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, 2022
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission File Number: 001-38266
SPERO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
46-4590683 |
|
|
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
675 Massachusetts Avenue, 14th Floor Cambridge, Massachusetts |
02139 |
|
|
(Address of principal executive offices) |
(Zip Code) |
(857) 242-1600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, $0.001 par value per share |
SPRO |
The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
☒ |
|
|
|
|
Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 10, 2022, the registrant had 51,776,053 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:
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
i
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.
ii
Risk Factor Summary
We are providing the following summary of the risk factors contained in this Quarterly Report on Form 10-Q to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Quarterly Report on Form 10-Q in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:
iii
iv
Spero Therapeutics, Inc.
Table of Contents
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Page |
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PART I – FINANCIAL INFORMATION |
|
Item 1. |
|
6 |
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
6 |
|
|
7 |
|
|
|
8 |
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|
9 |
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|
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Notes to Unaudited Condensed Consolidated Financial Statements |
11 |
Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
Item 3. |
|
43 |
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Item 4. |
|
43 |
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PART II – OTHER INFORMATION |
|
Item 1. |
|
44 |
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Item 1A. |
|
44 |
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Item 2. |
|
83 |
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Item 3. |
|
83 |
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Item 4. |
|
83 |
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Item 5. |
|
83 |
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Item 6. |
|
84 |
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|
86 |
|||
v
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
SPERO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
50,446 |
|
|
$ |
112,584 |
|
Marketable securities |
|
|
— |
|
|
|
33,818 |
|
Other receivables |
|
|
914 |
|
|
|
2,280 |
|
Tax incentive receivable, current |
|
|
39 |
|
|
|
361 |
|
Prepaid expenses and other current assets |
|
|
1,488 |
|
|
|
8,829 |
|
Total current assets |
|
|
52,887 |
|
|
|
157,872 |
|
Property and equipment, net |
|
|
494 |
|
|
|
1,026 |
|
Operating lease right of use assets |
|
|
5,356 |
|
|
|
6,530 |
|
Other assets |
|
|
5,739 |
|
|
|
5,644 |
|
Total assets |
|
$ |
64,476 |
|
|
$ |
171,072 |
|
|
|
|
|
|
|
|
||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
|
2,582 |
|
|
|
1,101 |
|
Accrued expenses and other current liabilities |
|
|
8,093 |
|
|
|
14,350 |
|
Operating lease liabilities |
|
|
1,683 |
|
|
|
1,362 |
|
Deferred revenue, current |
|
|
3,726 |
|
|
|
1,857 |
|
Derivative liability, current |
|
|
141 |
|
|
|
— |
|
Total current liabilities |
|
|
16,225 |
|
|
|
18,670 |
|
Liability related to the sale of future royalties, non-current |
|
|
— |
|
|
|
48,414 |
|
Non-current operating lease liabilities |
|
|
5,218 |
|
|
|
5,973 |
|
Deferred revenue, non-current |
|
|
10,442 |
|
|
|
8,786 |
|
Derivative liability, non-current |
|
|
— |
|
|
|
802 |
|
Other long-term liabilities |
|
|
107 |
|
|
|
138 |
|
Total liabilities |
|
|
31,992 |
|
|
|
82,783 |
|
(Note 7) |
|
|
|
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
||
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and 3,218,152 shares issued and outstanding as of December 31, 2021 |
|
|
— |
|
|
|
3 |
|
Common stock, $0.001 par value; 120,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 42,856,623 shares issued and outstanding as of September 30, 2022 and 32,393,738 shares issued and outstanding as of December 31, 2021 |
|
|
43 |
|
|
|
32 |
|
Additional paid-in capital |
|
|
473,090 |
|
|
|
455,719 |
|
Accumulated deficit |
|
|
(440,649 |
) |
|
|
(367,463 |
) |
Accumulated other comprehensive gain (loss) |
|
|
— |
|
|
|
(2 |
) |
Total stockholders' equity |
|
|
32,484 |
|
|
|
88,289 |
|
Total liabilities and stockholders' equity |
|
$ |
64,476 |
|
|
$ |
171,072 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SPERO THERAPEUTICS, INC.
CONDENSED 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, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Grant revenue |
|
$ |
924 |
|
|
$ |
2,356 |
|
|
$ |
3,843 |
|
|
$ |
12,698 |
|
|
|
1,082 |
|
|
|
708 |
|
|
|
2,225 |
|
|
|
2,814 |
|
|
Total revenues |
|
|
2,006 |
|
|
|
3,064 |
|
|
|
6,068 |
|
|
|
15,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
7,360 |
|
|
|
14,436 |
|
|
|
32,504 |
|
|
|
47,301 |
|
General and administrative |
|
|
6,632 |
|
|
|
11,152 |
|
|
|
29,988 |
|
|
|
28,680 |
|
Restructuring |
|
|
(152 |
) |
|
|
— |
|
|
|
11,697 |
|
|
|
— |
|
Total operating expenses |
|
|
13,840 |
|
|
|
25,588 |
|
|
|
74,189 |
|
|
|
75,981 |
|
Loss from operations |
|
|
(11,834 |
) |
|
|
(22,524 |
) |
|
|
(68,121 |
) |
|
|
(60,469 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
208 |
|
|
|
90 |
|
|
|
391 |
|
|
|
270 |
|
Other income (expense), net |
|
|
(23 |
) |
|
|
(87 |
) |
|
|
(46 |
) |
|
|
(317 |
) |
Interest expense related to the sale of future royalties |
|
|
— |
|
|
|
— |
|
|
|
(2,605 |
) |
|
|
— |
|
Loss on extinguishment of liability related to the sale of future royalties |
|
|
— |
|
|
|
— |
|
|
|
(3,581 |
) |
|
|
— |
|
Change in fair value of derivative liability |
|
|
(26 |
) |
|
|
— |
|
|
|
776 |
|
|
|
— |
|
Total other income (expense), net |
|
|
159 |
|
|
|
3 |
|
|
|
(5,065 |
) |
|
|
(47 |
) |
Net loss |
|
$ |
(11,675 |
) |
|
$ |
(22,521 |
) |
|
$ |
(73,186 |
) |
|
$ |
(60,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
(0.33 |
) |
|
$ |
(0.70 |
) |
|
$ |
(2.16 |
) |
|
$ |
(1.99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic and diluted: |
|
|
35,882,076 |
|
|
|
32,132,500 |
|
|
|
33,834,198 |
|
|
|
30,417,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
|
(11,675 |
) |
|
|
(22,521 |
) |
|
|
(73,186 |
) |
|
|
(60,516 |
) |
Other comprehensive gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized gain (loss) on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
5 |
|
Net unrealized gains (losses) on securities |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
5 |
|
Total comprehensive loss |
|
$ |
(11,675 |
) |
|
$ |
(22,521 |
) |
|
$ |
(73,184 |
) |
|
$ |
(60,511 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SPERO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(73,186 |
) |
|
$ |
(60,516 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
740 |
|
|
|
455 |
|
Non-cash lease cost |
|
|
446 |
|
|
|
611 |
|
Impairment of assets |
|
|
635 |
|
|
|
— |
|
Share-based compensation |
|
|
6,626 |
|
|
|
6,502 |
|
Unrealized foreign currency transaction (gain) loss |
|
|
8 |
|
|
|
17 |
|
Accretion of discount on marketable securities |
|
|
13 |
|
|
|
197 |
|
Change in fair value of derivative liabilities |
|
|
(776 |
) |
|
|
— |
|
Non-cash interest expense associated with the sale of future royalties |
|
|
2,605 |
|
|
|
— |
|
Loss on extinguishment of liability related to the sale of future royalties |
|
|
3,581 |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Other receivables |
|
|
1,366 |
|
|
|
3,088 |
|
Prepaid expenses and other current assets |
|
|
7,133 |
|
|
|
2,758 |
|
Tax incentive receivables |
|
|
312 |
|
|
|
797 |
|
Other assets |
|
|
(2 |
) |
|
|
7 |
|
Accounts payable |
|
|
1,483 |
|
|
|
2,007 |
|
Accrued expenses and other current liabilities |
|
|
(6,257 |
) |
|
|
(3,185 |
) |
Deferred revenue, current and non-current |
|
|
3,525 |
|
|
|
10,898 |
|
Other long-term liabilities |
|
|
(31 |
) |
|
|
(29 |
) |
Operating lease liability |
|
|
(434 |
) |
|
|
(605 |
) |
Net cash used in operating activities |
|
|
(52,213 |
) |
|
|
(36,998 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of marketable securities |
|
|
(26,970 |
) |
|
|
(13,601 |
) |
Proceeds from maturities of marketable securities |
|
|
60,777 |
|
|
|
44,548 |
|
Net cash provided by (used in) investing activities |
|
|
33,807 |
|
|
|
30,947 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repayment of liability related to the sale of future royalties |
|
|
(54,485 |
) |
|
|
— |
|
Proceeds from the issuance of common stock, net of issuance costs |
|
|
10,334 |
|
|
|
5,357 |
|
Proceeds from the issuance of common stock related to the Pfizer Purchase Agreement |
|
|
— |
|
|
|
27,537 |
|
Payment of offering and financing costs |
|
|
— |
|
|
|
(411 |
) |
Proceeds from stock option exercises |
|
|
419 |
|
|
|
1,218 |
|
Net cash provided by financing activities |
|
|
(43,732 |
) |
|
|
33,701 |
|
Net increase (decrease) in cash and cash equivalents: |
|
|
(62,138 |
) |
|
|
27,650 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
112,584 |
|
|
|
85,209 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
50,446 |
|
|
$ |
112,859 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
||
Offering and financing costs in accounts payable and accruals |
|
$ |
— |
|
|
$ |
2,300 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
SPERO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
|
Series A, B, C and D |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
Spero Therapeutics, Inc. |
|
|||||||||||
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Other Comprehensive |
|
|
Stockholders' |
|
||||||||||||||
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balances at June 30, 2022 |
|
2,275,214 |
|
|
|
2 |
|
|
|
35,067,477 |
|
|
|
35 |
|
|
|
464,860 |
|
|
|
(428,974 |
) |
|
|
— |
|
|
|
35,923 |
|
Issuance of common stock upon the exercise of stock options |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock upon the vesting of RSUs |
|
— |
|
|
|
— |
|
|
|
75,287 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
3,226,859 |
|
|
|
4 |
|
|
|
6,124 |
|
|
|
— |
|
|
|
— |
|
|
|
6,128 |
|
Conversion of convertible preferred stock to common stock |
|
(2,275,214 |
) |
|
|
(2 |
) |
|
|
4,487,000 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,106 |
|
|
|
— |
|
|
|
— |
|
|
|
2,106 |
|
Unrealized gain on available-for-sale securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,675 |
) |
|
|
— |
|
|
|
(11,675 |
) |
Balances at September 30, 2022 |
|
— |
|
|
|
— |
|
|
|
42,856,623 |
|
|
|
43 |
|
|
|
473,090 |
|
|
|
(440,649 |
) |
|
|
— |
|
|
|
32,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Series A, B, C and D |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
Spero Therapeutics, Inc. |
|
|||||||||||
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Other Comprehensive |
|
|
Stockholders' |
|
||||||||||||||
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
||||||||
Balances at December 31, 2021 |
|
3,218,152 |
|
|
|
3 |
|
|
|
32,393,738 |
|
|
|
32 |
|
|
|
455,719 |
|
|
|
(367,463 |
) |
|
|
(2 |
) |
|
|
88,289 |
|
Issuance of common stock upon the exercise of stock options |
|
— |
|
|
|
— |
|
|
|
56,120 |
|
|
|
— |
|
|
|
419 |
|
|
|
— |
|
|
|
— |
|
|
|
419 |
|
Issuance of common stock upon the vesting of RSUs |
|
— |
|
|
|
— |
|
|
|
75,287 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
3,964,478 |
|
|
|
5 |
|
|
|
10,326 |
|
|
|
— |
|
|
|
— |
|
|
|
10,331 |
|
Conversion of convertible preferred stock to common stock |
|
(3,218,152 |
) |
|
|
(3 |
) |
|
|
6,367,000 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,626 |
|
|
|
— |
|
|
|
— |
|
|
|
6,626 |
|
Unrealized loss on available-for-sale securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
2 |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(73,186 |
) |
|
|
— |
|
|
|
(73,186 |
) |
Balances at September 30, 2022 |
|
— |
|
|
|
— |
|
|
|
42,856,623 |
|
|
|
43 |
|
|
|
473,090 |
|
|
|
(440,649 |
) |
|
|
— |
|
|
|
32,484 |
|
9
|
Series A, B, C and D |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
Spero Therapeutics, Inc. |
|
|||||||||||
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Other Comprehensive |
|
|
Stockholders' |
|
||||||||||||||
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
||||||||
Balances at June 30, 2021 |
|
3,218,152 |
|
|
|
3 |
|
|
|
29,699,147 |
|
|
|
30 |
|
|
|
405,923 |
|
|
|
(315,702 |
) |
|
|
(2 |
) |
|
|
90,252 |
|
Issuance of common stock upon the exercise of stock options |
|
— |
|
|
|
— |
|
|
|
88,856 |
|
|
|
— |
|
|
|
826 |
|
|
|
— |
|
|
|
— |
|
|
|
826 |
|
Issuance of common stock, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
70,000 |
|
|
|
— |
|
|
|
1,105 |
|
|
|
— |
|
|
|
— |
|
|
|
1,105 |
|
Issuance of common stock under Pfizer Purchase Agreement, net of financing costs of $0.1 million |
|
— |
|
|
|
— |
|
|
|
2,362,348 |
|
|
|
2 |
|
|
|
39,901 |
|
|
|
— |
|
|
|
— |
|
|
|
39,903 |
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,330 |
|
|
|
— |
|
|
|
— |
|
|
|
2,330 |
|
Unrealized gain on available-for-sale securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,521 |
) |
|
|
— |
|
|
|
(22,521 |
) |
Balances at September 30, 2021 |
|
3,218,152 |
|
|
|
3 |
|
|
|
32,220,351 |
|
|
|
32 |
|
|
|
450,085 |
|
|
|
(338,223 |
) |
|
|
(2 |
) |
|
|
111,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Series A, B, C and D |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
Spero Therapeutics, Inc. |
|
|||||||||||
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Other Comprehensive |
|
|
Stockholders' |
|
||||||||||||||
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
||||||||
Balances at December 31, 2020 |
|
3,218,287 |
|
|
|
3 |
|
|
|
29,260,247 |
|
|
|
29 |
|
|
|
409,722 |
|
|
|
(277,707 |
) |
|
|
(7 |
) |
|
|
132,040 |
|
Issuance of common stock upon the exercise of stock options |
|
— |
|
|
|
— |
|
|
|
135,571 |
|
|
|
— |
|
|
|
1,218 |
|
|
|
— |
|
|
|
— |
|
|
|
1,218 |
|
Issuance of common stock, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
327,185 |
|
|
|
1 |
|
|
|
5,356 |
|
|
|
— |
|
|
|
— |
|
|
|
5,357 |
|
Issuance of common stock under Pfizer Purchase Agreement, net of premium of $12.5 million and net of financing costs of $0.2 million |
|
— |
|
|
|
— |
|
|
|
2,362,348 |
|
|
|
2 |
|
|
|
27,287 |
|
|
|
— |
|
|
|
— |
|
|
|
27,289 |
|
Conversion of convertible preferred stock to common stock |
|
(135 |
) |
|
|
— |
|
|
|
135,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,502 |
|
|
|
— |
|
|
|
— |
|
|
|
6,502 |
|
Unrealized gain on available-for-sale securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
5 |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(60,516 |
) |
|
|
— |
|
|
|
(60,516 |
) |
Balances at September 30, 2021 |
|
3,218,152 |
|
|
|
3 |
|
|
|
32,220,351 |
|
|
|
32 |
|
|
|
450,085 |
|
|
|
(338,223 |
) |
|
|
(2 |
) |
|
|
111,895 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
SPERO THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business and Basis of Presentation
Spero Therapeutics, Inc., together with its consolidated subsidiaries (the “Company” or “Spero”), is a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing, and commercializing novel treatments for bacterial infections, including multi-drug resistant (“MDR”) bacterial infections, and rare diseases. The Company's lead product candidate, SPR720, is an oral antimicrobial agent in development for the treatment of nontuberculous mycobacterial (“NTM”) pulmonary disease, a rare orphan disease. The Company's partnership directed programs consist of SPR206 and tebipenem HBr, which through the Company's business development efforts, have partnership relationships supporting their ongoing development. SPR206 is an IV-administered agent being developed as an innovative option to treat MDR Gram-negative bacterial infections in the hospital setting. Tebipenem HBr is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use to treat certain bacterial infections that cause complicated urinary tract infections (“cUTIs”) including pyelonephritis, caused by certain microorganisms, in adult patients who have limited oral treatment options.
The Company is subject to risks and uncertainties common to companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, risks of failure or unsatisfactory results of nonclinical studies and clinical trials, the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance of its product candidates and the ability to secure additional capital to fund operations. The Company’s product candidates will require additional preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The pandemic caused by COVID-19 has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our business. The Company has experienced impacts to its clinical and development timelines due to the worldwide spread of COVID-19 and its variants. However, to date, the Company has not experienced material impacts to liquidity, nor has it incurred impairment of any assets as a result of COVID-19 or its variants. The Company continues to monitor this situation and the possible effects on its business, results of operations and financial condition, including manufacturing, clinical trials, research and development costs and employee-related amounts.
The accompanying consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Since inception, the Company has funded its operations with proceeds from sales of preferred units (including bridge units, which converted into preferred units), payments received in connection with its collaboration agreements, funding from government contracts, licensing agreements and through the sale of the Company’s common and preferred stock. The Company has incurred recurring losses since inception, including net losses of $11.7 million and $22.5 million for the three months ended September 30, 2022 and 2021, respectively, and $73.2 million and $60.5 million for the nine months ended September 30, 2022 and 2021, respectively. In addition, as of September 30, 2022, the Company had an accumulated deficit of $440.6 million. The Company expects to continue to generate operating losses for the foreseeable future.
In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. As of the issuance date of these quarterly consolidated financial statements, the Company expects its current operating plan, existing cash, cash equivalents and marketable securities and the initial upfront payments of $66.0 million the Company is entitled to receive under the GSK License Agreement and $9.0 million the Company received under the GSK SPA (as defined below) will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these quarterly consolidated financial statements. Beyond that point, the Company will require additional funding to fund the development of its product candidates through regulatory approval and commercialization, and to support its continued operations. The Company will seek additional funding through public or private financings, debt financing, collaboration agreements, government grants or other venues. The COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets, including relating to the COVID-19 pandemic or its variants, our operations and financial condition could be adversely impacted. There is no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all, and it could be
11
forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could materially adversely affect its business prospects or its ability to continue operations.
The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Interim Financial Information
The consolidated balance sheet at December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2022, and for the three and nine months ended September 30, 2022, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2022, and results of operations for the three and nine months ended September 30, 2022, and cash flows for the nine months ended September 30, 2022 and 2021 have been made. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the accrual for clinical trial costs and other research and development expenses and the valuation of share-based awards. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has contemplated the impact of COVID-19 within its financial statements and is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. There may be changes to those estimates in future periods. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.
Segment Information
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on identifying, developing and commercializing novel treatments for bacterial infections, including MDR bacterial infections, and rare diseases. All of the Company’s tangible assets are held in the United States.
Concentrations of Credit Risk and of Significant Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains most of its cash and cash equivalents at one accredited financial institution. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs. As of September 30, 2022, and December 31, 2021, the Company had no off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.
12
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks and money market instruments.
Marketable Securities
Marketable securities consist of investments in corporate obligations with original maturities greater than 90 days. The Company considers its portfolio of investments to be available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. Investments with maturities beyond one year are generally classified as short term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value are included as a component of other income (expense), net based on the specific identification method. Any credit impairments are recorded through an allowance account.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense are recognized using the straight-line method over the estimated useful life of each asset as follows:
|
|
Estimated Useful Life |
Laboratory equipment |
|
5 years |
Computer software and equipment |
|
3 years |
Office furniture and equipment |
|
7 years |
Manufacturing equipment |
|
5 years |
Leasehold improvements |
|
Shorter of life of lease or 5 years |
Costs for capital assets not yet placed into service are capitalized as construction in progress and are depreciated in accordance with the above guidelines once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred. The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. As of September 30, 2022, the Company had no short-term leases with terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate (“IBR”), which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, and in a similar economic environment. Since the Company does not have any debt and has not been rated by any major credit rating agency, the Company’s IBR was estimated by developing a synthetic credit rating for the Company.
The Company has elected to account for lease and non-lease components together as a single lease component.
Other Assets
Other assets consist of long-term prepayments and deposits.
13
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment and operating lease right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.
Revenue Recognition – Collaboration Revenue
The Company has entered into licensing agreements that are evaluated under Accounting Standards Codification, Topic 606 (“Topic 606”), Revenue from Contracts with Customers, through which the Company licenses certain of its product candidates’ rights to a third party. Any future out-licensing agreements entered into by the Company and additional third parties shall also be evaluated under Topic 606. Terms of these arrangements include various payment types, typically including one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and/or royalties on net sales of licensed products.
Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations under the agreement; (iii) determine the transaction price, including constraint on variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) determine how the revenue will be recognized for each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to a customer.
Once a contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.
14
The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, the Company is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. The SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. In certain circumstances, the Company may apply the residual method to determine the SSP of a good or service if the standalone selling price is considered highly variable or uncertain. The Company validates the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed its revenue-generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in the arrangements. For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.
In determining the accounting treatment for these arrangements, the Company develops assumptions to determine the stand-alone selling price for each performance obligation in the contract. These assumptions may include forecasted revenues, development timelines, discount rates and probabilities of technical and regulatory success.
15
Government Tax Incentives
For available government tax incentives that the Company may earn without regard to the existence of taxable income and that require the Company to forego tax deductions or the use of future tax credits and net operating loss carryforwards, the Company classifies the funding recognized as a reduction of the related qualifying research and development expenses incurred.
Since the fourth quarter of 2016, the Company’s operating subsidiary in Australia has met the eligibility requirements to receive a tax incentive for qualifying research and development activities. The Company recognizes these incentives as a reduction of research and development expenses in the consolidated statements of operations and comprehensive loss in the same period that the related qualifying expenses are incurred. Reductions of research and development expense recognized upon incurring qualifying expenses in advance of receipt of tax incentive payments are recorded in the consolidated balance sheet as tax incentive receivables.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including personnel salaries, share-based compensation and benefits, allocated facilities costs, depreciation, manufacturing expenses, costs related to the Company’s government contract and grant arrangements, and external costs of outside vendors engaged to conduct preclinical development activities, clinical trials as well as the cost of licensing technology. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
Clinical Trial and other Research Contract Costs and Accruals
The Company has entered into various research and development contracts with clinical research organizations and other companies both inside and outside of the United States. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. There may be instances in which payments made to these vendors exceed the level of service provided and will result in a prepayment of the expense. The Company records accruals for estimated ongoing research and clinical trial costs based on the services received and efforts expended pursuant to multiple contracts with these vendors. When evaluating the adequacy of the accrued liabilities, the Company analyzes the progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.
Restructuring
The Company has made estimates and judgments regarding the amount and timing of its restructuring expense and liability, including current and future period termination benefits and other exit costs to be incurred when related actions take place. Restructuring charges are reflected in the Company's consolidated statements of income. Actual results may differ from these estimates.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.
Share-Based Compensation
The Company issues stock-based awards to employees and directors in the form of stock options and restricted stock units. The Company measures and recognizes compensation expense for its stock-based awards granted to its employees and directors based on the estimated grant date fair value in accordance with ASC 718, Compensation—Stock Compensation, and determines the fair value of restricted stock units based on the fair value of its common stock. The Company measures all share-based options granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. The Company records the expense for awards with service-based conditions using the straight-line method over the requisite service period, net of any actual forfeitures. The Company has also granted certain awards subject to performance-based vesting eligibility and a subsequent partial time-based vesting schedule. The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
16
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with shareholders. For the three and nine months ended September 30, 2022 and 2021, these changes related to unrealized gains and losses on the Company’s available-for-sale marketable securities.
Net Loss per Share
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.
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.
Income Taxes
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and nine months ended September 30, 2022, or to our net deferred tax assets as of September 30, 2022.
Liability Related to the Sale of Future Royalties
Prior to repayment, as discussed further in Note 10, the Company treated the liability related to the sale of future royalties as a debt instrument, amortized under the effective interest rate method over the estimated life of the revenue streams. The Company recognized interest expense thereon using the effective rate, which was based on its current estimates of future revenues over the life of the arrangement. The Company periodically assessed its expected revenues using internal projections, imputed interest on the carrying value of the deferred royalty obligation and recorded interest expense using the imputed effective interest rate. To the extent its estimates of future revenues were greater or less than previous estimates or the estimated timing of such payments was materially different than previous estimates, the Company accounted for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of the deferred royalty obligation. The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization period of the issuance costs required that the Company made estimates that could impact the short-term and long-term classification of such costs, as well as the period over which such costs were amortized.
17
Derivative Liability
In connection with certain transactions, the Company has identified certain embedded 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.
Recently Issued and Adopted Accounting Pronouncements
Other accounting standards that have been issued by the Financial Accounting Standards Board or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
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):
Excluded from the tables above is cash of $0.9 million and $0.6 million as of September 30, 2022, and December 31, 2021, respectively. During the nine months ended September 30, 2022, 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 Company evaluated debt securities with unrealized losses for any expected credit losses and determined unrealized losses on these securities were related to non-credit factors. Additionally, the Company currently does not intend to and is not required to sell these investments prior to an anticipated recovery in value.
18
The Company did not have any assets classified as marketable securities as of September 30, 2022. The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of December 31, 2021 (in thousands):
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
Fair Value |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
$ |
11,481 |
|
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
11,479 |
|
Commercial paper |
|
|
22,339 |
|
|
|
— |
|
|
|
— |
|
|
|
22,339 |
|
|
|
$ |
33,820 |
|
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
33,818 |
|
As of December 31, 2021, all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the respective consolidated balance sheet date.
Embedded Derivative
Liability related to change of control
In connection with the termination of the Revenue Interest Agreement (as defined below) (see Note 10), the Company classified $0.1 million as a derivative liability on its condensed consolidated balance sheet because of an embedded feature that represents a conditional obligation to pay HCR (as defined below) an additional cash amount upon a change of control. The Company will remeasure the derivative liability to fair value at each reporting date until it expires on December 31, 2022, and recognize changes in the fair value of the derivative liability as a component of other income (expense) in the condensed consolidated statement of operations and comprehensive loss. The Company valued the change of control provision under the Revenue Interest Termination Agreement, dated June 7, 2022, by and between the Company and HCR, using a series of Black-Scholes-Merton option pricing models. The assumptions used in the valuation model include (1) the Company's estimates of the probability of a change of control event occurring prior to or as of December 31, 2022, (2) the Company's closing stock price as of June 7, 2022, (3) the Company's fully-diluted number of shares outstanding as of June 7, 2022, (4) volatility, (5) risk-free rate, and (6) the Company's credit-risk-adjusted discount rate.
The fair value of the derivative liability both upon issuance in June 2022 and as of September 30, 2022 is $0.1 million and is classified as Level 3 liability under the fair value hierarchy.
Liability related to the sale of future royalties
As of December 31, 2021, in connection with the liability related to the sale of future royalties, the Company classified $1.0 million at inception of its Revenue Interest Financing Agreement as a derivative liability on its consolidated balance sheet because there were embedded instruments that represented a conditional obligation to pay HCR the final payment, which is 250% of the Investment Amount, upon an event of default or change of control.
The fair value of the derivative liability upon issuance in October 2021 was $1.0 million, and was classified as Level 3 liability under the fair value hierarchy. As of December 31, 2021 the fair value of the derivative liability decreased by $0.2 million to $0.8 million, primarily due to the passage of time and changes in the market volatility and underlying credit risk inputs.
The fair value for the liability related to the sale of future royalties at the time of the initial transaction was based on the Company's current estimates of future royalties expected to be paid to HCR over the remaining patent life of the product, which were considered Level 3 inputs (see Note 10).
19
4. Accrued Expenses and Other Current Liabilities
The following table presents the Company’s accrued expenses and other current liabilities as of September 30, 2022 and December 31, 2021 (in thousands):
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Accrued external research and development expenses |
|
$ |
1,219 |
|
|
$ |
6,315 |
|
Accrued restructuring expenses |
|
|
967 |
|
|
|
— |
|
Accrued payroll and related expenses |
|
|
4,860 |
|
|
|
5,884 |
|
Accrued professional fees |
|
|
836 |
|
|
|
909 |
|
Accrued other |
|
|
211 |
|
|
|
1,242 |
|
Total Accrued expenses and other current liabilities |
|
$ |
8,093 |
|
|
$ |
14,350 |
|
|
|
|
|
|
|
|
||
5. Common Stock
“At-the-Market” Offering
On March 11, 2021, the Company entered into a new sales agreement with Cantor Fitzgerald & Co. (“Cantor”) and filed a new universal shelf registration statement on Form S-3 (Registration No. 333-254170), and pursuant to which the Company registered for sale up to $300.0 million of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine, including up to $75.0 million of its common stock available for issuance pursuant to the new “at-the-market” offering program sales agreement that it entered into with Cantor (the “Sales Agreement”). Under the Sales Agreement, Cantor may sell shares of the Company’s common stock by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, as amended (the Securities Act”), subject to the terms of the Sales Agreement. The Company’s universal shelf registration statement on Form S-3 (Registration No. 333-254170) became effective on March 29, 2021 and its prior sales agreement with Cantor terminated automatically at such time.
During the nine months ended September 30, 2022, the Company sold 3,964,478 shares of its common stock under its Sales Agreement at an average price of approximately $2.69 per share for aggregate gross proceeds of approximately $10.7 million prior to deducting sales commissions.
Convertible Preferred Stock
In February 2021, a holder of the Company’s Series B Preferred Stock elected to convert 62 shares of Series B Preferred Stock into 62,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series B Preferred Stock. In addition, a holder of the Company’s Series C Preferred Stock elected to convert 73 shares of Series C Preferred Stock into 73,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series C Preferred Stock.
In June 2022, a holder of the Company’s Series B Preferred Stock elected to convert 938 shares of Series B Preferred Stock into 938,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series B Preferred Stock. In addition, a holder of the Company’s Series D Preferred Stock elected to convert 942,000 shares of Series D Preferred Stock into 942,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series D Preferred Stock.
In September 2022, a holder of the Company’s Series C Preferred Stock elected to convert the remaining 2,214 shares of Series C Preferred Stock into 2,214,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series C Preferred Stock. In addition, a holder of the Company’s Series D Preferred Stock elected to convert the remaining 2,273,000 shares of Series D Preferred Stock into 2,273,000 shares of the Company’s common stock, pursuant to such holder’s rights under the certificate of designation for such Series D Preferred Stock.
As of September 30, 2022, all of the Company's shares of preferred stock have been converted to common stock.
Pfizer License and Share Purchase Agreements
20
On June 30, 2021, the Company agreed to sell 2,362,348 shares of common stock to Pfizer Inc. (“Pfizer”) pursuant to a Share Purchase Agreement (the “Pfizer Purchase Agreement”), at a price of $16.93 per share, which represented a premium over the most recent closing price on June 30, 2021, for an aggregate purchase price of $40.0 million.
No shareholder approval was required for the sale of the shares. Pfizer is an accredited investor as defined in the Securities Act, and the shares were sold pursuant to exemptions from registration under Regulation D of the Securities Act. The Company has not filed a registration statement with the SEC covering the resale of the shares and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
The fair market value of 2,362,348 shares of the Company's common stock issued to Pfizer under the Pfizer Purchase Agreement was $27.5 million. The common stock issued under the Pfizer Purchase Agreement were valued using an option pricing valuation model as the shares are subject to certain holding period restrictions. The Company accounted for the associated premium of $12.5 million as a freestanding equity-linked instrument under ASC 815. The premium was allocated as consideration for the Company's license agreement with Pfizer (the “Pfizer License Agreement”) and evaluated under ASC 606. The premium was determined not to be constrained and was included in the calculation of the total transaction price related to the Pfizer License Agreement as of June 30, 2021. Refer to Note 9 for further discussion.
The closing of the sale of the shares pursuant to the Pfizer Purchase Agreement occurred on July 1, 2021. Upon closing, the Company recorded the fair market value of the shares issued in stockholders’ equity in its condensed consolidated balance sheet.
Charter Amendment
On August 17, 2021, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of shares of the Company’s common stock authorized for issuance from 60,000,000 shares to 120,000,000 shares (the “Charter Amendment”). The Charter Amendment was approved by the Company’s stockholders at the Annual Meeting held on August 17, 2021.
6. Share-Based Compensation
The Company maintains two equity compensation plans, the 2017 Stock Incentive Plan (as amended, the “2017 Plan”) and the 2019 Inducement Equity Incentive Plan (the “2019 Inducement Plan”), which provide for the grant of stock-based awards to its directors, officers and employees. The equity plans provide for the grant of non-qualified and incentive stock options, as well as restricted stock units (“RSUs”), restricted stock and other stock-based awards.
In September 2022, the Company's shareholders approved an amendment to the 2017 Plan to increase the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by 2,000,000 shares.
In August 2021, the Company's shareholders approved amendments to the 2017 Plan. The amendments provide for the following: (i) increases the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by 3,170,254 shares, (ii) removes the “evergreen” provision historically included in the 2017 Plan, and (iii) makes certain other amendments.
21
Stock Options
The weighted-average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $7.94 and $13.57 per option for those options granted during the nine months ended September 30, 2022 and 2021 respectively.
The following table summarizes stock option activity under all equity plans (excluding RSUs) during the nine months ended September 30, 2022:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||||
Outstanding as of December 31, 2021 |
|
|
4,890,716 |
|
|
$ |
11.75 |
|
|
|
7.62 |
|
|
$ |
24,263 |
|
Granted |
|
|
956,604 |
|
|
|
11.12 |
|
|
|
|
|
|
|
||
Exercised |
|
|
(56,120 |
) |
|
|
7.48 |
|
|
|
|
|
|
|
||
Forfeited or cancelled |
|
|
(1,775,539 |
) |
|
|
13.23 |
|
|
|
|
|
|
|
||
Outstanding as of September 30, 2022 |
|
|
4,015,661 |
|
|
$ |
11.00 |
|
|
|
5.48 |
|
|
$ |
2 |
|
Outstanding as of September 30, 2022 - vested and |
|
|
4,015,661 |
|
|
$ |
11.00 |
|
|
|
5.48 |
|
|
$ |
2 |
|
Exercisable at September 30, 2022 |
|
|
2,606,480 |
|
|
$ |
9.65 |
|
|
|
4.73 |
|
|
$ |
— |
|
As of September 30, 2022, a total of 10,720,127 shares have been authorized and reserved for issuance under all equity plans and 4,806,802 shares were available for future issuance under such plans.
Restricted Stock Units
The Company granted 1,115,357 RSUs to employees during the nine months ended September 30, 2022.
The following table summarizes RSU activity under all equity plans during the nine months ended September 30, 2022:
|
|
Number of |
|
|
Weighted Average Grant Date Fair Value |
|
||
Outstanding as of December 31, 2021 |
|
|
513,690 |
|
|
|
17.08 |
|
Granted |
|
|
1,115,357 |
|
|
|
7.01 |
|
Vested and released |
|
|
(75,287 |
) |
|
|
17.07 |
|
Forfeited or cancelled |
|
|
(408,000 |
) |
|
|
14.16 |
|
Outstanding as of September 30, 2022 |
|
|
1,145,760 |
|
|
|
8.32 |
|
As of September 30, 2022, there was approximately $8.6 million of total unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of approximately 2.92 years.
The fair value of the RSUs is determined on the date of grant based on the market price of the Company’s common stock on that date. Each RSU represents the right to receive one share of the Company’s common stock, $0.001 par value per share, upon vesting. The RSUs vest in four equal annual installments, subject to the individual’s continued service to the Company through the applicable vesting date, and are subject to the terms and conditions of the Company’s form of RSU agreement under the 2017 Plan.
Performance-Based Awards
In July 2022, as part of the retention awards referenced in Footnote 11, the Company granted a number of shares of common stock containing performance-based vesting criteria ("performance-based awards") to be issued on May 31, 2023, with a value of $1.7 million based on the common stock price at such time, subject to the discretion of the Company's Board or Human Capital Management Committee to pay in cash or a combination of cash and stock. Performance-based awards will be recorded as a liability on the Company's condensed consolidated balance sheet and accrued over time as achievement of performance metrics become probable. The performance-based awards are eligible for vesting based on the achievement of certain performance criteria by May 31, 2023 relating to pipeline execution, business development, and financial stewardship. Performance-based awards for which the performance criteria have not been achieved as specified by May 31, 2023 will lapse and be forfeited. The performance-based awards
22
will be subject to acceleration of vesting in the event of termination of employment without cause by the Company or by the executive for good reason (each as defined in the executive’s employment agreement).
In September 2022, the Company approved an award of 140,000 performance-based stock units as part of an executive inducement grant ("Inducement PSUs"). The Inducement PSUs are eligible for vesting based on the same performance criteria, above. To the extent these performance criteria are met by May 31, 2023, 50% of the Inducement PSUs will vest on September 12, 2023 and 50% will vest on September 12, 2024.
The Company recognized $0.5 million of compensation expense associated with performance-based awards and an insignificant amount of expense associated with the Inducement PSUs during the nine months ended September 30, 2022, as the performance conditions were considered probable of achievement.
Share-Based Compensation Expense
The Company recorded share-based compensation expense related to incentive stock options, nonqualified stock options, stock grants, and stock-based awards in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development expenses |
|
$ |
730 |
|
|
$ |
1,059 |
|
|
$ |
2,595 |
|
|
$ |
2,794 |
|
General and administrative expenses |
|
|
1,376 |
|
|
|
1,271 |
|
|
|
4,031 |
|
|
|
3,708 |
|
Total |
|
$ |
2,106 |
|
|
$ |
2,330 |
|
|
$ |
6,626 |
|
|
$ |
6,502 |
|
7. 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 9).
Operating Leases
The Company has entered into an operating lease agreement with U.S. REIF Central Plaza Massachusetts, LLC with respect to its corporate headquarters located at 675 Massachusetts Avenue, Cambridge, Massachusetts.
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 is not aware of any claims under indemnification arrangements that will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2022 or December 31, 2021.
23
Legal Proceedings
Two putative class action lawsuits were filed against the Company and certain of its officers in the United States District Court for the Eastern District of New York, one captioned Richard S. Germond v. Spero Therapeutics, Inc., Ankit Mahadevia, and Satyavrat Shukla, Case No. 1:22-cv-03125, filed on May 26, 2022, and the other captioned Kashif Memon v. Spero Therapeutics, Inc., Ankit Mahadevia, and Satyavrat Shukla Case No. 1:22-cv-04154, filed on July 15, 2022. The parties moved to consolidate the two complaints on July 22, 2022, which were ordered consolidated on August 5, 2022. Both Mr. Memon and stockholder Nabil Saad filed motions for appointment of lead plaintiff/lead counsel on July 25, 2022. Mr. Saad withdrew his opposition on August 15, 2022, and Mr. Memon was appointed lead plaintiff on September 19, 2022. The complaint purports to be brought on behalf of stockholders who purchased the Company’s common stock from May 6, 2021 through May 2, 2022 (Mr. Memon’s complaint alleged a six-month longer class period than the complaint originally filed by Mr. Germond). The complaint generally alleges that the Company and certain of its officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the New Drug Application for tebipenem HBr in an effort to lead investors to believe that the drug would receive approval from the FDA. The complaint seeks unspecified damages, interest, attorneys’ fees, and other costs. Mr. Memon must file an amended complaint on or before December 5, 2022. The Company denies any allegations of wrongdoing and intends to vigorously defend against these lawsuits. However, there is no assurance that the Company will be successful in its defense or that insurance will be available or adequate to fund any settlement or judgment or the litigation costs of these actions. Moreover, the Company is unable to predict the outcomes or reasonably estimate a range of possible loss at this time.
Additional lawsuits against the Company and certain of its officers or directors may be filed in the future. If additional similar complaints are filed, absent new or different allegations that are material, the Company will not necessarily announce such additional filings.
8. 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 tebipenem HBr for the treatment of cUTI caused by antibiotic resistant Gram-negative bacteria and for assessment against biodefense pathogens. The award committed initial funding of $15.7 million over a three-year base period from July 1, 2018 to June 30, 2021 for cUTI development activities. In May 2019, the contract was modified to include additional funding of approximately $2.5 million for the development of tebipenem HBr, increasing the amount of the initial committed funding from $15.7 million to approximately $18.2 million and increasing the overall potential award to $46.8 million. In January 2020, BARDA exercised its first contract option for additional committed funding of $15.9 million, increasing the total committed funding to $34.0 million and extended the period of performance through November 1, 2021. In October 2022, BARDA extended the period of performance for the first contract option through December 15, 2023. As of December 31, 2021, the balance of the award was subject to BARDA exercising a second option which would entail funding of $12.7 million and is exercisable by BARDA subject to, among other things, satisfactory progress and results from the biodefense studies described below. On January 19, 2022, the Company announced that BARDA exercised a new option under the contract. The new option increases the total amount of committed funding by $12.9 million to approximately $46.9 million, increasing the total potential contract value to $59.7 million. The additional $12.9 million option is expected to provide support for a clinical trial and related activities for orally administered tebipenem HBr's use in treating pediatric patients with cUTIs, including acute pyelonephritis. On September 30, 2022, remaining funding from the option originally supporting a clinical trial in pediatric patients was reprogrammed to support clinical trials for patients with cUTIs, including acute pyelonephritis. The period of performance for this new option extends through December 31, 2025 and does not change the total amount of committed funding or potential contract value.
As part of an inter-agency collaboration between BARDA and the Defense Threat Reduction Agency (“DTRA”), a series of studies to assess the efficacy of tebipenem HBr in the treatment of infections caused by biodefense threats such as anthrax, plague and melioidosis will be conducted under the direction of Spero. DTRA provides up to $10.0 million, in addition to the total potential award from BARDA, to cover the cost of the nonclinical biodefense aspects of the collaborative program for tebipenem HBr. Together, BARDA and DTRA will provide up to $69.7 million in total funding for the clinical development and biodefense assessment of tebipenem HBr, of which $12.7 million is subject to the exercise of options by BARDA and Spero’s achievement of specified milestones.
The Company recognized $0.5 million and $0.7 million of revenue under the BARDA award during the three months ended September 30, 2022 and 2021, respectively, and recognized $1.9 million and $8.9 million of revenue under the BARDA award during the nine months ended September 30, 2022 and 2021, respectively.
24
U.S. Department of Defense
On July 1, 2019, the Company received a $5.9 million award from the U.S. Department of Defense (“DoD”) Congressionally Directed Medical Research Programs (“CDMRP”) Joint Warfighter Medical Research Program. The funding will support the further clinical development of SPR206. The award commits non-dilutive funding of $5.9 million over a four-year period to cover the costs of select Phase 1 pharmacology studies, a 28-day GLP NHP toxicology study, and microbiological surveillance studies that would be required for a potential NDA submission with the FDA for SPR206. The Company recognized less than $0.1 million and $1.5 million in revenue under this agreement during the three months ended September 30, 2022 and 2021, respectively, and recognized $1.0 million and $3.3 million under this agreement during the nine months ended September 30, 2022 and 2021, respectively. All activities under this award were completed and the award was closed on August 14, 2022.
NIAID
In May 2021, the Company was awarded a five-year contract from the U.S. National Institute of Allergy and Infectious Diseases (“NIAID”) under the Agency’s Omnibus Broad Agency Announcement No. HHS-NIH-NIAID-BAA2020-1 award mechanism to support further development of SPR206. Funding will be used to offset certain expenses related to manufacturing, clinical, non-clinical and regulatory activities. The Company can receive up to $23.4 million over a base period and five option periods. As of September 30, 2022, funding for the base period totaling $2.1 million has been committed. The Company recognized $0.3 million and $1.0 million under this agreement during the three and nine months ended September 30, 2022, respectively, and recognized $0.1 million under this agreement during both the three and nine months ended September 30, 2021.
In June 2016, the Company entered into agreements with Pro Bono Bio PLC (“PBB”), a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited and Cantab Anti-Infectives Limited (“CAI”), in order to acquire certain intellectual property and government funding arrangements relating to SPR206. Under these agreements, CAI agreed to submit a request to NIAID to novate the then CAI-held NIAID contract to Spero, which was finalized in December 2017. The NIAID contract provides for development funding of up to $6.5 million over a base period and three option periods. As of December 31, 2021, funding for the base period and the first two option periods totaling $5.9 million had been committed. In March 2021, a contract modification was executed and the performance period for this award was extended until June 15, 2021. The Company did not recognize revenue under this agreement during the three and nine months ended September 30, 2022. The Company did not recognize revenue under this agreement during the three months ended September 30, 2021 and recognized $0.4 million during the nine months ended September 30, 2021.
9. License, Collaboration and Service Agreements
The Company has certain obligations under license agreements with third parties that include annual maintenance fees and payments that are contingent upon achieving various development, regulatory and commercial milestones. 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.
Cantab License Agreements
Under the Cantab Agreements, the Company is obligated to make future milestone payments of up to $5.8 million upon the achievement of specified clinical and regulatory milestones and a payment of £5.0 million ($5.5 million as of September 30, 2022) upon the achievement of a specified commercial milestone. In addition, the Company agreed to pay to PBB royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement. During both the three and nine months ended September 30, 2022 and 2021, the Company did not record any research and development expense related to the achievement of regulatory milestones for SPR206.
The Cantab Agreements continue indefinitely, with royalty payment obligations thereunder continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the expiration in such country of the last to expire valid claim of any of the applicable patents.
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 $80.2 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay Vertex tiered royalties, on a product-by-product and country-by-country basis, of a mid-single-digit to low double-digit percentage based on net sales of products licensed under the agreement. During the three and nine months ended September 30, 2022 and 2021, the Company did not record any research and development expense
25
related to the achievement of regulatory milestones for SPR720 and the next milestone under this agreement is not accrued because it is not yet probable.
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 a license under certain patents, know-how and regulatory documentation to research, develop, manufacture and sell products containing a proprietary compound in the licensed territory. In exchange for the 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. In October 2017, the Company paid a $1.0 million milestone payment to Meiji upon the enrollment of the first patient in the Company’s Phase 1 clinical trial of tebipenem HBr. The payment was recorded as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2017. The Company paid Meiji approximately $1.6 million during the fourth quarter of 2018 related to fixed assets which will be used in manufacturing related activities at Meiji. This equipment has been capitalized as property and equipment in the consolidated balance sheet as of September 30, 2022. In October 2021, the Company paid a $1.0 million milestone payment to Meiji upon submission of an NDA to the FDA for tebipenem HBr. As part of the agreement, the Company is obligated to make future milestone payments of up to $1.0 million as of September 30, 2022 upon the achievement of specified 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 a maximum amount of $7.5 million.
The agreement continues in effect until the expiration of all payment obligations thereunder (including royalty payments and licensee revenue) on a product-by-product and country-by-country basis, unless earlier terminated by the parties. Pursuant to the terms of the agreement, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured within a specified period after receipt of notice) or insolvency, the Company also has unilateral termination rights (i) in the event that the Company abandons the development and commercialization of tebipenem HBr for efficacy, safety, legal or business reasons, and (ii) under certain circumstances arising out of the head license with a global pharmaceutical company.
Everest Medicines License Agreement
On January 4, 2019, the Company, through its wholly owned subsidiary New Pharma License Holdings Limited (“NPLH”), entered into a license agreement (the “Original Everest License Agreement”), with Everest Medicines II Limited (“Everest”). Under the terms of the Original Everest License Agreement, the Company granted Everest an exclusive license to develop, manufacture and commercialize SPR206 or products that contain SPR206 (the “Licensed Products”), in Greater China (which includes Mainland China, Hong Kong and Macau), South Korea and certain Southeast Asian countries (the “Territory”). The Company retained development, manufacturing and commercialization rights with respect to SPR206 and Licensed Products in the rest of the world and also retained the right to develop or manufacture SPR206 and Licensed Products in the Territory for use outside the Territory. In addition to the license grant with respect to SPR206, the Company, through its wholly owned subsidiary, Spero Potentiator, Inc., a Delaware corporation, granted Everest a 12-month exclusive option to negotiate with it for an exclusive license to develop, manufacture and commercialize SPR741 in the Territory.
Under the terms of the Original Everest License Agreement, the Company received an upfront payment of $3.0 million that was recognized in the first quarter of 2019, comprised of a $2.0 million payment to license SPR206 and $1.0 million for the exclusive option to negotiate a license to develop SPR741. The Company also received a milestone payment of $2.0 million in the fourth quarter of 2020 upon completion and delivery of the results of a clinical study.
On January 15, 2021, the Company entered into an amended and restated license agreement (“the Amended Everest License Agreement”) with Everest and Spero Potentiator, Inc., which amended and restated in its entirety the Original Everest License Agreement. The Amended Everest License Agreement modifies the dates and values of certain milestone events related to development and commercialization of SPR206. Everest will now be making more significant investments in the development of SPR206 beyond what was contemplated at the time of the Original Everest License Agreement. The Original Everest License Agreement provided that the Company could receive up to $59.5 million upon achievement of certain milestones. The Amended Everest License Agreement provides that the Company may receive up to $38.0 million upon achievement of certain milestones, of which $1.3 million has been received to date. The Company received milestones of $1.5 million related to a clinical study for SPR206, of which the Company received approximately $0.8 million upon the initiation of the Bronchoalveolar Lavage (“BAL”) clinical trial of SPR206 in June 2021 and received the remaining $0.8 million upon the delivery of the clinical study report in the second quarter of 2022. In addition, under the Amended Everest License Agreement, the Company assigned patents in the Territory to Everest, rather than licensing such patents to Everest, and the option related to SPR741 and the related provisions have been removed. Under the terms of the Amended Everest License Agreement, the Company is also entitled to receive high single-digit to low double-digit
26
royalties on net sales, if any, of Licensed Products in the Territory following regulatory approval of SPR206. Everest has the right to sublicense to affiliates and third parties in the Territory.
Everest is responsible for all costs related to developing, obtaining regulatory approval of and commercializing SPR206 and Licensed Products in the Territory, and is obligated to use commercially reasonable efforts to develop, manufacture and commercialize Licensed Products, including to achieve certain specified diligence milestones within agreed-upon periods. A joint development committee will be established between the Company and Everest to coordinate and review the development, manufacturing and commercialization plans with respect to Licensed Products in the Territory.
Unless earlier terminated due to certain material breaches of the contract, or otherwise, the Amended Everest License Agreement will expire on a jurisdiction-by-jurisdiction and Licensed Product-by-Licensed Product basis upon the latest to occur of expiration of the last valid claim under a licensed patent in such jurisdiction, the expiration of regulatory exclusivity in such jurisdiction or ten years after the first commercial sale of such Licensed Product in such jurisdiction. The Amended Everest License Agreement may be terminated in its entirety by Everest upon 90 or 180 days’ prior written notice, depending on the stage of development of the initial Licensed Product.
The Company did not recognize revenue during the three months ended September 30, 2022 and recognized $0.8 million during the nine months ended September 30, 2022 related to this agreement. The Company recognized $0.5 million and $1.3 million during the three and nine months ended September 30, 2021, respectively, related to this agreement.
Gates MRI Collaboration Agreement
In June 2019, the Company entered into a collaboration with the Bill and Melinda Gates Research Institute (the “Gates MRI”) to develop SPR720 for the treatment of lung infections caused by Mycobacterium tuberculosis. In furtherance of the Gates MRI’s charitable purposes, the Company also granted to Gates MRI a no-cost, exclusive license to develop, manufacture and commercialize SPR720 for the treatment of tuberculosis (“TB”) in low- and middle- income countries. The Gates MRI is responsible for formulating and funding its own research plan for the development of SPR720 for TB. As such, Gates MRI will conduct and fund preclinical and clinical studies for the development of SPR720 against TB. In addition, Gates MRI and the Company will jointly design and manage certain collaborative research activities, which the Company will perform and which will be funded by the Gates MRI. Due to the cost-funded nature of the payments and the Company’s assessment that it does not have a vendor/customer relationship with the Gates MRI, the Company will recognize the funding received under the agreement as a reduction to the research and development expenses incurred, as the related expenses are incurred.
The Company did not record a reduction to research and development expense as no activities were funded by Gates MRI during the three and nine months ended September 30, 2022. The Company recorded $0.3 million and $1.4 million during the three and nine months ended September 30, 2021, respectively, as a reduction to research and development expense related to activities funded by Gates MRI.
Savior Service Agreement
In November 2018, the Company entered into a service agreement with Savior Lifetec Corporation (“Savior”) to perform technology transfer, process development, analytical method development and testing and formulation development for tebipenem HBr. Per the terms of the agreement, the Company paid Savior a non-refundable supervision fee of approximately $2.0 million to manage the buildout of a commercial manufacturing facility. The supervision fee was classified as a prepaid asset on the Company’s balance sheet and was fully amortized over a service period of approximately 34 months as of December 31, 2021. The Company has paid Savior an additional $5.3 million for facility build out costs, which is classified as a long-term asset on the Company’s balance sheet as of September 30, 2022.
Pfizer License and Share Purchase Agreements
On June 30, 2021, the Company and Pfizer entered into the Pfizer License Agreement and the Pfizer Purchase Agreement. Under the terms of the Pfizer License Agreement, the Company granted Pfizer an exclusive royalty-bearing license to develop, manufacture and commercialize SPR206 or products that contain SPR206 (the “Licensed Products”) globally with some territorial exceptions (the “Pfizer Territory”). The Pfizer Territory excludes the United States and the Asian markets previously licensed to Everest, those being the People’s Republic of China, including Hainan Island, the Hong Kong Special Administrative Region of the People’s Republic of China, and the Macau Special Administrative Region of the People’s Republic of China, Taiwan, the Republic of Korea (South Korea), the Republic of Singapore, Malaysian Federation, Kingdom of Thailand, the Republic of Indonesia, Socialist Republic of Vietnam and the Republic of the Philippines).
27
Under the terms of the Pfizer Purchase Agreement, Pfizer purchased 2,362,348 shares of the Company’s common stock at a price of $16.93 per share for a total investment of $40.0 million. Under the terms of the Pfizer License Agreement, the Company received no other upfront payments but is eligible to receive up to $80.0 million in development and sales milestones, and may also receive high single-digit to low double-digit royalties on net sales of SPR206 in the Pfizer Territory. Achievement of these payments cannot be guaranteed. The Company and Pfizer agree that upon Pfizer’s request, the parties will negotiate in good faith regarding procuring a clinical or commercial supply of the compound.
The fair market value of 2,362,348 shares of the Company's common stock issued to Pfizer under the Pfizer Purchase Agreement was determined to be $27.5 million. The common stock issued under the Pfizer Purchase Agreement were valued using an option pricing valuation model as the shares are subject to certain holding period restrictions. The Company accounted for the associated premium of $12.5 million as a freestanding equity-linked instrument under ASC 815. The premium was allocated as consideration for the Pfizer License Agreement and evaluated under ASC 606. The premium was determined not to be constrained and was included in the calculation of the total transaction price related to the Pfizer License Agreement as of June 30, 2021.
The Company is responsible for all costs related to developing and obtaining regulatory approval of SPR206 and Licensed Products in the Pfizer Territory, with a focus on the European market, and is obligated to use commercially reasonable efforts, including to achieve certain specified diligence milestones within agreed-upon periods. A joint development committee was established between the Company and Pfizer to coordinate and review the development, manufacturing and commercialization plans with respect to Licensed Products in the Pfizer Territory. Pfizer is responsible for commercializing SPR206 and the Licensed Products in the Pfizer Territory.
Unless earlier terminated due to certain material breaches of the contract or by Pfizer’s convenience, or otherwise, the Pfizer License Agreement will expire on a jurisdiction-by-jurisdiction and licensed product-by-licensed product basis after ten years from the effective date. The Pfizer License Agreement will automatically renew for an additional ten-year term unless terminated.
Accounting Analysis and Revenue Recognition
The Company determined that Pfizer is a customer and that the Pfizer License Agreement is within the scope of ASC 606 as licensing intellectual property and performing ongoing research and development services are ordinary activities that are ongoing and central to the Company’s operations. Accordingly, in determining the appropriate amount of revenue to be recognized, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the transaction price, including the constraint on variable consideration; (iv) allocated the transaction price to the identified performance obligations in proportion to their SSP; and (v) recognized revenue when each performance obligation was deemed to be satisfied.
Based on that evaluation, the Company identified two performance obligations, license and know-how transfer and research and development services related to upcoming milestones. The Company determined that the supply agreement is a customer option and not a material right, as the pricing to Pfizer is not at a significant discount. Furthermore, Pfizer has the right to use third parties to manufacture the compound, or to manufacture the compound itself.
At contract inception, $1.4 million of the then transaction price of $12.5 million was allocated to the license and know-how transfer performance obligations, which was fully satisfied and recognized as revenue upon delivery of the license. The additional $11.1 million was allocated to the research and development services obligation and is being recognized over time as services are delivered.
In the third quarter of 2022, upon the completion of a milestone related to regulatory engagement for SPR206, Pfizer communicated its approval that the milestone was achieved, and the Company received $5.0 million under the Pfizer License Agreement, which the Company accounted for as variable consideration under ASC 606 and was added to the transaction price in the third quarter of 2022. Of this $5.0 million milestone, $0.9 million was recognized during the third quarter of 2022 and the remaining $4.1 million was allocated to the research and development services performance obligation and will be recognized over time as the services are delivered.
The potential license maintenance fees and development milestone payments from the Pfizer License Agreement will be accounted for as variable consideration under ASC 606. Given the uncertain nature of these payments, the Company determined they were fully constrained as of September 30, 2022 and not included in the transaction price. The Company can also earn sales-based royalties.
28
The Company recognizes revenue for the license performance obligation at a point in time, that is upon transfer of the license to Pfizer. Control of the license was transferred on the Effective Date and Pfizer could begin to use and benefit from the license at the Effective Date.
In total, and inclusive of the above, the Company recognized $1.1 million and $1.5 million of revenue from the contract during the three and nine months ended September 30, 2022, respectively, and recognized $0.2 million and $1.6 million of revenue from the contract during the three and nine months ended September 30, 2021, respectively.
The remaining transaction price balance and subsequent milestone achievement of approximately $14.2 million from the Pfizer Purchase Agreement allocated to the research and development services performance obligation has been recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2022, the research and development services related to the second performance obligation were expected to be recognized as costs are incurred over the project development timeframe.
10. Liability Related to the Sale of Future Royalties
On September 29, 2021, the Company entered into a Revenue Interest Agreement with certain entities managed by HealthCare Royalty Management, LLC (“HCR”), pursuant to which the Company sold to HCR the right to receive certain royalty payments from the Company for a purchase price of up to $125.0 million. The Company evaluated the terms of the Revenue Interest Agreement and concluded that the features of the investment amount were similar to those of a debt instrument. The Company received gross proceeds of $50.0 million from HCR at an initial funding on October 19, 2021 (the “Initial Investment Amount”). As such, the Company accounted for this transaction as long-term debt as of December 31, 2021. The Company was entitled to receive an additional $50.0 million upon FDA approval of tebipenem HBr on or before December 31, 2022 (the “Second Investment Amount”), and an additional $25.0 million subject to the mutual agreement of the Company and HCR and if the Company meets certain minimum tebipenem HBr product sales thresholds in the United States within 12 months from commercial launch (the “Third Investment Amount,” and together with the Initial Investment Amount and the Second Investment Amount, collectively, the “Investment Amount”).
On June 7, 2022, the Company entered into a Revenue Interest Termination Agreement (the “Termination Agreement”) with HCR and HCR Collateral Management, LLC, as collateral agent for HCR under the Revenue Interest Agreement, pursuant to which the parties mutually terminated the Revenue Interest Agreement and Security Agreement between the parties (together, the HCR Agreements”), and certain other related ancillary agreements, arrangements or understandings under or contemplated by the HCR Agreements. The Company was released from all of its obligations and the rights to any future revenues and collateral reverted back to the Company in return for a cash payment of $54.5 million and a potential additional cash amount contingent upon the occurrence of a change of control event.
If a change of control event occurs on or prior to December 31, 2022, then the Company will be obligated to pay to HCR an additional amount within 15 days following the consummation of such change of control transaction, calculated based on the fully-diluted equity value of the Company. If the change of control value is less than $100 million, the change of control payment would be $4 million, if $100 million to $200 million, the change of control payment would be $4 million plus 6% of the change of control value in excess of $100 million and if above $200 million, the change of control payment would be $10 million plus 3% of the change of control value in excess of $200 million. The change of control payment is not cumulative, such that only the highest applicable change of control value shall apply in calculating the change of control payment.
The rights to this contingent payment expire on December 31, 2022. The contingent payment meets the accounting definition of a derivative under ASC 815 and therefore a liability of $0.1 million is recorded on the Company’s condensed consolidated balance sheet as of September 30, 2022 (see Note 3). The Company recognized a loss on the extinguishment of $3.6 million, as reported on the associated condensed consolidated statement of operations and comprehensive loss.
The following table presents the changes in the liability related to the sale of future royalties under the Revenue Interest Agreement with HCR as of September 30, 2022 (in thousands):
|
|
|
|
|
Liability related to sale of future royalties, as of December 31, 2021 |
|
$ |
48,414 |
|
Repayment of liability |
|
|
(54,485 |
) |
Loss on extinguishment of liability |
|
|
3,581 |
|
Establish change of control derivative liability |
|
|
(115 |
) |
Interest expense recognized |
|
|
2,605 |
|
Liability related to sale of future royalties, as of September 30, 2022 |
|
$ |
— |
|
29
11. Restructuring
On May 3, 2022, the Company implemented a strategic restructuring initiative and corresponding reduction in workforce. The restructuring initiative and corresponding reduction in workforce was designed to reduce costs and reallocate resources towards the Company’s clinical development programs for SPR720 and SPR206, while maintaining key personnel needed to help preserve the value of the Company’s tebipenem HBr program. The restructuring reduced the Company’s workforce from 146 full-time employees as of December 31, 2021 to 41 full-time employees following the restructuring.
During the nine months ended September 30, 2022, the Company recognized a restructuring charge of approximately $11.7 million, the majority of which was incurred in the second quarter of 2022. During the three months ended September 30, 2022, the Company recognized a restructuring charge of $(0.2) million related to restructuring estimate adjustments. Restructuring charges included approximately $8.6 million of employee related termination costs, lease impairment expense of $0.6 million and $2.5 million of other discontinuation costs such as contract termination fees. The following tables summarize the restructuring related charges by line item within the Company’s consolidated statements of operations where they were recorded during the three and nine months ended September 30, 2022 (in thousands):
Three Months Ended September 30, 2022 |
|
|||||||||||
|
|
Research and development |
|
|
General and administrative |
|
|
Total |
|
|||
Severance and other employee costs |
|
$ |
(53 |
) |
|
$ |
(52 |
) |
|
$ |
(105 |
) |
Lease impairment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other |
|
|
- |
|
|
|
(47 |
) |
|
|
(47 |
) |
Total restructuring charges |
|
$ |
(53 |
) |
|
$ |
(99 |
) |
|
$ |
(152 |
) |
Nine Months Ended September 30, 2022 |
|
|||||||||||
|
|
Research and development |
|
|
General and administrative |
|
|
Total |
|
|||
Severance and other employee costs |
|
$ |
3,872 |
|
|
$ |
4,680 |
|
|
$ |
8,552 |
|
Lease impairment |
|
|
372 |
|
|
|
263 |
|
|
|
635 |
|
Other |
|
|
116 |
|
|
|
2,394 |
|
|
|
2,510 |
|
Total restructuring charges |
|
$ |
4,360 |
|
|
$ |
7,337 |
|
|
$ |
11,697 |
|
The restructuring charge was included in accrued expenses and other current liabilities in the Company’s condensed consolidated balance sheet. Activity for the quarter is summarized as follows (amounts in thousands):
|
|
As of September 30, 2022 |
|
|
Balance as of December 31, 2021 |
|
$ |
— |
|
Charge to expense |
|
|
11,697 |
|
Payments made |
|
|
(7,250 |
) |
Write-offs and impairments |
|
|
(3,480 |
) |
Balance as of September 30, 2022 |
|
$ |
967 |
|
As of September 30, 2022, the Company had $1.0 million remaining in accrued expenses related to restructuring costs on its condensed consolidated balance sheet, which will be paid by the end of the first quarter of 2023.
Retention Awards
In June 2022, upon recommendation of the Company's Human Capital Management Committee (the “HCM Committee”), the Board of Directors approved retention awards for employees of the Company. Subject to remaining actively employed with the Company through May 31, 2023, the aggregate retention awards include (i) a cash bonus of $1.1 million payable on November 30, 2022 and $0.3 million to be paid in cash or as a fully vested RSU grant of the same value and (ii) a cash bonus of $3.4 million payable on May 31, 2023 and $0.9 million to be paid in cash or as a fully vested RSU grant of the same value. These amounts are accrued as services are performed through May 31, 2023.
Executive Retention Awards
On July 1, 2022, upon recommendation of the Company's HCM Committee, the Board of Directors approved a cash and RSU retention award to certain members of the Company's executive leadership team consisting of the following:
30
The RSUs are eligible for vesting based on the achievement of certain performance criteria by May 31, 2023 relating to pipeline execution, business development, and financial stewardship. RSUs for which the performance criteria have not been achieved as specified by May 31, 2023 will lapse and be forfeited. The RSUs will be subject to acceleration of vesting in the event of termination of employment without cause by the Company or by the executive for good reason (each as defined in the executive’s employment agreement).
These awards will be accrued as services are incurred through May 31, 2023. Awards with performance criteria will be accrued as performance metrics are met. During the nine months ended September 30, 2022, the Company recognized $0.5 million of compensation expense associated with these awards (see Note 6).
12. 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, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
(11,675 |
) |
|
$ |
(22,521 |
) |
|
$ |
(73,186 |
) |
|
$ |
(60,516 |
) |
Net loss attributable to common stockholders |
|
$ |
(11,675 |
) |
|
$ |
(22,521 |
) |
|
$ |
(73,186 |
) |
|
$ |
(60,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic and diluted |
|
|
35,882,076 |
|
|
|
32,132,500 |
|
|
|
33,834,198 |
|
|
|
30,417,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share, basic and diluted |
|
$ |
(0.33 |
) |
|
$ |
(0.70 |
) |
|
$ |
(2.16 |
) |
|
$ |
(1.99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Options to purchase common stock |
|
|
4,015,661 |
|
|
|
4,747,203 |
|
|
|
4,015,661 |
|
|
|
4,747,203 |
|
Unvested restricted stock units |
|
|
1,145,760 |
|
|
|
445,040 |
|
|
|
1,145,760 |
|
|
|
445,040 |
|
Series B convertible preferred stock (as converted to common shares) |
|
|
— |
|
|
|
938,000 |
|
|
|
— |
|
|
|
938,000 |
|
Series C convertible preferred stock (as converted to common shares) |
|
|
— |
|
|
|
2,214,000 |
|
|
|
— |
|
|
|
2,214,000 |
|
Series D convertible preferred stock (as converted to common shares) |
|
|
— |
|
|
|
3,215,000 |
|
|
|
— |
|
|
|
3,215,000 |
|
|
|
|
5,161,421 |
|
|
|
11,559,243 |
|
|
|
5,161,421 |
|
|
|
11,559,243 |
|
13. Subsequent Events
31
Tebipenem HBr License Agreement and Share Purchase Agreement with GSK
On November 7, 2022, the Company closed the transactions contemplated by the GSK License Agreement, which was entered into on September 21, 2022. Pursuant to the terms of the GSK License Agreement, the Company granted GSK an exclusive royalty-bearing license, with the right to grant sublicenses, under the Company’s intellectual property and regulatory documents and a sublicense under certain intellectual property of Meiji and Meiji’s regulatory documents to develop, manufacture and commercialize tebipenem pivoxil and tebipenem HBr and products that contain tebipenem pivoxil and tebipenem HBr (the “GSK Licensed Products”) in all territories, except certain Asian countries previously licensed to Meiji (Japan, Bangladesh, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam(the “Meiji Territory”)) (the “GSK Territory”). If the Company's license with Meiji is terminated, or if Meiji forfeits or loses its rights to develop, manufacture and commercialize tebipenem HBr and products that contain tebipenem HBr in any countries in the Meiji Territory, then GSK will have an exclusive first right to negotiate with Spero to add any such countries to the GSK Territory.
Under the terms of the GSK License Agreement, the Company is entitled to receive an upfront payment of $66.0 million for GSK to secure rights to the medicine. Remaining potential payments are milestone and royalty based, and are as follows (in millions):
Event |
|
Milestone payments (up to) |
Delivery of Phase 3 program |
|
$150.0 |
Total commercial milestone payments based on first sale (US/EU) |
|
$150.0 |
Total potential sales milestone payments |
|
$225.0 |
Royalties |
|
Low-single digit to low-double digit (if sales exceed $1.0 billion) tiered royalties on net product sales. |
Royalties are subject to reduction in the event of third-party licenses, entry of a generic product or expiration of patent and regulatory exclusivity prior to the tenth (10th) anniversary of the first commercial sale of a GSK Licensed Product in a particular country.
The Company will be responsible for the execution and costs of the follow-up Phase 3 clinical trial of tebipenem HBr. GSK will be responsible for the execution and costs of additional further development, including Phase III regulatory filing and commercialization activities for tebipenem HBr in the balance of the GSK Territory outside of the United States. The Company will also be responsible for providing and paying for the clinical supply of tebipenem HBr while GSK will be responsible for the costs of the commercial supply of tebipenem HBr. A joint development committee will be established between GSK and the Company to coordinate and review development activities for tebipenem HBr in the United States.
Unless earlier terminated due to certain material breaches of the GSK License Agreement or by GSK for convenience, or otherwise, the GSK License Agreement will expire on a jurisdiction-by-jurisdiction and GSK Licensed Product-by-GSK Licensed Product basis on the latest to occur of (i) loss of patent exclusivity, (ii) loss of regulatory exclusivity or (iii) ten (10) years following the date of the first commercial sale of such licensed product in such country (the “Royalty Term”). During the Royalty Term, the Company has agreed not to develop, manufacture or commercialize any oral carbapenem for any indication or any oral antibiotic for cUTI; this restriction does not apply to any third party which acquires control of Spero after the date of the GSK License Agreement if certain conditions are met.
The Company has the right to terminate the GSK License Agreement upon a material breach by, or bankruptcy of, GSK. GSK has the right to terminate the GSK License Agreement at any time upon a specified number of days’ notice or upon a material breach by, or bankruptcy of, the Company. In addition, in the event that GSK has the right to terminate the GSK License Agreement due to a breach by the Company, GSK may elect not to terminate the GSK License Agreement and in lieu thereof may assume the responsibility and expense of development of tebipenem HBr in the United States, in which event GSK’s obligation to make further development payments to the Company would cease, and/or to reduce all subsequent commercial and sales milestone payments and royalty payments otherwise due by GSK to the Company under the GSK License Agreement by fifty percent (50%).
The GSK License Agreement contains representations and warranties, other covenants, indemnification provisions and other terms and conditions customary for transactions of the type contemplated by the GSK License Agreement. In support of certain of its rights to indemnification, GSK also has certain rights to suspend payments otherwise owed to the Company, as well as the right to offset payments otherwise owed to the Company against certain indemnifiable claims.
Share Purchase Agreement
Concurrently with the execution of the GSK License Agreement, on September 21, 2022 (the “GSK Effective Date”), the Company entered into a stock purchase agreement (the “GSK SPA”) with Glaxo Group Limited (“GGL”), an affiliate of GSK, which
32
closed on November 7, 2022 (the “GSK Closing Date”), and pursuant to which GGL purchased on the GSK Closing Date 7,450,000 shares (the “GSK Shares”) of the Company’s common stock at a purchase price of approximately $1.20805 per share, for an aggregate purchase price of $9.0 million. The GSK SPA contains certain standstill, lock-up and registration rights provisions.
The Shares were issued and sold without registration under the Securities Act in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws.
"At-the-Market" Offering
Subsequent to September 30, 2022 and through and including November 10, 2022, the Company sold an additional 1,567,505 shares of its common stock under the "at-the-market" offering program Sales Agreement with Cantor at an average price of approximately $2.05 per share for aggregate gross proceeds of approximately $3.2 million prior to deducting sales commissions.
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, 2021. 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 bacterial infections, including MDR bacterial infections, and rare diseases. Our lead product candidate, SPR720, is an oral antimicrobial agent in development for the treatment of nontuberculous mycobacterial (“NTM”) pulmonary disease, a rare orphan disease. Our partnership directed programs consist of SPR206 and tebipenem HBr, which through our business development efforts, have partnership relationships supporting their ongoing development. SPR206 is an IV-administered agent being developed as an innovative option to treat MDR Gram-negative bacterial infections in the hospital setting. Tebipenem HBr is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use to treat certain bacterial infections that cause complicated urinary tract infections (“cUTIs”) including pyelonephritis, caused by certain microorganisms, in adult patients who have limited oral treatment options. See below under the heading “Recent Developments” for additional information regarding communications from the FDA concerning tebipenem HBr.
We believe that our novel product candidates, if successfully developed and approved, would have meaningful patient impacts and significant commercial applications for the treatment of bacterial infections, including 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.
We have experienced net losses and significant cash outflows from cash used in operating activities since our inception. 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, 2022, we had an accumulated deficit of $440.6 million, and cash, cash equivalents and marketable securities of $50.4 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Based on our strategic restructuring, described in Note 11 - Restructuring to the Financial Statements, and the cessation of commercialization activities for the tebipenem HBr program, along with the initial cash payment of $66.0 million we are entitled to receive from the GSK License Agreement and $9.0 million we received from the GSK SPA, we believe that our existing cash, cash equivalents and marketable securities, together with other non-dilutive funding commitments, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included in this report. Inclusive of the milestone payments under the GSK License Agreement to be received in connection with the delivery of the Phase 3 program, we believe that our cash runway will be sufficient to fund the company beyond 2024. During this period, our strategic refocusing prioritizes advancing SPR720 and SPR206 to key Phase 2 milestones. Beyond this point we will need additional funding, which primarily consist of raising additional capital through some combination of equity or debt financings, potential new collaborations, additional grant funding and/or reducing cash expenditures. If we are not able to secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our planned clinical trials and research stage programs.
33
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 our continued operation as a public company.
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.
Recent Developments
SPR720 Program Updates
We have initiated the Phase 2 clinical trial of SPR720, a potential novel first-line oral therapy for NTM, which is supported by preclinical studies demonstrating SPR720’s potent activity against a range of NTM species, as well as Phase 1 results that showed it to be well-tolerated at exposures above predicted therapeutic levels. We have opened the first clinical trial site with expectations to screen and dose our first patient in the fourth quarter of 2022.
The Phase 2 clinical trial of SPR720 is expected to enroll up to 35 treatment-naïve or treatment-inexperienced NTM-pulmonary disease patients across four cohorts. Cohorts will include a blinded placebo cohort, blinded SPR720 cohorts receiving 500 or 1000 mg of study drug daily, and an open-label SPR720 cohort receiving 1000 mg of study drug daily. The primary endpoint of the trial will evaluate changes in bacterial load in sputum samples from baseline to the end of the trial's 56-day treatment period. Key secondary endpoints will include assessments of clinical response, quality of life, study drug pharmacokinetics, and safety and tolerability. For more information on the trial and its design, see ClinicalTrials.gov identifier NCT05496374.
We continue to expect top line data in the first half of 2024 and no longer plan to provide a 2023 interim data readout.
SPR206 Program Updates
In October 2022, the U.S. Patent and Trademark Office issued U.S. Patent No. 11,459,357, which covers the SPR206 composition of matter, formulations thereof, and methods of treating a bacterial infection with SPR206. The patent is assigned to us and has a lifespan extending into at least June 2039.
In the third quarter of 2022, we received a $5.0 million payment from Pfizer in connection with the achievement of a regulatory milestone specified in a license agreement for SPR206.
We expect to initiate a Phase 2 clinical trial of SPR206 in the third quarter of 2023. The planned trial is designed to enroll patients with MDR pathogens. It is supported by preclinical data as well as the results of multiple Phase 1 clinical trials. These Phase 1 trials have demonstrated SPR206's lack of nephrotoxicity at predicted therapeutic dose levels and its ability to continuously achieve mean lung epithelial lining fluid exposures above its MIC (minimum inhibitory concentration) for targeted gram-negative pathogens, when administered three times daily at 100 mg.
Tebipenem HBr Program Updates
Type A Meeting for Tebipenem HBr
On August 2, 2022 we held a Type A meeting with the FDA to gain further insights as to the pathway forward towards a potential regulatory approval for tebipenem HBr. We received written minutes during the third quarter of 2022. The FDA indicated that positive results from a single additional Phase 3 clinical trial supported by confirmatory nonclinical evidence of efficacy could be sufficient to support the approval of tebipenem HBr for the treatment of cUTI, including pyelonephritis for a limited use indication. We also achieved alignment with the FDA on key components of the proposed pivotal Phase 3 trial design which may be the subject of a Special Protocol Assessment request, to be confirmed once the clinical protocol is finalized.
Tebipenem HBr License Agreement and Share Purchase Agreement with GSK
34
In September 2022, we entered into an exclusive license agreement with GSK (the “GSK License Agreement”) for tebipenem HBr, which closed on November 7, 2022. Pursuant to the GSK License Agreement, we are entitled to receive a $66.0 million upfront payment from GSK and are eligible to receive up to $525.0 million in development, sales, and commercial milestones payments, as well as low single-digit to low double-digit tiered royalties on net product sales. In exchange, GSK received an exclusive license to develop and commercialize tebipenem pivoxil and tebipenem pivoxil HBr in all territories, except Japan, and certain other Asian countries, territories which will be retained by our partner Meiji Seika Pharma Co. Ltd. (“Meiji”). In connection with the GSK License Agreement, we received a $9.0 million equity investment, with GSK purchasing 7,450,000 shares of our common stock at a purchase price of approximately $1.20805 per share, which closed on November 7, 2022.
Components of our Results of Operations
Sales Revenue
To date, we have not generated any revenue from product sales. 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.
Grant Revenue
To date, the majority of our revenue has been derived from government awards. We expect that our revenue for the next few years will be derived primarily from payments under our government awards that we have currently entered into and that we may enter into in the future.
Collaboration Revenue
Collaboration revenue relates to our agreements with Everest and Pfizer.
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:
In June 2019, we entered into a collaboration with the Bill and Melinda Gates Research Institute (the “Gates MRI”), a nonprofit research institution wholly owned by the Bill and Melinda Gates Foundation to develop SPR720 for the treatment of lung infections caused by Mycobacterium tuberculosis. In furtherance of the Gates MRI’s charitable purposes, we also granted the Gates MRI a no cost, exclusive license to develop, manufacture and commercialize SPR720 for the treatment of tuberculosis (“TB”) in low- and middle- income countries. Gates MRI will conduct and fund preclinical and clinical studies for the development of SPR720 against TB and fund certain agreed upon collaborative research activities performed by us. Due to our assessment that we do not have a vendor/customer relationship with the Gates MRI, we recognize the funding received under the agreement as a reduction to the research and development expenses as the related expenses are incurred.
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
35
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.
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.
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:
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.
Restructuring
In light of our decision to suspend current commercialization activities for tebipenem HBr and our strategic restructuring, we expect that our future expected operating expenses will be substantially reduced. We currently expect our research and development and general and administrative expenses to be lower for the remainder of 2022 as we progress through our discussions with the FDA regarding the NDA for tebipenem HBr and operate pursuant to our restructuring. In connection with our restructuring, during the nine months ended September 30, 2022 we incurred approximately $11.7 million of costs in connection with the reduction in workforce related to severance pay and other restructuring costs. We incurred the majority of the costs associated with our restructuring during the second quarter of 2022. We also anticipate that we will continue to incur accounting, audit, legal, regulatory, compliance, infrastructure and director and officer insurance costs as well as investor and public relations expenses associated with our continued operation as a public company.
Other Income (Expense)
Interest Income (Expense)
Interest income (expense) consists of interest expense related to the sale of future royalties and 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 three and nine months ended September 30, 2022 and 2021.
Other Income (Expense), Net
Other income (expense), net, consists of insignificant amounts of miscellaneous income, as well as the loss on extinguishment of liability related to the sale of future royalties, the change in the fair value of our derivative liability, realized and unrealized gains
36
and losses from foreign currency-denominated cash balances, vendor payables and receivables from the Australian research and development tax incentive.
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 (“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.
During the nine months ended September 30, 2022, we had the following material change to our critical accounting estimates as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021:
Restructuring
We have made estimates and judgments regarding the amount and timing of our restructuring expense and liability, including current and future period termination benefits and other exit costs to be incurred when related actions take place. Restructuring charges are reflected in our consolidated statements of income. Actual results may differ from these estimates.
Results of Operations
Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of revenues and the satisfaction of liabilities in the normal course of business.
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021 (in thousands):
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Revenues: |
|
|
|
|||||||||
Grant revenue |
|
$ |
924 |
|
|
$ |
2,356 |
|
|
$ |
(1,432 |
) |
Collaboration revenue |
|
|
1,082 |
|
|
|
708 |
|
|
|
374 |
|
Total revenues |
|
|
2,006 |
|
|
|
3,064 |
|
|
|
(1,058 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
7,360 |
|
|
|
14,436 |
|
|
|
(7,076 |
) |
General and administrative |
|
|
6,632 |
|
|
|
11,152 |
|
|
|
(4,520 |
) |
Restructuring |
|
|
(152 |
) |
|
|
— |
|
|
|
(152 |
) |
Total operating expenses |
|
|
13,840 |
|
|
|
25,588 |
|
|
|
(11,748 |
) |
Loss from operations |
|
|
(11,834 |
) |
|
|
(22,524 |
) |
|
|
10,690 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
208 |
|
|
|
90 |
|
|
|
118 |
|
Other income (expense), net |
|
|
(23 |
) |
|
|
(87 |
) |
|
|
64 |
|
Interest expense related to the sale of future royalties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Loss on extinguishment of liability related to the sale of future royalties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Change in fair value of derivative liability |
|
|
(26 |
) |
|
|
— |
|
|
|
(26 |
) |
Total other income (expense), net |
|
|
159 |
|
|
|
3 |
|
|
|
156 |
|
Net loss |
|
$ |
(11,675 |
) |
|
$ |
(22,521 |
) |
|
$ |
10,846 |
|
Grant Revenue
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
BARDA Contract (tebipenem HBr) |
|
$ |
537 |
|
|
$ |
721 |
|
|
$ |
(184 |
) |
NIAID Contract (SPR206) |
|
|
339 |
|
|
|
129 |
|
|
|
210 |
|
DoD Agreement (SPR206) |
|
|
48 |
|
|
|
1,506 |
|
|
|
(1,458 |
) |
Total grant revenue |
|
$ |
924 |
|
|
$ |
2,356 |
|
|
$ |
(1,432 |
) |
37
Grant revenue recognized during the three months ended September 30, 2022 and 2021 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards. The decrease in revenue during the three months ended September 30, 2022 was primarily due to a $1.5 million decrease in funding under our DoD agreement relating to SPR206, a $0.2 million decrease in qualified expenses incurred under our BARDA contract for tebipenem HBr, partially offset by an increase of $0.2 million under our NIAID agreement relating to SPR206.
Collaboration Revenue
During the three months ended September 30, 2022, we recognized $1.1 million in collaboration revenue related to our agreement with Pfizer. During the three months ended September 30, 2021, we recognized $0.2 million in collaboration revenue related to our agreement with Pfizer and $0.5 million in collaboration revenue related to our agreement with Everest Medicines.
Research and Development Expenses
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Direct research and development expenses by program: |
|
|
|
|
|
|
|
|
|
|||
SPR720 |
|
$ |
1,400 |
|
|
$ |
103 |
|
|
$ |
1,297 |
|
SPR206 |
|
|
476 |
|
|
|
1,673 |
|
|
|
(1,197 |
) |
Tebipenem HBr |
|
|
1,193 |
|
|
|
5,674 |
|
|
|
(4,481 |
) |
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
|||
Personnel related (including share-based compensation) |
|
|
3,349 |
|
|
|
5,918 |
|
|
|
(2,569 |
) |
Facility related and other |
|
|
942 |
|
|
|
1,068 |
|
|
|
(126 |
) |
Total research and development expenses |
|
$ |
7,360 |
|
|
$ |
14,436 |
|
|
$ |
(7,076 |
) |
Direct costs related to our SPR720 program increased by $1.3 million during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, due to increased clinical and preclinical activity during the period related to our planned Phase 2 clinical trial of SPR720, which we expect to begin in the fourth quarter of 2022. We expect to continue to incur direct costs related to SPR720 as we progress preclinical and clinical activities. During the three months ended September 30, 2021, direct costs related to our SPR720 program reflected a $0.3 million reduction to expense related to activities funded by Gates MRI.
Direct costs related to our SPR206 program decreased by $1.2 million during the three months ended September 30, 2022, primarily due to decreased clinical activity during the period. We expect to continue to incur direct costs related to SPR206 as we progress preclinical and clinical activities.
Direct costs related to our tebipenem HBr program decreased by $4.5 million during the three months ended September 30, 2022 compared to the three months ended September 30, 2021, due to reduced program activity as a result of our strategic restructuring announced in May 2022 and further described in Note 11 - Restructuring to the Financial Statements.
The decrease in personnel-related costs of $2.6 million was primarily a result of a decrease in research and development headcount due to our strategic restructuring announced in May 2022. Personnel-related costs for the three months ended September 30, 2022 and 2021 included share-based compensation expense of $0.7 million and $1.1 million, respectively.
Facility-related and other costs primarily reflect costs related to supporting our research and development staff.
General and Administrative Expenses
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Personnel related (including share-based compensation) |
|
$ |
4,222 |
|
|
$ |
5,851 |
|
|
$ |
(1,629 |
) |
Professional and consultant fees |
|
|
1,777 |
|
|
|
4,321 |
|
|
|
(2,544 |
) |
Facility related and other |
|
|
633 |
|
|
|
980 |
|
|
|
(347 |
) |
Total general and administrative expenses |
|
$ |
6,632 |
|
|
$ |
11,152 |
|
|
$ |
(4,520 |
) |
The decrease in personnel-related costs of $1.6 million was primarily a result of a decrease in headcount in our commercial, general and administrative functions due to our strategic restructuring. Personnel-related costs for the three months ended September 30, 2022 and 2021 included share-based compensation expense of $1.4 million and $1.3 million, respectively.
The decrease in professional and consultant fees of $2.5 million was primarily due to decreased commercial operation expenses, offset by legal and consulting expenses.
Facility-related and other costs primarily reflect costs related to supporting our general and administrative staff.
Restructuring
38
During the three months ended September 30, 2022, we incurred restructuring expenses of $(0.2) million related to our strategic restructuring in May 2022. For further information, refer to Note 11 - Restructuring to the Financial Statements.
Other Income (Expense), Net
Other income, net was $0.2 million for the three months ended September 30, 2022, compared to less than $0.1 million for the three months ended September 30, 2021. Total other income for the three months ended September 30, 2022 included immaterial changes primarily due to fluctuations in unrealized foreign currency and net change in derivative liability, offset by interest income.
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands):
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Revenues: |
|
|
|
|||||||||
Grant revenue |
|
$ |
3,843 |
|
|
$ |
12,698 |
|
|
$ |
(8,855 |
) |
Collaboration revenue |
|
|
2,225 |
|
|
|
2,814 |
|
|
|
(589 |
) |
Total revenues |
|
|
6,068 |
|
|
|
15,512 |
|
|
|
(9,444 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
32,504 |
|
|
|
47,301 |
|
|
|
(14,797 |
) |
General and administrative |
|
|
29,988 |
|
|
|
28,680 |
|
|
|
1,308 |
|
Restructuring |
|
|
11,697 |
|
|
|
— |
|
|
|
11,697 |
|
Total operating expenses |
|
|
74,189 |
|
|
|
75,981 |
|
|
|
(1,792 |
) |
Loss from operations |
|
|
(68,121 |
) |
|
|
(60,469 |
) |
|
|
(7,652 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
391 |
|
|
|
270 |
|
|
|
121 |
|
Other income (expense), net |
|
|
(46 |
) |
|
|
(317 |
) |
|
|
271 |
|
Interest expense related to the sale of future royalties |
|
|
(2,605 |
) |
|
|
— |
|
|
|
(2,605 |
) |
Loss on extinguishment of liability related to the sale of future royalties |
|
|
(3,581 |
) |
|
|
— |
|
|
|
(3,581 |
) |
Change in fair value of derivative liability |
|
|
776 |
|
|
|
— |
|
|
|
776 |
|
Total other income (expense), net |
|
|
(5,065 |
) |
|
|
(47 |
) |
|
|
(5,018 |
) |
Net loss |
|
$ |
(73,186 |
) |
|
$ |
(60,516 |
) |
|
$ |
(12,670 |
) |
Grant Revenue
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
BARDA Contract (SPR994) |
|
$ |
1,865 |
|
|
$ |
8,908 |
|
|
$ |
(7,043 |
) |
NIAID Contract (SPR206) |
|
|
962 |
|
|
|
530 |
|
|
|
432 |
|
DoD Agreement (SPR206) |
|
|
1,016 |
|
|
|
3,260 |
|
|
|
(2,244 |
) |
Total revenue |
|
$ |
3,843 |
|
|
$ |
12,698 |
|
|
$ |
(8,855 |
) |
Grant revenue recognized during the nine months ended September 30, 2022 and 2021 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards. The decrease in revenue during the nine months ended September 30, 2022 was primarily due to a $7.0 million decrease in qualified expenses incurred under our BARDA contract for tebipenem HBr and a $2.2 million decrease in funding under our DoD agreement relating to SPR206, offset by a $0.4 million increase in funding under our NIAID agreement relating to SPR206.
Collaboration Revenue
During the nine months ended September 30, 2022, we recognized $1.5 million in collaboration revenue related to milestones under our agreement with Pfizer and $0.8 million in collaboration revenue related to milestones under our agreement with Everest Medicines. During the nine months ended September 30, 2021, we recognized $1.6 million in collaboration revenue related to our agreement with Pfizer consisting primarily of the delivery of the license for SPR206 in ex-U.S. and ex-Asia territories and $1.3 million in collaboration revenue related to our agreement with Everest Medicines.
Research and Development Expenses
39
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Direct research and development expenses by program: |
|
|
|
|
|
|
|
|
|
|||
SPR720 |
|
$ |
1,733 |
|
|
$ |
2,027 |
|
|
$ |
(294 |
) |
SPR206 |
|
|
3,250 |
|
|
|
4,037 |
|
|
|
(787 |
) |
Tebipenem HBr |
|
|
9,610 |
|
|
|
22,192 |
|
|
|
(12,582 |
) |
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
|||
Personnel related (including share-based compensation) |
|
|
14,747 |
|
|
|
15,689 |
|
|
|
(942 |
) |
Facility related and other |
|
|
3,164 |
|
|
|
3,356 |
|
|
|
(192 |
) |
Total research and development expenses |
|
$ |
32,504 |
|
|
$ |
47,301 |
|
|
$ |
(14,797 |
) |
Direct costs related to our SPR720 program decreased by $0.3 million during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, due to decreased clinical activity during the period. We expect to continue to incur direct costs related to SPR720 as we progress preclinical and clinical activities. Direct costs related to our SPR720 program during the nine months ended September 30, 2021 reflect a $1.4 million reduction to expense related to activities funded by Gates MRI.
Direct costs related to our SPR206 program decreased by $0.8 million during the nine months ended September 30, 2022, primarily due to decreased clinical activity during the period. We expect to continue to incur direct costs related to SPR206 as we progress preclinical and clinical activities.
Direct costs related to our tebipenem HBr program decreased by $12.6 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to our strategic restructuring announced in May 2022 and further described in Note 11 - Restructuring to the Financial Statements.
The decrease in personnel-related costs of $0.9 million was primarily due to decreased research and development headcount costs related to our strategic restructuring. Personnel-related costs for the nine months ended September 30, 2022 and 2021 included share-based compensation expense of $2.6 million and $2.8 million, respectively.
Facility-related and other costs primarily reflect costs related to supporting our research and development staff.
General and Administrative Expenses
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Personnel related (including share-based compensation) |
|
$ |
16,517 |
|
|
$ |
14,873 |
|
|
$ |
1,644 |
|
Professional and consultant fees |
|
|
10,309 |
|
|
|
11,396 |
|
|
|
(1,087 |
) |
Facility related and other |
|
|
3,162 |
|
|
|
2,411 |
|
|
|
751 |
|
Total general and administrative expenses |
|
$ |
29,988 |
|
|
$ |
28,680 |
|
|
$ |
1,308 |
|
The increase in personnel-related costs of $1.6 million was primarily a result of higher headcount costs in our commercial, general and administrative functions prior to our strategic restructuring. Personnel-related costs for the nine months ended September 30, 2022 and 2021 included share-based compensation expense of $4.0 million and $3.7 million, respectively.
The decrease in professional and consultant fees of $1.1 million was primarily due to decreased commercial operation expenses related to our strategic restructuring, partially offset by legal and consulting expenses.
Facility-related and other costs primarily reflect costs related to supporting our general and administrative staff.
Restructuring
During the nine months ended September 30, 2022, we incurred restructuring expenses of $11.7 million related to our strategic restructuring in May 2022. Restructuring expenses for the period were primarily comprised of $8.6 million of severance and other employee costs, $2.5 million of discontinuation costs such as contract termination fees and $0.6 million of lease impairment expenses. For further information, refer to Note 11 - Restructuring to the Financial Statements.
Other Income (Expense), Net
Other expense, net was $(5.1) million for the nine months ended September 30, 2022 compared to less than $(0.1) million for the nine months ended September 30, 2021. Total other expense for the nine months ended September 30, 2022 included $2.6 million in interest expense related to the sale of future royalties, $3.6 million in loss on extinguishment of liability related to the sale of future royalties, a $0.8 million net change in derivative liability and net immaterial changes primarily due to fluctuations in unrealized foreign currency gains, offset by interest income.
40
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have recognized limited revenue to date from funding arrangements with the DoD, NIAID, CARB-X and BARDA and our license agreements with Everest and Pfizer. We have not yet commercialized any of our product candidates and we may not generate revenue from sales of any product candidates. To date, we have funded our operations with payments received under license and collaboration agreements and funding from government contracts, and mostly from the proceeds of multiple common stock offerings. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $50.4 million.
On March 11, 2021, we entered into a new sales agreement with Cantor Fitzgerald & Co. (“Cantor”) and filed a new universal shelf registration statement on Form S-3 (Registration No. 333-254170), pursuant to which we registered for sale up to $300.0 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, including up to $75.0 million of our common stock available for issuance pursuant to the new “at-the-market” offering program sales agreement that we entered into with Cantor (the “Sales Agreement”). Under the Sales Agreement, Cantor may sell shares of our common stock by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, subject to the terms of the Sales Agreement. Our universal shelf registration statement on Form S-3 (Registration No. 333-254170) became effective on March 29, 2021 and our prior sales agreement with Cantor terminated automatically at such time.
During the nine months ended September 30, 2022, we sold 3,964,478 shares of our common stock under our Sales Agreement at an average price of approximately $2.69 per share for aggregate gross proceeds of approximately $10.7 million prior to deducting sales commissions.
The COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted.
Cash Flows
The following table summarizes our sources and uses of cash for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash used in operating activities |
|
$ |
(52,213 |
) |
|
$ |
(36,998 |
) |
Cash provided by investing activities |
|
|
33,807 |
|
|
|
30,947 |
|
Cash provided by financing activities |
|
|
(43,732 |
) |
|
|
33,701 |
|
Net increase in cash and cash equivalents |
|
$ |
(62,138 |
) |
|
$ |
27,650 |
|
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2022 was $52.2 million, primarily resulting from our net loss of $73.2 million, adjusted for net decrease in non-cash items of $13.9 million (primarily stock-based compensation, interest expense associated with the sale of future royalties, loss on extinguishment of liability related to the sale of future royalties, depreciation and amortization). Net cash used due to changes in our operating assets and liabilities was $7.1 million and consisted primarily of a $7.1 million decrease in prepaid expenses and other current assets, a $1.7 million net decrease in receivables, a decrease of $6.3 million in accrued expenses, a $3.5 million increase in deferred revenue and a $1.5 million increase in accounts payable.
Net cash used in operating activities for the nine months ended September 30, 2021 was $37.0 million, primarily resulting from our net loss of $60.5 million, adjusted for net decrease in non-cash items of $7.8 million (primarily stock-based compensation, depreciation and amortization). Net cash provided by changes in our operating assets and liabilities was $15.7 million and consisted primarily of a $10.9 million increase in deferred revenue, $3.9 million net decrease in receivables, a $2.8 million decrease in prepaid expenses and other current assets, a decrease of $3.2 million in accrued expenses, and a $2.0 million increase in accounts payable.
Changes in accounts payable, accrued expenses and other current liabilities, and prepaid expenses and other current assets in all periods were generally due to the advancement of our development programs, the timing of vendor invoicing and payments and write-offs during the second quarter of 2022 related to our strategic restructuring.
Investing Activities
Cash provided by investing activities during the nine months ended September 30, 2022 was $33.8 million primarily related to the maturities of marketable securities of $60.8 million, offset by purchases of marketable securities of $27.0 million.
41
Cash provided by investing activities during the nine months ended September 30, 2021 was $30.9 million primarily related to the maturities of marketable securities of $44.5 million, offset by purchases of marketable securities of $13.6 million.
Financing Activities
Cash used by financing activities during the nine months ended September 30, 2022 was $43.7 million, and consisted primarily of the $54.5 million repayment of our liability related to the sales of future royalties, offset by $10.3 million net sales of common stock under our Sales Agreement and proceeds of $0.4 million from the exercise of employee stock options.
Cash provided by financing activities during the nine months ended September 30, 2021 was $33.7 million, and consisted primarily of $27.5 million in proceeds related to the Pfizer Purchase Agreement (as defined in Note 5), $5.4 million net sales of common stock under our “at-the-market” offering program Sales Agreement and proceeds of $1.2 million from the exercise of employee stock options, offset by the payment of offering and financing expenses of approximately $0.4 million.
Funding Requirements
Our future use of operating cash and capital requirements, and the timing and amount thereof, will depend largely on:
As of September 30, 2022, we had cash, cash equivalents and marketable securities of $50.4 million. In accordance with ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we are required to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern from the issuance date of our financial statements. Based on our strategic restructuring, described in Note 11 - Restructuring to the Financial Statements, and the cessation of commercialization activities for the tebipenem HBr program, along with the initial cash payment of $66.0 million we are entitled to receive from the GSK License Agreement and $9.0 million we received from the GSK SPA, we believe that our existing cash, cash equivalents and marketable securities, together with other non-dilutive funding commitments, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included in this report. Inclusive of the milestone payments under the GSK License Agreement to be received in connection with the delivery of the Phase 3 program, we believe that our cash runway will be sufficient to fund the company beyond 2024.
Beyond this point we will need additional funding, which primarily consist of raising additional capital through some combination of equity or debt financings, potential new collaborations, additional grant funding and/or reducing cash expenditures. If we are not able to secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our planned clinical trials and research stage programs.
42
Our consolidated financial statements as of December 31, 2021 were prepared under the assumption that we will not continue as a going concern for the next twelve months. As a result, the opinion from our independent registered public accounting firm with respect to our annual financial statements contains an explanatory paragraph about such substantial doubt about our ability to continue as a going concern. As of the issuance date of these quarterly consolidated financial statements, we expect our current operating plan, existing cash, cash equivalents and marketable securities and the initial payments under the GSK License Agreement and GSK SPA will be sufficient to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these quarterly consolidated financial statements.
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. The COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets, including relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted. 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, 2022, 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 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, 2021.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of September 30, 2022, we had cash, cash equivalents and marketable securities of $50.4 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. We did not have any assets classified as marketable securities as of September 30, 2022. As we incur research expenses in foreign countries, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Japanese Yen and Australian dollar against the U.S. dollar. Historically, foreign currency fluctuations have not had a material impact on our consolidated financial statements.
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, 2022. 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 (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
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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, 2022, 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(d) and 15d-15(d) under the Exchange Act) occurred during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Two putative class action lawsuits were filed against us and certain of our officers in the United States District Court for the Eastern District of New York, one captioned Richard S. Germond v. Spero Therapeutics, Inc., Ankit Mahadevia, and Satyavrat Shukla, Case No. 1:22-cv-03125, filed on May 26, 2022, and the other captioned Kashif Memon v. Spero Therapeutics, Inc., Ankit Mahadevia, and Satyavrat Shukla Case No. 1:22-cv-04154, filed on July 15, 2022. The parties moved to consolidate the two complaints on July 22, 2022, which were ordered consolidated on August 5, 2022. Both Mr. Memon and stockholder Nabil Saad filed motions for appointment of lead plaintiff/lead counsel on July 25, 2022. Mr. Saad withdrew his opposition on August 15, 2022, and Mr. Memon was appointed lead plaintiff on September 19, 2022. The complaint purports to be brought on behalf of stockholders who purchased our common stock from May 6, 2021 through May 2, 2022 (Mr. Memon’s complaint alleged a six-month longer class period than the complaint originally filed by Mr. Germond). The complaint generally alleges that we and certain of our officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the New Drug Application for tebipenem HBr in an effort to lead investors to believe that the drug would receive approval from the FDA. The complaint seeks unspecified damages, interest, attorneys’ fees, and other costs. Mr. Memon must file an amended complaint on or before December 5, 2022. We deny any allegations of wrongdoing and intend to vigorously defend against these lawsuits. However, there is no assurance that we will be successful in our defense or that insurance will be available or adequate to fund any settlement or judgment or the litigation costs of these actions. Moreover, we are unable to predict the outcomes or reasonably estimate a range of possible loss at this time.
Additional lawsuits against the Company and certain of its officers or director may be filed in the future. If additional similar complaints are filed, absent new or different allegations that are material, the Company will not necessarily announce such additional filings.
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 events described in the following risk factors 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 Product Development and Commercialization
Based on our receipt of the minutes from our Type A meeting with the FDA, the FDA indicated that positive results from a single additional Phase 3 clinical trial could be sufficient to support the approval of tebipenem HBr for the treatment of cUTI; however, the timing and terms of the potential approval of tebipenem HBr remain uncertain, which may impact our ability to realize the value of tebipenem HBr.
On June 27, 2022, we announced that we received a CRL from the FDA for our NDA for tebipenem HBr. In the CRL, the FDA communicated that it had completed its review of the NDA and determined that the NDA could not be approved in its present form. The FDA ultimately concluded that the Phase 3 cUTI clinical trial of tebipenem HBr (ADAPT-PO) was insufficient to support
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approval and that additional clinical study would be required. On August 2, 2022, we held a Type A meeting with the FDA, to gain further insights as to the pathway forward towards a potential regulatory approval for tebipenem HBr. We received written minutes during the third quarter of 2022.
During the Type A meeting, the FDA indicated that positive results from a single additional Phase 3 clinical trial supported by confirmatory nonclinical evidence of efficacy could be sufficient to support the approval of tebipenem HBr for the treatment of cUTI, including pyelonephritis for a limited use indication. We and the FDA also achieved alignment on key components of the proposed pivotal Phase 3 trial design which may be the subject of a Special Protocol Assessment request, to be confirmed once the clinical protocol is finalized.
We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of tebipenem HBr as a product candidate for the treatment of bacterial infections causing cUTI. Our ability to realize the value of tebipenem HBr depends on having a regulatory path for potential FDA approval, whose expected timeline and other requirements would affect the attractiveness of eventual commercialization of tebipenem HBr through our partnership with GSK. Further, as part of any approval, the FDA could impose labeling requirements restricting the use of tebipenem HBr, which could reduce its commercial prospects, unless such requirements are subsequently modified to reduce such restrictions. If any of these outcomes occur, our business could be materially harmed.
If our clinical trials fail to produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.
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 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.
The clinical development of any of our 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.
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 any of our product candidates, including:
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We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards (“IRBs”) of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board (“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 any of our product candidates 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 any of our product candidates, we may:
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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 any of our product candidates.
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 our product candidates if we are unable to locate and enroll a sufficient number of eligible 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:
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.
Separately, in response to the COVID-19 pandemic and public health emergency declaration in the United States, in March 2020, the FDA temporarily postponed most inspections of foreign manufacturing facilities and products. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and most inspections of foreign manufacturing facilities. The agency also provided guidance regarding the conduct of clinical trials during the COVID-19 pandemic, which has been updated periodically since that time with common questions and answers. Since that time, the FDA has developed a risk-based prioritization system for resuming on-site inspections, to be used for identifying the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities, based on local conditions and the prevalence of the virus. The FDA has also employed remote interactive evaluations and used alternative tools such as remote records requests, as outlined in its “Resiliency Roadmap for FDA Inspectional Oversight” that was first issued in May 2021 and updated in November 2021. Due to the rapid spread of the COVID-19 omicron variant at the end of 2021, the FDA announced certain inspections, such as domestic and foreign preapproval, surveillance, and for-cause inspections that are not deemed mission-critical, would be postponed through February 4, 2022, and that the agency would reassess plans to resume foreign inspections. However, the FDA has generally continued to ensure timely reviews of applications for prescription drug products during the COVID-19 pandemic in line with its user fee performance goals and conducting mission-critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards.
The FDA may not be able to maintain this pace and delays or setbacks are possible in the future.
Should the FDA determine that an inspection is necessary for NDA approval and an inspection cannot be completed during the review cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there
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is inadequate information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be completed. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Analyses of preliminary or interim data from our clinical studies that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any future collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. We will be required to demonstrate through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek marketing approvals for their commercial sale. Success in preclinical studies and early-stage clinical trials does not mean that future larger registration clinical trials will be successful. This is because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory authorities despite having progressed through preclinical studies and early-stage clinical trials.
Analyses of preliminary or interim data from our clinical studies are not necessarily predictive of analyses of final data. Analyses of 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, analyses of interim and preliminary data should be viewed with caution until the analyses of final data are available. Adverse differences between preliminary or interim data and final data could affect our planned clinical path for any of our product candidates we advance into clinical trials, including potentially increasing cost and/or causing delay in such development.
In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We therefore do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval to market our product candidates.
Serious adverse events or undesirable side effects or other unexpected properties of any of our product candidates may be identified during development or after approval that could delay, prevent or cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences following marketing approval.
Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, an IRB, 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 any of our other product candidates are 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.
If unexpected adverse events occur in any of our ongoing or 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 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 our product candidates. If such an event occurs after such product candidates are approved, a number of potentially significant negative consequences may result, including:
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We believe that 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.
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 any of our product candidates commercially, the approved product candidate may nonetheless fail to gain sufficient 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. If an approved product candidate does not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of any product candidate for which we receive approval depends on a number of factors, including:
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Any failure of any of our product candidates 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.
If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing any of our product candidates if such product candidates are approved.
To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource those functions to third parties. 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:
We intend to use collaborators to assist with the commercialization of any of our product candidates, including the GSK License Agreement with GSK for the development and commercialization of tebipenem HBr. 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 our 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
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are more effective or less costly than the 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 of cUTIs that we would expect would compete with tebipenem HBr, if approved, 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 tebipenem HBr is approved, the pricing may be at a significant premium over other competitive products. This may make it difficult for tebipenem HBr 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 cUTIs. One such product candidate is ceftibuten/clavulanate ("C-Scape") from Cipla Therapeutics, 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.
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., imipenem/cilastatin and relebactam ("Recarbrio") from Merck & Co., plazomicin ("Zemdri") from Cipla Therapeutics, Inc., cefiderocol ("Fetroja") from Shionogi & Co. Ltd., eravacycline ("Xerava") from Tetraphase Pharmaceuticals, Inc. and meropenem-vaborbactam ("Vabomere") from Melinta Therapeutics, Inc.
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.
Even if we are able to commercialize any of our product candidates, 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 any of our product candidates we develop are 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.
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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 any 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.
We cannot predict whether bacteria may develop resistance to our product candidates, if approved, which could affect their revenue potential.
Tebipenem HBr and certain of our other product candidates are designed to treat bacterial infections, including drug-resistant 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 tebipenem HBr or any of such other product candidates may develop.
As a carbapenem, tebipenem HBr 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 tebipenem HBr may be marketed 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 any of our product candidates outside of controlled hospital settings, could contribute to the rise of resistance. If resistance to any of our product candidates becomes prevalent, our ability to generate revenue from 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 our ongoing and planned clinical trials and potential approval of our product candidates, tebipenem HBr, SPR720 and SPR206, 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.
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:
If we are unsuccessful in identifying and developing additional product candidates, our potential for growth may be impaired.
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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 any of our product candidates. 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:
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 any of our product candidates. 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, including public health measures in place due to the ongoing COVID-19 pandemic. 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.
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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 or the operations of those third parties with which we contract, it could result in a material disruption of our programs and our business operations. 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. Such a loss could also expose us to regulatory enforcement, civil liability and reputational damage. 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, in addition to incurring liability, the further development of our product candidates could be delayed or our competitive position could be compromised.
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 the United States, the United States 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, including by companies outside of the European Union. The GDPR, which is wide-ranging in scope, imposes 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.
The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR has been and will continue to be a rigorous and time-intensive process that has increased and will continue to increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we or our collaborators may be subject to fines and penalties, litigation and reputational harm in connection with any European activities, which could adversely affect our business, prospects, financial condition and results of operations.
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In addition, certain states have adopted privacy and security laws and regulations, some of which are more stringent than HIPAA and/or regulate information other than PHI. For example, in June 2018, California enacted the California Consumer Privacy Act (“CCPA”) which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Although the CCPA includes exemptions for certain clinical trials data, and HIPAA protected health information, the law may increase our compliance costs and potential liability with respect to other personal information we collect about California residents. In addition, California voters also approved a new privacy law, the California Privacy Rights Act, (“CPRA”), on November 3, 2020. CPRA will modify CCPA significantly, potentially resulting in further uncertainty, additional costs and expenses stemming from efforts to comply, and additional potential for harm and liability for failure to comply. CPRA imposes additional obligations on companies covered by the legislation and will expand consumers’ rights with respect to certain sensitive personal information CPRA also creates a new state agency that will be vested with the authority to implement and enforce CCPA and CPRA. CCPA has prompted a number of proposals for new federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs and adversely affect our business. For example, in February 2021, the Virginia legislature became the second to enact a state-specific law called the Consumer Data Protection Act (“CDPA”), which includes key differences from California’s law, further complicating compliance by industry and other stakeholders. Many similar laws have been proposed in other states and at the federal level.
We or third parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our business, financial condition and results of operations could be adversely affected.
Natural disasters could severely disrupt our operations and have a material adverse effect on our business operations. If a natural disaster, health epidemic, such as COVID-19, or other event beyond our control occurred that prevented us from using all or a significant portion of our office, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult for us to continue our business for a substantial period of time.
Risks Related to Our Financial Position and Need for Additional Capital
We have not generated any revenue from the sale of our products, have a history of losses and expect to incur substantial future losses. The report of our auditor on our consolidated financial statements expressed substantial doubt about our ability to continue as a going concern; if we are unable to obtain additional capital, we may not be able to continue our operations on the scope or scale as currently conducted, and that could have a material adverse effect on our business, results of operations and financial condition.
We have not generated any revenue from the sale of our products and have incurred losses in each year since our inception in 2013. Our net losses were $11.7 million and $22.5 million during the nine months ended September 30, 2022 and 2021, 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.
In accordance with ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we are required to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern from the issuance date of our financial statements. Based on our strategic restructuring, described in Note 11 - Restructuring to the Financial Statements, and the cessation of commercialization activities for the tebipenem HBr program, along with the initial cash payment of $66.0 million we are entitled to receive from the GSK License Agreement and $9.0 million we received from the GSK SPA, we believe that our existing cash, cash equivalents and marketable securities, together with other non-dilutive funding commitments, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included in this report. Inclusive of the milestone payments under the GSK License Agreement to be received in connection with the delivery of the Phase 3 program, we believe that our cash runway will be sufficient to fund the company beyond 2024. Beyond this point we will need additional funding, which primarily consist of raising additional capital through some combination of equity or debt financings, potential new collaborations or partnerships, additional grant funding and/or reducing cash expenditures. If we are not able to secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our planned clinical trials, research stage programs and commercial activities.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future; if we are unable to achieve commercialization, revenue from product sales, and, ultimately, profitability, the market value of our common stock will likely decline.
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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 marketing approval for such candidates whose clinical trials are successful. Our expenses will also increase substantially if and as we:
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.
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.
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 continue to increase as we commence and advance our ongoing and planned clinical trials and other studies of tebipenem HBr, SPR720 and SPR206. If we obtain marketing approval for any product candidate, we expect to incur significant expenses related to development, 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.
Based on our strategic restructuring, described in Note 11 - Restructuring to the Financial Statements, and the cessation of commercialization activities for the tebipenem HBr program, along with the initial cash payment of $66.0 million we are entitled to receive from the GSK License Agreement and $9.0 million we received from the GSK SPA, we believe that our existing cash, cash equivalents and marketable securities, together with other non-dilutive funding commitments, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included in this report. Inclusive of the milestone payments under the GSK License Agreement to be received in connection with the delivery of the Phase 3 program, we believe that our cash runway will be sufficient to fund the company beyond 2024. 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:
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As of September 30, 2022, our non-dilutive sources of funding consisted of an award from BARDA for tebipenem HBr, an award from NIAID under its Small Business Innovation Research program ("SBIR") for our SPR720 program, an award from NIAID for SPR206, an award from the DoD that provides partial funding for the development of SPR206 and an award from the DoD Congressionally Directed Medical Research Programs ("CDMRP") Joint Warfighter Medical Research Program for SPR206.
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, 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. We filed a universal shelf registration statement on Form S-3 (Registration No. 333-254170) with the SEC on March 11, 2021, which was declared effective on March 29, 2021 and pursuant to which we registered for sale up to $300.0 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, including up to $75.0 million of our common stock available for issuance pursuant to the Sales Agreement that we entered into with Cantor. Under the Sales Agreement, Cantor may sell shares of our common stock by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, subject to the terms of the Sales Agreement.
We may seek to raise additional capital at any time. 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, 2021, we had United States federal, state and foreign net operating loss carryforwards ("NOLs") of $303.7 million, $302.6 million and $4.4 million, respectively. The federal NOLs of $73.0 million will expire at various dates from 2033 to 2037 and approximately $230.7 million can be carried forward indefinitely. The state NOLs begin to expire in 2033 and will expire at various dates through 2039. The foreign NOLs do not expire. 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 (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
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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 current United States 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 tebipenem HBr and our other product candidates. We have not yet demonstrated an ability to successfully 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 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 may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We have begun 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.
We and certain of our executive officers have been named as defendants in two initiated lawsuits, which were ordered consolidated, that could result in substantial costs and divert management’s attention.
We, and certain of our executive officers, were named as defendants in two purported class action lawsuits that generally allege that we and certain of our officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the New Drug Application for tebipenem HBr in an effort to lead investors to believe that the drug would receive approval from the FDA. The parties moved to consolidate the two complaints on July 22, 2022, which were ordered consolidated on August 5, 2022. Both Kashif Memon and stockholder Nabil Saad filed motions for appointment of lead plaintiff/lead counsel on July 25, 2022. Mr. Saad withdrew his opposition on August 15, 2022, and Mr. Memon was appointed lead plaintiff on September 19, 2022. The complaint seeks unspecified damages, interest, attorneys’ fees, and other costs. Mr. Memon must file an amended complaint on or before December 5, 2022.
We intend to engage in a vigorous defense of the lawsuits. However, we are unable to predict the outcome of these matters at this time. Moreover, any conclusion of these matters in a manner adverse to us would have a material adverse effect on our financial condition and business. We could incur substantial costs not covered by our directors’ and officers’ liability insurance, suffer a significant adverse impact on our reputation and divert management’s attention and resources from other priorities, including the execution of business plans and strategies that are important to our ability to grow our business, any of which could have a material adverse effect on our business. In addition, any of these matters could require payments that are not covered by, or exceed the limits of, our available directors’ and officers’ liability insurance, which could have a material adverse effect on our operating results or financial condition.
Risks Related to the COVID-19 Pandemic
The continued COVID-19 pandemic could adversely impact our business, including our preclinical studies and clinical trials.
Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 ("COVID-19"), surfaced in Wuhan, China. Since then, COVID-19 and variants thereof have spread globally.
As a result of the COVID-19 pandemic or similar pandemics, we have experienced, and may in the future experience, certain disruptions that could materially impact our business, preclinical studies and clinical trials. Such disruptions may include:
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These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19 or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our business, operations and financial condition and results.
The COVID-19 outbreak continues to evolve rapidly. The extent to which the outbreak may impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
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.
We have and may continue to seek third-party collaborators for development and commercialization of certain of our product candidates. Currently we are party to license and collaboration agreements with third parties as described in Note 9 (“License Collaborations and Services Agreements”) and in Note 13 (“Subsequent Events”) to the audited financial statements filed herewith. Our likely collaborators for any other marketing, distribution, development, licensing or broader collaboration arrangements we may pursue include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies.
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:
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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 our 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. Moreover, we intend to utilize a variety of types of collaboration arrangements for the potential commercialization of our product candidates outside the United States. 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 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
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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.
We rely on third parties to conduct all of our nonclinical 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 our 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 ("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 tebipenem HBr 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 our 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 our 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:
We currently rely on a small number of third-party contract manufacturers and one supplier 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.
In addition, because some of our manufacturers have manufacturing facilities in Taiwan, their ability to provide us with adequate supplies of high-quality products on a timely and cost-efficient basis is subject to a number of additional risks and uncertainties, including political, social and economic instability and factors that could impact the shipment of supplies. If our manufacturers are unable to provide us with adequate supplies of high-quality products on a timely and cost-efficient basis, our operations would be disrupted and our net revenue and profitability would suffer.
Our third-party contract manufacturers are based in Asia. Recently, our third-party contract manufacturers have been subject to various supply chain disruptions. These supply chain disruptions have increased the price of certain materials due to the significant increase in costs of raw materials and shipping costs. Our ability to produce and timely deliver our products may be materially impacted in the future if these supply chain disruptions continue or worsen.
Further, a major catastrophe, such as an earthquake or other natural disaster, labor strike, or work stoppage at any of our manufacturing facilities, or a manufacturing facility of our suppliers or customers, could result in a prolonged interruption of our business. A disruption resulting from any one of these events could cause significant delays in shipments of our products and the loss of revenue and customers, which could have a material adverse effect on our financial position, results of operations, and cash flows. Our facilities in Japan and Taiwan are located in seismically-active areas.
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
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manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being 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 our 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.
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, we could lose such rights that are important to our business.
We are a party to agreements with Meiji and GSK for tebipenem HBr, 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 (the "Meiji License") that gives us rights outside of specified countries in Asia (the “Meiji Territory”) to develop, manufacture, and commercialize tebipenem HBr 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 the Meiji Territory. In addition, we have the right to develop, manufacture and have manufactured tebipenem HBr in the Meiji Territory solely for the purpose of furthering development, manufacturing and commercialization of tebipenem HBr outside of the Meiji Territory. In exchange for those rights, we are obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize tebipenem HBr 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 future milestone payments of up to $1.0 million upon the achievement of specified regulatory milestones and royalties of a low single-digit percentage on net sales on a country-by-country basis.
In addition, pursuant to our GSK License Agreement, we granted GSK an exclusive royalty-bearing license, with the right to grant sublicenses, under our intellectual property and regulatory documents and a sublicense under certain intellectual property of Meiji and Meiji’s regulatory documents to develop, manufacture and commercialize the GSK Licensed Products in the GSK Territory. Under the terms of the GSK License Agreement, we are entitled to receive an upfront payment of $66.0 million for GSK to secure rights to the medicine. Remaining potential payments are milestone based, and are (i) approximately $150.0 million in payments for the achievement of development milestones, (ii) up to $150.0 million in commercial milestone payments, (iii) up to $225.0 million in sales milestone payments, and (iv) tiered low single-digit to low double-digit royalties on net sales of GSK Licensed Products in the GSK Territory.
We will be responsible for the execution and costs of the follow-up Phase 3 clinical trial of tebipenem HBr. GSK will be responsible for the execution and costs of additional further development, including Phase 3 regulatory filing and commercialization activities for tebipenem HBr in the balance of the GSK Territory outside of the United States. We will also be responsible for providing and paying for the clinical supply of tebipenem HBr while GSK will be responsible for the costs of the commercial supply of tebipenem HBr.
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If we fail to comply with our obligations to Meiji, GSK, 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 United States 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 United States 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:
We may not have the right to prohibit the United States 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 United States government. The United States government generally takes the position that it has the right to royalty-free use of technologies that are developed under United States government contracts.
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:
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.
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United States government agencies have special contracting requirements that give them the ability to unilaterally control our contracts.
United States 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 United States government to unilaterally:
The United States 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 United States government in procuring undelivered items from another source.
Our business is subject to audit by the United States government and other potential sources for grant funding, including under our contracts with BARDA, NIAID and DoD, and a negative outcome in an audit could adversely affect our business.
United States government agencies such as the Department of Health and Human Services (the "DHHS") and the Defense Contract Audit Agency (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:
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:
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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 United States 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 United States government, including through our contracts with BARDA. When new technologies are developed with United States 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 United States government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to United States industry. In addition, United States government-funded inventions must be reported to the government, United States 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, changes in patent laws in the United States, including those made by 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. 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.
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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, in the US there is an exception for one’s own publication of an invention prior to filing a patent application for the invention. Most other countries have no such exception and any publication prior to filing is an absolute bar to patentability. 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 USPTO 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.
Due to the war in Ukraine and sanctions between the United States and Russia, patents and patent applications in Russia, the Eurasian Patent Office ("EAPO") and Ukraine currently have an uncertain fate. Unless the conflict with Ukraine ends quickly it is unlikely our Russian and EAPO patent and patent applications will remain in effect. Ukraine is currently under martial law and not processing patent applications. It is expected all patent deadlines in Ukraine will be extended.
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.
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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 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 United States and non-United States 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 and regulatory documents concerning tebipenem pivoxil, 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.
If we are found to infringe a third party’s intellectual property rights, we or our third party collaborators could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we or they 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 or such collaborators 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 or our third party collaborators have misappropriated the intellectual property, 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, consultants or contractors have misappropriated the intellectual property of a third party, or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants and contractors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that these individuals 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 individuals 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.
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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 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 registered trademarks and pending trademark applications. Failure to enforce our registered marks or secure registration of our pending trademark applications could adversely affect our business.
We have registered our trademarks for our name and logo in the United States and other countries and have a number of pending trademark applications in the United States and other countries. As of September 30, 2022, we have two registered United States trademarks, 23 registered foreign trademarks, and four pending foreign trademark applications. If our registered trademarks are invalidated, we may be unable to exclusively use our name or logo in certain jurisdictions or may need to change our name or logo in certain jurisdictions, which could affect our business. If we do not secure registrations for our pending trademark applications, we may encounter more difficulty in enforcing them against third parties, which could adversely affect our business.
We have applied to register our product candidate name as a trademark in the United States, where it has been allowed for registration, and have applied to register the mark in three foreign jurisdictions. We have also applied to register additional product candidate names as trademarks in the United States. 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 tebipenem HBr 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 our 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 have only limited experience in filing and supporting the applications necessary to gain marketing approvals and have relied 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
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obtained regulatory approval for any product candidate and it is possible that neither tebipenem HBr nor any product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any future collaborators are 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.
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. Foreign regulatory authorities have differing requirements for approval of drugs with which we must comply with 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:
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 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.
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A fast track designation may not actually lead to a faster development or regulatory review or approval process.
We have received fast track designation for tebipenem HBr for the treatment of cUTIs, including pyelonephritis, in adult patients who have limited oral treatment options, as well as fast track designation for SPR720 for treatment of adult patients with NTM pulmonary disease, and we may seek fast track designation for one or more of our other product candidates in the future. 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.
Priority review designation by the FDA may not lead to a faster regulatory review or approval process and, in any event, does not assure FDA approval.
If the FDA determines that a product candidate intended to treat a serious disease, if approved, would provide a significant improvement in safety or effectiveness of the treatment of the disease, the FDA may designate the drug application for that product candidate for priority review. A priority review designation means that the goal for the FDA to review the marketing application is six months from the date of NDA acceptance for filing, rather than the standard review period of ten months from the date of NDA acceptance for filing. In January 2022, FDA accepted our NDA for tebipenem HBr and granted it a priority review designation, with a June 27, 2022 target action date. A priority review designation does not necessarily mean a faster regulatory review process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving a priority review designation from the FDA does not guarantee approval of the drug application within the six-month review cycle or any time thereafter. For example, in May 2022, we announced that we are suspending current commercialization activities for tebipenem HBr based on feedback from our LCM with the FDA, and during our subsequent Type A meeting, the FDA indicated that positive results from a single additional Phase 3 clinical trial supported by confirmatory nonclinical evidence of efficacy could be sufficient to support the approval of tebipenem HBr for the treatment of cUTI, including pyelonephritis for a limited use indication .
In March 2020, the FDA granted orphan drug designation for SPR720. We may seek orphan drug designation for certain of our other product candidates. We may not be able to obtain or maintain orphan drug designations for any of our other 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 though we have obtained orphan drug designation for SPR720 and may seek orphan drug designation for other product candidates in the future, there is no assurance that we will be the first to obtain marketing approval for NTM infection or for any particular rare indication. Further, even though we have obtained orphan drug designation for SPR720, or even if we obtain orphan drug designation for other product candidates, such designation may not effectively protect us from competition because different drugs can be approved for the same condition and the same drug can be approved for different conditions and potentially used off-label in the orphan indication. Even after an orphan drug is approved, the FDA can subsequently approve a competing drug for the same condition for several reasons, including, if the FDA concludes that the later drug is safer or more effective or makes a major
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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 approved for commercial marketing in the United States, our product candidates may face generic competition sooner than anticipated.
Even if we are successful in achieving regulatory approval to commercialize a product candidate, it may face competition from generic products earlier or more aggressively than anticipated, depending upon how well our future products perform in the United States prescription drug market. In addition to creating the 505(b)(2) NDA pathway, the Hatch-Waxman Amendments to the FDCA authorized the FDA to approve generic drugs that are the same as drugs previously approved for marketing under the NDA provisions of the statute pursuant to abbreviated new drug applications ("ANDAs"). An ANDA relies on the preclinical and clinical testing conducted for a previously approved reference listed drug ("RLD"), and must demonstrate to the FDA that the generic drug product is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug and also that it is “bioequivalent” to the RLD. The FDA is prohibited by statute from approving an ANDA when certain marketing or data exclusivity protections apply to the RLD.
If the FDA ultimately approves tebipenem HBr for the treatment of cUTI, including pyelonephritis, caused by certain microorganisms in adult patients who have limited oral treatment options, we expect that it will be designated by the agency as an RLD and that it will be eligible for five-year new chemical entity exclusivity under the Hatch-Waxman provisions of the FDCA. This exclusivity period would block FDA from approving either a subsequent ANDA or 505(b)(2) NDA that references our future NDA, if approved. The QIDP designation granted by FDA to this drug product and indication also make it eligible for a further five-year extension of that Hatch-Waxman exclusivity. We cannot predict the interest of potential generic competitors in the future market for such an approved treatment for cUTI, whether someone will attempt to invalidate our period of exclusivity or otherwise force the FDA to take other actions, or how quickly others may seek to come to market with competing products after the applicable exclusivity period ends. Future product candidates may also receive marketing exclusivity under the FDCA after approval that may similarly be subject to challenge or uncertainty.
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 our 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 from regulatory authorities in other countries 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 of our product candidates, 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. 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
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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 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:
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
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:
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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, 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. For example, in November 2020, DHHS finalized significant changes to the regulations implementing the Anti-Kickback Statute, as well as the civil monetary penalty rules regarding beneficiary inducements, with the goal of offering the healthcare industry more flexibility and reducing the regulatory burden associated with those fraud and abuse laws, particularly with respect to value-based arrangements among industry participants. 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 presidential administration, federal agencies, new healthcare legislation passed by the United States 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
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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 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, and as a result certain sections of the ACA have not been fully implemented or effectively repealed. However, following several years of litigation in the federal courts, in June 2021, the U.S. Supreme Court upheld the ACA when it dismissed a legal challenge to the ACA’s constitutionality. Further legislative and regulatory changes under the ACA remain possible, although the new federal administration under President Biden has signaled that it plans to build on the ACA and expand the number of people who are eligible for health insurance subsidies under it. It is unknown what form any such changes or any law would take, and how or whether it may affect the pharmaceutical industry as a whole or our business in the future. We expect that changes or additions to the ACA, the Medicare and Medicaid programs, such as changes allowing the federal government to directly negotiate drug prices, and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry in the United States.
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 ("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%. As long as these cuts remain in effect, they could adversely affect payment for our product candidates, if approved for commercial marketing. 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. The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020 and was designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030, in order to offset the added expense of the 2020 cancellation. The suspension was subsequently extended through March 31, 2022, with a reduction of the suspension to 1% sequester through June 30, 2022.
Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. There have been several United States 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. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers ("PBMs") and other members of the health care and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area.
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. As another example, in 2020, the FDA finalized a rulemaking to establish a system whereby state governmental entities could lawfully import and distribute prescription drugs sourced from Canada. More recently, in July 2021, President Biden issued a sweeping executive order on promoting competition in the American economy that includes several mandates pertaining to the pharmaceutical and healthcare insurance industries. Among other things, the executive order directed the FDA to work towards implementing a system for importing drugs from Canada (following on the Trump administration notice-and-comment rulemaking on Canadian drug importation that was finalized in October 2020). The Biden order also called on DHHS to
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release a comprehensive plan to combat high prescription drug prices, and it includes several directives regarding the Federal Trade Commission’s oversight of potentially anticompetitive practices within the pharmaceutical industry. The drug pricing plan released by DHHS in September 2021 in response to the executive order makes clear that the Biden Administration supports aggressive action to address rising drug prices, including allowing DHHS to negotiate the cost of Medicare Part B and D drugs, but such significant changes will require either new legislation to be passed by Congress or time-consuming administrative actions. In addition, increased scrutiny by the United States 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.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. We expect that additional state and federal health care reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for health care products and services.
If we successfully commercialize one of our product candidates, failure to comply with our reporting and payment obligations under United States 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 United States 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.
Additionally, the 2021 Consolidated Appropriations Act signed into law on December 27, 2020 incorporated extensive healthcare provisions and amendments to existing laws, which includes a requirement that all manufacturers of drug products covered under Medicare Part B report the product’s average sales price ("ASP") to DHHS beginning on January 1, 2022, subject to enforcement via civil money penalties.
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 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.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent our product candidates from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business relies, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC
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and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the United States government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly affect the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
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.
On May 3, 2022, we implemented a restructuring that reduced our workforce from 146 full-time employees as of December 31, 2021 to approximately 41 full-time employees following the restructuring. Pursuant to the restructuring and effective as of July 2, 2022, Cristina Larkin separated from us as our Chief Operating Officer and David Melnick, M.D. separated from us as our Chief Medical Officer. While we have confidence in our remaining leadership team, including the board of directors, the restructuring may cause concerns from third parties with whom we do business and may increase the likelihood of turnover of other key officers and employees.
If we lose one or more of our other 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 have undertaken internal restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition.
There can be no assurance that our restructuring will achieve the cost-savings, operating efficiencies or other benefits that we may initially expect. Restructuring activities may also result in a loss of continuity, accumulated knowledge and inefficiency during transitional periods and thereafter. In addition, internal restructurings can require a significant amount of time and focus from management and other employees, which may divert attention from operations. Further, our restructuring may result in unexpected expenses or liabilities and/or write-offs. If our restructuring fail to achieve some or all of the expected benefits therefrom, our cash resources may not last as long as estimated and our business, results of operations and financial condition could be materially and adversely affected.
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:
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These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.
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:
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
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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.
We have in the past failed to satisfy certain continued listing requirements of the Nasdaq Global Select Market and could fail to satisfy those requirements again in the future, which could negatively affect the market price of our common stock, our liquidity and our ability to raise capital. Our potential failure to meet the continued listing requirements of Nasdaq Global Select Market in the future could result in a delisting of our common stock.
Our common stock is listed on the Nasdaq Global Select Market (“Nasdaq GS”), which imposes, among other requirements, a minimum $1.00 per share bid price requirement for continued inclusion on the Nasdaq GS pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Requirement”). The closing bid price for our common stock must remain at or above $1.00 per share to comply with the Bid Price Requirement for continued listing. On August 8, 2022 we received a deficiency letter (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the preceding 30 consecutive trading days, the closing bid price of our common stock was below the Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had until February 6, 2023 to regain compliance with the Bid Price Requirement. On October 6, 2022, we received a letter from Nasdaq notifying us that the closing bid price of our common stock was at least $1.00 per share for a minimum of 10 consecutive trading days and that we had regained compliance with the Bid Price Requirement. Our common stock continues to be eligible for listing on the Nasdaq GS.
There can be no assurance that we will be able to keep the closing bid price above $1.00 per share. If we fail to satisfy the continued listing requirements of Nasdaq Global Select Market, including the Bid Price Requirement, Nasdaq may provide us with another deficiency letter regarding the continued listing requirement. If we are unable to regain compliance with the Nasdaq Listing Rules in the future, Nasdaq may take steps to delist our common stock. Such a delisting from the Nasdaq GS could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. If our common stock is delisted by the Nasdaq GS, our common stock may be eligible to trade on the Nasdaq Capital Market or an over-the-counter quotation system, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock. We cannot assure you that our common stock, if delisted from the Nasdaq GS, will be listed on another national securities exchange or quoted on an over-the counter quotation system.
We intend to actively monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to maintain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.
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 provide coverage of us, the trading price of our stock would likely decline. 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 can issue and have issued shares of preferred stock, which may adversely affect the rights of holders of our common stock.
Our amended and restated certificate of incorporation, as amended, authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:
We have in the past issued, and we may at any time in the future issue, shares of preferred stock. In connection with our July 2018 public offering, we issued 2,220 shares of our Series A Convertible Preferred Stock (“Series A Preferred Stock”) to certain affiliates of Biotechnology Value Fund, L.P. (“BVF”), each share of which was convertible into 1,000 shares of our common stock,
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subject to certain ownership restrictions. In November 2018, we entered into an exchange agreement with BVF to exchange 1,000,000 shares of our common stock previously held by BVF for 1,000 shares of our Series B Convertible Preferred Stock (“Series B Preferred Stock”), each share of which was convertible into 1,000 shares of our common stock, subject to certain ownership restrictions. In connection with our rights offering, which we launched in February 2020 and closed in early March 2020, we issued 2,287 shares of our Series C Convertible Preferred Stock (“Series C Preferred Stock”) to BVF, each share of which was convertible into 1,000 shares of our common stock, subject to certain ownership restrictions. In September 2020, in connection with our underwritten public offering, we issued 3,215,000 shares of our Series D Convertible Preferred Stock (“Series D Preferred Stock”) to BVF, each share of which was convertible on a one-to-one basis into shares of our common stock, subject to certain ownership restrictions. As of September 30, 2022, all of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred stock has been converted into shares of our common stock. If any other future holders of our shares of preferred stock convert their shares into common stock, existing holders of our common stock will experience dilution.
We have broad discretion in the use of our cash reserves and may not use them effectively.
Our management has broad discretion in the application of our cash reserves 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 Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and may remain an emerging growth company for up to five years. We would cease to be an emerging growth company upon the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering, which is December 31, 2022; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC which means the first day of the year following the first year in which the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of June 30th. 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 of 2002, as amended ("Sarbanes-Oxley"), 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. As a result, changes in rules of United States generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.
We are subject to Section 404 of The Sarbanes-Oxley Act of 2002 ("Section 404") and the related rules of the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, or a "smaller reporting company" ("SRC") and non-accelerated filer, we intend to take advantage of certain exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company and otherwise do not meet the definition of a SRC and non-accelerated filer or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We could qualify as a SRC if the market value of our common stock held by non-affiliates is below $250.0 million (or $700.0 million if our annual revenue is less than $100.0 million) as of June 30 in any given year.
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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 compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an “emerging growth company,” we incur significant legal, accounting and other expenses that we did not incur as a private company. Sarbanes-Oxley, 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 devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, these rules and regulations have made 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. 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.
Failure to maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley in the future could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.
Section 404 of Sarbanes-Oxley requires us, on an annual basis, to review and evaluate our internal controls. To maintain compliance with Section 404, we are required to document and evaluate our internal control over financial reporting, which is both costly and challenging. We will need to continue to dedicate internal resources, continue to engage outside consultants and follow a detailed work plan to continue to assess and document the adequacy of internal control over financial reporting, continue 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. 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. 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, 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, 2022, 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 26% of our 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:
81
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, as amended, and amended and restated bylaws 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:
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"), 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.
In addition, our amended and restated certificate of incorporation, as amended, to the fullest extent permitted by law, provides that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation, as amended, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the categories enumerated in the exclusive forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rule and regulations thereunder. There is uncertainty as to whether a court would enforce such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation, as amended, to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
Provisions in our charter and other provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of our common stock.
We may become involved in securities litigation that could divert management’s attention and harm the company’s business, and insurance coverage may not be sufficient to cover all costs and damages.
82
In the past, securities litigation has often followed certain significant business transactions, such as the announcement of a strategic restructuring, or the announcement of negative events, such as negative results from clinical trials. We may be exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect our business and cash resources and our ability to execute on our partnership with GSK to eventually commercialize tebipenem HBr, or the ultimate value our stockholders receive in such partnership or other opportunity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
On November 10, 2022, we entered into amendments to the employment agreements (the “Employment Agreement Amendments”) with our Chief Executive Officer, Ankit Mahadevia, M.D., and Chief Financial Officer, Satyavrat Shukla, which amend certain provisions of their prior employment agreements with the Company (the “Prior Employment Agreements,” and together with the Employment Agreement Amendments, the “Amended Employment Agreements”). The Employment Agreement Amendments amend the Prior Employment Agreements to, inter alia, increase the benefits provided to Dr. Mahadevia and Mr. Shukla in the event that following a Change of Control (as defined in the Amended Employment Agreements), their employment with us is terminated by us without Cause or by Dr. Mahadevia or Mr. Shukla for Good Reason (in each case, as defined in the Amended Employment Agreements) (a “Qualified Change of Control Termination”). Under the Amended Employment Agreements, in the event of a Qualified Change of Control Termination, with respect to cash compensation, (i) Dr. Mahadevia will receive 18 months of his then-current base salary plus the amount of his then-current target performance bonus, and (ii) Mr. Shukla will receive 12 months of his then-current base salary plus the amount of his then-current target performance bonus. The foregoing description of the Employment Agreement Amendments is a summary only and is qualified in its entirety by reference to the Employment Agreement Amendments, which are attached hereto as Exhibit 10.6 and 10.7, respectively, and are incorporated herein by reference.
83
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 |
10.1 |
X |
|
|
|
|
|
|
|
|
|
|
10.2+ |
Spero Therapeutics, Inc. 2017 Stock Incentive Plan, as amended |
|
Form 8-K (Exhibit 10.1) |
9/19/22 |
001-38266 |
|
|
|
|
|
|
10.3† |
X |
|
|
|
|
|
|
|
|
|
|
10.4 |
X |
|
|
|
|
|
|
|
|
|
|
10.5+ |
Employment Agreement, dated August 11, 2022, by and between the Registrant and Kamal Hamed |
X |
|
|
|
|
|
|
|
|
|
10.6+ |
X |
|
|
|
|
|
|
|
|
|
|
10.7+ |
X |
|
|
|
|
|
|
|
|
|
|
10.8+ |
X |
|
|
|
|
|
|
|
|
|
|
10.9+ |
X |
|
|
|
|
|
|
|
|
|
|
10.10+ |
X |
|
|
|
|
|
|
|
|
|
|
31.1 |
X |
|
|
|
|
|
|
|
|
|
|
31.2 |
X |
|
|
|
|
|
|
|
|
|
|
32* |
X |
|
|
|
|
|
|
|
|
|
|
101.INS |
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
X |
|
|
|
|
|
|
|
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
X |
|
|
|
|
|
|
|
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
X |
|
|
|
|
|
|
|
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
X |
|
|
|
|
|
|
|
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
X |
|
|
|
|
|
|
|
|
|
84
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
X |
|
|
|
|
|
|
|
|
|
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
X |
|
|
|
# Management contract or compensatory plan.
† Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) is the type that the Registrant treats as private or confidential.
* The certification attached as Exhibit 32 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Spero Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
85
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 14, 2022 |
|
By: |
/s/ Ankit Mahadevia, M.D. |
|
|
|
Ankit Mahadevia, M.D. |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
Date: November 14, 2022 |
|
By: |
/s/ Satyavrat Shukla |
|
|
|
Satyavrat Shukla |
|
|
|
Chief Financial Officer and Treasurer |
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
86
AMENDMENT 1 TO Consulting Agreement
This Amendment 1 (“Amendment 1”) is dated August 4, 2022 and is effective as of July 3, 2022 (“Amendment 1 Effective Date”), by and between Spero Therapeutics, Inc. (“Company”) and Cristina Larkin, hereby amends Consulting Agreement between the Parties dated May 3, 2022 (the “Agreement”). Capitalized terms not otherwise defined in this Amendment 1 will have the same meanings as ascribed to such terms in the Agreement.
RECITALS
WHEREAS, the Parties wish to modify the terms of the Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises and mutual covenants contained in this Amendment 1 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
In consideration for Consultant's performance of the Services, Spero shall pay Consultant four hundred seventy-five dollars ($475) per hour.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment 1 as of the Amendment 1 Effective Date.
Spero Therapeutics, Inc. |
Cristina Larkin |
By: /s/ Ankit Mahadevia |
By: /s/ Cristina Larkin |
Name: Ankit Mahadevia |
Name: Cristina Larkin |
Title: CEO |
Title: |
Exhibit 10.3
EXCLUSIVE LICENSE AGREEMENT
BY AND BETWEEN
Spero Therapeutics, INC.
AND
GlaxoSmithKline Intellectual Property (No. 3) Limited
DATED AS OF SEPTEMBER 21, 2022
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
TABLE OF CONTENTS
Page
Article 1 DEFINITIONS |
1 |
|
Article 2 LICENSE GRANTS; EXCLUSIVITY; NON-COMPETITION |
24 |
|
2.1 |
License Grant to GSK |
24 |
2.2 |
License Grant to Spero |
25 |
2.3 |
Sublicensing |
25 |
2.4 |
Retained Rights |
26 |
2.5 |
Technology Transfer |
27 |
2.6 |
Retained Rights; No Implied Licenses |
28 |
2.7 |
Combination Products |
28 |
2.8 |
Exclusivity |
29 |
2.9 |
Non-Competing Product |
31 |
2.10 |
Third Party In-Licenses Payments |
32 |
2.11 |
Option to Adjust the GSK Territory. |
33 |
Article 3 GOVERNANCE |
34 |
|
3.1 |
Alliance Managers |
34 |
3.2 |
Joint Development Committee |
34 |
3.3 |
Authority |
37 |
Article 4 DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION OF PRODUCTS |
38 |
|
4.1 |
Development |
38 |
4.2 |
Manufacturing |
39 |
4.3 |
Transition Plan |
40 |
4.4 |
Commercialization |
40 |
4.5 |
Support in Development, Manufacturing and Commercialization |
40 |
4.6 |
Inventory |
41 |
4.7 |
Diligence Obligations |
41 |
4.8 |
Subcontracting |
41 |
4.9 |
Trademarks |
42 |
4.10 |
Information Rights |
42 |
4.11 |
Compliance with Laws |
43 |
Article 5 REGULATORY ACTIVITIES |
44 |
|
5.1 |
Regulatory Filings |
44 |
5.2 |
Regulatory Documents Transfer |
45 |
5.3 |
Communications with Regulatory Authorities |
45 |
5.4 |
Assistance |
47 |
5.5 |
Pharmacovigilance |
47 |
5.6 |
Recalls |
48 |
i
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
Article 6 FINANCIAL PROVISIONS |
48 |
|
6.1 |
Upfront Payment |
48 |
6.2 |
Development Milestones |
48 |
6.3 |
Commercial Milestones |
50 |
6.4 |
Sales Milestones |
51 |
6.5 |
Royalties |
52 |
6.6 |
Right to Suspend Payments; Right to Offset |
54 |
6.7 |
Mode of Payment and Currency; Invoices; Late Payments; Consideration |
55 |
6.8 |
Records; Audits |
56 |
6.9 |
Taxes |
57 |
6.10 |
Effect of Termination of Meiji License |
58 |
Article 7 INTELLECTUAL PROPERTY |
59 |
|
7.1 |
Inventions |
59 |
7.2 |
Prosecution and Maintenance of Spero Patents |
60 |
7.3 |
Third Party Infringement |
61 |
7.4 |
Common Interest Agreement |
62 |
7.5 |
Maintenance of Freedom to Operate |
63 |
Article 8 CONFIDENTIALITY |
63 |
|
8.1 |
Confidentiality Obligations |
63 |
8.2 |
Use Restrictions |
64 |
8.3 |
Required Disclosure |
64 |
8.4 |
Publications |
65 |
8.5 |
Public Disclosures |
65 |
8.6 |
Return or Destruction of Confidential Information |
66 |
8.7 |
Equitable Relief |
66 |
Article 9 REPRESENTATIONS AND WARRANTIES |
67 |
|
9.1 |
Mutual Representations and Warranties |
67 |
9.2 |
Spero’s Additional Representations and Warranties |
68 |
9.3 |
GSK’s Additional Representations and Warranties |
72 |
9.4 |
Disclosure Schedule References |
73 |
9.5 |
Additional Covenants |
73 |
9.6 |
Disclaimer |
74 |
Article 10 INDEMNIFICATION |
75 |
|
10.1 |
Indemnification by GSK |
75 |
10.2 |
Indemnification by Spero |
75 |
10.3 |
Specified Claims |
76 |
10.4 |
Notification of Claims; Conditions to Indemnification Obligations |
76 |
10.5 |
Defense of Specified Claims |
77 |
10.6 |
Mitigation of Loss |
77 |
10.7 |
Limitation of Liability |
77 |
ii
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
10.8 |
Insurance |
78 |
Article 11 TERM AND TERMINATION |
78 |
|
11.1 |
Term and Expiration |
78 |
11.2 |
Termination for Convenience by GSK |
78 |
11.3 |
Termination for Material Breach |
78 |
11.4 |
Termination for Insolvency |
79 |
11.5 |
Termination for Safety Reasons |
80 |
11.6 |
Effects of Expiration or Termination; Survival |
80 |
11.7 |
Effect of Termination of the Agreement |
81 |
11.8 |
Certain Additional Remedies of GSK in Lieu of Termination |
85 |
11.9 |
Bankruptcy |
86 |
Article 12 EFFECTIVENESS |
86 |
|
12.1 |
Effective Date |
86 |
12.2 |
Filings |
87 |
12.3 |
Outside Date |
89 |
Article 13 DISPUTE RESOLUTION |
89 |
|
13.1 |
Disputes |
89 |
13.2 |
Escalation to Executive Officers |
90 |
13.3 |
Arbitration |
90 |
13.4 |
Injunctive Relief |
91 |
13.5 |
Intellectual Property Disputes |
91 |
Article 14 MISCELLANEOUS PROVISIONS |
91 |
|
14.1 |
Relationship of the Parties |
91 |
14.2 |
Assignment |
91 |
14.3 |
Performance and Exercise by Affiliates |
92 |
14.4 |
Further Actions |
92 |
14.5 |
Accounting Procedures |
92 |
14.6 |
Force Majeure |
92 |
14.7 |
No Trademark Rights |
93 |
14.8 |
Entire Agreement; Amendments |
93 |
14.9 |
Captions |
93 |
14.10 |
Governing Law |
93 |
14.11 |
Notices |
93 |
14.12 |
Language; Waiver of Rule of Construction |
94 |
14.13 |
Waiver |
94 |
14.14 |
Severability |
94 |
14.15 |
Business Day Requirements |
95 |
14.16 |
Interpretation |
95 |
14.17 |
Expenses |
95 |
14.18 |
Binding Effect; No Third Party Beneficiaries |
95 |
14.19 |
Counterparts |
96 |
iii
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
Schedules
Schedule 1.11 Antitrust Clearance Waiting Periods and Approvals
Schedule 1.12 Antitrust Filings
Schedule 1.38(a) Meiji Compound
Schedule 1.38(b) Spero Compound
Schedule 1.48 Development Plan
Schedule 1.128 [***]
Schedule 2.5 Technology Transfer Plan and Delivery Schedule
Schedule 4.8(b) Approved Subcontractors
Schedule 4.11(b) Additional Data Integrity and Handling of Human Biological Samples Terms
Schedule 6.7 Invoicing and Bank Details Format
Schedule 8.5 Press Release
Schedule 9.2 Spero Disclosure Schedules
Schedule 9.2(a) Spero Patents
iv
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
Execution Version
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (this “Agreement”) is dated as of September 21, 2022 (the “Execution Date”), by and between GlaxoSmithKline Intellectual Property (No. 3) Limited, a company registered under the laws of England and Wales with offices at 980 Great West Road Brentford, Middlesex TW8 9GS England (“GSK”) and Spero Therapeutics, Inc., a corporation organized under the laws of the State of Delaware and having a place of business at 675 Massachusetts Avenue, 14th Floor Cambridge, Massachusetts 02139 (“Spero”). Each of GSK and Spero may be individually referred to herein as a “Party” or, collectively, as “Parties”.
RECITALS
WHEREAS, Spero is party to that certain license agreement (the “Meiji License”) dated as of June 14, 2017 (the “Meiji License Effective Date”), between Spero and Meiji Seiika Pharma Co., Ltd. (“Meiji”);
WHEREAS, Spero owns or possesses rights to certain Patents, Know-How and Regulatory Documents that are necessary or useful to Develop, Manufacture and Commercialize the Compound and the Products, including certain Patents, Know-How and Regulatory Documents licensed to Spero pursuant to the Meiji License;
WHEREAS, GSK possesses expertise in developing and commercializing human therapeutics; and
WHEREAS, GSK desires to acquire from Spero, and Spero desires to grant to GSK, an exclusive license under the Spero Intellectual Property to Develop, Manufacture and Commercialize the Compound and the Products in the Field in the GSK Territory.
NOW, THEREFORE, in consideration of the mutual promises and undertakings set forth herein, and intending to be legally bound hereby, the Parties agree as follows:
Article 1
DEFINITIONS
Unless otherwise defined elsewhere in the Agreement, all capitalized terms shall have the following meanings:
1.1. “Abbreviated New Drug Application” or “ANDA” has the meaning set forth in the FD&C Act (21 U.S.C. § 355(b)(2), 21 U.S.C. § 355(j) and 21 C.F.R. § 314.3), as amended.
1.2. “Accounting Standard” means, with respect to a Party, (a) United States generally accepted accounting principles (“GAAP”); or (b) International Financial Reporting Standards (“IFRS”), depending on which accounting standard is normally applied by such Party with respect to the filing of its reporting, as applicable, in each case, consistently applied.
1.3. “Acquired Business” has the meaning set forth in Section 2.8(c).
1.4. “Acquired Product” has the meaning set forth in Section 2.9(b).
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
1.5. “Acquirer” means, collectively, the Third Party referenced in the definition of Change of Control and such Third Party’s Affiliates, other than the applicable Party in the definition of Change of Control and such Party’s Affiliates, determined as of immediately prior to the closing of such Change of Control.
1.6. “Adjustment Notice” has the meaning set forth in Section 2.11(b).
1.7. “Adverse Event” means any untoward medical occurrence in a patient or subject with respect to any product, which does not necessarily have a causal relationship with the administration of such product.
1.8. “Affiliate” means, with respect to any Person, any other Person who, directly or indirectly, controls, is controlled by or is under common control with such Person, but only for so long as such control exists. For the purposes of this Section 1.8, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such Person or entity, whether by the ownership of more than fifty percent (50%) of the voting stock of such entity, or by contract or otherwise.
1.9. “Agreement” has the meaning set forth in the preamble.
1.10. “Alliance Manager” has the meaning set forth in Section 3.1.
1.11. “Antitrust Clearance Date” means the earliest date on which all applicable waiting periods and approvals required under Antitrust Laws with respect to the transactions contemplated under this Agreement have expired or have been terminated (in the case of waiting periods) or been received (in the case of approvals), which such waiting periods and approvals shall be identified in Schedule 1.11.
1.12. “Antitrust Filing” means filings by Spero and GSK with the United States Federal Trade Commission and the United States Department of Justice and any applicable Governmental Body in the GSK Territory, as required under any Antitrust Laws with respect to the transactions contemplated under this Agreement, as identified in Schedule 1.12, together with all required documentary attachments thereto.
1.13. “Antitrust Laws” means any and all Laws designed to govern competition, trade regulation, foreign investment, or national security or defense matters or to prohibit, restrict, or regulate actions for the purpose or effect of monopolization or restraint of trade, including the Hart-Scott Rodino Antitrust Improvements Act of 1976 (“HSR Act”).
1.14. “Arising Intellectual Property” means (a) the Arising Know-How, and (b) the Arising Patents.
1.15. “Arising Know-How” means all Know-How discovered, developed, generated, invented, derived, created, conceived or reduced to practice during the Term by a Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents,
2
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
independent contractors or consultants, either alone or jointly with the other Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents, independent contractors or consultants, in each case, in the performance of activities under this Agreement.
1.16. “Arising Patents” means any Patents that (a) have a priority date after the Effective Date; and (b) Cover or otherwise claim any Arising Know-How.
1.17. “Bankrupt Party” has the meaning set forth in Section 11.8.
1.18. “Bankruptcy Code” means Title 11 of the United States Code, as amended, or analogous provisions of Law outside the United States.
1.19. “Breaching Party” has the meaning set forth in Section 11.3.
1.20. “Business Day” shall mean a day other than a Saturday, Sunday or public holiday in United States and England when banks in United States and England are open for normal banking business and excluding the period from 24 December to 2 January in which the corporate offices of GSK are closed for business.
1.21. “Calendar Quarter” means each three (3) month period commencing January 1, April 1, July 1 or October 1 of any Calendar Year; provided, however, that (a) the first Calendar Quarter of the Term shall extend from the Effective Date to the end of the Calendar Quarter in which the Effective Date occurs; and (b) the last Calendar Quarter of the Term shall end upon the expiration or termination of this Agreement.
1.22. “Calendar Year” means the period beginning on January 1 and ending on December 31 of the same year; provided, however, that (a) the first Calendar Year of the Term shall commence on the Effective Date and end on December 31 of the same year; and (b) the last Calendar Year of the Term shall commence on January 1 of the Calendar Year in which this Agreement terminates or expires and end on the effective date of termination or expiration of this Agreement.
1.23. “Change of Control” means, with respect to a Party, (a) a merger or consolidation of such Party with a Third Party that results in the voting securities of such Party outstanding immediately prior thereto, or any securities into which such voting securities have been converted or exchanged, ceasing to represent at least [***] percent ([***]%) of the combined voting power of the surviving entity or the parent of the surviving entity immediately after such merger or consolidation; (b) a transaction or series of related transactions in which a Third Party, together with its Affiliates, becomes the direct or indirect beneficial owner of [***] percent ([***]%) or more of the combined voting power of the outstanding securities of such Party; or (c) the sale or other transfer to a Third Party of all or substantially all of such Party’s and its controlled Affiliates’ assets to which this Agreement relates. Notwithstanding the foregoing, a sale of capital stock to underwriters in an underwritten public offering of a Party’s capital stock solely for the purpose of a bona fide financing or changing the form or jurisdiction
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of organization of such Party will not be deemed a “Change of Control” for purposes of this Agreement.
1.24. “Clinical Manufacturing” means the Manufacture of the Compound or any Product (including the cost of Manufacturing the Compound contained in any Product) or acquisition of the Compound or any Product from a CMO, in each case, for use in Clinical Trials (excluding any Clinical Trial (whether required or optional) commenced after Regulatory Approval). “Clinical Manufacture” shall have a correlative meaning.
1.25. “Clinical Trial” means a clinical trial in human subjects that has been approved by an institutional review board or ethics committee, as applicable, and is designed to measure the safety or efficacy of a therapeutic product, including any Phase I Clinical Trial, Phase II Clinical Trial, Phase III Clinical Trial, any study incorporating more than one (1) of these phases, or any clinical trial (whether required or optional) commenced after Regulatory Approval.
1.26. “Clinical Trial Transition Date” has the meaning set forth in Section 11.7(b)(ii)(B).
1.27. “CMC” means, chemistry, manufacturing and controls with respect to a product, which includes (a) manufacturing and process development records for such product; and (b) all chemistry, manufacturing and control procedures necessary or reasonably useful for the manufacture of such product.
1.28. “CMO” has the meaning set forth in Section 4.2(a).
1.29. “Combination Product” means a Product that is sold in the form of a combination containing or comprising the Compound together with one or more other therapeutically active agents (whether co-formulated, co-packaged or otherwise sold for a single price) (such additional therapeutically active agent which is neither the Compound nor the same molecule as the Compound, an “Other Component”); or defined as a “combination product” by the FDA pursuant to 21 C.F.R. §3.2(e) or its foreign equivalent (but, in any event, excluding devices, drug delivery vehicles, adjuvants, solubilizers and excipients).
1.30. “Commercial Manufacturing” means the Manufacture of the Compound or any Product (including the cost of Manufacturing the Compound contained in any Product) or acquisition of the Compound or any Product from a CMO, in each case, for Commercialization of such Product in the applicable Territory or for the conduct of any Clinical Trial (whether required or optional) commenced after Regulatory Approval in the applicable Territory or any country or jurisdiction therein. “Commercial Manufacture” shall have a correlative meaning.
1.31. “Commercial Milestone Event” has the meaning set forth in Section 6.3.
1.32. “Commercial Milestone Payment” has the meaning set forth in Section 6.3.
1.33. “Commercialize” means, with respect to any product, any and all activities undertaken before and after Regulatory Approval of any NDA for such product and that relate to the
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marketing, promoting, distributing, importing or exporting for sale, using, offering for sale and selling of such product, and interacting with Regulatory Authorities regarding the foregoing, including, without limitation, the conduct of any Clinical Trial (whether required or optional) commenced after Regulatory Approval. “Commercializing” and “Commercialization” shall each have a correlative meaning.
1.34. “Commercialization Wind-Down Period” has the meaning set forth in Section 11.7(b)(iii).
1.35. “Commercially Reasonable Efforts” means, with respect to the performance of Development, Manufacturing or Commercialization activities with respect to the Compound or any Product, or performance of any other obligations hereunder by or on behalf of a Party, [***]. “Commercially Reasonable Efforts” shall be determined on a Product-by-Product and country-by-country basis and activities that are conducted in one country that have an effect on achieving the relevant objective in another country shall be considered in determining whether Commercially Reasonable Efforts have been applied in such other countries. When used regarding obligations under this Agreement other than the Development, Manufacturing, and Commercialization activities with respect to the Compound or Products, the term “Commercially Reasonable Efforts” shall mean [***]. For clarity, Commercially Reasonable Efforts will not mean that a Party guarantees that it will actually accomplish the applicable task or objective.
1.36. “Competing Product” has the meaning set forth in Section 2.8(a).
1.37. “Completion” means, with respect to the Required Studies, GSK’s determination, acting reasonably and in good faith, that (a) each of the Required Studies have concluded in the normal course in accordance with the Development Plan, including any study plan or protocol referenced therein; and (b) Spero has completed all reasonable and customary analyses of the data and results of the Required Studies in accordance with the Development Plan, and such other analyses in accordance with any study plan or protocol referenced in the Development Plan, including (i) clinical database lock, (ii) completion of all Regulatory Document submissions as required by the FDA to the IND(s), including the submission of the clinical study report(s), CMC studies or other studies/data/information required by the FDA to resolve the issues noted in the CRL and support future Regulatory Approval of the Spero New Formulation Product in the United States, as applicable and to expressly exclude any study or Clinical Trial (whether required or optional) commenced after Regulatory Approval, with Existing NDA resubmission and the requirements following such resubmission (e.g. all IRs, potential ad-com, etc.) to be led by GSK, (iii) finalization and quality control of the trial master file (TMF), which confirms that the Required Studies were conducted in accordance with relevant ICH guidelines, and (iv) completion of all activities listed in section 8.4 of the ICH Consensus Guideline E6(R2), Integrated Addendum to ICH E6(R1): Guideline for Good Clinical Practice, including the completion of the clinical study report; provided that if one or more of the Required Studies is terminated early for any reason (including any Adverse Event, safety concern or other clinical failure), it shall not be deemed to have been “Completed” for purposes of this definition. “Completed”, “Completing”, or “Completes” shall each have a correlative meaning.
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1.38. “Compound” means the carbapenem chemical compound having the generic name, tebipenem pivoxil, the chemical structure of which is set forth in Schedule 1.38(a) (the “Meiji Compound”), and any and all [***], including the [***] thereof having the generic name, tebipenem pivoxil hydrobromide (alternatively referred to as tebipenem HBr and SPR994), the chemical structure of which is set forth in Schedule 1.38(b) (the “Spero Compound”), including any back-up compounds thereto existing as of the Effective Date, and including, but not limited to, all [***] thereof, as of the Execution Date or during the Term, together with all compounds covered by a Valid Claim of a Patent licensed to GSK as part of the Spero Intellectual Property.
1.39. “Confidential Information” of a Party (“Disclosing Party”) means any and all non-public or confidential information relating to the business, operations or products of such Disclosing Party or any of its Affiliates, including any Know-How, that such Disclosing Party or its Affiliate discloses or disclosed to the other Party (“Receiving Party”) or its Affiliate under this Agreement or the Existing Confidentiality Agreement, or otherwise becomes known to the Receiving Party by virtue of this Agreement; provided, however, that, notwithstanding the foregoing, (a) the existence and the terms and conditions of this Agreement shall be deemed to be the Party’s joint Confidential Information, with both Parties deemed to be the Receiving Party of such Confidential Information; (b) any Confidential Information Controlled by Spero or any of its Affiliates to the extent related to the Compound or any Product or any exploitation thereof in the Field in the GSK Territory (“Product Information”) shall be deemed to be Confidential Information of GSK (with GSK the Disclosing Party, and Spero the Receiving Party, with respect thereto and regardless of the Party initially disclosing or Controlling the same), (c) any Confidential Information Controlled by Spero or any of its Affiliates to the extent exclusively related to the Compound or any Product or any exploitation thereof in the Field in the Excluded Territory (“Excluded Product Information”) shall be deemed to be Confidential Information of Spero (with Spero the Disclosing Party, and GSK the Receiving Party, with respect thereto and regardless of the Party initially disclosing or Controlling the same) and (d) the Development Plan (and any updates thereto) and all progress reports and royalty reports delivered to Spero pursuant to Section 4.10(b) and Section 6.5(b), respectively, shall constitute the Confidential Information of GSK , in all cases, unless and to the extent any such information is disclosed in any press release, presentation or other form of public disclosure permitted under Article 8.
1.40. “Continuation Notice” has the meaning set forth in Section 4.1(a)(iv).
1.41. “Controlled” means, with respect to any Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials, that a Party or one of its Affiliates, directly or indirectly, owns or has a license or sublicense (other than by a license, sublicense or other right granted (but not assignment) pursuant to this Agreement) to the applicable Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials (or in the case of materials, has the right to physical possession of such materials) and has the ability to grant a license, sublicense, or right of access and use under, such Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials as provided for in this Agreement without (a) violating the terms of any agreement or other arrangement with any Third Party in existence as of the time such Party
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or its Affiliate would be required hereunder to grant such license, sublicense, or right of access and use; and (b) incurring any additional payment obligations to a Third Party that are not subject to an allocation agreed between the Parties pursuant to this Agreement or otherwise in writing. “Controlled” has a correlative meaning.
Notwithstanding anything in this Agreement to the contrary, a Party or its Affiliates will be deemed not to Control any Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials that are owned or in-licensed by an Acquirer except, subject to Section 2.8(b), (i) if such Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials owned or in-licensed by the Acquirer were generated from participation by employees or consultants of such Acquirer in furtherance of Development, Manufacturing or Commercialization activities with respect to the Compound or any Product under this Agreement after such Change of Control, (ii) for any Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials owned or in-licensed by such Acquirer not used in the performance of Development, Manufacturing or Commercialization activities with respect to the Compound or any Product under this Agreement prior to the consummation of such Change of Control that, after the consummation of such Change of Control, are used by such acquired Party or any of its Affiliates in the performance of Development, Manufacturing or Commercialization activities with respect to the Compound or any Product under this Agreement, or (iii) if, prior to the consummation of such Change of Control, such acquired Party or any of its Affiliates also Controlled such Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials owned or in-licensed by such Acquirer, in each of which cases ((i)–(iii)), such Patents, Know-How, Regulatory Approvals, Regulatory Documents or materials owned or in-licensed by such Acquirer will be deemed Controlled by the acquired Party or its Affiliates for purposes of this Agreement.
1.42. “Cover,” “Covering” or “Covered” means, with respect to the Compound or any Product in any country and any Patent, that the making, offering for sale, selling, importing or using of such Product would, but for a license granted under the Compound, Product or Patent, infringe any Valid Claim of such Patent in such country in which that activity occurs.
1.43. “CRL” means the Complete Response Letter received by Spero from the FDA on or prior to June 27, 2022, with respect to the Existing NDA.
1.44. “cUTI” means complicated urinary tract infections.
1.45. “Develop” means, with respect to any product, the performance of all research, pre-clinical and clinical development (including toxicology, pharmacology, test method development and stability testing, process development, formulation development, quality control development, and statistical analysis), Clinical Trials (excluding Clinical Trials conducted after Regulatory Approval of an NDA), Manufacturing and regulatory activities that are required to obtain Regulatory Approval of such product in such country or jurisdiction in the Territory. For clarity, the definition of “Development” shall exclude all Commercialization activities. “Developing” and “Development” shall each have a correlative meaning.
1.46. “Development Milestone Event” has the meaning set forth in Section 6.2.
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1.47. “Development Milestone Payment” has the meaning set forth in Section 6.2.
1.48. “Development Plan” means the work plan attached hereto as Schedule 1.48 which sets forth the Development activities to be undertaken by or on behalf of Spero with respect to the Spero New Formulation Product in the United States, including the performance of the Required Studies, as the same may be modified from time to time in accordance with the provisions of this Agreement.
1.49. “Development Report” has the meaning set forth in Section 4.10(a).
1.50. “Disclosing Party” has the meaning set forth in Section 1.39.
1.51. “Effective Date” has the meaning set forth in Section 12.1.
1.52. “EMA” means the European Medicines Agency or a successor agency thereto.
1.53. “Enforcement Action” means, as applicable in context, an infringement action or suit or similar action to abate, compromise or settle any Third Party infringement, unauthorized use or misappropriation of any Spero Intellectual Property or GSK Licensed Intellectual Property (including the filing of an Abbreviated New Drug Application with any applicable Regulatory Authority with respect to a Product as the reference product for such product) or an action or claim to defend, attempt to resolve, compromise or settle any Third Party declaratory judgement action or other action claiming that any Spero Patent or any GSK Licensed Patent is invalid or unenforceable, as applicable.
1.54. “Enrollment” means, with respect to the Required Phase III Study, those patients who are enrolled in the Required Phase III Study and meet all eligibility criteria as set forth in the clinical trial protocol. For clarity, “Enrollment” is not intended to, and shall not be deemed to, be limited to those patients enrolled in the Required Phase III Study who are randomly assigned to a treatment/intervention per the clinical trial protocol. “Enrolled” shall have a correlative meaning.
1.55. “European Union” or “E.U.” means the economic, scientific, and political organization of member states of the European Union as it may be constituted from time to time.
1.56. “Excluded Territory” means Japan, Bangladesh, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
1.57. “Excluded Claim” means a dispute, controversy or claim that concerns the construction, scope, validity, enforceability, inventorship, ownership or infringement of a Patent, Patent application, Trademark or copyright.
1.58. “Excluded Product Information” has the meaning set forth in Section 1.39.
1.59. “Exclusivity Term” has the meaning set forth in Section 2.8(a).
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1.60. “Execution Date” has the meaning set forth in the preamble.
1.61. “Executive Officers” means, together, a Vice President of Development of GSK (or a designee) and the Chief Executive Officer of Spero.
1.62. “Existing Confidentiality Agreement” means that certain Amended and Restated Confidential Disclosure Agreement, by and between GlaxoSmithKline, LLC and Spero, dated as of June 29, 2022.
1.63. “Existing NDA” means the NDA seeking approval for tebipenem HBr oral tablets for treatment in adult patients with cUTI, including acute pyelonephritis, caused by susceptible microorganism that was submitted by Spero to the FDA and accepted by the FDA for substantive review on January 3, 2022.
1.64. “FDA” means the United States Food and Drug Administration or a successor federal agency thereto.
1.65. “Field” means the treatment, palliation, diagnosis or prevention of any human disease, disorder or condition.
1.66. “First Commercial Sale” means, with respect to a Product, on a country-by-country basis, the first commercial sale for monetary value in an arms-length transaction of such Product to a Third Party end user by or on behalf of a Party or any of its respective Selling Parties in such country following receipt of applicable Regulatory Approval of such Product in such country; provided, however, that First Commercial Sale shall not include any transfer of a Product (a) between or among a Party or any of its respective Selling Parties for a given Party or any Third Party subcontractors (including CMOs or suppliers (other than wholesalers and distributors) that is a Selling Party for such Party); or (b) for purposes of patient assistance, charitable or promotional purposes, for use in a Clinical Trial or for use in any other tests or studies reasonably necessary to comply with any Law or request by a Regulatory Authority; provided, further, that solely for purposes of defining the Royalty Term as set forth in Section 1.149, the transfers set forth in clauses (a) or (b) above shall only be excluded from the definition of First Commercial Sale hereunder if such transfer are made without consideration.
1.67. “First Commercial Sale Milestone” has the meaning set forth in Section 6.3.
1.68. “Force Majeure Events” has the meaning set forth in Section 14.6.
1.69. “[***]” has the meaning set forth in Section 6.2.
1.70. “GAAP” has the meaning set forth in Section 1.2.
1.71. “GCP” means the applicable then-current good clinical practice standards promulgated or endorsed by the FDA, as defined in U.S. 21 C.F.R. Parts 312, 50, 54, and 56 (or such other foreign equivalent regulatory standards in any other country or jurisdiction).
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1.72. “Generic Product” means, with respect to a particular Product in a particular country, a product on the market in such country commercialized by any Third Party that is not a sublicensee of a Party and that did not purchase such product in a chain of distribution that included a Party or any of its respective Selling Parties, that is approved in reliance, in whole or in part, on the prior approval (or on safety or efficacy data submitted in support of the prior approval) of such Product as determined by the applicable Regulatory Authority, including any product that is authorized for sale (a) in the U.S. pursuant to Section 505(j) of the US Federal Food, Drug, and Cosmetic Act (21 USC Section 355(j)); (b) in the European Union pursuant to a provision of Articles 10, 10a or 10b of Parliament and Council Directive 2001/83/EC as amended (including an application under Article 6.1 of Parliament and Council Regulation (EC) No 726/2004 that relies for its content on any such provision); or (c) any foreign equivalent thereof or successors thereto.
1.73. “Generic Competition” has the meaning set forth in Section 6.5(e).
1.74. “GLP” means all applicable then-current good laboratory practice standards promulgated or endorsed by the FDA, as defined in U.S. 21 C.F.R. Part 58 (or such other foreign equivalent regulatory standards in any other country or jurisdiction).
1.75. “GMP” means all applicable then-current good Manufacturing practice standards, practices, and procedures promulgated or endorsed by the applicable Regulatory Authority as set forth in the guidelines imposed by such Regulatory Authority, as may be updated from time-to-time, including those as set forth in FDA regulations in 21 C.F.R. Parts 210 and 211 and all applicable FDA rules, regulations, orders, and guidances, and the requirements with respect to current good Manufacturing practices prescribed by the European Community under provisions of “The Rules Governing Medicinal Products in the European Community, Volume 4, Good Manufacturing Practices, Annex 13, Manufacture of Investigational Medicinal Products, December 2010,” (or such other foreign equivalent regulatory standards in any other country or jurisdiction).
1.76. “Governmental Body” means any (a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) supranational, federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multi-national or supranational organization or body; or (e) individual, entity, or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or Tax Authority or power of any nature.
1.77. “GSK” has the meaning set forth in the preamble.
1.78. “GSK Clinical Trial Transfer Obligations” has the meaning set forth in Section 11.7(b)(ii).
1.79. “GSK Excluded Know-How” means any Arising Know-How that is (a) [***] during the Term by a Party or its Affiliates, licensees, sublicensees or subcontractors or any of their
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respective employees, agents, independent contractors or consultants either alone or jointly with the other Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents, independent contractors or consultants; and (b) is not (i) [***] during the Term by or on behalf of GSK (or any of its Affiliates or Sublicensees) in the Development, Manufacture or Commercialization of the Compound or any Product, and (ii) [***] in the Excluded Territory.
1.80. “GSK Excluded Patents” means any Patent that Covers or otherwise claims any GSK Excluded Know-How but excluding any Patent that also Covers or otherwise claims any GSK Licensed Know-How.
1.81. “GSK Indemnitees” has the meaning set forth in Section 10.2.
1.82. “GSK Licensed Intellectual Property” means (a) the GSK Licensed Know-How and (b) the GSK Licensed Patents.
1.83. “GSK Licensed Know-How” means all Arising Know-How that is (a) [***] during the Term by a Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents, independent contractors or consultants either alone or jointly with the other Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents, independent contractors or consultants, and (b) [***] but excluding any GSK Excluded Know-How.
1.84. “GSK Licensed Patents” means all Arising Patents but excluding all GSK Excluded Patents.
1.85. “GSK Regulatory Documentation” means all Regulatory Documents prepared for submission or submitted by or on behalf of GSK, its Affiliates or Sublicensees to, or received from, Regulatory Authorities in the GSK Territory, relating to the Compound or any Product. For clarity, “GSK Regulatory Documentation” includes any amendment, modification, supplement or other Regulatory Documents relating to the Existing NDA or the seeking of Regulatory Approval in the United States (other than with respect to the IND(s) for the Required Studies) which are submitted to or filed with the FDA following the Effective Date.
1.86. “GSK Retained Rights” has the meaning set forth in Section 2.4(b).
1.87. “GSK Territory” means worldwide, excluding the Excluded Territory (subject to adjustment pursuant to Section 2.11(b)).
1.88. “GSK Territory Amendment” has the meaning set forth in Section 2.11(b).
1.89. “HSR Act” has the meaning set forth in Section 1.13.
1.90. “Human Biological Samples” means any human biological material (including any derivative or progeny thereof), including any portion of an organ, any tissue, skin, bone, muscle, connective tissue, blood, cerebrospinal fluid, cells, gametes, or sub-cellular structures such as DNA, or any derivative of such biological material such as stem cells or cell lines; and
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any human biological product, including, but not limited to, hair, nail clippings, teeth, urine, feces, breast milk, and sweat.
1.91. “IFRS” has the meaning set forth in Section 1.2.
1.92. “IND” means, in the United States, an effective Notice of a Claimed Investigational New Drug Application filed with the FDA as more fully defined in 21 C.F.R. § 312.3, and, with respect to every other country or jurisdiction in the Territory, the clinical trial notification, clinical trial application or other equivalent application (i.e., a filing that must be made prior to commencing clinical testing of any Product in humans) filed with the applicable Regulatory Authority in such country or jurisdiction.
1.93. “Indemnitees” means (a) with respect to GSK as the indemnifying Party, the Spero Indemnitees; and (b) with respect to Spero as the indemnifying Party, the GSK Indemnitees.
1.94. “Indication” means an entirely separate and distinct disease or medical condition in humans (including having a separate histology) for which a product may be filed to obtain a label or label expansion or has received a separate and distinct marketing authorization approval with an approved label claim to treat such disease or condition, as applicable. For clarity, (a) moving from one line of therapy to another within any disease or medical condition shall not be considered to be a new Indication, a non-limiting example of which is moving from second line therapy to first line therapy; (b) a single Indication would include the primary disease and all variants or sub-divisions or sub-classifications within such primary disease, and regardless of prophylactic or therapeutic use, pediatric or adult use and irrespective of different formulation(s), dosage form(s), dosage strength(s), or delivery system(s) used; and (c) obtaining a label expansion for use of any product to treat the same primary disease in combination or co-administration with another product in an already approved Indication shall not be considered to be a new Indication.
1.95. “Initiation” means, with respect to a Clinical Trial of a product, the first dosing of the first human subject pursuant to the applicable protocol for such Clinical Trial.
1.96. “Interim Analysis” means, with respect to the Required Phase III Study, the evaluation and examination of data obtained from patients in the Required Phase III Study while the Required Phase III Study is ongoing to provide (a) an opportunity to [***], (b) an opportunity to [***], (c) an opportunity to [***], and/or (d) [***].
1.97. “[***]” has the meaning set forth in Section 6.2.
1.98. “Inventory” means all quantities of the Compound and any Product (including active pharmaceutical ingredients, raw materials, and work-in-process) that are (a) in Spero’s or its Affiliate’s possession, and/or (b) to be manufactured by a CMO for Spero or its Affiliate, in each case for use in the GSK Territory.
1.99. “Joint Development Committee” or the “JDC” has the meaning set forth in Section 3.2(a).
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1.100. “Know-How” means any proprietary, scientific or technical information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, that is not in the public domain or otherwise publicly known, including discoveries, inventions, trade secrets, devices, databases, practices, protocols, regulatory filings, methods, processes (including Manufacturing processes, specifications and techniques), techniques, concepts, ideas, specifications, formulations, formulae, data (including pharmacological, biological, chemical, toxicological, clinical and analytical information, quality control, trial and stability data), case reports forms, medical records, data analyses, reports, studies and procedures, designs for experiments and tests and results of experimentation and testing (including results of any Development activities), summaries and information contained in submissions to and information from ethical committees, or Regulatory Authorities, and Manufacturing process and Development information, results and data, whether or not patentable, all to the extent not claimed or disclosed in any Patent. The fact that an item is known to the public shall not be taken to exclude the possibility that a compilation including the item, or a development relating to the item, is (and remains) not known to the public. “Know-How” includes any rights (other than Patents, but including copyright, database or design rights) protecting such Know-How.
1.101. “Law” or “Laws” means all applicable national, supranational, regional, state and local laws, statutes, rules, regulations, ordinances, treaties, administrative codes, guidance, judgments, decrees, directives, injunctions, orders, permits, of or from any court, arbitrator, Regulatory Authority, or Governmental Body having jurisdiction over or related to the subject item, including GCP, GLP and GMP, as applicable.
1.102. “Losses” has the meaning set forth in Section 10.1.
1.103. “Major Country” means each of the following: [***].
1.104. “Manufacture” means, with respect to any product (including active pharmaceutical ingredient and other material contained therein), the performance of all activities directed to any stage of manufacture of such product, as applicable, including the planning, purchasing of materials or intermediates, making, having made, producing, manufacturing, process development, processing, filling, finishing, packaging, labeling, leafleting, in-process testing, waste disposal, quality control testing and quality assurance release, disposition, sample retention, stability testing, preparation for shipping, shipping or storage of such product. “Manufactured” or “Manufacturing” shall each have a correlative meaning.
1.105. “Meiji” has the meaning set forth in the recitals.
1.106. “Meiji Forfeiture Event” has the meaning set forth in Section 2.11(b).
1.107. “Meiji Forfeiture Notice” has the meaning set forth in Section 2.11(b).
1.108. “Meiji Intellectual Property” means (a) the Meiji Know-How, and (b) the Meiji Patents.
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1.109. “Meiji Know-How” means all Know-How licensed by Spero from Meiji pursuant to the Meiji License, including all [***].
1.110. “Meiji License” has the meaning set forth in the recitals.
1.111. “Meiji Patents” means all Patents in the GSK Territory licensed by Spero from Meiji pursuant to the Meiji License.
1.112. “Meiji Regulatory Documentation” means all Regulatory Documents submitted by or on behalf of Meiji, its Affiliates or sublicensees to, or received from, Regulatory Authorities in the Excluded Territory, relating to the Compound or any Product, including but not limited to Orapenem.
1.113. “NDA” means any New Drug Application, submitted pursuant to the requirements of the FDA, as more fully defined in 21 C.F.R. § 314.3 et seq. and any equivalent application to any of the foregoing (e.g., Marketing Authorization Application filed with the EMA) submitted in any country or jurisdiction in the Territory, including all additions, deletions or supplements thereto, and as any and all such requirements may be amended, or supplanted, at any time.
1.114. “Net Sales” means, with respect to a Product during a stated time period, the gross invoiced sales amounts for such Product sold by or on behalf of (a) with respect to the GSK Territory, GSK or any of its Affiliates or Sublicensees in arm’s length transactions to Third Parties (but not including sales relating to transactions by and between GSK, its Affiliates or Sublicensees, but including sales to wholesalers and distributors); or (b) with respect to Spero’s royalty payment obligations pursuant to Section 11.7(b)(iv)(A), Spero or any of its Affiliates, licensees or sublicensees in arm’s length transactions to Third Parties (but not including sales relating to transactions by and between Spero, its Affiliates, licensees or sublicensees, but including sales to wholesalers and distributors) (in each case ((a) and (b)), any such Affiliates, licensees or sublicensees of a Party, a “Selling Party”), less the following deductions from such gross amounts which are actually incurred, allowed, paid, accrued or specifically allocated to such Product and not otherwise recovered by such Selling Party and to the extent that such amounts are deducted from gross invoiced sales amounts as reported by such a Party or any of its respective Selling Parties in its financial statements in accordance with its applicable Accounting Standard, applied on a consistent basis:
[***]
provided, however, that in no event shall any particular amount identified above be deducted more than once in calculating Net Sales (i.e., no “double counting” of deductions).
To the extent that a Party or any of its respective Selling Parties receives consideration other than or in addition to cash upon the sale or disposition of a Product, Net Sales will be calculated based on the average price charged for such Product, as applicable, during the preceding royalty period, or in the absence of
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such sales, based on such Party’s (or its Selling Party’s, as applicable) reasonable determination of the fair market value of the Product.
For purposes of the definition of Net Sales: If any Product under this Agreement is sold in the form of a Combination Product, and such Product and Other Components are sold separately, the Net Sales of such Combination Product for any period shall be determined by multiplying the Net Sales (as defined above in this Section 1.114) of such Combination Product for such period by the fraction, A/(A+B) where A is the weighted (by sales volume) average gross sale price in a particular country of such Product during such period when sold separately in finished form and B is the weighted average gross sale price in such country during such period of the Other Components sold separately in finished form; provided that in the case of a Combination Product comprised of an Other Product that is co-administered with the Product, the Net Sales of such Combination Product for any period shall be the average gross sales price in a particular country of such Product during such period when sold separately in finished form and, if not sold separately during such period, the average gross sales price in such particular country when most recently sold separately in finished form.
In the event that the weighted average gross sale price of such Product for a period can be determined but the weighted average gross sale price of the Other Components cannot be determined, the Net Sales of such Product for such period shall be calculated by multiplying the Net Sales of such Combination Product for such period by the fraction A/C where A is the weighted average gross sale price of such Product during such period when sold separately in finished form and C is the weighted average gross sale price of such Combination Product during such period.
In the event that the weighted average gross sale price of the Other Components for a period can be determined but the weighted average gross sale price of such Product for such period cannot be determined, the Net Sales of such Product for such period shall be calculated by multiplying the Net Sales of such Combination Product for such period by a fraction determined by the following formula: one (1) minus B/C where B is the weighted average gross sale price of the Other Components during such period when sold separately in finished form and C is the weighted average gross sale price of such Combination Product during such period.
In the event that the weighted average gross sale price of both such Product and the Other Components in such Combination Product cannot be determined for a period, the Net Sales of such Product for such period shall be based upon the relative value contributed by each component. Such Party (or its Selling Party, as applicable) shall propose a value for the weighted average gross sale price of such Product and the Other Components in such Combination Product. Within [***] days after such Party (or its Selling Party, as applicable) submits such proposal to the other Party, the Parties shall meet to discuss, acting reasonably and in good faith, and agree
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upon (which agreement shall not be unreasonably withheld) the weighted average gross sales price of such Product and the Other Components in such Combination Product for such period. The weighted average gross sale price for such Product, Other Components, or Combination Product for such period shall be calculated once each Calendar Year and such price shall be used during all applicable reporting periods for the entire following Calendar Year. When determining the weighted average gross sale price of a Product, Other Components, or Combination Product for a period, the weighted average gross sale price shall be calculated by dividing the sales dollars (translated into US Dollars) by the units of active ingredient sold during the [***] months (or [***]) of the preceding Calendar Year for such Product, Other Components, or Combination Product. In the initial Calendar Year, a forecasted weighted average gross sale price will be used for such Product, Other Components, or Combination Product. Any over or under payment due to a difference between forecasted and actual weighted average gross sale prices will be paid or credited in the first applicable payment of the following Calendar Year.
Sales of Products among a Party and any of its respective Selling Parties (including sales by any such Selling Party to such Party or another Selling Party of such Party) for resale by such entity to a Third Party shall not be deemed a sale for purposes of this definition of “Net Sales”; provided that the resale of such Products by such entity to such Third Party (other than a sublicensee (or, in the case of GSK, a Sublicensee), but including wholesalers and distributors) shall be deemed a sale for the purposes of this definition of “Net Sales.” If any Affiliate or sublicensee of a Party that purchases Products from such Party or any of its other Affiliates or sublicensees that is the end user of such Product, then Net Sales shall include the value of such sale, calculated at the higher of (i) the actual price paid in such sale for such Product or (ii) the fair market value of such Product at the time of such sale (as determined by the mutual agreement of the Parties, acting reasonably and in good faith).
Transfers or dispositions of Product for no monetary consideration: (A) [***]; (B) [***]; (C) [***]; or (D) [***] shall not, in each case ((A) through (D)), be deemed sales of such Product for purposes of this definition of “Net Sales.”
1.115. “Non-Bankrupt Party” has the meaning set forth in Section 11.9.
1.116. “Non-Breaching Party” has the meaning set forth in Section 11.3.
1.117. “Non-Escalatable Dispute” has the meaning set forth in Section 13.1.
1.118. “Orapenem” means the Product in fine granule formulation which Meiji was commercializing as of the Meiji License Effective Date or any time thereafter, including as of the Effective Date of this Agreement.
1.119. “Other Components” has the meaning set forth in Section 1.29.
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1.120. “Out-of-Pocket Costs” means, with respect to certain activities hereunder, direct expenses paid or payable by either Party or any of its Affiliates to Third Parties and specifically identifiable and incurred to conduct such activities for the Compound or any Product, including payments to contract personnel (including contractors, consultants and subcontractors).
1.121. “Party” and “Parties” have the meaning set forth in the preamble.
1.122. “Patent” or “Patents” means any and all (a) issued or granted patents, including any extensions, supplemental protection certificates, registrations, confirmations, reissues, reexaminations or renewals thereof; (b) pending patent applications, including any continuations, divisionals, continuations-in-part, substitutes or provisional applications; and (c) counterparts or foreign equivalents of any of the foregoing issued by or filed in any country or other jurisdiction.
1.123. “Payee Party” has the meaning set forth in Section 6.7(a).
1.124. “Payor Party” has the meaning set forth in Section 6.7(a).
1.125. “Person” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.
1.126. “Personnel” means, with respect to any Person, its officers, directors, employees, workers, contractors, advisors, consultants, agents or other representatives.
1.127. “[***]” has the meaning set forth in Section 1.188.
1.128. “[***]” means [***].
1.129. “Pharmacovigilance Agreement” has the meaning set forth in Section 5.5(b).
1.130. “Phase I Clinical Trial” means any Clinical Trial of any product, the principal purpose of which is a preliminary determination of safety, pharmacokinetics, and pharmacodynamic parameters in healthy individuals or patients, or a similar clinical study prescribed by the relevant Regulatory Authority in a country, from time to time, pursuant to Law or otherwise, including those trials referred to in 21 C.F.R. § 312.21(a), as amended, or analogous provisions outside the United States.
1.131. “Phase II Clinical Trial” means a Clinical Trial of any product, the principal purpose of which is a determination of safety and efficacy in the target patient population, which is prospectively designed to generate sufficient data that may permit commencement and dosing ranging for a Phase III Clinical Trial, or a similar clinical study prescribed by the relevant Regulatory Authority in a country, from time to time, pursuant to Law or otherwise, including the trials referred to in 21 C.F.R. § 312.21(b), as amended, or analogous provisions outside the United States.
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1.132. “Phase III Clinical Trial” means a Clinical Trial of any product that would satisfy the requirements of U.S. 21 C.F.R. Part 312.21(c), or analogous provisions outside the United States, and is intended to: (a) establish that the product is safe and efficacious for its intended use; (b) define contraindications, warnings, precautions and adverse reactions that are associated with the product in the dosage range to be prescribed; and (c) support Regulatory Approval for such product in the Territory, or a similar clinical study prescribed by the relevant Regulatory Authority in a country.
1.133. “Proceeding” means any action, arbitration, investigation, litigation or suit commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.
1.134. “Product” means any and all pharmaceutical products in any dosage form and strengths, or formulation, or method of delivery, including any improvements thereto, that contains the Compound as an active ingredient, whether as the sole therapeutically active ingredient or in combination or adjunct therapy with one or more Other Component(s) including any orally administered pharmaceutical product in finished dosage form containing the Compound for human use, including but not limited to, the Spero New Formulation Product and Orapenem.
1.135. “Product Information” has the meaning set forth in Section 1.39.
1.136. “Product Trademarks” means all Trademarks (a) Controlled by Spero (or any of its Affiliates) as of the Execution Date or during the Term; and (b) that are necessary or useful in the Development, Manufacture or Commercialization of the Compound or any Product in the Field in the GSK Territory (but, for clarity, excluding any house marks of Spero or any of its Affiliates or sublicensees).
1.137. “Receiving Party” has the meaning set forth in Section 1.39.
1.138. “Regulatory Approval” means any and all approvals, licenses, registrations, or authorizations of the relevant Regulatory Authority, including any pricing or pricing reimbursement approval or determination, necessary for the Development, Manufacture or Commercialization of the applicable Product in a particular country or jurisdiction.
1.139. “Regulatory Authority” means (a) in the U.S., the FDA, (b) in the E.U., the EMA, or (c) in any other jurisdiction anywhere in the world, any regulatory body with similar regulatory authority over pharmaceutical products.
1.140. “Regulatory Documents” means any and all applications and filings (and any supplement or amendment thereto) made with any Regulatory Authority in the Territory with respect to the Compound or any Product, including any IND, NDA or orphan drug designations, import/export applications, or any other application for regulatory consultations or consideration, including sponsorship thereof, and any and all Know-How included or incorporated therein, associated source documents, related communication, correspondence and documentation submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority),
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regulatory drug lists, adverse event files and complaint files, and submissions to regulatory advisory boards.
1.141. “Regulatory Exclusivity Period” means, with respect to any Product in any country in the Territory, a period of exclusivity (other than Patent exclusivity) granted or afforded by Law or by a Regulatory Authority in such country that confers any data exclusivity rights, market exclusivity rights, or other exclusive rights (other than Patent exclusivity) with respect to such Product in such country which rights either (a) confer exclusive marketing rights with respect to such Product or (b) prevent another party from using or otherwise relying on the Regulatory Approval or data supporting the Regulatory Approval for such Product without the prior written authorization of the Regulatory Approval holder, as applicable, such as new chemical entity exclusivity, new use or Indication exclusivity, new formulation exclusivity, orphan drug exclusivity, reference product exclusivity, exclusivity associated with new Clinical Trials necessary for approval of a new Indication or use, non-patent related pediatric exclusivity or any other applicable marketing and data exclusivity.
1.142. “Representatives” has the meaning set forth in Section 8.1.
1.143. “Required Phase III Study” has the meaning set forth in Section 1.144.
1.144. “Required Studies” means (a) a persuasive, single, successful adequate and well-controlled Phase III Clinical Trial with a [***]% NI margin, to include [***], to support the registration of tebipenem pivoxil hydrobromide in patients with cUTI/AP (the “Required Phase III Study”) as agreed via the FDA Special Protocol Assessment (SPA), and (b) the following items to fully address the CRL: [***] and any additional items identified in the final Type A meeting minutes required by FDA for resubmission of the Existing NDA by GSK.
1.145. “Reversion License” has the meaning set forth in Section 11.7(b)(vi).
1.146. “Reversion License Notice” has the meaning set forth in Section 11.7(b)(vi).
1.147. “Reversion Trademarks” has the meaning set forth in Section 11.7(b)(vi).
1.148. “Royalty Report” has the meaning set forth in Section 6.5(b).
1.149. “Royalty Term” means, on a Product-by-Product and country-by-country basis, the period beginning on the date of the First Commercial Sale of such Product in such country and ending on the latest to occur of (a) the expiration of the last to expire Valid Claim of a Spero Patent; (b) the expiration of the Regulatory Exclusivity Period for such Product in such country; and (c) ten (10) years from the date of the First Commercial Sale of such Product in such country.
1.150. “Sales Milestone Event” has the meaning set forth in Section 6.4.
1.151. “Sales Milestone Payment” has the meaning set forth in Section 6.4.
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1.152. “Selling Party” has the meaning set forth in Section 1.114.
1.153. “Share Purchase Agreement” means that certain Share Purchase Agreement, entered into as of the Execution Date between Spero and Glaxo Group Limited, a company organized under the laws of England and Wales.
1.154. “SPA Acceptance” shall mean the expiration of the [***] day period following the date on which Spero receives a notice from the FDA indicating that the FDA has received the Special Protocol Assessment for the Required Phase III Study; provided, however, that (a) if the FDA indicates its agreement with such Special Protocol Assessment prior to the expiration of such [***] day period, the term “SPA Acceptance” shall mean that date during the Term of this Agreement when Spero receives written confirmation from the FDA of such agreement and that Spero has the approval or authority to commence the Required Phase III Study, or (b) if the FDA issues a “Special Protocol Assessment – No Agreement Letter” during such [***] day period, the term “SPA Acceptance” shall mean that date during the Term of this Agreement when Spero receives written confirmation from the FDA that the FDA has agreed with the Special Protocol Assessment for the Required Phase III Study and that Spero has the approval or authority to commence the Required Phase III Study.
1.155. “Specified Claim” means any claims, investigations, demands or suits brought against any Spero Indemnitee or GSK Indemnitee, as applicable, by [***], their respective Affiliates or successors in interest that are based on, arise or result from, or are attributable to (a) the [***] by either Party, its Affiliates, licensees or sublicensees, including, for the avoidance of doubt, the [***] by GSK, its Affiliates or Sublicensees in the [***] as contemplated by this Agreement, including in reliance on, through the use of, or by reference to, the [***] (as the same may be amended, modified, supplemented by GSK from time to time) and any [***] (or any other Spero Regulatory Documentation or [***]), (b) an actual or alleged conflict with, violation or breach of, or creation in [***] or any rights that GSK has been granted pursuant to this Agreement as a result of Spero’s grant to GSK of a sublicense [***], any other Spero Regulatory Documentation or any [***], or (c) an actual or alleged conflict with, violation or breach of, or creation in [***] or any rights that GSK has been granted pursuant to this Agreement.
1.156. “Spero” has the meaning set forth in the preamble.
1.157. “Spero Human Biological Samples” means any Human Biological Samples collected in connection with the conduct of the Required Studies or any Clinical Trial of a Product conducted by or on behalf of Spero or any of its Affiliates prior to the Effective Date.
1.158. “Spero Indemnitees” has the meaning set forth in Section 10.1.
1.159. “Spero Intellectual Property” means (a) the Spero Know-How; and (b) the Spero Patents.
1.160. “Spero Know-How” means any Know-How that (a) is Controlled by Spero (or any of its Affiliates) as of the Execution Date or during the Term; and (b) is necessary or useful to
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Develop, Manufacture or Commercialize the Compound or any Product, including all Meiji Know-How, but excluding the Spero Regulatory Documentation.
1.161. “Spero New Formulation Product” means the Product in a formulation which Spero, directly or indirectly through its Affiliates or sublicensees, was developing as of the Meiji License Effective Date or any time thereafter, including as of the Effective Date of this Agreement, and which is the subject of the Existing NDA.
1.162. “Spero Patent” means any Patent in the GSK Territory that (a) is Controlled by Spero (or any of its Affiliates) as of the Execution Date or during the Term; and (b) (i) claims or Covers any Spero Know-How, or (ii) otherwise Covers the Compound or any Product or the Development, Manufacture or Commercialization of the Compound or any Product, including all Meiji Patents.
1.163. “Spero Regulatory Documentation” means all Regulatory Documents prepared for submission or submitted by or on behalf of Spero, its Affiliates or sublicensees to, or received from, Regulatory Authorities in the GSK Territory, relating to the Compound or any Product, including but not limited to the Spero New Formulation Product.
1.164. “Spero Retained Rights” has the meaning set forth in Section 2.4.
1.165. “Spero Third Party Agreement” has the meaning set forth in Section 2.10(b).
1.166. “Sublicensee” means any Third Party to which GSK (or any of its Affiliates which has received a sublicense pursuant to Section 2.3(a)) has granted or grants any sublicense or covenant not to sue under any of the rights or licenses granted to GSK under Section 2.1 (and any further sublicensee of such Third Party (regardless of the number of tiers, layers or levels of sublicenses or covenants not to sue of such rights)), in each case, as permitted under this Agreement; provided that “Sublicensee” shall exclude distributors and subcontractors performing activities by or on behalf of GSK (or its Affiliates which has received a sublicense pursuant to Section 2.3(a)) in accordance with Section 4.8, as applicable.
1.167. “Tax” or “Taxes” means any form of tax, levy, import duty, charge, contribution or withholding of any kind imposed, collected or assessed by, or payable to a Tax Authority and all penalties, charges, surcharges, fines, costs and interest included in or relating to any of the above whether disputed or not. This can include, but is not limited to, payroll taxes, employment taxes, stamp duty, corporation tax, withholding tax and capital gains tax.
1.168. “Tax Authority” means any government, state or municipality or any local state, federal or other authority, body or official anywhere in the world exercising a fiscal, revenue, customs or excise function (including, but not limited to, Her Majesty’s Revenue & Customs).
1.169. “Technology Transfer Committee” has the meaning set forth in Section 2.5.
1.170. “Technology Transfer Period” has the meaning set forth in Section 2.5.
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1.171. “Technology Transfer Plan” means the technology transfer plan agreed by the Parties, as attached hereto in Schedule 2.5.
1.172. “Term” has the meaning set forth in Section 11.1.
1.173. “Termination and Wind-Down Plan” has the meaning set forth in Section 11.7(b).
1.174. “Territory” means (a) with respect to Spero, the Excluded Territory; or (b) with respect to GSK, the GSK Territory, as applicable.
1.175. “Third Party” means any Person other than Spero, GSK or any of their respective Affiliates.
1.176. “Third Party Agreement” means any agreement between GSK (or its Affiliate which has received a sublicense pursuant to Section 2.3(a) or Sublicensee) and a Third Party in connection with the grant of rights under any Patents or Know-How owned or otherwise controlled by such Third Party to GSK (or such Affiliate which has received a sublicense pursuant to Section 2.3(a)) or Sublicensee) which Patents or Know-How are necessary to Develop, Manufacture, Commercialize, use or otherwise exploit the Compound or any Product in the GSK Territory.
1.177. “Third Party Claims” has the meaning set forth in Section 10.1.
1.178. “Third Party Enforcement Action” means any claim or other similar action made by a Third Party against either Party that claims that the Compound or any Product, or its Development, Manufacture or Commercialization infringes or misappropriates such Third Party’s intellectual property rights; provided that, with respect to a Combination Product, a Third Party Action shall only include claims or actions if and to the extent the underlying claim relates to the Compound.
1.179. “Third Party Payments” has the meaning set forth in Section 6.5(d).
1.180. “Trademark” means any word, name, symbol, color, shape, designation or any combination thereof, including any trademark, service mark, trade dress, trade name, brand name, logo, insignia, domain name, design and all other indicia of ownership or origin and any combination thereof, whether or not registered and all statutory and common law rights therein and all registrations and applications therefor, together with all goodwill associated with, or symbolized by, any of the foregoing.
1.181. “Transition Period” has the meaning set forth in Section 4.3.
1.182. “Transition Plan” has the meaning set forth in Section 4.3.
1.183. “United Kingdom” or “U.K.” means the United Kingdom and its territories and possessions.
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1.184. “United States” or “U.S.” means the United States of America and its territories and possessions.
1.185. “U.S. Dollars” or “$” means the lawful currency of the United States.
1.186. “Valid Claim” means a claim of a Patent (including any extensions) which has not lapsed or been revoked, abandoned or held unpatentable, unenforceable or invalid by a final decision of a court or Governmental Body of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, reexamination or disclaimer or otherwise. In order to be a Valid Claim, any claim being prosecuted in a pending patent application must be prosecuted in good faith and not have been pending for more than [***] years from the earliest priority date of such patent application (or equivalent concept in any such country) in the country in question, in which case it will cease to be considered a Valid Claim until the patent issues and recites said claim.
1.187. “Valid Invoice” has the meaning set forth in Schedule 6.8.
1.188. “VAT and Indirect Taxes” means any value added, sales, purchase, turnover or consumption tax as may be applicable in any relevant jurisdiction, including but not limited to value added tax chargeable under legislation implementing E.U. Council Directive 2006/112/EC on the common system of value added tax.
1.189. “[***]” means [***].
1.190. “[***]” means [***].
Article 2
LICENSE GRANTS; EXCLUSIVITY; NON-COMPETITION
2.1 License Grant to GSK. On the Effective Date and subject to the terms and conditions of this Agreement, Spero, on behalf of itself and its Affiliates, hereby grants to GSK (a) an exclusive (even as to Spero and its Affiliates, but subject to (i) the Spero Retained Rights, (ii) solely with respect to the Meiji Intellectual Property (excluding all [***]) and Meiji Regulatory Documentation, the non-exclusive and sublicensable license granted by Meiji to [***] under the [***], and (iii) all rights retained by [***] with respect to the [***]), royalty-bearing, sublicensable (in accordance with Section 2.3(a)), transferable (in accordance with Section 14.2) right and license under the Spero Intellectual Property, the Spero Regulatory Documentation, the Meiji Regulatory Documentation and the Product Trademarks to research, Develop, Manufacture (including to have Manufactured) and Commercialize the Compound and any Products in the Field in the GSK Territory; (b) an exclusive (even as to Spero and its Affiliates, but subject to the Spero Retained Rights), non-royalty-bearing, sublicensable (in accordance with Section 2.3(a)), transferable (in accordance with Section 14.2) right and license under the Spero Intellectual Property (excluding, for purposes of this subclause 2.1(b), any Meiji Know-How or Meiji Patents)
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and Spero Regulatory Documentation to Develop and Manufacture (including to have Manufactured) the Compound and any Products in the Excluded Territory solely for the purpose of furthering the Development, Manufacture and Commercialization of the Compound and any Products in the Field in the GSK Territory; and (c) a non-exclusive, non-royalty-bearing, sublicensable (in accordance with Section 2.3(a)), transferable (in accordance with Section 14.2) right and license under the Meiji Intellectual Property and Meiji Regulatory Documentation to Develop and Manufacture (including to have Manufactured) the Compound and any Products in the Excluded Territory solely for the purpose of furthering the Development, Manufacture and Commercialization of the Compound and any Products in the Field in the GSK Territory. For clarity, the foregoing license in clause (a) above includes the right to use, cross-reference, file or incorporate by reference any information, data and Know-How included or incorporated in the Spero Regulatory Documentation or Meiji Regulatory Documentation to support any regulatory filings in the GSK Territory relating to the Compound or any Product or in the Development, Manufacture and Commercialization of the Compound and any Products in the GSK Territory. Without limiting the foregoing, GSK hereby agrees to Commercialize any Product solely in the GSK Territory and shall not, and shall not permit its Affiliates, Sublicensees or distributors to, distribute, market, promote, offer for sale or sell any Product (1) to any Third Party outside the GSK Territory, or (2) to any Third Party inside the GSK Territory that GSK, or its Affiliates, Sublicensees or distributors, as applicable, knows is reasonably likely to distribute, market, promote, offer for sale or sell such Product outside the GSK Territory.
2.2 License Grant to Spero. On the Effective Date and subject to the terms and conditions of this Agreement, GSK, on behalf of itself and its Affiliates, hereby grants to Spero (a) an exclusive (even as to GSK and its Affiliates, subject to the GSK Retained Rights), royalty-free, sublicensable (in accordance with Section 2.3(b)), non-transferable right and license under the GSK Licensed Intellectual Property and GSK Regulatory Documentation for Meiji (as Spero’s sole permitted sublicensee) to research, Develop, Manufacture (including to have Manufactured) and Commercialize the Compound and any Products in the Field in the Excluded Territory, and (b) a non-exclusive (subject to Section 2.11), royalty-free, sublicensable (in accordance with Section 2.3(b)), non-transferable right and license under the GSK Licensed Intellectual Property for Meiji (as Spero’s sole permitted sublicensee) to Develop and Manufacture (including to have Manufactured) the Compound and any Products in the GSK Territory solely for the purpose of furthering the Development and Commercialization of the Compound and any Products by Meiji in the Field in the Excluded Territory. For clarity, subject to Section 2.11, the foregoing license includes the right to use, cross-reference, file or incorporate by reference any information and data within the GSK Regulatory Documentation to support any regulatory filings by Meiji in the Excluded Territory relating to the Compound or any Product. Notwithstanding anything herein to the contrary, the rights and licenses granted to Spero for Meiji (as Spero’s sole permitted sublicensee) pursuant to this Section 2.2 shall automatically terminate and be of no further force and effect upon the termination of the Meiji License, unless terminated by Meiji for Spero’s material breach or bankruptcy, or by Spero for convenience, without any further action on behalf of the Parties.
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2.3 Sublicensing.
(a) By GSK. GSK shall have the right to grant sublicenses (including the right to grant further sublicenses through multiple tiers), in whole or in part, under the licenses granted in Section 2.1 to its Affiliates and any Third Party; provided that (i) each such sublicense will be in writing and shall require the applicable Affiliate or Sublicensee to comply with all applicable terms and conditions of this Agreement, including obligations of confidentiality, non-disclosure and non-use of Confidential Information, and allocation of intellectual property rights that are at least as restrictive or protective of Confidential Information and intellectual property rights (including with respect to all Arising Intellectual Property) as set forth in this Agreement; (ii) the grant of any sublicense by GSK shall not relieve GSK from any of its obligations pursuant to this Agreement, (iii) GSK shall remain primarily liable to Spero for the performance of all of GSK’s obligations under this Agreement, and (iv) GSK shall notify Spero of the identity of any Third Party Sublicensee that receives a sublicense and the territory in which it will grant such sublicense in advance to entering into any such sublicense agreement.
(b) By Spero. Spero shall have the right to grant sublicenses (including the right to grant further sublicenses through multiple tiers), in whole or in part, under the licenses granted in Section 2.2 to Meiji; provided that (i) each such sublicense will be in writing and shall require the applicable sublicensee to comply with all applicable terms and conditions of this Agreement, including obligations of confidentiality, non-disclosure and non-use of Confidential Information, and allocation of intellectual property rights that are at least as restrictive or protective of Confidential Information or intellectual property rights (including with respect to Arising Intellectual Property) as set forth in this Agreement; (ii) the grant of any sublicense by Spero to Meiji shall not relieve Spero from any of its obligations pursuant to this Agreement, and (iii) Spero shall remain primarily liable to GSK for the performance of all of Spero’s obligations under this Agreement. Notwithstanding anything herein to the contrary, the rights granted to Spero pursuant to this Section 2.3(b) shall terminate and be of no further force and effect upon the termination of the Meiji License, unless terminated by Meiji for Spero’s material breach or bankruptcy, or by Spero for convenience, without any further action on behalf of the Parties.
2.4 Retained Rights.
(a) Spero Retained Rights. Notwithstanding the licenses granted by Spero to GSK under Section 2.1, Spero shall retain the right (i) under the Spero Intellectual Property and Spero Regulatory Documentation (A) subject to Section 2.11, to research, Develop, Manufacture (including to have Manufactured) and Commercialize the Compound and any Product in the Field in the Excluded Territory; (B) subject to Section 2.11, to grant Meiji the right to Develop and Manufacture (including to have Manufactured) the Compound and any Product in the GSK Territory solely for the purpose of furthering Development, Manufacturing and Commercialization of the Compound or any Product in the Field in the Excluded Territory; and (C) to conduct all Development activities set forth in the Development Plan; and (ii) under the Meiji Intellectual Property, Meiji Regulatory
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Documentation and [***] retained by Meiji under the Meiji License to Develop and Manufacture (including to have Manufactured) the Compound and the Product in the GSK Territory solely for the purpose of furthering Development, Manufacturing and Commercialization thereof in the Field in the Excluded Territory (collectively (i) and (ii) being, the “Spero Retained Rights”). Without limiting the foregoing, Spero hereby agrees to Commercialize the Compound and any Products solely in the Excluded Territory and shall not, and shall not permit its Affiliates, sublicensees or its or their distributors to, distribute, market, promote, offer for sale or sell any Product (1) to any Third Party outside the Excluded Territory, or (2) to any Third Party inside the Excluded Territory that Spero, or its Affiliates, sublicensees or its or their distributors, as applicable, knows is reasonably likely to distribute, market, promote, offer for sale or sell the Compound or any Product outside the Excluded Territory. Notwithstanding the Spero Retained Rights, if Meiji desires to conduct any Clinical Trial of any Product in the GSK Territory by exercising the Spero Retained Rights, Spero shall provide GSK with an advance notice via the Alliance Manager.
(b) GSK Retained Rights. Notwithstanding the licenses granted by GSK to Spero under Section 2.2, GSK retains the right under the Arising Intellectual Property (including the GSK Licensed Intellectual Property) for itself, its Affiliates, its Sublicensees and its Third Party subcontractors to Develop, Manufacture and have Manufactured the Compound and any Products in the Excluded Territory solely for purposes of (i) Developing the Compound and any Products for purposes of obtaining Regulatory Approval of such Products in the GSK Territory, or (ii) Commercializing such Products in the GSK Territory (collectively, the “GSK Retained Rights”). Notwithstanding the GSK Retained Rights, if GSK (including its Affiliates and Sublicenses) desires to conduct any Clinical Trial of any Product in the Excluded Territory by exercising the GSK Retained Rights or the licenses granted to GSK pursuant to Section 2.1(b), GSK shall provide Spero with an advance notice via the Alliance Manager.
2.5 Technology Transfer. During the period beginning on the Effective Date until the date that is [***] days following the Completion of the Required Studies (or such later date as is set out in Schedule 2.5 (the “Technology Transfer Period”), the Parties shall complete their respective activities under the Technology Transfer Plan, including Spero’s transfer to GSK of such Know-How and materials, as set out in Schedule 2.5; provided that either Party may propose amendments to the Technology Transfer Plan at any time during the Technology Transfer Period by delivering a notice to the other Party for review and discussion; provided, further, that the Technology Transfer Plan may only be amended by mutual agreement of the Parties. In furtherance of the foregoing, within [***] Business Days following the Effective Date, the Parties will establish a technology transfer committee comprised of representatives of each Party (which representatives may be replaced by the appointing Party at any time upon giving notice to the other Party) (the “Technology Transfer Committee”) to oversee and coordinate the implementation of the Technology Transfer Plan. For clarity, the Technology Transfer Committee will have no responsibility or decision-making authority except as expressly provided in this Section 2.5 or otherwise expressly agreed by the Parties in writing. Subject to the terms of this
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Agreement (including the Technology Transfer Plan), (i) during the [***] month period following the Effective Date, Spero will deliver to GSK (or its designee), at Spero’s reasonable cost and expense, all such Know-How and materials set forth in Schedule 2.5 as were in existence as of the Effective Date (including but not limited to, information and copies of documents related to the Compound or any Product (including CMC data and information and all non-clinical studies and Clinical Trial data and results)), (ii) no later than [***] days following the Completion of the Required Studies, Spero shall provide to GSK (or its designee) a copy of all such Know-How and materials set forth in Schedule 2.5 as were generated in the period between the Effective Date and the date of Completion of the Required Studies (including but not limited to Clinical Trial data and results from such Required Studies in accordance with the Technology Transfer Plan), save that following the completion of any individual phase(s) of the Required Studies, Spero shall provide GSK with copies of all relevant Clinical Trial data and results from any such individual phase(s) as soon as possible following the relevant completion date. (iii) Spero shall use Commercially Reasonable Efforts to ensure that all information, documentation, data and materials to be provided to GSK in accordance with this Section 2.5 and the Technology Transfer Plan shall be provided in a format that is well-structured and well-indexed and that all relevant documents and files are clearly labelled, and (iv) Spero shall make available to GSK qualified Spero Personnel having the necessary skill, expertise and experience to accomplish the activities set forth in such Technology Transfer Plan and to answer any questions or provide instruction as reasonably requested by GSK during the Technology Transfer Period. The Spero Human Biological Samples will not be delivered to GSK. GSK will have the right to request, at GSK’s direction, that Spero conduct analysis of the Spero Human Biological Samples and provide GSK (or its designee) with any data, results and reports associated with such analysis. If GSK identifies items that were not included in the original Technology Transfer Plan but are useful or necessary to research, Develop, Manufacture or Commercialize the Compound and any Product in the Field in the GSK Territory, Spero will use Commercially Reasonable Efforts to deliver to GSK, or provide GSK with access to, such items. Spero shall use Commercially Reasonable Efforts to ensure that all data, results and other information provided by Spero to GSK pursuant to this Section 2.5 and the Technology Transfer Plan is true and accurate and was generated in accordance with the Data Integrity Practices set forth in Schedule 4.11(b).
2.6 Retained Rights; No Implied Licenses. No right or license is granted to either Party hereunder by implication, estoppel, or otherwise to any Know-How, Patents, Regulatory Documentation or other intellectual property right owned or otherwise Controlled by the other Party or its Affiliates, except as expressly set forth in this Agreement. GSK will not practice or otherwise exploit the Spero Intellectual Property outside the scope of the license grant to GSK under Section 2.1 or otherwise in violation of this Agreement, including, except as expressly permitted under this Agreement, GSK, its Affiliates and its Sublicensees will not Develop, Manufacture and Commercialize the Compound or any Products outside of the GSK Territory. All rights in and to Spero Intellectual Property and Spero Regulatory Documentation owned or otherwise Controlled by Spero or its Affiliates not expressly licensed or otherwise granted to GSK under this Agreement are hereby retained by Spero (or its Affiliates, as applicable). Spero and its Affiliates will not practice
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or otherwise exploit the GSK Licensed Intellectual Property or use or reference the GSK Regulatory Documentation outside the scope of the licenses grant to Spero and its Affiliates under Section 2.2 or otherwise in violation of this Agreement, including, except as expressly permitted under this Agreement, Spero, its Affiliates and its sublicensees will not Develop, Manufacture and Commercialize the Compound or any Products outside of the Excluded Territory. All rights in and to the GSK Licensed Intellectual Property and any other Know-How, Patents or other intellectual property rights owned or otherwise controlled by GSK or its Affiliates not expressly licensed or otherwise granted to Spero under this Agreement are hereby retained by GSK (or its Affiliates, as applicable).
2.7 Combination Products. Notwithstanding any other provision of this Agreement, for purposes of the license grants under Section 2.1 and Section 2.2, with respect to any Product that is a Combination Product, such license will only include a license with respect to the Compound component of such Combination Product and not any Other Component Controlled by the Party granting such license or any of its Affiliates.
2.8 Exclusivity.
(a) Exclusivity. Subject to Sections 2.8(b) and 2.8(c) and to the applicable Spero Retained Rights, from the Effective Date until the expiration of the last to expire Royalty Term (the “Exclusivity Term”), Spero shall not, and shall cause its Affiliates not to (i) alone or with any Affiliates or Third Parties, Develop, Manufacture or Commercialize any other oral carbapenem in any Indication or an oral antibiotic for treatment of cUTI (a “Competing Product”), or (ii) enter into an agreement or other arrangement with any Third Party pursuant to which Spero or one of its Affiliates grants such Third Party any license or other rights to Develop, Manufacture or Commercialize a Competing Product; provided that the foregoing restrictions shall not apply to Spero’s or any of its Affiliates’ exercise of its rights and performance of its obligations under and in accordance with this Agreement.
(b) Change of Control Exception.
(i) Notification of Change of Control. Spero shall provide GSK with written notice of any Change of Control of Spero promptly, but no later than [***] Business Days following the earlier of the first public written announcement of such Change of Control or the execution of a definitive agreement relating to such Change of Control (or, if not prohibited under applicable Law or by the terms of any written agreement between Spero and the Acquirer, any earlier date prior to the first public announcement of, or execution of a definitive agreement pertaining to such Change of Control) which notice shall describe in reasonable detail the nature of the transaction and the identity of the Acquirer.
(ii) Operational Separation. Notwithstanding Section 2.8(a), in the event that, during the Exclusivity Term, a Change of Control occurs with respect to Spero or any of its Affiliates, and the Acquirer or any of such Acquirer’s Affiliates, immediately prior to such Change of Control, owns or has any license or other right to any Competing Product that would otherwise violate Section 2.8(a), then such Acquirer and any of such Acquirer’s
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Affiliates (but excluding, Spero and its Affiliates immediately prior to such Change of Control) will not be prohibited from Developing, Manufacturing or Commercializing, as applicable, such Competing Product; provided that:
(A) such Acquirer and any such Affiliates do not use or have access to any Confidential Information of either Party with respect to activities under this Agreement (including any Spero Intellectual Property, Arising Intellectual Property or any other data or information generated under this Agreement), or any plans or information relating to the Required Studies; and
(B) such Acquirer and any such Affiliates institute appropriate technical and administrative firewall procedures to ensure the requirements set forth in the foregoing clause (b)(i) are met, including by (1) separating the Personnel conducting activities that are specific to any Competing Product and the Personnel teams conducting activities that are specific to the Development, Manufacture and Commercialization activities with respect to the Compound or any Product, (2) the maintenance of separate lab notebooks and records and separate Personnel working on each of the activities under this Agreement with respect to the Compound or any Product and the activities with respect to such Competing Product, and (3) ensuring that Personnel of such Acquirer and any such Affiliates do not use or have access to any Confidential Information of either Party with respect to activities under this Agreement (including any Spero Intellectual Property, the Arising Intellectual Property or any other data or information generated under this Agreement), or any plans or information relating to the Required Studies (except that management Personnel may review and evaluate plans and information solely to the extent necessary for portfolio decision-making).
(iii) March In Rights. GSK will have the right, upon written notice to Spero, no later than [***] days from the date that GSK receives such notice of the closing or effectiveness of such Change of Control of Spero, to take over the conduct of all, or a designated portion (at GSK’s sole discretion) of any of the remaining Development activities to be conducted by or on behalf of Spero pursuant to the Development Plan (outside the authority of the JDC), at GSK’s own cost and expense. In such event, [***] would become due and payable following the date GSK provides notice of its intent to assume such obligations as set forth in this Section 2.8(b).
(c) Acquired Business Exception. Notwithstanding Section 2.8(a), in the event that, during the Exclusivity Term, Spero or any of its Affiliates acquires any assets or business, whether accomplished by way of merger, business combination, asset purchase, stock purchase. license or otherwise (an “Acquired Business”), and such Acquired Business, immediately prior to such acquisition, owns, has or includes any license or other right to any Competing Product that would otherwise violate Section 2.8(a), then Spero will (i)
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notify GSK of, as applicable, such Competing Product in writing no later than [***] days after the consummation of such acquisition; and (ii) perform one of the following acts (and specify which of the following it will perform in the notice provided pursuant to subsection (c)(i) above, which decision will be final and binding on Spero and its Affiliates), and in the case of all acts specified under the clauses below, except Section 2.8(c)(ii), Spero and its Affiliates also will comply will the requirements specified in subsections (A) and (B) of Section 2.8(b)(ii):
(i) Spero may elect to terminate [***], as applicable, such Competing Product, in which case Spero and its Affiliates will, subject to applicable Law, cease the [***], as applicable, such Competing Product as soon as reasonably practicable and in any event within [***] days after the consummation of the acquisition of the Acquired Business, giving due consideration to ethical concerns and requirements under Law and any agreements with Third Parties and notify GSK in writing of such completed termination; or
(ii) Spero may elect to divest itself (or cause its Affiliates to divest itself) of the Competing Product and notify GSK in writing of such completed divestiture, provided that such divestiture is completed within [***] days after the consummation of the acquisition of the Acquired Business.
2.9 Non-Competing Product.
(a) Non-Competing Product. Subject to Section 2.9(b), from the Effective Date until the [***] anniversary of the date of the First Commercial Sale of the first Product in the United States, GSK, and its Affiliates and Sublicensees shall not (a) [***] in the GSK Territory [***] other than the Compound and any Product pursuant to this Agreement, and (b) [***] in the GSK Territory other than the Compound and any Product pursuant to this Agreement. Further, other than in the exercise of any rights acquired by GSK pursuant to Section 2.11 (i.e., the Development, Manufacture or Commercialization of the Compound or any Product in such country or countries in the Excluded Territory that are the subject of a GSK Territory Amendment), in Japan and any country in the Excluded Territory which is not the subject of a GSK Territory Amendment where Meiji Commercializes Orapenem, GSK and its Affiliates and Sublicensees shall not [***].
(b) Acquired Business Exception. Notwithstanding Section 2.9(a), in the event that GSK or any of its Affiliates or Sublicensees acquires an Acquired Business and such Acquired Business, immediately prior to such acquisition, owns, has or includes any license or other right to [***] that would otherwise violate Section 2.9(a) (an “Acquired Product”), then such Acquired Business (whether as a subsidiary or division of GSK or any of its Affiliates or Sublicensees) will not be prohibited from [***], as applicable, such Acquired Product; provided that (i) such Acquired Business (whether as a subsidiary or division of GSK or any of its Affiliates or Sublicensees) does not use or have access to any Confidential Information of either Party with respect to activities under this Agreement (including any Spero Intellectual Property, Arising Intellectual Property, or any other data
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or information generated under this Agreement), or any plans or information relating to the Required Studies; and (ii) GSK and any such Affiliates or Sublicensees institute appropriate technical and administrative firewall procedures to ensure that the requirements set forth in the foregoing clause (b)(i) are met, including by (A) ensuring that the Personnel conducting activities that are specific to any Acquired Product and the Personnel conducting activities that are specific to the [***] of the Compound or any Product are separate and distinct (except that management Personnel may review and evaluate plans and information to the extent necessary for portfolio decision-making), (B) maintaining separate lab notebooks and records and separate Personnel working on each of the activities under this Agreement with respect to the Compound or any Product and the activities with respect to such Acquired Product, and (C) ensuring that Personnel of such Acquired Business do not use or have access to any Confidential Information of either Party with respect to activities under this Agreement (including any Spero Intellectual Property, Arising Intellectual Property or any other data or information generated under this Agreement), or any plans or information relating to the Required Studies (except that management Personnel may review and evaluate plans and information solely to the extent necessary for portfolio decision-making).
2.10 Third Party In-Licenses Payments.
(a) Spero will be responsible for all payments associated with any agreements related to the Spero Intellectual Property that exist as of the Effective Date, including all payments associated with any sublicense granted thereunder to GSK.
(b) During the Term, prior to Spero (or any of its Affiliates) entering into any agreement with a Third Party pursuant to which Spero (or its Affiliate) would in-license any Know-How or Patents that would, but for requirements of Section 1.40(b), be deemed to be Spero Intellectual Property (such agreement, if entered into by Spero or its Affiliate, an “Spero Third Party Agreement”), Spero will provide written notice to GSK of Spero’s (or its Affiliate’s) intent to enter into such proposed Spero Third Party Agreement, along with reasonably detailed information regarding the proposed financial terms, as well as any other material terms applicable to sublicensees, under such proposed Spero Third Party Agreement and the relevant Know-How or Patents owned or otherwise controlled by such Third Party that are proposed to be included as Spero Intellectual Property if GSK elects to take a sublicense with respect to such proposed Spero Third Party Agreement pursuant to Section 2.10(d).
(c) Prior to Spero executing any such proposed Spero Third Party Agreement, the Parties shall confer to discuss whether it is in best interest of the Parties, in respect of their respective rights to Develop, Manufacture and Commercialize the Compound and the Products in their respective Territories, in accordance with this Agreement, for Spero (or its Affiliate) to enter into such proposed Spero Third Party Agreement. Spero (or its Affiliate) shall use Commercially Reasonable Efforts to obtain sublicensable rights or licenses under the relevant Know-How or Patents pursuant to such Spero Third Party Agreement on terms substantially consistent with the rights and licenses granted to GSK
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under the Spero Intellectual Property pursuant to Section 2.1 (but, in all cases, in any manner where the financial terms of such proposed Spero Third Party Agreement do not disproportionately disadvantage the Compound or any Product vis-à-vis any other compound or product under such proposed Spero Third Party Agreement); provided that, prior to Spero executing any such Spero Third Party Agreement, the Parties shall, acting reasonably and in good faith, negotiate and mutually agree on GSK’s pro rata share of any payment obligations under such Spero Third Party Agreement that would be applicable to GSK as a sublicensee in the event that GSK elects to take a sublicense under such Spero Third Party Agreement pursuant to Section 2.10(d).
(d) If Spero (or its Affiliate) is successful in obtaining such sublicensable rights or licenses under such Spero Third Party Agreement, GSK shall have the right, by delivery of notice to Spero, to elect to take a sublicense under such relevant Know-How or Patents in-licensed by Spero (or its Affiliate) under such Spero Third Party Agreement, in which case GSK agrees to comply, and will cause its Affiliates and Sublicensees to comply, with any applicable obligations under such Third Party in-licensing agreement that apply to GSK (or its Affiliates or Sublicensees) as sublicensees thereunder and of which GSK was informed by Spero in writing prior to such election by GSK pursuant to this Section 2.10(d), including any obligation to make GSK’s pro rata share of such payments as mutually agreed by the Parties pursuant to Section 2.10(c): provided GSK shall have the right to deduct any portion of such payments from the royalties due to Spero in accordance with Section 6.5(d)), subject to the provisions of Section 6.5(d)) and the payment terms set forth in Section 6.7.
2.11 Option to Adjust the GSK Territory.
(a) Acknowledgment. The Parties acknowledge that, as of the Effective Date, pursuant to Section 2.2.1 and Section 2.2.2 of the Meiji License, Meiji has certain rights under the Spero Intellectual Property (excluding, for purposes of this Section 2.11, any Meiji Intellectual Property included therein) and the Spero Regulatory Documentation, to, among other things, Develop, Manufacture and Commercialize the Compound and any Product in the Field in the Excluded Territory.
(b) Meiji Forfeiture Event. If at any time during the Term of this Agreement, (i) the Meiji License is terminated in full and the licenses granted to Meiji under the Spero Intellectual Property and Spero Regulatory Documentation are terminated, (ii) the Meiji License is terminated with respect to any Spero New Formulation Product, or (iii) Meiji, with respect to any Spero New Formulation Product, (x) fails to provide written notice to Spero in accordance with Section 3.4(ii) of the Meiji License of its intention to progress the Development, Manufacture or Commercialization of such Spero New Formulation Product (whether in its entirety or in one or more countries in the Meiji Territory (as defined in the Meiji License)), (y) forfeits any rights with respect to such Spero New Formulation Product pursuant to Section 3.4(i) of the Meiji License (whether in its entirety or in one or more countries in the Meiji Territory), or (z) following the provision of written notice pursuant to Section 3.4(ii) of the Meiji License (a copy of which notice shall be provided
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to GSK within [***] Business Days of receipt by Spero), of its intention to progress the Development, Manufacture or Commercialization of such Spero New Formulation Product (whether in its entirety or in one or more countries in the Meiji Territory), Meiji thereafter fails to use Commercially Reasonable Efforts to Develop and Commercialize such Spero New Formulation Product in any of the countries in the Meiji Territory designated in such notice, and such failure persists for a period of [***] or more days (each of the foregoing clause (i), (ii), and (iii) a “Meiji Forfeiture Event”), Spero shall give prompt written notice thereof to GSK (and in any event within [***] Business Days) (such notice, a “Meiji Forfeiture Notice”). Each Meiji Forfeiture Notice shall describe the applicable Meiji Forfeiture Event in reasonable detail, and identify the rights forfeited by Meiji under the Meiji License with respect to the Spero Intellectual Property and Spero Regulatory Documentation (whether in its entirety or with respect to a particular Spero New Formulation Product in one or more countries in the Meiji Territory).
(c) Option to Adjust. GSK shall have [***] days following the receipt of the applicable Meiji Forfeiture Notice by GSK to provide written notice to Spero (an “Adjustment Notice”) that GSK wishes to expand the GSK Territory to include such country or countries in the Meiji Territory where such rights were forfeited, effective upon the execution and delivery by the Parties of an amendment to this Agreement (a “GSK Territory Amendment”) pursuant to which (i) GSK may agree to make one or more mutually agreed payments to Spero and (ii) if applicable (as mutually agreed to by the Parties), GSK may agree to certain diligence obligations with respect to obtaining Regulatory Approval of and Commercializing at least [***] Product in such country or countries in the Meiji Territory where such rights were forfeited by Meiji. If such GSK Territory Amendment is executed and delivered within such [***]-day period (or such longer period that the Parties are actively negotiating such payment(s) and, if applicable, diligence obligations) then, upon such execution and delivery of such GSK Territory Amendment, the GSK Territory shall be expanded to include such country or countries in the Meiji Territory where such rights were forfeited and which are the subject of such GSK Territory Amendment.
(d) Other Adjustments. Notwithstanding anything herein to the contrary, effective as of the occurrence of any Meiji Forfeiture Event, all rights and licenses granted by GSK to Spero pursuant to Section 2.2 with respect to Meiji’s Development, Manufacture and Commercialization of the Compounds or any Products shall be automatically forfeited (either in their entirety or with respect to the particular Spero New Formulation Product that is the subject of such Meiji Forfeiture Event, and/or in such country or countries in the Meiji Territory where such rights were forfeited).
Article 3
GOVERNANCE
3.1 Alliance Managers. Promptly following the Effective Date, each Party shall appoint, by delivery of notice to the other Party, a Person who shall serve as the primary contact point between the Parties for the purpose of providing each Party with information regarding the other Parties’ activities pursuant to this Agreement (each such person, an “Alliance
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Manager”). Each Party may replace their Alliance Manager at any time by written notice to the other Party.
3.2 Joint Development Committee.
(a) Establishment of the JDC. Within [***] days of the Effective Date, the Parties shall establish a joint development committee (the “Joint Development Committee” or the “JDC”), to oversee the implementation of the Development Plan. The JDC shall have and perform the responsibilities set forth in this Article 3; provided that the JDC shall in no event have any authority to amend this Agreement (including the Development Plan). Unless otherwise agreed by the Parties, the term for the JDC shall commence as of the date upon which it is established and continue until the earlier of (i) the termination of this Agreement, or (ii) the date that is [***] year following the Completion of the Required Studies. From and after the expiration of the term of the JDC as described in the foregoing sentence, this Article 3 shall have no further force or effect, except for Section 3.1, which will continue in accordance with its terms.
(b) Composition. The JDC will be comprised of up to [***] named representatives of each Party (in addition to each Party’s respective Alliance Manager), as determined by the Parties, provided that the Parties will have an equal number of representatives on the JDC at all times. The JDC will be led by [***] co-chairs, [***] appointed by each Party. Each Party may replace one or more of its representatives effective upon written notice to the other Party’s Alliance Manager.
(c) Function and Powers of the JDC. The JDC will:
(i) provide input and advise on the Development Plan (including making recommendations with respect to the remediation of any issues that arise in the conduct of the Development activities by Spero pursuant thereto);
(ii) oversee the implementation, progress under, and execution of the Development Plan (including the transition of any Development activities to be conducted by GSK pursuant to the Development Plan if GSK exercises the rights set forth in Section 2.8(b)(iii));
(iii) review the results of the activities being carried out under the Development Plan, including any results or reports delivered by Spero with respect to the Required Studies pursuant to Section 4.1(c);
(iv) review, discuss and oversee the exchange of Adverse Event and other safety related information (e.g., serious Adverse Events, emerging safety issues) between the Parties prior to the effectiveness of the Pharmacovigilance Agreement;
(v) review and discuss potential amendments to the then-current Development Plan, including any modifications that are required as a result of any request or requirement
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of the FDA; provided that any amendment to the then-current Development Plan shall be effected by the Parties;
(vi) review and discuss the performance of Interim Analysis, and any modifications that are required to the then-current Development Plan as a result of such Interim Analysis; provided that any amendment to the then-current Development Plan shall be effected by the Parties;
(vii) establish subcommittees, direct and oversee any operating subcommittee on all significant issues, and resolve disputed matters that may arise at the subcommittees; and
(viii) perform any and all tasks and responsibilities that are expressly attributed to the JDC under this Agreement or as otherwise agreed by the Parties in writing.
(d) Meetings. Until the Completion of the Required Studies, unless otherwise mutually agreed between the Parties, the JDC will meet at least once per Calendar Quarter. The JDC may conduct such meetings by telephone, videoconference, or in person as determined by the co-chairs. The co-chairs, through the Alliance Managers, will agree upon and arrange the date of the meeting and each co-chair will ensure that its JDC members receive adequate notice of such meetings. The co-chairs, through the Alliance Managers, shall circulate an agenda for the meeting at least [***] Business Days prior to the agreed date for the meeting. Copies of information and materials to be discussed at a meeting shall be circulated by each Party at least [***] hours prior to each JDC meeting where reasonably possible. Each Party may call special meetings of the JDC with at least [***] Business Days’ prior written notice, or on shorter notice in exigent circumstances, to resolve particular matters requested by such Party within the decision-making responsibility of the JDC (including, if applicable, to review any Adverse Event or serious Adverse Event). Meetings of the JDC are effective only if at least [***] of each Party participates in such meeting. Each Party may invite a reasonable number of participants, in addition to its representatives, to attend JDC meetings in a non-voting capacity; provided that if either Party intends to have any Third Party (including any consultant) attend such a meeting, such Party shall provide prior written notice to the other Party. Such Party shall ensure that such Third Party is bound by confidentiality and nonuse obligations consistent with the terms of this Agreement. Each Party is responsible for its own expenses incurred in connection with participating in and attending all such meetings.
(e) Minutes. The Alliance Managers shall alternate, on a meeting-by-meeting basis, having responsibility for preparing, circulating and finalizing minutes from each JDC meeting. Minutes shall be circulated to each Party within [***] Business Days after each meeting of the JDC, setting forth, inter alia, an overview of the discussions at the meeting and a list of any actions and decisions approved by the JDC and a list of any issues. Such minutes shall be effective only after approved by both Parties in writing. With the sole exception of specific items of the meeting minutes to which the members cannot agree and that may not be resolved as provided in Section 3.2(g), definitive minutes of all JDC meetings shall be finalized no later than [***] Business Days after the meeting to which
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the minutes pertain. If, at any time during the preparation and finalization of the JDC minutes, the Parties do not agree on any issue with respect to the minutes, such issue shall be resolved by the escalation process set forth in Section 3.2(g). The decision resulting from the escalation process shall be recorded by the responsible Alliance Manager in amended finalized minutes for such meeting.
(f) Subcommittees. The JDC may establish and disband subcommittees as deemed necessary by the JDC. Each such subcommittee will consist of representatives designated by each Party, which number shall be mutually agreed by the Parties. Each Party may change its representatives on written notice to the other Party or send a substitute representative to any subcommittee meeting. Each Party’s representatives and any substitute for a representative shall be bound by confidentiality and non-use obligations consistent with the terms of this Agreement. Except as expressly provided in this Agreement, no subcommittee has the authority to bind the Parties hereunder and each subcommittee will report and be subordinate to the JDC. Each Party is responsible for its own expenses incurred in connection with participating in and attending all such meetings. If a dispute arises that cannot be resolved by a subcommittee, the co-chair of either Party may refer such dispute to the JDC for resolution.
(g) Decisions.
(i) Disputed Matters. The JDC will act by consensus, with the representatives of each Party having, collectively, [***] on behalf of that Party. If the JDC cannot reach consensus or a dispute arises that cannot be resolved within the JDC, such dispute will be referred to the Executive Officers for resolution. If consensus cannot be reached by the Executive Officers within [***] Business Days after referral to the Executive Officers by the JDC, then, subject to Section 3.2(g)(ii), such matter shall be resolved pursuant to Article 13 except as specifically set forth herein.
(ii) Notwithstanding Section 3.2(g)(i):
A. GSK will have final decision-making authority with respect to (1) any issues arising out of or relating to the Required Studies; provided, however, that, if a decision would have a material impact on the cost of the Required Studies or the level of Spero resources for the Required Studies (excluding any revisions to the Development Plan following Interim Analysis to [***]), then such decision shall require the mutual agreement of the Parties, (2) subject to the foregoing clause (1), all matters related to the Development of the Compound or any Product in the Field for the GSK Territory, (3) the performance of Interim Analysis and any revisions to the Development Plan as a result of such Interim Analysis, and (4) all matters related to the Manufacture and Commercialization of the Compound or any Product in the Field for the GSK Territory that are not specifically reserved to Spero pursuant to Section 3.2(g)(ii)B; and
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B. Spero will have final decision-making authority with respect to (1) all matters related to the Development of the Compound or any Product to the extent solely related to the Development of such Compound or Product for the Excluded Territory, (2) all matters related to the Manufacture and Commercialization of the Compound or any Product in the Field to the extent solely related to the Commercialization of such Product in the Excluded Territory and (3) all matters related to the Clinical Manufacture of the Compound or any Product by or on behalf of Spero pursuant to Section 4.2(a) in the Field for use in the GSK Territory.
3.3 Authority. The Alliance Managers, the JDC and each committee, subcommittee or working group shall have only the powers assigned expressly to them in this Article 3 and elsewhere in this Agreement (or in the case of committees, subcommittees or working groups, as expressly assigned to them by the JDC). Each Party retains the rights, powers, and discretion granted to it under this Agreement and neither Party may delegate or vest such rights, powers, or discretion in the Alliance Manager, the JDC, or any committee or subcommittee, unless expressly provided for in this Agreement or the Parties expressly so agree in writing. The JDC shall not have the power to amend, waive or modify any term of this Agreement (including the Development Plan), and no decision of the JDC shall be in contravention of any terms and conditions of this Agreement. It is understood and agreed that issues to be formally decided by the JDC are limited to those specific issues that are expressly provided in this Agreement to be decided by the JDC.
Article 4
DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION OF PRODUCTS
4.1 Development.
(a) Development Plan.
(i) The initial Development Plan is attached hereto as Schedule 1.48, and sets forth the Development activities to be undertaken by or on behalf of Spero with respect to the Spero New Formulation Product in the Field in the GSK Territory. Prior to the Completion of the Required Studies, the Parties shall, on an as reasonably needed basis and through the JDC, review and discuss proposed amendments to the then-current Development Plan, including any modifications that are required as a result of any request or requirement of the FDA; provided, however, except as set forth in Section 4.1(a)(iv), that any proposed modification to the Development Plan (including, without limitation, any modification that would or could reasonably be expected to have a material impact on the cost to Spero of conducting the Required Studies or the level of Spero resources required to conduct the Required Studies in accordance with this Agreement and the then-current Development Plan) shall require the mutual agreement of the Parties. Spero shall make available to GSK all results, data, and information arising from the Development
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activities performed by Spero pursuant to the Development Plan in accordance with Section 4.1(c).
(ii) Subject to the terms and conditions of this Agreement, Spero (A) will be solely responsible, at its cost and expense, for the conduct of all Development activities set forth in the Development Plan, (B) will perform such Development activities in accordance with this Agreement and the Development Plan and (C) shall commit such resources (including all Personnel, facilities, equipment and materials) as are necessary to comply with such foregoing obligations.
(iii) GSK will provide input and advise on the Development Plan and oversee implementation of the Development Plan by Spero through the JDC.
(iv) Notwithstanding anything herein to the contrary, at any time prior to the Completion of the Required Phase III Study, in its sole discretion, GSK may request (via the JDC) that an independent Third Party conduct the Interim Analysis. Following the completion of the Interim Analysis, GSK may, in its sole discretion, provide Spero with written notice which instructs Spero to (x) [***] (such notice, which shall specify the [***], the “Continuation Notice”), (y) [***], or (z) [***]. If GSK provides a Continuation Notice to Spero following Interim Analysis, the Parties shall amend the then-current Development Plan to reflect such [***] as is set forth in the Continuation Notice, and any other modifications that are required as a result of any request or requirement of the FDA following such Interim Analysis. The Parties acknowledge and agree that the [***] is in consideration of any amendment or modification to the Development Plan as contemplated by this Section 4.1(a)(iv), and such amendment or modification shall not be deemed to have a material impact on the cost to Spero of conducting the Required Phase III Study or the level of Spero resources required to conduct the Required Phase III Study in accordance with this Agreement; further, any failure by Spero to continue the Required Phase III Study with [***] as contemplated by the Continuation Notice shall be deemed to be a material breach of this Agreement by Spero.
(b) GSK Development Activities. Except as set forth in this Section 4.1, and subject to the terms and conditions of this Agreement, including the Spero Retained Rights, GSK shall have the exclusive right, and sole responsibility and decision-making authority, to Develop the Compound and any Product in the Field in the GSK Territory and to conduct (either itself or through one or more Affiliates, Sublicensees or other Third Parties selected by GSK) all non-clinical studies and Clinical Trials that GSK believes appropriate to obtain Regulatory Approval for any Product in the Field in the GSK Territory, as well as any Clinical Trial (whether required or optional) commenced after Regulatory Approval.
(c) Ongoing Information Sharing. Prior to the Completion of the Required Studies, at each meeting of the JDC, Spero shall submit to the JDC and GSK (via the Alliance Managers) a high-level written report and presentation setting forth the Development activities performed by Spero in the GSK Territory since the previous meeting of the JDC, including (i) information regarding the status and progress of the Required Studies (such
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as engagement of clinical research organizations, site selection, and patient enrollment), and (ii) a summary of results, information and data generated by or on behalf of Spero under the Development Plan in the performance of the Required Studies. Notwithstanding the foregoing, at any time upon GSK’s request, and at a minimum, on a [***] basis until the completion of all Development activities set forth in the Development Plan by Spero, Spero shall make available to GSK all results, data, and information arising from the Development activities performed by or on behalf of Spero pursuant to the Development Plan with respect to the Spero New Formulation Product in the Field in the GSK Territory.
4.2 Manufacturing.
(a) Clinical Supply for Required Studies. Spero shall be responsible, at its own cost and expense, for the Clinical Manufacture (or shall otherwise obtain, either itself or with or through an Affiliate or a Third Party contract manufacturing organization or similar Third Party subcontractor (“CMO”)) of a sufficient quantity of the Product for the conduct of the Required Studies, and any other Clinical Trial or study commenced, with the prior mutual agreement of Spero, by GSK prior to the Completion of the Required Studies.
(b) Other Supply. Except as set forth in Section 4.2(a), GSK shall be responsible, at its own cost and expense, for the Clinical Manufacture and Commercial Manufacture (or shall otherwise obtain either itself or with or through an Affiliate or a CMO) of a sufficient quantity of the Product for the Development or Commercialization of the Compound and any Product in the GSK Territory.
4.3 Transition Plan. At a time reasonably requested by GSK, the Parties will develop a transition plan to transition all Development (other than the Development activities to be performed by Spero pursuant to the Development Plan) and Manufacturing responsibilities to GSK, including the transfer of all clinical/regulatory data arising out of or generated in the conduct of the Required Studies, all CMC data and information and any existing relationships of Spero with vendors or CMOs (the “Transition Plan”). Until the date that is [***] months following the later of (a) the Completion of the Required Studies, or (b) the completion of the activities set forth in the Transition Plan (the “Transition Period”), the Parties shall complete their respective activities under the Transition Plan at their own cost and expense unless otherwise agreed and set forth in the Transition Plan. Either Party may propose amendments to the Transition Plan by delivery of notice to the other Party for review and discussion; provided that the Transition Plan may only be amended by mutual agreement of the Parties.
4.4 Commercialization. Subject to the terms and conditions of this Agreement, GSK shall have the exclusive right, and sole responsibility and decision-making authority (either itself or through one or more Affiliates, Sublicensees or other Third Parties selected by GSK), in all matters relating to the Commercialization of the Compound and any Product in the GSK Territory. Without limiting the generality of the foregoing, GSK, at its sole expense, is solely responsible for and has full control over, all sales, marketing and other Commercialization activities for any Product in the GSK Territory, including sole
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responsibility for any decisions and negotiations with relevant Regulatory Authorities regarding price and reimbursement status of any Product in the GSK Territory and sole responsibility, at its sole expense, for any clinical study or Clinical Trial (whether required or optional) commenced after Regulatory Approval. GSK shall sell, distribute, and book all sales of all Products in the GSK Territory. Subject to its diligence obligations set forth in Section 4.7, GSK has the sole right, in its discretion, whether to launch a Product in any market in the GSK Territory.
4.5 Support in Development, Manufacturing and Commercialization. During the Transition Period and from time to time thereafter upon GSK’s reasonable request, Spero shall use Commercially Reasonable Efforts to (i) make Representatives who are knowledgeable regarding the Spero Intellectual Property, the Compound and any Product, including the properties and functions thereof, available to provide scientific and technical explanations and advice to GSK related to the Development, Manufacture or Commercialization of the Compound and any Product, such access shall be at mutually convenient times and may include teleconferences, email or face-to-face meetings, and (ii) provide such additional cooperation, information, assistance or services to GSK as may be reasonably necessary to enable GSK to conduct the Development, Manufacture or Commercialization of the Compound and any Product in the GSK Territory; provided that any Out-of-Pocket Costs incurred by Spero or its Representatives following the Transition Period under this Section 4.5 shall be borne by GSK and shall be due and payable within [***] days from the date on which GSK receives a Valid Invoice.
4.6 Inventory. Any quantities of Inventory to be transferred to GSK by Spero shall be set forth in the Technology Transition Plan. Any amounts of Inventory in addition to those set forth in the Technology Transition Plan shall be transferred to GSK on such terms and at a price to be negotiated between the Parties.
4.7 Diligence Obligations. Following Completion of the Required Studies, GSK shall use Commercially Reasonable Efforts (a) to pursue the Development of, (b) obtain Regulatory Approval of; and (c) after receiving Regulatory Approval, Commercialize, at least [***]in (i) [***], and (ii) at least [***] of either [***]. GSK shall have the exclusive right to determine, in its sole discretion, the launch strategy for the Products, subject to its exercise of Commercially Reasonable Efforts and the availability of any necessary Third Party licenses or other rights. Activities conducted by GSK’s Affiliates or any of their respective Sublicensees and subcontractors will be considered as GSK’s activities under this Agreement for purposes of determining whether GSK has complied with its obligation to use Commercially Reasonable Efforts.
4.8 Subcontracting.
(a) GSK (and its Affiliates and Sublicensees) may exercise any of its rights, or perform any of its obligations, under this Agreement (including any Development, Manufacture or Commercialization of the Compound or any Product in the Field in the GSK Territory or otherwise in the exercise of any of the rights or licenses granted to GSK under Section 2.1)
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by subcontracting the exercise or performance of all or any portion of such rights and obligations on GSK’s (or such Affiliate’s or Sublicensee’s, as applicable) behalf to a Third Party subcontractor.
(b) Other than PSI CRO AG and Meiji (with respect to Clinical Manufacturing), and those subcontractors explicitly identified in Schedule 4.8(b) to this Agreement (each, an “Approved Subcontractor”), Spero shall not subcontract any of its obligations under this Agreement (including the performance of any Development activities pursuant to the Development Plan) to a Third Party without the prior written consent of GSK. Spero will not [***] without GSK’s written consent. Prior to the Completion of the Required Studies, the Parties may, on an as reasonably needed basis and through the JDC, review and discuss proposed amendments to the then-current Schedule 4.8(b) to add one or more Approved Subcontractors.
(c) Any permitted subcontract granted or entered into by a Party as contemplated by this Section 4.8 shall not relieve such Party from any of its obligations under this Agreement. The subcontracting Party shall be responsible for the acts and omissions of its (and its Affiliate’s or Sublicensee’s, as applicable) subcontractors in connection with their performance of any of obligations or exercise of any rights hereunder. Any agreement with a subcontractor to perform a Party’s obligations under this Agreement shall be consistent with such Party’s obligations under this Agreement, including confidentiality and non-use provisions which are no less stringent than those set forth in Article 8.
4.9 Trademarks. Subject to the terms and conditions herein, and notwithstanding the rights granted to GSK with respect to any Product Trademarks pursuant to Section 2.1, as between GSK and Spero, GSK shall have the sole authority to select Trademarks for any Product in the GSK Territory and shall, at its expense, own and be responsible for all such Trademarks. Notwithstanding anything to the contrary set forth herein, neither Spero nor GSK shall select or use any Trademark for any Product in their respective Territory (other than the Product Trademarks) that is identical or confusingly similar to a Trademark for any Product that is selected by the other Party.
4.10 Information Rights.
(a) Spero Reporting Obligations. Commencing on the Effective Date, and on a [***] basis thereafter, Spero shall provide GSK with a report (each, a “Development Report”) of its activities and progress that provides (i) a summary of any [***], (ii) [***], and (iii) [***] pursuant to this Section 4.10(a).
(b) GSK Reporting Obligations. Following the Completion of the Required Studies (i) at least once every [***] months GSK shall provide Spero with a high level summary of the activities and progress with respect to the Development of the Compound or any Product in the GSK Territory which is conducted by GSK, its Affiliates and its Sublicensees, including any material updates to the GSK Licensed Know-How and GSK Regulatory Documentation, and (ii) once per [***], GSK will provide Spero with a high level summary of the activities and progress with respect to the Commercialization of any
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Products in the GSK Territory in which GSK or its Affiliates is seeking or has obtained Regulatory Approval of a Product (but, for clarity, with respect to the activities of any Sublicensee, only to the extent that GSK receives any such information concerning such activities from such Sublicensee). The obligations set forth in this Section 4.10(b) shall terminate and be of no further force and effect on the [***] anniversary of the First Commercial Sale of the first Product.
(c) Cooperation. Without limiting the foregoing, (i) GSK shall have the right to reasonably request information from Spero regarding the Development, Manufacture or Commercialization of the Compound or any Products in the Excluded Territory (including CMC data and information or any pharmacovigilance, clinical safety and data privacy information), and (ii) Spero shall have the right to reasonably request information from GSK regarding the Development, Manufacture or Commercialization of the Compound or any Products in the GSK Territory, which request shall be made by specific questions or requests submitted in writing (including via email). Upon receipt of such request by a Party pursuant to this Section 4.10(c), such other Party shall use reasonable efforts to promptly respond to such request (but in all cases within [***] days) and provide answers to all such questions or copies of all such requested information, to the extent that such answers are known to, or such information is in the possession of, such other Party (or, if applicable, its Affiliates, licensees or sublicensees) at the time of the request and, upon the reasonable request of either Party, the Parties shall meet and discuss such request at a frequency, time, place and manner mutually acceptable to the Parties.
(d) For the avoidance of doubt, each Party acknowledges and agrees that all Development Reports, high-level summaries or other information provided under this Section 4.10 shall be deemed to be the Confidential Information of the Party providing such Development Report, high-level summary or other information.
4.11 Compliance with Laws.
(a) Each Party shall, and shall cause its Affiliates, licensees or sublicensees to, conduct its activities under this Agreement and with respect to the Development, Manufacture or Commercialization of the Compound or any Products in its respective Territory in a good scientific manner and in compliance with all Laws, including anti-corruption laws. During the Term, each Party (or its Affiliates, licensees or sublicensees, as applicable) shall obtain and maintain all necessary authorizations, consents and approvals of any Regulatory Authority or other Governmental Body that is required in connection with the Development, Manufacture or Commercialization of the Compound or any Products in its respective Territory, or otherwise in connection with such Party’s performance of its obligations under this Agreement. Neither Party nor any of its respective Affiliates has, nor will, in connection with the performance of this Agreement or otherwise in the Development, Manufacture or Commercialization of the Compound or any Products in its respective Territory, directly or indirectly, make, promise, authorize, ratify or offer to make, or take any act in furtherance of any payment or transfer of anything of value for the purpose of influencing, inducing or rewarding any act, omission or decision to secure an
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improper advantage, or improperly assisting such Party or any of its Affiliates in obtaining or retaining business, or in any way with the purpose or effect of public or commercial bribery. Each Party warrants that it and its Affiliates have taken and will take reasonable measures to prevent subcontractors, agents or any other Third Parties, subject to their control or determining influence, from doing so in connection with this Agreement or otherwise in connection with the Development, Manufacture or Commercialization of the Compound or any Products in its respective Territory. For the avoidance of doubt, this includes facilitating payments which are unofficial, improper, small payments or gifts offered or made to Government Officials to secure or expedite a routine or necessary action to which such Party or any of its Affiliates is legally entitled. In connection with the exercise of its rights and the performance of its obligations under this Agreement, or otherwise in connection with the Development, Manufacture or Commercialization of the Compound or any Products in its respective Territory, each Party shall, and shall require any of its Affiliates, licensees and sublicensees to, (i) respect the human rights of its staff and shall not employ or permit child labor, forced labor, unsafe working conditions, or cruel or abusive disciplinary practices in the workplace and shall not discriminate against any workers on any grounds (including race, religion, disability, gender, sexual orientation or gender identity), (ii) pay each employee at least the minimum wage, provide each employee with all legally mandated benefits, and comply with Laws on working hours and employment rights in the countries in which it operates, (iii) be respectful of its employees’ right to freedom of association, (iv) encourage compliance with these standards by any supplier of goods or services that it uses in performing its obligations under this Agreement or otherwise in connection with the Development, Manufacture or Commercialization of the Compound or any Products in its respective Territory, and (v) not employ or otherwise use in any capacity, the services of any Person debarred under United States Law, including under 21 U.S.C. Section 335a or any foreign equivalent thereof, with respect to the Compound or any Product.
(b) Without limiting Section 4.11(a), in connection with any Development, Manufacture or Commercialization of the Compound or any Product in their respective Territories, or otherwise in the performance of any of their respective other obligations under this Agreement, as applicable, each Party shall, and shall cause their respective Affiliates, licensees and sublicensees, to comply with the additional terms set forth in Schedule 4.11(b).
(c) For clarity, notwithstanding anything to the contrary in this Agreement, each Party shall (and shall cause its Affiliates to) (i) promptly notify the other Party in writing if such Party (or any of its Affiliates, licensees or sublicensees) is not permitted to provide such other Party with any data, information, study reports or materials as a result of the application of any Laws, in such Party’s respective Territory, (ii) use its Commercially Reasonable Efforts to secure all such approvals and filings (including applying for any security assessments) as soon as possible after the Effective Date or at any time during the Term, as applicable, (and such Party shall keep the other Party informed as to the status thereof upon request from such other Party), (iii) use its Commercially Reasonable Efforts to obtain full and proper consents from all data subjects (including any Persons
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participating in any Clinical Trials conducted by or on behalf of such Party (or its Affiliates, licensees or sublicensees, as applicable)) that permit such Party (and its Affiliates, licensees or sublicensees) to provide and share the personal information of such data subjects to such other Party (and its Affiliates or sublicensees), such that such other Party (and its Affiliates or sublicensees, as applicable) may receive, use, process and otherwise exploit such information as permitted under this Agreement, and (iv) at the request of such other Party, use its Commercially Reasonable Efforts to find alternative means for providing such other Party with such data, information, study reports or materials, as applicable, in a manner that is compliant with Laws, including to consult and cooperate with such other Party in connection therewith (including, if requested by such other Party, to provide any such data in anonymized form).
Article 5
REGULATORY ACTIVITIES
5.1 Regulatory Filings. As between the Parties, GSK shall solely own and have the exclusive right to maintain all Regulatory Documents and Regulatory Approvals for any Products in the GSK Territory, including all INDs and NDAs; provided, however, that Spero shall own and maintain the IND(s) for the Required Studies and the Existing NDA until such Regulatory Documents are transferred to GSK (or its designee) pursuant to Section 5.2. As between the Parties, Spero shall solely own and have the exclusive right to maintain all Regulatory Documents and Regulatory Approvals for any Products in the Excluded Territory.
5.2 Regulatory Documents Transfer.
(a) Within [***] days following the Effective Date or as otherwise set forth in the Technology Transfer Plan, Spero, (a) shall, at its own cost and expense, provide GSK with copies of all existing preclinical, clinical and CMC data and all Regulatory Documents, Regulatory Approval applications and any other filings or communications made to or with, or other approvals (including INDs and NDAs) granted by, a Regulatory Authority that are necessary or useful to Develop, Manufacture or Commercialize the Compound or any Product in the GSK Territory that are held in the name of, or Controlled by Spero (including all Spero Regulatory Documentation), and (b) except as set forth in Section 5.2(b), hereby does, and will cause its Affiliates to, effective as of the Effective Date, at Spero’s cost and expense, assign to GSK all of its rights, title and interests in and to all of the foregoing (excluding any data generated by or on behalf of Meiji that is incorporated in the Spero Regulatory Documentation (directly or by cross-reference) from the Meiji Regulatory Documentation). Spero will take all steps necessary to transfer ownership of such Regulatory Documents (excluding any data generated by or on behalf of Meiji that is incorporated in the Spero Regulatory Documentation (directly or by cross-reference) from the Meiji Regulatory Documentation), including submitting to each applicable Regulatory Authority a letter or other necessary documentation (with a copy to GSK) notifying such Regulatory Authority of the transfer of such ownership of such Regulatory Document, and will reasonably cooperate with GSK therewith.
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(b) Within [***] days following the earlier of (i) the completion of the Development activities to be performed by Spero pursuant to the Development Plan, (ii) GSK’s exercise of the rights set forth in Section 2.8(b)(iii) or (iii) at any other time upon GSK’s written request, Spero shall transfer and assign to GSK (or its designee) the IND(s) for the Required Studies and the Existing NDA; provided that if such transfer occurs following GSK’s exercise of the rights set forth in Section 2.8(b)(iii) pursuant to clause (ii) or following such written request of GSK pursuant to clause (iii), then GSK shall take over the conduct of all of any of the remaining Development activities to be conducted by or on behalf of Spero pursuant to the Development Plan (outside the authority of the JDC), at GSK’s own cost and expense.
5.3 Communications with Regulatory Authorities.
(a) During the Term, GSK (or one of its Affiliates, licensees or Sublicensees) shall be responsible, and act as the sole point of contact, for communications with Regulatory Authorities in connection with the Development, Manufacture or Commercialization of the Compound or any Products in the GSK Territory. Notwithstanding the foregoing, Spero shall be primarily responsible for communications with Regulatory Authorities in connection with the Required Studies until the IND for such Clinical Trial and the Existing NDA is transferred to GSK in accordance with Section 5.2(b), at which point such responsibility shall transfer to GSK; provided, however, that until the IND(s) for the Required Studies and the Existing NDA are transferred to GSK in accordance with Section 5.2(b), Spero shall (i) provide GSK with a reasonable opportunity to review and comment on all correspondence or Regulatory Documents proposed to be submitted to any Regulatory Authority in the GSK Territory with respect to the Compound, any Product or the Required Studies, and consider in good faith, and reasonably incorporate, GSK’s comments with respect thereto, (ii) provide GSK with reasonable advance written notice of any scheduled meeting, conference, discussion or other communication with any Regulatory Authority in the GSK Territory concerning the Compound, any Product or the Required Studies (and in any event within [***] hours after the scheduling of such meeting), copies of all related documents and other relevant information relating thereto, and the right to attend and participate in such meetings, conferences, discussions and other communications, and (iii) provide GSK with copies of all regulatory correspondence received from the Regulatory Authorities in the GSK Territory with respect to the Compound, any Product or the Required Studies, and in any event within [***] hours after receipt.
(b) During the Term, Spero (or one of its Affiliates, licensees or sublicensees) shall be responsible, and act as the sole point of contact, for communications with Regulatory Authorities in connection with the Development, Manufacture or Commercialization of the Compound or any Products in the Excluded Territory.
(c) Neither GSK, with respect to the Excluded Territory, nor Spero, with respect to the GSK Territory (except as set forth in Section 5.3(a)), shall initiate (or permit any of its respective Affiliates, licensees or sublicensees (including in the case of GSK, Sublicensees)
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to initiate), with respect to any Product, any meetings or contact with Regulatory Authorities in such Territory, without the other Party’s prior written consent, and to the extent Spero or any of its Affiliates receives any written or oral communication from any Regulatory Authority in the GSK Territory relating to any Product or GSK or any of its Affiliates receives any written or oral communication from any Regulatory Authority in the Excluded Territory relating to any Product, to the extent not prohibited by Law, such Party shall (i) refer such Regulatory Authority to the other Party, and (ii) as soon as reasonably practicable (but in any event within [***] hours of receipt of such communication), notify and provide the other Party with a copy of any written communication received by such Party or such Affiliate or, if applicable, complete and accurate minutes of such oral communication.
(d) Each Party will provide the other Party with written notice of the submission of any filings or applications for Regulatory Approval of a Product or receipt or denial of any such Regulatory Approval with (i) in the case of GSK as the notifying Party, the FDA, EMA or such other Regulatory Authority in any of the Major Countries, and (ii) in the case of Spero as the notifying Party, the Regulatory Authorities in the Excluded Territory; provided, however, that, unless otherwise required by Law, such notifying Party will inform the other Party of such event prior to public disclosure thereof.
(e) Each Party will provide the other Party with reasonable advance notice, or with as much advance notice as practicable under the circumstances, of (A) in the case of GSK as the notifying Party, all substantive meetings pertaining to any Product with the FDA, EMA or, with respect to any Major Country, with such other Regulatory Authority in such country, and (B) in the case of Spero as the notifying Party, all substantive meetings with the Regulatory Authorities in the Excluded Territory, in each case ((A) or (B)), solely to the extent that (1) such meeting is primarily related to one or more Product(s) in the notifying Party’s respective Territory, and (2) the subject matter of such meeting would reasonably be expected to have a material effect on the other Party’s Development or Commercialization of the Compound or any Product in the other Party’s respective Territory; provided that, with respect to any such meeting for which notice has been provided pursuant to the foregoing, to the extent permitted by Law and the applicable Regulatory Authority, the Party receiving such notice (or a representative of such Party’s (sub)licensee) shall have the right to reasonably request, subject to the notifying Party’s consent, to attend such meeting as a non-participating observer.
5.4 Assistance.
(a) Upon GSK’s request, Spero shall, and shall cause its Affiliates to, support GSK and its Affiliates, as may be reasonably necessary, in obtaining Regulatory Approvals for the Products in the GSK Territory and in the activities in support thereof, including by providing any documents or other materials in the possession or Control of Spero or any of its Affiliates as may be reasonably necessary or useful for GSK or any of its Affiliates or Sublicensees to obtain Regulatory Approvals for the Products in the GSK Territory.
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(b) If any Regulatory Authority (i) contacts a Party or its Affiliate with respect to the alleged improper Development, Manufacture or Commercialization of the Compound or any Product; (ii) conducts, or gives notice of its intent to conduct, an inspection at a Party’s or its Affiliate’s facilities used in the Development or Manufacturing of the Compound or any Product; or (iii) takes, or gives notice of its intent to take, any other regulatory action with respect to any activity of a Party (or its Affiliates, licensees or sublicensees, as applicable) that could reasonably be expected to adversely affect any Development, Manufacture or Commercialization with respect to the Compound or any Product by the other Party, then such Party will promptly (and in any event within [***] hours) notify the other Party of such contact, inspection or notice.
5.5 Pharmacovigilance.
(a) The Parties will cooperate with each other with regard to the reporting and handling of safety information involving the Compound or any Product in accordance with applicable Law, including regulatory requirements and any regulations relating to pharmacovigilance, clinical safety and data privacy. Without limiting the foregoing, and as further set forth in the Pharmacovigilance Agreement, prior to the transfer of the IND for the Required Studies and the Existing NDA to GSK as provided in Section 5.2(b), Spero will transfer the existing safety database for the Products to GSK (or its Affiliate) and thereafter GSK will own and manage the global safety database for the Products. GSK shall have final decision-making authority with respect to any drug safety or pharmacovigilance matters from the global perspective; provided that, as between the Parties, Spero (acting through its Affiliates, licensees or sublicensees) shall have the responsibility to conduct pharmacovigilance activities in the Excluded Territory.
(b) Within [***] days of the Effective Date, the Parties (acting through their respective pharmacovigilance department or pharmacovigilance representatives) will negotiate in good faith and enter into a written pharmacovigilance agreement (the “Pharmacovigilance Agreement”) to cover the exchange of Adverse Event and other safety related information (e.g., serious Adverse Events, emerging safety issues). Such Pharmacovigilance Agreement may include the exchange of Adverse Event information from Meiji for the Excluded Territory. Among other things, the Pharmacovigilance Agreement will (i) contain provisions to ensure that Adverse Event and other safety information is exchanged according to a schedule that will permit each Party to comply with legal and regulatory requirements in its respective Territory, (ii) establish a Joint Safety Review Team (JSRT) to oversee the Parties’ safety evaluation and risk management relationship, and (iii) provide processes and procedures for the resolution of any conflict or dispute with respect to pharmacovigilance and other safety matters.
5.6 Recalls. Subject to the terms and conditions herein, GSK shall have the sole right to determine whether and how to implement a recall or other market withdrawal of any Product in the GSK Territory. Each Party, to the extent possible, (a) shall provide notice to the other Party, as promptly as possible (and in advance to the extent permitted under the circumstances and under Law), in the event that any Regulatory Authority issues or
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requests a recall or takes a similar action in connection with a Product in its respective Territory, or in the event such Party determines that an event, incident or circumstance has occurred that may result in the need for a recall or market withdrawal of a Product in its respective Territory, and (b) to the extent permitted under Law, shall, and shall cause its Affiliates, licensees and sublicensees to, cooperate in good faith with such other Party and to disclose to such other Party a high-level summary of any material, non-privileged information relating to any such recall or other market withdrawal.
Article 6
FINANCIAL PROVISIONS
6.1 Upfront Payment. In partial consideration of Spero’s grant of the rights and licenses to GSK hereunder, within [***] Business Days following the Effective Date and GSK’s receipt of a Valid Invoice in accordance with Section 6.7, GSK shall make a one-time, non-refundable and non-creditable payment to Spero of Sixty-Six Million Dollars ($66,000,000).
6.2 Development Milestones. Following the Effective Date, and subject to Section 11.8(b), in partial consideration of Spero’s grant of the rights and licenses to GSK hereunder, GSK shall pay to Spero, in accordance with the terms in this Section 6.2, the following one-time, non-refundable, non-creditable milestone payments (each, a “Development Milestone Payment”) upon the first achievement by GSK or any of its Affiliates or Sublicensees (including for purposes of this Section 6.2, Spero) of the corresponding milestone event (each, “Development Milestone Event”):
Development Milestone Event |
Development Milestone Payment |
[***] |
$[***] |
[***] (the “[***]”) |
$[***] |
[***] (the “[***]”) |
Such amount as is determined by [***]
|
[***] |
$[***] |
Total Development Milestone Payments: |
$150,000,000 [***] |
Notwithstanding anything herein to the contrary, the Development Milestone Payment corresponding to the achievement of the [***] shall be payable in [***] equal installments of [***] Dollars ($[***]). Following the Effective Date, Spero shall notify GSK within [***] Business Days following the achievement of the [***] by Spero or any of its Affiliates, and the [***] installment of the corresponding Development Milestone Payment shall be due within [***] days from the date on which GSK receives a Valid Invoice in accordance with Section 6.8 for such installment of the Development Milestone Payment. Thereafter, subject to Section 2.8(b)(iii) and Section 11.8(b), the remaining [***]
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installments shall become payable on that date that is [***] days following the date the prior installment was paid (or due to be paid), and shall be due within [***] days from the date on which GSK receives a Valid Invoice in accordance with Section 6.8 for such installment. For clarity, Spero may submit a Valid Invoice in accordance with Section 6.8 for each of the [***] installment at any time on or after the date that is [***] days following the date the prior installment was paid (or due to be paid).
Notwithstanding anything herein to the contrary, if GSK delivers a Continuation Notice setting forth a [***] for the Required Phase III Study, then Spero may submit a Valid Invoice in accordance with Section 6.8 for the [***] and the amount of such [***] payment shall be due within [***] days from the date on which GSK receives such Valid Invoice.
For clarity, each Development Milestone Payment shall be paid only one time, regardless of the number of Required Studies, the number of Products that achieve the corresponding Development Milestone Event or the number of Indications for which Products are Developed, and in no event will GSK be responsible for more than an aggregate of One Hundred Fifty Million Dollars ($150,000,000) in Development Milestone Payments if GSK does not [***]. Following the Effective Date, Spero or GSK, as the Party responsible for achieving or determining such Development Milestone Event, shall notify the other Party within [***] Business Days following the achievement of a given Development Milestone Event by Spero or any of its Affiliates or GSK or any of its Affiliates or Sublicensees, as applicable, and except as set forth above with respect to the [***], the corresponding Development Milestone Payment shall be due within [***] days from the date on which GSK receives a Valid Invoice in accordance with Section 6.8 for such Development Milestone Payment.
6.3 Commercial Milestones. Subject to Section 11.8(a) in partial consideration of Spero’s grant of the rights and licenses to GSK hereunder, GSK shall pay to Spero, in accordance with the terms in this Section 6.3, the following one-time, non-refundable, non-creditable milestone payments (each, a “Commercial Milestone Payment”) upon the first achievement of the corresponding milestone event (each, “Commercial Milestone Event”).
Commercial Milestone Event |
Commercial Milestone Payment |
[***] (the “First Commercial Sale Milestone”) |
$[***], subject to adjustment as provided in this Section 6.3 |
[***] |
$[***] |
[***] (for clarity, such milestone would be paid only one time following the [***].) |
$[***] |
Total Commercial Milestone Payments: |
$150,000,000 |
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Notwithstanding anything to the contrary contained herein, if Enrollment in the Required Phase III Study is [***], the First Commercial Sale Milestone shall be [***].
For clarity, each Commercial Milestone Payment shall be paid only one time, regardless of the number of Products, the number of Indications for which a Product is Commercialized, or the number of times a given Commercial Milestone Event has been achieved, and in no event will GSK be responsible for more than an aggregate of One Hundred and Fifty Million Dollars ($150,000,000) in Commercial Milestone Payments (as adjusted as provided in this Section 6.3). GSK shall notify Spero within [***] Business Days following the achievement of a given Commercial Milestone Event is first achieved, and GSK shall pay to Spero the corresponding Commercial Milestone Payment within [***] days from the date on which GSK receives a Valid Invoice in accordance with Section 6.8.
6.4 Sales Milestones. Subject to Section 11.8(a), in partial consideration of Spero’s grant of the rights and licenses to GSK hereunder, GSK shall pay to Spero, in accordance with the terms in this Section 6.4, the following one-time, non-refundable, non-creditable milestone payments (each, a “Sales Milestone Payment”) upon the first achievement of the corresponding milestone event (each, “Sales Milestone Event”) based on the total annual Net Sales of all Products by or on behalf of GSK or any of its Affiliates or Sublicensees in the GSK Territory during a given Calendar Year.
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Sales Milestone Event |
Sales Milestone Payment |
First achievement of annual Net Sales of Products in the GSK Territory greater than Two Hundred Million Dollars ($200,000,000) up to and including Three Hundred Million Dollars ($300,000,000) |
$25,000,000 |
First achievement of annual Net Sales of Products in the GSK Territory greater than Three Hundred Million Dollars ($300,000,000) up to and including Four Hundred Million Dollars ($400,000,000) |
$25,000,000 |
First achievement of annual Net Sales of Products in the GSK Territory greater than Four Hundred Million Dollars ($400,000,000) up to and including Five Hundred Million Dollars ($500,000,000) |
$25,000,000 |
First achievement of annual Net Sales of Products in the GSK Territory greater than Five Hundred Million Dollars ($500,000,000) up to and including Seven Hundred and Fifty Million Dollars ($750,000,000) |
$50,000,000 |
First achievement of annual Net Sales of Products in the GSK Territory greater than Seven Hundred and Fifty Million Dollars ($750,000,000) up to and including One Billion Dollars ($1,000,000,000) |
$50,000,000 |
First achievement of annual Net Sales of Products in the GSK Territory greater than One Billion Dollars ($1,000,000,000) |
$50,000,000 |
Total Sales Milestone Payments: |
$225,000,000 |
For clarity, each Sales Milestone Payment shall be paid only one time, regardless of the number of Products or the number of times a given Sales Milestone Event has been achieved, and in no event will GSK be responsible for more than an aggregate of Two Hundred and Twenty-Five Million Dollars ($225,000,000) in Sales Milestone Payments. For further clarity, Net Sales that are generated by sales of a Product in a country for which the Royalty Term has expired shall nonetheless be included in the total amount of annual Net Sales for purposes of determining whether a Sales Milestone Event has been achieved. GSK shall notify Spero within [***] days following the end of the applicable Calendar Quarter during which a given Sales Milestone Event is first achieved, which notice may be provided in connection with a Royalty Report delivered pursuant to Section 6.5(b), and except as set forth in this paragraph, GSK shall pay to Spero the corresponding Sales Milestone Payment within [***] days from the date on which GSK receives a Valid Invoice in accordance with Section 6.7. Notwithstanding the foregoing, any Sales Milestone Payment in an amount equal to Fifty Million Dollars ($50,000,000) shall be paid [***], with the [***] paid as otherwise set forth herein and the [***] shall become due and payable if, and only if, [***]. GSK shall notify Spero within [***] days following the end of the
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applicable Calendar Year if the applicable Net Sales threshold is maintained or exceeded, which notice may be provided in connection with a Royalty Report delivered pursuant to Section 6.5(b), and if such Net Sales threshold is maintained or exceeded, then GSK shall pay to Spero the [***] payment of the corresponding Sales Milestone Payment within [***] days from the date on which GSK receives a Valid Invoice in accordance with Section 6.7. If [***], GSK shall have no further obligations to Spero with respect thereto.
6.5 Royalties. Subject to Section 11.8(a), in partial consideration of Spero’s grant of the rights and licenses to GSK hereunder, on a Product-by-Product and country-by-country basis, during the applicable Royalty Term for such Product in a given country in the GSK Territory, GSK will pay Spero royalties based on the aggregate annual Net Sales of all Products sold by GSK, its Affiliates or Sublicensees in the GSK Territory during a Calendar Year at the rates set forth in the table below, subject to the remainder of this Section 6.5:
Aggregate Annual Net Sales of Products in the GSK Territory |
Royalty Rate |
Portion of annual Net Sales of Products in the GSK Territory up to and including [***] |
[***]% |
Portion of annual Net Sales of Products in the GSK Territory greater than [***] up to and including One Billion Dollars ($1,000,000,000) |
[***]%
|
Portion of annual Net Sales of Products in the GSK Territory greater than One Billion Dollars ($1,000,000,000) up to and including [***] |
[***]% |
Portion of annual Net Sales of Products in the GSK Territory greater than [***] |
[***]% |
(a) For purposes of determining whether a royalty threshold above has been attained, Net Sales that are generated by sales of a Product in a country for which the Royalty Term has expired shall be excluded from the total amount of Net Sales. As of the effective date of expiration of the Royalty Term with respect to a given Product and country of the GSK Territory, the license to GSK under Section 2.1 (including the right of reference under the Spero Regulatory Documentation and Meiji Regulatory Documentation) shall automatically convert to a royalty-free, irrevocable, perpetual, non-exclusive and sublicensable license under the Spero Intellectual Property, Spero Regulatory Documentation and Meiji Regulatory Documentation to Develop, Manufacture (including to have Manufactured) and Commercialize such Product in such country. For clarity, GSK’s obligation to pay royalties to Spero under this Section 6.5 is imposed only once with respect to the same unit of a Product regardless of the number of Spero Patents Covering such Product.
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(b) Within [***] days after the end of each Calendar Quarter during which royalties become payable pursuant to this Section 6.5, GSK shall deliver to Spero a report (“Royalty Report”), on a Product-by-Product basis (where applicable), summarizing the total amount of applicable payments, if any, received during such Calendar Quarter, including any Sales Milestone Event that was achieved during such Calendar Quarter in the GSK Territory in accordance with Section 6.4, as applicable, and, on a Product-by-Product and country-by-country basis, details regarding the calculation of the royalties payable under this Section 6.5, including amounts of Net Sales, any applicable reductions or deductions to Net Sales, the royalty rate due, and the amount of any applicable true-up or adjustments. Each Royalty Report shall be deemed Confidential Information of GSK subject to the obligations of Article 8. GSK shall pay to Spero the royalties payable under this Section 6.5 with respect to a given Calendar Quarter within [***] days following the end of each Calendar Quarter together with delivery of the applicable Royalty Report.
(c) Subject to Section 6.5(f), if at any point during the applicable Royalty Term for a given Product in a given country in the GSK Territory, such Product is not covered by a Valid Claim of any Spero Patent and the Regulatory Exclusivity Period, if any, for such Product in such country has expired (i.e. if the duration of clause (c) of the Royalty Term extends beyond the duration of the periods in clause (a) or (b) of the Royalty Term, then applicable royalty rates set forth in Section 6.5(a) shall be reduced by [***] percent ([***]%) for such Product in such country.
(d) Subject to Section 6.5(f), GSK will be entitled to deduct (i) [***] percent ([***]%) of the royalties or milestones paid by GSK, its Affiliates or Sublicensees pursuant to any Third Party Agreement, and (ii) [***] percent ([***]%) of the royalties or milestones paid by GSK, its Affiliates or Sublicensees pursuant any Spero Third Party Agreement under which GSK has agreed take a sublicense pursuant to Section 2.10(b)(ii) (such royalties or milestone payments, “Third Party Payments”) from any royalties due to Spero pursuant to this Section 6.5 [***]; provided that the only Third Party Payments that may be deducted are those that are actually paid by GSK or such Affiliates or Sublicensees to the applicable Third Party under such Third Party Agreement or Spero Third Party Agreement as of or prior to when such royalty payments are due and payable to Spero for such Product in such country.
(e) Subject to Section 6.5(f), on a Product-by-Product and country-by-country basis in the GSK Territory, if one or more Generic Products with respect to such Product is marketed and sold in such country by one or more Third Parties during any Calendar Quarter during the applicable Royalty Term for such Product and such Generic Product(s) have a market share of greater than [***] percent ([***]%) in such country (“Generic Competition”) (as determined based on the aggregate number of units of such Product and such Generic Product(s) sold in such country during such Calendar Quarter, as reported by a well-known reporting service agreed to between the Parties acting reasonably and in good faith (e.g., IQVIA)), then, commencing in such Calendar Quarter, the applicable royalty rates set forth in Section 6.5(a) shall be reduced by [***] percent ([***]%) for such Product in such country for so long as such Generic Competition persists in such country.
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(f) Notwithstanding the foregoing, (i) GSK shall only be entitled to give effect to the deductions under Section 6.5(c), Section 6.5(d) and Section 6.5(e) so long as it has not elected pursuant to Section 11.8(a) to reduce all royalties, Commercial Milestone Payments and Sales Milestone Payments by fifty percent (50%) of the amounts otherwise due, and (ii) under no circumstances shall the deductions under Section 6.5(c), Section 6.5(d) or Section 6.5(e) (if then permitted) result in the amount payable to Spero with respect to a given Product in a given country for any given Calendar Quarter being reduced by more than [***] percent ([***]%) compared with the amount otherwise payable under Section 6.5 (and, solely with respect to royalties payable to Meiji pursuant to the Meiji License, [***]% of Net Sales, but only for so long as the Meiji License remains in full force and effect and such royalties continue to be payable by Spero to Meiji pursuant thereto); provided, however, that if GSK is unable to fully recover [***] ([***]%) of any Third Party Payments paid by GSK (or any of its Affiliates or Sublicensees) (or, any other amount as a result of the [***]% floor applicable to royalties payable pursuant the Meiji License) pursuant to any Third Party Agreement or Spero Third Party Agreement in such Calendar Quarter with respect to such Product in such country as a result of the foregoing floor, then GSK shall be entitled to [***] thereafter until the earlier of (y) [***] (subject to the minimum floor set forth in this Section 6.5(e) with respect to each such Calendar Quarter) and (z) GSK’s election pursuant to Section 11.8(a) to reduce all royalties, Commercial Milestone Payments and Sales Milestone Payments by fifty percent (50%) of the amounts otherwise due.
6.6 Right to Suspend Payments; Right to Offset.
(a) Suspension. Notwithstanding anything to the contrary in this Agreement, and without prejudice to any other right GSK, its Affiliates or their Sublicensees may have, upon receipt by GSK of a Specified Claim (including a threatened Specified Claim) or written notice from Spero pursuant to Section 10.4(a) of Spero’s receipt of a Specified Claim (or threatened Specified Claim) and thereafter in either case during the pendency of such Specified Claim, GSK shall have the right to suspend [***] that may become due and payable to Spero (which suspended amount shall not be subject to Section 6.7(c)) until such Specified Claim has been settled or resolved to the reasonable satisfaction of GSK in good faith; provided that unless such Specified Claim (or threatened Specified Claim) has been brought by [***], under no circumstances shall the right to suspend [***]. Subject to Section 6.6(b), upon resolution of such Specified Claim to GSK’s reasonable satisfaction, all amounts which have been suspended by GSK pursuant to this Section 6.6(a), shall be paid by GSK within [***] days from the date on which GSK receives a Valid Invoice from Spero for such amounts.
(b) Right to Offset. Notwithstanding anything to the contrary in this Agreement, and without prejudice to any other right GSK, its Affiliates or their Sublicensees may have, GSK shall have the right, at any time, to reduce or offset any amounts (including any Sales Milestone Payment, Commercial Milestone Payment and royalties) owed to Spero pursuant to this Article 6 on account of, without duplication, (y) [***], or (z) [***], in each case that is based on, arises or results from, or is otherwise attributable to any Specified
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Claim (including a threatened Specified Claim); provided that unless such Specified Claim (or Specified Claim threatened in writing) has been brought by [***]) .
6.7 Mode of Payment and Currency; Invoices; Late Payments; Consideration.
(a) All payments made by a Party (the “Payor Party”) to the other Party (the “Payee Party”) hereunder shall be made by deposit of US Dollars in the requisite amount by electronic wire transfer of immediately available funds directly to such bank account as the Payee Party may from time to time designate by reasonable notice to the Payor Party. With respect to amounts payable hereunder not denominated in US Dollars, the Payor Party shall convert applicable amounts in foreign currency into US Dollars using its standard conversion method consistent with its applicable Accounting Standard in a manner consistent with the Payor Party’s customary and usual conversion procedures used in preparing its audited financial reports applied on a consistent basis; provided that such procedures use a widely accepted source of published exchange rates. Based on the resulting sales in US Dollars, the then-applicable royalties shall be calculated. The Parties may vary the method of payment set forth herein at any time upon mutual agreement, and any change shall be consistent with the local Law at the place of payment or remittance.
(b) All payments made by GSK to Spero under this Agreement shall be paid in accordance with Section 6.7(a), following receipt by GSK of a Valid Invoice in accordance with Schedule 6.7.
(c) If any payment due by a Payor Party to a Payee Party pursuant to this Agreement is overdue, then the Payor Party shall pay simple interest on any undisputed portion or such payment (before and after any judgment) at an annual rate (but with interest accruing on a daily basis) equal to [***] rate plus [***] percent ([***]%) per annum, as reported by The Bank of England on the date the agreement to pay has been reached (or on the next Business Day if the due date is not a Business Day), such interest to be pro-rated for the number of days from the date upon which payment of such sum became due until payment thereof in full together with such interest; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate. The payment of such interest shall not limit a Payee Party from exercising any other rights it may have as a consequence of the lateness of any payment. Notwithstanding the foregoing, interest shall not accrue on any amount not paid on or before the date such payment is due where (i) the payment has been delayed as a result of the Payee Party (for example, due to invalid or late changes to bank details, submission of non-compliant invoices, etc.), or (ii) where the Payee Party has failed to respond to requests, comments or inquiries from the Payor Party with respect to such payments.
(d) The Parties agree and confirm that amounts paid or payable by GSK to Spero in consideration of Spero’s grant of the rights and licenses to GSK hereunder are (i) partially attributable to the license of Spero Intellectual Property that is owned by Spero and the Spero Regulatory Documentation and (ii) partially attributable to the sublicense from Spero
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of Spero’s rights to and under the Spero Intellectual Property that is licensed from Meiji pursuant to the Meiji Agreement and the Meiji Regulatory Documentation.
6.8 Records; Audits.
(a) GSK shall, and shall ensure that its Affiliates and Sublicensees (as applicable), keep complete and accurate records in accordance with its record retention policies applicable to such books and records, but in any event for a period of at least [***] years after the end of the Calendar Year in which any such payment becomes payable, in sufficient detail to confirm the accuracy of the calculations hereunder and in accordance with the applicable Accounting Standard that is normally applied by such Party with respect to the filing of its reporting.
(b) During the Term and for [***] years thereafter, GSK shall permit, and shall cause its Affiliates or Sublicensees to permit, an independent certified public accounting firm of nationally recognized standing selected by Spero, and reasonably acceptable to GSK or such Affiliate or Sublicensee, to have access to and to review, during normal business hours and under obligations of confidentiality at least as protective of GSK Confidential Information as the confidentiality provisions of Article 8 and upon [***] days’ prior written notice, no more frequently than once in any [***]-month period (except in the case of fraud), to verify the accuracy of the Royalty Reports and payments under this Article 6 with respect to any Calendar Year ending not more than [***] years prior to such audit request. The accounting firm shall disclose to GSK and Spero only whether the Royalty Reports are correct or incorrect and the specific details concerning any discrepancies. If such accounting firm concludes that additional amounts were owed during such period, and GSK agrees with such calculation, GSK shall pay the additional undisputed amount, plus interest as set forth in Section 6.7(c), within [***] days from the date on which GSK receives such accounting firm’s written report and a Valid Invoice in accordance with Section 6.7. If such accounting firm concludes that an overpayment was made, such overpayment shall be fully creditable against amounts payable in subsequent payment periods. If GSK disagrees with such calculation, GSK and Spero shall, acting reasonably and in good faith, work to resolve the disagreement. If the Parties are unable to reach a mutually acceptable resolution of any such dispute within [***] Business Days, the dispute shall be submitted for resolution to an accounting firm jointly selected by the Parties to conduct a review, and if such firm concurs that any additional amounts were owed by GSK during such period, GSK shall make the required payment, plus interest as set forth in Section 6.7(c), within [***] days following GSK’s receipt of the report of its accounting firm and a Valid Invoice in accordance with Section 6.7. Spero shall pay for the cost of any audit, unless GSK has underpaid Spero by [***] percent ([***]%) or more for the audited period, in which case GSK shall pay for the cost of such audit. Each Party shall treat all information that it receives under this Section 6.8(b) in accordance with the confidentiality provisions of Article 8 of this Agreement, and shall cause its accounting firm to enter into an acceptable, reasonable confidentiality agreement with the other Party obligating such firm to retain all such financial information in confidence pursuant to such confidentiality
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agreement, except to the extent necessary for such Party to enforce its rights under this Agreement.
6.9 Taxes.
(a) If any amounts to be paid by GSK under this Agreement (including the upfront payment or any Development Milestone Payments, Commercial Milestone Payments, Sales Milestone Payments or royalties paid hereunder) are subject to any withholding or similar Tax which is required to be withheld by Law, GSK shall (i) timely pay such withholding or similar Tax to the proper Tax Authority and send proof of payment to Spero within [***] Business Days following such payment; and (ii) remit such payments to Spero subject to deductions of any such withholding or similar Tax paid by GSK. The Parties agree to cooperate with one another and use reasonable efforts to reduce or eliminate Tax withholding or similar obligations in respect of the upfront payment or any Development Milestone Payments, Commercial Milestone Payments, Sales Milestone Payments or royalties paid by GSK to Spero under this Agreement. Spero will provide GSK any tax forms that may be reasonably necessary in order for GSK not to withhold Tax or to withhold Tax at a reduced rate under an applicable bilateral income tax treaty. Each Party will provide the other with reasonable assistance to enable the recovery, as permitted by Law, of withholding Taxes or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding Tax. Notwithstanding the foregoing, if an action (including but not limited to any assignment, license or sublicense of any rights or performance of any obligations under this Agreement, a change in the applicable Taxing jurisdiction (including any intentional change of Tax treatment, Tax status, or jurisdiction of Taxation by action of a Party following the Execution Date) or any failure to comply with Laws or filing or record retention requirements, any Change of Control) by either Party or any of its Affiliates causes any new or increased withholding Tax liability that would not have been imposed in the absence of such action, such Party causing the new or increased withholding Tax liability shall indemnify and hold harmless the other Party and its Affiliates from the amount of such additional or increased withholding Tax (except to the extent that such other Party or its Affiliates is entitled to a refund of such withheld Taxes or entitled to credit such withheld Taxes against Taxes which such other Party or its Affiliates would otherwise be required to pay). For clarity, if GSK or any of its Affiliates is the party that causes any new or increased withholding Tax liability, then the upfront payment, Development Milestone Payments, Commercial Milestone Payments, Sales Milestone Payments or royalties paid by GSK to Spero in respect of which such deduction or withholding is required to be made shall be increased to the extent necessary to ensure that Spero receives a sum equal to the sum which it would have received had no such increased withholding or deduction obligation arising from such action, failure to comply or Change of Control occurred.
(b) Spero warrants that it is resident for Tax purposes in the United States and that Spero is entitled to relief from United Kingdom income Tax under the terms of the double Tax agreement between the United Kingdom and the United States. Spero shall notify GSK immediately in writing in the event that it ceases to be entitled to such relief.
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(c) All amounts payable under or in connection with this Agreement are exclusive of VAT and Indirect Taxes. Any VAT and Indirect Taxes payable on the consideration paid hereunder (including the upfront payment or any Development Milestone Payments, Commercial Milestone Payments, Sales Milestone Payments or royalties paid hereunder) shall be paid by GSK at the same time as the payment or provision of such consideration to which it relates, subject to the production of a valid VAT and Indirect Taxes invoice. Each Party agrees that it shall provide to the other Party any information and copies of any documents within its control to the extent reasonably requested by the other Party for the purposes of (i) determining the amount of VAT and Indirect Taxes chargeable under this Agreement, (ii) establishing the “place of supply for VAT” purposes, or (iii) complying with its VAT and Indirect Taxes reporting or accounting obligations.
6.10 Effect of Termination of Meiji License. The Parties acknowledge and agree that except as provided in Section 2.11 or this Section 6.10, the termination of the Meiji License (whether in part or in its entirety) shall have no impact on the rights and licenses granted to GSK pursuant to this Agreement, except that, in the event of a termination of the Meiji License by Spero pursuant to Section 9.2.1 thereof, or by Meiji pursuant to Section 9.2.2 or Section 9.2.3 thereof, with respect to the Meiji Intellectual Property and Meiji Regulatory Documentation licensed to GSK pursuant to Section 2.1, Section 9.3.6 of the Meiji License shall apply to this Agreement. In such event, consideration payable by GSK pursuant to this Article 6 that is attributable to the sublicense from Spero of Spero’s rights to and under the Meiji Intellectual Property that is licensed from Meiji pursuant to the Meiji License and the Meiji Regulatory Documentation shall be equal to the [***]% royalty payable on Net Sales pursuant to Section 6.5 (without any deduction under Section 6.5(c), Section 6.5(d) or Section 6.5(e)) and [***] percent ([***]%) of other amounts that may become due and payable to Spero pursuant to this Article 6, in an aggregate amount not to exceed [***] dollars ($[***]), inclusive of all amounts previously paid by Spero to Meiji pursuant to Section 4.4 of the Meiji License.
Article 7
INTELLECTUAL PROPERTY
7.1 Inventions.
(a) Inventorship. For purposes of this Section 7.1, all determinations of inventorship will be in accordance with U.S. patent law.
(b) Arising Intellectual Property.
(i) As between the Parties, all Arising Intellectual Property shall be solely owned by GSK.
(ii) Spero agrees to assign, and hereby assigns, to GSK all right, title, and interest in and to any Arising Intellectual Property. Spero has, and will keep in force, appropriate agreements with all of its employees and contractors necessary to fully effect this Section
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7.1(b), and will impose equivalent obligations on its Affiliates and sublicensees. Spero shall execute all documents reasonably requested by GSK to further evidence, record and perfect the assignments under this Section 7.1(b), and will impose equivalent obligations on its Affiliates and sublicensees.
(c) Disclosure. During the Term (i) Spero will promptly disclose to GSK all invention disclosures or other similar documents relating to any Spero Know-How or Arising Know-How developed or invented by or on behalf of Spero (or its Affiliates, licensees, sublicensees or permitted subcontractors) hereunder during the Term, (ii) GSK will promptly disclose to Spero all invention disclosures or other similar documents relating to any GSK Licensed Know-How developed or invented by or on behalf of GSK (or its Affiliates, licensees, Sublicensees or subcontractors) hereunder during the Term, and (iii) each Party will promptly disclose to the other Party all invention disclosures or other similar documents relating to any Arising Know-How developed or invented jointly by or on behalf of Spero (or its Affiliates, licensees, sublicensees or permitted subcontractors) and GSK (or its Affiliates, licensees, sublicensees or permitted subcontractors) hereunder during the Term. Each Party shall also respond promptly to reasonable requests from the other Party for additional information relating to such disclosures, documents or applications; provided that (A) GSK shall only be obligated to respond to the extent such additional requested information is included within the GSK Licensed Know-How; and (B) Spero shall only be obligated to respond to the extent such additional requested information is included within the Spero Know-How or Arising Know-How, as applicable.
7.2 Prosecution and Maintenance of Spero Patents.
(a) As between the Parties, GSK has the first right (but not the obligation), in its sole discretion and at its own cost and expense, to control the preparation, filing, prosecution (including any interferences, oppositions, inter partes review, post-grant reissue proceedings and reexaminations) and maintenance of (i) all Spero Patents (excluding the Meiji Patents) worldwide, and (ii) all Arising Patents (including all GSK Licensed Patents) worldwide.
(b) As between the Parties, Spero has the first right (but not the obligation), in its sole discretion and at its own cost and expense, to control the preparation, filing, prosecution (including any interferences, oppositions, inter partes review, post-grant reissue proceedings and reexaminations) and maintenance of all Meiji Patents worldwide.
(c) If the Party controlling the preparation, filing, prosecution and maintenance of any Patent pursuant to Section 7.2(a) or Section 7.2(b) elects not to file or to continue to prosecute or maintain such Patent in any country of the Territory, subject to, in the case of Arising Patents where GSK is such initial controlling Party, GSK having made such election for strategic reasons to improve the exclusivity position for or revenue of the Parties from a Product (which election has been consented to by Spero, which consent shall not unreasonably be withhold, conditioned or delayed), then such Party shall notify the other Party at least [***] Business Days before any deadline applicable to the filing,
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prosecution or maintenance of such Patent, as the case may be, or any other date by which an action must be taken to establish or preserve such Patent in such country. In such case, such other Party shall have the right (but not the obligation) to assume responsibility for the preparation, filing, prosecution and maintenance of such Patent in such country by delivery of notice to such controlling Party; provided that, the right of GSK to assume responsibility for the preparation, filing, prosecution and maintenance of any Meiji Patent shall be subject to the prior written consent of Meiji.
(d) The Party controlling the preparation, filing, prosecution and maintenance of any Patent pursuant to this Section 7.2 will keep the other Party reasonably informed of all substantive matters relating to the preparation, filing, prosecution and maintenance of such Patent or related Proceedings (e.g., interferences, oppositions, reexaminations, reissues, revocations or nullifications) in a timely manner, including providing such other Party with all material communications from any patent authority in the Territory regarding such Patent, as well as a reasonable opportunity to review and comment on drafts of any material filings or responses to be made to such patent authorities in advance of submitting such filings or responses; provided that such controlling Party will consider in good faith the other Party’s comments, requests and suggestions with respect to strategies for the preparation, filing, prosecution and maintenance of such Patent. In addition, the controlling Party will provide the other Party with copies of all final material filings and responses made to any patent office with respect to such Patent in a timely manner following submission thereof. Upon the controlling Party’s reasonable request, the other Party shall (and shall cause its Affiliates, as applicable, to) provide such controlling Party with reasonable assistance and support in connection with the fulfilment of its obligations under this Section 7.2(d), at such controlling Party’s cost and expense
(e) Spero and GSK will cooperate in connection with any patent term restoration, supplemental protection certificates or their equivalents, and patent term extensions with respect to the Spero Patents and Arising Patents in the GSK Territory. GSK will give due consideration to all suggestions and comments of Spero regarding any such activities, but in the event of a disagreement between the Parties, GSK will have the final decision-making authority.
(f) The Parties shall discuss in good faith the Spero Patents that will be included in the “Orange Book” maintained by the FDA or similar or equivalent patent listing or linking source, if any, in other countries in the GSK Territory for Products, and, after considering Spero’s comments in good faith, GSK will have the sole right to determine which Spero Patent will be included. Spero will provide such assistance as may be reasonably requested by GSK in connection with such listing.
7.3 Third Party Infringement.
(a) Notice. If, during the Term, either Party learns of any actual, alleged or threatened infringement by a Third Party of the Spero Patents or the Arising Patents (including the
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GSK Licensed Patents), such Party shall promptly notify the other Party and shall provide such other Party with available evidence of such infringement.
(b) Enforcement of Patents.
(i) As between the Parties, GSK shall have the first right and authority (but not the obligation), in its sole discretion and at its own cost and expense, to bring and control an Enforcement Action or defend a Third Party Enforcement Action, in either case, involving any (1) Spero Patents (excluding the Meiji Patents) in the GSK Territory, and (2) all Arising Patents (including all GSK Licensed Patents) in the GSK Territory. In the event that GSK does not exercise the first right to institute any Enforcement Action or defend any Third Party Enforcement Action under Spero Patents (excluding the Meiji Patents) or GSK Licensed Patents (excluding, for the avoidance of doubt, any GSK Excluded Patents), then Spero shall have the right (but not obligation) to institute such Enforcement Action or defend such Third Party Enforcement Action, as applicable, at its cost and expense.
(ii) As between the Parties, Spero shall have the first right and authority (but not the obligation), in its sole discretion and at its own cost and expense, to bring and control any Enforcement Action or defend any Third Party Enforcement Action involving any (1) Spero Patents (excluding the Meiji Patents) in the Excluded Territory, and (2) all Meiji Patents worldwide. In the event that Spero does not exercise the first right to institute any Enforcement Action or defend any Third Party Enforcement Action under such Spero Patents or Meiji Patents, then GSK shall have the right (but not obligation) to institute such Enforcement Action or defend such Third Party Enforcement Action, as applicable, at its cost and expense; provided that, the right of GSK to institute such Enforcement Action or defend such Third Party Enforcement Action, as applicable, shall be subject to the prior written consent of Meiji.
(c) Cooperation. Each Party will provide to the Party exercising its rights under this Section 7.3 reasonable assistance in such efforts, at such enforcing Party’s request and expense, including joining such action as a party if required by Law to pursue an Enforcement Action, Third Party Enforcement Action or providing the enforcing Party any reasonably requested documentation or other materials. Without limiting the foregoing, at a Party’s request, the other Party shall (and shall cause its Affiliates to) promptly provide such Party and its Affiliates with all relevant documentation (as may be reasonably requested by such Party) evidencing that such Party and its Affiliates are validly empowered by such other Party and its Affiliates to take such Enforcement Action or Third Party Enforcement Action with respect to the applicable Patent, including in such other Party’s name in accordance with the rights granted to such Party under this Section 7.3, as necessary. A Party or its applicable Affiliate shall join any such Enforcement Action or Third Party Enforcement Action with respect to the applicable Patent if the enforcing Party or any of its Affiliates determines that it is necessary to demonstrate “standing to sue.” The enforcing Party will keep the other Party regularly informed of the status and progress of such enforcement efforts, including providing the other Party a reasonable opportunity to
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comment on the enforcing Party’s determination of litigation strategy and the filing of important papers to the competent court and the enforcing Party will consider such comments in good faith. The non-enforcing Party shall have the right, at its own expense, to retain its own counsel with respect to its participation in any such Enforcement Action or Third Party Enforcement Action.
(d) Recovery of Damages. If any recovery or damages are realized by GSK as a result of an Enforcement Action or Third Party Enforcement Action, or there is any award or settlement of the same (whether by judgment or otherwise) awarded and paid to GSK, such amounts shall be considered Net Sales for purposes of the Sales Milestone Events set forth in Section 6.4 and GSK’s royalty obligations under Section 6.5. Any amount included in Net Sales pursuant to this Section 7.3(d) shall be ratably apportioned by GSK among such Calendar Quarters (and if applicable Calendar Years) consistent with the time period in which such infringing action occurred or to which such recovery or damages apply. GSK shall notify Spero of such amounts in the following Royalty Report delivered by GSK to Spero pursuant hereto, including any necessary adjustments to any previous Royalty Report.
7.4 Common Interest Agreement. All non-public information exchanged between the Parties or between a Party’s outside patent counsel and the other Party regarding the preparation, filing, prosecution, maintenance, defense and enforcement of the Spero Patents, GSK Licensed Patents or otherwise related to any the Compound or any Product, and all shared information regarding analyses or opinions of Third Party Patents or Know-How, shall be deemed Confidential Information. The Parties agree and acknowledge that they have not waived, and nothing in this Agreement constitutes a waiver of, any legal privilege concerning any such Patents, Know-How or Confidential Information, including privilege under the common interest doctrine and similar or related doctrines. In furtherance of the foregoing, if the Parties agree that a separate agreement memorializing this understanding would be advantageous, the Parties shall negotiate and enter into a common interest agreement reflecting this understanding or any other common interest agreement as the Parties may mutually agree, including with respect to any product liability for a Product.
7.5 Maintenance of Freedom to Operate. The Parties shall use Commercially Reasonable Efforts to avoid infringing any Third Party’s Patents in conducting any activities under this Agreement and shall promptly notify the other Party if it becomes aware of any Third Party Patents that pertain to the activities of the Parties under this Agreement.
Article 8
CONFIDENTIALITY
8.1 Confidentiality Obligations. Except as expressly permitted by this Agreement, each Party agrees that during the Term and for [***] years thereafter, such Party shall, and shall ensure that its Affiliates and its and their respective Personnel (“Representatives”), hold in confidence all Confidential Information disclosed to it by the other Party pursuant to this
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Agreement (or the Existing Confidentiality Agreement, as applicable), unless such information:
(a) is or becomes generally available to the public other than as a result of improper disclosure by the Receiving Party or its Representatives;
(b) is already known by or in the possession of the Receiving Party or its Representatives at the time of disclosure by the Disclosing Party;
(c) is independently developed by the Receiving Party without use of or reference to the Disclosing Party’s Confidential Information, as documented by the Receiving Party’s business records; or
(d) is obtained by the Receiving Party from a Third Party that the Receiving Party believes, acting reasonably and in good faith, after due inquiry, has not breached any obligations of confidentiality.
The Receiving Party shall not disclose any of the Confidential Information of the Disclosing Party, except to those of its Representatives who need to know the Confidential Information for the purpose of performing the Receiving Party’s obligations, or exercising its rights, under this Agreement and who are bound by obligations of non-use and non-disclosure substantially similar to those set forth herein. The Receiving Party shall be responsible for any disclosure or use of the Confidential Information in breach of its obligations hereunder by such Representatives. The Receiving Party shall protect Confidential Information using not less than the same degree of care with which it treats its own confidential information, but at all times shall use at least reasonable care. Each Party shall: (i) implement and maintain appropriate security measures to prevent unauthorized access, disclosure or use of the other Party’s Confidential Information; (ii) promptly notify the other Party of any unauthorized access or disclosure of such other Party’s Confidential Information; and (iii) cooperate with such other Party in the investigation and remediation of any such unauthorized access or disclosure.
8.2 Use Restrictions. Notwithstanding Section 8.1 and subject to Section 8.3, a Receiving Party may, in connection with performing its obligations or exercising its rights and performing its obligations under this Agreement, disclose the Confidential Information of the Disclosing Party (except that, where Spero is the Receiving Party, Spero may only disclose Product Information prior to the Completion of the Required Studies), including for purposes of:
(a) filing or prosecuting patent applications, pursuant to the terms of Section 7.2;
(b) prosecuting or defending litigation as permitted by this Agreement;
(c) conducting pre-clinical studies or Clinical Trials of any Product;
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(d) seeking or maintaining Regulatory Approval of any Product, with respect to GSK, in the GSK Territory, and with respect to Spero, in the Excluded Territory;
(e) complying with Law, including, subject to Section 8.5(b), securities Laws and the rules of any securities exchange or market on which a Party’s securities are or are planned to be listed or traded;
(f) in the case of Spero, complying with its obligations to Meiji under the Meiji Agreement; or
(g) to such Receiving Party’s actual or potential partners, acquirers, financing sources, investment bankers, financial advisors, licensors, (sub)licensees and their respective Personnel, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 8.
In making any disclosures set forth in clauses (a) through (e) above, the Receiving Party shall, where reasonably practicable, give such advance notice to the Disclosing Party of such disclosure requirement as is reasonable under the circumstances and will use its reasonable efforts to cooperate with the Disclosing Party in order to secure confidential treatment of such Confidential Information required to be disclosed. In addition, in connection with any permitted filing by either Party of this Agreement with any Governmental Body the Receiving Party shall (i) endeavor to obtain confidential treatment of economic, trade secret information and such other information as may be requested by the Disclosing Party, (ii) provide the Disclosing Party with the proposed confidential treatment request within a reasonable time for the Disclosing Party to provide comments, and the Receiving Party shall consider and incorporate such comments in good faith in connection with its submission of its confidential treatment request, and (iii) submit the proposed disclosure in writing to the Disclosing Party as far in advance as reasonably practicable (and in no event less than [***] Business Days prior to the anticipated date of disclosure) so as to provide a reasonable opportunity to comment thereon and the Receiving Party shall incorporate such comments in good faith.
8.3 Required Disclosure. Notwithstanding Section 8.1 and Section 8.4, (a) the Receiving Party may disclose the Confidential Information of the Disclosing Party to the extent required by Law or court order; provided, however, that the Receiving Party shall first provide the Disclosing Party prior notice of such disclosure and give the Disclosing Party a reasonable opportunity to quash such order or to obtain a protective order or confidential treatment requiring that the Confidential Information and documents that are the subject of such order or required to be disclosed be held in confidence by such court or Governmental Body or, if disclosed, be used only for the purposes for which the order was issued or such disclosure was required by Law; provided, further, that the Confidential Information disclosed in response to such order or as required by Law shall be limited to the information that is legally required to be disclosed in response to such order or by such Law; and (b) the Receiving Party may disclose Confidential Information of the Disclosing Party to the extent any such disclosure is, in the opinion of the Receiving Party’s counsel, required by
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Law or the rules of a stock exchange on which the securities of the Receiving Party are listed (or to which an application for listing has been submitted); provided that, in the event the Receiving Party is, in the opinion of its counsel, required by Law or the rules of a stock exchange on which its securities are listed (or to which an application for listing has been submitted) to make such a public disclosure, such Receiving Party shall submit the proposed disclosure to the Disclosing Party as far in advance as reasonably practicable so as to provide a reasonable opportunity to comment thereon.
8.4 Publications. Spero shall have the right to make publications regarding any Development or Commercialization of the Compound or any Products conducted by or on behalf of Spero (or its Affiliates, licensees or sublicensees, as applicable) in the Excluded Territory, subject to the prior approval of GSK; provided that (a) Spero shall submit such publication to GSK at least [***] Business Days in advance of the intended submission for publication or presentation of such publication for GSK’s review; (b) to the extent GSK notifies Spero of any specific, reasonable objections to such publication, based on concern regarding the specific disclosure of any Know-How or other Confidential Information of GSK (or any of its Affiliates or Sublicensees), as applicable, Spero will delete any such Know-How or other Confidential Information and, acting reasonably and in good faith, consider any other such objections, including whether it is necessary or advisable to delete any other information from such proposed publication; and (c) upon GSK’s request, Spero shall delay any such publication or presentation as needed to preserve the patentability of any Know-How or other Confidential Information of GSK (or any of its Affiliates or Sublicensees); provided that GSK may elect to extend such publication review period for up to an additional [***] Business Days if GSK reasonably requests such extension, including for the preparation and filing of any such patent applications. Once any such publication is accepted for publication, Spero shall provide GSK with a copy of the final version of such publication. Subject to Section 14.7, notwithstanding anything to the contrary in this Agreement, for the avoidance of doubt, GSK shall have the right to make any publications regarding the Development or Commercialization of the Compound or any Product in the GSK Territory as it chooses, in its sole discretion, without the approval of Spero; provided that the rights of GSK and the obligations of Spero, in each case, in clauses (a), (b) and (c) shall apply mutatis mutandis, respectively, to Spero for such rights and to GSK for such obligations with respect to any proposed publication by GSK regarding the Development or Commercialization of the Compound or any Product in the GSK Territory.
8.5 Public Disclosures.
(a) Except as required by Law or as permitted pursuant to Section 8.3, neither Party shall issue any press release or public statement disclosing information relating to (i) this Agreement or the transactions contemplated hereby or the terms hereof; (ii) the Development, Manufacture or Commercialization of the Compound or any Product in such Party’s respective Territory; or (ii) any Confidential Information of the other Party, in each case ((i), (ii) or (iii)), without the prior written consent of such other Party; provided, however, notwithstanding the foregoing, on the Execution Date (or at such later date as mutually agreed by the Parties), each Party will issue a press release substantially in the
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form attached as Schedule 8.5. For the avoidance of doubt, neither Party shall have the right to issue any press release or public statement disclosing information relating to the Development, Manufacture or Commercialization of the Compound or any Product by the other Party in its respective Territory.
(b) The Parties acknowledge that either or both Parties may be obligated to file under applicable Laws a copy of this Agreement with the U.S. Securities and Exchange Commission or other Governmental Body. Each Party shall be entitled to make such a required filing, provided that it requests confidential treatment of the commercial terms and sensitive technical terms hereof and thereof, including trade secret information, to the extent such confidential treatment is reasonably available to such Party. In the event of any such filing, each Party will provide the other Party with a copy of this Agreement marked to show provisions for which such Party intends to seek confidential treatment and shall reasonably consider the other Party’s reasonable comments thereon, to be provided within [***] Business Days of receipt, to the extent consistent with the legal requirements, with respect to the filing Party, governing disclosure of material agreements and material information that must be publicly filed.
8.6 Return or Destruction of Confidential Information. Upon expiration or termination of this Agreement, each Party shall return, or at the other Party’s option, destroy all relevant records and materials in its possession or control containing any Confidential Information of such other Party in a manner reasonably agreed upon by the Parties; provided that the Receiving Party may retain a copy of computer records or files containing such Confidential Information that have been created pursuant to automatic archiving or back-up procedures that cannot reasonably be deleted or to the extent required for the exercise of any of its rights that survive such expiration or termination pursuant to Section 11.5 or Section 11.7; provided, however, that such copy will be kept confidential by the Receiving Party in accordance with the terms and provisions of this Agreement for as long as the Receiving Party is in possession of such copy.
8.7 Equitable Relief. Due to the unique nature of the Confidential Information, the Parties agree that any breach or threatened breach by a Party of this Article 8 with respect to the other Party’s Confidential Information will cause not only financial harm to the other Party, but also irreparable harm for which money damages will not be an adequate remedy. Therefore, the other Party shall be entitled, in addition to any other legal or equitable remedies, to seek an injunction or similar equitable relief against any such breach or threatened breach by such Party without the necessity of proving actual damages or posting any bond.
Article 9
REPRESENTATIONS AND WARRANTIES
9.1 Mutual Representations and Warranties. Each Party represents and warrants to the other Party, as of the Execution Date, and as of the Effective Date (as though then made), that:
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(a) such Party is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization;
(b) such Party has taken all action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement;
(c) this Agreement is a legal and valid obligation of such Party, binding upon such Party and enforceable against such Party in accordance with the terms of this Agreement, except as enforcement may be limited by applicable bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equitable principles including judicial principles affecting the availability of specific performance;
(d) the execution, delivery and performance of this Agreement by such Party does not conflict with, breach or create in any Person the right to accelerate, terminate or modify any agreement or instrument to which such Party is a party or by which such Party is bound, and does not violate any Law of any Governmental Body having authority over such Party, such Party’s charter documents, bylaws or other organizational documents or any order, writ, judgment, injunction, decree, determination or award of any court or Governmental Body presently in effect applicable to such Party;
(e) such Party is not under any obligation, contractual or otherwise, to any Person that conflicts with or is inconsistent in any respect with the terms of this Agreement or would adversely affect the diligent and complete fulfillment of its obligations hereunder;
(f) such Party has all right, power and authority to enter into this Agreement and to perform its obligations under this Agreement, and it has the right to grant to the other the licenses and sublicenses granted pursuant to this Agreement;
(g) there is no pending proceeding that has been commenced against such Party that challenges, or would reasonably be expected to have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereby;
(h) neither such Party nor any of its Affiliates has employed or otherwise used in any capacity the services of any Person debarred under United States Law, including under 21 U.S.C. § 335a or any foreign equivalent thereof; and
(i) except as set forth in Article 12, no consent, approval or authorization by any Person or Governmental Body is required with respect to the execution and delivery of this Agreement by it or the consummation by it of the transactions contemplated hereby.
9.2 Spero’s Additional Representations and Warranties. Except as set forth in Schedule 9.2 (as such Schedule 9.2 may be updated pursuant to Section 12.1), Spero represents and warrants to GSK that, as of the Execution Date and as of the Effective Date (as though then made):
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(a) Schedule 9.2(a) sets forth an accurate and complete list of all Spero Patents, existing as of the Execution Date and all such Spero Patents (i) are subsisting and in good standing, (ii) are being diligently prosecuted in the respective patent offices in the respective Territory in accordance with Law, (iii) all applicable filing and maintenance fees therefor have been paid on or before the due date for payment, and (iv) are not invalid or unenforceable, in whole or in part;
(b) no claims have been asserted against Spero or any of its Affiliates, licensees or sublicensees or threatened by any Person (i) challenging the validity, enforceability or ownership of any Spero Intellectual Property or Spero Regulatory Documentation, or (ii) to the effect that the Development, Manufacturing or Commercialization of the Meiji Compound in the form set forth in Schedule 1.38(a) or the Spero Compound in the form set forth in Schedule 1.38(b), infringes any Patents of any Person or misappropriates any Know-How of any Person;
(c) to Spero’s knowledge, the conduct of any Development or Manufacture activities with respect to the Compound or any Product by or on behalf of Spero or any of its Affiliates, licensees or sublicensees, as conducted on or prior to the Execution Date and the Effective Date, as applicable), does not infringe, misappropriate or otherwise violate any Patents, Know-How or any other intellectual property rights of any Person;
(d) none of the Spero Patents existing as of the Execution Date is the subject of any pending or extant litigation procedure, discovery process, interference, reissue, reexamination, opposition, appeal Proceedings, post-grant review, inter partes review or any other legal dispute, provided that the following excludes office actions or similar communications issued by any patent office or comparable registration authority in the ordinary course of prosecution of any patent application within such Spero Patents;
(e) other than the Spero Intellectual Property in existence as of the Execution Date or the Effective Date, as applicable, neither Spero nor any of its Affiliates owns or otherwise Controls (including via license) rights under any Patents or Know-How that are, as of the Execution Date or the Effective Date, as applicable, necessary for, or actually used in, the Development, Manufacture or Commercialization of the Meiji Compound in the form set forth in Schedule 1.38(a) or the Spero Compound in the form set forth in Schedule 1.38(b) (or any Product that contains such form of the Meiji Compound or the Spero Compound, as applicable), in each case in the GSK Territory;
(f) Spero and its Affiliates have taken commercially reasonable measures to protect the secrecy, confidentiality, and value of all Spero Know-How that constitutes trade secrets under Law (including requiring all Personnel to execute agreements requiring all such Personnel to maintain the confidentiality of such Spero Know-How), and such Spero Know-How has not been used or disclosed to any Third Party except pursuant to confidentiality agreements or agreements containing confidentiality obligations and such Persons have not breached any such confidentiality agreement;
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(g) as of immediately prior to the Execution Date, Spero and its Affiliates own or otherwise Control all right, title and interest in and to all Spero Intellectual Property and Spero Regulatory Documentation free and clear of any liens, security interests, charges and encumbrances;
(h) with respect to all Spero Intellectual Property, (i) Spero and its Affiliates and their licensees and sublicensees have obtained from all Personnel who participated in the invention or authorship thereof, assignments of all ownership rights of such Personnel in such Spero Intellectual Property, either pursuant to written agreement or by operation of Law; (ii) all of its Personnel have executed agreements or have existing obligations under Law requiring assignment to Spero or its Affiliate, licensee or sublicensee, as applicable, of all rights, title, and interests in and to their inventions made during the course of and as the result of this Agreement; and (iii) no Personnel of Spero or its Affiliate or their Personnel is subject to any agreement with any other Person that requires such Personnel to assign any interest in any Spero Intellectual Property to any Person other than Spero or its Affiliate or their licensees or sublicensees;
(i) no claims have been asserted against Spero or any of its Affiliates in connection with the conduct of any Clinical Trials (including in respect of any Adverse Event(s) suffered by any human subject volunteers) and neither Spero nor its Affiliates are aware of any fact, matter or circumstance that may give rise to such a claim being asserted in future;
(j) (i) Spero or its Affiliates have the right to grant to GSK the rights and licenses under the Spero Intellectual Property, Spero Regulatory Documentation and Meiji Regulatory Documentation as set forth under this Agreement, including the right to use any [***] in the Development, Manufacture and Commercialization of the Compound and any Products as contemplated by this Agreement in reliance on, through the use of, or reference to, the Existing NDA (as the same may be amended, modified, supplemented by GSK from time to time) and any [***] included or incorporated into the Existing NDA (or any other Spero Regulatory Documentation or Meiji Regulatory Documentation), and (ii) neither Spero nor any of its Affiliates has previously licensed, assigned, transferred or otherwise conveyed any right, title, option or interest in or to any Spero Intellectual Property, Spero Regulatory Documentation or Meiji Regulatory Documentation (which right, title, option or interest has not been duly and irrevocably terminated) to any Person that would conflict with any of the rights or licenses granted to GSK under this Agreement;
(k) all [***] included in the Existing NDA (or any other Spero Regulatory Documentation) was also included in the Meiji Regulatory Documentation, and there is no [***] (other than that included in the Existing NDA or other Spero Regulatory Documentation and Meiji Regulatory Documentation) that is necessary or useful for GSK to research, Develop, Manufacture and Commercialize the Compound and any Product in the GSK Territory;
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(l) all Development, including any Clinical Trials, of the Compound conducted prior to the Execution Date have been conducted in compliance in all material respects with all applicable Laws;
(m) as of the Execution Date, Spero has provided GSK with a true, correct and complete copy of any agreements to which Spero or any of its Affiliates is a party that relates to the Compound (including the Development, Manufacture or Commercialization thereof) and except for the Meiji License, there is no agreement with any Person pursuant to which Spero or any of its Affiliates has licensed any Patents or Know-How of such Person that would be necessary or useful in the Development, Manufacture or Commercialization of the Meiji Compound in the form set forth in Schedule 1.38(a) or the Spero Compound in the form set forth in Schedule 1.38(b) (or any Product that contains such form of the Meiji Compound or the Spero Compound, as applicable) in the Field in the GSK Territory;
(n) neither Spero nor its Affiliates, nor, to Spero’s knowledge, any of its or their respective Personnel has committed an act, made a statement or failed to act or make statement, in any case, that (i) would be or create an untrue statement of material fact or fraudulent statement to the FDA or any other Regulatory Authority with respect to the Development, Manufacture or Commercialization of the Compound or any Product, or (ii) could reasonably be expected to provide a basis for the FDA or any other Regulatory Authority to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities”, set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto or any analogous laws or policies, with respect to the Development, Manufacture or Commercialization of the Compound or any Product;
(o) (i) all Human Biological Samples used in the Development, Manufacture or Commercialization of the Compound or any Product conducted by or on behalf of Spero and its Affiliates have been obtained, stored, transferred, used and disposed of in accordance in all material respects with Laws and any generally accepted ethical guidelines regarding the collection, use, transport and disposal of human tissue, (ii) all ethics committee approvals have been obtained to enable the use of the Spero Human Biological Samples obtained from patients or human subject volunteers or other donors in connection with the Development, Manufacture or Commercialization of the Compound or any Product conducted by or on behalf of Spero and its Affiliates, (iii) all uses of Spero Human Biological Samples in the Development, Manufacture or Commercialization of the Compound or any Product conducted by or on behalf of Spero and its Affiliates fall within the terms of the informed consent given by the donors of such Spero Human Biological Samples, and (iv) no human embryonic or fetal derived material (including cell lines) have been used in the Development, Manufacture or Commercialization of the Compound or any Product conducted by or on behalf of Spero and its Affiliates;
(p) Spero and its Affiliates have made available to GSK all toxicology studies, clinical data, process and analytical development information, CMC data and information, manufacturing process data, filings and correspondence with Regulatory Authorities (including all
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correspondence with or to the FDA as of the Execution Date), and all other information in its possession or control relating to the Compound or any Product;
(q) all written data, results and other information disclosed by Spero to GSK at any time prior to the Execution Date relating to the Compound, any Product, the Spero Intellectual Property, Spero Regulatory Documentation or Meiji Regulatory Documentation is true and accurate, was generated in accordance with the Data Integrity Practices set forth in Schedule 4.11(b), and did not omit important information known to Spero that would be required to be disclosed in order to make such data, results and other information that was disclosed to GSK not misleading in any material respect;
(r) neither Spero nor its Affiliates are aware of any fact, matter or circumstance that would be likely to negatively affect the outcome of any inspection the FDA may carry out in respect of the Manufacturing facilities owned and/or operated by any CMO and which facilities are used in the Clinical Manufacture of the Compound or any Product (as applicable) and/or which are intended to be used in the Commercial Manufacture of the Compound or any Product (as applicable);
(s) Meiji:
(i) as of the Execution Date, Spero has satisfied its obligations under Section 2.4.1 and Section 3.3.2 of the Meiji License;
(ii) except for (A) the rights retained by Meiji under the Meiji License with respect to the Meiji Patents and (B) Meiji’s rights under the Meiji License with respect to Jointly Generated Patent Rights (as defined in the Meiji License), of which none exist as of the Execution Date, no Person has any rights to control, be informed of or provide any input with respect to the prosecution of any Spero Patents;
(iii) Spero owns or Controls all Know-How that was discovered, developed, generated, invented, derived, created, conceived or reduced to practice under the Meiji License, and all Patents claiming such Know-How, in each case that is necessary or useful to Develop, Manufacture (or have Manufactured) or Commercialize the Compound or any Product in the Field in the GSK Territory;
(iv) Meiji obtained [***] written consent to Meiji’s entering into the Meiji License with Spero for Meiji to, and [***] to, (A) supply the Compound to Spero and its Affiliates (including the Spero New Formulation Product for purposes of the Required Studies pursuant to Section 4.2(a)), (B) help Develop any Product for Spero and its Affiliates in the GSK Territory, and (C) supply any Product to Spero and its Affiliates (including the Spero New Formulation Product for purposes of the Required Studies pursuant to Section 4.2(a)) for use in the GSK Territory, in each case as more fully set forth in the [***], which consent (1) to Spero’s knowledge, is valid and enforceable under applicable Law and (2) remains in full force and effect as of the Execution Date and the Effective Date;
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(v) (A) the Meiji License and the rights and licenses granted to Spero pursuant thereto with respect to the Meiji Intellectual Property, [***] and Meiji Regulatory Documentation are in full force and effect and, by their terms, the Meiji Intellectual Property, [***] and Meiji Regulatory Documentation (including for avoidance of doubt any [***] included or incorporated into the Meiji Regulatory Documentation or Spero Regulatory Documentation in reliance on the Meiji License) are sublicenseable to GSK as contemplated by this Agreement, (B) neither Meiji nor Spero is in breach of the Meiji License, and (C) Spero has not received any notice from Meiji of Spero’s breach or notice of threatened breach by Spero thereof;
(vi) there are no challenges to or violation of the rights granted to Spero or its Affiliates pursuant to the Meiji License by any Third Party;
(vii) other than (A) the right of Meiji to Develop and Manufacture (including to have Manufactured) the Compound or any Product in the GSK Territory solely for the purpose of furthering the Development and Commercialization of the Compound or any Product in the Field in the Excluded Territory and (B) solely with respect to the Meiji Intellectual Property and Meiji Regulatory Documentation, the non-exclusive and sublicensable license granted by Meiji to [***] under the [***] (which license survives the expiration of the [***]), Spero has not, directly or indirectly (including [***] through the Meiji License), granted any rights or licenses to any other Person to Develop, Manufacture or Commercialize the Compound or any Product using the Spero Intellectual Property or Spero Regulatory Documentation in the Field in the GSK Territory;
(t) [***]:
(i) the use of the Spero Intellectual Property, Spero Regulatory Documentation (including the Existing NDA) and Meiji Regulatory Documentation by GSK to [***] in the manner contemplated by this Agreement does not misappropriate any [***]; and
(ii) the Spero Intellectual Property, Spero Regulatory Documentation and Meiji Regulatory Documentation licensed to GSK hereunder (x) represent all of the intellectual property rights that have been or are being used by Spero or its Affiliates in the conduct of its [***], and (y) represent all of the intellectual property rights Controlled by Spero or its Affiliates, licensees or sublicensees that are [***].
9.3 GSK’s Additional Representations and Warranties. GSK represents and warrants to Spero that, as of the Execution Date and as of the Effective Date (as though then made):
(a) no Personnel of GSK or its Affiliates or their Personnel is subject to any agreement with any other Person that requires such Personnel to assign any interest in any GSK Licensed Intellectual Property to any Person other than GSK or its Affiliate or their licensees or sublicensees; and
(b) (i) GSK or its Affiliates have the right to grant to Spero and its Affiliates the rights and licenses under the GSK Licensed Intellectual Property and GSK Regulatory
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Documentation as set forth under this Agreement, and (ii) neither GSK nor any of its Affiliates has previously licensed, assigned, transferred or otherwise conveyed any right, title, option or interest in or to any GSK Licensed Intellectual Property or GSK Regulatory Documentation (which right, title, option or interest has not been duly and irrevocably terminated) to any Person that would conflict with any of the rights or licenses granted to Spero and its Affiliates under this Agreement.
9.4 Disclosure Schedule References. The Parties agree that any disclosure in any section of Schedule 9.2 shall be deemed to be an exception to the representations and warranties of Spero that are contained in the corresponding Section of this Agreement; provided that any information disclosed under any section of Schedule 9.2 shall be deemed to be disclosed and incorporated into any section of Schedule 9.2 where such disclosure would be appropriate and reasonably apparent.
9.5 Additional Covenants.
(a) Neither Party nor any of its Affiliates has employed or otherwise used in any capacity, and neither Party nor any of its Affiliates will employ or otherwise use in any capacity, the services of any Person debarred under United States Law, including under 21 U.S.C. § 335a or any foreign equivalent thereof, including with respect to the Compound or any Product.
(b) During the Term, Spero shall not (and shall cause its Affiliates and sublicensees to not) (i) assign, transfer, convey, encumber (through any liens, charges, security interests, mortgages or similar actions) or dispose of, or enter into any agreement with any Person to assign, transfer, convey, encumber (through lien, charge, security interest, mortgage or similar action) or dispose of, any Spero Intellectual Property or Spero Regulatory Documentation to any Person without the prior consent of GSK (other than Spero’s assignment of its rights in the Arising Intellectual Property to GSK hereunder) or (ii) fail to maintain the Spero Intellectual Property in the ordinary course of business, and in compliance with applicable Law, in each case ((i) – (ii)), in any manner that would conflict with, limit the scope of or adversely affect in any material respect any of the rights or licenses granted to GSK under this Agreement. During the Term, Spero covenants (on behalf of itself and its Affiliates, licensees and sublicensees) to ensure that any Spero Intellectual Property, Spero Regulatory Documentation and Meiji Regulatory Documentation is and remains Controlled by Spero (or its Affiliates, licensees or sublicensees and except for Spero’s assignment of its rights in the Arising Intellectual Property to GSK hereunder) such that Spero maintains the full rights to grant the rights and licenses to the Spero Intellectual Property, Spero Regulatory Documentation and Meiji Regulatory Documentation to GSK as contemplated hereunder, including the rights granted to GSK under Section 2.1. During the Term, GSK covenants (on behalf of itself and its Affiliates, licensees and Sublicensees) to ensure that any GSK Licensed Intellectual Property is and remains Controlled by GSK (or its Affiliates), such that GSK maintains the full rights to grant the rights and licenses to the GSK Licensed Intellectual Property to
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Spero as contemplated hereunder, including as contemplated to be granted to Spero under Section 11.7(b)(iv)(A) and Section 11.7(b)(iv)(A).
(c) During the Term, neither Spero (nor any of its Affiliates) shall amend, modify or terminate any agreement to which Spero (or such Affiliate) is a party with any Person (excluding any amendment or modification of the Meiji License that is expressly contemplated hereby) pursuant to which, as applicable, any Spero Intellectual Property, Spero Regulatory Documentation or Meiji Regulatory Documentation is in-licensed, whether such agreement exists as of the Execution Date or is entered into by Spero (or such Affiliate) after the Execution Date, in a manner that would adversely affect GSK’s rights or licenses under this Agreement without first obtaining GSK’s written consent; provided that Spero shall not be deemed to have breached this Section 9.5(c) with respect to any such amendment, modification or termination of such agreement that is attributable to any action or omission of GSK as a licensee or sublicensee of Spero which constitutes a material breach by GSK of this Agreement.
(d) During the Term, each Party will, and will ensure that its Affiliates, licensees, sublicensees and permitted subcontractors obtain written agreements from any and all Persons involved in or performing any Development activities by or on behalf of such Party under this Agreement that (i) presently assign such Persons’ rights, title, and interests in and to any Arising Know-How or Arising Patents to the Party that is the counterparty to such agreements, in each case, prior to any such Persons performing such Development activities, (ii) require such Persons to promptly report any invention, discovery, or other Intellectual Property to the Party that is the counterparty to such agreements, (iii) require such Persons to cooperate in the preparation, filing, prosecution, maintenance and enforcement of any patents and patent applications by the Party that is the counterparty to such agreements, and (iv) require such Persons to perform all acts and signing, executing, acknowledging, and delivering any and all documents required for effecting the obligations and purposes of this Agreement. It is understood and agreed that such invention assignment agreement need not reference this Agreement.
(e) Following the Effective Date, GSK and Spero shall, at each Party’s own cost and expense, use Commercially Reasonable Efforts and shall cooperate with one another to [***] of Spero’s [***] with respect to the Development of tebipenem HBR in the United States ([***]) as soon as practicable following GSK’s written request.
9.6 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, INCLUDING AS SET FORTH IN THIS Article 9, NEITHER PARTY NOR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, TO THE OTHER PARTY OR ANY OF ITS AFFILIATES, AND EACH PARTY HEREBY DISCLAIMS ALL IMPLIED WARRANTIES OF DESIGN, QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENTS, AND NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING,
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USAGE OR TRADE PRACTICES. EACH PARTY UNDERSTANDS THAT THE COMPOUND AND PRODUCTS ARE THE SUBJECT OF ONGOING RESEARCH AND DEVELOPMENT, AND THAT NEITHER PARTY CAN ASSURE, AND EACH PARTY HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY, THAT THE DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION OF THE COMPOUND OR PRODUCTS PURSUANT TO THIS AGREEMENT WILL RECEIVE REGULATORY APPROVAL OR WILL BE SAFE, EFFECTIVE, USEFUL OR SUCCESSFUL OR THAT ANY PARTICULAR SALES LEVEL WITH RESPECT TO THE COMPOUND OR PRODUCTS WILL BE ACHIEVED.
Article 10
INDEMNIFICATION
10.1 Indemnification by GSK. Subject to the other provisions of this Article 10, GSK shall indemnify, defend and hold harmless Spero and its Affiliates and each of their respective Personnel and their respective successors and assigns (collectively, the “Spero Indemnitees”) from and against any and all liability, damage, loss, fines, penalties, cost or expense (including reasonable attorneys’ fees) (“Losses”) incurred by or rendered against such Spero Indemnitee in connection with Third Party claims, investigations, demands or suits (“Third Party Claims”) to the extent arising out of or resulting from: (a) GSK’s or any of its GSK Indemnitees’ gross negligence, reckless conduct or willful misconduct in performing its rights and obligations under this Agreement; (b) any breach by GSK of its representations and warranties, covenants or obligations set forth in this Agreement; or (c) the Development, Manufacture or Commercialization of the Compound or any Products by or on behalf of GSK or its Affiliates or Sublicensees in the Field in the GSK Territory on or after the Effective Date; provided, however, that GSK’s obligations pursuant to this Section 10.1 shall not apply to the extent such claims or suits are covered by Spero’s obligations under Section 10.2 or are based on, arise or result from, or are attributable to a Specified Claim.
10.2 Indemnification by Spero. Subject to the other provisions of this Article 10, Spero shall indemnify, defend and hold harmless GSK, its Affiliates and each of their respective Personnel and their respective successors and assigns (collectively, the “GSK Indemnitees”) from and against any and all Losses incurred by or rendered against such GSK Indemnitee in connection with Third Party Claims to the extent arising out of or resulting from: (a) Spero’s or any of Spero Indemnitee’s gross negligence, reckless conduct or willful misconduct in performing its rights and obligations under this Agreement; (b) any breach by Spero of its representations and warranties, covenants or obligations set forth in this Agreement; (c) the Development, Manufacture or Commercialization of the Compound or any Product by or on behalf of Spero or any of its Affiliates, licensees or sublicensees in the GSK Territory prior to the Effective Date or following any termination of this Agreement; (d) the conduct of the Development activities set forth in the Development Plan and the performance of the Required Studies; or (e) the Development, Manufacture or Commercialization of the Compound or any Product by or on behalf of Spero or any of its Affiliates, licensees or sublicensees in the Field in the Excluded
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Territory; provided, however, that Spero’s obligations pursuant to this Section 10.2 shall not apply to the extent that such claims or suits are covered by GSK’s obligations under Section 10.1.
10.3 Specified Claims.
(a) GSK’s indemnification obligations set forth in Section 10.1 shall not apply to any Specified Claim brought against any Spero Indemnitee by [***] or any Losses incurred or suffered by a Spero Indemnified Party that are based on, arise or result from, or are attributable to any Specified Claim.
(b) Spero shall indemnify, defend and hold harmless the GSK Indemnitees from and against any and all Losses incurred by or rendered against such GSK Indemnitee that are based on, arise or result from, or are attributable to any Specified Claim, including for clarity a Specified Claim based on, arising or resulting from or attributable to (i) any breach by Spero of its representations and warranties set forth in [***] of this Agreement, or (ii) the use of any [***] in the Development, Manufacture and Commercialization of the Compound and any Products as contemplated by this Agreement, including in reliance on, through the use of, or reference to, the Existing NDA (as the same may be amended, modified, supplemented by GSK from time to time) and any [***] included or incorporated into the Existing NDA (or any other Spero Regulatory Documentation or Meiji Regulatory Documentation).
10.4 Notification of Claims; Conditions to Indemnification Obligations.
(a) Spero shall promptly notify GSK of any Specified Claim (or Specified Claim threatened in writing) as soon as it becomes aware of such Specified Claim. In addition, as a condition to a Party’s right to receive indemnification under this Article 10 with respect to any Third Party Claim or Specified Claim, as applicable, it shall: (i) promptly notify the other Party as soon as it becomes aware of a Third Party Claim or Specified Claim for which indemnification may be sought pursuant hereto, provided that the failure to give such notice will not relieve the indemnifying Party of its indemnity obligation hereunder except to the extent that such failure materially prejudices the indemnifying Party; (ii) cooperate, and cause the individual Indemnitees to cooperate, with the indemnifying Party in the defense, settlement or compromise of such Third Party Claim or Specified Claim; and (iii) except as set forth in Section 10.5, permit the indemnifying Party to control the defense, settlement or compromise of such Third Party Claim or Specified Claim (which control shall be assumed within [***] days after the indemnifying Party’s receipt of an notice of such Third Party Claim or Specified Claim), including the right to select defense counsel. In no event, however, may the indemnifying Party compromise or settle any Third Party Claim or Specified Claim in a manner which admits fault or negligence on the part of the indemnified Party or any Indemnitee without the prior consent of the indemnified Party. Each Party shall reasonably cooperate with the other Party and its counsel in the course of the defense of any such Third Party Claim or Specified Claim, such cooperation to include using reasonable efforts to provide or make available documents, information
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and witnesses. In any such proceeding, the indemnified Party will have the right to retain its own counsel, but the fees and expenses of such counsel will be at the expense of the indemnified Party unless (A) the indemnifying Party and the indemnified Party will have agreed to the retention of such counsel or (B) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying Party and the indemnified Party and representation of both Parties by the same counsel would be inappropriate due to actual or potential differing interests between them. All such fees and expenses of the indemnified Party by application of the foregoing clause (A) or (B) will be reimbursed by the indemnifying Party as they are incurred. Except as set forth in Section 10.5, the indemnifying Party shall have no liability under this Article 10 with respect to any such Third Party Claims or Specified Claims settled or compromised without its prior written consent.
(b) In the event that notice of any Third Party Claim or Specified Claim for indemnification under this Article 10 has been timely given within the applicable survival period, the representations, warranties, covenants and agreements that are the subject of such indemnification shall survive with respect to such claim or suit until such time as such claim or suit is finally resolved.
10.5 Defense of Specified Claims. Notwithstanding anything in this Article 10 to the contrary, and without relieving Spero’s indemnification obligations, with respect to any Specified Claim brought against any GSK Indemnitee, GSK shall have the right to control the defense, settlement or compromise of such Specified Claim, including the right to select defense counsel; provided, however, in no event may GSK compromise or settle such Specified Claim in a manner which admits fault or negligence on the part of Spero without Spero’s prior written consent (which shall not be unreasonably withheld, conditioned or delayed). Each Party shall reasonably cooperate with the other Party and its counsel in the course of the defense of any such Specified Claim, such cooperation to include using reasonable efforts to provide or make available documents, information and witnesses. In any such proceeding, Spero will have the right to retain its own counsel, at its sole cost and expense.
10.6 Mitigation of Loss. Each indemnified Party will take and will procure that its Affiliates and Indemnitees take all such reasonable steps and action as are reasonably necessary or as the indemnifying Party may reasonably require in order to mitigate any Losses arising as a result of any Third Party Claims. Nothing in this Agreement shall or shall be deemed to relieve any Party of any common law or other duty to mitigate any losses incurred by it.
10.7 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, TO THE MAXIMUM EXTENT PERMITTED BY LAW, EXCEPT WITH RESPECT TO (A) EITHER PARTY’S RESPECTIVE INDEMNIFICATION OBLIGATIONS FOR LOSSES CAUSED BY OR ARISING OUT OF THIRD PARTY CLAIMS UNDER SECTION 10.1 OR SECTION 10.2 OR SPECIFIED CLAIMS UNDER SECTION 10.3(b) OR (B) EITHER PARTY’S BREACH OF ITS CONFIDENTIALITY AND NON-USE OBLIGATIONS UNDER Article 8, IN NO EVENT SHALL
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EITHER PARTY OR ANY OF ITS AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR ANY INDIRECT, PUNITIVE, SPECIAL, incidental, exemplary OR CONSEQUENTIAL DAMAGES (INCLUDING FOR LOST REVENUES AND LOST PROFITS (WHETHER DIRECT OR INDIRECT)), REGARDLESS OF THE THEORY OF LIABILITY (INCLUDING CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE), IN EACH CASE, ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREIN OR ANY BREACH HEREOF, IRRESPECTIVE OF WHETHER SUCH PARTY OR ANY REPRESENTATIVE OF SUCH PARTY HAS BEEN ADVISED OF, OR OTHERWISE MIGHT HAVE ANTICIPATED THE POSSIBILITY OF, ANY SUCH LOSS OR DAMAGE OR WHETHER SUCH LOSS OR DAMAGE WAS REASONABLY FORESEEABLE. IN ADDITION, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL SPERO BE LIABLE TO GSK OR ANY GSK INDEMNITEE FOR ANY LOSSES INDIVIDUALLY OR IN THE AGGREGATE IN EXCESS OF AMOUNTS PAID or Payable BY GSK TO SPERO PURSUANT TO THIS AGREEMENT.
10.8 Insurance. Each Party will maintain, at its cost, reasonable insurance against liability and other risks associated with its activities contemplated by this Agreement and will furnish to the other Party evidence of such insurance upon request; provided that each Party shall maintain insurance in such amounts and on such terms based on advice from insurance professionals for companies of similar size and with similar resources; provided, further, that if, at any time during the Term, a Party ceases to maintain the same level of insurance coverage with respect to such Party’s obligations under this Agreement, such Party shall promptly notify the other Party thereof. Notwithstanding the foregoing, a Party may self-insure to the extent that it self-insures for its other activities.
Article 11
TERM AND TERMINATION
11.1 Term and Expiration. Subject to Article 12, the term of this Agreement (the “Term”) shall commence on the Effective Date and, unless earlier terminated as provided in this Article 11, shall continue in full force and effect, on a country-by-country and Product-by-Product basis, until the expiration of the Royalty Term for the applicable Product in such country; provided that this Agreement shall terminate in its entirety upon [***].
11.2 Termination for Convenience by GSK. At any time during the Term, GSK may, at its convenience, terminate this Agreement (a) in its entirety; or (b) on a Product-by-Product and/or country-by-country basis, upon [***] days’ prior written notice to Spero. Notwithstanding the foregoing, GSK shall not have the right to terminate this Agreement pursuant to this Section 11.2 (in its entirety or in the United States), during the period commencing as of the Initiation of the Required Phase III Study and ending on the Last Patient/Last Visit of the Required Phase III Study, unless (i) such period of time is greater than [***] months after Initiation of the Required Phase III Study, or (ii) following the
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Interim Analysis, GSK determines, in its sole discretion, that [***]; provided, however, the foregoing restriction shall have no impact on the ability of GSK to terminate this Agreement pursuant to Section 11.3, Section 11.4, or Section 11.5 at any time.
11.3 Termination for Material Breach.
(a) Material Breach. Upon any material breach of this Agreement by a Party (the “Breaching Party”), the other Party (the “Non-Breaching Party”) will have the right, but not the obligation, to terminate this Agreement in its entirety, or if the breach relates to one or more but not all Products and/or countries, with respect to such Products and/or countries, upon written notice of termination to the other Party, provided that such termination will not be effective if such material breach has been cured within [***] days after written notice has been given by the Non-Breaching Party to the Breaching Party of the applicable material breach, and, further provided that, the Non-Breaching Party may, by notice to the Breaching Party, designate a later date for such termination in order to facilitate an orderly transition of activities relating to all Products for the GSK Territory. Any such notice of breach will, in each case, (i) expressly reference this Section 11.3; (ii) reasonably describe the alleged material breach which is the basis of such notice; and (iii) clearly state the Non-Breaching Party’s intent to terminate this Agreement if the alleged material breach is not cured within the applicable cure period. Notwithstanding the foregoing, if such material breach, by its nature, is curable, but is not reasonably curable within the applicable cure period, then such cure period will be extended if the Breaching Party provides a written plan for curing such material breach to the Non-Breaching Party and uses Commercially Reasonable Efforts to cure such material breach in accordance with such written plan; provided that no such extension will exceed an additional [***] days without the consent of the Non-Breaching Party.
(b) Disputed Material Breach. If the Breaching Party disputes that it has materially breached this Agreement, the dispute will be resolved pursuant to Article 13. Notwithstanding the foregoing, if the Breaching Party disputes, acting reasonably and in good faith, the existence, materiality, or failure to cure of any such material breach and provides notice to the Non-Breaching Party of such dispute within the relevant cure period, the Non-Breaching Party will not have the right to terminate this Agreement in accordance with this Section 11.3, unless and until the relevant dispute has been resolved. Any such dispute will be resolved pursuant to the dispute resolution procedure set forth in Article 13. It is understood and acknowledged that during the pendency of such dispute, all the terms and conditions of this Agreement will remain in effect and the Parties will continue to perform all of their respective obligations hereunder.
11.4 Termination for Insolvency. In the event that either Party (a) files for protection under laws relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts; (b) makes an assignment for the benefit of creditors; (c) appoints or suffers appointment of a receiver, custodian, trustee or liquidator over substantially all of its property that is not discharged within [***] days after such filing; (d) proposes a written agreement of composition or extension of its debts; (e) proposes or is a party to any
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dissolution or liquidation of such Party; (f) files a petition under any bankruptcy or insolvency act or has any such petition filed against that is not discharged or dismissed within [***] days of the filing thereof; (g) admits in writing its inability generally to meet its obligations as they fall due in the general course, or (h) takes any corporate action for the purpose of effecting any of the foregoing, then the other Party may terminate this Agreement in its entirety effective immediately upon notice to such Party.
11.5 Termination for Safety Reasons. GSK may terminate this Agreement in its entirety or on a Product-by-Product basis at any time upon prior written notice to Spero (a) if executives responsible for GSK’s pharmacovigilance and clinical science functions determine in good faith that the risk or benefit profile of the Products (or such Product) is such that the Products (or such Product) cannot continue to be Developed or administered to patients safely; or (b) upon (i) the receipt of a material adverse regulatory determination by a Regulatory Authority regarding the Products (or such Product) (such as a Clinical Trial hold or suspension of Regulatory Approval), or (ii) the occurrence of serious Adverse Events related to the use of the Products (or such Product) that reasonably impact the patient population in the aggregate and that cause GSK to reasonably conclude in good faith that the continued use of the Products (or such Product) by patients will result in the patient population being exposed to a Product for which the risks outweigh the benefits and that such risks cannot be ameliorated using Commercially Reasonable Efforts.
11.6 Effects of Expiration or Termination; Survival.
(a) In addition to the consequences set forth in this Section 11.6 and Section 11.7 (and any other Sections that expressly survive pursuant to the terms herein or therein, as applicable), the following provisions shall survive expiration or termination of this Agreement in its entirety for any reason: Article 1, Section 2.6, Section 5.1, Section 5.6 (solely with respect to any recall or market withdrawal (i) for which a Party has delivered notice to the other Party pursuant to Section 5.6 prior to the effective date of such expiration or termination, or (ii) that is ongoing as of the effective date of such expiration or termination), Section 6.2 through Section 6.7 (inclusive, solely with respect to any payment obligations that accrued prior to the effective date of such expiration or termination), Section 6.5(a) (solely with respect to GSK’s royalty-free, irrevocable, perpetual, non-exclusive and sublicensable license under the Spero Intellectual Property, Spero Regulatory Documentation and Meiji Regulatory Documentation to Develop, Manufacture (including to have Manufactured) and Commercialize such Product in the applicable country following the expiration of the applicable Royalty Term for such country), Section 6.8, Section 6.9, Section 7.1(a), Section 7.4, Article 8, Section 9.6, Article 10, Section 11.6, Section 11.7, Section 11.9, Article 13 and Article 14; provided that, for clarity, the foregoing shall not survive in the event of a termination prior to the Effective Date pursuant to Section 12.3, except as otherwise provided therein.
(b) Expiration or termination of this Agreement shall not relieve the Parties of any obligation, including any payment obligation under Article 6 or Section 2.10(b) (in each case, solely with respect to any payment obligations that accrued prior to the effective date
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of such expiration or termination) or any liability that accrued hereunder prior to the effective date of such expiration or termination. In addition, termination of this Agreement shall not preclude either Party from pursuing all rights and remedies it may have hereunder or at Law or in equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.
(c) [Reserved].
11.7 Effect of Termination of the Agreement. Upon any termination (but not expiration) of this Agreement, the following terms shall apply; provided that, if this Agreement is terminated with respect to one (1) or more Products and/or countries but not in its entirety, then such termination will apply only to the terminated Products and/or terminated countries:
(a) Termination of Rights and Obligations. Each Party’s rights and obligations under this Agreement (except as set forth in this Section 11.7 and Section 11.6) shall automatically terminate and have no further force and effect as of the applicable effective date of termination.
(b) Termination and Wind Down Plan. Promptly following the receipt of any notice of termination of this Agreement, Spero will prepare, with GSK’s reasonable cooperation (as reasonably requested by Spero), a termination and wind-down plan that will include, at a minimum, a plan for accomplishing the activities described in this Section 11.7(b) (“Termination and Wind-Down Plan”), which Termination and Wind-Down Plan (including any amendments thereto) shall be subject to the mutual agreement of both Parties.
(i) Termination of Licenses. All rights and licenses granted herein to either Party will terminate in their entirety, or on a Product-by-Product or country-by-country basis, and GSK and its Affiliates shall cease any Development, Manufacturing and Commercialization of the Products or such Products and/or in such countries that are the subject of such termination; except that the rights and licenses of GSK and its Affiliates under Section 2.1 may continue solely to the extent necessary, and solely for the time periods specified therein, for GSK and its Affiliates to promptly and diligently complete the orderly transition or wind-down of ongoing Clinical Trials under Section 11.7(b)(ii) or to sell or otherwise dispose of any inventory of Products as permitted under Section 11.7(b)(iii).
(ii) Clinical Trials Transition and Wind Down. If, at the time of either Party’s delivery of written notice of termination pursuant to this Article 11, GSK (or its Affiliates or Sublicensees) is conducting any Clinical Trial for any Product (excluding, for the avoidance of doubt, the Required Studies, unless GSK has exercised the rights set forth in Section 2.8(b)(iii)), then Spero will notify GSK, on a trial-by-trial and site-by-site basis, whether Spero would like to wind-down such Clinical Trial or transition such Clinical Trial to Spero (or its designee) for continuation (provided that, if such termination pursuant
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relates solely to a Product and/or to one or more countries, and not to this Agreement in its entirety, then the following shall apply solely with respect to such Product):
(A) Notwithstanding the foregoing, GSK shall have the right, to the extent not prohibited by Law, in GSK’s sole discretion and at GSK’s cost and expense, to elect to (1) wind-down such Clinical Trial (even if Spero so notifies GSK of its intention to continue such Clinical Trial), if GSK reasonably believes (x) the continuation (or transition) of such Clinical Trial could cause harm to the patients enrolled therein or (y) that such Clinical Trial should not be continued (or transitioned) due to ethical concerns; or (2) continue such Clinical Trial (even if Spero so notifies GSK of its intention to wind-down such Clinical Trial), if GSK reasonably believes that such Clinical Trial should be continued (and not transitioned) due to patient safety or ethical concerns, in which case, GSK shall (or shall cause its Affiliate, Sublicensee or Third Party subcontractor, as applicable, to) continue to conduct such Clinical Trial in accordance with the then-current protocol as of the effective date of such termination (unless the Parties mutually agree otherwise).
(B) For any such Clinical Trial that Spero so notifies GSK of its intention to transition and continue at one or more sites, subject to GSK’s rights to elect to wind-down or continue such Clinical Trial pursuant to Section 11.7(b)(ii), (1) the Termination and Wind-Down Plan will include the activities that GSK is to perform until the date that is [***] days after the effective date of such termination (the “Clinical Trial Transition Date”) in furtherance of transitioning the conduct of such Clinical Trial to Spero or its designee (the “GSK Clinical Trial Transfer Obligations”), and (2) GSK will transfer the conduct of any such Clinical Trial at such site(s) to Spero in accordance with the GSK Clinical Trial Transfer Obligations in the Termination and Wind-Down Plan. Spero will assume any and all liability and costs for any such Clinical Trial at such site(s) from and after the date that is the earlier of (x) the completion of the GSK Clinical Trial Transfer Obligations for such site(s) or (y) the Clinical Trial Transition Date, other than with respect to any GSK Clinical Trial Transfer Obligation not performed by GSK as of such Clinical Trial Transition Date. Spero will reimburse GSK for any internal costs or external costs incurred by GSK in connection with any activities performed by or on behalf of GSK in furtherance of the transition to Spero of any applicable Clinical Trials following the Clinical Trial Transition Date, except for any such costs incurred in connection with GSK’s completion of the GSK Clinical Trial Transfer Obligations that are not complete as of the Clinical Trial Transition Date.
(iii) Commercialization Wind Down. If such termination occurs following the receipt of Regulatory Approval for a Product in a country, then, to the extent permitted by
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Law, effective upon such date of such termination, GSK, its Affiliates and its Sublicensees will have the right to sell any inventory of such Product intended for Commercialization in such country existing as of such termination (or subject to a non-cancellable purchase order) in accordance with the Termination and Wind-Down Plan agreed upon and otherwise in accordance with the terms of this Agreement, by or under the authority of GSK, its Affiliates or its Sublicensees as of the date of the applicable notice of termination, for [***] months, if such termination is by Spero pursuant to Section 11.3 (Material Breach by GSK) or by GSK pursuant to Section 11.2 (Termination by GSK For Convenience), or for [***] months for any other termination, in each case following the effective date of the applicable termination or such longer time as may be agreed by the Parties in writing (the “Commercialization Wind-Down Period”). Any Product sold or disposed of by GSK, its Affiliates or its Sublicensees during the Commercialization Wind-Down Period will be subject to the applicable payment and reporting obligations under Article 6. Within [***] days after the end of the Commercialization Wind-Down Period, GSK will notify Spero of any quantity of Products remaining in GSK’s, its Affiliates’ or its Sublicensees’ inventory, and Spero will have the right to purchase, in its discretion, any such quantities of the Products from GSK, at a price to be mutually agreed between the Parties.
(iv) Reversion License and Additional Effects of Termination. In the event of termination of this Agreement by Spero pursuant to Section 11.3 (GSK Material Breach) or Section 11.4 (GSK Insolvency) or by GSK pursuant to Section 11.2 (Termination For Convenience) or Section 11.5 (Termination for Safety Reasons) (provided that, if such termination pursuant relates solely to a Product and/or country, and not to this Agreement in its entirety, then the following shall apply solely with respect to such Product and/or country) then:
(A) Spero shall have [***] days following such termination to provide written notice to GSK (a “Reversion License Notice”) that Spero desires to obtain one or more exclusive or non-exclusive, royalty bearing licenses (a “Reversion License”) under (1) the GSK Licensed Intellectual Property existing and Controlled by GSK (or its Affiliates) as of the effective date of such termination that are necessary to Develop, Manufacture (or have Manufactured) and Commercialize the Compounds and any Product in the Field in the GSK Territory and (2) the GSK Regulatory Documentation existing and Controlled by GSK (or its Affiliates) as of the effective date of such termination (including a grant to Spero of the right of reference to such GSK Regulatory Documentation and providing Spero with copies of such GSK Regulatory Documentation, in each case, to the extent allowed under Law);
(B) If Spero timely delivers a Reversion License Notice, then the Parties agree to negotiate in good faith the terms and conditions of such Reversion License (including royalties and other amounts payable to GSK) with a view toward executing and delivering such Reversion License within [***] days following delivery of such Reversion License Notice; provided
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that if, following negotiations conducted actively and continuously in good faith for a period of not less than [***] days following delivery of such Reversion License Notice, the Parties have been unable to execute and deliver such Reversion Notice, then GSK’s obligations to negotiate such Reversion License in good faith shall terminate;
(C) promptly following the effective date of such termination, in accordance with and to the extent permissible under Law, GSK shall transfer and assign to Spero (or its designee) all Spero Regulatory Documentation Controlled by GSK (or its Affiliates) as of the effective date of such termination with respect to the Compound or any Products, and Spero shall assume full responsibility for such Spero Regulatory Documentation, in each case, to be further detailed in the Termination and Wind-Down Plan; provided that, in the event that GSK is unable to transfer and assign to Spero (or its designee) such Spero Regulatory Documentation, effective upon the effective date of termination, GSK, on behalf of itself and its Affiliates, hereby consents and grants to Spero an exclusive (even as to GSK and its Affiliates), fully paid up, royalty-free, irrevocable, perpetual, sublicensable, worldwide license and right of reference under such Spero Regulatory Documentation (with the right to sublicense and grant further rights of reference) as necessary to Develop, Manufacture and Commercialize the Compound and any Products in the Field; and
(D) If this Agreement is terminated in its entirety, with respect to any Patents owned by Spero or any of its Affiliates in respect of which (1) GSK has engaged in the filing, prosecution or maintenance thereof, whether under its first right or step-in rights, or (2) GSK has engaged in the enforcement or defense of such Patent, as applicable whether under its first right or step-in rights, as applicable, then upon Spero’s request, and at Spero’s cost and expense, GSK will transfer to Spero or its designee copies of all filings, applications, correspondence and other related records received or generated by GSK in the course of filing, prosecuting, maintaining, enforcing or defending such Patent.
For purposes of Section 11.7(b)(iv), “GSK Excluded Know-How” (as applicable to the GSK Licensed Intellectual Property that is the subject of a Reversion License) shall mean any Arising Know-How that is (a) discovered, developed, generated, invented, derived, created, conceived or reduced to practice during the Term by a Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents, independent contractors or consultants either alone or jointly with the other Party or its Affiliates, licensees, sublicensees or subcontractors or any of their respective employees, agents, independent contractors or consultants; and (b) is not (i) actually used during the Term by or on behalf of GSK (or any of its Affiliates or Sublicensees) in the Development, Manufacture or Commercialization of the Compound or any Product, and (ii) necessary for the Development, Manufacture or Commercialization of the Compound
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or any Product by Spero in the GSK Territory (or, if such Reversion License relates to a particular Product and/or country, of such Product by Spero in such country).
(v) Third Party Agreements. If Spero so requests in writing prior to or within [***] days following the effective date of the termination of this Agreement in its entirety, and to the extent permitted under Law and under GSK’s or any of its Affiliate’s obligations to Third Parties, as the case may be, effective as of the effective date of such termination, GSK will assign, or cause such Affiliate to assign, to Spero and Spero will assume, any Third Party agreements that solely relate to the Development, Manufacture or Commercialization of the Compound and Products in the GSK Territory to which GSK or its Affiliates are a party; provided that, if the assignment of any such Third Party agreement requires the consent of any Third Party, such assignment of such Third Party agreement will not occur unless and until such consent is obtained (it being understood that if so requested by Spero in writing, GSK will, and will cause its Affiliates to, at Spero’s cost, use Commercially Reasonable Efforts to obtain any such consent as promptly as reasonably practicable under the circumstances).
(vi) Reversion Trademarks. If as of the effective date of termination of this Agreement in its entirety or with respect to a particular Product or country, as the case may be, (A) GSK or any of its Affiliates owns any Trademarks that are used exclusively for such Product in the GSK Territory (but, for clarity, excluding any house marks of GSK or any of its Affiliates or Sublicensees), and (B) such Trademarks have been approved by a Regulatory Authority for use with the Products in a country or jurisdiction in the GSK Territory where such Product has received Regulatory Approval prior to the effective date of termination (such Trademarks, the “Reversion Trademarks”), then, at Spero’s written request, promptly following the effective date of such termination, GSK, in its discretion, will (x) [***], or (y) [***], in either case, pursuant to an agreement that the Parties will negotiate and enter into after such effective date of termination, which agreement will contain, to the extent applicable, quality control and indemnification obligations customary of such agreements applying to Spero’s use of such transferred Reversion Trademarks following such assignment or license, as applicable.
(c) Sublicense Survival. Upon the termination of this Agreement, each of GSK’s Sublicensees will continue to have the rights and licenses set forth in its respect sublicense agreement, which sublicense agreement will automatically become a direct license of Spero; provided, however, that (i) such Sublicensee is not then in breach of any of its material obligations under its sublicense agreement, and (ii) Spero shall have no obligation under such sublicense agreement beyond the obligations expressly set forth in this Agreement.
(d) Further Assurances. Each Party will execute all reasonable documents and take all such further actions as may be reasonably requested by the other Party, at such other Party's cost, in order to give effect to the foregoing clauses.
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11.8 Certain Additional Remedies of GSK in Lieu of Termination. If GSK has the right to terminate this Agreement pursuant to Section 11.3 (Material Breach by Spero) then in lieu of GSK terminating, GSK may elect to have this Agreement continue in full force and effect as modified by this Section 11.8 by providing written notice to Spero prior to the date that otherwise would have been the effective date of termination had GSK exercised its right to so terminate this Agreement; provided that if GSK so elects to continue this Agreement, then the following terms shall apply:
(a) from and after such time as GSK delivers such written notice to Spero all royalties, Commercial Milestone Payments and Sales Milestone Payments, thereafter payable by GSK to Spero hereunder (other than the royalties payable by Spero to Meiji pursuant to the Meiji License equal to [***]% of Net Sales, but only for so long as the Meiji License remains in full force and effect and such royalties continue to be payable by Spero pursuant thereto) shall be reduced by fifty percent (50%) of the amounts otherwise due and payable by GSK with respect to any Products pursuant to Article 6; provided that GSK shall no longer be entitled to give effect to any deductions under Section 6.5(c), Section 6.5(d) and Section 6.5(e) that might otherwise be applicable from and after the date of such written notice; and
(b) if GSK has the right to terminate this Agreement pursuant to Section 11.3 (Material Breach by Spero) prior to the Completion of the Required Studies, GSK shall have the option, but not the obligation, to exercise the rights in Section 2.8(b)(iii), and if GSK exercises such rights pursuant to this Section 11.8, [***] ([***]) will become due and payable by GSK.
11.9 Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by a Party to the other are and will otherwise be deemed to be, for purposes of section 365(n) of the Bankruptcy Code, licenses or rights to “intellectual property” as defined under section 101(35A) of the Bankruptcy Code (or analogous foreign provisions) and that this Agreement is an executory contract governed by section 365(n) of the Bankruptcy Code (or analogous foreign provisions) in the event that a bankruptcy proceeding is commenced involving either Party. The Parties agree that upon (a) commencement of a bankruptcy proceeding by or (b) entry of an order for relief in connection with an involuntary bankruptcy proceeding against a Party (the “Bankrupt Party”) under the Bankruptcy Code (collectively, the “Bankruptcy Commencement Date”), the other Party (the “Non-Bankrupt Party”), in addition to its rights under Section 11.4 or otherwise under this Agreement, will be entitled to a complete duplicate of, or complete access to (as the Non-Bankrupt Party deems appropriate), all such intellectual property and all embodiments of such intellectual property. Such intellectual property and all embodiments of such intellectual property will be promptly delivered to the Non-Bankrupt Party (a) following any such Bankruptcy Commencement Date, within [***] Business Days of receiving written request by the Non-Bankrupt Party, unless the Bankrupt Party has assumed this Agreement prior to receipt of such written request by the Non-Bankrupt Party; or (b) if not delivered under clause (a) above, on or before entry of an order by a competent court having jurisdiction over the matter authorizing the rejection of this Agreement. The Bankrupt
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Party (in any capacity, including debtor-in-possession) and its successors and assigns (including any trustee) agree not to interfere with the exercise by the Non-Bankrupt Party of its rights and licenses to such intellectual property and such embodiments of intellectual property in accordance with this Agreement. In addition, the Bankrupt Party waives to the fullest extent permitted by Law any and all rights to sell its intellectual property assets (including any Patents) free and clear of the Non-Bankrupt Party’s rights and licenses in and to such intellectual property whether pursuant to section 363 of the Bankruptcy Code or pursuant to a chapter 11 plan. The foregoing provisions are without prejudice to any rights the Non-Bankrupt Party may have arising under the Bankruptcy Code or other Laws.
Article 12
EFFECTIVENESS
12.1 Effective Date. If (a) any applicable waiting periods and approvals are required under Antitrust Laws with respect to the transactions contemplated under this Agreement and the Share Purchase Agreement, as identified in Schedule 1.11, then except for the Parties’ obligations under Article 8 and this Article 12, which will be effective as of the Execution Date, this Agreement and the Share Purchase Agreement will not become effective until the first Business Day after the Antitrust Clearance Date; or (b) any applicable waiting periods and approvals are not required under Antitrust Laws with respect to the transactions contemplated under this Agreement and the Share Purchase Agreement, then this Agreement and the Share Purchase Agreement will become effective on the Execution Date (such date, the “Effective Date”). On the Effective Date, Spero will provide to GSK and updated version of Schedule 9.2 as a result of Spero making anew as of the Effective Date the representations and warranties of Section 9.2. Notwithstanding the foregoing clause (a), the Effective Date will not occur if and for so long as there is in force any Law or order from a Governmental Body enjoining or prohibiting the consummation of the transactions contemplated by this Agreement, or a Proceeding brought by a Governmental Body is pending that would reasonably be expected to enjoin or prohibit the transactions contemplated by this Agreement.
12.2 Filings. If any applicable waiting periods and approvals are required under Antitrust Laws with respect to the transactions contemplated under this Agreement and the Share Purchase Agreement, as identified in Schedule 1.11, then the following shall apply:
(a) each Party will, within [***] Business Days following the Execution Date, file all Antitrust Filings;
(b) each Party shall use their respective reasonable best efforts to take, or cause to be taken, all appropriate action to do, or cause to be done, all things necessary, proper and advisable under Law to consummate and make effective the transactions contemplated under this Agreement as promptly as reasonably practicable, including using reasonable best efforts to (i) obtain all consents, approvals, authorizations, nonactions, qualifications and orders from, and to make all registrations, declarations, notices and filings with, Governmental Bodies and other Persons (including Third Parties) as are required, proper
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or advisable to be obtained or made by such Party and are necessary for the consummation of the transactions contemplated by this Agreement as promptly as reasonably practicable and (ii) as promptly as reasonably practicable but no later than [***] Business Days after the Execution Date, make all necessary initial filings and request early termination of the waiting period under the HSR Act, if available, and thereafter as promptly as reasonably practicable make any other required submissions with respect to this Agreement required under the HSR Act;
(c) notwithstanding Section 12.2(b), in no event shall either Party be obligated to (i) pay any fee (other than the HSR filing fee or any other filing fee required by an Antitrust Filing), (ii) commit to or grant any concession, consent decree or similar undertaking, or enter into any divestiture, license (in whole or in part) or hold separate agreement or other behavioral remedy or arrangement, that would affect GSK’s pre-existing business prior to the transactions subject to this Agreement or that would materially impair the benefits and advantages such Party expects to receive from the transactions that are the subject of this Agreement, in connection with obtaining any such consents, approvals, authorizations, qualifications or orders, or (iii) litigate or otherwise participate in any Proceeding with any Governmental Body in connection with obtaining any consent pursuant to this Agreement, or (iv) commit to any consent decree or similar undertaking, or any divestiture, license (in whole or in part), or any arrangement to hold separate (or any similar arrangement) with respect to any of its products or assets, that would materially impair the benefits and advantages such Party expects to receive from the transactions that are the subject of this Agreement; provided that Spero will not do any of the foregoing without GSK’s prior written consent;
(d) GSK shall (i) control the strategy for obtaining any consents, approvals of, or registrations, declarations or filings from any Governmental Body in connection with the transactions that are the subject of this Agreement, and (ii) coordinate the overall development of the positions to be taken and the regulatory actions to be requested in any filing or submission with a Governmental Body in connection with the transactions contemplated hereby; provided that GSK shall consult in good faith with Spero with respect to the matters referred to in the foregoing clause (i) and (ii); provided further that GSK and Spero shall consult in good faith and jointly agree with one another prior to either Party agreeing to extend any waiting period under the HSR Act, withdrawing any filing under the HSR Act, or entering into any agreement with any Governmental Body to delay, or otherwise not to consummate as soon as practicable the transactions that are the subject of this Agreement, which agreement shall not be unreasonably withheld or delayed;
(e) each Party shall promptly notify the other Party of any communication it or any of its Affiliates receives from any Governmental Body relating to the transactions that are the subject of this Agreement;
(f) neither Party shall agree to participate, and shall cause its Affiliates not to participate, in any meeting with any Governmental Body in respect of any Antitrust Filing or Proceedings relating to the transactions that are the subject of this Agreement unless it consults with the
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other Party in advance and, to the extent permitted by such Governmental Body, gives the other Party (or their counsel) prior notice and the opportunity to attend and participate at such meeting;
(g) Subject to Article 8 and applicable Law, the Parties will coordinate and cooperate fully with each other (or their outside counsel) in exchanging such information and providing such assistance as the other Party may reasonably request in connection with the foregoing and in seeking termination or expiration of any applicable waiting periods including under the HSR Act, at the earliest possible date after the date of filing;
(h) to the extent practicable, each Party will, and will cause its Affiliates to, give the other Party reasonable advance opportunity to review and comment upon and consider in good faith the views of the other in connection with all written communications with any Governmental Body relating to the transactions that are the subject of this Agreement (including any analyses, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any Party hereto or any of its Affiliates relating to Proceedings under any Antitrust Laws);
(i) to the extent permitted under Law, each Party will promptly provide, and cause its respective Affiliates to provide, to the other Party (or such other Party’s outside counsel in the case of information deemed by the providing Party’s antitrust counsel to be sensitive) with copies of all material correspondence, filings or communications between them or any of their Representatives, on the one hand, and any Governmental Body or members of its staff, on the other hand, with respect to this Agreement and the transactions contemplated hereby; and
(j) except as expressly provided herein, each Party will be responsible for its own costs and expenses associated with any such Antitrust Filing, including premerger filing fees incurred by each Party associated with any such Antitrust Filing.
Notwithstanding any provision to the contrary set forth in this Agreement, nothing in this Agreement (including this Section 12.2) will require either Party or any of its Affiliates to disclose to the other Party or any of its Affiliates any information that is subject to obligations of confidentiality or non-use owed to Third Parties (nor will either Party be required to conduct joint meetings with any Governmental Body in which such information might be shared with the other Party) in connection with any Antitrust Filing.
12.3 Outside Date. If, any applicable waiting periods and approvals are required under Antitrust Laws with respect to the transactions contemplated under this Agreement, as identified in Schedule 1.11, this Agreement will terminate, at the election of either Party, immediately upon written notice to the other Party, in the event that: (a) the U.S. Federal Trade Commission or the U.S. Department of Justice, or an equivalent authority in the European Union (including, for the avoidance of doubt, the United Kingdom despite it leaving the European Union), seeks a permanent injunction under applicable antitrust and non-competition Laws against Spero and GSK to enjoin the transactions contemplated by this Agreement; or (b) the Antitrust Clearance Date has not occurred on or prior to [***]
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months after the effective date of any Antitrust Filing (or such later date as may be mutually agreed by the Parties). In the event of such termination, without any further action on the part of either Party, this Agreement will be of no further force and effect and no Party shall have any further obligations under this Agreement, except for the Parties’ obligations under Article 8 which survive.
Article 13
DISPUTE RESOLUTION
13.1 Disputes. The Parties recognize that disputes as to certain matters may from time to time arise during the Term which relate to either Party’s rights or obligations hereunder. The Parties agree that any dispute arising out of or relating to this Agreement (other than Excluded Claims, which shall be resolved pursuant to Section 13.5) shall be resolved solely by means of the dispute resolution procedures set forth in this Article 13; provided that the foregoing shall not affect a Party’s right to terminate this Agreement under Section 11.2, Section 11.3 (except as expressly set forth in Section 11.3), Section 11.4 or Section 11.5, as applicable, or seek equitable relief as otherwise provided under this Agreement. It is the objective of the Parties to establish under this Article 13 procedures to facilitate the resolution of disputes arising under this Agreement (other than any disputes relating to matters that one Party has sole decision-making authority or discretion under this Agreement (each, a “Non-Escalatable Dispute”), in which case, such Non-Escalatable Dispute shall be determined by such Party and shall not be part of the dispute resolution procedure set forth in this Article 13) in an expedient manner by mutual cooperation and without resort to litigation (it being understood that disputes relating to GSK’s compliance with its diligence obligations in Section 4.7 shall not constitute a Non-Escalatable Dispute). In the event that the Parties are unable to resolve such dispute through diligent review and deliberation within [***] Business Days from the day that one Party had designated the issue as a dispute in written notice to the other Party, then either Party shall have the right to escalate such matter to the Executive Officers as set forth in Section 13.2.
13.2 Escalation to Executive Officers. Either Party may, by written notice to the other Party, request that a dispute (other than a Non-Escalatable Dispute) that remains unresolved for a period of [***] Business Days as set forth in Section 13.1 arising between the Parties in connection with this Agreement, or a dispute relating to material breach, be resolved by the Executive Officers, within [***] Business Days after referral of such dispute to them. If the Executive Officers do not resolve such dispute within [***] Business Days after referral of such dispute to them, then, at any time after such [***] Business Day period, either Party may proceed to arbitration in accordance with Section 13.3 with respect to such dispute.
13.3 Arbitration. If the Parties are unable to resolve a dispute arising out of or relating to this Agreement through the escalation procedures set forth in Section 13.2 within the time frames set forth therein, the Parties agree that they shall submit such dispute for final settlement via binding arbitration conducted in the English language in New York, New York under the [***], which shall administer the arbitration and act as appointing authority.
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The arbitration will be conducted by an arbitrator mutually selected by the Parties; provided, however, in the event that the Parties are unable to mutually agree upon the selection of an arbitrator or with respect to any dispute for which a Party is seeking an injunction or other equitable relief or aggregate damages sought in excess of [***] Dollars ($[***]), the arbitration will be conducted by a panel of three (3) arbitrators, with each Party appointing one (1) arbitrator, and these two (2) arbitrators so selected by the Parties will then select the third arbitrator. Disputes about arbitration procedure shall be resolved by the arbitrator(s). The arbitrator(s) shall not be current or former employees, consultants, officers or directors, or current stockholders, of either Party, [***] or any of their respective Affiliates, licensees or sublicensees and each arbitrator shall have at least [***] years of pharmaceutical industry experience (provided, however, that if such arbitration is being conducted by a panel of three (3) arbitrators, each arbitrator shall have at least [***] years of pharmaceutical industry experience). The arbitrator(s) shall be authorized to grant interim relief, including to prevent the destruction of goods or documents involved in the dispute, protect trade secrets and provide for security for a prospective monetary award. Within [***] Business Days after selection of the arbitrator(s), the arbitrator(s) shall conduct the preliminary conference. In addressing any of the subjects within the scope of the preliminary conference, the arbitrator(s) shall take into account both the desirability of making discovery efficient and cost-effective and the needs of the Parties for an understanding of any legitimate issue raised in the arbitration. In addition, each Party shall have the right to take up to [***] hours of deposition testimony, including expert deposition testimony. The hearing shall commence within [***] days after the selection of the arbitrator(s). The arbitrator(s) shall, in their discretion, allow each Party to submit concise written statements of position and shall permit the submission of rebuttal statements, subject to reasonable limitations on the length of such statements to be established by the arbitrator(s). The hearing shall be no longer than [***] Business Days in duration. The arbitrator(s) shall also permit the submission of expert reports. The arbitrator(s) shall render their decision and award within [***] Business Days after the arbitrator(s) declare the hearing closed, and the decision and award shall include a written statement describing the essential findings and conclusions on which the decision and award are based, including the calculation of any damages awarded. The arbitrator(s) will, in rendering their decision, apply the substantive Law of the [***], without reference to its conflict of laws principles. The arbitrators’ authority to award special, incidental, consequential or punitive damages shall be subject to the limitation set forth in Section 10.7. The decision and award rendered by the arbitrator(s) shall be final, binding and non-appealable, and judgment may be entered upon it in any court of competent jurisdiction. Each Party shall bear its own attorney’s fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrator(s). The Parties acknowledge and agree that this Agreement and any award rendered pursuant hereto shall be governed by the [***].
13.4 Injunctive Relief. Nothing in this Agreement shall be construed as precluding a Party from bringing an action for injunctive relief or other equitable relief, including prior to the initiation or completion of the above procedure.
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13.5 Intellectual Property Disputes. Notwithstanding any provision to the contrary set forth in this Agreement, if a dispute arises under this Agreement with respect to an Excluded Claim, and such Excluded Claim is not resolved in accordance with Section 13.2, then such Excluded Claim will be submitted to a court of competent jurisdiction in the jurisdiction in which such Patent, Know-How or other intellectual property right was granted or arose.
Article 14
MISCELLANEOUS PROVISIONS
14.1 Relationship of the Parties. Nothing in this Agreement is intended or shall be deemed, for financial, tax, legal or other purposes, to constitute a partnership, agency, joint venture or employer-employee relationship between the Parties.
14.2 Assignment.
(a) Except as expressly provided herein, neither this Agreement nor any right or obligation hereunder shall be assignable or transferable, whether voluntarily or by operation of law, without the prior written consent of the other Party (not to be unreasonably withheld or delayed).
(b) Notwithstanding Section 14.2(a), each Party may assign or transfer this Agreement or any of its rights and obligations hereunder (i) to any Affiliate, (ii) to a Third Party in connection with a Change of Control, or (ii) to a Third Party that acquires all or substantially all of such Party’s assets or business relating to the Compound and any Product to which this Agreement relates (whether by sale of assets or stock, merger, consolidation, reorganization or otherwise), without the consent of the other Party. Each assigning Party shall give written notice to the other Party promptly following any such assignment or transfer.
(c) No assignment under this Section 14.2 shall relieve the assigning Party of any of its responsibilities or obligations hereunder and, as a condition of such assignment, the assignee shall expressly agree in writing to be bound by all obligations of the assigning Party hereunder. This Agreement shall be binding upon the successors and permitted assigns of the Parties.
(d) Any assignment or other transfer not in accordance with this Section 14.2 shall be null and void.
14.3 Performance and Exercise by Affiliates. Each Party shall have the right to have any of its obligations hereunder performed, or its rights hereunder exercised, by any of its Affiliates and the performance of such obligations by any such Affiliate shall be deemed to be performance by such Party; provided, however, that such Party shall be responsible for ensuring the performance of its obligations under this Agreement and that any failure of any Affiliate performing obligations of such Party hereunder shall be deemed to be a failure by such Party to perform such obligations. For clarity, the foregoing means that
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each Party may designate or subcontract to an Affiliate to perform its obligations hereunder or to be the recipient of the other Party’s performance obligations hereunder.
14.4 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
14.5 Accounting Procedures. Each Party shall calculate all amounts, and perform other accounting procedures required, under this Agreement and applicable to it in accordance with such Party’s then-current Accounting Standards, consistently applied. All terms of an accounting or financial nature in this Agreement shall be construed in accordance with the foregoing Accounting Standard.
14.6 Force Majeure. Neither Party shall be liable to the other Party or be deemed to have breached or defaulted under this Agreement for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by or results from (a) fire, floods, earthquakes or other acts of nature; (b) epidemics, pandemics, the spread of infectious diseases, quarantines or disease outbreaks in the United States or elsewhere in the world; (c) embargoes; (d) war or acts of war, including terrorism, insurrections, riots or civil unrest; (e) strikes, lockouts or other labor disputes; (f) acts, omissions or delays in acting by a Governmental Body, including acts of any agency thereof, judicial orders or decrees; (g) receipt of warning letters, or failure or delay of transportation (in each case, due to reasons other than the affected Party’s negligence, willful misconduct or any other cause within the reasonable control of the affected Party); (h) failure of plant or machinery (provided that such failure could not have been prevented by the exercise of skill, diligence or prudence that would be reasonably and ordinarily expected from a skilled and experienced Person engaged in the same type of undertaking under the same or similar circumstances or restrictions; or (i) any other reason or circumstance that is beyond the reasonable control of the affected Party (“Force Majeure Events”). The Party affected by a Force Majeure Event shall (i) provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and (ii) use Commercially Reasonable Efforts to overcome the difficulties created thereby and to resume performance of its obligations hereunder as soon as practicable.
14.7 No Trademark Rights. Except as set forth in Section 2.1 and Section 11.7(b)(vi), no right, express or implied, is granted by this Agreement to either Party to use in any manner the name or any other trade name or Trademark of the other Party in connection with the performance of this Agreement or otherwise.
14.8 Entire Agreement; Amendments. This Agreement and the Schedules and Exhibits hereto, the Technology Transfer Plan, the Pharmacovigilance Agreement, the Share Purchase Agreement, the Transition Plan (if any) and the Termination and Wind-down Plan (if any) shall constitute and contain the entire understanding and agreement of the Parties respecting the subject matter hereof and cancel and supersede any and all prior
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negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter, including the Existing Confidentiality Agreement. Except as specified herein, no waiver, modification or amendment of any provision of this Agreement shall be valid or effective unless made in a writing referencing this Agreement and signed by a duly authorized officer of each Party.
14.9 Captions. The captions to this Agreement are for convenience only and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement.
14.10 Governing Law. This Agreement, and all claims or causes of action (whether in contract, tort or statute) that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), shall be governed by and interpreted in accordance with the internal Laws of the [***], including its statutes of limitations but excluding application of any conflict of Laws principles that would require application of the Law of a jurisdiction outside of the [***]. In the event of any conflict between U.S. and foreign Laws, regulations and rules, U.S. Laws, regulations and rules shall govern. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.
14.11 Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given if delivered in person, or by express courier service (signature required) to the Party to which it is directed at its address shown below or such other address as such Party shall have last given by notice to the other Party.
If to Spero, addressed to:
Spero Therapeutics, Inc.
675 Massachusetts Avenue, 14th Floor
Cambridge, Massachusetts 02139
Attn: President and CEO
With copies, which shall not constitute notice, to:
Mintz
One Financial Center
Boston, MA 02111
Attn: Lewis J. Geffen
If to GSK, addressed to:
GlaxoSmithKline Intellectual Property (No. 3) Limited
980 Great West Road
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Brentford, Middlesex TW8 9GS
England
Attn: Senior Vice President & Corporate Secretary
With copies, which shall not constitute notice, to:
GlaxoSmithKline
980 Great West Road
Brentford, Middlesex TW8 9GS
England
Attn: VP & Head of Legal Business Development & Corporate
14.12 Language; Waiver of Rule of Construction. The official language of this Agreement and between the Parties for all correspondence shall be the English language and the English language shall control its interpretation. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement will be construed against the drafting Party will not apply.
14.13 Waiver. A waiver by either Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any other term or condition hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party.
14.14 Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Law, but if any provision of this Agreement is held to be prohibited by or invalid under Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. The Parties shall make a good faith effort to replace the invalid or unenforceable provision with a valid one which in its economic effect is most consistent with the invalid or unenforceable provision.
14.15 Business Day Requirements. In the event that any notice or other action or omission is required to be taken by a Party under this Agreement on a day that is not a Business Day then such notice or other action or omission shall be deemed to require to be taken on the next occurring Business Day.
14.16 Interpretation. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except where the context otherwise requires, wherever used, (a) the singular shall include the plural, the plural the singular; (b) the use of any gender shall be applicable to all genders; (c) the word “or” is used in the inclusive sense (and/or); (d) the words “include,” “includes” and “including” shall be
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deemed to be followed by the phrase “without limitation”; (e) the word “will” will be construed to have the same meaning and effect as the word “shall”; (f) any definition of or reference to any agreement, instrument or other document herein will be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (g) any reference herein to any Person will be construed to include the Person’s successors and assigns; (h) the words “herein,” “hereof” and “hereunder,” and words of similar import, will be construed to refer to this Agreement in its entirety and not to any particular provision hereof; (i) the word “notice” will mean notice in writing (whether or not specifically stated), shall include any written instrument or communication delivered in accordance with Section 14.11, unless otherwise specified herein; (j) provisions that require that a Party, the Parties or any committee hereunder “agree,” “consent” or “approve” or words of similar import will require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise; (k) any reference to a “sublicensee” of GSK under this Agreement shall be construed to include Sublicensees; and (l) references to any specific law, rule or regulation, or article, section or other division thereof, will be deemed to include the then-current amendments thereto or any replacement or successor law, rule or regulation thereof. Whenever this Agreement refers to a number of days, unless otherwise specified, such number refers to calendar days. Unless the context otherwise requires, countries shall include territories.
14.17 Expenses. Except as otherwise provided herein, all fees, costs and expenses (including any legal, accounting and banking fees) incurred in connection with the preparation, negotiation, execution and delivery of this Agreement and to consummate the transactions contemplated hereby will be paid by the Party hereto incurring such fees, costs and expenses.
14.18 Binding Effect; No Third Party Beneficiaries. As of the Execution Date, this Agreement will be binding upon and inure to the benefit of the Parties and their respective permitted successors and permitted assigns. Except as expressly set forth in this Agreement, no Person other than the Parties and their respective Affiliates and permitted assignees hereunder will be deemed an intended beneficiary hereunder or have any right to enforce any obligation of this Agreement.
14.19 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, and all of which together will be deemed to be one and the same instrument. An electronic, digital or a portable document format (PDF) copy of this Agreement, including the signature pages, will be deemed an original.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, duly authorized representatives of the Parties have executed this Agreement as of the Execution Date.
GLAXOSMITHKLINE INTELLECTUAL PROPERTY (NO. 3) LIMITED |
|
Signature: |
/s/ [***] |
Printed Name: |
[***] |
Title: |
[***] |
Spero THERAPEUTICS, inc. |
|
Signature: |
/s/ Ankit Mahadevia |
Printed Name: |
Ankit Mahadevia |
Title: |
CEO |
Signature Page to Exclusive License Agreement
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Schedule 1.11
Antitrust Clearance Waiting Periods and Approvals
Waiting period for HSR filing under HSR Act.
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Schedule 1.12
Antitrust Filings
HSR filing under HSR Act.
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CONFIDENTIAL
Schedule 1.38(a)
Meiji Compound
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CONFIDENTIAL
Schedule 1.38(b)
Spero Compound
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Schedule 1.48
Development Plan
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Schedule 1.128
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Schedule 2.5
Technology Transfer Plan and Delivery Schedule
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Format and Method for Transfer of Activities, Data, and Material
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Appendix
1. Example of Monthly Dashboard and KPIs
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Schedule 4.8(b)
Approved Subcontractors
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Schedule 4.11(b)
Additional Data Integrity and Handling of Human Biological Samples Terms
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Schedule 6.7
Invoicing and Bank Details Format
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Schedule 8.5
Press Release
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Schedule 9.2
Spero Disclosure Schedules
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Schedule 9.2(a)
Spero Patents
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SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (this “Agreement”) dated as of September 21, 2022 (the “Effective Date”) is made by and between Spero Therapeutics, Inc., a Delaware corporation (the “Company”), and Glaxo Group Limited, a company organized under the laws of England and Wales (the “Purchaser”).
WHEREAS, the Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act;
WHEREAS, contemporaneously with the execution of this Agreement, the Company and the GlaxoSmithKline Intellectual Property (No. 3) Limited are entering into that certain exclusive license agreement (the “License Agreement”) containing the terms agreed by such parties to, among other matters, govern their strategic collaboration to develop, manufacture and commercialize the Compound (as defined in the License Agreement) in the Field (as defined in the License Agreement) and it is acknowledged by both parties that any premium on the market price paid for the Shares (as defined below) at the Effective Date is partial consideration for the rights granted by the Company to GlaxoSmithKline Intellectual Property (No. 3) Limited under the License Agreement; and
WHEREAS, Purchaser desires to purchase from the Company, and the Company desires to sell and issue to Purchaser, shares of the common stock of the Company, par value $0.001 per share (“Common Stock”), subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained in this Agreement, and for other good and valuable consideration, the parties hereby agree as follows:
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Purchaser agrees that it will, and will cause its Affiliates to, hold, and will not, and will cause its Affiliates not to, sell any of their respective shares of Common Stock (including the Shares) (or otherwise make any short sale of, grant any option for the purchase of or enter into any hedging or similar transaction with the same economic effect as a sale of such shares of Common Stock). The limitations in the immediately foregoing sentence shall remain in full force and effect for a period of: (A) with respect to 100% of the shares of Common Stock held by Purchaser and its Affiliates, eighteen (18) months from and after the Effective Date, and (B) with respect to 50% of the shares of Common Stock held by Purchaser and its Affiliates, twenty-four (24) months from and after the Effective Date. Notwithstanding the foregoing, this Section 6(a) will not preclude, and Purchaser and its Affiliates shall be permitted to transfer any portion or all of their respective shares of Common Stock at any time under, the following circumstances: (i) transfers to any general or limited partners, members, shareholders, Affiliates or wholly owned subsidiaries of the Purchaser or any investment fund or other entity controlled or managed by the Purchaser, but only if the transferee agrees in writing for the benefit of the Company to be bound by the terms of this Agreement; (ii) transfers that have been approved in writing by the Company;
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(iii) if, following the Closing Date, (A) Purchaser or its Affiliates exceed 20% ownership of the Company’s securities solely as a result of an action taken by the Company and (B) as a result of clause (A), Purchaser’s auditors determine that Company’s financial results must be consolidated with the Company’s in Purchaser’s financial statements pursuant to the principles of consolidation under International Financial Reporting Standards (“IFRS”), transfers made in order to reduce Purchaser’s and its Affiliates’ ownership of the Company’s voting securities to the greater of (y) 19.99% and (z) such amount as would not require such consolidation under IFRS; and (iv) sales of their respective shares of Common Stock by the Purchaser or its Affiliates to a third party not affiliated with Purchaser or any of its Affiliates pursuant to a bona fide tender offer made by such third party for outstanding shares of Common Stock.
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN SATISFIED OR THE COMPANY HAS RECEIVED A CERTIFICATE AND/OR AN OPINION OF COUNSEL THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION, AND FILINGS IN ALL SUCH JURISDICTIONS.”
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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CONDITIONS OF A SHARE PURCHASE AGREEMENT DATED SEPTEMBER 21, 2022, A COPY OF WHICH THE COMPANY WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.”
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if to the Company, to:
Spero Therapeutics, Inc.
675 Massachusetts Avenue, 14th Floor
Cambridge, MA 02139
Attention: Tamara Joseph, Esq., Chief Legal Officer
Email: tjoseph@sperotherapeutics.com
with a copy (which shall not constitute notice) to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Matthew J. Gardella, Esq. and Lewis J. Geffen, Esq.
Email: mgardella@mintz.com; ljgeffen@mintz.com
if to Purchaser, to:
Glaxo Group Limited
980 Great West Road
Brentford, Middlesex TW8 9GS
England
Attention: SVP & Corporate Secretary
Email: victoria.a.whyte@gsk.com
with a copy (which will not constitute notice) to:
GlaxoSmithKline
980 Great West Road
Brentford, Middlesex TW8 9GS
England
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Attention: VP & Head of Legal - Business Development & Corporate
Email: antony.r.braithwaite@gsk.com
with a copy (which will not constitute notice) to:
Troutman Pepper Hamilton Sanders LLP
3000 Two Logan Square
Philadelphia, Pennsylvania, 19103
Attention Rachael Bushey
Email: Rachael.bushey@troutman.com
Attention: Jennifer Porter
E-mail: Jennifer.porter@troutman.com
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[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Share Purchase Agreement as of the Effective Date.
SPERO THERAPEUTICS, INC.
By: /s/ Ankit Mahadevia
Name: Ankit Mahadevia
Title: Chief Executive Officer
GLAXO GROUP LIMITED
By: /s/ Marcus Dowding
Name: Marcus Dowding
Title: Authorized Signatory
Exhibit 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this “Agreement”) is made and entered into this 4th day of August 2022 (the “Effective Date”) by and between Spero Therapeutics, Inc., a Delaware corporation (“Company”), and Kamal Hamed (“Executive”).
WHEREAS, Executive and Company desire to set forth the terms and conditions for the employment of the Executive by the Company to assure the harmonious performance of the affairs of Company as well as to enter into a Proprietary Information and Inventions Assignment Agreement (the “Restrictive Covenant Agreement”).
NOW, THEREFORE, in consideration of the mutual promises, terms, provisions, and conditions contained herein, Company and Executive hereby agree as follows:
employment is being terminated as a result of Executive’s Disability, which termination shall be effective on the date of such notice or such later date as specified in writing by Company;
(30) days after the date of such notice.
Notwithstanding anything in this Section 2(b), Company may at any point, under the conditions set forth in Section 2(b)(ii)(B), terminate Executive’s employment for Cause prior to the effective date of any other termination contemplated hereunder; provided that if prior to the effective date of such for-Cause termination Executive has cured the circumstances giving rise to the Cause (if capable of being cured as provided in Section 2(d)), then such termination shall not be effective.
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Executive and Company, at Company’s expense, and the determination of such physician shall be final and binding upon both Executive and Company. Executive hereby consents to such examination and consultation by a physician. Company shall keep all information it receives as a result of such inquiry and determination confidential and shall not use it for any purpose other than in connection with exercising its rights under this Agreement.
(i) relocation of Executive’s principal business location to a location more than thirty (30) miles from Executive’s then-current business location; (ii) a material diminution in Executive’s duties, authority or responsibilities; (iii) a material reduction in Executive’s Base Salary; or (iv) willful and material breach by Company of its covenants and/or obligations under this Agreement; provided that, in each of the foregoing clauses (i) through (iv) (A) Executive provides Company with written notice that Executive intends to terminate Executive’s employment hereunder for one of the grounds set forth in this Section 2(e) within thirty (30) days of such ground occurring, (B) if such ground is capable of being cured, Company has failed to cure such ground within a period of thirty (30) days from the date of such written notice, and (C) Executive terminates by written notice Executive’s employment within sixty-five (65) days from the date that Executive provides the notice contemplated by clause (A) of this Section 2(e). For purposes of clarification, the above-listed conditions shall apply separately to each occurrence of Good Reason, and failure to adhere to such conditions in the event of Good Reason shall not disqualify Executive from asserting Good Reason for any subsequent occurrence of Good Reason. In addition, Executive may terminate Executive’s employment for Good Reason within one (1) year following a Change of Control (as defined below) if, after the Change of Control, Executive is not an executive of the parent company, provided that Executive’s roles, responsibilities and scope of authority within the subsidiary are not comparable to Executive’s roles, responsibilities and scope of authority with Company prior to the Change of Control. For purposes of this Agreement, “Good Reason” shall be interpreted in a manner, and limited to the extent necessary, so that it shall not cause adverse tax consequences for either party with respect to Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”) and any successor statute, regulation and guidance thereto.
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any other such policy required by applicable law.
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customary and required taxes and employment-related deductions, in accordance with Company’s normal payroll practices (provided such payments shall be made at least monthly), commencing on the first payroll date following the date on which the Release required by Section 4(g) becomes effective and non-revocable, but not after seventy (70) days following the effective date of termination from employment; provided, that if the 70th day falls in the calendar year following the year during which the termination or separation from service occurred, then the payments shall commence in such subsequent calendar year; provided further that if such payments commence in such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have come due since Employee’s separation from service.
(i) twelve (12) months following Executive’s termination date, or (ii) the date Executive becomes eligible for medical benefits with another employer. Notwithstanding the foregoing, if Executive’s COBRA Payment would cause the applicable group health plan to be discriminatory and, therefore, result in adverse tax consequences to Executive, Company shall, in lieu of the COBRA Payment, provide Executive with an equivalent monthly cash payment, minus deduction of all amounts required to be deducted or withheld under applicable law, for any period of time Executive is eligible to receive the COBRA Payment. Executive shall bear full responsibility for applying for COBRA continuation coverage and Company shall have no obligation to provide Executive such coverage if Executive fails to elect COBRA benefits in a timely fashion.
Payment of the above-described severance payments and benefits is expressly conditioned on Executive’s execution without revocation of the Release and return of Company property under Section 6.
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Reason, then, in addition to the Accrued Obligations and any accrued and unpaid Annual Performance Bonus for the prior fiscal year, Executive shall receive the following, subject to the terms and conditions described in Section 4(g) (including Executive’s execution of the Release):
Payment of the above-described severance payments and benefits are expressly conditioned on Executive’s execution without revocation of a separation agreement in a form provided by and acceptable to the Company as set forth in (g) below. In the event that Executive is eligible for the severance payments and benefits under this Section 4(f), Executive shall not be eligible for any of the severance payments and benefits as provided in Section 4(e).
As used herein, a “Change of Control” shall mean the occurrence of any of the following events: (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in
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Rule 13d-3 under said Act), directly or indirectly, of securities of Company representing fifty percent (50%) or more of the total voting power represented by Company’s then outstanding voting securities (excluding for this purpose any such voting securities held by Company, or any affiliate, parent or subsidiary of Company, or by any employee benefit plan of Company) pursuant to a transaction or a series of related transactions; or (ii) Merger/Sale of Assets. (A) A merger or consolidation of Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least fifty percent (50%) of the total voting power represented by the voting securities of Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; (B) or Company’s stockholders approve an agreement for the sale or disposition by Company of all or substantially all of Company’s assets; or (iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of Company as of the date of this Agreement, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors, or by a committee of the Board made up of at least a majority of the Incumbent Directors, at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors).
(b) shall be the sole remedy, if any, available to Executive in the event that Executive brings any claim against Company relating to the termination of Executive’s employment under this Agreement; and (c) shall not be subject to set-off by Company or any obligation on the part of Executive to mitigate or to offset compensation earned by Executive in other pursuits after termination of employment, other than as specified herein with respect to medical benefits provided by another employer.
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(a) return to Company all tangible business information and copies thereof (regardless how such Confidential Information or copies are maintained), and (b) deliver to Company any property of Company which may be in Executive’s possession, including, but not limited to, Blackberry-type devices, smart phones, laptops, cell phones (the foregoing, “electronic devices”), products, materials, memoranda, notes, records, reports or other documents or photocopies of the same. Executive may retain copies of any exclusively personal data contained in or on Company-owned electronic devices returned to Company pursuant to the foregoing. The foregoing notwithstanding, Executive understands and agrees that Company property belongs exclusively to Company, it should be used for Company business, and Executive has no reasonable expectation of privacy on any Company property or with respect to any information stored thereon.
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675 Massachusetts Ave., 14th Floor Cambridge, MA 02139
Attn: CEO
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[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
KAMAL HAMED
/s/ Kamal Hamed____________________ Signature
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SPERO THERAPEUTICS, INC.
By: _/s/ Ankit Mahadevia_________________ Name: Ankit Mahadevia Title: Chief Executive Officer |
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Exhibit 10.6
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (the “Amendment”) is made and entered effective as of November 10, 2022 (the “Effective Date”) by and between Spero Therapeutics, Inc., a Delaware corporation (“Company”), and Ankit Mahadevia, M.D. (“Executive”) (each a “Party” and collectively, the “Parties”).
BACKGROUND
WHEREAS, Company currently employs Executive under the terms of an Executive Employment Agreement dated October 20, 2017 (the “Employment Agreement”);
WHEREAS, Company desires to amend certain terms upon which it engages Executive in accordance with the Employment Agreement and this Amendment; and
WHEREAS, Executive is willing to serve as such in accordance with the terms and conditions of the Employment Agreement and this Amendment.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Employment Agreement as follows:
(d) Flexible Time Off. In addition to standard paid holidays, all Spero employees may take time off as needed and appropriate under the circumstances, including for vacation and personal time, consistent with the Company’s Flexible Time Off (“FTO”) Policy. While the Company does not require a minimum amount of FTO be taken for planned vacation each year, or impose a pre-determined maximum vacation amount, you are encouraged to take at least 15 days of FTO per year. And, as general guidelines, FTO should be generally capped at 25 days per calendar year.
“(i) Lump Sum Severance Payment. Payment of a lump sum amount equal to eighteen (18) months of Executive’s then-current Base Salary plus the Executive’s then-current target performance bonus, less all customary and required taxes and employment-related deductions, paid on the first payroll date following the date on which the Release required by Paragraph 4(g) becomes effective and non-revocable, but not after seventy (70) days following the effective date of termination from employment.
This Amendment may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. For all purposes, an electronic signature shall be treated as an original.
[signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
COMPANY:
Spero Therapeutics, Inc.
By: /s/ Milind Deshpande_________________
Name: Milind Deshpande
Title: Board Chair
EXECUTIVE:
ANKIT MAHADEVIA, M.D.
_/s/ Ankit Mahadevia, M.D.________________
[Signature Page to Amendment to Executive Employment Agreement]
Exhibit 10.7
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (the “Amendment”) is made and entered effective as of November 10, 2022 (the “Effective Date”) by and between Spero Therapeutics, Inc., a Delaware corporation (“Company”), and Satyavrat Shukla (“Executive”) (each a “Party” and collectively, the “Parties”).
BACKGROUND
WHEREAS, Company currently employs Executive under the terms of an Executive Employment Agreement dated December 9, 2020 (the “Employment Agreement”);
WHEREAS, Company desires to amend certain terms upon which it engages Executive in accordance with the Employment Agreement and this Amendment; and
WHEREAS, Executive is willing to serve as such in accordance with the terms and conditions of the Employment Agreement and this Amendment.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Employment Agreement as follows:
(d) Flexible Time Off. In addition to standard paid holidays, all Spero employees may take time off as needed and appropriate under the circumstances, including for vacation and personal time, consistent with the Company’s Flexible Time Off (“FTO”) Policy. While the Company does not require a minimum amount of FTO be taken for planned vacation each year, or impose a pre-determined maximum vacation amount, you are encouraged to take at least 15 days of FTO per year. And, as general guidelines, FTO should be generally capped at 25 days per calendar year.
“(i) Lump Sum Severance Payment. Payment of a lump sum amount equal to twelve (12) months of Executive’s then-current Base Salary plus the Executive’s then-current target performance bonus, less all customary and required taxes and employment-related deductions, paid on the first payroll date following the date on which the Release required by Paragraph 4(g) becomes effective and non-revocable, but not after seventy (70) days following the effective date of termination from employment.
This Amendment may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. For all purposes, an electronic signature shall be treated as an original.
[signatures appear on following page]
2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
COMPANY:
Spero Therapeutics, Inc.
By: /s/ Ankit Mahadevia_____________
Name: Ankit Mahadevia
Title: CEO
EXECUTIVE:
Satyavrat Shukla
_/s/ Satyavrat Shukla__________________
[Signature Page to Amendment to Executive Employment Agreement]
Exhibit 10.8
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (the “Amendment”) is made and entered effective as of November 10, 2022 (the “Effective Date”) by and between Spero Therapeutics, Inc., a Delaware corporation (“Company”), and Kamal Hamed, M.D., M.P.H., M.B.A. (“Executive”) (each a “Party” and collectively, the “Parties”).
BACKGROUND
WHEREAS, Company currently employs Executive under the terms of an Executive Employment Agreement dated August 4, 2022 (the “Employment Agreement”);
WHEREAS, Company desires to amend certain terms upon which it engages Executive in accordance with the Employment Agreement and this Amendment; and
WHEREAS, Executive is willing to serve as such in accordance with the terms and conditions of the Employment Agreement and this Amendment.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Employment Agreement as follows:
“(i) Lump Sum Severance Payment. Payment of a lump sum amount equal to twelve (12) months of Executive’s then-current Base Salary plus the Executive’s then-current target performance bonus, less all customary and required taxes and employment-related deductions, paid on the first payroll date following the date on which the Release required by Paragraph 4(g) becomes effective and non-revocable, but not after seventy (70) days following the effective date of termination from employment.
This Amendment may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. For all purposes, an electronic signature shall be treated as an original.
[signatures appear on following page]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
COMPANY:
Spero Therapeutics, Inc.
By: /s/ Ankit Mahadevia_____________
Name: Ankit Mahadevia
Title: CEO
EXECUTIVE:
Kamal Hamed, M.D., M.P.H., M.B.A.
_/s/ Kamal Hamed, M.D., M.P.H., M.B.A.__
[Signature Page to Amendment to Executive Employment Agreement]
Exhibit 10.9
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (the “Amendment”) is made and entered effective as of November 10, 2022 (the “Effective Date”) by and between Spero Therapeutics, Inc., a Delaware corporation (“Company”), and Timothy Keutzer (“Executive”) (each a “Party” and collectively, the “Parties”).
BACKGROUND
WHEREAS, Company currently employs Executive under the terms of an Executive Employment Agreement dated January 1, 2020 (the “Employment Agreement”);
WHEREAS, Company desires to amend certain terms upon which it engages Executive in accordance with the Employment Agreement and this Amendment; and
WHEREAS, Executive is willing to serve as such in accordance with the terms and conditions of the Employment Agreement and this Amendment.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Employment Agreement as follows:
(d) Flexible Time Off. In addition to standard paid holidays, all Spero employees may take time off as needed and appropriate under the circumstances, including for vacation and personal time, consistent with the Company’s Flexible Time Off (“FTO”) Policy. While the Company does not require a minimum amount of FTO be taken for planned vacation each year, or impose a pre-determined maximum vacation amount, you are encouraged to take at least 15 days of FTO per year. And, as general guidelines, FTO should be generally capped at 25 days per calendar year.
“(i) Lump Sum Severance Payment. Payment of a lump sum amount equal to twelve (12) months of Executive’s then-current Base Salary plus the Executive’s then-current target performance bonus, less all customary and required taxes and employment-related deductions, paid on the first payroll date following the date on which the Release required by Paragraph 4(g) becomes effective and non-revocable, but not after seventy (70) days following the effective date of termination from employment.
This Amendment may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. For all purposes, an electronic signature shall be treated as an original.
[signatures appear on following page]
2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
COMPANY:
Spero Therapeutics, Inc.
By: /s/ Ankit Mahadevia_____________
Name: Ankit Mahadevia
Title: CEO
EXECUTIVE:
Timothy Keutzer
_/s/ Timothy Keutzer__________________
[Signature Page to Amendment to Executive Employment Agreement]
Exhibit 10.10
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (the “Amendment”) is made and entered effective as of November 10, 2022 (the “Effective Date”) by and between Spero Therapeutics, Inc., a Delaware corporation (“Company”), and Tamara Joseph (“Executive”) (each a “Party” and collectively, the “Parties”).
BACKGROUND
WHEREAS, Company currently employs Executive under the terms of an Executive Employment Agreement dated November 6, 2020 (the “Employment Agreement”);
WHEREAS, Company desires to amend certain terms upon which it engages Executive in accordance with the Employment Agreement and this Amendment; and
WHEREAS, Executive is willing to serve as such in accordance with the terms and conditions of the Employment Agreement and this Amendment.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Employment Agreement as follows:
(d) Flexible Time Off. In addition to standard paid holidays, all Spero employees may take time off as needed and appropriate under the circumstances, including for vacation and personal time, consistent with the Company’s Flexible Time Off (“FTO”) Policy. While the Company does not require a minimum amount of FTO be taken for planned vacation each year, or impose a pre-determined maximum vacation amount, you are encouraged to take at least 15 days of FTO per year. And, as general guidelines, FTO should be generally capped at 25 days per calendar year.
“(i) Lump Sum Severance Payment. Payment of a lump sum amount equal to twelve (12) months of Executive’s then-current Base Salary plus the Executive’s then-current target performance bonus, less all customary and required taxes and employment-related deductions, paid on the first payroll date following the date on which the Release required by Paragraph 4(g) becomes effective and non-revocable, but not after seventy (70) days following the effective date of termination from employment.
This Amendment may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. For all purposes, an electronic signature shall be treated as an original.
[signatures appear on following page]
2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
COMPANY:
Spero Therapeutics, Inc.
By: /s/ Ankit Mahadevia_____________
Name: Ankit Mahadevia
Title: CEO
EXECUTIVE:
TAMARA JOSEPH
_/s/ Tamara Joseph__________________
[Signature Page to Amendment to Executive Employment Agreement]
Exhibit 31.1
CERTIFICATIONS UNDER SECTION 302
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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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 14, 2022
/s/ Ankit Mahadevia, M.D. |
Ankit Mahadevia, M.D. |
President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS UNDER SECTION 302
I, Satyavrat Shukla, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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 14, 2022
/s/ Satyavrat Shukla |
Satyavrat Shukla |
Chief Financial Officer and Treasurer |
(Principal Financial Officer) |
Exhibit 32
CERTIFICATIONS UNDER SECTION 906
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Spero Therapeutics, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report for the quarter ended September 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 14, 2022 |
/s/ Ankit Mahadevia, M.D. |
|
Ankit Mahadevia, M.D. |
|
President and Chief Executive Officer |
|
(Principal Executive Officer) |
Dated: November 14, 2022 |
/s/ Satyavrat Shukla |
|
Satyavrat Shukla |
|
Chief Financial Officer and Treasurer |
|
(Principal Financial Officer) |