UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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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.
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As of April 30, 2022, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
2 |
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3 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
4 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
35 |
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Item 4. |
35 |
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PART II. |
35 |
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Item 1. |
35 |
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Item 1A. |
35 |
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Item 2. |
91 |
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Item 6. |
92 |
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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:
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)
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March 31, |
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December 31, |
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2022 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Intangible asset, net |
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Property and equipment, net |
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Restricted cash, less current portion |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Derivative liability |
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Current portion of long-term debt |
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— |
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Income taxes payable |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, less current portion |
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Royalty-linked notes |
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Other liabilities |
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Total liabilities |
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$ |
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$ |
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Shareholders’ equity: |
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Undesignated preferred shares, $ |
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Ordinary shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total shareholders' equity |
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$ |
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$ |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Operating expenses: |
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Research and development |
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$ |
( |
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$ |
( |
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General and administrative |
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( |
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( |
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Total operating expenses |
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( |
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( |
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Operating loss |
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( |
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( |
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Interest expense, net |
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( |
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( |
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Adjustments to fair value of derivatives |
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( |
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Other income, net |
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Total other income / (expense), net |
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( |
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Loss before income taxes |
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( |
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( |
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Income tax expense |
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( |
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( |
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Net loss and comprehensive loss |
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( |
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( |
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Net loss attributable to ordinary shareholders |
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$ |
( |
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$ |
( |
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Net loss per share attributable to ordinary shareholders – basic and diluted |
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$ |
( |
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$ |
( |
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Weighted average ordinary shares outstanding – basic and diluted |
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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)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to cash used in operating activities: |
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Depreciation |
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Amortization of intangible asset |
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— |
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Share-based compensation expense |
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Interest on short-term investments |
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( |
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( |
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Non-cash loss on short-term investments |
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Amortization of debt discount and deferred financing costs |
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Interest on exchangeable notes - non-cash |
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Adjustments to fair value of derivatives |
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( |
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Other |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Accounts payable |
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( |
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Accrued expenses |
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Income taxes |
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Other liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchases of short-term investments |
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( |
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( |
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Proceeds from sale of short-term investments |
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— |
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Net cash provided by / (used in) investing activities |
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( |
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Cash flows from financing activities: |
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Repayments of long-term debt |
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( |
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( |
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Proceeds from issuance of ordinary shares, net of transaction costs |
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— |
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Net cash (used in) / provided by financing activities |
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( |
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Effect of exchange rates on cash and cash equivalents |
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( |
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( |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, at beginning of period |
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Cash, cash equivalents and restricted cash, at end of period |
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$ |
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$ |
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Supplemental Disclosure of Cash Flow Information: |
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Interest paid |
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$ |
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$ |
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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.
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) 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 its wholly owned subsidiary, Iterum Therapeutics Bermuda Limited (Iterum Bermuda) issued and sold $
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.
The Company has funded its operations to date primarily with proceeds from the sale of preferred shares and ordinary shares, warrants, debt raised under financing arrangements with SVB including the PPP loan, payments received under the CARB-X program and the proceeds of the Private Placement and Rights Offering. The Company has incurred operating losses since inception, including net losses of $
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.
COVID-19 Global Pandemic
The global impact of the COVID-19 pandemic has caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. The pandemic may impact the ability of the Company’s strategic partners to operate and fulfill their contractual obligations, and result in an increase in their costs and cause delays in performance. The Company may experience an impact to the timelines of any potential additional clinical and non-clinical development for sulopenem due to the worldwide spread of COVID-19. These effects, and the direct effect of the virus and any potential disruption on the Company’s operations, may negatively impact the Company’s ability to meet its strategic targets. The Company’s employees, in most cases, are working remotely due to safety concerns and using various technologies to perform their
4
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
functions. Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit the Company’s ability to access capital. Both the health and economic aspects of COVID-19 are highly fluid and the future course of each is uncertain. For these reasons and other reasons that may come to light if the coronavirus pandemic and associated protective or preventative measures expand, the Company may experience a material adverse effect on its business operations and financial condition; however, its ultimate impact is highly uncertain and subject to change.
The Company cannot foresee if and when the COVID-19 pandemic will be effectively contained, nor can the Company predict the severity and duration of its impact. COVID-19 has not yet had a significant impact on the Company’s day to day operations but there can be no assurance that the continued spread of COVID-19 and the responsive measures taken to date will not impact patient enrollment in the additional clinical trial to be conducted in response to the Complete Response Letter (CRL) from the FDA to support a potential resubmission of our New Drug Application (NDA) for oral sulopenem for the treatment of uncomplicated urinary tract infections (uUTIs). Additionally, the COVID-19 pandemic could impact the FDA’s regulatory review process, including delays in meetings related to planned or completed clinical trials and ultimately the review and approval of our product candidates. The FDA’s review of any resubmitted NDA for oral sulopenem for the treatment of uUTI may be delayed due to COVID-19, including an inability to schedule, or delays in scheduling, meetings and inspections. Additionally, the COVID-19 pandemic may negatively impact the Company’s ability to initiate or complete future clinical trials, disrupt the Company’s regulatory and commercialization activities, and result in other adverse effects on the Company’s business and operations.
Management is actively monitoring the global situation and its possible effects on its financial condition, liquidity, suppliers, industry, and operations including manufacturing, clinical trials and workforce. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not able to estimate the adverse effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity.
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 March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared by the Company pursuant to the rules and regulations of the 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 March 31, 2022, and results of operations for the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021 have been made. The results of operations for the three months ended March 31, 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.
5
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
Specifically, management has estimated variables used to calculate 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 $
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 $
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.
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Three months ended |
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March 31, 2022 |
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March 31, 2021 |
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Options to purchase ordinary shares |
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Unvested restricted share units |
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Unvested performance restricted share units |
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— |
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Warrants |
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Exchangeable Notes |
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Total |
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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.
6
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
The distribution of total operating expenses by geographical area was as follows:
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Three Months Ended March 31, |
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Operating expenses |
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2022 |
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2021 |
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Ireland |
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$ |
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$ |
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U.S. |
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Bermuda |
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Total |
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$ |
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$ |
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The distribution of long-lived assets by geographical area was as follows:
Long-lived assets |
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March 31, 2022 |
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December 31, 2021 |
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Ireland |
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$ |
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$ |
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U.S. |
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Total |
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$ |
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$ |
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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 months ended March 31, 2022 and 2021, or to the Company’s net deferred tax assets as of March 31, 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 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 March 31, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.
7
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
March 31, 2022 |
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Assets |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Short-term investments |
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$ |
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— |
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— |
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December 31, 2021 |
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Assets |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Short-term investments |
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$ |
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— |
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— |
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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:
March 31, 2022 |
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Book |
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Approximate |
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Liabilities |
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Value |
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Fair Value |
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Level 1 |
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Level 2 |
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Level 3 |
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Exchangeable Notes |
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Long-term exchangeable note |
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— |
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— |
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Derivative liability - exchange option and change of control |
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— |
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— |
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Revenue Futures |
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Royalty-linked notes |
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— |
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— |
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Total |
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$ |
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$ |
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— |
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December 31, 2021 |
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Book |
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Approximate |
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Liabilities |
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Value |
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Fair Value |
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Level 1 |
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Level 2 |
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Level 3 |
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Debt |
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Current portion of long-term debt |
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$ |
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$ |
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— |
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— |
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Exchangeable Notes |
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Long-term exchangeable note |
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— |
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— |
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Derivative liability - exchange option and change of control |
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— |
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— |
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Revenue Futures |
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Royalty-linked notes |
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— |
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— |
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Total |
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$ |
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$ |
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— |
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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 Exchangeable Notes was determined using DCF analysis using the fixed interest rate outlined in the indenture governing the Exchangeable Notes (Exchangeable Notes Indenture), without consideration of transaction costs, which represents a Level 2 basis of fair value measurement.
The Level 3 liabilities held as of March 31, 2022 consist of the embedded exchange option and change of control premium contained in the Exchangeable Notes (see Note 10 - Debt) and a separate financial instrument, that was issued as part of the Units, the RLNs (see Note 11 – Royalty-Linked Notes). The exchange option and change of control premium met the criteria requiring these to be bifurcated and accounted for separately from the host debt in accordance with ASC 815-15, Derivatives and Hedging; Embedded Derivatives. The exchange option and change of control premium are presented as a Derivative liability upon issuance of the Exchangeable Notes under the Private Placement and Rights Offering and are subsequently remeasured to fair value at the end of each reporting period. At any time on or after January 21, 2021, subject to specified limitations, the Exchangeable Notes are exchangeable for the Company’s ordinary shares, cash or a combination of ordinary shares and cash, at an exchange rate of
8
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
Exchangeable Notes outstanding as of March 31, 2022 was $
In the event of a fundamental change that is not a liquidation event (Fundamental Change), under the Exchangeable Notes Indenture, the Company will be required to pay each holder of an Exchangeable Note the greater of three times the outstanding principal amount of such Exchangeable Note and the consideration that would be received by the holder of such Exchangeable Note, in connection with such Fundamental Change, if the holder had exchanged its note for ordinary shares immediately prior to the consummation of such Fundamental Change, plus any accrued and unpaid interest. The Derivative liability, representing the change of control feature, was recorded at a fair value of $
The fair value of each component of the Derivative liability was determined using the binomial option pricing model, and in the case of the change of control component, in combination with a DCF analysis, without consideration of transaction costs, which represents a Level 3 basis of fair value measurement. The key inputs to valuing the Derivative liability as of March 31, 2022 include the terms of the Exchangeable Notes Indenture, the Company’s share price and market capitalization, the expected annual volatility of the Company’s ordinary shares, management’s assumption regarding the probability of a Fundamental Change pursuant to the terms of the Exchangeable Notes Indenture, and the risk-free interest rate. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.
The following table presents the changes in fair value of the Company's Derivative liability for the three months ended March 31, 2022:
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March 31, 2022 |
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Balance at December 31, 2021 |
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$ |
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Conversion of Exchangeable Notes |
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— |
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Adjustment to fair value |
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( |
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Balance at period end |
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$ |
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The following summary table shows the assumptions used in the binomial option pricing model to estimate the fair value of the Derivative liabilities:
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March 31, 2022 |
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December 31, 2021 |
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Share price |
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$ |
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$ |
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Market capitalization |
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$ |
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$ |
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Volatility |
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% |
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% |
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Risk-free interest rate |
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% |
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% |
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Dividend rate |
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% |
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% |
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The additional significant assumption used in the DCF model, to estimate the fair value of the change of control feature at March 31, 2022, was management’s assumption regarding the probability of a Fundamental Change pursuant to the terms of the Exchangeable Notes Indenture.
The RLN liability is carried at fair value on the condensed consolidated balance sheet as of March 31, 2022 (see Note 11 – Royalty-Linked Notes). The total fair value of $
There have been
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 and as at period-end consist of corporate entity commercial paper and U.S. Treasury and Agency Bonds with maturities of more than three months at the date of purchase. Short-term investments as of March 31, 2022 have a weighted average maturity of
9
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
The following table represents the Company’s available for sale short-term investments by major security type as of March 31, 2022 and December 31, 2021:
March 31, 2022 |
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Maturity by period |
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Cost |
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Unrealized |
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Unrealized |
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Fair Value |
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Less than 1 |
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1 to 5 |
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Available for sale |
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Total |
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gains |
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(losses) |
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Total |
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year |
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years |
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Commercial paper |
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$ |
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( |
) |
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