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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 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: 001-38503

 

Iterum Therapeutics plc

(Exact name of registrant as specified in its charter)

 

 

Ireland

98-1283148

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Fitzwilliam Court 1st Floor,

Leeson Close,

Dublin 2, Ireland

(Address of principal executive offices)

Not applicable

(Zip Code)

 

(+353) 1 669-4820

(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

Ordinary Shares, $0.01 par value per share

 

ITRM

 

The Nasdaq Stock Market LLC

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, 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 July 31, 2022, the registrant had 183,500,610 ordinary shares, $0.01 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Cash Flows

3

 

Notes to Unaudited Condensed Consolidated Financial Statements

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

PART II.

OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Recent Sales of Unregistered Securities

91

Item 6.

Exhibits

92

 

Signatures

93

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our use of cash reserves;
the design, initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs including the planned clinical trial and non-clinical development to be conducted in response to the Complete Response Letter (CRL) received from the U.S. Food and Drug Administration in July 2021 in connection with our New Drug Application (NDA) for oral sulopenem;
our ability to resolve the issues set forth in the CRL and resubmit our NDA;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
our ability to advance product candidates into, and successfully complete, clinical trials;
the potential advantages of our product candidates;
the timing or likelihood of regulatory filings and approvals, including with respect to the potential resubmission of our NDA for oral sulopenem;
the commercialization of our product candidates, if approved;
our manufacturing plans;
our sales, marketing and distribution capabilities and strategy;
market acceptance of any product we successfully commercialize;
the pricing, coverage and reimbursement of our product candidates, if approved;
the implementation of our business model, strategic plans for our business and product candidates;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and our ability to defend and enforce any such intellectual property rights;
our ability to enter into strategic arrangements, collaborations and/or commercial partnerships in the United States and other territories and the potential benefits of such arrangements;
our estimates regarding expenses, capital requirements and needs for additional financing;
our expectations regarding how far into the future our cash on hand will fund our ongoing operations;
our financial performance;
developments relating to our competitors and our industry;
the impact of COVID-19, including the responsive measures taken by governmental authorities and others, on our clinical trials, on regulatory approval, on future commercialization of, and future demand for, our products, available funding, our operations and the economy in general, which may precipitate or exacerbate other risks and/or uncertainties;
our ability to regain and maintain compliance with listing requirements of the Nasdaq Capital Market; and
the outcome, impact, effects and results of our evaluation of corporate, strategic, financial and financing alternatives, including the terms, timing, structure, value, benefits and costs of any corporate, strategic, financial or financing alternative and our ability to complete one at all.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the

ii


 

forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to new information, actual results or to changes in our expectations, except as required by law.

You should read this Quarterly Report and the documents that we have filed with the Securities and Exchange Commission (SEC), as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

This Quarterly Report also contains industry, market and competitive position data from our own internal estimates and research as well as industry and general publications and research surveys and studies conducted by third parties. Industry publications, studies, and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risks due to various factors, including those described in the section titled “Risk Factors”.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ITERUM THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

(Unaudited)

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,209

 

 

$

27,446

 

Short-term investments

 

 

59,666

 

 

 

53,898

 

Current portion of restricted cash

 

 

30

 

 

 

 

Prepaid expenses and other current assets

 

 

2,021

 

 

 

1,922

 

Total current assets

 

 

70,926

 

 

 

83,266

 

Intangible asset, net

 

 

2,577

 

 

 

3,435

 

Property and equipment, net

 

 

46

 

 

 

91

 

Restricted cash, less current portion

 

 

34

 

 

 

64

 

Other assets

 

 

3,104

 

 

 

4,653

 

Total assets

 

$

76,687

 

 

$

91,509

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

787

 

 

$

878

 

Accrued expenses

 

 

2,954

 

 

 

1,165

 

Derivative liability

 

 

1,622

 

 

 

6,058

 

Current portion of long-term debt

 

 

 

 

 

1,627

 

Income taxes payable

 

 

92

 

 

 

221

 

Other current liabilities

 

 

2,038

 

 

 

2,992

 

Total current liabilities

 

 

7,493

 

 

 

12,941

 

Long-term debt, less current portion

 

 

8,502

 

 

 

6,930

 

Royalty-linked notes

 

 

15,071

 

 

 

17,968

 

Other liabilities

 

 

1,735

 

 

 

3,436

 

Total liabilities

 

$

32,801

 

 

$

41,275

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Undesignated preferred shares, $0.01 par value per share: 100,000,000 shares
authorized at June 30, 2022 and December 31, 2021;
no shares issued at
June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Ordinary shares, $0.01 par value per share: 300,000,000 shares authorized at June 30, 2022 and December 31, 2021, 183,500,610 shares issued at June 30, 2022; 182,775,282 shares issued at December 31, 2021

 

 

1,835

 

 

 

1,827

 

Additional paid-in capital

 

 

430,779

 

 

 

426,900

 

Accumulated deficit

 

 

(388,728

)

 

 

(378,493

)

Total shareholders' equity

 

$

43,886

 

 

$

50,234

 

Total liabilities and shareholders’ equity

 

$

76,687

 

 

$

91,509

 

 

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

1


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

(3,984

)

 

$

(2,714

)

 

$

(7,424

)

 

$

(5,165

)

General and administrative

 

 

(4,066

)

 

 

(4,273

)

 

 

(7,999

)

 

 

(7,669

)

Total operating expenses

 

 

(8,050

)

 

 

(6,987

)

 

 

(15,423

)

 

 

(12,834

)

Operating loss

 

 

(8,050

)

 

 

(6,987

)

 

 

(15,423

)

 

 

(12,834

)

Interest expense, net

 

 

(766

)

 

 

(980

)

 

 

(1,805

)

 

 

(3,932

)

Adjustments to fair value of derivatives

 

 

2,155

 

 

 

15,794

 

 

 

7,332

 

 

 

(74,309

)

Other income, net

 

 

269

 

 

 

93

 

 

 

431

 

 

 

134

 

Total other income / (expense), net

 

 

1,658

 

 

 

14,907

 

 

 

5,958

 

 

 

(78,107

)

Loss / (income) before income taxes

 

 

(6,392

)

 

 

7,920

 

 

 

(9,465

)

 

 

(90,941

)

Income tax expense

 

 

(343

)

 

 

(122

)

 

 

(770

)

 

 

(182

)

Net (loss) / income and comprehensive (loss) / income

 

 

(6,735

)

 

 

7,798

 

 

 

(10,235

)

 

 

(91,123

)

Net (loss) / income attributable to ordinary shareholders

 

$

(6,735

)

 

$

7,798

 

 

$

(10,235

)

 

$

(91,123

)

Net (loss) / income per share attributable to ordinary shareholders – basic

 

$

(0.04

)

 

$

0.04

 

 

$

(0.06

)

 

$

(0.63

)

Net (loss) / income per share attributable to ordinary shareholders – diluted

 

$

(0.04

)

 

$

0.04

 

 

$

(0.06

)

 

$

(0.63

)

Weighted average ordinary shares outstanding – basic

 

 

183,364,740

 

 

 

180,017,313

 

 

 

183,134,415

 

 

 

144,608,227

 

Weighted average ordinary shares outstanding – diluted

 

 

183,364,740

 

 

 

204,600,645

 

 

 

183,134,415

 

 

 

144,608,227

 

 

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

2


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Cash Flows

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(10,235

)

 

$

(91,123

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

55

 

 

 

220

 

Amortization of intangible asset

 

 

858

 

 

 

 

Share-based compensation expense

 

 

3,879

 

 

 

840

 

Interest on short-term investments

 

 

(123

)

 

 

(261

)

Non-cash loss on short-term investments

 

 

490

 

 

 

196

 

Amortization of debt discount and deferred financing costs

 

 

1,157

 

 

 

3,017

 

Interest on exchangeable notes - non-cash

 

 

410

 

 

 

668

 

Adjustments to fair value of derivatives

 

 

(7,332

)

 

 

74,309

 

Other

 

 

1,404

 

 

 

621

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,366

)

 

 

2,141

 

Accounts payable

 

 

(92

)

 

 

1,129

 

Accrued expenses

 

 

1,797

 

 

 

(557

)

Income taxes

 

 

(128

)

 

 

(140

)

Other liabilities

 

 

(443

)

 

 

(533

)

Net cash used in operating activities

 

 

(9,669

)

 

 

(9,473

)

Cash flows from investing activities:

 

 

 

 

 

 

Puchases of property, plant and equipment

 

 

(10

)

 

 

 

Purchases of short-term investments

 

 

(34,858

)

 

 

(55,064

)

Proceeds from sale of short-term investments

 

 

28,600

 

 

 

 

Net cash used in investing activities

 

 

(6,268

)

 

 

(55,064

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayments of long-term debt

 

 

(2,251

)

 

 

(3,258

)

Proceeds from issuance of ordinary shares, net of transaction costs

 

 

 

 

 

89,648

 

Net cash (used in) / provided by financing activities

 

 

(2,251

)

 

 

86,390

 

Effect of exchange rates on cash and cash equivalents

 

 

(49

)

 

 

(2

)

Net (decrease) / increase in cash, cash equivalents and restricted cash

 

 

(18,237

)

 

 

21,851

 

Cash, cash equivalents and restricted cash, at beginning of period

 

 

27,510

 

 

 

14,816

 

Cash, cash equivalents and restricted cash, at end of period

 

$

9,273

 

 

$

36,667

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Income tax paid - US

 

$

898

 

 

$

322

 

Interest paid

 

$

22

 

 

$

273

 

 

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

3


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

 

 

1. Basis of Presentation

Iterum Therapeutics plc (the Company) was incorporated under the laws of the Republic of Ireland in June 2015 as a limited company and re-registered as a public limited company on March 20, 2018. The Company maintains its registered office at Fitzwilliam Court, 1st Floor, Leeson Close, Dublin 2, Ireland. The Company commenced operations in November 2015. The Company licensed global rights to its novel anti-infective compound, sulopenem, from Pfizer Inc. (Pfizer). The Company is a clinical-stage pharmaceutical company dedicated to developing and commercializing sulopenem to be potentially the first oral penem available in the United States and the first and only oral and intravenous (IV) branded penem available globally.

The Company is subject to risks and uncertainties common to early-stage companies in the pharmaceutical industry, including, but not limited to, the ability to secure additional capital to fund operations, failure to achieve regulatory approval, failure to successfully develop and commercialize its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology and compliance with government regulations. Product candidates currently under development will require additional research and development efforts, including regulatory approval prior to commercialization.

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 accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries.

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 aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of issue of these quarterly condensed consolidated financial statements.

Since inception, the Company has devoted substantially all of its efforts to research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance and sale of ordinary shares and convertible preferred shares, debt raised under financing arrangements with Silicon Valley Bank (SVB) including the Paycheck Protection Program loan (PPP loan), a sub-award from the Trustees of Boston University under the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) program and the proceeds of a private placement (Private Placement) and subsequent rights offering (Rights Offering) pursuant to which the Company's wholly owned subsidiary, Iterum Therapeutics Bermuda Limited (Iterum Bermuda) issued and sold $51,808 aggregate principal amount of 6.500% Exchangeable Senior Subordinated Notes due 2025 (Exchangeable Notes) and $104 aggcregate principal amount of Limited Recourse Royalty-Linked Subordinated Notes (the RLNs and, together with the Exchangeable Notes, the Securities), which Securities were sold in units consisting of an Exchangeable Note in the original principal amount of $1,000 and 50 RLNs (the Units). The Company has not generated any product revenue. The Company has incurred operating losses since inception, including net losses of $10,235 and $91,123 for the six months ended June 30, 2022 and 2021, respectively, and a net loss of $91,564 for the year ended December 31, 2021. The Company had an accumulated deficit of $388,728 as of June 30, 2022 and expects to continue to incur net losses for the foreseeable future. Management believes that its cash and cash equivalents balance of $9,209 and short-term investments balance of $59,666 at June 30, 2022 are sufficient to fund operations into 2024. In making this assessment management have considered the planned operations of the company and the ability to adjust its plans if required.

In addition, in parallel, the Company is evaluating its corporate, strategic, financial and financing alternatives, with the goal of maximizing value for its stakeholders. These alternatives could potentially include the licensing, sale or divestiture of the Company’s assets or proprietary technologies, a sale of the Company, a merger or other business combination or another strategic transaction involving the Company. The evaluation of corporate, strategic, financial and financing alternatives may not result in any particular action or any transaction being pursued, entered into or consummated, and there is no assurance as to the timing, sequence or outcome of any action or transaction or series of actions or transactions.

Interim Financial Information

The condensed 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 June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 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 condensed 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 filed with the SEC on March 28, 2022. 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 June 30, 2022, and results of

4


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

 

operations for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021 have been made. The results of operations for the three and six months ended June 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

There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncements as described below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the valuation of share-based compensation awards, the valuation of the RLNs and the Derivative liabilities, which consist of embedded features in the Exchangeable Notes, and the accrual for research and development expenses. 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 could differ materially from those estimates. 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 or judgments or revise the carrying value of any assets or liabilities.

Specifically, management has estimated variables in the discounted cash flow analysis (DCF) to value derivative instruments (see Note 3 - Fair Value of Financial Assets and Liabilities).

Cash and Cash Equivalents

The Company’s cash and cash equivalents consist of cash balances and highly liquid investments with maturities of three months or less at the date of purchase. Accounts held at U.S. financial institutions are insured by the Federal Deposit Insurance Corporation up to $250, while accounts held at Irish financial institutions are insured under the Deposit Guarantee Scheme up to $105 (€100).

Cash accounts with any type of restriction are classified as restricted cash. If restrictions are expected to be lifted in the next twelve months, the restricted cash account is classified as current. Included within restricted cash on the Company’s condensed consolidated balance sheet is a certificate of deposit for $30 as of June 30, 2022 which is being held by a third party bank as collateral for the irrevocable letter of credit issued in March 2018 to secure an office lease. Also included within restricted cash on the Company’s condensed consolidated balance sheet is $17 as of June 30, 2022 relating to the warrants issued on June 5, 2020 pursuant to the securities purchase agreement (June 3, 2020 SPA) from the June 3, 2020 registered direct offering (June 3, 2020 Offering), $6 as of June 30, 2022 relating to the warrants issued on July 2, 2020 pursuant to the securities purchase agreement (June 30, 2020 SPA) from the June 30, 2020 registered direct offering (June 30, 2020 Offering) and $11 as of June 30, 2022 relating to warrants issued in the underwritten offering in October 2020 (October 2020 Offering). These restricted cash amounts are unchanged from December 31, 2021. On the closing date of each of the June 3, 2020 Offering, June 30, 2020 Offering and the October 2020 Offering, each investor deposited $0.01 per warrant issued being the nominal value of the underlying ordinary share represented by each warrant. This amount will be held in trust by the Company pending a decision by the relevant investor to exercise the warrant by means of a “cashless exercise” pursuant to the terms of the warrant, in which case the $0.01 will be used to pay up the nominal value of the ordinary share issued pursuant to the warrant. Upon the exercise of the warrants other than by means of a "cashless exercise", the amount held in trust will be returned to the relevant investor in accordance with the terms of the applicable purchase agreement or prospectus.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. The Company has most of its cash, cash equivalents and short-term investments at two accredited financial institutions in the United States and Ireland, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Net Loss Per Ordinary Share

Basic and diluted net loss per ordinary share is determined by dividing net loss attributable to ordinary shareholders by the weighted-average ordinary shares outstanding during the period in accordance with Accounting Standard Codification (ASC) 260, Earnings per Share. For the periods presented, the following ordinary shares underlying the options, unvested restricted share units,

5


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

 

unvested performance restricted share units, warrants and the Exchangeable Notes have been excluded from the calculation because they would be anti-dilutive.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Options to purchase ordinary shares

 

 

18,316,699

 

 

 

 

 

 

18,316,699

 

 

 

14,065,145

 

Unvested restricted share units

 

 

1,852,877

 

 

 

 

 

 

1,852,877

 

 

 

1,315,328

 

Unvested performance restricted share units

 

 

 

 

 

 

 

 

 

 

 

407,000

 

Warrants

 

 

7,202,878

 

 

 

 

 

 

7,202,878

 

 

 

7,202,878

 

Exchangeable Notes

 

 

18,787,768

 

 

 

 

 

 

18,787,768

 

 

 

17,733,806

 

Total

 

 

46,160,222

 

 

 

 

 

 

46,160,222

 

 

 

40,724,157

 

 

Segment and Other Information

The Company determines and presents operating segments based on the information that is internally provided to the Chief Executive Officer, Chief Financial Officer and Chief Medical Officer, who together are considered the Company’s chief operating decision maker, in accordance with ASC 280, Segment Reporting. The Company has determined that it operates as a single business segment, which is the development and commercialization of innovative treatments for drug resistant bacterial infections.

The distribution of total operating expenses by geographical area was as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Operating expenses

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Ireland

 

$

5,078

 

 

$

4,192

 

 

$

9,627

 

 

$

8,110

 

U.S.

 

 

2,966

 

 

 

2,794

 

 

 

5,777

 

 

 

4,678

 

Bermuda

 

 

6

 

 

 

1

 

 

 

19

 

 

 

46

 

Total

 

$

8,050

 

 

$

6,987

 

 

$

15,423

 

 

$

12,834

 

The distribution of long-lived assets by geographical area was as follows:

 

Long-lived assets

 

June 30, 2022

 

 

December 31, 2021

 

Ireland

 

$

5,404

 

 

$

7,601

 

U.S.

 

 

323

 

 

 

578

 

Total

 

$

5,727

 

 

$

8,179

 

 

Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in the United States to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. Neither the enactment of the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on the Company’s income tax provision for the three and six months ended June 30, 2022 and 2021, or to the Company’s net deferred tax assets as of June 30, 2022.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2021. The new standard became effective for the Company on January 1, 2022 and did not have a material impact on the Company’s condensed consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies an issuer’s accounting for modifications or exchanges of freestanding written call options that remain equity-classified after modification. The ASU 2021-04 is effective for all entities for interim and annual periods in fiscal years beginning

6


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

 

after December 15, 2021. The new standard became effective for the Company on January 1, 2022 and did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments, which requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if a different classification would result in a commencement date selling loss (Day 1 loss). For entities that have adopted ASU 2016-02, Leases, as of July 19, 2021, ASU 2021-05 is effective for annual and interim periods in fiscal years beginning after December 15, 2021 for public business entities and annual periods in fiscal years beginning after December 15, 2021 and interim periods in fiscal years beginning after December 15, 2022 for all other entities. The new standard became effective for the Company on January 1, 2022 and did not have a material impact on the Company’s condensed consolidated financial statements.

3. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets that were carried at fair value on a recurring basis on the condensed consolidated balance sheet as of June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

59,666

 

 

 

59,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

53,898

 

 

 

53,898

 

 

 

 

 

 

 

 

See Note 4 for details on the short-term investments. The carrying amounts reported in the condensed consolidated balance sheets for prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments.

The following table presents information about the Company’s debt, Exchangeable Notes, Derivative liability and RLNs. The Company’s long-term debt was carried at amortized cost on the condensed consolidated balance sheet as of December 31, 2021 and indicates the fair value hierarchy of the valuation inputs utilized to determine the approximate fair value:

 

June 30, 2022

 

Book

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Exchangeable Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term exchangeable note

 

$

8,502

 

 

$

10,244

 

 

 

 

 

 

10,244

 

 

 

 

Derivative liability - exchange option and change of control

 

 

1,622

 

 

 

1,622

 

 

 

 

 

 

 

 

 

1,622

 

Revenue Futures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty-linked notes

 

 

15,071

 

 

 

15,071

 

 

 

 

 

 

 

 

 

15,071

 

Total

 

$

25,195

 

 

$

26,937

 

 

 

 

 

 

10,244

 

 

 

16,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

Book

 

 

Approximate