,000
Cash payment for repurchase of shares	2,500,000
Non-controlling interest	6,400,000
Increase to accumulated deficit	$ 1,000,000
Spero Potentiator, Inc. [Member] | Northern Antibiotics Oy Ltd. [Member] | Anti- dilution Rights [Member]
Noncontrolling Interest [Line Items]
Ownership percentage					49.90%
Proceeds from the issuance of common stock, net of issuance costs					$ 0

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Non-Controlling Interests - Spero Europe - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Jan. 31, 2016	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	May 31, 2017
Noncontrolling Interest [Line Items]
Research and development expense		$ 8,459,000	$ 6,910,000	$ 24,758,000	$ 20,366,000
Non-controlling interest		355,000		355,000		$ 355,000
Spero Europe, Ltd. [Member]
Noncontrolling Interest [Line Items]
Termination of agreement notice period	30 days
Non-controlling interest		$ 0		$ 0
Spero Europe, Ltd. [Member] | Maximum [Member]
Noncontrolling Interest [Line Items]
Non-controlling interest							$ 100,000
Spero Europe, Ltd. [Member] | Licensing Agreements [Member] | Anti- dilution Rights [Member]
Noncontrolling Interest [Line Items]
Research and development expense	$ 200,000
Spero Europe, Ltd. [Member] | Promiliad Biopharma, Inc. [Member]
Noncontrolling Interest [Line Items]
Ownership percentage	5.00%
Common stock issued, aggregate fair value	$ 100,000
Milestone payments	4,100,000
Proceeds from the issuance of common stock, net of issuance costs	0
Maximum amounts of investments for anti-dilution protection	$ 5,000,000
Spero Europe, Ltd. [Member] | Promiliad Biopharma, Inc. [Member] | Anti- dilution Rights [Member]
Noncontrolling Interest [Line Items]
Ownership percentage	5.00%
Spero Europe, Ltd. [Member] | Promiliad Biopharma, Inc. [Member] | Licensing Agreements [Member]
Noncontrolling Interest [Line Items]
Research and development expense	$ 100,000

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Non-Controlling Interests - Spero Gyrase - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Noncontrolling Interest [Line Items]
Research and development expense		$ 8,459,000	$ 6,910,000	$ 24,758,000	$ 20,366,000
Spero Gyrase, Inc. [Member] | Anti- dilution Rights [Member] | Research and Development Expenses [Member]
Noncontrolling Interest [Line Items]
Fair value of derivative liability	$ 1,600,000
Spero Gyrase, Inc. [Member] | Aviragen Therapeutics, Inc. [Member]
Noncontrolling Interest [Line Items]
Common stock shares issued	200
Common stock issued, aggregate fair value	$ 1,100,000
Ownership percentage	20.00%
Spero Gyrase, Inc. [Member] | Aviragen Therapeutics, Inc. [Member] | Anti- dilution Rights [Member]
Noncontrolling Interest [Line Items]
Ownership percentage	20.00%
Proceeds from the issuance of common stock, net of issuance costs	$ 0
Spero Gyrase, Inc. [Member] | Aviragen Therapeutics, Inc. [Member] | Anti- dilution Rights [Member] | Maximum [Member]
Noncontrolling Interest [Line Items]
Gross proceeds from equity financings	8,000,000
Spero Gyrase, Inc. [Member] | Aviragen Therapeutics, Inc. [Member] | Technology-Based Intangible Assets [Member]
Noncontrolling Interest [Line Items]
Research and development expense	$ 1,100,000

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Non-Controlling Interests - Spero Cantab - Additional Information (Detail)	1 Months Ended			3 Months Ended		9 Months Ended		12 Months Ended	28 Months Ended
	Dec. 31, 2017 USD ($)	Jul. 31, 2017 USD ($)	Jun. 30, 2016 USD ($) Option shares	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2018 USD ($) Option
Noncontrolling Interest [Line Items]
Research and development expense				$ 8,459,000	$ 6,910,000	$ 24,758,000	$ 20,366,000
Non-controlling interest	$ 355,000			355,000		355,000		$ 355,000	$ 355,000
Spero Cantab [Member]
Noncontrolling Interest [Line Items]
Non-controlling interest				0		0			0
Spero Cantab [Member] | Cantab Agreements [Member]
Noncontrolling Interest [Line Items]
Common stock shares issued | shares			125
Ownership percentage			12.50%
Common stock issued, aggregate fair value			$ 1,600,000
Upfront consideration			300,000
Non-controlling interest			1,600,000
Cash payment for repurchase of shares		$ 200,000
Spero Cantab [Member] | Cantab Agreements [Member] | Contingent Milestone Payments [Member]
Noncontrolling Interest [Line Items]
Cash payment for repurchase of shares		$ 100,000
Spero Cantab [Member] | Cantab Anti Infectives Ltd. [Member] | Cantab Agreements [Member]
Noncontrolling Interest [Line Items]
Research and development expense			300,000
Spero Cantab [Member] | Cantab Anti Infectives Ltd. [Member] | Cantab Agreements [Member] | Niaid [Member]
Noncontrolling Interest [Line Items]
Maximum potential funding from government contract			$ 6,300,000
Number of option period for funding from government contract | Option			3
Maximum received fund	1,300,000							1,300,000
Spero Cantab [Member] | Cantab Anti Infectives Ltd. [Member] | Cantab Agreements [Member] | Niaid [Member] | First Option [Member]
Noncontrolling Interest [Line Items]
Committed amount from government contract to date									$ 5,700,000
Number of option period for funding from government contract committed to date | Option									2
Spero Cantab [Member] | New Pharma License Holding Limited [Member] | Cantab Agreements [Member]
Noncontrolling Interest [Line Items]
Research and development expense			$ 1,600,000
Spero Cantab [Member] | Pro Bono Bio PLC [Member] | Cantab Agreements [Member]
Noncontrolling Interest [Line Items]
Maximum amounts of investments for anti-dilution protection			$ 8,000,000
Spero Cantab [Member] | Pro Bono Bio PLC [Member] | Cantab Agreements [Member] | Minimum [Member]
Noncontrolling Interest [Line Items]
Ownership percentage			5.00%
Spero Cantab [Member] | Pro Bono Bio PLC [Member] | Cantab Agreements [Member] | Maximum [Member]
Noncontrolling Interest [Line Items]
Ownership percentage			12.50%
Spero Gyrase, Inc. [Member]
Noncontrolling Interest [Line Items]
Non-controlling interest	$ 400,000			$ 400,000		$ 400,000		$ 400,000	$ 400,000

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Commitments and Contingencies - Additional Information (Detail) $ in Millions		1 Months Ended		3 Months Ended		9 Months Ended
	Jan. 17, 2018 USD ($) ft² Option	Jul. 31, 2016 USD ($)	Aug. 31, 2015 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)
Other Commitments [Line Items]
Rent expense				$ 0.2	$ 0.2	$ 0.6	$ 0.6
Office Space [Member]
Other Commitments [Line Items]
Operating lease beginning date			2016-01
Operating lease expiration date			2020-12
Annual lease payments			$ 0.4
Term of lease			5 years
Lease renewal term			5 years
Security deposit			$ 0.2
Annual rent escalations and tenant incentives			0.7
Amount reimbursed			$ 0.3
Office Space [Member] | Lease Agreements [Member] | Cambridge, Massachusetts [Member] | U.S. REIF Central Plaza Massachusetts, LLC [Memebr]
Other Commitments [Line Items]
Term of lease	7 years
Lease renewal term	5 years
Lease expiration date	Dec. 01, 2018
Area of office space | ft²	7,800
Number of renewal options | Option	2
Operating lease, option to extend						the Company has two consecutive options to extend the Lease Term for an additional period of five years (the “Option Terms”), subject to certain conditions, upon notice to the Landlord.
Operating leases annual base rent initial	$ 0.5
Operating leases annual base rent final	$ 0.6
Operating lease percentage of annual base rent	100.00%
Leasehold improvements receivable from the landlord	$ 0.4
Laboratory Space [Member]
Other Commitments [Line Items]
Annual lease payments		$ 0.3
Lease expiration date						Nov. 30, 2019

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Commitments and Contingencies - Summary of Future Minimum Payments Due Under Operating Leases (Detail) $ in Thousands	Sep. 30, 2018 USD ($)
Operating Leases Future Minimum Payments Due [Abstract]
2018 (remainder)	$ 248
2019	1,323
2020	1,016
2021	957
2022	1,076
Thereafter	2,200
Total	$ 6,820

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Government Contracts - Additional Information (Detail)	1 Months Ended							3 Months Ended		9 Months Ended		12 Months Ended	28 Months Ended
	Jul. 31, 2018 USD ($) Option	Feb. 28, 2018 USD ($)	Dec. 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Feb. 28, 2017 USD ($)	Sep. 30, 2016 USD ($)	Jun. 30, 2016 USD ($) Option	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2018 USD ($) Option	Mar. 12, 2018 USD ($)
Government Contracts [Line Items]
Grant revenue								$ 658,000	$ 597,000	$ 2,274,000	$ 986,000
BARDA [Member]
Government Contracts [Line Items]
Potential contract amount awarded	$ 44,200,000
Option exercise | Option	2
BARDA [Member] | Base Period Contracts [Member]
Government Contracts [Line Items]
Potential amount initial funding awarded	$ 15,700,000
Contract term	3 years
BARDA [Member] | Grant [Member]
Government Contracts [Line Items]
Grant revenue								200,000		200,000
BARDA [Member] | First Option [Member]
Government Contracts [Line Items]
Potential grant amount awarded	$ 13,600,000
BARDA [Member] | Second Option [member]
Government Contracts [Line Items]
Potential grant amount awarded	$ 14,900,000
U.S. Department of Defense [Member]
Government Contracts [Line Items]
Contract term						2 years
Potential grant amount awarded						$ 1,500,000
U.S. Department of Defense [Member] | Grant [Member]
Government Contracts [Line Items]
Grant revenue									100,000	200,000	400,000
U.S. Department of Defense [Member] | Grant [Member] | Maximum [Member]
Government Contracts [Line Items]
Grant revenue								100,000
Niaid [Member]
Government Contracts [Line Items]
Contract term					12 months
Niaid [Member] | Spero Cantab [Member] | Cantab Anti Infectives Ltd. [Member] | Cantab Agreements [Member]
Government Contracts [Line Items]
Maximum potential funding from government contract							$ 6,300,000
Number of option period for funding from government contract | Option							3
Maximum received fund			$ 1,300,000									$ 1,300,000
Niaid [Member] | Spero Cantab [Member] | Pro Bono Bio PLC [Member] | Cantab Agreements [Member]
Government Contracts [Line Items]
Grant revenue								400,000		1,100,000
Amount paid upfront as part of agreement										300,000
Niaid [Member] | Spero Cantab [Member] | Pro Bono Bio PLC [Member] | Cantab Agreements [Member] | Research and Development Expenses [Member]
Government Contracts [Line Items]
Expense associated with amounts payable under agreement								100,000		400,000
Niaid [Member] | Base Period Contracts [Member]
Government Contracts [Line Items]
Potential grant amount awarded					$ 600,000
Niaid [Member] | Grant [Member]
Government Contracts [Line Items]
Grant revenue									100,000	300,000	100,000
Niaid [Member] | Grant [Member] | Maximum [Member]
Government Contracts [Line Items]
Grant revenue								100,000
Niaid [Member] | Option Period Contracts [Member]
Government Contracts [Line Items]
Contract term		12 months
Potential grant amount awarded					$ 400,000
Potential grant amount exercised		$ 400,000
Niaid [Member] | First Option [Member] | Spero Cantab [Member] | Cantab Anti Infectives Ltd. [Member] | Cantab Agreements [Member]
Government Contracts [Line Items]
Number of option period for funding from government contract | Option													2
Committed amount from government contract													$ 5,700,000
CARB-X [Member]
Government Contracts [Line Items]
Contract term				12 months
Potential grant amount awarded				$ 1,500,000
Potential grant amount exercised				$ 0
CARB-X [Member] | First Option [Member]
Government Contracts [Line Items]
Potential grant amount awarded														$ 400,000
CARB-X [Member] | Grant [Member]
Government Contracts [Line Items]
Grant revenue								$ 0	$ 400,000	$ 500,000	$ 500,000

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Collaboration and License Agreements - Additional Information (Detail) £ in Millions	1 Months Ended						3 Months Ended	9 Months Ended	12 Months Ended
	Nov. 30, 2017 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2016 GBP (£)	May 31, 2016 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)	Oct. 31, 2017 USD ($)
Aviragen Agreement [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential milestone payment upon achievement of specified clinical, regulatory and commercial milestones						$ 12,000,000
Cantab Related Agreements [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential milestone payment upon achievement of specified clinical and regulatory milestones			$ 5,800,000
Potential milestone payment upon achievement of specified commercial milestone				£ 5.0				$ 6,500,000	$ 6,700,000
Contract termination period			10 years	10 years
Vertex License Agreement [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Contract termination period								10 years
Nonrefundable upfront payments					$ 500,000
Potential milestone payment upon achievement of specified clinical, regulatory and commercial milestones					$ 81,100,000
Contract termination period if no material development or commercialization occurs								1 year
Meiji License Agreement [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential milestone payment upon achievement of specified clinical and regulatory milestones		$ 3,000,000
Nonrefundable upfront payments		600,000
Potential milestone payments upon achievement of specified condition										$ 1,000,000
Meiji License Agreement [Member] | Scenario Forecast [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
License agreement fixed assets related payments							$ 1,600,000
Meiji License Agreement [Member] | Maximum [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Sublicense fee payable to counter party		7,500,000
Northern License Agreement [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential milestone payment upon achievement of specified clinical, regulatory and other milestones		7,000,000
Potential milestone payment upon closing of initial public offering		2,500,000
Northern Exchange Agreement [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential milestone payment upon closing of initial public offering		$ 100,000
Northern License And Exchange Agreement [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential milestone payment upon closing of initial public offering	$ 2,600,000

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Australia Research and Development Tax Incentive - Additional Information (Detail) - Spero Potentiator Australia Pty Limited [Member] - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Australia [Member]
Schedule Of Income Tax [Line Items]
Tax incentive receivable	$ 0.7		$ 0.7		$ 1.9
Research and Development Expenses [Member]
Schedule Of Income Tax [Line Items]
Percentage of refundable tax incentive			43.50%
Reduction to research and development expenses	$ 0.3	$ 0.1	$ 0.7	$ 0.8

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Net Loss per Share - Summary of Basic and Diluted Net Loss per Share Attributable to Common Stockholders (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Numerator:
Net loss	$ (10,463)	$ (9,844)	$ (31,063)	$ (26,018)
Less: Net loss attributable to non-controlling interests		(8)		(1,137)
Plus: Cumulative dividends on redeemable convertible preferred shares		(2,052)		(5,313)
Plus: Accretion of bridge units and redeemable convertible preferred shares to redemption value		(188)		(1,133)
Net loss attributable to common stockholders of Spero Therapeutics, Inc.	$ (10,463)	$ (12,076)	$ (31,063)	$ (31,327)
Denominator:
Weighted average common shares outstanding, basic and diluted	17,471,462	335,285	15,417,087	333,402
Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted	$ (0.60)	$ (36.02)	$ (2.01)	$ (93.96)

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Net Loss per Share - Summary of Shares Excluded From the Computation of Diluted Net Loss Per Share Attributable to Common Stockholders (Detail) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	4,406,378	9,603,877	4,406,378	9,603,877
Options to Purchase Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,186,378	1,541,474	2,186,378	1,541,474
Series A Convertible Preferred Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,220,000		2,220,000
Redeemable Convertible Preferred Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		8,062,403		8,062,403