Quarterly Report (10-q)

Date : 11/12/2019 @ 10:04PM
Source : Edgar (US Regulatory)
Stock : Iterum Therapeutics PLC (ITRM)
Quote : 2.75  0.0 (0.00%) @ 8:59AM
Iterum Therapeutics share price Chart

Quarterly Report (10-q)

 

 

 

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 September 30, 2019

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.)

Block 2 Floor 3, Harcourt Centre,

Harcourt Street,

Dublin 2, Ireland

(Address of principal executive offices)




Not applicable

(Zip Code)

 

(+353) 1 903-8920

(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

As of October 31, 2019, the registrant had 14,868,973 ordinary shares, $0.01 par value per share, outstanding.

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  

 

 


Table of Contents

 

 

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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 initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

 

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;

 

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; and

 

developments relating to our competitors and our industry.

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 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.


ii

 


 

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.

ITERUM THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,883

 

 

$

44,551

 

Short-term investments

 

 

 

 

 

40,000

 

Prepaid expenses and other current assets

 

 

7,956

 

 

 

8,390

 

Current portion of restricted cash

 

 

30

 

 

 

30

 

Total current assets

 

 

36,869

 

 

 

92,971

 

Property and equipment, net

 

 

609

 

 

 

700

 

Restricted cash, less current portion

 

 

60

 

 

 

90

 

Other assets

 

 

13,404

 

 

 

4,110

 

Total assets

 

$

50,942

 

 

$

97,871

 

Liabilities and Shareholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,527

 

 

$

4,041

 

Accrued expenses

 

 

17,057

 

 

 

7,046

 

Current portion of long-term debt

 

 

4,997

 

 

 

1,019

 

Income taxes payable

 

 

106

 

 

 

113

 

Other current liabilities

 

 

645

 

 

 

 

Total current liabilities

 

 

37,332

 

 

 

12,219

 

Long-term debt, less current portion

 

 

9,343

 

 

 

13,079

 

Other liabilities

 

 

7,363

 

 

 

951

 

Total liabilities

 

$

54,038

 

 

$

26,249

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Shareholders’ equity (deficit):

 

 

 

 

 

 

 

 

Ordinary shares, $0.01 par value per share: 50,000,000 shares authorized at

September 30, 2019 and December 31, 2018; 14,868,973 shares issued at

September 30, 2019; 14,352,046 shares issued at December 31, 2018

 

 

149

 

 

 

144

 

Additional paid-in capital

 

 

208,037

 

 

 

203,271

 

Accumulated deficit

 

 

(211,282

)

 

 

(131,793

)

Total shareholders' equity (deficit)

 

 

(3,096

)

 

 

71,622

 

Total liabilities and shareholders’ equity (deficit)

 

$

50,942

 

 

$

97,871

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

254

 

 

$

37

 

 

$

630

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

(28,066

)

 

$

(22,583

)

 

$

(69,892

)

 

$

(47,188

)

General and administrative

 

 

(2,933

)

 

 

(2,657

)

 

 

(8,988

)

 

 

(6,058

)

Total operating expenses

 

 

(30,999

)

 

 

(25,240

)

 

 

(78,880

)

 

 

(53,246

)

Operating loss

 

 

(30,999

)

 

 

(24,986

)

 

 

(78,843

)

 

 

(52,616

)

Interest expense, net

 

 

(216

)

 

 

(138

)

 

 

(455

)

 

 

(100

)

Other income, net

 

 

48

 

 

 

328

 

 

 

204

 

 

 

183

 

Total other (expense) / income

 

 

(168

)

 

 

190

 

 

 

(251

)

 

 

83

 

Loss before income taxes

 

 

(31,167

)

 

 

(24,796

)

 

 

(79,094

)

 

 

(52,533

)

Income tax expense

 

 

(104

)

 

 

(109

)

 

 

(395

)

 

 

(266

)

Net loss and comprehensive loss

 

 

(31,271

)

 

 

(24,905

)

 

 

(79,489

)

 

 

(52,799

)

Net loss attributable to ordinary shareholders

 

$

(31,271

)

 

$

(24,905

)

 

$

(79,489

)

 

$

(52,799

)

Net loss per share attributable to ordinary shareholders – basic

   and diluted

 

$

(2.15

)

 

$

(1.77

)

 

$

(5.52

)

 

$

(7.42

)

Weighted average ordinary shares outstanding – basic

   and diluted

 

 

14,571,278

 

 

 

14,034,631

 

 

 

14,412,755

 

 

 

7,115,655

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(79,489

)

 

$

(52,799

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

113

 

 

 

99

 

Share-based compensation expense

 

 

1,674

 

 

 

878

 

Gain on short-term investments

 

 

(125

)

 

 

(128

)

Non-cash gain on short-term investments

 

 

 

 

 

(315

)

Interest on short-term investments

 

 

(44

)

 

 

(34

)

Amortization of debt discount and deferred financing costs

 

 

243

 

 

 

174

 

Other

 

 

25

 

 

 

304

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,758

 

 

 

165

 

Other assets

 

 

(1,036

)

 

 

(1,406

)

Accounts payable

 

 

10,487

 

 

 

(449

)

Accrued expenses

 

 

8,030

 

 

 

1,349

 

Income taxes

 

 

(7

)

 

 

(18

)

Other liabilities

 

 

(498

)

 

 

115

 

Net cash used in operating activities

 

 

(58,869

)

 

 

(52,065

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(22

)

 

 

(69

)

Purchases of short-term investments

 

 

 

 

 

(88,735

)

Proceeds from sale of short-term investments

 

 

40,125

 

 

 

51,400

 

Net cash provided by / (used in) investing activities

 

 

40,103

 

 

 

(37,404

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt, net of debt issuance costs

 

 

 

 

 

14,507

 

Proceeds from issuance of Series B convertible preferred shares, net of issuance costs

 

 

 

 

 

32,173

 

Proceeds from issuance of ordinary shares, net of issuance costs

 

 

3,037

 

 

 

74,155

 

Proceeds from exercise of share options

 

 

60

 

 

 

 

Net cash provided by financing activities

 

 

3,097

 

 

 

120,835

 

Effect of exchange rates on cash and cash equivalents

 

 

(29

)

 

 

(133

)

Net increase in cash, cash equivalents and restricted cash

 

 

(15,698

)

 

 

31,233

 

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

 

 

44,671

 

 

 

8,485

 

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

 

$

28,973

 

 

$

39,718

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Income tax paid - US

 

 

402

 

 

 

284

 

Interest paid

 

 

1,067

 

 

 

465

 

 

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

 

 

 

3


 

ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

1. Basis of Presentation

Iterum Therapeutics plc (the “Company”) was incorporated under the laws of the state 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 Block 2 Floor 3, Harcourt Centre, Harcourt Street, 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 focused on developing next generation antibiotics (oral and IV) to treat infections caused by multi-drug resistant pathogens in both community and hospital settings.

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 of ordinary and convertible preferred shares, debt raised under a financing arrangement with Silicon Valley Bank (SVB) and a sub-award from the Trustees of Boston University under the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) program. The Company has not generated any product revenue. 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 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 significant additional research and development efforts, including preclinical and clinical testing and 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.

On May 15, 2018, the Company’s shareholders approved a consolidation of its ordinary shares and convertible preferred shares at a 1-for-15.71 ratio (the “Reverse Share Split”), effective on that date. Fractional entitlements to ordinary shares and convertible preferred shares arising as a result of the Reverse Share Split were rounded down to the nearest whole number for each holder of ordinary shares and convertible preferred shares. Those fractional entitlements were aggregated and surrendered to the Company for cancellation. Immediately following the Reverse Share Split, the Company redenominated its ordinary shares and convertible preferred shares from $0.01571 (the nominal value resulting from the Reverse Share Split) per share to $0.01 per share (the “Renominalisation”). All issued and outstanding ordinary shares, convertible preferred shares, options for ordinary shares, restricted share awards, warrants and per share amounts have been retroactively adjusted to reflect this Reverse Share Split and Renominalisation for all periods presented.

On May 30, 2018, the Company completed an initial public offering (IPO) of its ordinary shares, and issued and sold 6,150,000 ordinary shares at a public offering price of $13.00 per share, resulting in net proceeds of $71.8 million after deducting underwriting discounts and commissions and offering costs payable by the Company. On June 26, 2018, the Company issued and sold an additional 200,000 ordinary shares at the IPO price of $13.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional ordinary shares, resulting in additional net proceeds of $2.4 million after deducting underwriting discounts and commissions and offering costs payable by the Company. Aggregate net proceeds from the IPO totaled $74.2 million after deducting underwriting discounts and commissions and offering costs payable by the Company.

On July 5, 2019, the Company filed a universal shelf registration statement on Form S-3 (Registration No. 333-232569) with the SEC, which was declared effective on July 16, 2019, and pursuant to which it registered for sale up to $150.0 million of any combination of its ordinary shares, preferred shares, debt securities, warrants and/or units from time to time and at prices and on terms that the Company may determine.

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.

The Company has funded its operations to date primarily with proceeds from the sale of preferred shares and ordinary shares, debt raised under its financing arrangement with SVB and payments received under the CARB-X program. The Company has incurred operating losses since inception, including net losses of $79,489 and $52,799 for the nine months ended September 30, 2019 and 2018, respectively, and a net loss of $77,056 for the year ended December 31, 2018. The Company had an accumulated deficit of

4


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

$211,282 as of September 30, 2019 and expects to continue to incur net losses for the foreseeable future. The Company’s future cash flows are dependent on key variables such as its ability to secure additional sources of funding in the form of public or private financing of debt or equity or collaboration agreements.

The Company may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company's shareholders. If the Company is unable to obtain funding, it could be forced to delay, reduce or eliminate some or all of its research and development programs or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, and the Company has successfully raised capital in the past, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Based on the Company’s operating losses since inception, the expectation of continued operating losses for the foreseeable future, and the need to raise additional capital to finance its future operations, management have concluded there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date these condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed 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 condensed consolidated balance sheet at December 31, 2018 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, 2019, and for the nine months ended September 30, 2019 and 2018, 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, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2019. 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, 2019, and results of operations for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 2019 and 2018 have been made. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

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 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, 2018.

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 accrual for research and development expenses, the valuation of restricted ordinary shares and the valuation of share-based compensation awards. 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.

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 ordinary shares underlying the options, unvested restricted ordinary shares, unvested restricted share units, unvested performance restricted share units and the warrants have been excluded from the calculation because they would be anti-dilutive.

5


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding as they would be anti-dilutive:

 

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

Options to purchase ordinary shares

 

 

1,150,439

 

 

 

698,114

 

Unvested restricted ordinary shares

 

 

8,542

 

 

 

107,165

 

Unvested restricted share units

 

 

31,367

 

 

 

36,924

 

Unvested performance restricted share units

 

 

50,000

 

 

 

 

Warrants

 

 

19,890

 

 

 

19,890

 

Total

 

 

1,260,238

 

 

 

862,093

 

 

Segment Information

The Company determines and presents operating segments based on the information that is internally provided to the Chief Executive Officer, Chief Scientific Officer and Chief Financial 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 September 30,

 

 

Nine Months Ended September 30,

 

Operating expenses

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Ireland

 

$

28,309

 

 

$

22,444

 

 

$

70,006

 

 

$

45,219

 

U.S.

 

 

2,690

 

 

 

2,796

 

 

 

8,874

 

 

 

8,027

 

Total

 

$

30,999

 

 

$

25,240

 

 

$

78,880

 

 

$

53,246

 

 

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

 

Long lived assets

 

September 30, 2019

 

 

December 31, 2018

 

Ireland

 

$

10,912

 

 

$

4,565

 

U.S.

 

 

3,101

 

 

 

245

 

Total

 

$

14,013

 

 

$

4,810

 

 

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP. In July 2018, the FASB issued ASU 2018-11 Leases (Topic 842): Targeted Improvements which provides the option to adopt the standard retrospectively for each prior period presented, as initially set out in ASU 2016-02, or as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. In March 2019, the FASB issued ASU 2019-03 Leases (Topic 842): Codification Improvements amending the transition disclosures for Topic 842, in that all companies are exempt from certain interim period transition disclosure requirements.

ASU 2016-02 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset, representing its right to use the underlying asset for the lease term, on the balance sheet. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method with an effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of $7.6 million and operating lease liabilities of $7.8 million, however, the adoption of the standard did not have an impact on the Company’s beginning retained earnings, results from operations or cash flows. See Note 7 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

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.

6


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred shares that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of ASU 2017-11 did not have an impact on the 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 September 30, 2019 and December 31, 2018 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Other asset – advance payment to supplier

 

$

3,705

 

 

 

 

 

 

 

 

 

3,705

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

40,000

 

 

 

40,000

 

 

 

 

 

 

 

Other asset – advance payment to supplier

 

 

2,649

 

 

 

 

 

 

 

 

 

2,649

 

Total

 

$

42,649

 

 

 

40,000

 

 

 

 

 

 

2,649

 

 

See Note 4 for further details on the short-term investments held. The other asset above relates to advance payments made to a supplier that were recorded at fair value using the discounted cash flow model (DCF), as of September 30, 2019 and December 31, 2018. The fair value measurements of these advance payments were determined based on significant unobservable inputs, including a discount rate of 15% and the expected time to recovery of the payment. Changes to the inputs described above are not expected to have a material impact on the company’s financial position and results of operations in any given period. See Note 12—Payments to Supplier, for further details on these advance payments.

The following table presents information about the Company’s long-term debt which was carried at amortized cost on the condensed consolidated balance sheet as of September 30, 2019, and December 31, 2018 and indicates the fair value hierarchy of the valuation inputs utilized to determine the approximate fair value.

 

September 30, 2019

 

 

 

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Book Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Current portion of long-term debt

 

$

4,997

 

 

$

4,997

 

 

 

 

 

 

4,997

 

 

 

 

Long-term debt, less current portion

 

 

9,343

 

 

 

8,469

 

 

 

 

 

 

8,469

 

 

 

 

Total

 

$

14,340

 

 

$

13,466

 

 

 

 

 

 

13,466

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Book Value

 

 

Approximate

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Current portion of long-term debt

 

$

1,019

 

 

$

1,019

 

 

 

 

 

 

1,019

 

 

 

 

Long-term debt, less current portion

 

 

13,079

 

 

 

13,035

 

 

 

 

 

 

13,035

 

 

 

 

Total

 

$

14,098

 

 

$

14,054

 

 

 

 

 

 

14,054

 

 

 

 

The book value of the current portion of long-term debt approximates its fair value due to the short-term nature of the balance. The fair value of long-term debt, less current portion was determined based on a DCF analysis using quoted market interest rates, without consideration of transaction costs, which represents a Level 2 basis of fair value measurement. The counterparty to the long-term debt is a major international financial institution.

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.

There have been no transfers of assets or liabilities between the fair value measurement levels.

 

7


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

4. Short-term Investments

The Company classifies its short-term investments as available for sale. Short-term investments comprise highly liquid investments with minimum “A-” rated securities. Investments are reported at fair value with unrealized gains or losses recorded in the condensed consolidated statements of operations and comprehensive loss. Any differences between the cost and fair value of investments are represented by unrealized gains or losses. The fair value of short-term investments are represented by Level 1 fair value measurements – quoted prices in active markets for identical assets.

The Company did not hold any short-term investments as of September 30, 2019. The following table represents the Company’s available for sale short-term investments by major security type as of December 31, 2018.  

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity by period

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair Value

 

 

Less than 1

 

 

 

 

 

Available for sale

 

Cost Total

 

 

gains

 

 

(losses)

 

 

Total

 

 

year

 

 

1 to 5 years

 

Commercial paper

 

$

35,745

 

 

 

272

 

 

 

(9

)

 

 

36,008

 

 

 

36,008

 

 

 

 

U.S. Treasury and Agency Bonds

 

 

3,977

 

 

 

15

 

 

 

 

 

 

3,992

 

 

 

3,992

 

 

 

 

Total

 

$

39,722

 

 

 

287

 

 

 

(9

)

 

 

40,000

 

 

 

40,000

 

 

 

 

 

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Prepaid research and development expenses

 

$

4,175

 

 

$

5,351

 

Research and development tax credit receivable

 

 

1,705

 

 

 

404

 

Short-term deposits

 

 

1,023

 

 

 

959

 

Prepaid insurance

 

 

783

 

 

 

438

 

Value added tax receivable

 

 

126

 

 

 

159

 

Other prepaid assets

 

 

97

 

 

 

921

 

Interest receivable

 

 

47

 

 

 

158

 

Total

 

$

7,956

 

 

$

8,390

 

 

6. Property and Equipment

Property and equipment and related accumulated depreciation are as follows:

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Leasehold improvements

 

$

592

 

 

$

592

 

Furniture and fixtures

 

 

120

 

 

 

120

 

Laboratory equipment

 

 

81

 

 

 

81

 

Computer equipment

 

 

130

 

 

 

108

 

 

 

 

923

 

 

 

901

 

Less: accumulated depreciation

 

 

(314

)

 

 

(201

)

 

 

$

609

 

 

$

700

 

 

Depreciation expense was $113 for the nine months ended September 30, 2019 and $136 for the year ended December 31, 2018.

7. Leases

The Company has entered into a number of operating leases, primarily for office space and commercial property. These leases have terms which range from four to 19 years, and generally include one or more options to terminate or renew. The termination options can reduce the lease term for periods ranging from five to 10 years, however the remaining lease terms do not represent these early termination dates as management have concluded that it is reasonably certain that the Company will not exercise these options. The renewal terms can extend the lease term for additional periods ranging from three to five years. These renewal

8


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

options are represented in the remaining lease term as management have concluded that it is reasonably certain that the Company will exercise the renewal option. Certain leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement. Certain agreements contain both lease and non-lease components. The Company has elected to separately account for these components in determining the lease liabilities and right-of-use assets. The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate was determined based on information available at lease commencement date for the purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for all leases that commenced prior to that date. All operating lease expenses are recognized on a straight-line basis over the lease term. The Company recognized $760 of operating lease costs for right-of-use assets during the nine months ended September 30, 2019.

 

Information related to the Company’s right-of-use assets and related lease liabilities is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2019

 

Cash paid for operating lease liabilities

 

$

65

 

 

$

498

 

Right-of-use assets obtained in exchange for new operating lease obligation

 

 

 

 

 

7,622

 

 

 

 

September 30, 2019

 

Weighted-average remaining lease term

 

12.7 years

 

Weighted-average discount rate

 

 

7.6

%

Right-of-use assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheet as follows, representing the Company’s right to use the underlying asset for the lease term (“Other assets”) and the Company’s obligation to make lease payments (“Other current liabilities” and “Other liabilities”):

 

 

 

September 30, 2019

 

Other assets

 

$

7,267

 

 

 

 

 

 

Other current liabilities

 

$

645

 

Other liabilities

 

 

6,734

 

Total lease liabilities

 

$

7,379

 

Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of September 30, 2019 for the following five fiscal years and thereafter were as follows:

 

Due in 12 month period ended September 30,

 

 

 

 

2020

 

$

1,158

 

2021

 

 

1,003

 

2022

 

 

1,011

 

2023

 

 

1,019

 

2024

 

 

1,023

 

Thereafter

 

 

5,766

 

 

 

$

10,980

 

Less imputed interest

 

 

(3,601

)

Total lease liabilities

 

$

7,379

 

9


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

As of December 31, 2018, future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840, under non-cancelable operating leases for the following five fiscal years and thereafter were as follows:

 

Due in 12 month period ended December 31,

 

 

 

 

2019

 

$

904

 

2020

 

 

1,020

 

2021

 

 

1,030

 

2022

 

 

985

 

2023

 

 

766

 

Thereafter

 

 

2,356

 

 

 

$

7,061

 

 

8. Accrued Expenses

Accrued expenses consist of the following:

 

 

September 30,

2019

 

 

December 31,

2018

 

Accrued clinical trial costs

 

$

11,502

 

 

$

2,849

 

Accrued manufacturing expenses

 

 

1,050

 

 

 

1,439

 

Accrued payroll and bonus expenses

 

 

1,646

 

 

 

1,804

 

Accrued other expenses

 

 

2,859

 

 

 

954

 

Total

 

$

17,057

 

 

$

7,046

 

 

9. Shareholders’ Equity (Deficit)

The following tables present a reconciliation of our beginning and ending balances in shareholders’ equity (deficit) for the nine months ended September 30, 2019 and 2018:

 

 

 

Total

Shareholders'

Equity

 

Shareholders' equity at January 1, 2019

 

$

71,622

 

Issuance of ordinary shares

 

 

3,037

 

Exercise of share options

 

 

60

 

Share-based compensation expense

 

 

1,674

 

Net loss

 

 

(79,489

)

Shareholders' equity (deficit) at September 30, 2019

 

$

(3,096

)

 

 

 

Total

Shareholders'

Equity

 

Shareholders' equity at January 1, 2018

 

$

39,494

 

Issuance of Series B convertible preferred shares

 

 

32,159

 

Issuance of ordinary shares

 

 

74,153

 

Conversion of preferred shares to ordinary shares

 

 

74

 

Share-based compensation expense

 

 

878

 

Issuance of warrants

 

 

139

 

Net loss

 

 

(52,799

)

Shareholders' equity at September 30, 2018

 

$

94,098

 

 

On December 14, 2018, Iterum Therapeutics plc (“ITP”) and Iterum Therapeutics International Limited (“ITIL”) entered into a subscription agreement with a supplier of ITIL pursuant to which the supplier agreed to subscribe for ordinary shares in ITP in satisfaction of amounts due and owing under certain commercial agreements entered into between the supplier and ITIL (the “Subscription Agreement”). Pursuant to the terms of the Subscription Agreement, upon receipt by ITIL of a valid invoice from the supplier, ITP can elect to require the supplier to subscribe for ordinary shares in the capital of ITP (up to a maximum of 700,000 ordinary shares in total) to the value of the invoiced amount (a “Subscription”). On a Subscription, the supplier will direct ITIL to pay ITP such invoiced amount as subscription monies on the supplier’s behalf in satisfaction of the invoiced amount. 

10


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

On July 15, 2019, ITP elected that the supplier subscribe for 17,222 ordinary shares for an aggregate subscription price of $0.11 million (the “July Subscription Monies”) upon receipt by ITIL of valid invoices up to that amount from the supplier.  On that date, ITP, ITIL and the supplier executed a payment direction letter pursuant to which the parties directed ITIL to pay $0.11 million (€0.10 million) to ITP in satisfaction of the supplier’s obligation to pay the Subscription Monies to ITP and ITIL’s obligation to pay the invoiced amount to the supplier.

On August 17, 2019, ITP elected that the supplier subscribe for 245,493 ordinary shares for an aggregate subscription price of $1.67 million (the “August Subscription Monies”) upon receipt by ITIL of valid invoices up to that amount from the supplier.  On that date, ITP, ITIL and the supplier executed a payment direction letter pursuant to which the parties directed ITIL to pay $1.67 million (€1.50 million) to ITP in satisfaction of the supplier’s obligation to pay the Subscription Monies to ITP and ITIL’s obligation to pay the invoiced amount to the supplier.

On September 30, 2019, ITP elected that the supplier subscribe for 199,056 ordinary shares for an aggregate subscription price of $1.26 million (the “September Subscription Monies”) upon receipt by ITIL of valid invoices up to that amount from the supplier.  On that date, ITP, ITIL and the supplier executed a payment direction letter pursuant to which the parties directed ITIL to pay $1.26 million (€1.15 million) to ITP in satisfaction of the supplier’s obligation to pay the Subscription Monies to ITP and ITIL’s obligation to pay the invoiced amount to the supplier.

 

10. Share-Based Compensation

On November 18, 2015, the Company’s Board of Directors adopted and approved the 2015 Equity Incentive Plan (the “2015 Plan”), which authorized the Company to grant up to 223,424 ordinary shares in the form of incentive share options, nonstatutory share options, share appreciation rights, restricted share awards, restricted share units and other share awards. The types of share-based awards, including the rights, amount, terms, and exercisability provisions of grants are determined by the Company’s Board of Directors. The purpose of the 2015 Plan is to provide the Company with the flexibility to issue share-based awards as part of an overall compensation package to attract and retain qualified personnel. On May 18, 2017, the Company amended the 2015 Plan to increase the number of ordinary shares available for issuance under the 2015 Plan by 219,605 shares to 443,029 shares.

On March 14, 2018, the Company’s Board of Directors adopted and approved the 2018 Equity Incentive Plan (the “2018 Plan”), which became effective upon the execution and delivery of the underwriting agreement related to the Company’s IPO in May 2018. No further grants will be made under the 2015 Plan. The ordinary shares underlying any options that are forfeited, cancelled, repurchased or are otherwise terminated by the Company under the 2015 Plan will not be added back to the ordinary shares available for issuance.

The 2018 Plan, adopted and approved on March 14, 2018, authorized the Company to grant up to 1,018,459 ordinary shares in the form of incentive share options, nonstatutory share options, share appreciation rights, restricted share awards, restricted share units, performance share awards, performance cash awards and other share awards. The types of share-based awards, including the rights, amount, terms, and exercisability provisions of grants are determined by the Company’s Board of Directors. The ordinary shares underlying any options that are forfeited, cancelled, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the ordinary shares available for issuance under the 2018 Plan.

On December 5, 2018, pursuant to powers delegated to it by the Board of Directors of the Company, the Compensation Committee approved an increase in the number of ordinary shares available to be granted pursuant to the 2018 plan by 4% of the total number of shares of the Company’s issued share capital on December 31, 2018, being 574,081 ordinary shares.

Restricted Ordinary Shares

In connection with the Company’s formation, 413,110 restricted ordinary shares were issued on October 14, 2015 to the Company’s founders at par value. These ordinary shares are subject to various restrictions pursuant to ordinary share purchase agreements between the Company and each founder, including restrictions on transfer and a Company right of repurchase. The restricted ordinary shares were 25% vested as of October 14, 2016 and 1/36th of the remaining restricted ordinary shares vest on a monthly basis thereafter (subject to acceleration of vesting in connection with certain change of control transactions). A change in status occurred on November 18, 2015 when the founders became employees of the Company. The grant date of these shares is now considered to be November 18, 2015 when the fair value was $3.14 per share.

11


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

The Company records share-based compensation expense for the restricted ordinary shares based on the grant date fair value. The Company recorded an expense of $247 and $249 for the nine months ended September 30, 2019 and 2018, respectively. Total unamortized compensation expense related to restricted ordinary shares was $13 and $344 as of September 30, 2019 and September 30, 2018, respectively, expected to be recognized over a weighted average period of 0.04 years and 1.04 years as of September 30, 2019 and September 30, 2018, respectively.

The following table summarizes restricted ordinary shares activity for the nine months ended September 30, 2019:

 

 

 

Number of

 

 

Weighted

Average

Grant Date Fair

 

 

 

Shares

 

 

Value per Share

 

Unvested at December 31, 2018

 

 

86,068

 

 

$

3.14

 

Granted

 

 

 

 

 

 

 

Vested

 

 

(77,526

)

 

$

3.14

 

Forfeited

 

 

 

 

 

 

 

Unvested at September 30, 2019 (unaudited)

 

 

8,542

 

 

$

3.14

 

Share Options

The Company awarded 512,178 and 447,984 share options to employees and directors during the nine months ended September 30, 2019 and 2018, respectively, under the 2018 Plan. There were 880,529 and 663,916 unvested employee options outstanding as of September 30, 2019 and September 30, 2018, respectively. Total expense recognized related to employee share options was $1,019 and $459 for the nine months ended September 30, 2019 and 2018, respectively. Total unamortized compensation expense related to employee share options was $3,711 and $3,320 as of September 30, 2019 and September 30, 2018, respectively, which is expected to be recognized over a remaining average vesting period of 2.84 years and 3.53 years as of September 30, 2019 and September 30, 2018, respectively.

The assumptions that the Company used to determine the grant date fair value of employee and director options granted were as follows, presented on a weighted average basis:

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

2018

 

Volatility

 

68.9% - 70.2%

 

60%

 

Expected term in years

 

5.5 - 6.25

 

 

6.25

 

Dividend rate

 

0%

 

0%

 

Risk-free interest rate

 

1.96% - 2.57%

 

2.16 - 2.63%

 

Share price

 

$5.80 - $6.80

 

$9.06 - $13.00

 

Fair value of option on grant date

 

$3.74 - $4.41

 

$5.28 - $7.49

 

 

The following table summarizes the number of options outstanding and the weighted-average exercise price:

 

 

 

Number of

Shares

 

 

Weighted

Average Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Life

in Years

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Options outstanding December 31, 2018

 

 

665,219

 

 

$

9.31

 

 

 

8.93

 

 

395

 

Granted

 

 

512,178

 

 

 

5.94