Good afternoon and welcome to the Spero Therapeutics' Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. Following the company's formal remarks, we will open up the call for questions. Please be advised that this call is being recorded and a replay will be available. You can find information on the replay and further information related to today's announcement on the Spero Therapeutics website, www.sperotherapeutics.com. At this time, I would like to turn the conference call over to Ted Jenkins, Vice President Investor Relations and Strategic Finance at Spero Therapeutics. Mr. Jenkins please go ahead.

Thank you, operator and thank you all for participating in today's conference call. This afternoon Spero Therapeutics released financial results and provided a pipeline update for the third quarter of 2022. A press release is available on the Investor page of the Spero Therapeutics website. Before we begin, I'd like to remind you that some of the information presented on this conference call contains forward-looking statements based on our current expectations including statements about the future development and commercialization of SPR720, SPR206, and tebipenem HBr; and the design initiation timing, progress, and results of the company's preclinical studies and clinical trials and its research and development programs; management's assessment of the results of such preclinical studies and clinical trials; the company's cash forecast and anticipated expenses and its sufficiency of its cash resources. Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Spero Therapeutics' filings with the SEC including in the risk factor section of our quarterly report on Form 10-Q for the quarter ended September 30th, 2022 filed today. These forward-looking statements speak only as of the date of this conference call and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the company after the date of today's call. Participating in today's call are Dr. Ankit Mahadevia, Chief Executive Officer; Dr. Kamal Hamed, Chief Medical Officer; and Sat Shukla, our Chief Financial Officer. With that I'd like to turn the call over to Dr. Ankit Mahadevia. Please go ahead Ankit.

Thank you, Ted and good afternoon to everyone who's joined us for a discussion of our third quarter financial results and company highlights. The third quarter was an exciting time for Spero as we successfully executed on our new strategic direction that we set forward in the second quarter. When it became clear that tebipenem would not receive FDA approval on its first cycle of review, the strategy we laid out was to move forward with SPR720 as our lead asset and advanced tebipenem HBR and SPR206 as our designated partnership-directed programs. We made this decision because we felt it would position us for future growth, allow us to maintain good stewardship of our capital, and ensure the medicines that we develop continue to advance towards potential regulatory approval. In addition, our long track record of establishing creative partnerships with leading organizations gave us confidence that we will be able to successfully execute our new strategic approach. Our confidence and our approach were validated this past September when we entered into an exclusive license agreement with GSK for tebipenem HBR. As delineated in last week's press release we have now closed this transaction. Spero has already received the $9 million associated with GSK's equity investment and will soon receive the $66 million upfront payment and will be eligible for up to $525 million in additional milestone payments as well as low single-digit to low double-digit tiered royalties on net product sales. This collaboration adds even more strength to our balance sheet and shareholder base. In exchange for the upfront payment and potential milestones and royalties, GSK is being granted an exclusive license to develop and commercialize tebipenem HBr in all territories except Japan and certain other Asian countries, which will be retained by Spero's partner, Meiji Seika. Under the agreement,…

Thank you very much Ankit for the kind introduction. The core drivers behind my decision to join Spero were the clear strength of its pipeline, the integrity and expertise of the management team, as well as the guiding principles behind Spero's drug development strategy, which I view as the ideal approach for the antibiotic field. This approach focuses on developing medicines that first and foremost address the mathematical needs of patients, while simultaneously providing clear benefits to the health care system more broadly. While successfully executing on this approach, I believe we can develop anti-infectives that are positioned for rapid and widespread uptake following regulatory approval. Since Ankit walked you through how we believe tebipenem HBr meets these criteria, I'll focus on SPR720 and SPR206. I'll start with SPR720, our novel oral candidate being developed as a first-line treatment for nontuberculous mycobacterial pulmonary disease, or NTM-PD for short which is an orphan disease. NTM-PD is an area of high unmet medical need as there are currently no FDA-approved options for first-line treatment. SPR720 is the stable prodrug that's rapidly converted to the active molecule SPR-719. In vitro studies have demonstrated SPR719's potent activity against the broad spectrum of NTM species, which is a result of its ability to inhibit ATPAs located on the driver ASP subunit of the tetrameric drydase A2B2 protein. This mechanism of action is importantly distinct from that of fluoroquinolones thus avoiding cross resistance with loan loans and other marketed antibiotics, which has been corroborated with in vitro surveillance data from recent NTM clinical isolates. It's important to note that SPR719 is highly concentrated in microphages, a size where NTM survive and replicate. In vivo data supporting SPR720's development come mainly from a newly in chronic infection model where it displayed pure activity against the most prevalent…

Thank you, Kamal. As of September 30, 2022, Spero has approximately $50.4 million in cash, cash equivalents and marketable securities. This does not include the $75 million in total gross proceeds from the upfront payment and equity investment being made by GSK in connection with the exclusive license agreement for tebipenem HBr. Given that the GSK transaction is now closed, these expected payments have been invoiced, the $9 million in equity investment has been received and the remaining $66 million upfront payment is expected to be delivered in November. Based on our current projections, we believe our existing cash, cash equivalents and marketable securities together with the other non-dilutive funding commitments and the anticipated proceeds from the GSK license agreement, equity investment and milestones will be sufficient to fund our planned operating expenses and capital expenditures beyond 2024. This anticipated runway is expected to take us through three clinical milestones including: Final top line Phase 2 data for SPR720, the initiation of a Phase 3 clinical trial of tebipenem HBr and the initiation of a Phase 2 clinical trial for SPR206. Turning now to our remaining financial results. Total revenues for the third quarter of 2022 were $2 million compared with revenues of $3.1 million in the third quarter of 2021. The revenue decrease 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 under the BARDA contract for tebipenem HBr; partially offset by an increase of $0.2 million under the NIAID agreement relating to SPR206 and recognition of $1.1 million in collaboration revenue relating to the Pfizer agreement. Research and development expenses for the third quarter of 2022 were $7.4 million compared with $14.4 million of research and development expenses for the same period in…

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question is from Gavin Clark-Gartner from Evercore ISI. Please go ahead.

Hey, good afternoon. I was just hoping with all the recent political updates, if you could frame where the PASTEUR Act stands since this could potentially be relevant to SPR206. Thanks.

Thanks Gavin for the question. You're right that the PASTEUR Act which just as a brief review would provide a very large nine-figure subscription payment to drug developers that develop medicines that meet certain criteria such as those that potentially SPR206 could need. Could be a nice addition to the value proposition for 206. Right now the bill has made bipartisan progress, it has bipartisan sponsorship. And it's in a form where it could be appended to some of the larger vehicles for legislation. Certainly with the midterms coming, where the prospects for the bill I think will depend on ultimately who's in control of the house now that the Senate is locked in on the Democratic side. So we'll see in the coming days though in terms of from a content perspective PASTEUR is in a good position to be attended to something to potentially pass.

Mr. Gartner, did you have a follow-up question?

That was it. Appreciate the color. Here – maybe you could just give us a little more color around the rationale to not interim analysis for SPR720?

Yes, Gavin, sure. So a couple of points there. First we decided to focus on top line data because – for a couple of reasons. First is that the study is relatively focused. So it lends itself to the second reason which is that we wanted to make sure that the data we do deliver is fulsome and clear about what 720 can do for patients. There's even been very recent examples in the marketplace, where interim data can sometimes paint a murky picture for a program in a study that's in progress. And the final reason is that, with the – our newly extended cash runway after our partnership with GSK, we do have the runway and the opportunity to allow the study to get to a more robust point. And then finally operationally, there's some efficiencies in being able to push forward into top line data rather than focus on an interim result.

Got it. Thanks.

The next question is from Louise Chen with Cantor. Please go ahead.

Hi. Congratulations on all the progress this quarter. Thanks for taking my questions. So first question, I have for you is, if you could give more color on that $525 million in sales in commercial milestones, and how those can get triggered or what will trigger them and when? And then secondly, I wanted to ask you about OpEx in fourth quarter and 2023. Should we use the third quarter as a run rate, or is there something else that we should think about as nuance there? And then last question is, you've got a lot going on in a very busy end of the year and then busy 2023, so I'm just curious. If we were going to frame, it what are the key catalysts and events you'll be looking out for but let's say the next 12 to 18 months? Thank you.

Yeah. Thanks Louise for the great questions. I'll answer number three, first in terms of the overall calendar. And then the other two questions, you asked, I will hand to Sat. So you're right, that it's going to be a very eventful 2023 and 2024. You should expect us going program by program. Number one, as we mentioned we're going to be going through the special protocol assessment process with Tebipenem and starting that Phase III trial, which will trigger milestones within the GSK agreement. Secondly, for SPR206 you'll look for us to do the work to advance 206 into the clinic again in a Phase II study. And then number three for 720, we've gone through where the trial currently is will be actively enrolling patients there looking to the first half of 2024 for a clinical readout. So in other words, each of our programs will be in the clinic during that period of time and we'll be looking for several important readouts as well as milestones from our collaborations. For the other two questions, I'll hand it over to you Sat.

Great. So, thanks for the questions Louise. For milestones, we've laid out some detail for the development and commercial milestones, when we announced the transaction. But in rough terms, roughly $150 million of those milestones are associated with the Phase III development program. We haven't disclosed exactly when those payments come in, but the expectation is, that they will come in, in time to actually fund the activities for the program. So if you look at the next few quarters, as we engage in running that trial again, those -- that funding will come in through that period at certain points in time. That's the $150 million in development milestones. We've also disclosed $150 million in first patient first sale-associated milestones. Now this is a US and also a ex-US program. So part of that is ex-US. But if you were to assume that the majority of that amount comes in on the first patient first sale in the US, you wouldn't be wrong. So that's the majority or entirety of the $150 million of that first patient commercial milestone. And then after that, as laid out in our PR, there are milestones associated with degrees of revenues. So the first time the product sales hit a couple of hundred million dollars, Spero or gets a milestone. The first time they hit $300 million Spero gets a milestone. In the initial sections of that ramp, the sales milestones continue to be allocated to Spero. At higher levels of sales, we transition more into the royalties, which as Ankit described earlier, increase from low single digits at the lower end of sales to low double digits on the higher end. Let me pause there and I first confirm, did that answer your question, before I move to your run rate question.

Yes, it does. Thank you, very much.

Great. For the run rate, Louise, for 4Q, a 3Q number, but slightly higher is probably the appropriate measure for what you should model in. We will be investing a little bit in obviously the start of our SPA activities and preparing for the Phase 3 tebipenem trial, when we restart that next year. But in the interim, if progressing 720 and 206 just as we did in this quarter, those burn rates will be actually pretty similar to we experienced in this quarter. So if you applied a slight markup, I’d assume that be much more reflective of this quarter as opposed to Q2, for example. That would probably be the appropriate era to go.

You mean for R&D or SG&A also?

For both.

Okay. Thank you.

[Operator Instructions] The next question is from Ritu Baral with Cowen. Please go ahead.

Good afternoon, guys. Thanks for taking the question. I wanted to ask about the final Phase III that was agreed upon following the Type A meeting and the minutes. Can you guys talk about the major differences between the upcoming study on your prior study? Specifically how any patients, I think, with will be handled whether you have the full P value of 0.05 for this study? And if you'll be using the same sites? Thanks.

Thanks, Ritu. I'll hand this question over to Kamal.

Yes. Thank you for the question. So we're still in discussions about the final -- the design of the final Phase III. Of course, we have the Type A meeting with FDA and that provided clarity on the -- on how to approach the next Phase III study, but we are currently in discussions with our partner GSK. And the final protocol design will be disclosed after we've reached agreement with GSK.

Got it. But that's -- the trial is still on track to start in 2023. Is that correct?

It is correct.

Right. Thanks so much.

This concludes the question-and-answer session. I'd now like to turn the conference back over to Dr. Mahadevia for any closing remarks.

Thank you, operator and thanks to everyone that listened today. We look forward to our pipeline's continued advancement and I wish everyone a nice evening.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.