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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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.
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Emerging growth company |
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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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 31, 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 |
24 |
Item 3. |
38 |
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Item 4. |
38 |
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PART II. |
39 |
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Item 1. |
39 |
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Item 1A. |
39 |
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Item 2. |
98 |
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Item 6. |
99 |
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100 |
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 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.
ii
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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September 30, |
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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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Current portion of restricted cash |
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— |
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Income taxes receivable |
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— |
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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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— |
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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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(Note 15) |
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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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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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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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$ |
( |
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$ |
( |
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General and administrative |
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( |
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( |
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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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( |
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( |
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Operating loss |
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( |
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( |
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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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( |
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( |
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Adjustments to fair value of derivatives |
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( |
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( |
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Cancellation of share options |
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( |
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— |
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( |
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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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( |
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( |
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(Loss) / income before income taxes |
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( |
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( |
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( |
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Income tax benefit / (expense) |
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( |
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( |
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( |
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Net (loss) / income and comprehensive (loss) / income |
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( |
) |
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( |
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( |
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Net (loss) / income attributable to ordinary shareholders |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Net (loss) / income per share attributable to ordinary shareholders – basic |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Net (loss) / income per share attributable to ordinary shareholders – diluted |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Weighted average ordinary shares outstanding – basic |
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Weighted average ordinary shares outstanding – 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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Nine Months Ended September 30, |
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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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Cancellation of share options expense |
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— |
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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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( |
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Accounts payable |
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( |
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Accrued expenses |
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( |
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Income taxes |
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( |
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( |
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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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( | ) |
Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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( |
) |
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( |
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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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Net cash (used in) / provided by 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 (decrease) / increase in cash, cash equivalents and restricted cash |
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( |
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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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Income tax paid - US |
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$ |
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$ |
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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.
The Company is subject to risks and uncertainties common to early-stage companies in the pharmaceutical industry, including, but not limited to, the ability to secure additional capital to fund operations, failure to achieve regulatory approval, failure to successfully develop and commercialize its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology and compliance with government regulations. Product candidates currently under development will require additional research and development efforts, including regulatory approval prior to commercialization.
Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries.
In accordance with Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of issue of these quarterly condensed consolidated financial statements.
Since inception, the Company has devoted substantially all of its efforts to research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance and sale of ordinary shares and convertible preferred shares, debt raised under financing arrangements with Silicon Valley Bank (SVB) including the Paycheck Protection Program loan (PPP loan), a sub-award from the Trustees of Boston University under the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) program and the proceeds of a private placement (Private Placement) and subsequent rights offering (Rights Offering) pursuant to which the Company's wholly owned subsidiary, Iterum Therapeutics Bermuda Limited (Iterum Bermuda) issued and sold $
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.
4
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
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 September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2022. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2022, and results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021 have been made. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.
2. Summary of Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncements as described below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the valuation of share-based compensation awards, the valuation of the RLNs and the Derivative liabilities, which consist of embedded features in the Exchangeable Notes, and the accrual for research and development expenses. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results could differ materially from those estimates. The Company has contemplated the impact of COVID-19 within its financial statements and is not aware of any specific event or circumstance that would require the Company to update estimates or judgments or revise the carrying value of any assets or liabilities.
Specifically, management has estimated variables in the discounted cash flow analysis (DCF) to value derivative instruments (see Note 3 - Fair Value of Financial Assets and Liabilities).
Cash and Cash Equivalents
The Company’s cash and cash equivalents consist of cash balances and highly liquid investments with maturities of three months or less at the date of purchase. Accounts held at U.S. financial institutions are insured by the Federal Deposit Insurance Corporation up to $
5
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
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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Nine Months Ended |
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September 30, 2022 |
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September 30, 2021 |
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September 30, 2022 |
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September 30, 2021 |
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Options to purchase ordinary shares |
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— |
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Unvested restricted share units |
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— |
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Unvested performance restricted share units |
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— |
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— |
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— |
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Warrants |
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— |
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Exchangeable Notes |
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— |
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Total |
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— |
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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.
The distribution of total operating expenses by geographical area was as follows:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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Operating expenses |
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2022 |
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2021 |
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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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$ |
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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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$ |
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$ |
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6
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
The distribution of long-lived assets by geographical area was as follows:
Long-lived assets |
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September 30, 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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|
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||
Total |
|
$ |
|
|
$ |
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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 and nine months ended September 30, 2022 and 2021, or to the Company’s net deferred tax assets as of September 30, 2022.
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2021. The new standard became effective for the Company on January 1, 2022 and did not have a material impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies an issuer’s accounting for modifications or exchanges of freestanding written call options that remain equity-classified after modification. The ASU 2021-04 is effective for all entities for interim and annual periods in fiscal years beginning 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 September 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.
September 30, 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 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Short-term investments |
|
$ |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
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.
7
ITERUM THERAPEUTICS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
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:
September 30, 2022 |
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Book |
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Approximate |
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