SPRO

Business Context and Reporting Period

Company: Spero Therapeutics, Inc. (SPRO)
Filing Type: Form 8-K (Current Report)
Date of Report: September 21, 2022
Reporting Period: Event-based report regarding agreements executed on September 21, 2022.

Spero Therapeutics, a biopharmaceutical company, entered into a material definitive license agreement and a concurrent stock purchase agreement with affiliates of GlaxoSmithKline (GSK) regarding its lead asset, tebipenem HBr.

Key Financial Metrics and Transaction Terms

This filing details a strategic partnership rather than standard periodic financial results. Key financial terms include:

• Upfront Payment: $66 million payable by GSK to Spero upon closing.
• Stock Purchase: GGL (GSK affiliate) to purchase 7,450,000 shares of Spero common stock for approximately $9.0 million ($1.20805 per share).
• Total Potential Milestone Payments: Up to $525 million in aggregate, contingent on development and commercial success.
• Royalties: Tiered royalties ranging from low-single-digit to low-double-digit percentages on net product sales.

Milestone Breakdown:

Liquidity and Debt: The filing does not provide current cash balance, debt levels, or liquidity metrics. The transaction is expected to provide significant capital upon closing.

Material Changes and Transaction Structure

The primary material change is the entry into the License Agreement and Share Purchase Agreement (SPA) with GSK.

• Licensing Scope: Spero granted GSK an exclusive, royalty-bearing license to develop, manufacture, and commercialize tebipenem pivoxil and tebipenem HBr globally, excluding specific Asian countries (the "Meiji Territory") previously licensed to Meiji Seika Pharma.
• Development Responsibilities: Spero retains responsibility and costs for the follow-up Phase III clinical trial in the United States. GSK assumes responsibility and costs for further development, regulatory filing, and commercialization outside the U.S. within the GSK Territory.
• Supply Chain: Spero will provide and pay for clinical supply; GSK will cover commercial supply costs.
• Restrictions: Spero is restricted from developing, manufacturing, or commercializing any oral carbapenem or oral antibiotic for cUTI during the Royalty Term.

Guidance, Outlook, and Risks

Closing Conditions and Timeline:

• Transactions are subject to customary closing conditions, including the expiration of the Hart-Scott-Rodino (HSR) Act waiting period.
• Either party may terminate if the HSR waiting period is not resolved by March 21, 2023.
• Parties expect closing to occur in the fourth quarter of 2022.

Investor Protections and Restrictions (SPA):

• Standstill: GGL cannot acquire additional shares or propose a merger for one year without consent.
• Lock-Up: GGL cannot sell shares for 24 months (50% of shares unlock after 18 months).
• Registration Rights: GGL has rights to require a secondary registration statement after 15 months if Rule 144 restrictions apply.

Risks and Contingencies:

• Termination Penalties: If GSK terminates due to Spero's breach, GSK may assume U.S. development (stopping payments) and reduce future milestones/royalties by 50%.
• Meiji Territory Rights: If Spero's license with Meiji is terminated, GSK has a first right to negotiate rights in those Asian countries.
• Unregistered Securities: The shares sold to GGL are unregistered and cannot be resold in the U.S. absent registration or an exemption.

Key Facts for Investor Verification

• Verify the closing date of the transaction to confirm the receipt of the $66 million upfront payment and $9 million equity investment.
• Monitor the status of the HSR Act waiting period to ensure the deal is not terminated by the March 21, 2023 deadline.
• Review the upcoming Form 10-Q for the quarter ending September 30, 2022, for the full text of the License Agreement and SPA, including confidential portions.
• Assess the impact of the "non-compete" restriction on Spero's ability to develop other oral carbapenems or cUTI antibiotics.
• Track the progress of the Phase III clinical trial in the U.S., which remains Spero's financial and operational responsibility.