| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the
reporting periods. Significant estimates and assumptions reflected
in these consolidated financial statements include, but are not
limited to, revenue recognition, the accrual for research and
development expenses, the valuation of common shares prior to the
Company’s completion of its IPO, the valuation of share-based
awards and the valuation of derivative liabilities. The Company
bases its estimates on historical experience, known trends and
other market-specific or other relevant factors that it believes to
be reasonable under the circumstances. On an ongoing basis,
management evaluates its estimates, as there are changes in
circumstances, facts and experience. Actual results may differ from
those estimates or assumptions.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at the date of purchase to be
cash equivalents.
Marketable Securities
Marketable securities consist of investments with original
maturities greater than 90 days. The Company considers its
investment portfolio of investments to be available-for-sale.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under
GAAP. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the
use of unobservable inputs. Financial assets and liabilities
carried at fair value are to be classified and disclosed in one of
the following three levels of the fair value hierarchy, of which
the first two are considered observable and the last is considered
unobservable:
• Level 1—Quoted prices in active
markets for identical assets or liabilities.
• Level 2—Observable inputs
(other than Level 1 quoted prices), such as quoted prices in
active markets for similar assets or liabilities, quoted prices in
markets that are not active for identical or similar assets or
liabilities, or other inputs that are observable or can be
corroborated by observable market data.
• Level 3—Unobservable inputs
that are supported by little or no market activity and that are
significant to determining the fair value of the assets or
liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
The Company’s cash equivalents and derivative liabilities are
carried at fair value, determined according to the fair value
hierarchy described above (see Note 3). The carrying values of the
Company’s accounts payable and accrued expenses approximate
their fair values due to the short-term nature of these
liabilities.
Derivative Liabilities
In connection with certain equity financings, licensing
transactions and research collaborations, the Company has
identified certain embedded and freestanding derivatives, which are
recorded as liabilities on the Company’s consolidated balance
sheet and are remeasured to fair value at each reporting date until
the derivative is settled. Changes in the fair value of the
derivative liabilities are recognized as other income (expense) in
the consolidated statement of operations and comprehensive
loss.
Net Income (Loss) per Share Attributable to Spero
Therapeutics, Inc.
The Company follows the two-class method The two-class method The two-class method to non-controlling interests.
Basic net income (loss) per share attributable to common
stockholders is computed by dividing the net income (loss)
attributable to common stockholders by the weighted average number
of shares of common stock outstanding for the period. Diluted net
income (loss) attributable to common stockholders is computed by
adjusting net income (loss) attributable to common stockholders to
reallocate undistributed earnings based on the potential impact of
dilutive securities. Diluted net income (loss) per share
attributable to common stockholders is computed by dividing the
diluted net income (loss) attributable to common stockholders by
the weighted average number of common shares outstanding for the
period, including potential dilutive common shares assuming the
dilutive effect of common stock equivalents.
The Company’s preferred stock contractually entitles the
holders of such shares to participate in dividends but does not
contractually require the holders of such shares to participate in
losses of the Company. Accordingly, in periods in which the Company
reports a net loss, such losses are not allocated to such
participating securities. In periods in which the Company reports a
net loss attributable to common stockholders of Spero Therapeutics,
Inc., diluted net loss per share attributable to common
stockholders of Spero Therapeutics, Inc. is the same as basic net
loss per share attributable to common stockholders of Spero
Therapeutics, Inc., since dilutive common shares are not assumed to
have been issued if their effect is anti-dilutive. The Company
reported a net loss attributable to common stockholders of Spero
Therapeutics, Inc. for the three months ended March 31, 2018
and 2017.
Recently Issued and Adopted Accounting
Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers (Topic 606) (“ASU 2014-09”), which ASU 2014-09 also ASU 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date ASU 2014-09 such ASU No. 2016-08, Revenue
from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (“ASU 2016-08”), which ASU 2014-09. In ASU No. 2016-10, Revenue
from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensin ASU No. 2016-12, Revenue
from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients (“ASU 2016-12”), which non-cash consideration, ASU 2014-09 is ASU 2016-08, ASU 2016-10 and ASU 2016-12 have ASU 2014-09.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842 2016-02”), right-of-use 2016-02
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash
Flows: Classification of Certain Cash Receipts and Cash
Payments 2016-15”), 2016-15
In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows
(Topic 230) 2016-18”), beginning-of-period end-of-period 2016-18 2016-18
In January 2017, FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business 2017-01”). 2017-01
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting 2017-09”), 2017-09
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic
260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815) I. Accounting for Certain
Financial Instruments with Down Round Features II. Replacement of
the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception non-controlling 2017-11 2017-11 | 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, the accrual for research and development expenses, the
valuation of common shares prior to the Company’s IPO, the
valuation of share-based awards and the valuation of derivative
liabilities. The Company bases its estimates on historical
experience, known trends and other market-specific or other
relevant factors that it believes to be reasonable under the
circumstances. On an ongoing basis, management evaluates its
estimates, as there are changes in circumstances, facts and
experience. Actual results may differ from those estimates or
assumptions.
Consolidation
The Company consolidates entities in which it has a controlling
financial interest. The Company evaluates each of its subsidiaries
to determine whether the entity represents a variable interest
entity (“VIE”), for which consolidation should be
evaluated under the VIE model, or, alternatively, if the entity is
a voting interest entity, for which consolidation should be
evaluated using the voting interest model. The Company has
concluded that none of its subsidiaries is a VIE and has
consolidated each subsidiary under the voting interest model
because it has majority voting control of each subsidiary.
Ownership interests in the Company’s subsidiaries that are
held by entities other than the Company are reported
as non-controlling non-controlling
As of December 31, 2016, the Company consolidated the
following subsidiaries that were not wholly owned:
Subsidiary Relationship Country Domiciled Year of Inclusion
Spero Potentiator, Inc. Controlling interest United States 2014
Spero Europe, Ltd. Controlling interest United Kingdom 2015
Spero Gyrase, Inc. Controlling interest United States 2016
Spero Cantab, Inc. Controlling interest United States 2016
All of the non-controlling
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.
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and
other third-party fees that are directly associated
with in-process paid-in
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 equivalents consisted of money market funds
at December 31, 2017. The Company did not have any cash
equivalents as of December 31, 2016.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization
expense is 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
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.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. 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. The Company did not record any impairment
losses on long-lived assets during the years ended
December 31, 2017, 2016 or 2015.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under
GAAP. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the
use of unobservable inputs. Financial assets and liabilities
carried at fair value are to be classified and disclosed in one of
the following three levels of the fair value hierarchy, of which
the first two are considered observable and the last is considered
unobservable:
• Level 1—Quoted prices in active
markets for identical assets or liabilities.
•
Level 2—Observable inputs (other than
Level 1 quoted prices), such as quoted prices in active
markets for similar assets or liabilities, quoted prices in markets
that are not active for identical or similar assets or liabilities,
or other inputs that are observable or can be corroborated by
observable market data.
• Level 3—Unobservable inputs
that are supported by little or no market activity and that are
significant to determining the fair value of the assets or
liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
The Company’s cash equivalents and derivative liabilities are
carried at fair value, determined according to the fair value
hierarchy described above (see Note 3). The carrying values of the
Company’s accounts payable and accrued expenses approximate
their fair values due to the short-term nature of these
liabilities.
Derivative Liabilities
In connection with certain equity financings, licensing
transactions and research collaborations, the Company has
identified certain embedded and freestanding derivatives, which are
recorded as liabilities on the Company’s consolidated balance
sheet and are remeasured to fair value at each reporting date until
the derivative is settled. Changes in the fair value of the
derivative liabilities are recognized as other income (expense) in
the consolidated statement of operations and comprehensive
loss.
Classification and Accretion of Bridge Units and Redeemable
Convertible Preferred Shares
The Company has classified bridge units and redeemable
convertible preferred shares outside of stockholders’
equity (deficit) because the shares contain certain redemption
features that are not solely within the control of the Company. The
carrying values of these instruments are accreted to their
respective redemption values from the date of issuance through the
earliest date of redemption.
Segment Information
The Company manages its operations as a single segment for the
purposes of assessing performance and making operating decisions.
The Company’s singular focus is on identifying, developing
and commercializing novel treatments for MDR bacterial infections.
All of the Company’s tangible assets are held in the United
States.
Government Contracts and Revenue Recognition
The Company generates revenue from government contracts that
reimburse the Company for certain allowable costs for funded
projects. For contracts with government agencies, when the Company
has concluded that it is the principal in conducting the research
and development expenses and where the funding arrangement is
considered central to the Company’s ongoing operations, the
Company classifies the recognized funding received as revenue.
The Company has concluded to recognize funding received from the
U.S. Department of Defense (“DoD”), the National
Institute of Allergy and Infectious Diseases (“NIAID”)
of the National Institutes of Health (“NIH”) and
Combating Antibiotic Resistant Bacteria Biopharmaceutical
Accelerator (“CARB-X”)
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 43.5% tax incentive for qualifying research and
development activities (see Note 14). 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.
Collaboration Agreements
For collaboration agreements with a third party, to determine the
appropriate statement of operations classification of the
recognized funding, the Company first assesses whether the
collaboration arrangement is within the scope of the accounting
guidance for collaboration arrangements. If it is, the Company
evaluates the collaborative arrangement for proper classification
in the statement of operations based on the nature of the
underlying activity and the Company assesses the payments to and
from the collaborative partner. If the payments to and from the
collaborative partner are not within the scope of other
authoritative accounting guidance, the Company bases the statement
of operations classification for the payments received on a
reasonable, rational analogy to authoritative accounting guidance,
applied in a consistent manner. Conversely, if the collaboration
arrangement is not within the scope of accounting guidance for
collaboration arrangements, the Company assesses whether the
collaboration arrangement represents a vendor/customer
relationship. If the collaborative arrangement does not represent a
vendor/customer relationship, the Company then classifies the
funding payments received in the statement of operations and
comprehensive loss as a reduction of the related expense that is
incurred.
In 2014, the Company entered into a research and development
services and support agreement with Hoffmann-La co-funded
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 salaries,
share-based compensation and benefits, facilities costs,
depreciation, manufacturing expenses and external costs of outside
vendors engaged to conduct preclinical development activities and
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. Nonrefundable 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.
Research Contract Costs and Accruals
The Company has entered into various research and development
contracts with research institutions 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. The Company records accruals
for estimated ongoing research costs. When evaluating the adequacy
of the accrued liabilities, the Company analyzes progress of the
studies or trials, including the phase or completion of events,
invoices received and contracted costs. Significant judgments and
estimates are made in determining the accrued balances at the end
of any reporting period. Actual results could differ from the
Company’s estimates. The Company’s historical accrual
estimates have not been materially different from the actual
costs.
Patent Costs
All patent-related costs incurred in connection with filing and
prosecuting patent applications are expensed as incurred due to the
uncertainty about the recovery of the expenditure. Amounts incurred
are classified as general and administrative expenses.
Share-Based Compensation
The Company measures all share-based awards granted to employees
and directors based on the fair value on the date of grant using
the Black-Scholes option-pricing model. Compensation expense of
those awards is recognized over the requisite service period, which
is generally the vesting period of the respective award. Generally,
the Company issues awards with only service-based vesting
conditions and records the expense for these awards using the
straight-line method.
For share-based awards granted to non-employee
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.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in
stockholders’ equity (deficit) that result from transactions
and economic events other than those with shareholders. There was
no difference between net loss and comprehensive loss for each of
the periods presented in the accompanying consolidated financial
statements.
Net Income (Loss) per Share Attributable to Spero
Therapeutics, Inc.
The Company follows the two-class two-class two-class non-controlling
Basic net income (loss) per share attributable to common
stockholders is computed by dividing the net income (loss)
attributable to common stockholders by the weighted average number
of shares of common stock outstanding for the period. Diluted net
income (loss) attributable to common stockholders is computed by
adjusting net income (loss) attributable to common stockholders to
reallocate undistributed earnings based on the potential impact of
dilutive securities. Diluted net income (loss) per share
attributable to common stockholders is computed by dividing the
diluted net income (loss) attributable to common stockholders by
the weighted average number of common shares outstanding for the
period, including potential dilutive common shares assuming the
dilutive effect of common stock equivalents.
The Company’s preferred stock contractually entitles the
holders of such shares to participate in dividends but does not
contractually require the holders of such shares to participate in
losses of the Company. Accordingly, in periods in which the Company
reports a net loss, such losses are not allocated to such
participating securities. In periods in which the Company reports a
net loss attributable to common stockholders of Spero Therapeutics,
Inc., diluted net loss per share attributable to common
stockholders of Spero Therapeutics, Inc. is the same as basic net
loss per share attributable to common stockholders of Spero
Therapeutics, Inc., since dilutive common shares are not assumed to
have been issued if their effect is anti-dilutive. The Company
reported a net loss attributable to common stockholders of Spero
Therapeutics, Inc. for the years ended December 31, 2017, 2016
and 2015.
Income Taxes
The Company accounts for income taxes using the asset and liability
method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the consolidated financial statements or in
the Company’s tax returns. Deferred tax assets and
liabilities are determined on the basis of the differences between
the financial statements and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse. Changes in deferred tax assets
and liabilities are recorded in the provision for income taxes. The
Company assesses the likelihood that its deferred tax assets will
be recovered from future taxable income and, to the extent it
believes, based upon the weight of available evidence, that it is
more likely than not that all or a portion of the deferred tax
assets will not be realized, a valuation allowance is established
through a charge to income tax expense. Potential for recovery of
deferred tax assets is evaluated by estimating the future taxable
profits expected and considering prudent and feasible tax planning
strategies.
The Company accounts for uncertainty in income taxes recognized in
the consolidated financial statements by applying
a two-step more-likely-than-not
Recently Adopted Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board
(“FASB”) issued ASU No. 2014-15, Disclosure
of Uncertainties about an Entity’s Ability to Continue as a
Going
Concern 2014-15”). 2014-15
In November 2014, the FASB issued
ASU No. 2014-16, Determining
Whether the Host Contract in a Hybrid Financial Instrument Issued
in the Form of a Share Is More Akin to Debt or to
Equity 2014-16”).
In November 2015, the FASB issued
ASU No. 2015-17, Income Taxes
(Topic 740): Balance Sheet Classification of Deferred
Taxes 2015-17”), non-current ASU 2015-17 2015-17
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment
Accounting 2016-09”). 2016-09 2016-09 2016-09
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers (Topic 606) (“ASU 2014-09”), which ASU 2014-09 also ASU 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date ASU 2014-09 such ASU No. 2016-08, Revenue
from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (“ASU 2016-08”), which ASU 2014-09. In ASU No. 2016-10, Revenue
from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensin ASU No. 2016-12, Revenue
from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients (“ASU 2016-12”), which non-cash consideration, ASU 2014-09 is ASU 2016-08, ASU 2016-10 and ASU 2016-12 have ASU 2014-09. The
In February 2016, the FASB issued
ASU No. 2016-02, Leases
(Topic 842 2016-02”), right-of-use 2016-02
In August 2016, the FASB issued ASU No. 2016-15, Statement
of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments 2016-15”), 2016-15
In November 2016, the FASB issued
ASU 2016-18 Statement
of Cash Flows (Topic
230) 2016-18”), beginning-of-period end-of-period 2016-18 2016-18
In January 2017, FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business 2017-01”). 2017-01
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock
Compensation (Topic 718): Scope of Modification
Accounting 2017-09”), 2017-09
In July 2017, the FASB issued ASU 2017-11, Earnings
Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for
Certain Financial Instruments with Down Round Features II.
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception 2017-11 2017-11 |
